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EXHIBIT 2.1
SECURITIES PURCHASE AGREEMENT
by and among
STORYBOOK HEIRLOOMS, INC.,
THE SHAREHOLDERS OF STORYBOOK HEIRLOOMS, INC.
WHO ARE SIGNATORY HERETO
and
FULCRUM DIRECT, INC.,
Dated as of June 27, 1997
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TABLE OF CONTENTS
Page
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SECURITIES PURCHASE AGREEMENT..................................................................................1
ARTICLE I PURCHASE AND SALE OF SHARES..........................................................................1
SECTION 1.1 Purchase and Sale of Shares..............................................................1
SECTION 1.2 Options..................................................................................1
SECTION 1.3 Escrow....................................................................................1
SECTION 1.4 Letter of Intent..........................................................................2
SECTION 1.5 Reduction of Purchase Price for Storybook Common Shares not Sold Hereunder................2
ARTICLE II CLOSING.............................................................................................2
SECTION 2.1 Closing..................................................................................2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF STORYBOOK AND XXXXXXX............................................2
SECTION 3.1 Corporate Organization...................................................................3
SECTION 3.2 Capitalization...........................................................................3
SECTION 3.3 Authority Relative to this Agreement.....................................................4
SECTION 3.4 Consents and Approvals; No Violations....................................................4
SECTION 3.5 Financial Statements.....................................................................4
SECTION 3.6 Receivables..............................................................................5
SECTION 3.7 Inventories..............................................................................6
SECTION 3.8 Customers and Suppliers..................................................................7
SECTION 3.9 No Undisclosed Liabilities...............................................................7
SECTION 3.10 Absence of Certain Changes..............................................................8
SECTION 3.11 No Default..............................................................................9
SECTION 3.12 Litigation..............................................................................9
SECTION 3.13 Compliance with Applicable Law..........................................................9
SECTION 3.14 Taxes...................................................................................9
SECTION 3.15 ERISA..................................................................................10
SECTION 3.16 Change in Control......................................................................11
SECTION 3.17 Intellectual Property..................................................................11
SECTION 3.18 Contracts and Commitments..............................................................11
SECTION 3.19 Labor Relations........................................................................13
SECTION 3.20 Employee Benefit Plans.................................................................13
SECTION 3.21 Personnel..............................................................................13
SECTION 3.22 Environmental Matters..................................................................13
SECTION 3.23 Insurance..............................................................................15
SECTION 3.24 Related Party Contracts................................................................16
SECTION 3.25 Real Property; Leased Premises.........................................................16
SECTION 3.26 Absence of Certain Payments............................................................17
SECTION 3.27 Disclosure.............................................................................17
SECTION 3.28 Books and Records......................................................................17
SECTION 3.29 Accounts; Lockboxes; Safe Deposit Boxes................................................17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.................................................17
SECTION 4.1 Ownership...............................................................................18
SECTION 4.2 Authorization...........................................................................18
SECTION 4.3 Conflicts...............................................................................18
ARTICLE V REPRESENTATIONS AND WARRANTIES OF FULCRUM...........................................................18
SECTION 5.1 Corporate Organization..................................................................18
SECTION 5.2 Authority Relative to this Agreement....................................................18
SECTION 5.3 Consents and Approvals; No Violations...................................................19
SECTION 5.4 Disclosure..............................................................................19
