EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
AMONG
GENESIS DIRECT FORTY-THREE, LLC
AND
XXXXX XXXXXX GIFTS, INC.
AND
XXX TARGET MEDIA, INC.
AUGUST 5, 1998
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS..................................................... 1
SECTION 2. BASIC TRANSACTION............................................... 1
(a) Purchase and Sale of Assets..................................... 1
(b) Assumption of Liabilities....................................... 1
(c) Purchase Price.................................................. 1
(d) The Closing..................................................... 2
(e) Deliveries at the Closing....................................... 2
(f) Post-Closing Adjustment and Payment............................. 3
(g) Intentionally Omitted........................................... 4
(h) Release of Certain Escrow Shares............................... 4
(i) Allocation of Purchase Price.................................... 5
(j) Fractional Shares............................................... 5
(k) Access to Records............................................... 5
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT............. 5
(a) Organization and Corporate Power of Seller and Parent........... 5
(b) Authorization of Transaction.................................... 6
(c) Noncontravention................................................ 6
(d) Brokers' Fees................................................... 7
(e) Title to Assets................................................. 7
(f) Financial Statements............................................ 7
(g) Events Subsequent to December 26, 1997.......................... 8
(h) Stock Ownership................................................. 10
(i) Undisclosed Liabilities......................................... 10
(j) Legal Compliance................................................ 10
(k) Tax Matters..................................................... 10
(l) Real Property................................................... 11
(m) Intellectual Property........................................... 11
(n) Tangible Assets................................................. 15
(o) Inventory....................................................... 15
(p) Contracts....................................................... 15
(q) Predominant Customers........................................... 16
(r) Change in Customers or Vendors.................................. 16
(s) Notes and Accounts Receivable................................... 16
(t) Insurance....................................................... 16
(u) Product Liability............................................... 17
(v) Product Warranty................................................ 17
(w) Litigation...................................................... 17
(x) Employees....................................................... 17
(y) Employee Benefits............................................... 18
(z) Environment, Health and Safety.................................. 18
(aa) Certain Business Relationships With Seller...................... 18
(bb) Disclosure...................................................... 18
(cc) Processing of Returns........................................... 19
(dd) Investment...................................................... 19
(ee) Guaranties...................................................... 19
(ff) Cure............................................................ 19
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER......................... 19
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(a) Organization of Buyer........................................... 20
(B) Authorization of Transaction.................................... 20
(C) Noncontravention................................................ 20
(D) Brokers' Fees................................................... 21
(E) Litigation...................................................... 21
(F) Disclosure...................................................... 21
(G) Cure............................................................ 21
SECTION 5. COVENANTS....................................................... 21
(A) Further Assurances.............................................. 21
(b) Confidentiality................................................. 22
(C) Closing Date Financial Statements............................... 22
(D) Indemnification Provisions for the Benefit of Buyer............. 23
(E) Indemnification Provisions for the Benefit of Seller and Parent. 24
(F) Indemnification Matters Involving Third Parties................. 25
(G) Set-Off and Recoupment.......................................... 27
(H) Other Indemnification Provisions................................ 27
(I) Fraud........................................................... 27
(J) Records......................................................... 27
(K) Third Party Consents............................................ 28
(L) Non-Compete..................................................... 28
(M) Risk of Loss; Condemnation...................................... 29
(N) Tax Return Filing and Payment................................... 30
(O) General......................................................... 31
(P) Operation of Business........................................... 31
(Q) Preservation of Business........................................ 31
(R) Full Access..................................................... 31
(S) No Solicitation................................................. 31
(T) Material Adverse Change......................................... 31
(U) Transfer Taxes.................................................. 32
(V) Satisfaction of Excluded Liabilities............................ 32
(W) Employee Benefit Matters........................................ 32
(X) Use of Trademark "Xxxxx Xxxxxx"................................. 33
(Y) Letters of Credit............................................... 34
(Z) Payment of Certain Assumed Liabilities.......................... 34
SECTION 6. CONDITIONS TO OBLIGATION TO CLOSE............................... 34
(A) Conditions to Obligation of Buyer............................... 34
(B) Conditions to Obligation of Seller.............................. 37
SECTION 7. CLOSING DOCUMENTS............................................... 38
(A) Seller and Parent Deliveries.................................... 38
(B) Buyer Deliveries................................................ 39
SECTION 8. TERMINATION..................................................... 41
(A) Method of Termination........................................... 41
(B) Rights Upon Termination......................................... 41
SECTION 9. ARBITRATION OF DISPUTES......................................... 42
(A) Mandatory Arbitration........................................... 42
(B) Arbitrator's Qualifications and Selection....................... 42
(C) Governing Law; Written Decision................................. 42
(D) Procedures; Evidence; Experts................................... 42
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(E) Costs........................................................... 43
(F) Consent to Jurisdiction......................................... 43
(G) Injunctive Relief............................................... 43
(H) Indemnification................................................. 43
(I) Survival........................................................ 43
(J) WAIVER OF JURY TRIAL; EXEMPLARY DAMAGES......................... 44
(K) Interest........................................................ 44
SECTION 10. OTHER AGREEMENTS................................................ 44
(A) Lockup of the Shares............................................ 44
(B) Press Releases and Public Announcements......................... 44
(C) HSR and Other Filings........................................... 44
(D) No Third-Party Beneficiaries.................................... 45
(E) Entire Agreement................................................ 45
(F) Succession and Assignment....................................... 45
(G) Counterparts.................................................... 45
(H) Headings........................................................ 45
(I) Notices......................................................... 45
(J) Governing Law................................................... 47
(K) Amendments and Waivers.......................................... 47
(L) Severability.................................................... 47
(M) Expenses........................................................ 47
(N) Construction.................................................... 47
(O) Incorporation of Appendices, Exhibits and Schedules............. 48
(P) Taxable Asset Purchase.......................................... 48
(Q) Further Actions................................................. 48
(R) Time of the Essence............................................. 48
(S) Bulk Sales...................................................... 48
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Exhibits Under the Asset Purchase Agreement
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Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Escrow Agreement
Exhibit C Form of Xxxx of Sale, Assignment and Assumption Agreement
Exhibit D Form of Assignment Documents
Exhibit E Allocation of Purchase Price for Tax Purposes
Exhibit F Intentionally Omitted
Exhibit G Form of Letter from Seller's Auditors
Exhibit H Form of License Agreement
Exhibit I Form of Service Agreement by and between GDI and Parent
Exhibit J Form of Opinion from Counsel to Seller and the Parent
Exhibit K Form of Lease
Exhibit L Form of Opinion of Counsel to Buyer and GDI
Exhibit M Form of Sublease
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Schedules Under the Asset Purchase Agreement
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Schedule 1.1(a) Tangible Personal Property
Schedule 1.1(b) Intellectual Property Included in Acquired Assets
Schedule 1.1(c) Assumed Contracts
Schedule 1.1(d) Receivables Included in Acquired Assets
Schedule 1.1(f) Governmental Permits, Rights, Etc. Included in Acquired
Assets
Schedule 1.1(i) Prepaid Expenses Included in Acquired Assets
Schedule 1.2 Excluded Assets
Schedule 1.3 Assumed Liabilities and Obligations
Schedule 3(a) D.B.A., Assumed and Fictitious Names
Schedule 3(c) Third Party Consents
Schedule 3(d) Brokers' Fees
Schedule 3(e) Title to Assets
Schedule 3(g) Subsequent Events
Schedule 3(k) Tax Matters
Schedule 3(l)(i) Owned Real Property
Schedule 3(l)(ii) Real Property Leased or Subleased to Seller
Schedule 3(m)(i) Intellectual Property Infringement
Schedule 3(m)(ii) Certain Intellectual Property of Seller
Schedule 3(m)(iii) Grant of Rights to Intellectual Property of Seller
Schedule 3(m)(iv) Certain Intellectual Property Used by Seller
Schedule 3(o) Inventory
Schedule 3(p) Contracts
Schedule 3(s) Collectibility of Receivables
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Schedule 3(t) Self-Insurance Arrangements
Schedule 3(v) Standard Terms of Sale or Lease
Schedule 3(w) Litigation
Schedule 3(x) Employees
Schedule 3(y) Employee Benefits
Schedule 3(z) Environment, Health and Safety
Schedule 3(aa) Certain Business Relationships
Schedule 4(c) Buyer's Consents
Schedule 5(n) Tax Returns
Schedule 7(a)(x) UCC Financing Statements in Effect
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into as of
August 5, 1998, among GENESIS DIRECT FORTY-THREE, LLC, a Delaware limited
liability company ("Buyer"), XXXXX XXXXXX GIFTS, INC., a Delaware corporation
("Seller"), and XXX TARGET MEDIA, INC., a Delaware corporation ("Parent").
Buyer, Seller and Parent are referred to collectively herein as the "Parties."
This Agreement contemplates a transaction in which Buyer will, on the terms
and conditions set forth herein, purchase substantially all of the assets and
assume certain of the liabilities of Seller for the consideration specified
herein.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made and in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
SECTION 1. DEFINITIONS.
-----------
Capitalized terms used herein and not otherwise defined herein are defined
in Appendix I to this Agreement.
SECTION 2. Basic Transaction.
-----------------
(a) Purchase and Sale of Assets.
----------------------------
Upon the Closing (as defined below) pursuant to this Agreement and subject
to the terms hereof, Buyer will purchase from Seller and Parent and Seller and
Parent will sell, transfer, convey and deliver to Buyer, all of their respective
right, title and interest in and to the Acquired Assets.
(b) Assumption of Liabilities.
--------------------------
Upon the Closing pursuant to this Agreement and subject to the terms hereof
and in consideration of the purchase by Buyer of the Acquired Assets, Buyer
shall assume and become responsible for the Assumed Liabilities. Buyer will not
assume or have any responsibility, however, with respect to any obligation or
liability of Seller not included within the definition of Assumed Liabilities.
(c) Purchase Price.
---------------
In consideration of the purchase by Buyer of the Acquired Assets and the
assumption of the Assumed Liabilities, Buyer agrees to pay to Seller an
aggregate purchase price (subject to adjustment as provided below) (the
"Purchase Price") consisting of:
(i) Stock. 2,700,000 shares of the common stock, $.01 par value per
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share, (the "Common Stock") of Genesis Direct, Inc. ("GDI"),
provided that such
number of shares shall be adjusted as set
forth in clause (ii) below (as so adjusted, the "Shares"). The
Parties hereby agree to enter into and Buyer shall cause GDI to
enter into (i) a registration rights agreement attached as
Exhibit A hereto (the "Registration Rights Agreement"), and (ii)
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an escrow agreement attached as Exhibit B hereto (the "Escrow
---------
Agreement"). Pursuant to the Escrow Agreement, at the Closing,
25% of the Shares shall be placed in escrow (the "Escrow Shares")
to secure indemnification obligations of Parent and Seller set
forth in Section 5(d) and, if necessary, the Purchase Price
reduction defined and set forth in Section 2(f)(iii).
(ii) Adjustments to Number of Shares.
-------------------------------
(A) If the Closing Stock Price is less than $6.10, then either
(x) the number of Shares shall be that number of shares
equal to the quotient of $18,900,000 and the Closing Stock
Price, or (y) Buyer may terminate this Agreement pursuant to
Section 8 hereof; or
(B) If the Closing Stock Price is equal to or greater than $6.10
but less than $7.00, then the number of Shares shall be that
number of shares equal to the quotient of $18,900,000 and
the Closing Stock Price; or
(C) If the Closing Stock Price is greater than $9.00, then the
number of Shares shall be that number of shares equal to the
quotient of $24,300,000 and the Closing Stock Price.
(iii) Payments in Respect of Non-Compete and Confidentiality
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Agreements. Cash consideration in an aggregate amount of One
Hundred Thousand Dollars ($100,000), payable to Seller and
Parent, in the amount of Fifty Thousand Dollars ($50,000) each
at the Closing (as defined below).
(d) The Closing.
------------
The closing of the transactions contemplated hereby (the "Closing") shall
take place at the offices of Xxxxxxxx & Xxxxxxxx LLP, 1290 Avenue of the
Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 10:00 a.m. on such date and
time as the Parties shall agree, following (or simultaneously with) the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (the date of the Closing is
referred to as the "Closing Date").
(e) Deliveries at the Closing.
--------------------------
At the Closing, the following documents shall be executed and delivered and
the following actions shall occur: (i) Seller shall deliver to Buyer the various
certificates, instruments and documents referred to in Section 7(a) below; (ii)
Buyer shall deliver to Seller the various certificates, instruments and
documents referred to in Section 7(b) below; (iii) Seller shall
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execute, acknowledge (if appropriate) and deliver to Buyer (A) a xxxx of sale,
assignment and assumption agreement for the Acquired Assets and the Assumed
Liabilities in the form of Exhibit C hereto (the "Xxxx of Sale"), (B) assignment
---------
documents with respect to certain of the Acquired Assets (including Intellectual
Property transfer documents) in the forms attached hereto as Exhibit D hereto
---------
(the "Assignment Documents") and (C) such other instruments of sale, transfer,
conveyance and assignment as Buyer and its counsel have reasonably requested for
the sale, transfer, conveyance and assignment of the Acquired Assets free and
clear of all Security Interests, other than as specifically agreed upon herein,
and (iv) Buyer shall execute, acknowledge (if appropriate) and deliver to Seller
(A) the Xxxx of Sale and (B) such other instruments of assumption as Seller and
its counsel have reasonably requested for the assumption of the Assumed
Liabilities .
(f) Post-Closing Adjustment and Payment
-----------------------------------
(i) Preparation of Closing Date Net Tangible Assets Statement.
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Seller shall prepare and deliver to the Parties a statement (the
"Closing Date Net Tangible Assets Statement") of the Net Tangible
Assets of Seller as of the Closing Date (the "Closing Date Net
Tangible Assets") derived from the balance sheet of Seller as of
the Closing Date (the "Closing Date Balance Sheet"), which
balance sheet shall be audited by Deloitte & Touche LLP
("Seller's Accountant"), in accordance with GAAP consistently
applied. The Closing Date Net Tangible Assets Statement shall be
prepared by Seller in good faith and at Seller's expense, and
shall set forth in reasonable detail its calculation of Closing
Date Net Tangible Assets. Seller shall use its best efforts to
deliver the Closing Date Net Tangible Assets Statement to Buyer
within 60 days after the Closing Date, but in any event shall
deliver the Closing Date Net Tangible Assets Statement no later
than 90 days after the Closing Date.
(ii) Adjustments to Closing Date Net Tangible Assets Statement. If
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Buyer has any objections to the Closing Date Net Tangible Assets
Statement, Buyer shall deliver to Seller, within 30 days after
receiving the Closing Date Net Tangible Assets Statement, a
detailed statement (the "NTA Objections Statement") describing
its specific objections. Thereafter, Seller and Buyer shall seek
to resolve Buyer's objections by mutual agreement in order to
determine the Closing Date Net Tangible Assets. If Seller and
Buyer are unable to resolve such objections within 15 days after
delivery of the NTA Objections Statement, they shall promptly
jointly appoint a third-party "Big Five" independent certified
public accountant (the "Third-Party Firm") for the purpose of
resolving Buyer's objections in order to determine the Closing
Date Net Tangible Assets. The written determination (the "Post-
Closing Determination") by agreement of Seller and Buyer or by
the Third-Party Firm, as applicable, of the Closing Date Net
Tangible Assets pursuant to the Closing Date Net Tangible Assets
Statement, after considering all written objections thereto in
accordance
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with the foregoing procedure, shall be conclusive and binding
upon the Parties. Any fees and expenses payable to the Third-
Party Firm for services pursuant to this Section 2(f)(ii) shall
be borne solely by Buyer unless the Post-Closing Determination by
the Third-Party Firm results in an amount of Closing Date Net
Tangible Assets that is at least 15% lower than the amount of
Closing Date Net Tangible Assets set forth in the Closing Date
Net Tangible Assets Statement originally delivered by Seller
pursuant to Section 2(f)(i), in which case Seller shall bear all
fees and expenses payable to the Third-Party Firm.
(iii) Purchase Price Reduction. If the Closing Date Net Tangible
------------------------
Assets are less than $7,400,000, Seller shall pay, no later than
ten (10) Business Days after delivery of the Post-Closing
Determination pursuant to Section 2(f)(ii) above, to Buyer the
amount equal to one dollar for each one dollar that such Closing
Date Net Tangible Assets are less than $7,400,000 (the "NTA
Shortfall"). Any such payment shall be made as follows: Buyer
and Seller shall jointly instruct the Escrow Agent pursuant to
the Escrow Agreement to deliver to Buyer that number of Escrow
Shares of Common Stock equal to the quotient of the NTA Shortfall
and the Signing Stock Price. Such payment obligation shall not
be considered an indemnification claim and accordingly will be
paid in full even if it is less than the Basket Amount (as
defined in Section 5(d) below).
