1
EXHIBIT 2.1
2
FINAL EXECUTION COPY
EXHIBIT 2.1
===============================================================================
ASSET PURCHASE AGREEMENT
AMONG
HANOVER DIRECT, INC.,
LWI HOLDINGS, INC.
AND
HSN LP,
HSN IMPROVEMENTS, LLC,
HSN CATALOG SERVICES, INC.
DATED: JUNE 13, 2001
===============================================================================
3
TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE OF ASSETS..................................................1
1.1. Purchase and Sale.............................................................1
1.2. Purchaser Not Successor to the Seller; Excluded Liabilities...................4
1.3. Purchase......................................................................7
1.4. Closing ......................................................................8
1.5. Instruments of Conveyance and Transfer........................................8
1.6. Post-Closing Assurances.......................................................8
1.7 Assignment of Contracts, Rights...............................................9
1.8. Net Working Capital Adjustment................................................9
1.9. Post-Closing EBITDA Adjustment...............................................11
ARTICLE II REPRESENTATIONS AND WARRANTIES..............................................12
2.1. Representations and Warranties by the Seller Parties.........................12
(a) Organization, Standing and Power......................................12
(b) Authority; Binding Agreements.........................................12
(c) Equity Ownership......................................................13
(d) Conflicts; Consents...................................................13
(e) Financial Information.................................................14
(f) Absence of Changes....................................................15
(g) Assets, Property and Related Matters..................................16
(h) Patents, Trademarks and Similar Rights................................17
(i) Insurance.............................................................18
(j) Agreements, Etc.......................................................19
(k) Litigation, Etc.......................................................19
(l) Compliance; Governmental Authorizations...............................20
(m) Employees and Compensation............................................21
(n) Benefit Plans.........................................................21
(o) Accounts Receivable...................................................22
(p) Business Relations....................................................22
(q) Accounts Payable......................................................22
(r) Related Party Transactions............................................23
(s) Taxes.................................................................23
(t) Disclosure............................................................24
(u) Brokers...............................................................24
(v) Inventory.............................................................24
(w) Fixed Assets..........................................................24
(x) Customs...............................................................24
2.2. Representations and Warranties by the Purchaser Parties......................25
(a) Organization and Standing.............................................25
(b) Authority; Binding Agreements.........................................25
(c) Equity Ownership......................................................26
(d) Conflicts; Consents...................................................26
(e) Brokers...............................................................26
(f) Sufficient Funds......................................................26
i
4
ARTICLE III ADDITIONAL AGREEMENTS.......................................................26
3.1. Expenses; Sales..............................................................26
3.2. Conduct of Business..........................................................27
3.3. Further Assurances...........................................................27
3.4. No Shop......................................................................28
3.5. Access and Information.......................................................28
3.6. Bulk Sales...................................................................29
3.7. Public Announcements.........................................................29
3.8. Confidentiality; Non-Competition.............................................29
3.9. Accounts Receivable..........................................................31
3.10. Performance by Seller and Purchaser..........................................31
3.11. Services Agreement and Escrow Agreement Agreements...........................31
3.12. Seller Employees.............................................................31
ARTICLE IV CONDITIONS PRECEDENT........................................................32
4.1. Conditions of Obligations of the Purchaser Parties...........................32
(a) Representations, Warranties and Covenants; No Material Adverse Change.32
(b) Consents, Amendments and Terminations.................................33
(c) Instruments of Transfer...............................................33
(d) Escrow Agreement......................................................33
(e) Certificates..........................................................33
(f) Opinion of Counsel....................................................33
(g) Governmental Consents; No Legal Bar; Permits..........................33
(h) Employment Agreements.................................................33
(i) Services Agreement....................................................33
(j) Constitutive Documents; Approvals.....................................33
(k) FIRPTA Certificate....................................................34
(l) Tax Certificate.......................................................34
(m) Personally-Identifiable Data..........................................34
(n) Information Technology................................................34
(o) Other Documents.......................................................34
4.2. Conditions of Obligations of the Seller Parties..............................34
(a) Representations, Warranties and Covenants.............................34
(b) Assignment............................................................34
(c) Escrow Agreement......................................................34
(d) Payment of Purchase Price.............................................34
(e) Certificates..........................................................35
(f) Opinion of Counsel....................................................35
(g) Governmental Consents; No Legal Bar...................................35
(h) Other Documents.......................................................35
ARTICLE V INDEMNIFICATION.............................................................35
5.1. Indemnification..............................................................35
5.2. Certain Limitations..........................................................37
5.3. Procedures Relating to Third Party Claims....................................37
5.4. Procedures Related to Claims other than Third Party Claims...................38
ii
5
ARTICLE VI MISCELLANEOUS...............................................................39
6.1. Entire Agreement.............................................................39
6.2. Termination..................................................................39
6.3. Descriptive Headings; Certain Interpretations................................40
6.4. Notices......................................................................40
6.5. Counterparts.................................................................41
6.6. Survival.....................................................................41
6.7. Benefits of Agreement........................................................41
6.8. Amendments and Waivers.......................................................41
6.9. Assignment...................................................................42
6.10. Enforceability...............................................................42
6.11. Governing Law; Jurisdiction..................................................42
iii
6
EXHIBITS
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Services Agreement
iv
7
FINAL EXECUTION COPY
ASSET PURCHASE AGREEMENT, dated as of June 13, 2001, among HANOVER
DIRECT, INC., a Delaware corporation (the "Seller Parent"), LWI HOLDINGS,
INC., a Delaware corporation and a wholly-owned subsidiary of the Seller
Parent (the "Seller", and together with the Seller Parent, the "Seller
Parties"), HSN LP, a Delaware limited partnership (the "Purchaser Parent"),
HSN Improvements, LLC, a Delaware limited liability company and a wholly-owned
subsidiary of the Purchaser Parent (the "Purchaser"), and HSN Catalog
Services, Inc., a Delaware corporation and a wholly-owned subsidiary of the
general partner of the Purchaser Parent ("HSN Catalog Services", together with
the Purchaser and the Purchaser Parent, the "Purchaser Parties").
Introduction
The Seller Parties are engaged in a line of business in which they sell
merchandise to the general public under the Improvements or Improvements
Catalog brand through mail-order catalogs, telephone sales and the Internet
(the "Business"); provided, however, that the Business does not include the
services to be performed by Keystone Internet Services, Inc. ("Keystone")
under the Services Agreement (as hereinafter defined). The Seller Parent,
through wholly-owned subsidiaries other than the Seller, is also engaged in
the business of selling merchandise to the general public under the brands
Kitchen & Home, Scandia, Silhouettes, Domestications, The Company Store,
Encore, UnderGear, Gump's By Mail, Gump's and International Male through
retail stores, mail-order catalogs, telephone sales and the Internet and
providing back-end services related to order taking, order and payment
processing, warehousing and fulfillment, and return processing to third
parties (including Affiliates of the Seller Parent) (collectively, the
"Excluded Business"). Hanover Brands, Inc., X.X. Advertising, Inc. and certain
other Affiliates of the Seller Parent, each wholly-owned subsidiaries of the
Seller Parent (collectively, the "Other Seller Parties"), also hold certain
assets relating to the Business. Subject to the terms and conditions of this
Agreement, the Seller Parties and the Other Seller Parties desire to sell to
the Purchaser, and the Purchaser desires to purchase from the Seller Parties
and the Other Seller Parties, certain assets, tangible and intangible,
associated with the Business.
In consideration of the mutual benefits to be derived from this
Agreement and of the representations, warranties, conditions, agreements and
promises contained herein and other good and valuable consideration, the
parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1. Purchase and Sale. (a) The Seller Parties shall, and shall
cause the Other Seller Parties to, sell, convey, transfer, assign and deliver
to the Purchaser, and the Purchaser shall purchase, acquire and accept from
the Seller Parties and the Other Seller Parties, on the
8
Closing Date (as defined in Section 1.4), the Acquired Assets, free and clear
of all Liens (as hereinafter defined), except for Permitted Liens (as
hereinafter defined). "Acquired Assets" means all properties, assets (tangible
or intangible), goodwill and rights of the Seller Parties and the Other Seller
Parties used or held for use or intended to be used or held for use in
connection with the Business, including without limitation the following:
(i) (A) all tradenames, trademarks, service marks, patents,
domain names and copyrights listed on Schedule 1.1(a)(i), and all
licenses, franchises, formula, know-how and other intangible assets,
intellectual property and proprietary rights used in connection with
the Business, (B) all registrations and applications for any of the
foregoing and (C) all goodwill associated with any of the foregoing;
(ii) all technologies, methods, formulations, software
(including documentation and object and source code listings), trade
and business secrets, know-how, inventions, package designs and other
processes or proprietary information used or under development for use
in the Business, including those assets listed on Schedule 1.1(a)(iv)
and marked "O" under the column "Lease/Own";
(iii) all information, customer lists, price lists,
identification of suppliers, correspondence, data, drawings, recorded
knowledge, customer files, account histories, sales literature and
commercial materials relating to the Business; all sales data and
other information relating to selling products and providing the
services relating to the Business and all accounting information
pertaining to the Business; all telephone numbers for the Business;
(iv) all computers, equipment, tools, machinery, furniture,
furnishings, leasehold improvements, automobiles, trucks, other
vehicles and similar tangible property used or held for use in
connection with the Business, subject to such additions and
subtractions thereto as are necessary to reflect acquisitions and
dispositions, as appropriate, from the date hereof through the Closing
Date in accordance with the terms of this Agreement, including those
assets listed on Schedule 1.1(a)(iv) and marked "O" under the column
"Lease/Own";
(v) all products sold by the Business returned by customers
or other third parties after the Closing Date;
(vi) all books, records, production data, publications,
computer files, databases, data, manuals and other materials relating
to the Business;
(vii) all supplies and inventories (including finished
products, samples, work-in-process, raw materials, packaging materials
and supplies) used or held for use in connection with the Business;
(viii) all pre-paid expenses, security deposits, claims for
refunds (excluding any refund claims relating to Taxes (as defined in
Section 2.1(s)) paid by any Seller Party before the Closing Date) and
any other current assets relating to the Business; provided, however,
that the Acquired Assets shall not include any pre-paid expenses,
security deposits or claims for refunds under any Excluded Contract;
2
9
(ix) all written or oral contracts, agreements or other
arrangements relating to the Business (including contracts relating to
the Seller's leasehold interests) listed on Schedule 1.1(a)(ix) as
Assumed Contracts (the "Assumed Contracts") (excluding the written or
oral contracts, agreements or other arrangements listed on Schedule
1.1(a)(ix) as Excluded Contracts (the "Excluded Contracts"));
(x) all rights and claims, including refunds, with respect
to all Assumed Liabilities (as defined in Section 1.2(a) below);
(xi) all governmental licenses, permits, franchises,
approvals, registrations, certificates of occupancy and license and
permit applications relating to the Business;
(xii) all goodwill relating to the Business, including the
exclusive right to represent oneself as the successor to the Business,
as well as any and all rights of the Seller Parties and the Other
Seller Parties to own or use the name "Improvements," "Improvements
Catalog" or any combination or derivation thereof;
(xiii) the benefit of any agreement of any person not to
compete with the Seller or the Business or to solicit or take its
customers or employees;
(xiv) claims in bankruptcy, choses in action, indemnification
agreements with and indemnification rights against third parties and
warranty claims, offsets and other claims against third parties
arising out of or relating to the Acquired Assets;
(xv) all unfilled purchase orders and commitments to purchase
merchandise and supplies entered into in the ordinary course of
business but not shipped as of the Closing Date and/or paid;
(xvi) all other assets or movable (personal) property used or
held for use in connection with the Business; and
(xvii) all accounts and other receivables (excluding Taxes)
owed to the Seller Parties and the Other Seller Parties in connection
with the Business, other than (A) credit card and similar merchant
receivables (the aggregate of such receivables, the "Merchant
Receivables") and (B) those that are due from the Seller Parent or any
of its Affiliates (the "Other Excluded Receivables") (such accounts
and other receivables, other than the Merchant Receivables and the
Other Excluded Receivables, the "Accounts Receivable").
Notwithstanding the foregoing, the Acquired Assets shall not include the
following (collectively, the "Excluded Assets"):
(A) any indebtedness owed to the Seller Parties or the Other
Seller Parties in connection with the Business, investment and other
securities on hand and in accounts, cash and cash-equivalents on hand
and in banks, and bank accounts;
(B) any immovable (real) property owned by the Seller
Parties or the Other Seller Parties;
3
10
(C) all properties, assets (tangible or intangible),
goodwill or rights (i) that are used or held for use exclusively or
primarily for (x) the Excluded Business or (y) the performance by
Keystone of its obligations under the Services Agreement or (ii) that
are used in the Business but are leased or licensed by the Seller
Parent or any of its Affiliates, are not specifically referred to in
the schedules referred to in Sections 1.1(a)(i)-(xvii) and are being
made available to the Purchaser for use in the Business under the
Services Agreement;
(D) any right, title and interest of the Seller Parties or
the Other Seller Parties in, to or under this Agreement, the Escrow
Agreement (as defined in Section 1.3(b)), the Services Agreement or
any other agreement entered into in connection herewith or therewith;
(E) the Excluded Contracts; or
(F) the assets of any employee benefit plan maintained or
contributed to by the Seller Parties or any of their Affiliates.
(b) As used herein, "Lien" means any lien, pledge, charge,
option, restriction on transfer, claim, mortgage, deed to secure debt, deed of
trust, conditional sale or other title retention agreement, or other security
interest, security title or encumbrance of any kind; provided that a financing
statement filed by the lessor of equipment to evidence its leasehold interest
in such equipment shall not constitute a Lien. As used herein, "Permitted
Liens" means (i) such imperfections of title, easements, encumbrances, or
restrictions which individually or in the aggregate do not impair in any
material respect the use or ownership of the Acquired Assets, (ii) Liens for
Taxes (whether federal, state, local or foreign) attributable to any taxable
period beginning on or prior to the Closing Date and not yet due or payable or
being contested in good faith and for which adequate reserves have been
established and (iii) materialmen's, mechanics', carriers', workmen's,
warehousemen's, repairmen's and other like Liens arising in the ordinary
course of business, or deposits to obtain the release of such Liens.