ARTICLE VI COVENANTS OF STORYBOOK AND SHAREHOLDERS............................................................19
SECTION 6.1 Repayment of Debt.......................................................................19
SECTION 6.2 Further Assurances......................................................................20
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ARTICLE VII MUTUAL COVENANTS..................................................................................20
SECTION 7.1 Best Efforts............................................................................20
SECTION 7.2 Brokers or Finders......................................................................20
SECTION 7.3 Fees and Expenses.......................................................................21
ARTICLE VIII INDEMNIFICATION, ETC.............................................................................21
SECTION 8.1 Survival of Representations and Covenants...............................................21
SECTION 8.2 Indemnification.........................................................................22
SECTION 8.3 Dispute Resolution......................................................................22
ARTICLE IX CONDITIONS TO CLOSING..............................................................................23
SECTION 9.1 Conditions of the Obligations of the Shareholders.......................................23
SECTION 9.2 Conditions of Obligations of Fulcrum....................................................24
ARTICLE X AMENDMENT...........................................................................................25
SECTION 10.1 Amendment; Extension; Waiver...........................................................25
ARTICLE XI MISCELLANEOUS......................................................................................25
SECTION 11.1 Notices................................................................................25
SECTION 11.2 Descriptive Headings...................................................................26
SECTION 11.3 Counterparts...........................................................................26
SECTION 11.4 Entire Agreement; Assignment...........................................................27
SECTION 11.5 Governing Law..........................................................................27
SECTION 11.6 Specific Performance...................................................................27
SECTION 11.7 Publicity..............................................................................27
SECTION 11.8 Parties in Interest....................................................................27
SECTION 11.9 Knowledge...............................................................................27
SECTION 11.10 Waiver of Rights of First Refusal......................................................27
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EXHIBIT 1.3 - Form of Escrow Agreement
EXHIBIT 3.5 - Storybook Financial Statements
EXHIBIT 3.6(a) - Receivables
EXHIBIT 3.8 - Storybook House File Count Sheet
EXHIBIT 3.17 - Intellectual Property Applications and Registrations
EXHIBIT 7.3 - Fees and Expenses
EXHIBIT 9.1(a) - Wire Transfer Instructions
EXHIBIT 9.1(c) - Form of Secretary's Certificate of Fulcrum Direct, Inc.
EXHIBIT 9.2(d) - Form of Officer's Certificate of Storybook Heirlooms, Inc.
EXHIBIT 9.2(e) - Form of Fenwick & West, LLP Opinion
EXHIBIT 9.2(f) - Form of Severance, Confidentiality and Non-Competition Agreement
EXHIBIT 9.2(g) - Form of Employment Agreement
EXHIBIT 9.2(i) - Form of Deloitte & Touche LLP Letter Agreement
EXHIBIT 9.2(j) - Form of Secretary's Certificate of Storybook Heirlooms, Inc.
SCHEDULE III - Storybook Disclosure Schedule
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (together with the exhibits and
attachments hereto, the "Agreement"), dated as of June 27, 1997 by and among
Storybook Heirlooms, Inc., a California corporation ("Storybook"), the
shareholders of Storybook signatory hereto (the "Shareholders") and Fulcrum
Direct, Inc., a Delaware corporation ("Fulcrum").
W I T N E S S E T H:
WHEREAS, the Shareholders beneficially own, directly and
indirectly, all of the issued and outstanding shares of common stock, no par
value per share, of Storybook, as set forth on Exhibit 3.2(a)(ii) (the
"Storybook Common Shares");
WHEREAS, Storybook, Fulcrum and Xxxxx X. Xxxxxxx ("Xxxxxxx")
entered into a letter of intent dated May 2, 1997 (the "Letter of Intent"),
respecting the transactions contemplated herein; and
WHEREAS, the Shareholders desire to sell the Storybook Common
Shares to Fulcrum, and Fulcrum desires to purchase the Storybook Common Shares
from the Shareholders, on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements hereinafter set forth, the parties hereto do
hereby covenant and agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
SECTION 1.1 Purchase and Sale of Shares. At the Closing (as defined
below), the Shareholders shall sell, transfer, convey, assign and deliver to
Fulcrum and Fulcrum shall purchase from the Shareholders at the Closing, each
Storybook Common Share, for a price per share (the "Purchase Price") equal to
$13,000,000 (less the amounts as set forth in and subject to Sections 1.3, 6.1,
7.2 and 7.3 below) divided by the total number of Storybook Common Shares issued
and outstanding on the Closing Date.