(iv) Purchase Price Increase. If the Closing Date Net Tangible Assets
-----------------------
are more than $7,900,000, Buyer shall pay, no later than ten (10)
Business Days after delivery of the Post-Closing Determination
pursuant to Section 2(f)(ii) above, to Seller the amount equal to
one dollar for each one dollar that such Closing Date Net
Tangible Assets are greater than $7,900,000 (the "NTA Excess");
provided, however, that no adjustment shall be made for any NTA
-------- -------
Excess greater than $1,900,000. Any such payment shall be made
by delivery of that number of shares of Common Stock equal to the
quotient of the NTA Excess and the Signing Stock Price.
(g) Intentionally Omitted.
-----------------------
(h) Release of Certain Escrow Shares.
---------------------------------
Following the completion of the Purchase Price adjustment, if any, pursuant
to Section 2(f) hereof, Buyer and Seller shall give joint instructions to the
Escrow Agent pursuant to the Escrow Agreement to deliver to Seller a number of
Escrow Shares such that the number of Escrow Shares remaining in escrow shall be
equal to the greater of (x) the quotient of the amount of all outstanding
indemnification claims and the Signing Stock Price and (y) the quotient of
$2,500,000 and the Signing Stock Price. At any time following the completion of
the Purchase Price adjustment pursuant to Section 2(f) hereof, Seller may, at
its election, substitute for the
4
Escrow Shares cash in an amount equal to the number of Escrow Shares held in
escrow multiplied by the closing price of the Common Stock, as published in the
Wall Street Journal on the date immediately prior to the date of such election.
(i) Allocation of Purchase Price.
-----------------------------
The consideration paid by Buyer to Seller pursuant to this Agreement shall
be allocated among the Acquired Assets, including any intangible assets, as
Seller and Buyer have mutually agreed on or prior to the date hereof. The
allocation of the Purchase Price was bargained and negotiated for and each party
agrees to report the transactions contemplated hereby for Federal income Tax and
all other Tax purposes (including, without limitation, for purposes of Section
1060 of the Code) in a manner consistent with the allocation set forth on
Exhibit E determined pursuant to this Section 2(i) and in accordance with all
---------
applicable rules and regulations and to take no position inconsistent with such
allocation in any administrative or judicial examination or other proceeding.
Each of Buyer and Seller shall timely file the appropriate forms in accordance
with the requirements of Section 1060 of the Code and this Section 2(i).
(j) Fractional Shares.
------------------
No fractional shares and no scrip or certificate therefor will be issued or
transferred in connection with the deliveries contemplated by this Agreement,
and any fractional share shall be rounded to the nearest whole share.
(k) Access to Records.
------------------
After Closing, Buyer shall provide Seller and Seller's Accountant with
reasonable access to all records of Buyer or GDI pertaining to the Acquired
Business that are necessary for Seller to prepare and Seller's Accountant to
audit all of the financial statements to be prepared by Seller or audited by
Seller's Accountant pursuant to the terms of this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT.
---------------------------------------------------
Each of Seller and Parent jointly and severally represents and warrants to
Buyer that each of the statements set forth below is true and correct in all
respects. Such representations, warranties, covenants and agreements constitute
a material inducement to Buyer to enter into this Agreement, to enter into the
other Transaction Documents, to purchase the Acquired Assets, to assume the
Assumed Liabilities and to consummate the other transactions contemplated hereby
and thereby.
(a) Organization and Corporate Power of Seller and Parent.
------------------------------------------------------
Each of Seller and Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and Seller has all
requisite corporate power and authority to own, lease and operate the Acquired
Assets and to carry on the Business. Seller neither owns or leases any real
property nor has any employees, sales representatives, agents or
5
inventory in any state of the United States other than the States of Nebraska
and Connecticut (except pre-paid inventory in transit) and there are no other
jurisdictions in which the nature of the business of Seller or the locations of
the Acquired Assets requires Seller to obtain qualification or licensing to do
business as a foreign corporation, except where the failure to so qualify or
become licensed would not have a Material Adverse Effect. Except as disclosed on
Schedule 3(a), Seller has no Subsidiaries and does not, directly or indirectly,
-------------
conduct any of the Business through, or have any investment or other interest
in, any Person. Schedule 3(a) identifies each d.b.a., assumed or fictitious name
------------
in all jurisdictions where such d.b.a., assumed or fictitious names are
registered with the Secretaries of State or where Seller does business using
such d.b.a., assumed or fictitious name.
(b) Authorization of Transaction.
-----------------------------
Each of Seller and Parent has full corporate power and authority to execute
and deliver this Agreement and the other Transaction Documents to which it is a
party and to perform its obligations hereunder and thereunder. Without limiting
the generality of the foregoing, the Board of Directors and the requisite
stockholders of Seller and Parent have duly authorized the execution, delivery
and performance of this Agreement by Seller and Parent in accordance with
applicable law including the General Corporation Law of the State of Delaware
and the provisions of the Certificate of Incorporation and Bylaws of each of
Seller and Parent. This Agreement and the other Transaction Documents to which
it is a party constitute the valid and legally binding obligations of Seller and
Parent, enforceable in accordance with their respective terms and conditions,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and to
general principles of equity (regardless of whether such enforcement is sought
in a proceeding in equity or at law).
(c) Noncontravention.
-----------------
Subject to obtaining the Required Consents listed on Schedule 3(c) and
-------------
compliance with the HSR Act, neither the execution and the delivery of this
Agreement, the other Transaction Documents or the other documents contemplated
hereby and thereby, nor the consummation of the transactions contemplated hereby
and thereby will (i) violate any Law or Order of any Governmental Body or court
to which Seller, Parent or any of the Acquired Assets or Assumed Liabilities are
subject or any provision of the Certificate of Incorporation and Bylaws of
either Seller or Parent or (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under, any
Contract to which either Seller or Parent is a party or by which it is bound or
to which any of its assets are subject (or result in the imposition of any
Security Interest upon any of their assets), except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice or other specified occurrence would not
have a Material Adverse Effect. Except as set forth in Schedule 3(c), neither
-------------
Seller nor Parent needs to give any notice to, make any filing with, or obtain
any authorization, consent or approval of any Governmental Body or other Person
in order for the Parties to consummate the transactions contemplated by this
Agreement (including the execution, delivery and performance
6
of the assignments and assumptions referred to in Section 2 of this Agreement),
except where the failure to give notice, to file, or to obtain any
authorization, consent or approval would not have a Material Adverse Effect. The
consents, approvals and filings described on Schedule 3(c) and identified with
------------
an asterisk shall be deemed "Required Consents" for purposes of this Agreement.
(d) Brokers' Fees.
--------------
Except as set forth on Schedule 3(d), neither Seller nor Parent has any
-------------
Liability or obligation to pay any fees or commissions or other compensation to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement for which Buyer could become liable or obligated.
(e) Title to Assets.
----------------
Except as set forth in Schedule 3(e), Seller or Parent has good and valid
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title to, or a valid leasehold interest in or the right to use, as the case may
be, all of the Acquired Assets, free and clear of all Security Interests.
Without limiting the generality of the foregoing, except as set forth in
Schedule 3(e), Seller or Parent has good and valid title to, or the right to
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use, the Catalog Names and associated logos, if any, free and clear of any
Security Interest or restriction on transfer. On the Closing Date, Buyer will
receive good and valid title to, or a valid leasehold interest in or the right
to use, as the case may be, the Acquired Assets, free and clear of any Security
Interest or restriction on transfer (except for Security Interests and
restrictions on transfer imposed as a result of actions or agreements of Buyer).
Upon Closing, the Acquired Assets, together with the license provided by
Seller's Affiliate to Buyer pursuant to the License Agreement and the services
to be provided by Parent to Buyer in accordance with the Service Agreement,
shall be all the assets and services necessary to permit Buyer to conduct the
Business as presently conducted by Seller. Upon Closing, none of the Excluded
Assets, taking into consideration the License Agreement and the Service
Agreement, shall be necessary to permit Buyer to conduct the Business as it is
presently conducted by Seller.
(f) Financial Statements.
---------------------
(i) At or prior to Closing, Seller shall have delivered to Buyer true
and complete copies of the following financial statements
(collectively the "Historical Financial Statements") of Seller:
the audited balance sheet as at December 26, 1997, and the
related statements of income, retained earnings and cash flows
for the fiscal year then ended, audited by Seller's Accountant.
For purposes of this Agreement, December 26, 1997 is referred to
herein as the "Most Recent Fiscal Year End," and the balance
sheet referred to in the previous sentence as of December 26,
1997 is referred to herein as the "Most Recent Balance Sheet").
The Historical Financial Statements (including the notes thereto)
will have been prepared from the books and records of the Seller
in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby and the Historical Financial
Statements will present fairly, in all material respects,
7
the financial condition of Seller as of such dates and the
results of operations of Seller for such periods.
(ii) Seller has delivered to Buyer true and complete copies of the
unaudited balance sheet of Seller as at June 26, 1998 (the "June
1998 Balance Sheet"), and the related unaudited statements of
income, retained earnings and cash flows of Seller for the six-
month period then ended (collectively, the "June 1998 Financial
Statements"). The June 1998 Financial Statements have been
prepared by Seller from the books and records of Seller in
accordance with GAAP consistent with Seller's past practice in
the preparation of its interim financial statements, and the June
1998 Financial Statements present fairly, in all material
respects, the financial condition of Seller as of the date, and
the results of operations of Seller for the six-month period then
ended, subject to normal recurring year-end adjustments and the
lack of footnotes and other presentation items. The Closing Date
Balance Sheet will contain an adequate reserve, in accordance
with GAAP, for any awards payable pursuant to any sweepstakes
currently being conducted by Seller.
(g) Events Subsequent to December 26, 1997.
---------------------------------------
Except as set forth on Schedule 3(g), since December 26, 1997, there has
-------------
not been any Material Adverse Effect and none of the officers or directors of
either Seller or Parent has knowledge of any such event, circumstance or change
which is threatened. Without limiting the generality of the foregoing, since
that date and except as set forth on Schedule 3(g):
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(i) Seller has not sold, leased, transferred or assigned any
material assets (individually or in the aggregate), tangible or
intangible;
(ii) No Person, including Seller, has accelerated, terminated, made
material modifications to, or canceled any material Contract to
which Seller is a party or by which it is bound;
(iii) No Person, including Seller, has imposed any Security Interest
upon any of Seller's assets, tangible or intangible;
(iv) Seller has not made any material capital expenditures;
(v) Seller has not made any material investment in, or any material
loan to, any other Person;
(vi) Seller has not created, incurred, assumed or guaranteed more
than $10,000 individually or $25,000 in the aggregate in
indebtedness for borrowed money and capitalized lease
obligations;
8
(vii) Seller has not granted any license or sublicense of any
material rights (individually or in the aggregate) under or
with respect to any Intellectual Property;
(viii) There has been no change made or authorized in the Certificate
of Incorporation or in the Bylaws or other organizational
documents of Seller;
(ix) Seller has not, directly or indirectly, distributed to either
Parent or any of its Affiliates or with respect to its capital
stock, any of the Acquired Assets other than the amount of
cash, if any, not included in the Acquired Assets;
(x) Seller has not experienced any material damage, destruction or
loss (whether or not covered by insurance) to any of its
properties or assets;
(xi) Seller has not made any loan to, or entered into any other
transaction (other than a transaction described in clause (xii)
below) that could be Buyer's obligation after the Closing with,
any of its stockholders, directors, officers or employees;
(xii) Except for oral agreements entered into in the Ordinary Course
of Business providing solely for employment at will, Seller has
not entered into any employment Contract or collective
bargaining agreement, written or oral, or modified the terms of
any existing such Contract or agreement;
(xiii) Seller has not granted any increase in the base compensation
of any of its officers or non-officer employees, in each case
other than in the Ordinary Course of Business;
(xiv) Except as contemplated by the provisions of this Agreement,
Seller has not adopted or terminated or, in any material
respect, amended or modified, any bonus, profit-sharing,
incentive, severance or other plan, Contract or commitment for
the benefit of any of its directors, officers or employees (or
taken any such action with respect to any other employee
benefit plan, Contract or arrangement);
(xv) Seller has not made any other material change in employment
terms for any of its officers or employees other than in the
Ordinary Course of Business;
(xvi) Seller has kept in full force and effect insurance comparable
in amount and scope to coverage maintained by it as of the Most
Recent Fiscal Year End and required pursuant to any material
agreement, instrument or document to which it is a party;
9
(xvii) Seller has not made any material change in any method of
accounting, or accounting principle, method or practice;
(xviii) Seller has not settled, released or forgiven any material
claim or litigation or waived any material right;
(xix) Seller has not committed to do any of the foregoing; and
(xx) Seller has conducted the Business in the Ordinary Course of
Business and has used its commercially reasonable efforts to
preserve its goodwill intact.
(h) Stock Ownership.
----------------
Parent is the beneficial and record owner of 100 shares of the voting
common stock, par value $1.00 per share, of Seller, which in the aggregate
represents 100% of the total number of outstanding shares of voting capital
stock of Seller.
(i) Undisclosed Liabilities.
------------------------
Seller has no material Liabilities, except for (i) liabilities set forth on
the June 1998 Balance Sheet which have arisen in the Ordinary Course of Business
and in connection with and for the benefit of the Acquired Assets; and (ii)
liabilities which have arisen after the date of the June 1998 Balance Sheet in
the Ordinary Course of Business and in connection with and for the benefit of
the Acquired Assets.
(j) Legal Compliance.
-----------------
Seller has complied with all applicable Laws and Orders of all Governmental
Bodies and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand or notice has been filed or, to the Knowledge of the
officers or directors of either Parent or Seller, has been commenced against
Seller alleging any failure so to comply, except where the failure to comply
with any of the above would not have a Material Adverse Effect.
(k) Tax Matters.
------------
Except as set forth on Schedule 3(k):
-------------
(i) Seller has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all material
respects. All Taxes owed by Seller (whether or not shown on any
Tax Return) have been paid. Seller currently is not the
beneficiary of, or subject to, any extension of time within
which to file any Tax Return.
(ii) There is no material dispute or claim concerning any Tax
liability of Seller either formally asserted or raised, or, to
the Knowledge of the directors or officers of either Seller or
Parent, threatened by any Governmental Body.
10
(iii) Seller has reported and duly paid state and local sales and use
Taxes in all states in which it is required to report and pay
such Taxes, including sales and/or use Taxes on sales of
merchandise and on catalogs and other promotional materials. A
list of all such states is set forth in Schedule 3(k).
-------------
(iv) There is no material dispute or claim of Liability against
Seller for sales or use Taxes either formally asserted or
raised or, to the Knowledge of the directors or officers of
either Seller or Parent, threatened by any Governmental Body.
(l) Real Property.
--------------
(i) Schedule 3(l)(i) lists and describes briefly certain property
----------------
that Seller owns and will lease to Buyer pursuant to a lease
agreement in substantially the form of Exhibit K (the "Lease").
---------
(ii) Schedule 3(l)(ii) lists and describes briefly certain real
-----------------
property leased to Parent and used by Seller and which Parent
shall sublease to Buyer pursuant to a sublease agreement in
substantially the form of Exhibit M (the "Sublease").
---------
(m) Intellectual Property.
----------------------
(i) Except as disclosed on Schedule 3(m)(i), Seller has not
----------------
interfered with, infringed upon, misappropriated, or violated
any material Intellectual Property rights of any Person in any
material respect and neither of either Seller nor Parent has
received any pending charge, complaint, claim, demand or notice
alleging any such interference, infringement, misappropriation
or violation (including any claim that Seller must license or
refrain from using any Intellectual Property rights of any
Person). To the Knowledge of the directors or officers of
either Seller or Parent after reasonable investigation
customary in the industry, no third party has interfered with,
infringed upon, misappropriated or violated any of the service
marks "Xxxxx Xxxxxx," "Xxxxx Xxxxxx Gifts," "Applecreek," or
"Health & Comfort," or the Miscellaneous Design or the Mailing
Lists of Seller in any material respect. To the Knowledge of
the directors or officers of either Seller or Parent, no third
party has interfered with, infringed upon, misappropriated or
violated any other Intellectual Property rights of Seller in
any material respect.