1.2. Purchaser Not Successor to the Seller; Excluded
Liabilities. (a) On the Closing Date, the Seller Parties shall, and shall
cause the Other Seller Parties to, transfer and assign to the Purchaser, and
the Purchaser shall assume from the Seller Parties and the Other Seller
Parties and become responsible for, the Assumed Liabilities. "Assumed
Liabilities" means only the following liabilities of the Seller Parties and
the Other Seller Parties with respect to the Business:
(i) accounts payable and accrued liabilities relating to the
Acquired Assets as of the Closing Date incurred in the ordinary course of
business, excluding accounts payable or accrued liabilities to a Seller Party
or any of its Affiliates (for purposes of this Agreement, "Affiliates" shall
have the meaning ascribed to it in Rule 405 promulgated under the Securities
Act of 1933, as amended);
(ii) all liabilities, obligations and commitments of the
Seller Parties and the Other Seller Parties accruing with respect to periods
commencing as of the close of business on the Closing Date under the Assumed
Contracts, other than those liabilities listed on Schedule
4
11
1.2(a)(ii); excluding, however, any and all claims, damages, liabilities,
costs or expenses associated with any breach or non-performance or alleged
breach or non-performance under or with respect to any such Assumed Contracts
by any Seller Party or Other Seller Party or any of their respective agents,
employees or Affiliates prior to the Closing Date;
(iii) all liabilities, obligations and commitments of the
Seller accruing with respect to periods commencing as of the close of business
on the Closing Date under the sales orders and sales contracts, purchase
orders and purchase contracts, quotations and bids generated by the Business
that constitute Acquired Assets and were entered into or received in the
ordinary course of business prior to, on or after the Closing Date; excluding,
however, any and all claims, damages, liabilities, costs or expenses
associated with any breach or non-performance or alleged breach or
non-performance under or with respect to any such sales orders, sales
contracts, purchaser orders, purchase contracts, quotations or bids by any
Seller Party or Other Seller Party or any of their respective agents,
employees or Affiliates prior to the Closing Date;
(iv) all Taxes arising out of, relating to or in respect of
the Acquired Assets or the use thereof for any taxable period beginning after
the Closing Date and the portion after the Closing Date of any taxable period
that includes (but does not end on) such day, it being understood that the
Seller Parties are retaining all such Taxes for any taxable periods prior to
the Closing Date and the portion before and including the Closing Date of any
taxable period that includes such day (with respect to ad valorem, property,
real estate, personal property and similar Taxes for a tax period that begins
before but ends after the Closing Date, the responsibility for payment will be
prorated between the parties on the basis of the proportional number of
calendar days that the Purchaser (or its permitted assignees) or the Seller,
respectively, owns the Business in the relevant tax period);
(v) all obligations, liabilities and commitments arising
from the conduct of the Business by the Purchaser or the use or ownership of
the Acquired Assets after the Closing (as defined in Section 1.4);
(vi) amounts due to customers in connection with products
sold in the ordinary course of business consistent with past practice on or
prior to the Closing Date and returned after the Closing Date; excluding,
however, any and all claims, damages, liabilities, costs or expenses
associated with any breach or non-performance or alleged breach or
non-performance under or with respect to any of such product sales by any
Seller Party or Other Seller Party or any of their respective agents,
employees or Affiliates prior to the Closing Date;
(vii) all liabilities, obligations and commitments of the
Seller or Hanover Gifts, Inc. under any gift certificate issued by the Seller
or Hanover Gifts, Inc. in the ordinary course of business consistent with past
practice before the Closing Date, in an aggregate amount up to the amount
reflected for such liabilities, obligations and commitments in the calculation
of Closing Date Net Working Capital pursuant to Section 1.8(a)(iv); excluding,
however, any and all claims, damages, liabilities, costs or expenses
associated with any breach or non-performance or alleged breach or
non-performance under or with respect to any such gift certificates by any
Seller Party or Other Seller Party or any of their respective agents,
employees or Affiliates prior to the Closing Date; and
5
12
(viii) up to $650,000 for payments that may become due to the
Continuing Employees listed in Section 4.1(h) under the change in control
plans listed in Schedule 2.1(n), as in effect on the date hereof, assuming
such employees are offered and accept employment with HSN Catalog Services and
are employed by HSN Catalog Services for at least one month, unless they are
terminated by HSN Catalog Services prior thereto without cause.
Except for the Assumed Liabilities, the Purchaser shall not be the successor
to the Seller and the Purchaser does not and will not assume or become liable
to pay, perform or discharge any obligation or liability whatsoever of the
Seller Parties or the Other Seller Parties or relating to any of the Acquired
Assets (all such obligations and liabilities being, collectively, the
"Unassumed Liabilities").
(b) Without limiting Section 1.2(a), the term "Unassumed
Liabilities" includes, and the Purchaser expressly is not assuming and will
not assume any of, the following liabilities, whether accrued or fixed,
absolute or contingent, known or unknown, determined or determinable, and
whenever arising:
(i) any claims, demands, liabilities or obligations of any
nature whatsoever (including claims, demands, liabilities or
obligations in respect of Taxes, environmental matters, employment,
discrimination or termination of employment, occupational health and
safety, workers' or workmen's compensation, grievance proceedings or
actual or threatened litigation, suits, governmental proceedings or
investigations, including attorneys' fees and expenses and costs
thereof) which arose or were incurred on or before the Closing, or
which are based on events occurring or conditions existing on or
before the Closing, or which are based on products sold or services
performed by the Seller Parties or the Other Seller Parties on or
before the Closing;
(ii) any liabilities and obligations of the Seller Parties or
the Other Seller Parties under this Agreement, the Escrow Agreement,
the Services Agreement or any other agreement, document, instrument or
certificate contemplated or entered into in connection with the
transactions contemplated by this Agreement;
(iii) any liabilities of the Seller Parties, the Other Seller
Parties or any of their Affiliates not directly associated with the
Business or the Acquired Assets;
(iv) any liabilities and obligations of the Seller Parties or
the Other Seller Parties identified on Schedule 1.2(b) as "Unassumed
Liabilities," and any liabilities and obligations of the Seller
Parties or the Other Seller Parties under any contract or agreement
that is not an Assumed Contract or that is an Excluded Contract;
(v) any liabilities or obligations whether now existing or
hereafter arising, in respect of product or service liability,
personal injuries or property damage with respect to products shipped,
serviced or otherwise disposed of, or services performed, by either
Seller Party or any of its Affiliates on or prior to the Closing Date;
(vi) any liability arising prior to the Closing Date covered
by any insurance policy maintained by either Seller Party or any of
its Affiliates;
6
13
(vii) any loans, advances, finance leases, finance company
indebtedness and other direct or indirect indebtedness of any nature,
including deferred purchase price payable for assets, and whether
secured or unsecured, accrued, absolute, contingent or otherwise;
(viii) any liabilities and obligations of the Seller Parties
and any Affiliate of the Seller Parties for Taxes (including, without
limitation, Taxes attributable to a Seller Party being a member of an
affiliated group or other group filing on a combined or unitary basis
and any liability arising from a Seller Party being a party to a tax
sharing agreement);
(ix) other than the Assumed Liabilities, amounts due to
customers or sales representatives;
(x) other than the Assumed Liabilities, any liabilities and
obligations of the Seller Parties or the Other Seller Parties for
accounts payable; and
(xi) any customer prepaids, overpayments, credits, or other
refunds due to customers that were booked by the Seller or the
Business prior to January 1, 2001.
(c) Risk of Loss. Until the Closing, any loss of or damage
to the Acquired Assets from fire, casualty or any other occurrence not covered
by insurance payable to the Purchaser shall be the total responsibility of the
Seller Parties and the Other Seller Parties.
(d) Purchase of Assets by HSN Catalog Services. HSN Catalog
Services, rather than the Purchaser, shall purchase certain of the Acquired
Assets and assume certain of the Assumed Liabilities. At least 10 days prior
to the Closing Date, or such later date agreed to by the parties hereto, the
Purchaser and HSN Catalog Services shall notify the Seller of the Acquired
Assets and the Assumed Liabilities that shall be purchased and assumed by HSN
Catalog Services (such Acquired Assets and Assumed Liabilities, the "Catalog
Services Assets and Liabilities"). On the Closing Date, the Seller Parties
shall, and shall cause the Other Seller Parties to, sell, convey, transfer,
assign and deliver the Catalog Services Assets and Liabilities to HSN Catalog
Services, rather than the Purchaser, and HSN Catalog Services, rather than the
Purchaser, shall purchase, acquire, accept and assume the Catalog Services
Assets and Liabilities, and, with respect to the Catalog Services Assets and
Liabilities, any references herein to the Purchaser shall be deemed to be
references to HSN Catalog Services. The Purchaser and the Seller agree to
adjust the allocation of the Purchase Price set forth on Schedule 1.3(c) as
appropriate to reflect the purchase of the Catalog Services Assets and
Liabilities by HSN Catalog Services, and HSN Catalog Services and the
Purchaser shall pay their respective portion of the Purchase Price pursuant to
Section 1.3.
1.3. Purchase. (a) The purchase price (the "Purchase
Price") for the Acquired Assets and the agreement not to compete of the Seller
set forth in Section 3.8 shall be cash in the amount of the excess of (x)
$33,400,000 over (y) the aggregate amount of the Merchant Receivables.
7
14
(b) The Purchaser and HSN Catalog Services shall pay the
Purchase Price (less (i) the Escrow Amount (as defined below) and (ii) the
Estimated Net Working Capital Deficit (as defined in Section 1.8(b)(i)), if
any), at Closing by wire transfer of immediately available funds to an account
of the Seller designated in writing to the Purchaser no later than two
business days prior to the Closing Date. At the Closing, the Purchaser shall
deliver $3,000,000 of the Purchase Price (the "Escrow Amount") to the escrow
agent (the "Escrow Agent") named in the escrow agreement to be entered into as
of the Closing Date between the Purchaser, the Seller and the Escrow Agent in
the form attached hereto as Exhibit A (the "Escrow Agreement"). The lesser of
(i) $2,000,000 of the Escrow Amount and (ii) the aggregate amount in the
escrow fund under the Escrow Agreement shall be a contingent portion of the
Purchase Price (such lesser amount, the "Contingent Amount"), and the Escrow
Agreement shall provide that the Contingent Amount shall be paid back to the
Purchaser if Keystone, during the first two years of the term of the Services
Agreement, fails to perform, in all material respects, its obligations under
the Services Agreement, unless, prior to the expiration of the first two years
of the term of the Services Agreement, the Services Agreement is terminated by
Keystone for Cause (as defined in the Services Agreement) or by the Purchaser
for any reason other than for Cause. Fees and expenses of the Escrow Agent
shall be paid fifty percent (50%) by the Seller and fifty percent (50%) by the
Purchaser.
(c) The allocation of the Purchase Price among the Acquired
Assets and the non-compete set forth in Section 3.8 shall be reasonably agreed
to by the Purchaser and the Seller prior to the Closing Date. The Purchaser,
the Seller and HSN Catalog Services shall follow such allocation in
determining and reporting their liabilities for federal, state, local and
foreign tax returns filed by them subsequent to the Closing Date.
1.4. Closing. The closing (the "Closing") for the
consummation of the transactions contemplated by this Agreement shall take
place at the offices of Xxxxxxxxx & Xxxxxxx, 1330 Avenue of the Xxxxxxxx, Xxx
Xxxx, Xxx Xxxx 00000, or such other place as the Seller and the Purchaser
shall agree, at 10:00 a.m. (Eastern time zone) on the later of June 29, 2001
and the date on which all conditions set forth in Article IV shall have been
satisfied or waived, or such other date and time agreed to by the Seller and
the Purchaser (such date of the Closing being hereinafter called the "Closing
Date"). The Closing shall be deemed to be effective as of the close of
business on the Closing Date.
1.5. Instruments of Conveyance and Transfer. At the Closing,
the Seller Parties shall, and shall cause the Other Seller Parties to, deliver
to the Purchaser such bills of sale, endorsements, assignments and other
instruments of transfer, conveyance and assignment (in a form satisfactory to
the Seller and the Purchaser) as shall be necessary in the reasonable judgment
of the Purchaser to transfer, convey and assign the Acquired Assets to the
Purchaser.
1.6. Post-Closing Assurances. Each Seller Party shall pay to
the Purchaser any amounts which shall be received by such Seller Party or any
of its Affiliates after the Closing Date which constitute Acquired Assets. The
Seller Parties shall, and shall cause the Other Seller Parties to, at any time
and from time to time after the Closing Date, upon the reasonable request of
the Purchaser, do, execute, acknowledge, deliver and file, or cause to be
done, executed, acknowledged, delivered or filed, all such further acts,
deeds, transfers, conveyances, assignments or assurances as may be reasonably
required for the better transferring, conveying,
8
15
assigning and assuring to the Purchaser, or for the aiding and assisting in
the reducing to possession by the Purchaser of, any of the Acquired Assets. In
connection with the foregoing, from and after the Closing Date, each Seller
Party hereby confers on the Purchaser the right and authority to endorse,
without recourse, the name of such party or any of its Affiliates on any check
or similar negotiable instrument received by the Purchaser constituting
Acquired Assets transferred, conveyed and assigned to the Purchaser hereunder.
1.7. Assignment of Contracts; Rights. Notwithstanding
anything to the contrary contained in this Agreement, this Agreement shall not
constitute an agreement or attempt to transfer, sublease or assign any
contract, license, lease, sales order, purchase order or other agreement or
any claim or right of any benefit arising thereunder or resulting therefrom or
any governmental permit, license, franchise, approval, registration or
certificate of occupancy (collectively, the "Rights") to the extent that an
attempted sale, transfer, sublease or assignment thereof, without the consent
of any other party thereto, would constitute a breach thereof or in any way
adversely affect the Purchaser's rights to receive the benefits thereunder.
In order, however, that the full value of any Rights may be
realized for the benefit of the Purchaser, each Seller Party shall, and shall
cause the Other Seller Parties to, at its expense and at the reasonable
request and under the direction of the Purchaser, in the name of such party or
as otherwise reasonably specified by the Purchaser, acting reasonably, take
all such action and do or cause to be done all such things that are necessary
and advisable in order that the rights and obligations of such Seller Party or
Other Seller Party in connection with such Rights may be performed in such
manner that the value of such Rights shall be preserved and shall enure to the
exclusive benefit of the Purchaser (or to the benefit of the Purchaser to the
same extent as such Seller Party or Other Seller Party enjoyed prior to the
date hereof if such Seller Party or Other Seller Party was not entitled to the
exclusive benefit thereof).
The Purchaser may at any time thereafter request a sale,
assignment, conveyance or transfer of any Rights notwithstanding that the
third party consent necessary for such sale, assignment and transfer has not
been obtained; provided that such sale, assignment, conveyance or transfer of
such Rights does not materially diminish the benefit of such Rights to any
Affiliate of the Seller, if such Seller Party or Other Seller Party was not
entitled to the exclusive benefit thereof.
1.8. Net Working Capital Adjustment.
(a) Net Working Capital. As used herein, "Net Working
Capital" means, as measured as of the Closing Date, the difference between (i)
all current assets of the Business (which consist of the Acquired Assets that
are current assets), and (ii) all current liabilities of the Business (which
consist of the Assumed Liabilities that are current liabilities), as
determined in accordance with United States generally accepted accounting
principles as in effect on the date of this Agreement ("GAAP") except as noted
on Schedule 2.1(e)(i), on a basis consistent with the procedures and practices
used in the preparation of the Financial Statements (as defined in Section
2.1(e)) and as finally determined in accordance with Section 1.8(b).