SECTION 1.2 Options. Prior to or simultaneously with the Closing, each
outstanding option, warrant or other right to purchase Storybook Common Shares
(collectively, "Options") to the extent not therefore exercised, shall be
cancelled.
SECTION 1.3 Escrow. At the Closing, Fulcrum shall deposit, out of the
amount payable to Xxxxxxx pursuant to Section 1.1 above, $500,000 (the "Escrowed
Amount") of the Purchase Price in escrow pursuant to an escrow agreement (the
"Escrow Agreement") substantially in the form of Exhibit 1.3 hereto. The Escrow
Agreement shall provide for the release of the Escrowed Amount to Xxxxxxx 60
days following the date of the first audit of Storybook
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(or its Successor) following the Closing, except to the extent any claim for
indemnification has been made by Fulcrum, and not resolved then the estimated
amount of any such claims, pursuant to Article VIII hereof shall be retained in
escrow until resolution thereof. Fulcrum will use its commercially reasonable
efforts to have such audit completed as soon as possible, consistent with
generally accepted accounting practices, after the Closing Date.
SECTION 1.4 Letter of Intent. Fulcrum, Storybook and Xxxxxxx hereby
agree that the terms and provisions of the Letter of Intent have been
incorporated herein and are therefore superseded by the terms and conditions of
this Agreement.
SECTION 1.5 Reduction of Purchase Price for Storybook Common Shares not
Sold Hereunder. If less than all outstanding Storybook Common Shares are sold to
Fulcrum hereunder, then the aggregate Purchase Price set forth in Section 1.1
hereof shall be reduced by an amount equal to the product of $13,000,000 times a
fraction, the numerator of which is the number of Storybook Common Shares
outstanding and not being sold to Fulcrum hereunder and the denominator of which
is the total number of outstanding Storybook Common Shares.
ARTICLE II
CLOSING
SECTION 2.1 Closing. Subject to the terms and conditions contained in
this Agreement, the purchase and sale of the Storybook Common Shares hereunder
(the "Closing") shall take place at the offices of Fenwick & West LLP, Two Palo
Xxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000, effective as of 5:00 p.m. on June 27,
1997 (the "Closing Date"), or at such other place or on such other date as is
mutually agreeable to Fulcrum and the Shareholders. At the Closing, each
Shareholder shall have complied with Section 9.2 hereof and Fulcrum shall have
complied with Section 9.1 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF STORYBOOK AND XXXXXXX
Subject to the exceptions set forth in the disclosure schedule by
specific section reference, delivered by Storybook and Xxxxxxx to Fulcrum (the
"Storybook Disclosure Schedule"), attached hereto as Schedule III, which
document is hereby incorporated herein by reference, Storybook and Xxxxxxx
hereby jointly and severally represent and warrant to Fulcrum as follows:
SECTION 3.1 Corporate Organization. Storybook is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
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Storybook has no subsidiaries. Section 3.1(i) of the Storybook Disclosure
Schedule sets forth the name of each jurisdiction in which Storybook is
qualified or licensed to do business. Storybook is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where, the failure to be so duly qualified or licensed and in good standing
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect on Storybook. "Material Adverse Effect" means as to
Storybook as used herein or as to Fulcrum in Section 5.3 hereof, (a) a material
change in the business, assets, liabilities, customer or supplier relations,
operations, results of operations or condition (financial or otherwise) of
Storybook or Fulcrum, respectively, or (b) any condition which would prevent or
materially delay consummation of the transactions contemplated by this
Agreement. The copies of Storybook's Articles of Incorporation and Bylaws
delivered at Closing, are true, complete and correct copies of such instruments,
as in effect as of the date of this Agreement, and Storybook is not in violation
thereof.
SECTION 3.2 Capitalization.