(ii) Schedule 3(m)(ii) sets forth each registered and unregistered
-----------------
trademark and service xxxx and applications therefor, material
trade name, domain name, fictitious and d.b.a. name, 800- or
888-prefix phone number, and other identifier used by Seller in
connection with any aspect of the Business (and, with respect
to such 800- or 888- prefix phone numbers,
11
Seller will use commercially reasonable efforts to obtain from
its long distance carrier consent to the assignment and
transfer of all such phone numbers and related rights to Buyer
as of the Closing Date). With respect to each item of
Intellectual Property required to be identified in Schedule
--------
3(m)(ii) and except as set forth in such Schedule:
--------
(A) Seller possesses all right, title and interest in and to, or
otherwise has the right to use, without payment to any
Person, the item, free and clear of any Security Interest,
or other restriction, including, without limitation, all
rights to the Catalog Names and associated logos;
(B) the item is not subject to any outstanding Order;
(C) the item has not lapsed, expired or been abandoned;
(D) no Claim is pending or, to the Knowledge of the directors or
officers of either Seller or Parent, is threatened, which
challenges the legality, validity, enforceability, use or
ownership of the item or application, registration or grant
therefor; and
(E) Other than in the Ordinary Course of Business, Seller has
not agreed to indemnify any Person for or against any
interference, infringement, misappropriation or other
conflict with respect to the item.
(iii) Schedule 3(m)(iii) sets forth a complete and accurate list of
-----------------
each material license, sublicense, agreement or other Contract
or other permission, whether written or oral, which is
currently in effect and pursuant to which Seller has granted to
any other party any rights with respect to any of its
Intellectual Property. Seller has delivered to Buyer correct
and complete copies of all such licenses, sublicenses,
agreements and other Contracts or permissions (as amended to
date).
(iv) Schedule 3(m)(iv) identifies each material item of Intellectual
-----------------
Property that any other party owns and that Seller uses
pursuant to a license, sublicense, agreement or other Contract,
or permission. Seller has delivered to Buyer correct and
complete copies of all such licenses, sublicenses, agreements,
Contracts and permissions (as amended to date). With respect to
each such item of used Intellectual Property required to be
identified in Schedule 3(m)(iv):
-----------------
(A) the license, sublicense, agreement, Contract or permission
covering the item is, with respect to Seller, legal, valid,
binding, enforceable and in full force and effect in all
material respects and, with respect to the other party or
parties thereto, is, to the Knowledge of the
12
directors or officers of either Seller or Parent, legal,
valid, binding, enforceable and in full force and effect in
all material respects;
(B) Seller is not and, to the Knowledge of the officers or
directors of either Seller or Parent, no other party is, in
material breach or default under the license, sublicense,
agreement, Contract or permission and, to the Knowledge of
the directors or officers of either Seller or Parent, no
event has occurred which, with notice or lapse of time or
both, would constitute a material breach or default or
permit termination, modification, or acceleration
thereunder;
(C) to the Knowledge of the directors or officers of either
Seller or Parent, no party to the license, sublicense,
agreement, Contract or permission has repudiated any
material provision thereof or indicated to any director or
officer of either Seller or Parent its intent to terminate,
or not renew on comparable terms, such license, sublicense,
agreement, Contract or permission; and
(D) Seller has not granted any sublicense or similar right with
respect to the license, sublicense, agreement, Contract or
permission, except to its Affiliates as permitted in
accordance with the terms of such license, sublicense,
agreement, Contract or permission as described on Schedule
--------
3(m)(iv) hereto.
--------
(v) The Intellectual Property identified on Schedules 1.1(b) and
--------------------
3(m)(ii) through 3(m)(iv) constitutes each material item of all
-------- --------
of the Intellectual Property used in or necessary for the
conduct of the Business.
(vi) Except as set forth on Schedule 3(m)(i), Seller possesses all
----------------
rights and interests necessary to (A) sell all merchandise
currently sold through Seller's catalogs and other marketing
materials and (B) to use the names and/or likenesses of persons
used in such catalogs for the specific purpose and in the
specific catalogs in which such likenesses appeared, in the
case of both (A) and (B), without infringing the Intellectual
Property rights of any other Person. Except as set forth on
Schedule 3(m)(i), to the Knowledge of the directors or officers
----------------
of either Seller or Parent after reasonable investigation
customary in the industry, each Person from which Seller
acquires products and goods (1) obtained or made and sold such
products and goods without violation of the Intellectual
Property or other rights of any Person, (2) has all rights and
permissions necessary to distribute such products and goods to
Seller, and (3) has all rights and permissions necessary to
grant to Seller the right to redistribute such products and
goods.
13
(vii) Except as set forth on Schedule 3(m)(iii), all mailing lists,
------------------
maintained by Seller in the Ordinary Course of Business, of all
customers who have purchased Seller's products, including
without limitation through Seller's catalogs and newspaper FSI
(free-standing insert) programs and through its Affiliates'
Xxxxx Xxxxxx Co-Op and Val-Pak Programs (the "Mailing Lists")
are owned by Seller and are: (A) able to be copied to a
magnetic tape form in readable format; (B) contain all names
and addresses of customers who have in the past purchased a
product from Seller, and can be sorted to indicate which
customers have purchased products (1) within 12 months prior to
the Closing Date, (2) 12-24 months prior to the Closing Date,
(3) 24-36 months prior to the Closing Date, and (4) more than
36 months prior to the Closing Date; and (C) include a detailed
transaction listing, with original source data including the
names and addresses, of people who have inquired about Seller's
catalogs during the previous 60 days although they may not have
yet purchased. The use of the mailing lists by Seller does not
violate, without limitation, Intellectual Property rights and
rights of publicity or privacy of any Person, and is not in
violation of any applicable Law or Order. Except as set forth
on Schedule 3(m)(iii), there is no limitation on the right of
------------------
Seller to transfer to Buyer any of the Mailing Lists. Seller's
house file contains the names and addresses of approximately
8,850,000 domestic customers who have purchased Seller's
products. The Mailing Lists contain the following approximate
numbers of domestic customers and prospective customers:
Customers who purchased Seller's
Number products during the calendar year:
------ ----------------------------------
1,972,828 1998 (to July 17, 1998)
3,093,967 1997
2,675,955 1996
3,245,649 1995
25,914,889 1994 and prior to such year
Number Customers who have inquired about
------ Seller's catalogs or have requested a
catalog of Seller:
65,745 period 60 days prior to July 17, 1998
(viii) Except as set forth on Schedule 3(m)(iii), Seller acknowledges
------------------
and agrees that all Mailing Lists used for the Business and the
Acquired Business will be the exclusive property of Buyer and
Seller shall not be entitled to retain a copy of same or use
the information from such Mailing Lists for any purpose
whatsoever.
14
(n) Tangible Assets.
----------------
The machinery, equipment (including the computer software technology,
telephone and telecommunication systems) and other tangible assets that Seller
owns, leases or uses in the Business are free from material defects, have been
maintained in accordance with normal industry practice, are in good operating
condition and repair (subject to normal wear and tear), are suitable for their
intended use and have met all fulfillment service and call service needs and
performance standards required of Seller relating to the Business as heretofore
conducted, provided that during peak order activity, Seller utilizes outsourcing
services pursuant to Contracts disclosed on Schedule 3(p) hereto, which have not
-------------
exceeded 15% of telemarketing volume in any fiscal year.
(o) Inventory.
----------
At the Closing, Schedule 3(o) will set forth a complete standard cost
-------------
inventory detail listing of all inventory owned by Seller as of a date within
five days of the Closing Date; provided, however, that Buyer acknowledges that
-------- --------
such inventory detail set forth on Schedule 3(o) shall be revised by Seller to
-------------
reflect any adjustments to the inventory detail disclosed in connection with the
preparation of the Closing Date Balance Sheet (as audited by Seller's
Accountant) and the Closing Date Net Tangible Assets Statement. The inventory
of Seller to be purchased by Buyer as Acquired Assets consists of supplies and
finished goods, all of which is in good and merchantable condition and fit for
the purpose for which it was procured or manufactured and none of which is
obsolete, damaged or defective subject only to a $1,087,299 reserve in
accordance with GAAP for inventory writedown on the Most Recent Balance Sheet as
adjusted for operations and transactions through the Closing Date in accordance
with past custom and practice of Seller and as will be adjusted as set forth in
the Closing Date Net Tangible Assets Statement.
(p) Contracts.
----------
Schedule 3(p) lists all material Contracts to which Seller is a party or by
-------------
which Seller or any of the Acquired Assets may be bound or subject. Seller has
delivered to Buyer a correct and complete copy of each written material
Contract. With respect to each such Contract: (i) the Contract is legal, valid,
binding, enforceable and in full force and effect in all material respects; (ii)
Seller is not, and to the Knowledge of the directors or officers of either
Seller or Parent, no other party is, in material breach or default and, to the
Knowledge of the directors or officers of either Seller or Parent, no event has
occurred which, with notice or lapse of time or both, would constitute a
material breach or default or permit termination, modification or acceleration
under the Contract; (iii) no party has repudiated any material provision of the
Contract or indicated to any director or officer of Seller or Parent of its
intent to cancel or not renew the Contract; (iv) except as disclosed on Schedule
--------
3(c), no consent is required of any party thereto to transfer the benefits of
----
each such Contract to Buyer in connection with the transactions contemplated in
this Agreement; and (v) any such Contract under which Donnelley Marketing, Inc.,
Donnelley Marketing Consumer Promotions, Inc. or Xxxxx Xxxxxx Sales, Inc. is a
party and a predecessor in interest to Seller has been properly assigned to
Seller. For purposes of this Section 3(p), a
15
"material" Contract shall mean a Contract providing for the payment by or to
Seller of $25,000 or more annually.
(q) Predominant Customers.
----------------------
No single customer of Seller accounts or accounted for over five percent
(5%) of the total revenues of Seller during any of the three (3) complete fiscal
years immediately preceding the date of this Agreement.
(r) Change in Customers or Vendors.
-------------------------------
No customer or vendor whose annual volume of purchases or sales during
Seller's fiscal year ended December 26, 1997 or during the period between the
Most Recent Fiscal Year End and the Closing Date exceeded $500,000, has
indicated to Seller or to any of Seller's officers or directors that it intends
to cease doing business with Seller or materially alter the amount or pricing of
the business done with Seller.
(s) Notes and Accounts Receivable.
------------------------------
Except as set forth on Schedule 3(s) hereto, all notes and accounts
-------------
receivable of Seller are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims, and are current and
collectible in accordance with their terms at their recorded amounts, subject
only to the reserve for bad debts set forth on the face of the Most Recent
Balance Sheet as adjusted in a manner consistent with past practice for
operations and transactions in the Ordinary Course of Business through the
Closing Date or as will be set forth on the Closing Date Net Tangible Assets
Statement. If, at any time after the Closing Date, Buyer deems any such account
receivable uncollectible, such account receivable shall be assigned to Seller;
provided, however, that Seller shall remain obligated to indemnify Buyer for any
-------- -------
claim arising from or in connection with such account receivable pursuant to
Section 5(d) of this Agreement.
(t) Insurance.
----------
Except with respect to the insurance policies disclosed on Schedule 3(y),
------------
Seller has supplied Buyer with a copy of each insurance policy (including
policies providing property, casualty, liability and workers' compensation
coverage and bond and surety arrangements) with respect to which Seller is or is
required to be (pursuant to the provisions of any agreement or license or other
Contract to which it is party) a party, a named insured, or otherwise the
beneficiary of coverage. With respect to each such insurance policy, except
those insurance policies disclosed on Schedule 3(y): (i) the policy is legal,
-------------
valid, binding, enforceable and in full force and effect in all material
respects; (ii) neither Seller nor any other party to the policy is in material
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time or both, would constitute a material breach or default, or permit
termination, modification or acceleration under the policy; (iii) no party to
the policy has repudiated any material provision thereof; and (iv) Seller has
not been notified by any of its insurance carriers that any premiums will
materially
16
increase in the future or that any insurance coverage provided by such policy
will not be available to Seller in the future on substantially the same terms as
now in effect. Schedule 3(t) describes any and all self-insurance arrangements
-------------
affecting Seller or the Business, except those insurance policies disclosed on
Schedule 3(y).
-------------
(u) Product Liability.
------------------
To the Knowledge of the directors or officers of either Seller or Parent
after reasonable investigation customary in the industry, except as set forth in
Schedule 3(w), Seller does not have any material liability (whether asserted or
-------------
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due) arising
out of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased, or delivered by
Seller.
(v) Product Warranty.
-----------------
All of the products manufactured, sold, leased or delivered by Seller have
conformed in all material respects with all applicable contractual commitments,
with all express and implied warranties, and with all applicable Laws and Seller
has no material Liability for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for product refunds or product
warranty claims set forth on the face of the Most Recent Balance Sheet (or in
any notes thereto) as adjusted for operations and transactions in the Ordinary
Course of Business through the Closing Date. Substantially all of the products
manufactured, sold, leased or delivered by Seller are subject to Seller's
standard terms and conditions of sale or lease. Schedule 3(v) includes copies
-------------
of the standard terms and conditions of sale or lease for Seller (containing
applicable guaranty, warranty and indemnity provisions).
(w) Litigation.
-----------
Schedule 3(w) sets forth each instance in which Seller (i) is subject to
-------------
any outstanding Order or (ii) is a party or, to the Knowledge of the directors
or officers of either Seller or Parent, is threatened to be made a party to any
Claim of, in, or before any Governmental Body or before any arbitrator, which
could reasonably be expected to have a Material Adverse Effect. The Most Recent
Balance Sheet reflects an adequate reserve for any Adverse Consequences that
Seller may reasonably be expected to suffer from any such Order or event
specified in the preceding sentence. Without limiting the generality of the
foregoing, Seller has no material Liability arising out of any injury (or
alleged injury) to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased or delivered by
Seller.
(x) Employees.
----------
Schedule 3(x) sets forth a complete list of employees of Seller, including
-------------
the position or title of each employee of Seller, and Seller has previously
delivered to Buyer the current annual compensation of each such employee.
Seller has not received oral or written notice that any executive, key employee
or significant group of employees plans to terminate employment with Seller as a
result of the transactions contemplated by this Agreement or otherwise during
the next
17
12 months. Seller is not a party to or bound by any collective bargaining
agreement or other Contract with a labor union or association representing any
employee, nor has it experienced any strike, work slowdown or stoppage, or
material grievance, claim of unfair labor practices, or other collective
bargaining dispute within the past three years. Seller has not committed any
material unfair labor practice. None of the directors or the officers of either
Seller or Parent has any Knowledge of any organizational effort presently being
made or threatened by or on behalf of any labor union with respect to employees
of Seller.
(y) Employee Benefits.
------------------
Except as set forth on Schedule 3(y), there are no employee benefit plans
-------------
or arrangements or understandings of any type (whether or not described in
section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
and the regulations thereunder, including, without limitation, plans or
arrangements with employees providing for deferred compensation, severance,
bonuses, stock options, fringe benefits, cafeteria plan deferrals, flexible
arrangements or other similar plans or arrangements), of Seller under which
Seller has or Buyer in the future could have, directly or indirectly, any
liability with respect to any current or former employee of Seller.
(z) Environment, Health and Safety.
-------------------------------
Except as disclosed on Schedule 3(z), or except as would not have a
-------------
Material Adverse Effect, to the Knowledge of the directors or officers of either
Seller or Parent after reasonable investigation customary in the industry,
Seller: (i) is in material compliance with all applicable Environmental, Health
and Safety Laws; (ii) there is no judgment or Claim pending or, to the Knowledge
of the directors or officers of either Seller or Parent, threatened against
Seller pursuant to Environmental, Health and Safety Laws or principles of common
law relating to pollution, protection of the environment or health and safety;
and (iii) there are no past or present events, conditions, circumstances,
activities, practices, incidents, agreements, actions or plans which may prevent
compliance in all material respects with Environmental, Health and Safety Laws,
or which have given rise to any Claim in connection therewith.
(aa) Certain Business Relationships With Seller.
-------------------------------------------
Except as disclosed on Schedule 3(aa), neither Parent nor any of its
--------------
Affiliates (other than Seller) has been involved in any material business
arrangement or relationship with Seller within the past twelve months nor owns
any material asset, tangible or intangible, which is used by Seller in the
Business.
(bb) Disclosure.
-----------
The representations and warranties of Seller and Parent contained in this
Agreement and made herein in connection with the documents included in the
Schedules hereto do not (i) contain any untrue statement of a material fact or
(ii) omit to state any material fact necessary in order to make the statements
and information contained in this Agreement and in such documents not
misleading. Except for the representations and warranties of Seller and Parent
18
contained in this Agreement and the Transaction Documents, neither Seller nor
Parent shall be deemed to have made any representation, warranty or covenant
whatsoever pertaining to the Acquired Assets, the Business or any other matter.
(cc) Processing of Returns.
----------------------
Seller has consistently and timely processed all customer claims with
respect to returns of sold products.
(dd) Investment.