(b) Determination of Net Working Capital.
9
16
(i) Not later than five days prior to the anticipated
Closing Date, the Seller shall prepare and deliver to the Purchaser, and the
Purchaser and its accountants shall jointly review, the Seller's good faith
reasonable estimate of the Net Working Capital as of the Closing Date (the
"Estimated Net Working Capital"). If the Estimated Net Working Capital is
negative, then the "Estimated Net Working Capital Deficit" shall mean the
amount of the excess, if any, of (A) the absolute value of the Estimated Net
Working Capital over (B) $200,000 plus the aggregate amount of the Merchant
Receivables as of the Closing Date.
(ii) As soon as practicable following the Closing Date (and
in no event later than 45 days following the Closing Date), the Purchaser will
cause Ernst & Young LLP to prepare a certificate (the "Net Working Capital
Certificate") setting forth an itemization of the Net Working Capital at the
Closing Date.
(iii) Following receipt of the Net Working Capital
Certificate, the Seller will be afforded a period of 30 days to review the Net
Working Capital Certificate. To assist in any such review, the Purchaser will
make available to the Seller any books and records, work papers prepared in
connection with the Net Working Capital Certificate and the personnel involved
in preparing the same. At or before the end of the 30 day review period, the
Seller will either (A) accept the Net Working Capital Certificate in its
entirety or (B) deliver to the Purchaser a written notice setting forth a
detailed explanation of those items in the Net Working Capital Certificate
that the Seller disputes (a "Notice of Dispute"). If the Seller does not
deliver a Notice of Dispute to the Purchaser within the 30 day review period,
the Seller will be deemed to have accepted the Net Working Capital Certificate
in its entirety. If the Seller delivers a Notice of Dispute in which it
disputes some, but not all, of the items in the Net Working Capital
Certificate, the Seller will be deemed to have accepted all of the items not
disputed other than those not directly disputed but which are affected by the
items disputed.
(iv) Within a period of 14 days after the delivery of a
Notice of Dispute, the parties will attempt to resolve in good faith any
disputed items. If they are unable to do so, the remaining disputed items will
be referred to a mutually acceptable nationally recognized firm of independent
accountants whose services have not, at any time during the two (2) years
prior to the date hereof, been utilized by the parties hereto for resolution
(the "Independent Public Accountants"). The Independent Public Accountants
shall be requested to reach a decision in good faith in accordance with the
terms of this Agreement as to whether it accepts the Seller's or the
Purchaser's position as to the determination of the aggregate value of the
disputed items, and not later than 60 days after the reference to it of the
dispute. The Independent Public Accountants shall accept the position (the
Seller's or the Purchaser's) that is closest in value to its good faith
determination of the aggregate value of the disputed items. The determination
by the Independent Public Accountants will be binding on the parties. The
fees, costs and expenses of the Independent Public Accountants shall be borne
by the party whose position did not prevail in such determination. The Net
Working Capital, as accepted by the Seller or adjusted to reflect the
resolution of any dispute, is referred to as the "Closing Date Net Working
Capital" and the "Closing Date Net Working Capital Deficit" shall mean the
excess, if any, of (A) if the Closing Date Net Working Capital is negative,
the absolute value of the Closing Date Net Working Capital over (B) $200,000
plus the aggregate amount of the Merchant Receivables as of the Closing Date.
10
17
(v) Adjustment to Purchase Price. At such time as the
Closing Date Net Working Capital is determined, the Escrow Agreement shall
provide, and the parties hereto agree that if the Closing Date Net Working
Capital Deficit is greater than the Estimated Net Working Capital Deficit,
then the Purchaser and the Seller shall direct the Escrow Agent (A) to release
to the Purchaser an amount equal to the amount of such excess (plus any
accrued interest earned on such amount) (such excess, the "Working Capital
Deficiency") by wire transfer of immediately available funds. If the Escrow
Amount is less than the Working Capital Deficiency, the Seller shall pay the
Purchaser the full amount of such shortfall (plus any accrued interest on such
amount at an interest rate equal to that earned on the Escrow Amount) at the
same time payment is made to the Purchaser by the Escrow Agent, by wire
transfer of immediately available funds. If there is a Working Capital
Deficiency, the Purchaser and the Seller shall agree to adjust the allocation
of the Purchase Price set forth on Schedule 1.3(c) as appropriate.
1.9. Post-Closing EBITDA Adjustment.
(a) Determination of 2001 Pro Forma EBITDA.
(i) Within thirty days after the last day of the third
fiscal quarter in 2001 of the Business, the Purchaser shall provide to and
discuss with the Seller its estimate of the 2001 Pro Forma EBITDA for the
first three fiscal quarters of 2001. As promptly as practicable (but in any
event no later than March 15, 2002) following the completion of the audit of
the Purchaser Parent's and its Affiliates' 2001 financial statements to be
conducted by Ernst & Young LLP (or other "Big Five" accounting firm selected
by the Purchaser), the Purchaser shall deliver to the Seller a certificate
(the "EBITDA Certificate") setting forth the Purchaser's determination of 2001
Pro Forma EBITDA and the 2001 EBITDA Shortfall, if any. "2001 Pro Forma
EBITDA" shall be calculated in the manner that the variable contribution
amount of the Business as set forth in the Budget (as defined in Section
2.1(e)(iii)) is calculated. The "2001 EBITDA Shortfall" means the excess, if
any, of (i) (A) $5,387,000, minus (B) any operating expenses incurred by the
Business that resulted primarily from the purchase of the Business by the
Purchaser and the Purchaser's decision not to operate the Business in a manner
consistent with the Budget (e.g., the hiring of more personnel than specified
in the Budget), plus (C) any incremental net income that resulted primarily
from the purchase of the Business by the Purchaser (e.g., mailing catalogs to
customers of Affiliates of the Purchaser) over (ii) 2001 Pro Forma EBITDA;
provided that if the 2001 EBITDA Shortfall is greater than $5,387,000, then it
shall be deemed to be $5,387,000, and if the 2001 EBITDA Shortfall is less
than $0, then it shall be deemed to be $0.
(ii) Following receipt of the EBITDA Certificate, the Seller
will be afforded a period of 30 days to review the EBITDA Certificate. To
assist in any such review, the Purchaser will make available to the Seller any
books and records, work papers prepared in connection with the EBITDA
Certificate and the personnel involved in preparing the same. At or before the
end of the 30 day review period, the Seller will either (A) accept the EBITDA
Certificate in its entirety or (B) deliver to the Purchaser a written notice
setting forth a detailed explanation of those items in the EBITDA Certificate
that the Seller disputes (an "EBITDA Notice of Dispute"). If the Seller does
not deliver an EBITDA Notice of Dispute to the Purchaser within the 30 day
review period, the Seller will be deemed to have accepted the EBITDA
Certificate in its entirety. If the Seller delivers an EBITDA Notice of
Dispute in which it disputes some, but not all, of the
11
18
items in the EBITDA Certificate, the Seller will be deemed to have accepted
all of the items not disputed other than those not directly disputed but which
are affected by the items disputed.
(iii) Within a period of 14 days after the delivery of an
EBITDA Notice of Dispute, the parties will attempt to resolve in good faith
any disputed items. If they are unable to do so, the remaining disputed items
will be referred to Independent Public Accountants. The Independent Public
Accountants shall be requested to reach a decision in good faith in accordance
with the terms of this Agreement as to whether it accepts the Seller's or the
Purchaser's position as to the determination of the aggregate value of the
disputed items, and not later than 60 days after the reference to it of the
dispute. The Independent Public Accountants shall accept the position (the
Seller's or the Purchaser's) that is closest in value to its good faith
determination of the aggregate value of the disputed items. The determination
by the Independent Public Accountants will be binding on the parties. The
fees, costs and expenses of the Independent Public Accountants shall be borne
by the party whose position did not prevail in such determination. The EBITDA
Shortfall, if any, as accepted by the Seller or adjusted to reflect the
resolution of any dispute, is referred to as the "Final EBITDA Shortfall."
(iv) Adjustment to Purchase Price. At such time as the Final
EBITDA Shortfall, if any, is determined, the Seller shall promptly pay an
amount equal to the Final EBITDA Shortfall to the Purchaser. In the event the
Seller breaches its obligation to pay the Final EBITDA Shortfall, the Escrow
Agreement shall provide that the Purchaser may direct the Escrow Agent to
release to the Purchaser an amount equal to the amount of the Final EBITDA
Shortfall by wire transfer of immediately available funds. If there is a Final
EBITDA Shortfall, the Purchaser and the Seller shall agree to adjust the
allocation of the Purchase Price set forth on Schedule 1.3(c) as appropriate.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties by the Seller Parties.
The Seller Parties jointly and severally represent and warrant to the
Purchaser Parties as follows:
(a) Organization, Standing and Power. Each of the Seller
Parties (i) is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and (ii) has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Each of the Seller Parties is
duly qualified to do business and is in good standing in each jurisdiction in
which such qualification is necessary because of the property owned, leased or
operated by it or because of the nature of its business as now being
conducted. True and complete copies of the certificate of incorporation and
bylaws of each of the Seller Parties, including all amendments thereto through
and including the date hereof, have been delivered to the Purchaser, and such
documents have not been amended, modified or rescinded in any respect and are
in full force and effect.
(b) Authority; Binding Agreements. (i) Seller. The
execution, delivery and performance of this Agreement, the Xxxx of Sale (as
defined in Section 4.1), the Assignment (as defined in Section 4.1), the
Escrow Agreement, and all other agreements, documents and
12
19
instruments contemplated in connection with this Agreement to which the Seller
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate
action of the Seller and its sole shareholder. The Seller has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement, the Xxxx of Sale, the Assignment and the Escrow
Agreement and to consummate the transactions contemplated hereby and thereby
and the Seller has duly executed and delivered this Agreement. This Agreement
is, and upon execution and delivery, the Xxxx of Sale, the Assignment and the
Escrow Agreement and such other agreements, documents and instruments will be,
the legal, valid and binding obligations of the Seller enforceable in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(ii) Seller Parent. The execution, delivery and performance
of this Agreement, the Services Agreement (the "Services Agreement")
substantially in the form of Exhibit B, and all other agreements, documents
and instruments contemplated in connection with this Agreement to which the
Seller Parent is a party and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action of the Seller Parent, and no such authorization is necessary
by the shareholders of the Seller Parent. The Seller Parent has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and the Services Agreement and to consummate the
transactions contemplated hereby and thereby and the Seller Parent has duly
executed and delivered this Agreement. This Agreement is, and upon execution
and delivery, the Services Agreement and such other agreements, documents and
instruments will be, the legal, valid and binding obligations of the Seller
Parent enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(c) Equity Ownership. The Seller Parent owns of record and
beneficially all of the issued and outstanding shares of the capital stock of
Hanover Brands, Inc., which in turn owns of record and beneficially all of the
issued and outstanding shares of the capital stock and other securities of the
Seller. The Seller does not have any subsidiaries or own or hold any equity or
other securities in any other entity.
(d) Conflicts; Consents. None of the execution and delivery
of this Agreement, the Xxxx of Sale, the Assignment, the Escrow Agreement, the
Services Agreement, the consummation of the transactions contemplated hereby
or thereby, or compliance by either Seller Party with any of the provisions
hereof or thereof, will (i) conflict with or result in a breach of the
certificate of incorporation or by-laws of either Seller Party or any Other
Seller Party, (ii) conflict with or result in a default (or give rise to any
right of termination, cancellation or acceleration) under any of the
provisions of any note, bond, lease, hypothecation, mortgage, indenture,
license, franchise, permit, agreement or other instrument or obligation to
which either Seller Party or any Other Seller Party is a party, or by which
such party's properties or assets may be bound or affected, except for such
conflict, breach or default as to which requisite
13
20
waivers or consents shall be obtained before the Closing (which waivers or
consents are set forth in Schedule 2.1(d)), (iii) violate any law, statute,
rule or regulation or order, writ, injunction or decree applicable to either
Seller Party or any Other Seller Party or such party's properties or assets or
(iv) result in the creation or imposition of any Liens upon any of the
Acquired Assets. Except as set forth in Schedule 2.1(d), no consent or
approval by, or any notification of or filing with, any person, firm,
corporation, partnership, limited liability company, trust, joint venture,
association or entity (governmental or private) (each, a "person" and
collectively, "persons") is required in connection with the execution,
delivery and performance by either Seller Party or any Other Seller Party of
this Agreement, the Xxxx of Sale, the Assignment, the Escrow Agreement, the
Services Agreement or any of the other agreements, documents and instruments
contemplated in connection with this Agreement or the consummation of the
transactions contemplated hereby or thereby.
(e) Financial Information. (i) The following financial
statements of the Seller are attached hereto as Schedule 2.1(e)(i) (the
"Financial Statements"): a balance sheet and the related statement of income
as of and for the fiscal year ended December 30, 2000 and as of and for the
three month period ended March 31, 2001 and a statement of income for the
fiscal year ended December 25, 1999 and for each fiscal month from March 26,
2001 through the fiscal month ending immediately prior to the date of this
Agreement. Except as indicated on Schedule 2.1(e)(i), the Financial Statements
have been prepared in conformity with GAAP applied on a basis consistent with
prior periods and are true, accurate and complete. The balance sheets of the
Seller at each date specified above present fairly in all material respects
the financial position of the Seller as at the respective dates thereof, and
the related statement of income of the Seller for each of the periods
specified above present fairly in all material respects the results of
operations of the Seller for each of such periods. The Financial Statements
are unaudited and contain no footnotes or schedules.
(ii) The Seller does not have any liabilities or obligations
of any nature (whether absolute, accrued, contingent or otherwise, and whether
due or to become due) in respect of the Business or the Acquired Assets other
than (A) as reflected or reserved against on the most recent balance sheet
furnished pursuant to Section 2.1(e)(i), (B) as described on Schedule
2.1(e)(ii), (C) liabilities and obligations incurred in the ordinary course of
business consistent with past practice, or (D) liabilities for Taxes arising
in connection with the operations of the Seller and not yet due and payable.
All reserves established by the Seller Parties for the Business are reflected
on the balance sheets of the Seller and are adequate, and there are no loss
contingencies that are required to be accrued in accordance with GAAP which
are not provided for on such balance sheets, except as provided in Schedule
2.1(e)(ii).
(iii) Attached as Schedule 2.1(e)(iii) is a budget for the
Business for the 2001 fiscal year (the "Budget"). The Budget has been prepared
based on the best estimate of the Selling Parties as to the items set forth
therein, taking into account, among other things, the financial results of the
Business in prior years and assumptions the Seller Parties reasonably believe
in good faith to be reasonable, and neither Seller Party has knowledge of any
fact or information that would lead it to believe that such assumptions are
incorrect or misleading in any material respect; it being understood that
neither Seller Party makes any representation or warranty as to the
performance of the economy as a whole.