(a) The authorized capital stock of Storybook consists of 30,000,000
shares of Common Stock, no par value, of which 11,446,787 shares were
authorized, issued and outstanding as of the date of this Agreement. All of the
issued and outstanding Storybook Common Shares are duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights. As of the
date of this Agreement, before giving effect to the Closing, 2,059,631 shares of
Common Stock of Storybook are reserved for issuance upon exercise of Options.
Except as set forth above or as contemplated by this Agreement, there are not as
of the date of this Agreement, and at the Closing there will not be, any shares
of capital stock (or securities substantially equivalent to capital stock
including, without limitation, stock appreciation rights, phantom stock, profit
participation or similar rights) of Storybook issued or outstanding or any
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character obligating Storybook to issue,
transfer or sell any of its securities. Section 3.2(a)(ii) of the Storybook
Disclosure Schedule sets forth as of the date of this Agreement (i) the name of
the holder and beneficial owner of each outstanding Storybook Common Share and,
(ii) the number of Storybook Common Shares held by such holder. As of the
Closing Date, all Options have been cancelled by Storybook, and no Options are
currently issued or outstanding.
(b) Storybook does not own, directly or indirectly, any capital stock
or other equity securities of any corporation or have any direct or indirect
equity or ownership interest (financial or otherwise) in any business. Except as
contemplated by this Agreement, there are not as of the date of this Agreement,
and at the Closing there will not be, any voting trusts or other
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agreements or understandings to which Storybook is a party or is bound with
respect to voting of the capital stock of Storybook. There are no persons or
entities in which Storybook has any voting rights or equity interests.
SECTION 3.3 Authority Relative to this Agreement. Storybook has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by (i) the Board of Directors of
Storybook by Unanimous Written Consent, dated June 25, 1997 and (ii) no other
proceedings on the part of Storybook or Xxxxxxx are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Storybook and Xxxxxxx and
constitutes a valid and binding agreement of Storybook and Xxxxxxx, enforceable
against each of them in accordance with its terms, except as enforcement may be
limited by bankruptcy, moratorium and other creditors' rights laws and by any
limitations as to enforceability of equitable remedies as may be observed by the
relevant judicial body.
SECTION 3.4 Consents and Approvals; No Violations. Except for
applicable requirements of state Blue Sky laws, no filing with or notification
to, and no permit, authorization, consent, waiver or approval of, any
government, executive official thereof, governmental or regulatory authority,
agency or commission, including courts of competent jurisdiction, domestic or
foreign (a "Governmental Entity"), is necessary for the consummation by
Storybook or Xxxxxxx, of the transactions contemplated by this Agreement except
for such filing, notification, permit, authorization, consent, waiver or
approval for which the failure to obtain would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect. Neither the
execution and delivery of this Agreement by Storybook nor the consummation by
Storybook of the transactions contemplated hereby nor compliance by Storybook
with any of the provisions hereof will (i) conflict with or result in any breach
of any provision of the Articles of Incorporation or Bylaws of Storybook, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration or result in the creation of any mortgage, pledge,
charge, security interest, claim or encumbrance of any kind (collectively, a
"Lien")) under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, contract, agreement or other instrument or
obligation to which Storybook or Xxxxxxx is a party or by which any of them or
any of their respective properties or assets may be bound or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Storybook or Xxxxxxx or any of their respective properties or assets.
SECTION 3.5 Financial Statements. (a) Attached hereto as Exhibit 3.5
are the following financial statements (collectively,
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the "Financial Statements"):
(i) the audited balance sheets of Storybook as of December 31, 1994,
December 30, 1995 and December 28, 1996, and the related statements of income
and cash flows (or the equivalent) for the respective twelve-month periods then
ended; and
(ii) the unaudited balance sheet of Storybook as of May 30, 1997, and
the related statements of income for the five-month period then ended (the
"Interim Financial Statements").