-----------
Seller (i) understands that the Shares have not been, and will not be, as
of the Closing, registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon Federal and
state exemptions for transactions not involving any public offering, (ii) is
acquiring such Shares solely for its own account for investment purposes, and
not with a view to the distribution thereof, (iii) is a sophisticated investor
with knowledge and experience in business and financial matters, (iv) has
received certain information concerning Buyer and GDI and has had the
opportunity to obtain additional information concerning Buyer and GDI as desired
in order to evaluate the merits and the risks inherent in holding such Shares,
including without limitation the risk factors set forth in GDI's Prospectus
dated May 7, 1998, (v) is able to bear the economic risk and lack of liquidity
inherent in holding such Shares, and (vi) is an Accredited Investor within the
meaning of this term as defined in Rule 501 of the rules promulgated under the
Securities Act.
(ee) Guaranties.
-----------
Seller is not a guarantor or otherwise is responsible for any liability or
obligation (including indebtedness) of any other Person for which Buyer could
become liable or obligated.
(ff) Cure.
-----
For all purposes under this Agreement, the existence or occurrence of any
events or circumstances that constitute or cause a breach of a representation or
warranty of either Seller or Parent made in this Agreement (including, without
limitation, the Schedules attached hereto) on the date such representation or
warranty is made shall be deemed not to constitute a breach of such
representation or warranty if such event or circumstance is cured in all
material respects, and said representation or warranty shall be true and correct
in all material respects, on or prior to the Closing Date.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
---------------------------------------
Buyer represents and warrants to Seller and Parent that each of the
statements set forth below is true and correct in all respects. Such
representations, warranties, covenants and agreements constitute a material
inducement to Seller and Parent to enter into this Agreement, to enter into the
other Transaction Documents to which it has become a party, to sell the Acquired
19
Assets sold by it pursuant hereto and to consummate the other transactions
contemplated hereby and thereby.
(a) Organization of Buyer.
----------------------
Buyer is a limited liability company duly formed, validly existing and in
good standing under the laws of the State of Delaware, and has all requisite
limited liability company power and authority to own, lease and operate its
properties and to carry on its business as now conducted. Buyer is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by it makes such
qualification or licensing necessary, except in any jurisdiction where the
failure to be so duly qualified or licensed or in good standing would not
reasonably be expected to have a material adverse effect on the ability of Buyer
to perform its obligations under this Agreement. Notwithstanding the foregoing,
Buyer shall be qualified or licensed to conduct business and be in good standing
in the States of Nebraska and Connecticut within five Business Days after the
Closing. All of Buyer's equity interests are owned directly or indirectly by
GDI.
(b) Authorization of Transaction.
-----------------------------
Buyer has full limited liability company power and authority to execute and
deliver this Agreement and the other Transaction Documents to which it is a
party and to perform its obligations hereunder and thereunder. Without limiting
the generality of the foregoing, the execution, delivery and performance of this
Agreement by Buyer has been duly and validly authorized by all necessary action
on the part of Buyer in accordance with applicable law including the Delaware
Limited Liability Company Act and the provisions of the certificate of formation
and operating agreement of Buyer. This Agreement and the other Transaction
Documents to which it is a party constitutes the valid and legally binding
obligation of Buyer, enforceable in accordance with their respective terms and
conditions, subject to bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting the rights and remedies of creditors
and to general principles of equity (regardless of whether such enforcement is
sought in a proceeding in equity or at law).
(c) Noncontravention.
-----------------
Subject to obtaining the consents listed on Schedule 4(c) and compliance
-------------
with the HSR Act, neither the execution and the delivery of this Agreement, the
other Transaction Documents or the other documents contemplated hereby and
thereby, nor the consummation of the transactions contemplated hereby and
thereby will (i) violate any Law or Order of any Governmental Body or court to
which Buyer is subject or any provision of its certificate of formation or
operating agreement or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel or require any notice under, any
Contract to which Buyer is a party or by which it is bound or to which any of
its assets is subject (or result in the imposition of any Security Interest upon
any of its assets). Except as set forth on Schedule 4(c), Buyer does not need
-------------
to give any notice to, make any filing with or obtain any authorization, consent
or approval of any Governmental Body or other Person in order for the Parties to
consummate the transactions
20
contemplated by this Agreement (including the execution, delivery and
performance of the assignments and assumptions referred to in Section 2 of this
Agreement), except for such notices, filings, authorizations, consents or
approvals as have been duly made or received, as the case may be.
(d) Brokers' Fees.
--------------
Buyer has no liability or obligation to pay any fees or commissions or
other compensation to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which Seller or Parent could
become liable or obligated.
(e) Litigation.
-----------
Buyer is not (i) subject to any outstanding Order or (ii) a party or, to
the Knowledge of the directors or officers of Buyer, threatened to be made a
party to any Claim of, in or before any Governmental Body or before any
arbitrator, which could reasonably be expected to have a material adverse effect
on the ability of Buyer to perform its obligations under this Agreement.
(f) Disclosure.
-----------
The representations and warranties of Buyer contained in this Agreement do
not (i) contain any untrue statement of a material fact or (ii) omit to state
any material fact necessary in order to make the statements and information
contained in this Agreement not misleading.
(g) Cure.
-----
For all purposes under this Agreement, the existence or occurrence of any
events or circumstances that constitute or cause a breach of a representation or
warranty of Buyer made in this Agreement (including, without limitation, the
Schedules attached hereto) on the date such representation or warranty is made
shall be deemed not to constitute a breach of such representation or warranty if
such event or circumstance is cured in all material respects, and said
representation or warranty shall be true and correct in all material respects,
on or prior to the Closing Date.
SECTION 5. COVENANTS.
----------
(a) Further Assurances.
-------------------
In the event that at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement or the other Transaction
Documents, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor under
this Section 5).
21
(b) Confidentiality.
----------------
Each Party will and will cause their respective Affiliates, directors,
officers and employees to, for a period of two years, treat and hold
confidential all of the Confidential Information and all terms of the
transactions contemplated by the Transaction Documents, refrain from using any
of the Confidential Information or any transactional terms except in connection
with this Agreement (or as required to be disclosed to taxing authorities in
connection with the payment of Taxes) and shall deliver promptly to the other
Parties to this Agreement or destroy, at the request and option of such other
Parties, all tangible embodiments (and all copies) of the Confidential
Information which are in its possession; provided, however, that the foregoing
-------- -------
shall not prevent any Person who is an employee of Buyer from after the Closing
to utilize any Confidential Information as necessary in connection with the
exercise of his or her duties on behalf of Buyer. In the event that any of the
Parties or their respective directors, officers or employees is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand or similar
process) to disclose any Confidential Information or any terms of the
transactions contemplated by the Transaction Documents, then such Party will
notify the other Parties promptly of the request or requirement so that the
other Parties may seek an appropriate protective order or waive compliance with
the provisions of this Section 5(b). If, in the absence of a protective order
or the receipt of a waiver hereunder, such Party or its director, officer or
employee is, on the advice of counsel, compelled to disclose any Confidential
Information or any terms of the transactions contemplated by the Transaction
Documents to any tribunal or else stand liable for contempt, such Party or
director, officer or employee may disclose such Confidential Information or such
transaction terms to the tribunal; provided, however, that the disclosing Person
-------- -------
shall use his or its reasonable best efforts to obtain, at the reasonable
request of any other Party, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information or
transaction terms required to be disclosed as any other Party shall designate.
If for any reason the transactions contemplated by this Agreement are not
consummated, the Parties shall each return to any other Party all information
received by it from such other Party and all copies thereof.
(c) Closing Date Financial Statements.
----------------------------------
(i) Seller and Parent shall cause to be prepared and delivered to
Buyer the Closing Date Balance Sheet of Seller. Seller shall
use its bests efforts to deliver such financial statements to
Buyer within 60 days after the Closing Date, but in any event
shall deliver such financial statements no later than 90 days
after the Closing Date.
(ii) Seller and the Parent shall cause to be prepared and delivered
to Buyer the related unaudited statements of operations,
stockholders' equity and cash flows of Seller for the period
from December 27, 1997 through the Closing Date. Seller shall
use its best efforts to deliver such financial statements to
Buyer within 45 days after the Closing Date, but in any
22
event shall deliver such financial statements no later than 60
days after the Closing Date.
(d) Indemnification Provisions for the Benefit of Buyer.
----------------------------------------------------
(i) Breach of Representations, Warranties or Covenants. In the
event that Seller or Parent breaches any of its
representations, warranties (which representations and
warranties shall survive for a period of twenty-four (24)
months from and after the Closing Date except for the
representations and warranties in Section 3(b) (captioned
"Authorization of Transaction"), in Section 3(e) (captioned
"Title to Assets"), and in Section 3(k) (captioned "Tax
Matters"), which shall remain in full force and effect until
the expiration of all applicable statutes of limitations) or
covenants contained in this Agreement and a Buyer Indemnified
Party (as hereinafter defined) makes a written claim for
indemnification against either of Seller or Parent then, each
----
of Seller and Parent agrees jointly and severally to indemnify
Buyer, its members, Affiliates and agents and their respective
officers, directors and employees (collectively, the "Buyer
Indemnified Parties"; each a "Buyer Indemnified Party") from
and against the entirety of Adverse Consequences (subject to
the limitations in Section 5(d)(iii) below) any Buyer
Indemnified Party may suffer through and after the date of the
claim for indemnification, resulting from, arising out of,
relating to, in the nature of, or caused by such breach.
(ii) Unassumed Liabilities; Brokers. Each of Seller and Parent
------------------------------
agrees jointly and severally to indemnify the Buyer Indemnified
Parties from and against the entirety of any Adverse
Consequences (subject to the limitations in Section 5(d)(iii)
below) any Buyer Indemnified Party may suffer through and after
the date of the claim for indemnification, resulting from,
arising out of, relating to, in the nature of, or caused by:
(A) any Liability or obligation of Seller or the Business
which is not an Assumed Liability (including any liability
of Seller or Parent for Taxes that becomes a liability of
Buyer (i) under any Tax or bulk transfer law of any
jurisdictions, (ii) under any common law doctrine of de
facto merger or successor liability or otherwise by
operation of law or (iii) as a result of the consummation
of the transactions contemplated hereby); provided,
however, that, notwithstanding anything to the contrary
herein, the indemnification obligations in this Paragraph
(A) for any Liability or obligation (including for Taxes)
which is not an Assumed Liability shall survive the
Closing (even if Buyer knew or had reason to know of such
Liability or obligation) and continue in full force and
effect until the expiration of all applicable statutes of
limitation; or
23
(B) the claims of any broker or finder engaged by or on behalf
of Seller or Parent.
(iii) Limitations. Neither Seller nor Parent shall have any
-----------
obligation to indemnify the Buyer Indemnified Parties from and
against any Adverse Consequences resulting from, relating to or
arising out of this Agreement or the transactions contemplated
hereby until the Adverse Consequences suffered in the aggregate
by all Buyer Indemnified Parties is in excess of Two Hundred
Thousand Dollars ($200,000) (the "Basket Amount") (at which
point Seller and Parent will be obligated to indemnify from and
against all such Adverse Consequences relating back to the
first dollar); provided, further, however, that except in
-------- ------- -------
respect of Adverse Consequences resulting from breaches of the
representations and warranties of either Seller or Parent (if
applicable) contained in Section 3(b) (captioned "Authorization
of Transaction") and Section 3(e) (captioned "Title to Assets")
of this Agreement and except as provided in Section 5(i) below,
the obligation of Seller and Parent to jointly and severally
indemnify the Buyer Indemnified Parties shall not exceed the
product of the number of Shares and the Signing Stock Price.
(e) Indemnification Provisions for the Benefit of Seller and Parent.
----------------------------------------------------------------
(i) Breach of Representations, Warranties or Covenants. In the
---------------------------------------------------
event Buyer breaches any of its representations, warranties
(which representations and warranties shall survive for a
period of twenty-four (24) months from and after the Closing
Date except for the representations and warranties in Section
4(b) (captioned "Authorization of Transaction"), which shall
remain in full force and effect until the expiration of all
applicable statutes of limitations) or covenants contained in
this Agreement and a Seller Indemnified Party (as hereinafter
defined) makes a written claim for indemnification against
Buyer, then Buyer agrees to indemnify each of Seller, Parent
----
and their respective shareholders, Affiliates and agents and
their respective officers, directors and employees,
(collectively, the "Seller Indemnified Parties"; each a "Seller
Indemnified Party") from and against the entirety of the
Adverse Consequences any Seller Indemnified Party may suffer
through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of,
or caused by such breach.
(ii) Assumed Liabilities; Brokers. Buyer agrees to indemnify the
-----------------------------
Seller Indemnified Parties from and against the entirety of any
Adverse Consequences any Seller Indemnified Party may suffer
through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of,
or caused by: (A) any Assumed Liability (provided, however,
that notwithstanding anything to the contrary herein,
24
the indemnification obligations in this Paragraph (A) for any
Assumed Liability shall survive the Closing and continue in
full force and effect until the expiration of all applicable
statutes of limitation); or (B) the claims of any broker or
finder engaged by or on behalf of Buyer or GDI.
(iii) Limitation. Buyer shall not have any obligation to indemnify
-----------
the Seller Indemnified Parties from and against any Adverse
Consequences resulting from, relating to or arising out of this
Agreement or the transactions contemplated hereby until the
Adverse Consequences suffered in the aggregate by all Seller
Indemnified Parties under this Agreement, together with Adverse
Consequences suffered in the aggregate by all Seller
Indemnified Parties under the GDI Agreement, is in excess of
the Basket Amount (at which point Buyer will be obligated to
indemnify from and against all such Adverse Consequences
relating back to the first dollar); provided, further, however,
-------- ------- -------
that except in respect of Adverse Consequences resulting from
breaches of the representations and warranties of Buyer
contained in Section 4(b) (captioned "Authorization of
Transaction") of this Agreement and except as provided in
Section 5(i) below, the obligation of Buyer to indemnify the
Seller Indemnified Parties under this Agreement, together with
the obligation of GDI to indemnify the Seller Indemnified
Parties under the GDI Agreement, shall not exceed the product
of the number of Shares and the Signing Stock Price.
(f) Indemnification Matters Involving Third Parties.
------------------------------------------------
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third-Party Claim")
which may give rise to a claim for indemnification against any
other Party (the "Indemnifying Party") under this Section 5,
then the Indemnified Party shall promptly notify each
Indemnifying Party thereof in writing; provided, however, that
-------- -------
no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent)
the Indemnifying Party is prejudiced thereby. In determining
the amount of Adverse Consequences for purposes of Sections
5(d), (e) and (f) hereof, the Parties shall make appropriate
adjustments for tax effects and insurance coverage and take
into account the time cost of money (using the Applicable Rate
as the discount rate).
(ii) Any Indemnifying Party will have the right to assume the
defense of the Third-Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party at any time
within 20 days after the Indemnified Party has given notice of
the Third-Party Claim; provided, however, that the Indemnifying
-------- -------
Party must conduct the defense of the Third-Party Claim
actively and diligently thereafter in order to preserve its
rights in this
25
regard; and, provided, further, that the Indemnified Party may
-------- -------
retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third-Party Claim; provided,
--------
that, if the named parties to any such Third-Party Claim
(including any impleaded parties) include an Indemnified Party
and the Indemnifying Party or one or more other Indemnified
Parties and such Indemnified Party shall have been advised by
its counsel in writing that there is a conflict of interest
between such Indemnified Party and the Indemnifying Party or
any such other Indemnified Party in the conduct of the defense
thereof, then in any such case the reasonable fees and expenses
of such separate counsel shall be borne by the Indemnifying
Party. In the event that the Indemnifying Party fails to assume
the defense of a Third-Party Claim in the manner provided above
in this Paragraph (ii) or fails to conduct the defense of a
Third-Party Claim actively and diligently after such
assumption, the Indemnified Party shall have the right to
select counsel of its choice (and at its sole discretion) and
the reasonable fees and expenses of such counsel shall be paid
by the Indemnifying Party.
(iii) So long as the Indemnifying Party has assumed and is conducting
the defense of the Third-Party Claim in accordance with
paragraph (ii) above, (A) the Indemnifying Party will not
consent to the entry of any judgment or enter into any
settlement with respect to the Third-Party Claim without the
prior written consent of the Indemnified Party (not to be
withheld unreasonably) unless the judgment or proposed
settlement involves only the payment of money damages by one or
more of the Indemnifying Parties and does not impose an
injunction or other equitable relief upon the Indemnified Party
and (B) the Indemnified Party will not consent to the entry of
any judgment or enter into any settlement with respect to the
Third-Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably).
(iv) In the event none of the Indemnifying Parties assumes and
conducts the defense of the Third-Party Claim in accordance
with Paragraph (ii) above, (A) the Indemnified Party may defend
against and consent to the entry of any judgment, or enter into
any settlement with respect to, the Third-Party Claim in any
manner it reasonably may deem appropriate (although the
Indemnified Party shall use reasonable efforts to consult with,
and obtain prior written consent from, any Indemnifying Party
in connection therewith, which consent shall not be
unreasonably withheld or delayed) and (B) the Indemnifying
Parties will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by, the Third-
Party Claim to the fullest extent provided in this Section
5(f).