14
21
(f) Absence of Changes. Except as set forth in Schedule
2.1(f), since December 30, 2000, the Business has been operated in the
ordinary course consistent with past practice and there has not been:
(i) any material adverse change in the assets, liabilities,
properties, condition (financial or otherwise), affairs, earnings,
business, operations, management personnel or customer arrangements of
the Business;
(ii) any obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred in
respect of the Business, other than obligations under customer
contracts, current obligations and liabilities incurred in the
ordinary course of business and consistent with past practice;
(iii) any payment, discharge or satisfaction of any claim or
obligation, except in the ordinary course of business and consistent
with past practice;
(iv) except for sales of inventory in the ordinary course of
business consistent with past practice or as contemplated by this
Agreement, any sale, assignment, pledge, encumbrance, hypothecation,
transfer or other disposition of any tangible asset used in the
Business or intended to be used in the Business, or any sale,
assignment, transfer or other disposition of any patents, trademarks,
trade secrets, service marks, trade names, copyrights, licenses,
franchises, know-how or any other intellectual property or proprietary
information or intangible assets used in the Business or intended to
be used in the Business or any other Acquired Assets;
(v) any write-down of the value of any asset or inventory
used or held for use in the Business or any write-off as uncollectible
of any accounts or notes receivable or any portion thereof of either
Seller Party or any Other Seller Party relating to the Business;
(vi) any cancellation of any debts or claims or any
amendment, termination or waiver of any rights of value to either
Seller Party or any Other Seller Party relating to the Business;
(vii) any capital expenditure or commitment or addition to
property, plant or equipment used in the Business or intended to be
used in the Business;
(viii) any increase in the compensation of employees of the
Business (including any increase pursuant to any bonus, pension,
change of control, stock option, profit-sharing or other benefit or
compensation plan, policy or arrangement or commitment);
(ix) any material damage, destruction or loss (whether or not
covered by insurance) affecting any asset or property held or used in
connection with the Business;
(x) any change in the independent accountants of either
Seller Party or in the accounting methods or accounting practices
followed by either Seller Party in connection with the Business or any
change in depreciation or amortization policies or rates;
15
22
(xi) any failure to pay when due any material liabilities
arising out of the operation of the Business;
(xii) any change in the level of inventory in the Business in
any material respect from the levels customarily maintained in the
Business;
(xiii) any agreement or action not otherwise referred to in
items (i) through (xii) above entered into or taken that is material
to the Business; or
(xiv) any agreement, whether in writing or otherwise, to take
any of the actions specified in this Section 2.1(f).
(g) Assets, Property and Related Matters. (i) The Seller
Parties and the Other Seller Parties are the sole owners of the Acquired
Assets and have, and the Purchaser will at the Closing acquire, good and valid
title to, and in the case of the immovable property, good, valid and
marketable title to, or a good, valid leasehold interest in, as applicable,
all of the Acquired Assets, free and clear of all Liens, other than Permitted
Liens. At the time of Closing, the Seller will have delivered to the Purchaser
true and complete lien searches for all relevant jurisdictions (which are
listed in Schedule 2(g)) evidencing the absence of Liens on any of the
Acquired Assets, other than Liens on such assets for which full releases
satisfactory in form and substance to the Purchaser will have been delivered
to the Purchaser by Closing. The tangible property included in the Acquired
Assets is in good operating condition and repair, subject to ordinary wear and
tear. Except as set forth in Schedule 2.1(g)(A), the Acquired Assets
constitute all of the properties, interests, assets and rights used or held
for use or intended to be used or held for use in connection with the
Business. Except as set forth in Schedule 2.1(g)(B), the Acquired Assets,
together with the services to be provided to the Purchaser pursuant to the
Services Agreement, constitute all that is necessary to continue to operate
the Business consistent with current and historical practice.
(ii) All immovable (real) property the leases for which
constitute part of the Acquired Assets (each, a "Company Property") and all
appurtenances and improvements, as used, constructed or maintained by the
Seller Parties or any Other Seller Party at any time, conform in all material
respects to applicable federal, state, local and foreign laws and regulations,
including Environmental Laws and, except as otherwise disclosed on Schedule
2.1(g)(ii), no notices of violation, contravention or breach of any such legal
requirements have been issued by any governmental authority with respect to
any Company Property, including all building, fire, health, zoning, setback,
and subdivision laws, regulations or ordinances and all Environmental Laws and
such Company Property is used in compliance with all legal requirements. No
condemnation proceeding is pending or, to the knowledge of the Seller Parties,
threatened which would preclude or impair the use of any Company Property by
the Purchaser for the uses for which they are intended. The Seller owns no
real property.
(iii) No part of any Company Property is subject to any
building or use restrictions that would restrict or prevent in any material
respect the present use and operation of such Company Property, and each
Company Property is properly and duly zoned for its current use, and such
current use is in all material respects a conforming use. No governmental
authority having jurisdiction over any Company Property has issued or, to the
knowledge of the Seller
16
23
Parties, has threatened to issue any notice or order that adversely affects
the use or operation of any Company Property, or requires, as of the date
hereof or a specified date in the future, any repairs, alterations, additions
or improvements thereto, or the payment or dedication of any money, fee,
exaction or property. The Seller Parties have no knowledge of any actual or
pending imposition of any assessments for public improvements with respect to
any Company Property and, to the knowledge of the Seller Parties, no such
improvements have been constructed or planned that would be paid for by means
of assessments upon any Company Property.
(h) Patents, Trademarks and Similar Rights. (i) Schedule
2.1(h)(i) sets forth a true and complete list of any and all patents,
trademarks (registered or unregistered), trade names, service marks,
copyrights, domain names and applications therefor owned, used, filed by or
licensed to either Seller Party or any of its Affiliates with respect to the
Business. With respect to registered trademarks, Schedule 2.1(h)(i) sets forth
a list of all jurisdictions in which such trademarks (if any) are registered
or applied for and all registration and application numbers. With respect to
patents, Schedule 2.1(h)(i) sets forth a list of all jurisdictions in which
such patents have been granted or applied for and all registration and
application numbers. The Seller Parties and the Other Seller Parties own or
validly license all patents, trademarks, service marks, trade names, domain
names and copyrights, in each case registered or unregistered, inventions,
technology, industrial design, software, know-how, trade secrets,
Personally-Identifiable Data (as defined below) and other intellectual
property rights (collectively, the "Intellectual Property") (provided,
however, that the Intellectual Property does not include any technology,
industrial design, software, know-how or trade secrets used principally or
exclusively by Keystone to perform its obligations under the Services
Agreement or that is provided or made available to the Purchaser solely under
the Services Agreement) used in the Business as presently conducted or
proposed to be conducted, with no infringement of or conflict with any rights
of others. The Seller Parties and the Other Seller Parties are, and on the
Closing Date the Purchaser will be, the sole and exclusive owner of or valid
licensee of all rights to the Intellectual Property, free and clear of all
Liens. Each of the aforesaid elements of the Intellectual Property is valid,
subsisting and enforceable. Except as set forth on Schedule 2.1(h)(i), the
Seller has, and on the Closing Date the Purchaser will have, the right to use
the same without the payment of any license, fee, royalty or similar charge.
Except as set forth on Schedule 2.1(h)(i), none of the Seller Parties or any
of their Affiliates has granted to any third party any license or other right
to any of the Intellectual Property. Except as set forth on Schedule
2.1(h)(i), there is no claim pending or, to the knowledge of the Seller
Parties, threatened which relates to any of the Intellectual Property and
there is no basis on which any such claim could be brought. Except as set
forth on Schedule 2.1(h)(i), no Seller Party or any of its Affiliates has
received any notice that the operations of the Business or the practice of any
of the Intellectual Property infringes upon or conflicts with any patent,
trademark, trade name, copyright or other proprietary right of a third party
and, to the knowledge of the Seller Parties, there is no basis on which any
such claim could be brought.
(ii) Except as set forth on Schedule 2.1(h)(ii), to the
knowledge of the Seller Parties, there is no infringement or improper use by
any third party of the Intellectual Property. The Seller Parties and the Other
Seller Parties have taken all action necessary to prosecute all of the such
parties' existing applications and to maintain all of such parties'
registrations listed on Schedule 2.1(h)(i) (if any) in full force and effect
in the jurisdictions named therein and, except as set forth in Schedule
2.1(h)(ii), such parties have not taken or failed to take any action which
17
24
would have the effect of waiving any rights to the Intellectual Property.
Except as set forth on Schedule 2.1(h)(ii) and assuming the consents or
waivers required under the contracts listed on Schedule 2.1(d) are received
prior to Closing, no contract, agreement or understanding with any party
exists that would impede or prevent the assignment to the Purchaser of all
right, title and interest of the Seller Parties and the Other Seller Parties
in and to the Intellectual Property.
(iii) The Seller Parties and the Other Seller Parties have
taken all reasonable measures to protect and preserve the security,
confidentiality, value and ownership of the Intellectual Property, including
trade secrets and other confidential information and, to the knowledge of the
Seller Parties, to obtain authorization, through privacy policies, notices,
consents or otherwise, to use Personally-Identifiable Data in the Business as
conducted. Except as set forth in Schedule 2.1(h)(iii), neither Seller Party
nor any of its Affiliates has any contract, agreement, understanding or
policy, including without limitation any privacy policy, that could limit the
use of the Personally-Identifiable Data by the Purchaser after the Closing.
All employees and consultants of the Seller Parties and the Other Seller
Parties involved in the design, review, evaluation or development of products
or intellectual property rights are subject to such party's Corporate Code of
Conduct, a copy of which is set forth on Schedule 2.1(h)(iii), which is
sufficient to protect the confidentiality and value of the Intellectual
Property. Except as set forth on Schedule 2.1(h)(iii), to the knowledge of the
Seller Parties, all trade secrets and other confidential information of the
Seller Parties and the Other Seller Parties relating to the Business or the
Acquired Assets are presently valid and protectable and are not part of the
public domain or knowledge, nor, to the knowledge of the Seller Parties, have
they been used, divulged or appropriated for the benefit of any person other
than the Seller Parties or the Other Seller Parties to the detriment of the
Business; provided, however, that the Seller's customer lists have from time
to time been rented, provided to certain third parties, and provided to
Affiliates in the ordinary course of business. The Personally-Identifiable
Data contains, in all material respects, a true, correct and complete list of
all of the customers who have actually purchased merchandise from the Business
since September, 1995.
(iv) For the purposes of this Agreement, "Personally-
Identifiable Data" means the names, addresses, email addresses, telephone
numbers, fax numbers of any natural persons, or any other data likely to
substantially identify any particular natural persons, together with any other
information about a natural person which is combined with or linked to any of
the foregoing information, including but not limited to customer lists, mailing
lists, telemarketing lists, email telemarketing lists, customer or prospective
customer databases, credit reports, data regarding purchases of identified
customers, and databases or records of website usage by users who are
identified by any of the foregoing information.
(i) Insurance. Schedule 2.1(i) contains a true and complete
list of all policies of casualty, liability, theft, fidelity, life and other
forms of insurance held in connection with the Business. All insurance
policies are in the name of the Seller Parent are outstanding and in full
force and effect, all premiums with respect to such policies are currently
paid and such policies will not by their terms be affected by, or terminated
or lapse by reason of, the transactions contemplated by this Agreement. No
Seller Party has received notice of cancellation or termination of any such
policy, nor has it been denied or had revoked or rescinded any policy of
insurance, nor borrowed against any such policies. Except as set forth on
Schedule 2.1(i), no
18
25
claim under any such policy relating to the Seller, the Business or the
Acquired Assets is pending.
(j) Agreements, Etc. (i) Schedule 2.1(j)(i) contains a true
and complete list (and with respect to oral contracts or agreements, a
description) of all written or oral contracts, agreements and other
instruments (other than the Excluded Contracts) to which the Seller is a party
and to which the Seller Parent or any Other Seller Party or any of their
Affiliates is a party in connection with the Business (i) relating to
indebtedness for money borrowed or capital leases, (ii) of duration of three
months or more from the date hereof and not cancelable without penalty on 30
days or less notice, (iii) relating to commitments in excess of $25,000, (iv)
relating to the employment, compensation or termination of any employee,
consultant or other agent of the Seller or the Business, (v) relating to the
sale or other disposition of any assets, properties or rights, (vi) relating
to the lease or similar arrangement of any machinery, equipment, motor
vehicles, furniture, fixtures or similar property, (vii) between the Seller
and its sole stockholder or any Affiliate of the Seller, (viii) that restricts
the operation of any part of the Business anywhere in the world, (ix) between
either Seller Party or any of their Affiliates and the top ten suppliers to
the Business and (x) that is otherwise material to the Business or entered
into other than in the ordinary course of business. No Seller Party, or any of
their Affiliates, as applicable, is in default under any such agreement or
instrument where such default could, singly or in the aggregate with defaults
under other agreements or instruments, have a material adverse effect on the
assets, liabilities, properties, condition (financial or otherwise), affairs,
earnings, business, operations, management personnel or customer arrangements
of the Business (a "Material Adverse Effect"), and, to the knowledge of the
Seller Parties, no other party to any such agreement or instrument is in
breach thereof or default thereunder. All such agreements or instruments are
in full force and effect and are enforceable against the other parties
thereto. Except as set forth in Schedule 2.1(j)(ii), the Seller has made
available to or furnished to the Purchaser true and complete copies of all
documents described in Schedule 2.1(j)(i). Except as set out in the contracts
and agreements listed in Schedule 2.1(j)(i), there are no directors, officers,
employees, consultants or other agents of the Seller or the Business who are
entitled to a specified notice of termination or fixed term of employment or
who cannot be dismissed upon such notice as is required by law.
(ii) The Seller has not made available to or furnished to the
Purchaser true and complete copies of the documents described in Schedule
2.1(j)(ii) (the "Other Agreements"). The Other Agreements (other than purchase
orders) are not, individually or in the aggregate, material to the Business.
The Other Agreements were entered into in the ordinary course of business,
consistent with past practice. The economics of the Other Agreements, in the
aggregate, and the effect the Seller expects them to have on the Business are
factored into the Budget.
(k) Litigation, Etc. Except as set forth in Schedule 2.1(k),
there have not been for the past three years, nor are there, any suits,
actions, claims, complaints, litigation, investigations or legal or
administrative or arbitration proceedings in respect of the Business, the
Acquired Assets or the Seller, pending or, to the knowledge of either Seller
Party, threatened, whether at law or in equity, or before or by any federal,
foreign, state, local or other governmental department, commission, board,
bureau, agency or instrumentality (other than matters that individually and in
the aggregate are immaterial to the Business and the Acquired
19
26
Assets). There have not been for the past three years, nor are there, any
judgments, decrees, injunctions, rulings, awards or orders of any court,
governmental department, commission, agency, instrumentality or arbitrator or
against either Seller Party, any of its Affiliates, or any of their respective
assets or properties, relating to or affecting the Business or the Acquired
Assets (other than matters that individually and in the aggregate are
immaterial to the Business and the Acquired Assets).