Each of the foregoing Financial Statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, was prepared
from the books and records of Storybook (which, in turn, are accurate and
complete in all material respects) and fairly presents, in all material
respects, the financial position of Storybook as of the dates specified therein
and its results of operations and cash flows for the periods specified, all in
conformity with generally accepted accounting principles, consistently applied.
(b) Storybook has made available to Fulcrum all accounting books and
records maintained by Storybook, which are complete and correct in all material
respects, showing tax and book basis, historical cost, method of depreciation
and tax depreciation by individual account.
(c) The current forecast for "Gross Profit" (being defined as the sum
of "Total Net Revenues" plus "Total Other Income" less "Total Cost of Goods
Sold" (as such terms have been used by Storybook in the Financial Statements))
for fiscal year 1997 is $17,525,000. To the best knowledge of Storybook and
Xxxxxxx, this forecast accurately reflects the forecasted Gross Profit of
Storybook for such fiscal period, taking into account all information available
to Storybook and Xxxxxxx as of the Closing Date, provided that no guarantee is
made that any of such forecast will be achieved, or to what extent it will be
achieved.
SECTION 3.6 Receivables. (a) Exhibit 3.6(a) attached hereto is an aged
list of Storybook's accounts receivables, notes receivables or other receivables
(including list exchange balances; "Receivables") as of May 30, 1997. Except to
the extent, if any, reserved for on the Interim Financial Statements, all
Receivables reflected on the Interim Financial Statements and the Receivables
existing on the Closing Date will have arisen from the sale of inventory or
services, or list rental and like arrangements, to persons not affiliated with
Storybook and in the ordinary course of Storybook's business consistent with
past practice and, except as reserved against on the Interim Financial
Statements or set forth on Exhibit 3.6(a), to the best knowledge of Storybook
and Xxxxxxx, will constitute valid, undisputed claims of Storybook not subject
to valid claims of set-off or other defenses or counterclaims other than in the
ordinary course of Storybook's business consistent with past practice.
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(b) To the best knowledge of Storybook and Xxxxxxx, all Receivables
reflected on the Interim Financial Statements (subject to the reserve for bad
debts, if any, reflected on the Interim Financial Statements) will be good and
will be collectible, without resort to litigation or extraordinary collection
activity, within 90 days after the Closing Date (other than receivables related
to the rental or exchange of Storybook's customer list, which shall be
collectible in the normal course consistent with past collection practices),
assuming at least the level of collection efforts used by Storybook prior to
Closing, and subject to returns, allowances and adjustments in the ordinary
course of business.
(c) Section 3.6(c) of the Storybook Disclosure Schedule lists all
material contracts and agreements relating to Receivables.
SECTION 3.7 Inventories. (a) The perpetual inventory report dated June
24, 1997 (the "Inventory Report", and the inventory listed therein, including,
without limitation, raw materials and finished goods, being collectively, the
"Inventory") has been delivered to Fulcrum and Fulcrum acknowledges receipt
thereof.
(b) To the best knowledge of Storybook and Xxxxxxx, the quantity of
Inventory reflected in the Inventory Report is accurate to within plus or minus
3%.
(c) To the best knowledge of Storybook and Xxxxxxx, the value per item
of the Inventory is at least equal to the aggregate value of the Inventory
stated on the Inventory Report, which is the value reflected on the Interim
Financial Statements. The values at which the Inventory is carried on the
Inventory Report reflects actual cost of goods, calculated in accordance with
generally accepted accounting principles, consistently applied. The reserve for
obsolescence on the books of Storybook as of May 30, 1997 was equal to $300,000
(the "Inventory Reserve"). The value of the Inventory Reserve is calculated in
accordance with generally accepted accounting principles, consistently applied,
consistent with past practice of Storybook and assumes that obsolete inventory
will be disposed of in current and anticipated catalogs and at Storybook's
outlet stores, except for defective inventory with no saleable value which
Inventory is intended to be donated to charitable organizations.