26
(g) Set-Off and Recoupment.
-----------------------
Seller and Parent, by executing this Agreement, covenant and agree that
Buyer shall have the right, but not the obligation, to set-off against its
obligations to pay any amount payable hereunder by Buyer, and recoup the full
amount of any Adverse Consequences required to be paid hereunder by Seller or
Parent. If Buyer elects to exercise its set-off and recoupment rights, it will
give to Seller and Parent written notice of such election, which shall include
the amount to be set-off, and the amounts payable hereunder by Buyer shall
automatically be reduced by the amount set forth in such notice as fully as if
such amount had been paid by Buyer to Seller.
(h) Other Indemnification Provisions.
---------------------------------
Except for a claim which resulted from intentional fraud on the part of any
Party, the foregoing indemnification provisions shall be the exclusive remedy
any Party may have for breach of representation, warranty or covenant. Parent
hereby agrees that it will not make any claim for indemnification (whether such
indemnification is available by statute, charter document, bylaw, agreement or
otherwise) against any Buyer Indemnified Party as successor in interest to the
assets of Seller solely by reason of the fact that it was a director, officer,
employee or agent of Seller or was serving at the request of Seller as a
partner, trustee, director, officer, employee or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses or otherwise) with respect to any action,
suit, proceeding, complaint, claim or demand brought by Buyer or any other
Person against Parent (whether such action, suit, proceeding, complaint, claim
or demand is pursuant to this Agreement, applicable law or otherwise). The
immediately preceding sentence is not intended to foreclose the rights of Parent
to seek indemnification from Buyer pursuant to Section 5(e) of this Agreement.
(i) Fraud.
------
In a claim for indemnity which is related to an Adverse Consequence which
resulted from intentional fraud on the part of Seller or Parent or Buyer, Seller
or Parent or Buyer responsible for such intentional fraud will not have the
benefit of the limitation of Section 5(d)(iii) or 5(e)(iii), as the case may be,
or the 24 months survival limitation period.
(j) Records.
--------
Buyer shall preserve and retain the corporate, accounting, legal and other
records of Seller and the Business that shall come into Buyer's possession as a
result of the transactions contemplated hereby for a period of not less than
seven years from the Closing Date and give reasonable access to Seller, Parent
and their auditors, counsel and other authorized representatives for the purpose
of preparing or defending Tax Returns or for other reasonable business purposes.
27
(k) Third Party Consents.
---------------------
Each Party shall use its reasonable efforts to procure all consents
necessary to permit it to consummate the transactions contemplated by this
Agreement. If the Parties have not obtained a consent or approval necessary for
the assignment of any Contract, arrangement or right included in the Acquired
Assets or the assumption of any of the Assumed Liabilities prior to the Closing
Date and any condition precedent to the Closing relating thereto shall have been
waived by Buyer and/or Seller as applicable, then such failure shall not
constitute a breach of any representation or warranty of Seller or Parent and
Buyer shall attempt, with the reasonable assistance of Seller and Parent, when
requested by Buyer, to obtain such consents and approvals promptly after the
Closing Date. Within five (5) Business Days after the date hereof, the Parties
shall mutually agree in good faith which consents set forth on Schedule 3(c) are
-------------
deemed to be Required Consents.
(l) Non-Compete
-----------
Each of Seller and Parent agrees that it will not:
(A) for a period of two (2) years from and after the Closing Date
(the "Non-Compete Period"), directly or indirectly (whether
as owner, consultant, employee, partner, venturer, agent
through stock ownership, investment of capital, lending of
money or property, or otherwise) anywhere in the world,
engage in the marketing, sale and distribution to consumers
by direct mail and advertising in free-standing-inserts in
newspapers, magazines, and/or other publications of products
which are of the type offered for sale by Seller and/or the
Acquired Business during 1997 and/or 1998, provided however
that nothing herein contained shall prohibit Xxxxx Xxxxxx
Promotions, Inc. and/or V.P. Holdings, Inc. and its
subsidiaries from continuing to be engaged in the business of
selling direct-mail advertising and promotions of the type
sold by such entities in the 24 months prior to the execution
of this Agreement;
(B) during the Non-Compete Period, employ or retain, or have or
cause any other Person or entity to employ or retain or
otherwise cause to terminate his or her employment with
Buyer, any key employee who was employed or retained by Buyer
or Seller at any time during the three-month period prior to
the Closing Date and which key employees shall be identified
by Buyer to Seller in writing any time prior to the Closing
(the "Key Employees");
(C) for a period of three months following the Closing, employ or
retain, or have or cause any other Person or entity to employ
or retain or otherwise cause to terminate his or her
employment with Buyer any other employee who was employed or
retained by Buyer at the Closing Date; provided, however,
that Seller shall not in any
28
event during the Non-Compete Period solicit the employment of
such employee or cause such employees to leave the employment
with Buyer, and, provided, further, that Seller or Parent
shall not be restricted from employing any employee (other
than a Key Employee) to whom an offer of employment has not
been made by Buyer as of the Closing; or
(D) during the Non-Compete Period, solicit, interfere with, or
endeavor to entice away from Buyer, any principal,
salesperson, supplier or other Person with whom Buyer or
Seller, during the 12-month period prior to the Closing Date
or during the Non-Compete Period, has conducted business or
has had an introduction, lead, relationship, understanding or
arrangement.
Notwithstanding anything set forth in this Section 5(l) to the contrary, no
owner of stock of GDI or owner of less than five percent (5%) of the outstanding
stock of any publicly traded corporation shall be deemed, solely by reason
thereof, to engage in any of its businesses.
(m) Risk of Loss; Condemnation.
---------------------------
(i) Seller will bear the risk of any loss or damage to the Acquired
Assets resulting from fire, theft or other casualty (except
reasonable wear and tear) at all times prior to the Closing. If
any such loss or damage, in the reasonable opinion of Buyer, is
so substantial as to (I) prevent normal operation of any
material portion of the Business or the replacement or
restoration of the lost or damaged property within 20 days
after the occurrence of the event resulting in such loss or
damage, or (II) result in a Material Adverse Effect, Seller
will (a) immediately notify Buyer of that fact and (b) any
Party may elect to terminate this Agreement. If any Party
elects so to terminate this Agreement, all Parties will be
discharged of any and all obligations hereunder (other than any
obligations arising from a breach by any Party of this
Agreement). If the Parties mutually elect to consummate the
transactions contemplated by this Agreement notwithstanding
such loss or damage and do so, all insurance proceeds payable
as a result of the occurrence of the event resulting in such
loss or damage will be delivered promptly by Seller to Buyer,
or the rights to such proceeds will be assigned by Seller to
Buyer if not yet paid over to Seller, and Seller will pay to
Buyer an amount equal to the difference between the amount of
such insurance proceeds and the full replacement cost of the
damaged or lost assets as reasonably agreed to by the Parties.
(ii) If, prior to the Closing, all or any part of or interest in the
Acquired Assets is taken or condemned as a result of the
exercise of the power of eminent domain, or if a Governmental
Body having such power informs Seller or Buyer that it intends
to condemn all or any part of or interest in the
29
Acquired Assets, and such taking is, in the reasonable opinion
of Buyer, so substantial as to prevent normal operation of any
material portion of the Business (such event being called, in
either case, a "Taking"), then any Party may terminate this
Agreement. If all Parties mutually elect to consummate the
transactions contemplated by this Agreement, notwithstanding
such Taking, then (I) Buyer will have the sole right, in the
name of Seller, if Buyer so elects, to negotiate for, claim,
contest and receive all damages with respect to the Taking;
(II) Seller will be relieved of its obligation to convey to
Buyer the assets or interests that are the subject of the
Taking; (III) at the Closing, Seller will assign to Buyer all
of Seller's rights to all damages payable with respect to such
Taking and will pay to Buyer all damages previously paid to
Seller with respect to the Taking; and (IV) following the
Closing, Seller will give Buyer such further assurances of such
rights and assignments with respect to the taking as Buyer may
from time to time reasonably request.
(n) Tax Return Filing and Payment.
------------------------------
(i) Seller and Parent shall prepare and file any Tax Return with
appropriate Federal, state and local government agencies,
required to be filed with respect to Taxes (excluding income
taxes), a portion of which relates to the assets or the
operations of the Business for periods beginning prior to the
Closing Date for which a return or payment is due after the
Closing Date (collectively, "Straddle Non-Income Tax Returns").
Buyer shall prepare and file all other Tax Returns and pay all
other Taxes required to be filed or paid after the Closing Date
which solely relate to periods after the Closing Date.
(ii) For each Straddle Non-Income Tax Return, Seller and Parent
shall notify Buyer, in good faith, of its obligation for the
Taxes due (or portion thereof, in the case of property Taxes)
in accordance with the terms of this Agreement, within 30 days
of the due date of such Tax Return. Buyer shall remit such
amounts to Seller and Parent within 15 days of such notice. Any
interest, penalties or additional amounts imposed by the
relevant taxing authority caused by Buyer's failure to so remit
such amounts shall be an obligation of Buyer.
(iii) The Parties shall provide each other at no additional charge
with such assistance as may reasonably be requested in
connection with the preparation of any Tax Return relating to
the Acquired Assets.
(iv) Attached hereto as Schedule 5(n) is a schedule of all Tax
-------------
Returns currently being filed by Seller and Parent and their
Affiliates relating to the Acquired Assets and the Business.
Seller and Parent shall not be liable for
30
any penalties imposed on Buyer as a result of Buyer's reliance
on such schedule.
(o) General.
--------
Each of the Parties will use its reasonable best efforts to take all action
and to do all things necessary in order to consummate and make effective the
transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Section 6 below).
(p) Operation of Business.
----------------------
Prior to the Closing, Seller will not engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of Business.
Without limiting the generality of the foregoing, Seller will not engage in any
practice, take any action, or enter into any transaction of the sort described
in Section 3(g) above.
(q) Preservation of Business.
-------------------------
Prior to the Closing, Seller will keep its business and properties
substantially intact, including its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(r) Full Access.
------------
Prior to the Closing, upon request of Buyer, Seller will permit
representatives of Buyer to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of Seller, to
all premises, properties, personnel, books, records (including tax records),
contracts, and documents of or pertaining to Seller.
(s) No Solicitation.
----------------
Until September 15, 1998, Seller and Parent shall not (i) solicit,
initiate, or encourage the submission of any proposal or offer from any Person
relating to the acquisition of any capital stock or other voting securities, or
any substantial portion of the assets, of Seller (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate in
any discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing.
(t) Material Adverse Change.
------------------------
(i) Subject to the provisions of Section 3(ff), Seller and Parent
shall give prompt written notice to Buyer of any material
adverse development of which the officers or directors of
either Seller or Parent have Knowledge after reasonable
investigation and which Seller and Parent believe causes a
breach of any of their representations and warranties in
Section 3 above.
31
No disclosure by Seller pursuant to this Section 5(t), however,
shall be deemed to amend or supplement Schedules to this
Agreement or to prevent or cure any misrepresentation, breach
of warranty, or breach of covenant.
(ii) Subject to the provision of Section 4(g), Buyer shall give
prompt written notice to Seller and Parent of any material
adverse development of which the officers or directors of Buyer
have Knowledge after reasonable investigation and which it
believes causes a breach of any of its representations and
warranties in Section 4 above. No disclosure by Buyer pursuant
to this Section 5(t), however, shall be deemed to amend or
supplement Schedules to this Agreement or to prevent or cure
any misrepresentation, breach of warranty, or breach of
covenant.
(u) Transfer Taxes.
---------------
Buyer shall pay and hereby agrees to indemnify Seller and Parent, and any
Affiliate thereof, from and against any sales, use, excise, transfer or similar
Taxes that are imposed on or in connection with the consummation of the
transactions contemplated hereby, regardless of the identity of the Person on
which liability is imposed under law, provided that nothing herein shall shift
the liability for sales and use Taxes arising prior to the Closing.
(v) Satisfaction of Excluded Liabilities.
-------------------------------------
Seller and Parent shall satisfy when due all Excluded Liabilities, except
those Excluded Liabilities that Seller disputes in good faith.
(w) Employee Benefit Matters.
-------------------------
(i) Buyer agrees that it will provide Seller with notice of which
employees of Seller that Buyer intends to hire at least five
(5) Business Days before the Closing Date. With respect to the
employees of Seller hired by Buyer ("Hired Employees"), Buyer
---------------
shall honor all accrued vacation not taken by such employees
for the calendar year in which the Closing occurs to the extent
such accrued vacation does not exceed that awarded to Buyer's
other employees pursuant to Buyer's standard vacation accrual
and year-end carryover policy.
(ii) Buyer shall offer health plan coverage to all of the Hired
Employees who become employed by Buyer as of the Closing Date
on terms and conditions generally applicable to all of Buyer's
employees. For purposes of providing such coverage, Buyer shall
waive all preexisting condition limitations for all such Hired
Employees covered by the Seller's health care plan as of the
Closing Date and shall provide such health care coverage
effective as of the Closing Date without the application of any
eligibility period for coverage. In addition, Buyer shall
credit all
32
employee payments toward deductible and co-payment obligation
limits under Seller's health care plans for the plan year which
includes the Closing Date as if such payments had been made for
similar purposes under Buyer's health care plans during the
plan year which includes the Closing Date, with respect to the
Hired Employees who become employed by Buyer as of the Closing
Date.
(iii) For each Hired Employee who Buyer hires on the Closing Date,
Buyer shall give past service credit for all crediting purposes
under each of its employee benefit plans that, on or after the
Closing Date, provides coverage to the Hired Employees employed
by Buyer as of the Closing Date to the same extent such
employment service was credited for similar purposes under
Seller's employee benefit plans prior to the Closing Date.
(iv) In accordance with the provisions of Internal Revenue Service
Revenue Procedure 96-60, Buyer shall assume the obligation to
make all Form W-2 income tax report filings for the calendar
year in which the Closing Date occurs, and Seller shall be
relieved from making any such filings with respect to the Hired
Employees that are employed by Buyer as of the Closing Date.
Seller shall provide to Buyer all information, including
withholding certificates, as may be reasonably requested by
Buyer to accomplish Buyer's obligations under this Agreement.
(v) Buyer shall offer employment to a sufficient number of the
employees employed by Seller as of the Closing Date to ensure
that fifty or more employees of Seller do not experience
"employment loss," as that term is defined in the Worker
Adjustment Retraining Notification Act, Public Law 100-379
(August 4, 1988) ("WARN Act") during the ninety (90) day period
--------
prior to and including the Closing Date. Buyer shall continue
to employ such employees who accept such offers for a period of
at least ninety (90) days after the Closing Date, except for
such employees who voluntarily terminate employment, retire or
are discharged for cause. Buyer shall be solely responsible for
and shall indemnify and hold Seller harmless from any liability
arising under the WARN Act after the Closing Date, including
without limitation any liability arising out of Buyer's failure
to extend such offers of employment to such employees of
Seller.
(x) Use of Trademark "Xxxxx Xxxxxx".
--------------------------------
Parent and Seller agree that Buyer may use all existing printed materials
included in the Acquired Assets even if such materials bear the service xxxx
"Xxxxx Xxxxxx". Buyer covenants and agrees to cease using the service xxxx
"Xxxxx Xxxxxx" on all printed materials as soon as practicable following the
Closing Date, but in no event later than December 31, 1999.
33
(y) Letters of Credit.
------------------
Buyer covenants and agrees to replace (or to provide other assurances of
payment satisfactory to such vendors) as of the Closing Date outstanding letters
of credit, bonds and powers of attorney, which are in place as of the Closing
Date to secure the obligations of Seller to pay for merchandise ordered in the
Ordinary Course of Business but not yet received.
(z) Payment of Certain Assumed Liabilities.
--------------------------------------
The Assumed Liabilities that are payable by Seller to Parent or its
Affiliates listed on the Closing Date Net Tangible Asset Statement shall be paid
by Buyer on or prior to December 31, 1998.
(aa) Unclaimed Property Tax Returns.
------------------------------
Included in the Assumed Liabilities set forth on the Closing Date Net
Tangible Assets Statement will be an amount relating to refund checks that have
been issued to customers of the Acquired Business but which have not as yet been
cashed as of the Closing. With respect to such refund amounts for which a Tax
is due and payable as of the Closing Date under state unclaimed property laws or
similar escheat laws, Seller and Parent covenant and agree to file all required
Tax Returns with respect thereto and to pay all Taxes reflected thereon as soon
as reasonably practicable following the Closing. Buyer shall reimburse Seller
for the amount of such Taxes actually paid to the applicable Governmental Body
within 30 days of receipt by Buyer of an invoice therefor from Seller, together
with a copy of the applicable Tax Returns and such other supporting materials as
Buyer may reasonably request.