(l) Compliance; Governmental Authorizations. (i) Except as
set forth in Schedule 2.1(l), each Seller Party and Other Seller Party has
complied and is in compliance in all material respects with all federal,
state, local and foreign laws, ordinances, regulations, rulings, awards,
statutes, interpretations and orders (including those relating to disposal of
materials, environmental protection and occupational safety and health)
applicable to the Seller and the Business or the Acquired Assets. There are no
present or past conditions relating to the Seller or the Acquired Assets, or
relating to any Company Property or any appurtenances thereto or improvements
thereon, that could reasonably be expected to lead to any material liability
against the Acquired Assets, the Business or the Purchaser or otherwise could
reasonably be expected to have an adverse effect (other than individually and
in the aggregate an immaterial adverse effect) on the Purchaser, the Business
or the Acquired Assets, for violation of any applicable health or safety laws.
No Seller Party or Other Seller Party has violated in any material respect
(other than such violations that have been fully cured or remedied and
pursuant to which such party has no liability (contingent or otherwise)), nor
is either Seller Party or any Other Seller Party in violation in any material
respect of, any requirements of any federal, state, local or foreign laws,
ordinances, regulations, rulings, awards, statutes, interpretations and orders
relating to transportation or disposal of materials or the discharge of
chemicals, gases or other substances or Hazardous Materials (as defined below)
into the environment or to the safety or protection of the environment (the
"Environmental Laws") in connection with the conduct of the Business or in
connection with the use, maintenance or operation of any Company Property.
There are no present or past conditions relating to the Seller or the Acquired
Assets or relating to any Company Property, nor are there any present or past
conditions relating to any immovable (real) property previously owned, leased
or operated by the Seller or any of its present or past Affiliates, that in
any such case could reasonably be expected to lead to any liability of the
Purchaser or any of its Affiliates under any Environmental Law (other than
liabilities that individually and in the aggregate are immaterial). Each
Seller Party and Other Seller Party has operated each Company Property and has
received, handled, used, stored, treated, transported, shipped and disposed of
all Hazardous Materials, substances and wastes (whether or not on its
properties or properties owned or operated by others) in compliance in all
material respects with all applicable Environmental Laws (other than such
instances of non-compliance that have been fully cured or remedied and
pursuant to which such party has no liability (contingent or otherwise))
(other than liabilities that individually and in the aggregate are
immaterial). There are no Hazardous Materials currently located at, on or
under any Company Property. "Hazardous Materials" means (A) any "hazardous
substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or any other Environmental
Laws; (B) any "hazardous waste" or "petroleum," as defined by the Resource
Conservation and Recovery Act, as amended; (C) any petroleum product; (D) any
pollutant or contaminant or hazardous, dangerous or toxic chemical, material,
substance or waste within the meaning of any other Environmental Law, as
amended or hereafter amended; or (E) any radioactive material, including any
source, special nuclear or by-product material as defined at
20
27
42 U.S.C. Section 2011 et seq., as amended or hereafter amended, or by any
other Environmental Laws.
(ii) The Seller has all federal, state, local and foreign
governmental licenses, permits authorizations, certificates, approvals (the
"Permits") necessary to conduct the Business as presently being conducted,
which Permits (and any exceptions thereto) are listed in Schedule 2.1(l). Such
Permits are in full force and effect, no violations are or have been recorded
in respect of any thereof (other than such violations that have been fully
cured or remedied), no proceeding is pending or, to the knowledge of the
Seller Parties, threatened, to revoke or limit any thereof and no Seller Party
knows of any basis for any such proceeding.
(m) Employees and Compensation.
(i) No employee of the Seller or the Business (whose duties
primarily relate to the Business) (collectively, the "Seller Employees") is
represented by any union and, to the knowledge of the Seller Parties, there is
no labor strike, slowdown, stoppage or organizational effort pending or
threatened against the Seller or the Business.
(ii) Schedule 2.1(m) sets forth (A) a true and correct list
of the name, location and current annual salary of each Seller Employee and
(B) any other form of material compensation (other than salary or customary
employee benefits) paid or payable to such Seller Employee by either Seller
Party or any of its Affiliates for the current fiscal year.
(iii) Except as set forth in Schedule 2.1(m), the consummation
of the transactions contemplated by this Agreement will not (A) entitle any
shareholder, director, officer, employee, independent contractor, consultant
or agent of the Seller or any of its Affiliates to severance pay or
termination benefits or any other payment for which the Purchaser or any of
its Affiliates could reasonably be expected to become liable, (B) accelerate
the time of payment or vesting, or increase the amount of compensation due to
any such shareholder, director, officer, employee, independent contractor,
consultant or agent or former shareholder, director, officer, employee,
independent contractor, consultant or agent for which the Purchaser or any of
its Affiliates could reasonably be expected to become liable or (C) except for
the Assumed Liabilities, obligate the Purchaser or any of its Affiliates to
pay or otherwise be liable for any compensation, vacation days, pension
contribution or any other benefits to any such shareholder, director, officer,
employee, independent contractor, consultant or agent for periods before the
Closing Date or for personnel whom the Purchaser does not actually employ.
(n) Benefit Plans.
(i) Except for the liabilities set forth in Section
1.2(a)(viii) to be assumed by the Purchaser at Closing, none of the Purchaser
Parties nor any of their Affiliates (A) shall be responsible for any existing
or future liability under any plan, program, or arrangement maintained by
either Seller Party or any of its Affiliates or under which either Seller
Party or any of its Affiliates has or may have any obligation to contribute,
with respect to any Seller Employee, whether such plan, program or arrangement
is formal or informal, written or unwritten, and whether or not such plan,
program, or arrangement is an "employee benefit plan" subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")
21
28
(collectively, "Seller Benefit Plans") and (B) shall be obligated to
administer or maintain any Seller Benefit Plan. The Seller Benefit Plans are
listed on Schedule 2.1(n).
(ii) The Seller has made available to or provided to the
Purchaser true and complete copies of: (A) each Seller Benefit Plan that is an
"employee welfare benefit plan" under Section 3(1) of ERISA; (B) each Seller
Benefit Plan that is an "employee pension benefit plan" under Section 3(2) of
ERISA; (C) the most recent annual report required to be filed, including Form
5500, for each Seller Benefit Plan described under (A) and (B); (D) the
current summary plan description and any material modifications thereto; and
(E) the most recent determination letter received from the Internal Revenue
Service (the "Service") with respect to a Seller Benefit Plan described under
(B) that is intended to be tax-qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or the application therefor, if
such letter has not been issued by the Service.
(iii) The Seller and its Affiliates have fully satisfied the
COBRA provisions of ERISA and the Code.
(iv) Except for the liabilities set forth in Section
1.2(a)(viii) to be assumed by the Purchaser at Closing, none of the Purchaser
Parties nor any of their Affiliates shall be responsible for any existing
agreement between either Seller Party or any of its Affiliates and any Seller
Employee, including an agreement (A) the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a
transaction involving the Purchaser Parties in the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such employee regardless
of the reason for such termination of employment.
(o) Accounts Receivable. Schedule 2.1(o) contains a true
aged list of unpaid accounts and notes receivable relating to the Business as
of the fiscal month ended immediately prior to the date of this Agreement, all
of which, to the knowledge of the Seller Parties, are collectible in the
ordinary course of business, except to the extent otherwise specified in
Schedule 2.1(o).
(p) Business Relations. Since December 30, 2000, there has
not been any material adverse change in the business relationship of the
Seller or the Business with any of its creditors, employees, suppliers or
other persons having a material business relationship with the Seller or the
Business. No creditor, supplier or other person having a material business
relationship with the Seller or the Business has informed either Seller Party
that such person intends to change or request a change in such relationship
(including without limitation any change in product pricing) because of the
purchase and sale of the Acquired Assets or the consummation of any other
transaction contemplated hereby or for any other reason.
(q) Accounts Payable. Schedule 2.1(q) contains a true and
complete aged list of all accounts payable relating to the Business as of the
fiscal month end prior to the date of this Agreement.
22
29
(r) Related Party Transactions. No current or former
director, officer or shareholder of any Seller Party, any Other Seller Party
or any Associate (as defined in Rule 405 promulgated under the Securities Act
of 1933, as amended) or Affiliate thereof, or, to the knowledge of either
Seller Party, any relative with a relationship of not more remote than first
cousin of any of the foregoing, is presently, or during the 12-month period
ending on the date hereof has been, (i) a party to any transaction with either
Seller Party or any Other Seller Party or involving the Business or the
Acquired Assets (including, but not limited to, any contract, agreement or
other arrangement providing for the furnishing of services by, or rental of
real or movable (personal) property from, or otherwise requiring payments to,
any such director, officer or shareholder or such Associate), other than the
purchase of goods from the Seller in the ordinary course of business, or (ii)
to the knowledge of the Seller Parties, the direct or indirect owner of an
interest in any corporation, firm, association or business organization which
is a present (or potential) competitor or supplier of the Business, nor does
any such person receive income from any source other than the Seller which
relates to the Business or should properly accrue to the Seller in connection
with the Business.
(s) Taxes. (i) Except as set forth on Schedule 2.1(s), (A)
all Tax Returns (as defined below) required to be filed on or before the
Closing Date by the Seller Parties, any subsidiary of the Seller Parties (for
purposes of this Section 2.1(s), collectively the "Seller Group") and any
consolidated, combined or unitary group of which any member of the Seller
Group is or has been a member with respect to any Taxes (as defined below)
have been or will be filed when due (including extensions) in accordance with
all applicable laws; (B) all material Taxes shown as due on such Tax Returns
have been or will be timely paid; (C) such Tax Returns are true, correct and
complete in all material respects (including the amount of Taxes due and
payable); (D) there are no outstanding waivers or agreements extending the
application of any statute of limitations of any jurisdiction for any period
with respect to any member of the Seller Group regarding the assessment or
collection of any Tax; (E) except for Taxes not yet due and payable, none of
the Seller Group's assets (including the Acquired Assets) is subject to any
lien arising in connection with any failure or alleged failure to pay any Tax;
(F) the charges, accruals and reserves for Taxes with respect to the Seller
Group for any pre-Closing Tax period (including any taxable period for which
no Tax Return has yet been filed) reflected on the books of the Seller Group
(excluding any provision for deferred Taxes), as disclosed to the Purchaser
are adequate to cover such Taxes; (G) each member of the Seller Group has
withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, creditor,
independent contractor or other third party; (H) neither of the Seller Parties
is a "foreign person" under Section 1445 of the Code with respect to the sale
of the Acquired Assets; (I) no member of the Seller Group has, to its
knowledge, participated in any arrangement (including any Tax sharing
agreement) whereby any income, revenues, receipts, gain, loss or Tax asset of
such member of the Seller Group was determined or taken into account for Tax
purposes with reference to or in conjunction with any income, revenues,
receipts, gain, loss, asset, liability or Tax asset of any other person; and
(x) none of the Acquired Assets is "tax-exempt use property" within the
meaning of Section 168(h) of the Code.
(ii) For purposes of this Agreement, (A) "Tax" means any and
all federal, state, local, foreign and other taxes, levies, fees, imposts,
duties, governmental fees and charges of whatever kind (including any
interest, penalties or additions to the tax imposed in connection therewith or
with respect thereto), whether or not imposed on the Seller, including,
without
23
30
limitation, taxes imposed on, or measured by, income, franchise, profits,
gross income or gross receipts, and also ad valorem, value added, sales, use,
service, real or personal property, capital stock, stock transfer, license,
payroll, withholding, employment, social security, workers' compensation,
unemployment compensation, utility, severance, production, excise, stamp,
occupation, premium, windfall profits, environmental, transfer and gains taxes
and customs duties; and (B) "Tax Return" means returns, reports, information
statements and other documentation (including any additional or supporting
materials) filed or maintained, or required to be filed or maintained, in
connection with the calculation, determination, assessment or collection of
any Tax and shall include an amended returns required as a result of
examination adjustments made by the Internal Revenue Service or other Tax
authority.
(t) Disclosure. There have been no events, transactions or
information relating to the Business which have come to the attention of
either of the Seller Parties which could reasonably be expected to have a
Material Adverse Effect. No representation or warranty of any of the Seller
Parties contained in this Agreement or any other agreement, document or
instrument delivered or entered into by either Seller Party on the Closing
Date in connection herewith contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statement contained
herein or therein not misleading.
(u) Brokers. Except as set forth in Schedule 2.1(u), no
agent, broker, investment banker, person or firm acting on behalf either of
the Seller Parties or any of its Affiliates or under the authority of either
of the Seller Parties or any of its Affiliates is or will be entitled to any
broker's or finder's fee or any other commission or similar fee directly or
indirectly from any of the parties hereto in connection with any of the
transactions contemplated hereby.
(v) Inventory. The inventory included in the financial
statements contained in Schedule 2.1(e) is the only inventory used or held for
use or intended to be used or held for use in the Business and is valued for
financial statement purposes at the lower of cost or market in aggregate, on a
first-in, first-out basis. Such inventory is useable and salable in the
ordinary course of business as currently conducted at customary gross margins.
The Seller has established reserves on its financial statements contained in
Schedule 2.1(e) with respect to such inventory in an amount sufficient to
value such inventory at the lower of cost or market.
(w) Fixed Assets. The net book value of the property, plant
and equipment included in the financial statements contained in Schedule
2.1(e) is as of the date of this Agreement and will as of the last day of the
fiscal month ended immediately prior to the Closing be no less than $4,000.
Such property, plant and equipment is accounted for at cost.
(x) Customs. All goods imported into the United States or
any other country by either Seller Party for use in the Business (the
"Imported Goods") have been properly valued and classified in accordance with
applicable tariff laws, rules and regulations and all proper duties, tariffs
or excise taxes have been paid with respect to the Imported Goods, no
penalties have been assessed or claimed with respect to any Imported Goods,
and no written inquires relating thereto have been received by either Seller
Party. All Imported Goods have been properly marked as to country of origin,
content and material. To the knowledge of the Seller
24
31
Parties, the Seller Parties have had no buying agency agreements required to
be filed with the U.S. Customs Service with respect to the Imported Goods.
2.2. Representations and Warranties by the Purchaser Parties.
The Purchaser Parties jointly and severally represent and warrant to the
Seller Parties as follows:
(a) Organization and Standing. The Purchaser is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware. The Purchaser Parent is a limited
partnership duly organized, validly existing and in good standing under the
laws of the State of Delaware. HSN Catalog Services is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware.