(d)(i) Storybook has good and marketable title to the Inventory free
and clear of all encumbrances; (ii) the Inventory does not consist of any items
held on consignment; (iii) Storybook is not under any obligation or liability
with respect to accepting returns of items of inventory or merchandise in the
possession of its customers other than in the ordinary course of its business
consistent with past practice; (iv) Storybook has not acquired or manufactured a
material amount of inventory for sale which is not of a quantity and quality
projected to be usable in the ordinary course of its business consistent with
past practice and within a reasonable period of time (except for Inventory
reserved against in the Inventory Reserve) nor has Storybook changed the cost of
any Inventory held for sale in the ordinary course (other than
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Inventory reserved against in the Inventory Reserve), except for (x) reductions
to reflect any reduction in the cost thereof to Storybook, (y) reductions and
increases responsive to normal competitive conditions, and (z) increases to
reflect any increase in the cost thereof to Storybook in the ordinary course of
business.
(e) Except for Inventory reserved against in the Inventory Reserve, the
Inventory is in good and merchantable condition in all material respects, and is
suitable and usable in all material respects for the purposes for which it is
intended and is in a condition such that it can be sold in the ordinary course
of Storybook's business.
(f) Section 3.7(f) of the Storybook Disclosure Schedule lists all
material contracts and agreements relating to Inventory.
SECTION 3.8 Customers and Suppliers.
(a) Customers. Attached hereto as Exhibit 3.8 is a Catalog House File
Count Sheet containing, among other things, the number of customers that have
purchased merchandise from Storybook ("Buyers"). As of the Closing Date,
Storybook's Buyer File contained at least 500,000 Buyers, of which at least
175,000 Buyers have purchased from Storybook during the twelve-month period
prior to the Closing Date. As of the Closing Date, all information relating to
Buyers and prospective Buyers, maintained by Storybook (including, the
historical purchases by such Buyers, all list and other test results, all house
file models, zip models, regression models, and any other models developed by or
for the benefit of Storybook), have been provided to the Fulcrum. To the best
knowledge of Storybook and Xxxxxxx, Storybook's housefile database (the
"Housefile") contains all historical data regarding mailings to Buyers, catalog
requesters and prospective Buyers, and accurately reflects, in all material
respects, all mailing details and results therefrom and order detail since
December 31, 1994, and such data has been maintained in accordance with industry
practices since that date such that such data is suitable for future statistical
modeling and the creation of catalog mail plans.
(b) Suppliers. Section 3.8(b) of the Storybook Disclosure Schedule
contains a list of all suppliers (and each material purchase order or contract
in its possession relating thereto) from which Storybook was invoiced for or
legally obligated to purchase raw materials, contract labor, merchandise and
other goods or services for its business with a dollar value in excess of
$10,000, individually or in the aggregate, since January 1, 1997 through the
Closing Date, and the approximate amount for which each such supplier invoiced
during such period. Storybook has not received any notice (written or oral) that
any of such suppliers will not sell raw materials, contract labor, merchandise
and other goods or services to Storybook at any time after the Effective Date on
terms and conditions similar to those imposed on current sales to Storybook,
subject to general and customary price increases.
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SECTION 3.9 No Undisclosed Liabilities. Except as and to the extent
provided in the Interim Financial Statements, Storybook did not have at May 30,
1997, any liabilities (whether contingent or absolute, direct or indirect,
asserted or unasserted, accrued or unaccrued, liquidated or unliquidated due or
to become due, known or unknown to Storybook or Xxxxxxx or matured or unmatured)
not fully reflected and fully reserved against in the Interim Financial
Statements in accordance with generally accepted accounting principles,
consistently applied. Except as provided in Section 3.9(ii) of the Storybook
Disclosure Schedule, as of the Closing Date, there were no loss contingencies
(as such term is used in the Statement of Financial Accounting Standards No. 5)
which were not adequately provided for in the Interim Financial Statements or
disclosed in the notes thereto. Since May 30, 1997, except as set forth in
Section 3.9(iii) of the Storybook Disclosure Schedule, Storybook has not
incurred any liability greater than $10,000 except in the ordinary course of
business consistent with past practice.