SECTION 6. CONDITIONS TO OBLIGATION TO CLOSE.
---------------------------------
(a) Conditions to Obligation of Buyer.
----------------------------------
The obligation of Buyer to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in Section 3 above
shall be true and correct in all material respects at and as of
the Closing Date;
(ii) Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the
Closing;
(iii) Seller shall have procured all of the Required Consents
specified in Schedule 3(c) at or prior to the Closing;
-------------
(iv) no action, suit or proceeding is pending before any
Governmental Body or arbitrator wherein an unfavorable Order
would (A) prevent consummation of any of the transactions
contemplated by this Agreement or the other Transaction
Documents, (B) cause any of the transactions contemplated by
this Agreement or the other Transaction Documents to be
rescinded
34
following consummation or (C) affect adversely the Acquired
Assets or their value or the right of Buyer to own the Acquired
Assets and to operate the Acquired Business (and no such Order
shall be in effect);
(v) all material registrations, filings, applications, notices,
consents, approvals, orders, qualifications and waivers required
in respect of the transactions contemplated hereby shall have
been filed, made or obtained, and all waiting periods applicable
under the HSR Act shall have expired or been terminated;
(vi) Seller shall have delivered to Buyer a certificate signed by a
Vice President of Seller, without personal liability, to the
effect that each of the conditions specified above in Section
6(a)(i) and (ii) is satisfied;
(vii) Buyer shall have received from or on behalf of Seller delivery
of all the Closing Documents listed in Section 7(a) below;
(viii) all actions to be taken by Seller and Parent in connection
with consummation of the transactions contemplated hereby and by
the other Transaction Documents and all certificates, opinions,
instruments and other documents required to effect the
transactions contemplated hereby and thereby will be reasonably
satisfactory in form and substance to Buyer;
(ix) Seller shall have delivered the audited balance sheet and related
statements of operations, stockholder's equity and cash flows of
Seller as of and for the fiscal year ended December 26, 1997
prepared in accordance with GAAP and which conform with the
provisions of Regulation S-X of the Securities Act, which have
been previously delivered to Buyer in draft form and with respect
to which Buyer acknowledges that none of the conditions specified
in the definition of "significant subsidiary" in Rule 1-02(w) of
Regulation S-X exceeds 40% when compared to the consolidated
financial statements of GDI. The reasonable cost of preparing
the aforesaid financial statements shall be borne by Seller.
Alternatively, should such statements not be available prior to
the Closing, Seller shall have delivered prior to the Closing a
letter from the Seller's Accountant confirming that they can
provide such audited financial statements. In addition, Seller
shall have delivered a letter, in substantially the form set
forth in Exhibit G, from the Seller's Accountant, containing an
---------
undertaking to consent in the future to the use by Buyer or its
Affiliates, in documents filed pursuant to the Securities Act or
the Securities Exchange Act, of the above required financial
statements of Seller audited by such auditors and the auditor's
reports with respect to such financial statements;
(x) The Estimated Closing Date Net Tangible Assets (as defined below)
of Seller shall be not less than Six Million Dollars
($6,000,000). The amount
35
of the Estimated Closing Date Net Tangible Assets shall be based
on a statement of the Net Tangible Assets of Seller delivered by
Seller no less than 5 days prior to the Closing Date (which was
prepared in good faith by Seller in accordance with GAAP and
accepted by Buyer, the "Estimated Closing Date Net Tangible
Assets Statement"), as estimated for and as of the Closing Date
(the "Estimated Closing Date Net Tangible Assets"); and
(xi) Seller shall deliver at the Closing a complete, accurate and
current, as of a date within two weeks prior to Closing,
"marketing extract" in electronic form useable by Buyer,
extracted from Seller's database. The marketing extract shall
include, and Seller and Parent hereby covenant that it will
include:
(A) The names of all customers located in the United States,
Canada and Germany, with addresses, ever obtained by Seller
(except for the loss of certain customers which is the
subject of item 4 on Schedule 3(m)(iii)), including but not
------------------
limited to, the names and addresses of all customers, ship
to's and "giftees" located in the United States and the
names and addresses of all persons in the United States who
have inquired about Seller's catalogs in the 60 days
immediately preceding the date of such marketing extract;
(B) For buyers located in the United States and Germany (except
for the loss of certain customers which is the subject of
item 4 on Schedule 3(m)(iii)), associated transaction
------------------
details, including but not limited to, dates and promotional
sources of all transactions, products purchased in each
transaction since 1994, partial customer service history
associated with each transaction, payment type and credit
worthiness information; and
(C) Tables, legends and other explanatory information that will
enable Buyer to interpret all coded information, such as
source codes, product codes, etc.
In the event Seller is unable to deliver the marketing extract in
electronic form required by this Section 6(a)(xi), Seller shall be deemed to
have fulfilled its obligation hereunder by delivering to Buyer at the Closing a
complete system back-up of all of the data files containing all of the
information requested in this Section 6(a)(xi) and delivery within 15 days after
the Closing to Buyer of the marketing extract in electronic form requested by
this Section 6(a)(xi).
Buyer may waive any condition specified in this Section 6(a) if it executes
a writing so stating at the Closing, it being understood that if Buyer elects to
waive in writing any of such conditions and proceed with the Closing, no claim
or right to be indemnified for failure to satisfy such condition shall be
available to Buyer.
36
(b) Conditions to Obligation of Seller.
-----------------------------------
The obligation of Seller to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in Section 4 above
shall be true and correct in all material respects at and as of
the Closing Date;
(ii) Buyer shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii) no action, suit or proceeding is pending before any
Governmental Body or arbitrator wherein an unfavorable Order
would (A) prevent consummation of any of the transactions
contemplated by this Agreement or the other Transaction Documents
or (B) cause any of the transactions contemplated by this
Agreement or the other Transaction Documents to be rescinded
following consummation or (C) affect adversely the ability of
Buyer to assume the Assumed Liabilities (and no such Order shall
be in effect);
(iv) Buyer shall have procured all of the consents specified in
Schedule 4(c) at or prior to the Closing;
-------------
(v) all material registrations, filings, applications, notices,
consents, approvals, orders, qualifications and waivers required
in respect of the transactions contemplated hereby shall have
been filed, made or obtained, and all waiting periods applicable
under the HSR Act shall have expired or been terminated;
(vi) Buyer shall have delivered to Seller a certificate signed by the
Chief Executive Officer of Buyer, without personal liability, to
the effect that each of the conditions specified above in
Section 6(b)(i) and (ii) is satisfied;
(vii) Buyer shall have made available to Seller such information
concerning GDI as may be reasonably necessary to enable Seller to
be reasonably satisfied of GDI's ability to fulfill its duties
and obligations pursuant to the Registration Rights Agreement;
(viii) Seller shall have received from or on behalf of Buyer all of the
Closing Documents listed in Section 7(b) below;
(ix) all actions to be taken by Buyer or GDI in connection with
consummation of the transactions contemplated hereby and by the
other Transaction Documents and all certificates, opinions,
instruments and other documents required to effect the
transactions contemplated hereby and thereby will be reasonably
satisfactory in form and substance to Seller;
37
(x) Seller shall have received the certificate of GDI and the other
deliveries of GDI to be delivered to Seller pursuant to the GDI
Agreement; and
(xi) Seller shall have received the consent of the landlord to enter
into the Sublease.
Seller may waive any condition specified in this Section 6(b) if it executes a
writing so stating at the Closing, it being understood that if Seller elects to
waive in writing any of such conditions and proceeds with the Closing, no claim
or right to be indemnified for failure to satisfy such condition shall be
available to Seller.
SECTION 7. CLOSING DOCUMENTS.
-----------------
(a) Seller and Parent Deliveries.
-----------------------------
Seller or Parent, as the case may be, shall execute and deliver (or cause
the execution and delivery of) the following documents to Buyer, prior to or
simultaneously with the Closing:
(i) the Xxxx of Sale;
(ii) the Assignment Documents;
(iii) the Required Consents listed on Schedule 3(c) and all other
-------------
documents necessary to convey good and valid title to the
Acquired Assets;
(iv) the Escrow Agreement;
(v) the Registration Rights Agreement;
(vi) a certificate, dated the Closing Date, of the Secretary of each
of Seller and Parent: (A) attaching copies, certified by such
officer, without personal liability, as true and complete, of
the Bylaws of each of Seller and Parent, as amended to the
Closing Date; (B) attaching resolutions of the Board of
Directors and the stockholders of each of Seller and Parent, if
required, in connection with the authorization and approval of
the execution, delivery and performance by each of Seller and
Parent of this Agreement and the Transaction Documents to which
it is a party; (C) setting forth the incumbency of the officer
or officers of each of Seller and Parent who have executed and
delivered this Agreement and each other Transaction Document to
which it is a party, including therein a signature specimen of
each such officer or officers; (D) attaching copies, certified
by the Secretary of State of the State of Delaware, of each of
Seller and Parent's Certificate of Incorporation as amended to
the Closing Date; and (E) certifying without personal liability
that no action, suit or proceeding is pending before any
Governmental Body or arbitrator wherein an unfavorable Order
would (1) prevent consummation of any of the
38
transactions contemplated by this Agreement or the other
Transaction Documents, (2) cause any of the transactions
contemplated by this Agreement or the other Transaction
Documents to be rescinded following consummation or (3) affect
adversely the Acquired Assets or their value or the right of
Buyer to own the Acquired Assets and to operate the Acquired
Business (and that no such Order is in effect);
(vii) a license agreement with Buyer in substantially the form of
Exhibit H (the "License Agreement");
---------
(viii) a service agreement executed by Parent with GDI incorporating
the terms and conditions set forth in the draft agreement
attached hereto as Exhibit I (the "Service Agreement");
---------
(ix) an opinion of Dow, Xxxxxx & Xxxxxxxxx, PLLC, counsel to Seller
in substantially the form and substance as set forth in
Exhibit J;
---------
(x) UCC-3 financing statements terminating UCC-1 financing
statements filed wherever and whenever, including with the
Delaware, Connecticut and Nebraska Secretary of State and the
Lancaster County, Nebraska, and Stamford (Town), Connecticut,
Clerk's Office, releasing all Security Interests held by any
Person in the Acquired Assets, including, without limitation,
those security interests evidenced by the UCC-1 financing
statements set forth on Schedule 7(a)(x);
----------------
(xi) evidence reasonably acceptable to Buyer that Seller has taken
all steps necessary to change, effective immediately following
the Closing: its corporate name to any name other than "Xxxxx
Xxxxxx Gifts, Inc." or any variant or abbreviation thereof;
provided that Xxxxx Xxxxxx Promotions, Inc. shall not be
-------- ----
required to change its corporate name;
(xii) an assignment to Buyer of Seller's merchant numbers used for
credit card purchases, to the extent transferable;
(xiii) the Sublease (including an estoppel certificate from the
lessor);
(xiv) letters from each of MCI and Sprint, consenting to the
assignment and transfer to Buyer of all toll-free 800 and 888-
prefix phone numbers used by Seller in the Business; and
(xv) the Lease between Buyer and Seller.
(b) Buyer Deliveries.
-----------------
Buyer shall execute and deliver to Seller (or cause the execution and
delivery of) the following documents to Seller, prior to or simultaneously with
the Closing:
39
(i) the Xxxx of Sale executed by Buyer;
(ii) the Assignment Documents;
(iii) the Stock Certificates for the Shares issued by GDI;
(iv) the consideration provided for in Section 2(c)(iii), by wire
transfer of immediately available funds;
(v) the Escrow Agreement executed by Buyer;
(vi) the Registration Rights Agreement executed by GDI;
(vii) a certificate, dated the Closing Date, of the Secretary or other
authorized representative of each of Buyer and GDI: (A)
attaching resolutions of the members of Buyer and the Board of
Directors and the stockholders, if required, of GDI, in
connection with the authorization and approval of the execution,
delivery and performance of this Agreement (in the case of
Buyer) and the other Transaction Documents to which it is a
party; (B) attaching copies, certified by such officer, without
personal liability, as true and complete of the Limited
Liability Company Agreement of Buyer and of the Bylaws of GDI;
(C) setting forth the incumbency of the officer or officers of
each of Buyer and GDI who have executed and delivered this
Agreement (in the case of Buyer) and each other Transaction
Document to which it is a party, including therein a signature
specimen of each such officer or officers; (D) attaching copies,
certified by the Secretary of State of the State of Delaware, of
Buyer's Certificate of Formation and GDI's Articles of
Incorporation; (E) certifying, without personal liability, that
no action, suit or proceeding is pending before any Governmental
Body or arbitrator wherein an unfavorable Order would (1)
prevent consummation of any of the transactions contemplated by
this Agreement or the other Transaction Documents, (2) cause any
of the transactions contemplated by this Agreement or the other
Transaction Documents to be rescinded following consummation or
(3) affect adversely the right of Buyer to assume the Assumed
Liabilities or pay the Purchase Price (and that no such Order is
in effect);
(viii) all material authorizations, consents and approvals of
governments and governmental agencies set forth in Schedule 4(c)
-------------
hereof;
(ix) the License Agreement;
(x) the Service Agreement;
(xi) an opinion of Xxxxxxxx & Xxxxxxxx LLP, counsel to Buyer and GDI,
in substantially the form and substance as set forth in Exhibit
-------
L;
--
40
(xii) the Lease; and
(xiii) the Sublease.
SECTION 8. TERMINATION.
-----------
(a) Method of Termination.
----------------------
This Agreement may be terminated or abandoned only as follows:
(i) At any time prior to the Closing by the mutual consent of the
Parties hereto;
(ii) By Buyer after September 30, 1998, if any of the conditions
set forth in Section 6(a) hereof to which the obligations of
Buyer are subject have not been fulfilled or waived in
writing, unless such fulfillment has been frustrated or made
impossible by any act or failure to act of Buyer;
(iii) By Seller after September 30, 1998, if any of the conditions
set forth in Section 6(b) hereof to which the obligations of
Seller are subject have not been fulfilled or waived in
writing, unless such fulfillment has been frustrated or made
impossible by any act or failure to act of Seller or Parent;
or
(iv) By any Party pursuant to the terms of Sections 5(m) ("Risk of
Loss; Condemnation") and 10(c) ("HSR and Other Filings").
(b) Rights Upon Termination.
------------------------
(i) In the event of a termination of this Agreement pursuant to
Section 8(a)(i) or 8(a)(iv) hereof, each Party shall pay the
costs and expenses incurred by it in connection with this
Agreement, and no Party (or any of its officers, directors,
members, employees, agents, representatives or stockholders)
shall be liable to any other Party for any cost, expense,
damage or loss of anticipated profits hereunder.
(ii) In the event of a termination of this Agreement pursuant to
Section 8(a)(ii) hereof and either Seller or Parent is in
breach of any material provision of this Agreement, then
Buyer shall have the right to seek all remedies available to
it as provided under this Agreement and at law.
(iii) In the event of termination of this Agreement pursuant to
Section 8(a)(iii) hereof and Buyer is in breach of any
material provision of this Agreement, then Seller and Parent
shall have the right to seek all remedies available to them
as provided under this Agreement and at law.
41
(iv) In the event of termination of this Agreement for any reason,
the confidentiality provisions contained in Section 5(b) hereof
shall survive.
SECTION 9. ARBITRATION OF DISPUTES.
-----------------------
(a) Mandatory Arbitration.
----------------------
Buyer, on the one hand, and Seller and Parent, on the other, shall promptly
submit any dispute, claim or controversy arising out of or relating to this
Agreement or any Transaction Document (including, without limitation, with
respect to the meaning, effect, validity, termination, interpretation,
performance or enforcement of this Agreement or such Transaction Document) or
any alleged breach (including any action in tort, contract, equity or otherwise)
to binding arbitration before one arbitrator (the "Arbitrator"). The Parties
agree that, except as otherwise provided herein respecting temporary or
preliminary injunctive relief, binding arbitration shall be the sole means of
resolving any dispute, claim or controversy arising out of or relating to this
Agreement or any Transaction Document (including, without limitation, with
respect to the meaning, effect, validity, termination, interpretation,
performance or enforcement of this Agreement or such Transaction Document) or
any alleged breach (including any claim in tort, contract, equity or otherwise).
(b) Arbitrator's Qualifications and Selection.
------------------------------------------
The Arbitrator shall be an active member of the New York Bar, specializing
for at least 15 years in mergers and acquisitions. The Arbitrator shall be
selected by the New York chapter head of the American Arbitration Association
upon the request of any Party. The Arbitrator shall be selected within 30 days
of request.
(c) Governing Law; Written Decision.