(b) Authority; Binding Agreements. The execution, delivery
and performance of this Agreement, the Assignment, the Escrow Agreement, the
Services Agreement and all other agreements, documents and instruments
contemplated in connection with this Agreement to which any Purchaser Party is
a party and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary action of the
Purchaser Parties. The Purchaser has all requisite power and authority to
execute, deliver and perform this Agreement, the Assignment, the Escrow
Agreement and the Services Agreement and to consummate the transactions
contemplated hereby and thereby and the Purchaser has duly executed and
delivered this Agreement. The Purchaser Parent has all requisite power and
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby and the Purchaser Parent has duly executed
and delivered this Agreement. HSN Catalog Services has all requisite corporate
power and authority to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby and HSN Catalog Services has
duly executed and delivered this Agreement. This Agreement is, and upon
execution and delivery, the Assignment, the Escrow Agreement, the Services
Agreement and such other agreements, documents and instruments will be, the
legal, valid and binding obligation of the Purchaser, enforceable in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law). This
Agreement is, and upon execution and delivery, the Services Agreement and such
other agreements, documents and instruments will be, the legal, valid and
binding obligation of the Purchaser Parent, enforceable in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law). This Agreement is, and upon
execution and delivery, such other agreements, documents and instruments will
be, the legal, valid and binding obligation of HSN Catalog Services,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
25
32
(c) Equity Ownership. The Purchaser Parent owns of record
and beneficially 100% of the limited liability company interests of the
Purchaser. The general partner of the Purchaser Parent owns of record and
beneficially 100% of the capital stock of HSN Catalog Services. The Purchaser
does not have any subsidiaries or own or hold any equity or other securities
in any other entity. HSN Catalog Services does not have any subsidiaries or
own or hold any equity or other securities in any other entity.
(d) Conflicts; Consents. None of the execution of this
Agreement, the Assignment, the Escrow Agreement or the Services Agreement, the
consummation of the transactions contemplated hereby or thereby or compliance
by the Purchaser Parties with any of the provisions hereof or thereof will (i)
conflict with or result in a breach of the constitutive documents of the
Purchaser Parties, (ii) conflict with or result in a default (or give rise to
any right of termination, cancellation or acceleration) under any of the
provisions of any note, bond, lease, mortgage, indenture, license, franchise,
permit, agreement or other instrument or obligation to which any Purchaser
Party is a party, or by which such party or such party's properties or assets,
may be bound or affected, except for such conflicts, breaches or defaults as
to which requisite waivers or consents shall be obtained before the Closing,
or (iii) violate any law, statute, rule or regulation or order, writ,
injunction or decree applicable to any Purchaser Party or such party's
properties or assets, in each case, which conflict, breach, default or
violation could reasonably be expected to materially impair such party's
ability to consummate the transactions contemplated hereby. No material
consent or approval by or notification of or filing with any person
(governmental or private) is required in connection with the execution,
delivery and performance by the Purchaser Parties of this Agreement or by the
Purchaser of the Assignment and the Escrow Agreement, or by the Purchaser
Parent or the Purchaser of the Services Agreement or the consummation of the
transactions contemplated hereby or thereby, other than those that have been
obtained or will prior to the Closing Date be obtained and are, or will be, in
full force and effect.
(e) Brokers. No agent, broker, investment banker, person or
firm acting on behalf of any Purchaser Party or under the authority of any
Purchaser Party is or will be entitled to any broker's or finder's fee or any
other commission or similar fee directly or indirectly from any of the parties
hereto in connection with any of the transactions contemplated hereby.
(f) Sufficient Funds. At the Closing, the Purchaser and HSN
Catalog Services will have available funds sufficient to purchase the Acquired
Assets, to fund the Escrow Amount and to perform their respective obligations
hereunder.
ARTICLE III
ADDITIONAL AGREEMENTS
3.1. Expenses; Sales. Each party hereto shall pay its
respective legal and accounting fees and expenses incurred in connection with
the preparation, execution and delivery of this Agreement and all other
agreements, documents and instruments executed pursuant hereto and any other
costs and expenses incurred by such party, except as otherwise expressly set
forth herein, whether or not Closing occurs. The Seller shall pay the cost of
all income, excise, single business, use, gross receipts and similar taxes
arising out of or in connection with the
26
33
transactions contemplated by this Agreement and the other agreements,
documents and instruments executed pursuant hereto. The Seller and the
Purchaser shall each pay 50% of any sales and transfer taxes arising out of or
in connection with the transfer by the Seller Parties and the Other Seller
Parties to the Purchaser of the Acquired Assets and Assumed Liabilities
pursuant hereto.
3.2. Conduct of Business. From the date hereof until the
Closing Date, except as expressly contemplated by this Agreement or as
otherwise consented to by the Purchaser in writing, the Seller Parties shall,
and shall cause the Other Seller Parties to, operate the Business only in the
ordinary course of business consistent with past practice in substantially the
same manner as presently conducted and shall make all reasonable efforts
consistent with past practices to preserve their relationships with customers,
suppliers and other business relations with respect to the Business and the
Acquired Assets. The Seller Parties shall, and shall cause the Other Seller
Parties to, not take any action that would, or that could reasonably be
expected to, result in any of the conditions set forth in Section 4.1 not
being satisfied. Without limiting the generality of the foregoing, the Seller
Parties shall, and shall cause the Other Seller Parties to, with respect to
the Business and the Acquired Assets, except as otherwise agreed in writing by
the Purchaser: (i) carry on the Business in the ordinary course in
substantially the same manner as heretofore conducted; (ii) maintain and keep
their assets in as good repair, working order and condition as at present,
except for depreciation due to ordinary wear and tear; (iii) keep in full
force and effect insurance comparable in amount and scope of coverage to that
now maintained; (iv) perform in all material respects all obligations under
all contracts, agreements, documents and instruments relating to or affecting
the Acquired Assets and the Business; (v) comply in all material respects with
all applicable requirements of law, rules, regulations, orders, ordinances and
directives, whether federal, state, local, foreign or otherwise; (vi) not
enter into or amend, modify, terminate or waive compliance with any provision
of any contract or commitment other than in the ordinary course of business or
as specifically contemplated by this Agreement; (vii) not take, or fail to
take, any action which would result in a breach in any material respect of any
of the warranties or an inaccuracy in any material respect in any of the
representations contained in Section 2.1; (viii) use their reasonable best
efforts to maintain and preserve their business organization intact and
maintain relationships with suppliers without any changes to current
arrangements so that they may be preserved in at least as good condition after
the Closing Date; (ix) not hypothecate, mortgage, pledge or subject to any
Lien any of the Acquired Assets or grant any interest in, right to or any
license of, any of the Acquired Assets; (x) not institute, settle or agree to
settle any litigation, action or proceeding before any court or tribunal or
government authority and not waive or surrender any rights related to the
Business; (xi) directly or indirectly, cause or permit any state of affairs,
action or omission described in clauses (i) through (xiv) of Section 2.1(f);
and (xii) not enter into any agreement or make any commitment to take any of
the type of action prohibited in the foregoing clauses; and shall promptly
notify the Purchaser upon becoming aware of any such state of affairs, action
or omission.
3.3. Further Assurances. Each party hereto agrees to use, and
the Seller Parties agree to cause each of the Other Seller Parties to use, its
reasonable best efforts to take, or cause to be taken, all action, and to do,
or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations, to consummate and make effective the
transactions contemplated by this Agreement as expeditiously as practicable
and to ensure that the conditions set forth in Article IV hereof are
satisfied, insofar as such matters are within the control of such
27
34
party. In case at any time after the Closing Date any further action is
necessary or desirable to carry out the purposes of this Agreement or to
ensure the proper assignment and delivery of the Acquired Assets to the
Purchaser, each of the parties to this Agreement shall, and the Seller Parties
shall cause the Other Seller Parties to, take or cause to be taken all such
necessary action, including, the execution and delivery of such further
instruments and documents, as may be reasonably requested by any party for
such purposes or otherwise to complete or perfect the transactions
contemplated hereby.
3.4. No Shop. (a) Neither of the Seller Parties will, nor
will they permit any of the Other Seller Parties to, nor will they permit any
of their or any of the Other Seller Parties' respective directors, officers,
employees or other representatives or agents to, directly or indirectly,
contact, or encourage, solicit or initiate any inquiries or proposals by, or
participate in discussions or negotiations or enter into any agreement or
understanding (whether oral or written) with, or provide any information or
assistance to, any person or entity (other than the Purchaser Parties and
their representatives) concerning or looking toward any merger involving the
Seller or the Business, sale of securities of the Seller, sale of substantial
assets of the Seller or the Business or similar transaction to the
transactions contemplated by this Agreement.
(b) Without limiting the foregoing, it is agreed that any
violation of the restrictions set forth in this Section 3.4 by any officer,
director, employee or other representative or agent of any of the Seller
Parties or the Other Seller Parties shall be deemed to be a breach of this
Section 3.4.
(c) In the event that any of the Seller Parties or the Other
Seller Parties receives a proposal relating to any such transactions described
in Section 3.4(a), the Seller Parties shall promptly notify the Purchaser of
such proposal (including the terms thereof and the identity of the persons or
entity making such proposal).
(d) This Section 3.4 will terminate on the first to occur of
the Closing or the termination of this Agreement pursuant to Section 6.2.
3.5. Access and Information. (a) From the date hereof until
the first to occur of the Closing Date and the termination of this Agreement,
the Seller Parties shall, and shall cause the Other Seller Parties to, permit
the Purchaser Parties and their respective representatives to make such
investigation of the business, operations and properties of the Seller Parties
and the Other Seller Parties relating to the Business and the Acquired Assets
as such persons deem necessary or desirable in connection with the
transactions contemplated hereby. Such investigation shall include, without
limitation, access to the respective officers, employees, agents and
representatives (including legal counsel and independent accountants) of the
Seller Parties and the Other Seller Parties relating to the Business and the
Acquired Assets and the properties, books, records and commitments of the
Seller Parties and the Other Seller Parties relating to the Business and the
Acquired Assets. The Seller Parties shall, and shall cause the Other Seller
Parties to, furnish the Purchaser and its representatives with such financial,
operating and other data and information, and copies of documents, with
respect to the Business or any of the transactions contemplated hereby, as the
Purchaser shall from time to time request. Such access and investigation shall
be made upon reasonable notice and at reasonable places and times. Such access
and information shall not in any way affect or diminish any of the
28
35
representations or warranties hereunder. Without limiting the foregoing,
during such period, the Seller Parties shall keep the Purchaser informed as to
the business and operations of the Business and shall consult with the
Purchaser with respect thereto as appropriate.
(b) Following the Closing Date, the Seller Parties shall,
and shall cause the Other Seller Parties to, make available to the Purchaser
any data and other information in the possession of the Seller Parties and the
Other Seller Parties relating to the Acquired Assets or the Business and the
Seller Parties shall reasonably assist the Purchaser in arranging discussions
with (and the calling as witnesses in any proceedings related to the Acquired
Assets or the Business, of) officers, employees and agents of the Seller
Parties and the Other Seller Parties: (i) to permit the preparation of any tax
returns; (ii) in connection with any governmental examination of tax returns
relating to the Acquired Assets; (iii) to defend or prosecute any claims
relating to the Acquired Assets; or (iv) for any other purpose reasonably
requested by the Purchaser.
3.6. Bulk Sales. Subject to the indemnification provision in
Section 5.1(a)(vi), the Seller and Purchaser hereby agree to waive compliance
with any and all bulk sales laws applicable to the transactions contemplated
by this Agreement.
3.7. Public Announcements. Except as otherwise required by
law or applicable stock exchange rules, no party hereto may issue any press
release or other public disclosure concerning this transaction without the
prior written consent of the other parties hereto.
3.8. Confidentiality; Non-Competition. (a) Until the Closing,
the Purchaser Parties and the Seller Parties each agree that all financial or
other information about the Purchaser Parties or the Seller Parties, or other
information of a confidential or proprietary nature, disclosed to the other at
any time in connection with the proposed transaction shall be kept
confidential by the party receiving such information and shall not be
disclosed to any person or used by the receiving party (other than to its
agents or employees or in connection with the transactions contemplated by
this Agreement) except: (i) with the prior written consent of the disclosing
party; (ii) as may be required by applicable law or court process; (iii) such
information which may have been acquired or obtained by such party (other than
through disclosure by the other party in connection with the transactions
contemplated by this Agreement); or (iv) such information which is or becomes
generally available to the public other than as a result of a violation of
this provision. On and after the Closing, the Seller Parties each agree that
all information relating to the Business and the Acquired Assets shall be kept
confidential by the Seller Parties and their Affiliates and shall not be
disclosed to any person or used by the Seller Parties or any of their
Affiliates except: (i) with the prior written consent of the Purchaser; (ii)
as may be required by applicable law or court process; or (iii) such
information which is or becomes generally available to the public other than
as a result of a violation of this provision. On and after the Closing, the
Purchaser Parties each agree that all financial or other information about the
Seller Parties, or other information of a confidential or proprietary nature,
disclosed to the Purchaser Parties at any time in connection with the proposed
transaction (other than information relating to the Business and the Acquired
Assets) shall be kept confidential by the Purchaser Parties and their
Affiliates and shall not be disclosed to any person or used by the Purchaser
Parties or any of their Affiliates except: (i) with the prior written consent
of the Seller;
29
36
(ii) as may be required by applicable law or court process; or (iii) such
information which is or becomes generally available to the public other than
as a result of a violation of this provision. The Purchaser Parties and the
Seller Parties shall be bound by the terms of this paragraph (a) for a period
of three years after Closing.
(b) Each of the Purchaser Parties and Seller Parties
acknowledge and recognize the highly competitive nature of the Business and of
the business of the Purchaser Parties. Accordingly, in consideration of the
payments made pursuant to Section 1.3, the transactions contemplated by this
Agreement and the premises contained herein, neither of the Seller Parties
shall, nor shall they permit any of their Affiliates to, at any time during
the three-year period immediately following the Closing Date:
(i) directly or indirectly engage, or have any ownership
interest in, or be employed by or associated in any manner connected
with any Competing Business in the United States of America, Canada or
Mexico; provided, however, that the foregoing shall not be violated by
any of the Seller Parties owning, directly or indirectly, solely as an
investment, securities of any corporation which are publicly traded if
such party does not, directly or indirectly, beneficially own,
collectively, five percent (5%) or more of any class of securities of
such corporation;
(ii) directly or indirectly, either as principal, agent,
employer, advisor (whether paid or unpaid), shareholder, partner or in
any other capacity whatsoever, either for its own benefit or for the
benefit of any other person or entity, seek to divert or take away, or
divert or take away any suppliers of the Business; or
(iii) directly or indirectly, either as principal, agent,
employer, advisor (whether paid or unpaid), shareholder, partner or in
any other capacity whatsoever, either for its own benefit or for the
benefit of any other person or entity, either (A) hire, attempt to
hire, contact or solicit with respect to hiring, any employee of the
Purchaser or any of its Affiliates engaged in the conduct of the
Business, (B) induce or otherwise counsel, advise or encourage any
employee of the Purchaser or any of its Affiliates engaged in the
conduct of the Business to leave the employment of the Purchaser or
any of its Affiliates or (C) induce any representative or agent of the
Purchaser or any of its Affiliates engaged in the conduct of the
Business to terminate or modify its relationship with the Purchaser or
any such Affiliates.