SECTION 3.10 Absence of Certain Changes. Except as and to the extent
set forth in Section 3.10 of the Storybook Disclosure Schedule, since May 30,
1997, neither Storybook nor any of its subsidiaries has:
(a) paid, discharged or otherwise satisfied any material claim,
liabilities or obligations (absolute, accrued, contingent or otherwise) other
than payments, made in the ordinary course of business and consistent with past
practice, of liabilities and obligations reflected or reserved against in the
Interim Financial Statements or incurred in the ordinary course of business and
consistent with past practice greater than $10,000 in the aggregate;
(b) permitted or allowed any of its material property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any Liens, except
for (i) Liens for current taxes or other governmental charges not yet due and
payable, or the amount or validity of which is being contested by the
appropriate proceedings and for which an appropriate reserve has been
established, (ii) Liens of carriers, warehouseman, mechanics and materialmen and
similar Liens incurred in the ordinary course of business, and (iii) zoning,
entitlement and other land use and environmental regulations (collectively,
"Permitted Liens");
(c) sold, transferred, or otherwise disposed of any of its properties
or assets (real, personal or mixed, tangible or intangible) greater than $10,000
in the aggregate, except in the ordinary course of business and consistent with
past practice;
(d) granted any increase in the compensation or benefits of any officer
or key employee (including any such increase pursuant to any bonus, pension,
profit sharing or other plan or commitment) or any increase in the compensation
or benefits payable or to become payable to any officer or employee, and no such
increase is customary on a periodic basis or required by agreement or
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understanding;
(e) made any change in severance policy or practices;
(f) made any expenditure capitalized in accordance with Storybook's
current accounting policies or acquired any property or assets (other than new
materials and supplies) for a cost in excess of $10,000, in the aggregate;
(g) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or redeemed, purchased or otherwise
acquired, directly or indirectly, any shares of capital stock or other
securities of Storybook;
(h) made any change in any method of tax or financial accounting or
accounting practice or made or changed any election for Federal income tax
purposes;
(i) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of its
officers, directors or stockholders or any affiliate or associate of any of its
officers, directors or stockholders except for directors' fees, and compensation
to officers at rates not exceeding the rates of compensation paid during
Storybook's fiscal year ended December 28, 1996; or
(j) agreed, whether in writing or otherwise, to take any action
described in this Section 3.10.
SECTION 3.11 No Default. Storybook is not in default or violation (and
no event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (i)
its Articles of Incorporation or its Bylaws, (ii) any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which Storybook is a party or by which it or any of its properties or assets may
be bound or (iii) any order, writ, injunction, decree, statute, rule or
regulation applicable to Storybook.
SECTION 3.12 Litigation. There is no action, suit, proceeding,
arbitration, investigation pending, or to the best knowledge of Storybook or
Xxxxxxx, threatened, by or before any Governmental Entity involving Storybook.
Storybook is not a party or subject to the provisions of any order or decree of
any Governmental Entity which would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect. There is no action, suit,
proceeding, arbitration or investigation initiated by Storybook currently
pending or which Storybook presently intends to initiate.
SECTION 3.13 Compliance with Applicable Law. The business of Storybook
has not been conducted in violation of any applicable law, ordinance, rule,
regulation, decree or order of any Governmental Entity. Storybook holds all
permits, licenses,
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variances, exemptions, orders and approvals of all Governmental Entities
necessary for the lawful conduct of its businesses (the "Storybook Permits")
except for such Storybook Permits for which the failure to so hold would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect. Storybook is in compliance with the terms of the Storybook
Permits. Storybook has not received any notification of any asserted present or
past failure by Storybook to comply with such laws, rules or regulations or such
Storybook Permits which have not been previously cured, and to the best
knowledge of Storybook's President or Xxxxxxx, there is no pending audit,
investigation or other review by any Governmental Entity to determine the
existence of any violation of such laws, rules or regulations or such Storybook
Permits.