--------------------------------
Any arbitration hereunder or under any Transaction Document, shall be
governed by the laws of the State of Delaware, which laws the Arbitrator shall
apply in rendering his or her decision. The Arbitrator shall issue a written
decision, setting forth findings of fact and conclusions of law, within 60 days
after he or she shall have been selected. The Arbitrator shall have no
authority to award punitive or other exemplary damages.
(d) Procedures; Evidence; Experts.
------------------------------
(i) Any arbitration instituted by a Party shall be held in New
York, New York, in accordance with and under the then-current
provisions of the rules of the American Arbitration
Association, except as otherwise provided herein.
(ii) On application to the Arbitrator, any Party shall have rights
to discovery to the same extent as would be provided under the
Federal Rules of Civil Procedure and the Federal Rules of
Evidence shall apply to any Arbitration under this Agreement;
provided, however, that the Arbitrator
-------- -------
42
shall limit any discovery or evidence such that his or her
decision shall be rendered within the period referred to in
Section 9(c).
(iii) The Arbitrator may, at his or her discretion and at the expense
of the Party(ies) who will bear the cost of the Arbitration,
employ experts to assist him or her in his or her
determinations.
(e) Costs.
------
The costs (excluding the fees of counsel for the Parties) of the
Arbitration proceeding shall be borne solely by the unsuccessful Party and shall
be awarded as part of the Arbitrator's decision, unless the Arbitrator shall
otherwise allocate such costs, for reasons set forth in such decision.
(f) Consent to Jurisdiction.
------------------------
Any judgment upon any award rendered by the Arbitrator may be entered in
and enforced by any court of competent jurisdiction. The Parties expressly
consent to the jurisdiction of the Federal courts in New York, New York to
enforce any award of the Arbitrator or to render any provisional or injunctive
relief in connection with or in aid of the arbitration. The Parties expressly
consent to the personal and subject matter jurisdiction of the Arbitrator to
arbitrate any and all matters to be submitted to arbitration hereunder. None of
the Parties hereto shall challenge any arbitration hereunder on the grounds that
any Person necessary to such arbitration (including, without limitation, any
Party hereto) shall have been absent from such arbitration for any reason,
including, without limitation, that such Person shall have been the subject of
any bankruptcy, reorganization or insolvency proceeding.
(g) Injunctive Relief.
------------------
This Section 9 shall not prevent any Party from seeking or obtaining
temporary or preliminary injunctive relief in a court for any breach or
threatened breach of any provision of this Agreement or any Transaction
Document; provided, that the determination whether such breach or threatened
--------
breach shall have occurred and the remedy therefor (other than with respect to
such preliminary or temporary relief) shall be made by arbitration pursuant to
this Section 9.
(h) Indemnification.
----------------
The Parties shall indemnify the Arbitrator and any experts employed by the
Arbitrator and hold them harmless from and against any Claim arising out of any
arbitration under this Agreement or any Transaction Document, unless resulting
from the willful misconduct of the Person indemnified.
(i) Survival.
---------
The provisions of this Section 9 shall survive the termination of this
Agreement and any Transaction Document.
43
(j) WAIVER OF JURY TRIAL; EXEMPLARY DAMAGES.
----------------------------------------
ALL PARTIES HEREBY WAIVE THEIR RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY
DISPUTE ARISING UNDER THIS AGREEMENT OR ANY TRANSACTION DOCUMENT. No Party
shall be awarded punitive or other exemplary damages respecting any dispute
arising under this Agreement or any Transaction Document.
(k) Interest.
---------
Any amount payable by one Party to another under this Section 9, shall bear
interest at the rate of 12% per annum from the date due until paid.
SECTION 10. OTHER AGREEMENTS.
----------------
(a) Lockup of the Shares.
---------------------
Seller agrees not to offer, sell or contract to sell, or otherwise dispose
of, directly or indirectly (including short sales, sales against the tax and/or
other hedging to derivative transactions) or announce an offering of, any Shares
beneficially owned by Seller before November 4, 1998, without Buyer's prior
written consent.
(b) Press Releases and Public Announcements.
----------------------------------------
Upon the signing of this Agreement or within a reasonable time thereafter,
Buyer shall, and Seller or Parent may, issue a press release relating to the
purchase and sale of the assets of Seller. The text of such press release shall
be subject to the reasonable approval, which will not be unreasonably withheld
or delayed, of Seller and Parent or Buyer, as the case may be. No Party shall
disclose to any third party, other than its legal and financial advisors and
others who need to know in order to consummate this Agreement, the terms of this
Agreement or the other Transaction Documents, without the prior written approval
of the other Parties; provided, however, that any Party may make any public
-------- -------
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(c) HSR and Other Filings.
----------------------
Each of the Parties agrees to use commercially reasonable efforts to effect
all necessary registrations and filings including, but not limited to, filings
under the HSR Act, if applicable, and submissions of information requested by
Governmental Bodies, necessary to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement and to cooperate
with the other Parties in connection with the foregoing. The Parties shall use
commercially reasonable efforts to respond as promptly as reasonably practicable
to any inquiries received from the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division") for
additional information or documentation and to respond as promptly as reasonably
practicable to all inquiries and requests received from
44
any other Governmental Body in connection with antitrust matters. The Parties
shall use their respective commercially reasonable efforts to overcome any
objections which may be raised by the FTC, the Antitrust Division or any other
Governmental Body having jurisdiction over antitrust matters. Notwithstanding
anything to the contrary in this Agreement, if any Party, in its reasonable
business judgment, considers the imposition of a condition upon the transactions
by a Governmental Body to be materially adverse to such Party, such Party may
terminate this Agreement.
(d) No Third-Party Beneficiaries.
-----------------------------
This Agreement shall not confer any rights or remedies upon any Person
other than the Parties and their respective successors and permitted assigns.
(e) Entire Agreement.
-----------------
This Agreement (including the Exhibits, Appendices and Schedules) and the
Transaction Documents (including the documents referred to herein and therein)
collectively constitute the entire agreement among the Parties and supersede any
prior and contemporaneous understandings, agreements or representations by or
among the Parties (including, without limitation, the Letter of Proposal and
Term Sheet, dated June 15, 1998), written or oral, to the extent they related in
any way to the subject matter hereof.
(f) Succession and Assignment.
--------------------------
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of its rights, interests or
obligations hereunder without the prior written approval of the other Parties;
provided, however, that Buyer may (i) assign any or all of its rights and
-------- -------
interests hereunder to one or more of its Affiliates and (ii) designate one or
more of its Affiliates to perform its obligations hereunder (in any or all of
which cases Buyer nonetheless shall remain responsible for the performance of
all of its obligations hereunder).
(g) Counterparts.
-------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which together will constitute one and
the same instrument.
(h) Headings.
---------
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
(i) Notices.
--------
All notices, requests, demands, claims and other communications hereunder
will be in writing. Any notice, request, demand, claim or other communication
hereunder shall be deemed
45
duly given if (and then two Business Days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid and addressed to the
intended recipient as set forth below:
If to Seller or Parent:
----------------------
to:
Xxx Target Media, Inc.
0000 Xxxxx Xxxxx Xxxxx
Xxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxx
with a copy in each case
------------------------
(which shall not constitute notice) , to:
-----------------------------------------
Dow, Xxxxxx & Xxxxxxxxx, PLLC
Xxxxx 0000
Xxx Xxxxxxx Xxxxx
Xxxxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
If to Buyer:
-----------
Genesis Direct Forty-Three, LLC
c/o Genesis Direct, Inc.
000 Xxxxx Xxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxx
With a copy to (which shall not constitute notice):
--------------------------------------------------
Xxxxxxx X. Xxxxxxxx Esq. - at the above address
Facsimile: (000) 000-0000
- and -
Xxx Xxxxxxxxxx, Esq.
Xxxxxxxx & Xxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
46
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(j) Governing Law.
--------------
This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Delaware without giving effect to any choice or
conflict of law provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware.
(k) Amendments and Waivers.
-----------------------
No amendment of any provision of this Agreement shall be valid unless the
same shall be in writing and signed by each Party. No waiver by any Party of
any default, misrepresentation or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(l) Severability.
-------------
Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
(m) Expenses.
---------
Each Party will bear its own costs and expenses (including, without
limitation, fees and expenses of accountants, attorneys, financial advisors and
brokers) incurred in connection with the Letter of Proposal and Term Sheet,
dated June 15, 1998, this Agreement, the other Transaction Documents and the
preparation and negotiation thereof and the consummation of the transactions
contemplated hereby and thereby ("Transaction Expenses").
(n) Construction.
-------------
The Parties have participated jointly in the negotiation and drafting of
this Agreement and the other Transaction Documents. In the event an ambiguity
or question of intent or interpretation arises, this Agreement and the other
Transaction Documents shall be construed as if drafted jointly by the Parties
and no presumption or burden of proof shall arise favoring or disfavoring any
Party by virtue of the authorship of any of the provisions of this Agreement and
47
the other Transaction Documents. Any reference to any Federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(o) Incorporation of Appendices, Exhibits and Schedules.
----------------------------------------------------
The Exhibits, Appendices and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
(p) Taxable Asset Purchase.
-----------------------
Each of the Parties agrees that the transaction contemplated in this
Agreement shall be reflected in any Tax Return filed by such Party as taxable
sale (as described in Section 1001 of the Code) of the Acquired Assets.
(q) Further Actions.
----------------
The Parties will execute and deliver to the other (and Buyer shall cause
GDI to deliver), from time to time at or after the Closing, for no additional
consideration and at no additional cost to the requesting party, such further
assignment, certificates, instruments, records or other documents, assurances or
things as may be reasonably necessary to give full effect to this Agreement and
to allow each Party fully to enjoy and exercise the rights accorded and acquired
by it under this Agreement.
(r) Time of the Essence.
----------------------
Time is of the essence under this Agreement. If the last day permitted for
the giving of any notice or the performance of any act required or permitted
under this Agreement falls on a day that is not a Business Day, the time for the
giving of such notice or the performance of such act will be extended the next
succeeding Business Day.
(s) Bulk Sales.
-----------
The Parties acknowledge and agree that Seller and Parent will not comply
with the bulk sale requirements of the Uniform Commercial Code. Buyer agrees
that such non-compliance will not constitute a breach of this Agreement;
provided however, Seller and Parent agree that any claim which is related to an
Adverse Consequence which results from such non-compliance is an Excluded
Liability.
48
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
GENESIS DIRECT FORTY-THREE, LLC
By: /s/ Xxxxxx Xxxxxx
----------------------------------------
Name: Xxxxxx Xxxxxx
Title: President and Chief Executive Officer
XXXXX XXXXXX GIFTS, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Vice President
XXX TARGET MEDIA, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: President and Chief Executive Officer
49
APPENDIX I
DEFINITIONS
-----------
"Acquired Assets" means all of the Business, goodwill, assets,
---------------
properties and rights of every nature, kind and description, whether tangible or
intangible, real, personal or mixed, wherever located and whether or not carried
or reflected on the books and records of Seller, which are (i) owned by Seller
or (ii) in which Seller has any interest, or (iii) which are located on the
premises of Seller or Parent and used exclusively by Seller in its Business as
of the Closing Date, or which are otherwise used exclusively in, related
exclusively to, or useful exclusively to, the Business, except for the Excluded
Assets referred to below. The Acquired Assets shall include, but not be limited
to, the following:
(a) all tangible personal property set forth on Schedule 1.1(a)
---------------
(such as machinery, equipment, inventories of supplies, manufactured and
purchased parts, goods in process and finished goods, furniture, automobiles,
trucks, tractors, trailers, tools, jigs, dies and leasehold improvements);
(b) all Intellectual Property set forth on Schedule 1.1(b), goodwill
---------------
associated therewith, licenses and sublicenses granted and obtained with respect
thereto and rights thereunder, remedies against infringements thereof and rights
to protection of interests therein under the laws of all jurisdictions,
including, without limitation, the exclusive right to use the toll-free
telephone numbers used for Seller's catalogs and the domain name "carolwright
xxxxx.xxx," and the right to use in the Business the names (including
derivatives and variations thereof) and associated logos, if any, "Applecreek,"
"Health & Comfort," and the Miscellaneous Design (collectively, the "Catalog
Names"); provided, however, that the Acquired Assets shall not include any
-------- -------
Intellectual Property specifically listed as an Excluded Asset;.
(c) all agreements, contracts, indentures, mortgages, instruments,
chattel paper, guaranties, other similar arrangements and rights thereunder,
including, without limitation, the leases in respect of (i) the telephone and
computer equipment (to the extent included in the Acquired Assets), and (ii)
warehouse machinery, set forth on Schedule 1.1(c) (the "Assumed Contracts");
---------------
(d) all accounts, notes and other receivables set forth in
Schedule 1.1(d);
---------------
(e) all claims, deposits, prepayments, refunds, causes of action,
chooses in action, rights of recovery, rights of set off and rights of
recoupment (excluding any such item exclusively relating to an Excluded Asset,
Excluded Contract or Excluded Liability);
(f) all franchises, approvals, permits, licenses, orders,
registrations, certificates, variances and similar rights obtained from
governments and governmental agencies set forth in Schedule 1.1(f) to the extent
---------------
transferable;
I-1
(g) all books, records, ledgers, files, documents, correspondence,
customer lists, prospect lists and other lists, plats, architectural plans,
drawings and specifications, creative materials, advertising and promotional
materials, studies, reports and other printed or written material (excluding any
such item exclusively relating to an Excluded Asset, Excluded Contract or
Excluded Liability);
(h) all cash; provided, however, that Seller may exclude cash from
-------- -------
the Acquired Assets so long as the Closing Date Net Tangible Assets do not fall
below $7,750,000;
(i) all prepaid expenses set forth in Schedule 1.1(i) (including all
---------------
prepaid catalog expenses and all rights to Seller's library or collection of
photographs or images (in whatever form or medium) used in Seller's catalogs) to
the extent included in Closing Date Net Tangible Assets; provided that any
prepaid expense that is included in the Closing Date Net Tangible Assets will be
considered part of the Acquired Assets even if its value is zero;
(j) all data processing programs, computer printouts, data bases,
hardware, merchant numbers used for credit card purchases (to the extent
transferable) and related items owned by Seller or used exclusively in the
conduct of the Business, including accounting, invoices, crediting and data
processing losses and programs; and
(k) all rights, claims and causes of action held by or inuring to the
benefit of Seller (excluding any such item relating exclusively to an Excluded
Asset, Excluded Contract or Excluded Liability); provided, however, that the
-------- --------
Acquired Assets shall not include (i) those items specifically listed on
Schedule 1.2; (ii) the corporate charter, qualifications to conduct business as
------------
a foreign corporation, arrangements with registered agents relating to foreign
qualifications, taxpayer and other identification numbers (except merchant
numbers used for credit card purchases to the extent transferable), seals,
minute books, stock transfer books, blank stock certificates and other documents
relating to the organization, maintenance, internal corporate matters and
existence of Seller as a corporation; (iii) any of the rights of Seller under
this Agreement (or under any other agreement between Seller on the one hand and
Buyer on the other hand entered into on or after the date of this Agreement);
(iv) any real property interests owned, held or leased by Seller except to the
extent expressly provided for in the Lease or the Sublease; (v) the Excluded
Contracts and any and all assets which are the subject of any of the Excluded
Contracts; (vi) all claims, causes of actions, choses in action, rights of
recovery and rights of set-off of any kind in favor of Seller and pertaining to,
or arising out of, an Excluded Asset, an Excluded Contract or offsetting any
Excluded Liabilities or with respect to any asset where Seller has retained the
liability therefor or warranty claim with respect thereto; (vii) any employee
benefit plan of Seller; (viii) any current asset of Seller that is not included
in the Closing Date Net Tangible Assets, provided, however, that any asset that
-------- -------
is so included will be considered part of the Acquired Assets even if its value
is zero; (ix) any claims, rights and interests in and to any refunds of Federal,
state or local franchise, income or other Taxes or fees, whether attributable to
Taxes or fees paid with respect to periods ending on or before the Closing Date
or receivable by reason of any carryback to any such period, provided, however,
-------- -------
that Buyer may apply any Tax credit
I-2
received by it from such taxing authority to any liability for such period for
which Buyer is held liable; (x) all Tax Returns and all other records relating
to Excluded Assets or Excluded Liabilities; (xi) all financial records of
Seller; (xii) all insurance policies of Seller; or (xiii) any agreement, right,
asset or property used by Seller that is not exclusively used in the Acquired
Business; or (xiv) the unregistered service xxxx "Xxxxx Xxxxxx Gifts" (except to
the extent granted to Buyer pursuant to the License Agreement) and the service
xxxx "Xxxxx Xxxxxx," together with all derivatives, abbreviations and variations
thereof (all of such excluded items collectively referred to as the "Excluded
Assets").