For purposes of this Section 3.8, "Competing Business" shall mean any
individual, business, firm, company, partnership, joint venture, organization,
or other entity or person engaged in whole or in part in any business that
directly competes with the Business in the United States of America, Canada or
Mexico, and shall specifically exclude the Excluded Business as currently
conducted; provided that the sale by Affiliates of Parent Seller of goods
which are of the same type as goods sold by the Seller on the date hereof, in
the same manner and scope as such goods are sold by such Affiliates on the
date hereof, shall not constitute a "Competing Business."
(c) It is the desire and intent of the parties hereto that
the provisions of this Section 3.8 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, it is expressly
30
37
understood and agreed that, although the Seller Parties and the Purchaser
Parties consider the restrictions contained in Section 3.8 to be reasonable,
if a final determination is made by a court of competent jurisdiction that the
time or territory or any other restriction contained in this Section 3.8 is
unenforceable against any party, the provisions of this Section 3.8 shall be
deemed amended to apply as to such maximum time and territory and to such
maximum extent as such court may judicially determine or indicate to be
enforceable.
(d) The parties acknowledge that each party's damages at law
would be an inadequate remedy for the breach by either Seller Party of any
provision of this Section 3.8, and agree in the event of such breach that the
Purchaser may obtain temporary and permanent injunctive relief restraining
such Seller Party from such breach, and, to the extent permissible under
applicable statutes and rules of procedure, a temporary injunction may be
granted immediately upon the commencement of any such suit. Nothing contained
in this Agreement shall be construed as prohibiting the Purchaser from
pursuing other remedies available at law or in equity for such breach or
threatened breach of this Section 3.8 of this Agreement.
3.9. Accounts Receivable. In collecting the accounts
receivable of the Seller, the Seller shall not take any measures which are
inconsistent with their historical practice and ordinary course of business.
3.10. Performance by Seller and Purchaser. (a) The Seller
Parent shall take all necessary measures to cause the Seller and the Other
Seller Parties to perform all of the Seller's and Other Seller Parties'
obligations pursuant to this Agreement and each document, agreement or
instrument entered into by the Seller or the Other Seller Parties in
connection herewith and shall not take any action or omit to take any action
that would be inconsistent with the obligations of the Seller and the Other
Seller Parties hereunder or thereunder.
(b) The Purchaser Parent shall take all necessary measures
to cause the Purchaser and HSN Catalog Services to perform all of the
Purchaser's and HSN Catalog Services' obligations pursuant to this Agreement
and each document, agreement or instrument entered into by the Purchaser or
HSN Catalog Services in connection herewith, and shall not take any action or
omit to take any action that would be inconsistent with the obligations of the
Purchaser or HSN Catalog Services hereunder or thereunder.
3.11. Services Agreement and Escrow Agreement Agreements. At
the Closing, the Seller Parent and the Purchaser shall, and the Seller Parent
shall cause Keystone to, enter into the Services Agreement substantially in
the form attached hereto as Exhibit B. At the Closing, the Seller and the
Purchaser shall enter into the Escrow Agreement in the form attached hereto as
Exhibit A.
3.12. Seller Employees. From and after the Closing, the
Purchaser Parties shall have the following obligations regarding the Seller
Employees. Nothing in this Section 3.12, however, shall be construed to limit
the right of the Purchaser Parties to amend or terminate any employee benefit
plan or to modify any compensation arrangement after the Closing or to
terminate any employee for any reason at any time (subject to the provisions
of any written employment contracts entered into between HSN Catalog Services
and such employee) following the Closing.
31
38
(a) Effective as of the Closing, HSN Catalog Services shall
offer continued employment, on similar terms, to each person listed as a
Seller Employee on Schedule 2.1(m) (the "Continuing Employees").
(b) All Continuing Employees shall be entitled to
participate in the employee benefits and compensation, severance, bonus, stock
option, stock purchase and other incentive plans of the Purchaser Parties
pursuant to the terms and conditions of such plans, consistent with the
participation offered to the Purchaser Parent's employees holding similar
positions except as set forth more specifically in paragraph (c) of this
Section 3.12. Each such plan shall grant credit to each Continuing Employee
for all service on or prior to the Closing with the Seller for vesting and
eligibility purposes.
(c) Any welfare benefit plan established or maintained by
any Purchaser Party or any Affiliate thereof under which one or more
Continuing Employees become eligible to participate shall (i) waive any
waiting period, (ii) waive any exclusion or limitation for preexisting
conditions which were covered (with respect to such Continuing Employee or
family member) under any employee welfare benefit plan maintained by the
Seller or any Affiliate thereof prior to the Closing and (iii) grant credit
(for purposes of annual deductibles, co-payments and out-of-pocket limits) for
any covered claims incurred or payments made prior to the Closing during the
plan year in which the Closing occurs. To the extent requested by the
Purchaser, the Seller Parties shall take any reasonable steps necessary to
enroll the Continuing Employees in comparable plans maintained by any
Purchaser Party as of the Closing. No Continuing Employee shall be
simultaneously covered under any employee welfare benefit plan or cafeteria
plan of the Purchaser Parties and of the Seller Parties.
ARTICLE IV
CONDITIONS PRECEDENT
4.1. Conditions of Obligations of the Purchaser Parties. The
obligations of the Purchaser Parties to purchase and accept the Acquired
Assets, assume the Assumed Liabilities and otherwise to consummate the
transactions contemplated by this Agreement are subject to the satisfaction on
or prior to the Closing of the following conditions unless waived in writing
by the Purchaser:
(a) Representations, Warranties and Covenants; No Material
Adverse Change. Each of the representations and warranties of the Seller
Parties contained herein shall be true and correct in all material respects as
of the date hereof and as of the Closing Date as if made on and as of the
Closing Date, and the Seller Parties shall have performed and complied with
all covenants and agreements required to be performed or complied with on or
prior to the Closing Date. Since the date of this Agreement, there shall have
been no material adverse change in the assets, liabilities, properties,
condition (financial or otherwise), affairs, earnings, business, operations,
management personnel, or customer arrangements of the Business.
32
39
(b) Consents, Amendments and Terminations. The Purchaser
shall have received duly executed and delivered copies of all waivers,
consents, terminations and approvals contemplated by Section 2.1(d) and
Schedule 2.1(d), all in form and substance reasonably satisfactory to the
Purchaser.
(c) Instruments of Transfer. The Seller Parties shall have
delivered to the Purchaser a Xxxx of Sale conveying the movable (personal)
property included in the Acquired Assets (the "Xxxx of Sale"), an Assignment
and Assumption (the "Assignment"), and any additional instruments of
assignment, transfer or conveyance (including without limitation intellectual
property assignments) requested by the Purchaser from the appropriate Seller
Party or Other Seller Party, each in form and substance reasonably
satisfactory to the Purchaser.
(d) Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by the Seller and the Escrow Agent.
(e) Certificates. The Purchaser shall have received a
certificate of the chief executive officer and the chief financial officer of
each Seller Party, confirming the matters set forth in Section 4.1(a) in form
and substance reasonably satisfactory to the Purchaser.
(f) Opinion of Counsel. The Purchaser shall have received
the opinion dated the Closing Date of Xxxxx Raysman Xxxxxxxxx Xxxxxx & Xxxxxxx
LLP, counsel to the Seller Parties, in form and substance reasonably
satisfactory to the Purchaser.
(g) Governmental Consents; No Legal Bar; Permits. The Seller
Parties shall have obtained all necessary authorizations, approvals, and
qualifications, or secured exemptions therefrom, required by, and made all
necessary filings and registrations with, any governmental authority in
connection with the consummation of the transactions contemplated by this
Agreement. No action or proceeding by or before any governmental authority
shall be pending or threatened challenging or seeking to restrain or prohibit
the transactions contemplated by this Agreement. No law, rule, regulation,
order, injunction or decree of any governmental authority preventing the
transactions contemplated by this Agreement shall be in effect. The Purchaser
shall have received all Permits necessary to conduct the Business as presently
being conducted, including those Permits listed in Schedule 2.1(l).
(h) Employment Agreements. Xxxxxxx Xxxxxxxxx shall have
executed and delivered an employment agreement with the HSN Catalog Services
in form and substance reasonably satisfactory to HSN Catalog Services. Xxxxxxx
Xxxxxxx, Xxxxxxx Xxxxxxx, Xxxxxx Xxxx, Xxxxxx Xxxxx, Xxxxx Xxxxxxx, Xxxxx
Xxxxxx and Xxxxx Xxxxxxxxx shall have accepted employment with HSN Catalog
Services.
(i) Services Agreement. The Services Agreement shall have
been executed and delivered by the Seller Parent and Keystone.
(j) Constitutive Documents; Approvals. The Purchaser shall
have received copies of all of the constitutive and governing documents of
each Seller Party and resolutions documenting all corporate or shareholder
proceedings and approvals of each such corporation with respect to this
Agreement, the other agreements, documents and instruments contemplated
33
40
in connection herewith and the transactions contemplated hereby and thereby,
certified as true and complete by the Secretary of each such corporation.
(k) FIRPTA Certificate. The Seller shall have delivered an
executed certificate, as described in Treasury Regulations Section 1.1445-2,
certifying that the Seller is not a foreign person as defined in Section
1445(f)(3) of the Code.
(l) Tax Certificate. The Seller shall have obtained any Tax
clearance certificates and any other certificates, consents or approvals, if
any, required by any jurisdiction.
(m) Personally-Identifiable Data. The Seller shall have
provided to the Purchaser a true and correct copy of the
Personally-Identifiable Data, and a report listing each customer, by year of
last purchase and the approximate number of catalogs mailed, reported on an
annual basis for the periods of time that such information is reported, it
being understood that the information in such report may be up to eight days
old when the report is delivered.
(n) Information Technology. The Purchaser and its
Affiliates, on the one hand, and Keystone, on the other hand, shall have
established sufficient computer links so that the Purchaser is able to receive
daily customer order, financial and other data for financial and accounting
purposes, as provided in the Services Agreement.
(o) Other Documents. The Purchaser shall have received such
other documents, certificates or instruments as it may reasonably request.
4.2. Conditions of Obligations of the Seller Parties. The
obligations of the Seller Parties to sell the Acquired Assets and otherwise to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction on or prior to the Closing of the following conditions unless
waived in writing by the Seller:
(a) Representations, Warranties and Covenants. Each of the
representations and warranties of the Purchaser Parties contained herein shall
be true and correct in all material respects as of the date hereof and as of
the Closing Date as if made on and as of the Closing Date, and the Purchaser
shall have performed and complied with all covenants and agreements required
to be performed or complied with on or prior to the Closing Date.
(b) Assignment. The Purchaser shall have delivered to the
Seller the Assignment, duly executed by the Purchaser, in form and substance
reasonably satisfactory to the Seller.
(c) Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by the Purchaser and the Escrow Agent.
(d) Payment of Purchase Price. The Purchaser shall have paid
the Purchase Price (less the Escrow Amount and less the Estimated Net Working
Capital Deficit) to the Seller and delivered the Escrow Amount to the Escrow
Agent.
34
41
(e) Certificates. The Seller shall have received a
certificate of a duly authorized officer of each Purchaser Party confirming
the matters set forth in Section 4.2(a) in form and substance reasonably
satisfactory to the Seller.
(f) Opinion of Counsel. The Seller shall have received the
opinion dated the Closing Date of Xxxxxxxxx & Xxxxxxx, counsel to the
Purchaser Parties, in form and substance reasonably satisfactory to the
Seller.
(g) Governmental Consents; No Legal Bar. The Seller Parties
shall have obtained all necessary authorizations, approvals, and
qualifications, or secured exemptions therefrom, required by, and made all
necessary filings and registrations with, any governmental authority in
connection with the consummation of the transactions contemplated by this
Agreement. No action or proceeding by or before any governmental authority
shall be pending or threatened challenging or seeking to restrain or prohibit
the transactions contemplated by this Agreement. No law, rule, regulation,
order, injunction or decree of any governmental authority preventing the
transactions contemplated by this Agreement shall be in effect.
(h) Other Documents. The Seller shall have received such
other documents, certificates or instruments as it may reasonably request.
ARTICLE V
INDEMNIFICATION
5.1. Indemnification. (a) The Seller Parties jointly and
severally indemnify and hold harmless each Purchaser Party and its Affiliates,
shareholders, partners, directors, officers, employees and other agents and
representatives from and against any and all liabilities, judgments, claims
(including claims of creditors of the Seller Parties), settlements, losses,
damages, fees, Liens, Taxes, penalties, obligations and expenses (including
reasonable fees and disbursements of counsel) (collectively, "Losses")
incurred or suffered by any such person arising from, by reason of or in
connection with:
(i) any misrepresentation or breach of any representation,
warranty, covenant or agreement of either Seller Party contained in
this Agreement, the Escrow Agreement, or any other agreement,
document, instrument or certificate delivered or entered into by
either Seller Party on the Closing Date in connection herewith (other
than the Services Agreement);
(ii) any misrepresentation or breach of any representation,
warranty, covenant or agreement of either Seller Party or Keystone
contained in the Services Agreement;
(iii) any and all federal, state, local and foreign income,
profits, franchise, sales, use, occupation, property, excise,
employment and other Taxes (including interest, penalties and
withholdings of Tax) of any kind related to the Business or the
Acquired Assets for any and all periods ending on or prior to the
Closing Date;
35
42
(iv) the conduct of the Business or other operations of the
Business or the Acquired Assets on or prior to the Closing Date or any
condition relating to product or environmental liability of the
Business in existence prior to the Closing Date;
(v) except for the Assumed Liabilities, any and all
liabilities or obligations of any of the Seller Parties or the Other
Seller Parties, including any and all Unassumed Liabilities, or the
failure of any of the Seller Parties or the Other Seller Parties to
pay or discharge the same;
(vi) the failure (A) of the Seller Parties, the Other Seller
Parties or the Purchaser Parties to comply with any bulk sales laws
applicable to the transactions contemplated by this Agreement, and (B)
of the Seller Parties or the Other Seller Parties to pay to the
creditors of the Seller Parties and the Other Seller Parties all
amounts which are related to the Business outstanding at the Closing
Date; provided that the Seller Parties and the Other Seller Parties
shall not indemnify the Purchaser Parties pursuant to Section
5.1(a)(vi)(A) for Losses arising from, by reason of or in connection
with any failure to comply with bulk sales laws to the extent such
failure is due to the Purchaser's or HSN Catalog Services' failure to
pay any of the Assumed Liabilities described in Section 1.2(a)(i)
within a reasonable period of time after the Closing Date;
(vii) any amounts due to customers in connection with products
sold in the ordinary course of business on or prior to the Closing
Date and returned after the Closing Date, in excess of amount
reflected for such returns in the calculation of Closing Date Net
Working Capital pursuant to Section 1.8(b)(iv);
(viii) the Purchaser's inability to collect all of the Accounts
Receivable; and
(ix) any and all actions, suits, proceedings, demands,
orders, rulings, decrees, judgments, costs and legal and other
expenses incident to any of the matters referred to in clauses (i)
through (viii) of this Section 5.1(a);
provided that (x) the Seller Parties' obligation and liability for any and all
such Losses under Section 5.1(a)(i) (other than Losses relating to a breach of
Section 1.9, Section 2.1(s) or Section 3.8 and Losses under Sections
5.1(a)(ii) through (ix)) shall not exceed in the aggregate the amount of
$5,000,000, (y) the Seller Parties shall have no obligation to indemnify or
hold harmless the Purchaser Parties for any Losses under Section 5.1(a)(i)
(other than Losses relating to a breach of Section 1.9, Section 2.1(s) or
Section 3.8 and Losses under Sections 5.1(a)(ii) through (ix)) until the
aggregate Losses incurred by the Purchaser Parties exceeds $250,000 (the
"Threshold"), in which event the Seller Parties shall have an obligation to
indemnify the Purchaser Parties for all Losses (including all previous Losses
up to the Threshold); and (z) the Seller Parties shall have no obligation to
indemnify or hold harmless the Purchaser Parties for any Losses under Section
5.1(a)(viii) until the aggregate of such Losses is greater than $50,000 (the
"Deductible"), in which event the Seller Parties shall have an obligation to
indemnify the Purchaser Parties for all Losses in excess of the Deductible.