"Acquired Business" means the businesses and operations acquired by
-----------------
Buyer pursuant to this Agreement.
"actual attorneys' fees" or "attorneys' fees actually incurred" means
---------------------- ---------------------------------
the full and actual costs of any real services actually performed in connection
with the matter for which such fees are sought, calculated on the basis of the
usual fees charged by the attorneys performing such services and shall not be
limited to "reasonable attorneys' fees" as that term may be defined in statutory
or decisional authority.
"Adverse Consequences" means all actions, suits, proceedings,
--------------------
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
reasonable amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses and fees, including court costs and reasonable attorneys' fees
and expenses, whether resulting from the breach of a representation, warranty,
covenant or otherwise.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
---------
regulations promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface of this
---------
Agreement.
"Antitrust Division" has the meaning set forth in Section 10(c) of
------------------
this Agreement.
"Applicable Rate" means the annualized interest rate as determined
---------------
pursuant to Section 1274(d) of the Code.
"Arbitrator" has the meaning set forth in Section 9(a) of this
Agreement.
"Assignment Documents" has the meaning set forth in Section 2(e) of
this Agreement.
"Assumed Contracts" has the meaning set forth in the definition of the
-----------------
term "Acquired Assets."
"Assumed Liabilities" means (i) all Liabilities and obligations listed
-------------------
on Schedule 1.3 hereto, but only to the extent that such Assumed Liabilities
------------
have been incurred in the Ordinary Course of Business and are within usual
commercial terms; (ii) all Liabilities and
I-3
obligations of Seller under the Contracts and other arrangements listed on
Schedule 1.1(c) to furnish goods, services and other non-cash benefits to
---------------
another party after the Closing or to pay for goods, services and other non-cash
benefits that another party will furnish to Seller after the Closing, in each
case in connection with the Business; (iii) those Liabilities included in the
Closing Date Net Tangible Assets; (iv) product liability claims with respect to
the specific inventory included in the Acquired Assets; and (v) the Liabilities
with respect to the Acquired Business arising from and after the Closing
provided that they were not incurred by Seller prior to the Closing. Except as
expressly set forth in the preceding sentence, Buyer shall not assume or be
liable for any liabilities or obligations of Seller, whether the same are direct
or indirect, fixed, contingent or otherwise, known or unknown, whether arising
under an agreement or contract or otherwise, including without limitation the
following: (A) any Liability (including in connection with termination,
compensation, benefits or obligations under any employee benefit plan) relating
to any employee of Seller for the period up to and including the Closing Date,
(B) any product liability, claims for injuries, property damage or other losses
arising with respect to sales of merchandise prior to the Closing (but excluding
with respect to inventory of products existing at or prior to the Closing Date
(which are included in the Acquired Assets and for which Buyer will be
responsible); (C) any Liability for any claim relating to any act, omission,
event, occurrence or condition on or before the Closing Date, whether or not
such claim is asserted, pending or threatened; (D) any Liability for any failure
to comply with or any violation of any Law relating to the Business, which
failure or violation occurred at or prior to the Closing Date; (E) other than to
the extent expressly set forth in this Agreement, any Liability for Taxes
arising as a result of the transactions contemplated hereby and any Liability
for Taxes attributable to the Business for the period up to and including the
Closing Date; (F) any Liability related to matters not disclosed by the Seller
to Buyer hereunder; (G) any Liability in connection with any infringement of any
Intellectual Property rights of any Person for the period up to and including
the Closing Date; (H) the corporate charter, qualification to conduct business
as a foreign corporation, arrangements with registered agents relating to
foreign qualifications, taxpayer and other identification numbers, seals, minute
books, stock transfer books, stock certificates and other documents relating to
the organization, maintenance and existence of Seller as a corporation; (I) any
Liability incurred in connection with the operation of the Business for the
period up to and including the Closing Date other than as expressly set forth in
this Agreement; and (J) any Liability incurred by Seller to Parent or any of its
Affiliates, including, but not limited to, any notes, loans or advances other
than those Liabilities which are included in the Closing Date Net Tangible
Assets.
"Basket Amount" has the meaning set forth in Section 5(d)(iii) of
-------------
this Agreement.
"Xxxx of Sale" has the meaning set forth in Section 2(e) of this
------------
Agreement.
"Business" means the businesses and operations of Seller as conducted
--------
now by Seller anywhere in the world.
"Business Day" means any day other than a Saturday, a Sunday or a day
------------
on which banking institutions in New York, New York are not open for business.
I-4
"Buyer" has the meaning set forth in the preface of this Agreement.
-----
"Buyer Indemnified Parties" has the meaning set forth in Section
-------------------------
5(d)(i) of this Agreement.
"Buyer Indemnified Party" has the meaning set forth in Section 5(d)(i)
-----------------------
of this Agreement.
"Catalog Names" has the meaning set forth in the definition of the
-------------
term "Acquired Assets."
"Claims" mean all actions, suits, notices, claims, demands, orders,
------
Governmental Body-imposed or court-imposed requirements, proceedings, hearings
and investigations.
"Closing" has the meaning set forth in Section 2(d) of this Agreement.
-------
"Closing Date" has the meaning set forth in Section 2(d) of this
------------
Agreement.
"Closing Date Balance Sheet" has the meaning set forth in Section
--------------------------
2(f)(i) of this Agreement.
"Closing Date Net Tangible Assets" has the meaning set forth in
--------------------------------
Section 2(f)(i) of this Agreement.
"Closing Date Net Tangible Assets Statement" has the meaning set forth
------------------------------------------
in Section 2(f)(i) of this Agreement.
"Closing Stock Price" means the closing stock price of the Common
-------------------
Stock on the Business Day immediately prior to the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Common Stock" has the meaning set forth in Section 2(c)(i) of this
------------
Agreement.
"Confidential Information" means any information concerning the
------------------------
businesses and affairs of Seller, Parent, Buyer, the Business or the Acquired
Business that is not already generally available to the public and that is
treated as confidential by the party who owns or created such information, other
than (x) information that is required to be disclosed by applicable law or
judicial order, (y) disclosures made by any Party to its directors, officers,
employees, attorneys, accountants, members, lenders and accredited potential
investors (excluding any potential investors that are competitors of the
Business) and other agents that need the information in connection with the
evaluation and consummation of the transactions contemplated herein, or (z)
disclosures made by any Party as shall be reasonably necessary in connection
with obtaining the consents and approvals set forth in Schedule 3(c) or Schedule
------------- --------
4(c); provided, however, in connection with disclosure of Confidential
---- -------- -------
Information under (x) and (z) hereof, the disclosing Party shall give the other
Party hereto timely prior notice of the anticipated
I-5
disclosure and the Parties shall cooperate in designing reasonable procedural
and other safeguards to preserve, to the maximum extent possible, the
confidentiality of such material.
"Contract" means any contract, agreement, indenture, note, bond, loan,
--------
guaranty, instrument, lease, conditional sale contract, mortgage, license,
franchise, power of attorney, commitment or other binding arrangement, whether
written or oral.
"Environmental, Health and Safety Laws" means the following as in
-------------------------------------
effect as of the date hereof: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and Recovery
Act of 1976 and the Occupational Safety and Health Act of 1970, each as amended,
together with all other laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges thereunder) of
Federal, state, local and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment, public health and safety
or employee health and safety, including laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants or chemical,
industrial, hazardous or toxic materials or wastes into ambient air, surface
water, ground water or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or chemical, industrial, hazardous or toxic
materials or wastes.
"Escrow Agent" has the meaning set forth in the Escrow Agreement.
------------
"Escrow Agreement" has the meaning set forth in Section 2(c)(i) of
----------------
this Agreement.
"Escrow Shares" has the meaning set forth in Section 2(c)(i) of this
-------------
Agreement.
"Estimated Closing Date Net Tangible Assets" has the meaning set forth
------------------------------------------
in Section 6(a)(x) of this Agreement.
"Estimated Closing Date Net Tangible Assets Statement" has the meaning
----------------------------------------------------
set forth in Section 6(a)(x) of this Agreement.
"Excluded Assets" has the meaning set forth in the definitions of the
---------------
term "Acquired Assets."
"Excluded Contracts" means those Contracts of Seller other than
-----------------
Assumed Contracts, including those listed in Schedule 1.2.
------------
"Excluded Liability" means any liability of Seller other than Assumed
------------------
Liabilities.
"FTC" has the meaning set forth in Section 10(c) of this Agreement.
---
"GAAP" means United States generally accepted accounting principles
----
as in effect from time to time.
I-6
"GDI" has the meaning set forth in Section 2(c)(i) of this Agreement.
---
"GDI Agreement" means that certain Agreement of even date herewith
-------------
among Seller, Parent and GDI.
"Governmental Body" means any government or any agency, subdivision or
-----------------
instrumentality of any government.
"Historical Financial Statements" has the meaning set forth in Section
-------------------------------
3(f)(i) of this Agreement.
"Hired Employees" has the meaning set forth in Section 5(w)(i) of this
---------------
Agreement.
"HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
-------
of 1976, as amended.
"Indemnified Party" has the meaning set forth in Section 5(f)(i) of
-----------------
this Agreement.
"Indemnifying Party" has the meaning set forth Section 5(f)(i) of this
------------------
Agreement.
"Intellectual Property" means (a) all inventions (whether patentable
---------------------
or unpatentable and whether or not reduced to practice), all improvements
thereto and all patents, patent applications and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions and reexaminations thereof, (b) all trademarks, service marks, trade
dress, logos, trade names and corporate names, together with all translations,
adaptations, derivations and combinations thereof and including all goodwill
associated therewith and all applications, registrations and renewals in
connection therewith, (c) all copyrightable works, all copyrights and all
applications, registrations and renewals in connection therewith, (d) all mask
works and all applications, registrations and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, housefile databases, mailing lists, customer and supplier lists,
pricing and cost information and business and marketing plans and proposals),
(f) all computer software (including all data and related documentation), (g)
all other proprietary rights and (h) all copies and tangible embodiments thereof
(in whatever form or medium).
"June 1998 Balance Sheet" has the meaning set forth in Section
-----------------------
3(f)(ii) of this Agreement.
"June 1998 Financial Statements" has the meaning set forth in Section
------------------------------
3(f)(ii) of this Agreement.
"Key Employees" has the meaning set forth in Section 5(l)(B) of this
-------------
Agreement.
I-7
"Knowledge" means actual knowledge.
---------
"Law" means any applicable law, statute, code,
---
ordinance, regulation or other requirement of any Governmental Body.
"Lease" has the meaning set forth in Section 3(l)(i) of this
-----
Agreement.
"Liabilities" means any direct or indirect indebtedness, liability,
-----------
claim, loss, damage, obligation or responsibility, known or unknown, fixed or
unfixed, xxxxxx or inchoate, liquidated or unliquidated, secured or unsecured,
accrued, absolute, contingent or otherwise, whether or not of a kind required by
GAAP to be set forth on a financial statement or in the notes thereto,
including, without limitation, any Liabilities for Taxes.
"License Agreement" has the meaning set forth in Section 7(a)(vii) of
-----------------
this Agreement.
"Mailing Lists" has the meaning set forth in Section 3(m)(vii) of this
-------------
Agreement.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
assets, properties, operations, results of operations, condition (financial or
otherwise) of Seller or the Business or on the ability of Seller to consummate
the transactions contemplated herein or in the other Transaction Documents.
"Miscellaneous Design" means the registered service xxxx of the Xxxxx
--------------------
Xxxxxx cameo, registration number 1,542,841.
"Most Recent Balance Sheet" has the meaning set forth in Section
-------------------------
3(f)(i) of this Agreement.
"Most Recent Fiscal Year End" has the meaning set forth in Section
---------------------------
3(f)(i) of this Agreement.
"Net Tangible Assets" for purposes hereof, as of any date of
-------------------
determination (or date of estimated determination) shall be equal to the
following as of such date or date of estimation: (i) cash, accounts receivable
(net of reserves), inventories (net of reserves), prepaid and deferred promotion
costs, prepaid expenses (except prepaid intercompany and prepaid divestiture
expenses), leasehold improvements, furniture, fixtures and equipment, computer
equipment, software and construction in progress (in each case net of all
accumulated depreciation and amortization), and investment in joint venture,
less (ii) accounts payable, deferred revenue, accrued payroll and related
----
withholdings, and other current liabilities, all incurred in the Ordinary Course
of Business for the benefit of the Acquired Assets and Acquired Business
consistent with Seller's past custom and practice, and as reflected on the
Closing Date Net Tangible Asset Statement as determined in accordance with GAAP
consistently applied.
"Non-Compete Period" has the meaning set forth in Section 5(l)(A) of
------------------
this Agreement.
I-8
"NTA Excess" has the meaning set forth in Section 2(f)(iv) of this
----------
Agreement.
"NTA Objections Statement" has the meaning set forth in Section
------------------------
2(f)(ii) of this Agreement.
"NTA Shortfall" has the meaning set forth in Section 2(f)(iii) of
-------------
this Agreement.
"Order" means any order, judgment, ruling, injunction, award, decree,
-----
charge or writ.
"Ordinary Course of Business" means the ordinary course of business of
---------------------------
Seller consistent with past custom and practice (including with respect to
quantity and frequency) and for the direct benefit of the Acquired Business or
the Acquired Assets.
"Parent" has the meaning set forth in the preface of this Agreement.
------
"Parties" has the meaning set forth in the preface of this Agreement.
-------
"Person" means an individual, a partnership (general or limited), a
------
member, a corporation, a limited liability company or partnership, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity (or any department, agency or political
subdivision thereof).
"Post-Closing Determination" has the meaning set forth in Section
--------------------------
2(f)(ii) of this Agreement.
"Purchase Price" has the meaning set forth in Section 2(c) of this
--------------
Agreement.
"Registration Rights Agreement" has the meaning set forth in Section
-----------------------------
2(c)(i) of this Agreement.
"Required Consents" has the meaning set forth in Section 3(c) of this
-----------------
Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
-----------------
charge or other security interest, except for (i) minor imperfections of title
and liens which are not substantial in amount, which do not materially detract
from the property subject thereto or materially impair the use of the property
in the Business and which have arisen in the Ordinary Course of Business, (ii)
liens for Taxes not yet due or which are being contested in good faith by
appropriate proceedings, (iii) pledges or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other social security legislation, (iv) carriers, warehousemen's, mechanics',
materialmen's, repairmen's or other like
I-9
liens arising in the Ordinary Course of Business which are not overdue for a
period of more than 90 days or which are being contested in good faith by
appropriate proceedings, and (v) statutory and contractual liens in favor of
landlords securing leases.
"Seller" has the meaning set forth in the preface to this Agreement.
------
"Seller's Accountant" has the meaning set forth in Section 2(f)(i) of
-------------------
this Agreement.
"Seller Indemnified Parties" has the meaning set forth in Section
--------------------------
5(e)(i) of this Agreement.
"Seller Indemnified Party" has the meaning set forth in Section
------------------------
5(e)(i) of this Agreement.
"Service Agreement" has the meaning set forth in Section 7(a)(viii) of
-----------------
this Agreement.
"Shares" has the meaning set forth in Section 2(c)(i) of this
------
Agreement.
"Signing Stock Price" means the average closing price of the Common
-------------------
Stock, as published in the Wall Street Journal, of the five trading days
immediately prior to the signing of this Agreement.
"Straddle Non-Income Tax Returns" has the meaning set forth in Section
-------------------------------
5(n)(i) of this Agreement.
"Sublease" has the meaning set forth in Section 3(l)(ii) of this
--------
Agreement.
"Subsidiary" means any corporation with respect to which a specified
----------
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Tax" means any Federal, state, local and foreign income, profits,
---
franchise, gross receipts, payroll, employment, sales, use, property,
withholding, excise and other tax, duty or assessment of any nature whatsoever,
together with all interest, penalties and additions imposed with respect
thereto. The term "taxable" shall have a correlative meaning.
"Taking" has the meaning set forth in Section 5(m)(ii) of this
------
Agreement.
"Tax Return" means any return, declaration, report, claim for refund,
----------
or information return or statement relating to Taxes, including any schedule or
attachment thereto and including any amendment thereof.
"Third-Party Claim" has the meaning set forth in Section 5(f)(i) of
-----------------
this Agreement.
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"Third-Party Firm" has the meaning set forth in Section 2(f)(ii) of
----------------
this Agreement.
"Transaction Documents" means this Agreement, the Escrow Agreement,
---------------------
the Registration Rights Agreement, the Lease, the Sublease, the License
Agreement, the Service Agreement, the GDI Agreement, and every other instrument
and document entered into in connection with this Agreement.
"Transaction Expenses" has the meaning set forth in Section 10(m)
--------------------
of this Agreement.
"WARN Act" has the meaning set forth in Section 5(w)(v) of this
--------
Agreement.
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