(b) The Purchaser Parties jointly and severally indemnify
and hold harmless each Seller Party and its Affiliates, shareholders,
partners, directors, officers, employees and
36
43
other agents and representatives from and against any and all liabilities,
judgments, claims, settlements, losses, damages, fees, Liens, Taxes,
penalties, obligations and expenses (including fees and disbursements of
counsel) incurred or suffered by any such person arising from, by reason of or
in connection with:
(i) any misrepresentation or breach of any representation,
warranty, covenant or agreement of any Purchaser Party contained in
this Agreement, the Escrow Agreement, the Services Agreement or any
other agreement, document, instrument or certificate delivered or
entered into by any Purchaser Party on the Closing Date in connection
herewith;
(ii) any and all federal, state, local and foreign income,
profits, franchise, sales, use, occupation, property, excise,
employment and other Taxes (including interest, penalties and
withholdings of Tax) of any kind related to the Business or the
Acquired Assets for any and all periods beginning after the Closing
Date;
(iii) the conduct of the Business or other operations of the
Business or the Acquired Assets after the Closing Date;
(iv) any and all Assumed Liabilities or the failure of the
Purchaser or HSN Catalog Services to pay or discharge the same; and
(v) any and all actions, suits, proceedings, demands,
orders, rulings, decrees, judgments, costs and legal and other
expenses incident to any of the matters referred to in clauses (i),
(ii), (iii) and (iv) of this Section 5.1(b).
5.2. Certain Limitations. The remedies provided in this
Article V shall be the exclusive remedies of the Purchaser Parties for any
Losses that are subject to indemnification solely pursuant to Section
5.1(a)(i), other than any claim the Purchaser Parties may have (i) relating to
fraud, (ii) arising from a breach of the Services Agreement or (iii) relating
to a breach of Section 3.8. Except as set forth in the preceding sentence,
nothing contained in this Article V shall be deemed an election of remedies
under this Agreement or limit in any way the liability of any party under any
other agreement to which such party is a party relating to this Agreement or
the transactions contemplated by this Agreement or under law.
5.3. Procedures Relating to Third Party Claims.
(a) In order for an indemnified party to be entitled to any
indemnification provided for under this Article V arising from, by reason of,
or otherwise in connection with an asserted or unasserted claim or demand made
or which might be made by any Person against the indemnified party (a "Third
Party Claim"), the indemnified party must send reasonably prompt notice to the
indemnifying parties in writing of the Third Party Claim, including the nature
and basis of such claim to the extent known by the indemnified party (the
"Indemnification Notice"); provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the indemnifying parties have been materially and actually
prejudiced as a result of such failure. If a Third Party Claim is made against
the indemnified party, the indemnifying parties shall be entitled to
participate in the defense thereof and, if they so choose and acknowledge in
writing their respective obligation to indemnify the
37
44
indemnified party therefor, to assume the defense thereof with counsel
selected by the indemnifying parties acting together, provided that such
counsel is reasonably acceptable to the indemnified party. Should the
indemnifying parties so elect to assume the defense of a Third Party Claim,
the indemnifying parties shall not be liable to the indemnified party for
legal expenses subsequently incurred by the indemnified party in connection
with the defense thereof. If the indemnifying parties assume such defense, the
indemnified party shall have the right to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel employed
by the indemnifying parties, it being understood that the indemnifying parties
shall control such defense. The indemnifying parties shall be liable for the
fees and expenses of counsel employed by the indemnified party for any period
during which the indemnifying parties have failed to assume the defense
thereof (as well as during the period prior to the time the indemnified party
shall have given notice of the Third Party Claim as provided above).
Regardless of which party shall assume the defense of such claim, each party
shall provide to the other parties, upon such other parties' written request,
reasonable access during normal business hours to the books, records and
personnel in their possession or under their control which are reasonable
necessary to verify such claim.
(b) Prior to the indemnifying parties notifying the
indemnified party of their intention to defend the claim, the indemnified
party will defend against such claim as the indemnified party deems
appropriate. If the indemnifying parties so elect to assume the defense of any
Third Party Claim, the indemnified party shall cooperate with the indemnifying
parties in the defense or prosecution thereof. Whether or not the indemnifying
parties shall have assumed the defense of a Third Party Claim, the indemnified
party shall not admit any liability with respect to, or settle, compromise or
discharge, such Third Party Claim without the prior written consent of the
indemnifying parties (which consent shall not be unreasonably withheld). If
the indemnifying parties shall have assumed the defense of a Third Party
Claim, the indemnified party shall agree to any settlement, compromise or
discharge of a Third Party Claim which the indemnifying parties may recommend
and which by its terms obligates the indemnifying parties to pay the full
amount of the liability in connection with such Third Party Claim, which
releases the indemnified party completely in connection with such Third Party
Claim and which would not otherwise adversely affect the indemnified party.
(c) Notwithstanding the foregoing, the indemnifying parties
shall not be entitled to assume the defense of any Third Party Claim (and
shall be liable for the reasonable fees and expenses of counsel incurred by
the indemnifying parties in defending such Third Party Claim) if the Third
Party Claim seeks an order, injunction or other equitable relief or relief for
other than money damages against the indemnified party which the indemnified
party determines, after conferring with its outside counsel, cannot be
separated from any related claim for money damages without any potential
adverse effect to the indemnified party. If such equitable relief or other
relief portion of the Third Party Claim can be so separated from that for
money damages, the indemnifying parties shall be entitled to assume the
defense of the portion relating to money damages.
5.4. Procedures Related to Claims other than Third Party
Claims. In the event any indemnified party should have a claim for
indemnification against the indemnifying parties under this Article V that
does not involve a Third Party Claim being asserted against or sought to be
collected from such indemnified party, the indemnified party shall deliver
notice of such
38
45
claim with reasonable promptness to the indemnifying parties. The failure by
any indemnified party so to notify the indemnifying parties shall not affect
the indemnification provided hereunder except to the extent the indemnifying
parties have been materially and actually prejudiced as a result of such
failure.
ARTICLE VI
MISCELLANEOUS
6.1. Entire Agreement. This Agreement, the Escrow Agreement,
the Services Agreement and the other agreements, documents and instruments
contemplated in connection with this Agreement and the schedules and exhibits
hereto and thereto contain the entire agreement among the parties with respect
to the transactions contemplated hereby and thereby and supersede all prior
agreements or understandings among the parties. The letter agreement dated May
14, 2001, as supplemented, between the Purchaser Parent and the Seller Parent
is expressly superseded and shall no longer have any force or effect.
6.2. Termination. (a) This Agreement shall terminate on the
earlier to occur of any of the following events:
(i) the mutual written agreement of the Purchaser and the
Seller;
(ii) by written notice of the Purchaser or the Seller to the
other, if the Closing shall not have occurred prior to 11:59 p.m. (New
York time) on September 30, 2001;
(iii) by written notice of the Purchaser to the Seller, if
either Seller Party shall have materially breached any of its
representations, warranties or agreements contained herein; provided
that any such breach or breaches is not cured within 15 business days
after the Purchaser gives the Seller written notice identifying such
breach or breaches; or
(iv) by written notice of the Seller to the Purchaser, if any
Purchaser Party shall have materially breached any of its
representations, warranties or agreements contained herein; provided
that any such breach or breaches is not cured within 15 business days
after the Seller gives the Purchaser written notice identifying such
breach or breaches;
provided, however, that the party seeking termination pursuant to clause (iii)
or (iv) is not in breach in any material respect of any of its
representations, warranties, covenants or agreements contained in this
Agreement.
(b) Nothing in this Section 6.2 shall relieve any party of
any liability for a breach of this Agreement prior to the termination hereof.
Except as aforesaid, upon the termination of this Agreement in accordance with
its terms, all rights and obligations of the parties under this Agreement
shall terminate, except their obligations under Sections 3.1, 3.7, 3.8 and
6.11.
39
46
6.3. Descriptive Headings; Certain Interpretations. (a)
Descriptive headings are for convenience only and shall not control or affect
the meaning or construction of any provision of this Agreement.
(b) Whenever either Seller Party makes any representation,
warranty or other statement to such Seller Party's knowledge, the Designated
Representatives of the Seller Parties will be deemed to have made due inquiry
into the subject matter of such representation, warranty or other statement.
The Designated Representatives of the Seller Parties are: Xxxxxxx Xxxxxxx,
Xxxxxxx Xxxxx, Xxxx Xxxxx, Xxx Xxxxx, Xxxxx Xxxxxxx, Xxxxxxx Xxxxxxx and
Xxxxxxx Blue.
(c) Except as otherwise expressly provided in this
Agreement, the following rules of interpretation apply to this Agreement: (i)
the singular includes the plural and the plural includes the singular; (ii)
"or" and "any" are not exclusive and "include" and "including" are not
limiting; (iii) a reference to any agreement or other contract includes
permitted supplements and amendments; (iv) a reference to a law includes any
amendment or modification to such law and any rules or regulations issued
thereunder; (v) a reference to a person includes its permitted successors and
assigns; (vi) "$" and "dollars" refer to lawful money of the United States of
America; and (vii) a reference in this Agreement to an Article, Section,
Exhibit or Schedule is to the Article, Section, Exhibit or Schedule of this
Agreement.
(d) Disclosure of information in any section of the
disclosure schedules shall constitute disclosure in any other section of the
disclosure schedules if it is readily apparent on the face of such disclosure
that it should apply to such other sections.
6.4. Notices. All notices, requests and other communications
to any party hereunder shall be in writing and sufficient if delivered
personally or sent by facsimile (with confirmation of receipt) or by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to any Purchaser Party, to:
HSN LP
0 XXX Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
with copies to:
Xxxxxxxxx & Xxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
If to either Seller Party to:
Hanover Direct, Inc.
40
47
0000 Xxxxxx Xxxxxxxxx
Xxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Legal Department
with a copy to:
Xxxxx Raysman Xxxxxxxxx Xxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention : Xxxxx Xxxxxx, Esq.
Facsimile: (000) 000-0000
or to such other address or facsimile number as the party to whom notice is to
be given may have furnished to the other party in writing in accordance
herewith. Each such notice, request or communication shall be effective when
received or, if given by mail, when delivered at the address specified in this
Section or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
6.5. Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute
but one agreement.
6.6. Survival. Except as set forth in Article V, all
representations and warranties contained in this Agreement or in any document,
certificate or instruments delivered pursuant hereto or in connection herewith
(unless otherwise expressly provided herein or therein) shall survive the
execution and delivery of this Agreement and the Closing and shall remain in
full force and effect until the second anniversary of the date of this
Agreement; provided that the representations and warranties in paragraphs (b),
(l), (m) and (n) of Section 2.1 shall survive for the periods permitted by
law, and the representations and warranties in paragraph (s) of Section 2.1
shall survive until the expiration of the applicable statute of limitations
(taking into account any applicable extensions); and provided, further, that
no party's indemnification obligations under Section 5.1 shall terminate with
respect to any item as to which the person to be indemnified or the related
party thereto shall have, before the expiration of the applicable period,
previously made a claim by delivering a notice of such claim to the
indemnifying party.
6.7. Benefits of Agreement. All of the terms and provisions
of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. This Agreement is
for the sole benefit of the parties hereto and their respective successors and
assigns and not for the benefit of any third party.
6.8. Amendments and Waivers. No modification, amendment or
waiver, of any provision of, or consent required by, this Agreement, nor any
consent to any departure herefrom, shall be effective unless it is in writing
and signed by the parties hereto. Such modification, amendment, waiver or
consent shall be effective only in the specific instance and for the purpose
for which given.
41
48
6.9. Assignment. This Agreement and the rights and
obligations hereunder shall not be assignable or transferable by any party
hereto without the prior written consent of the other parties hereto; except
that any of the Purchaser Parties may pledge or assign all or part of its
rights and obligations hereunder to any Affiliate thereof, so long as such
Purchaser Party guarantees the payment and performance by such Affiliate
hereunder. Following any such permitted assignment, the term "Purchaser,"
"Purchaser Parent," or "HSN Catalog Services," as the case may be, shall mean
such assignee. Any purported assignment not permitted by this Section shall be
void.
6.10. Enforceability. It is the desire and intent of the
parties hereto that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or
unenforceable, such provision shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to
apply only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made.
6.11. Governing Law; Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York, without regard to the choice of law provisions thereof. Each party
hereto agrees to the exclusive jurisdiction of any state or Federal court
within the Southern District of New York, with respect to any claim or cause
of action arising under or relating to this Agreement, and waives personal
service of any and all process upon it, and consents that all services of
process be made by registered or certified mail, return receipt requested,
directed to it at its address in accordance with Section 6.4, and service so
made shall be deemed to be completed when received. Each party hereto waives
any objection based on forum non conveniens and waives any objection to venue
of any action instituted hereunder. Nothing in the paragraph shall affect the
right of a party hereto to serve legal process in any other manner permitted
by law.
42
49
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
HANOVER DIRECT, INC.
By: /s/ Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: President/CEO
LWI HOLDINGS, INC.
By: /s/ Xxxxx X. Xxxxxxx
Name: Xxxxx X. Xxxxxxx
Title: Vice President
HSN LP
By: HSN General Partner LLC, its General Partner
By: /s/ Xxxx Xxxxx
Name: Xxxx Xxxxx
Title: CEO
HSN IMPROVEMENTS, LLC
By: /s/ Xxxx Xxxxxxxx
Name: Xxxx Xxxxxxxx
Title: VP
HSN CATALOG SERVICES, INC.
By: /s/ Xxxx Xxxxxxxx
Name: Xxxx Xxxxxxxx
Title: VP
43