SECTION 3.14 Taxes.
(a) Storybook has filed all Tax Returns which it is required to file
under applicable laws and regulations; all such Tax Returns are complete and
correct in all material respects and have been prepared in compliance with all
applicable laws and regulations in all material respects; Storybook in all
material respects has paid all Taxes due and owing by it through the Closing
Date (whether or not such Taxes are required to be shown on a Tax Return) which
it is not contesting in good faith (such contested Taxes are listed in section
3.14(a) of the Storybook Disclosure Schedule) and has withheld and paid over to
the appropriate taxing authority all Taxes which it is required to withhold
through the Closing Date from amounts paid or owing to any employee,
stockholder, creditor or other third party; Storybook has not waived any statute
of limitations with respect to any material Taxes or agreed to any extension of
time with respect to any material Tax assessment or deficiency; the accrual for
Taxes on the Interim Financial Statements would be adequate to pay all Tax
liabilities of Storybook if its current tax year were treated as ending on the
date of the Interim Financial Statements (excluding any amount recorded which is
attributable solely to timing differences between book and Tax income); since
the date of the Interim Financial Statements, Storybook has not incurred any
material liability for Taxes other than in the ordinary course of business; the
assessment of any additional Taxes for periods for which Tax Returns have been
filed by Storybook does not exceed the recorded liability therefor on the
Interim Financial Statements (excluding any amount recorded which is
attributable solely to timing differences between book and Tax income); the
federal income Tax Returns of Storybook have been audited and closed for all tax
years through 1996; no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
respect to Storybook; no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by
Storybook from any foreign, federal, state or local taxing authority.
(b) Storybook has properly and correctly completed and filed
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all necessary applications for qualification as an "S corporation" under Section
1361 of the Internal Revenue Code of 1986, as amended, and as of the end of
Storybook's 1995 fiscal year has filed all necessary applications for conversion
to a "C corporation" and is currently taxed as a "C corporation." Storybook and
Xxxxxxx are not aware that any tax liabilities prior to conversion to a "C
corporation" were not properly paid by the relevant Shareholders.
(c) "Tax" or "Taxes" means federal, state, county, local, foreign or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not. "Tax Return" means any return, information
report or filing with respect to Taxes, including any schedules attached thereto
and including any amendment thereof.
SECTION 3.15 ERISA. (a) Storybook does not have any obligation to
contribute to (or any other liability, including current or potential withdrawal
liability, with respect to) any "multiemployer plan" (as defined in Section
3(37) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")).
(b) Storybook does not maintain or have any obligation to contribute to
(or any other liability with respect to) any plan or arrangement whether or not
terminated, which provides medical, health, life insurance or other welfare-type
benefits for current or future retired or terminated employees (except for
limited continued medical benefit coverage required to be provided under Section
4980B of the IRC or as required under applicable state law).
(c) Storybook does not maintain, contribute to or have any liability
under (or with respect to) any employee plan which is a tax-qualified "defined
benefit plan" (as defined in Section 3(35) of ERISA), whether or not terminated.
(d) Storybook does not maintain, contribute to or have any liability
under (or with respect to) any employee plan which is a tax-qualified "defined
contribution plan" (as defined in Section 3(34) of ERISA), whether or not
terminated.
(e) Storybook does not maintain, contribute to or have any liability
under (or with respect to) any plan or arrangement providing benefits to current
or former employees, including any bonus plan, plan for deferred compensation,
employee health or other welfare benefit plan or other arrangement, whether or
not terminated.
SECTION 3.16 Change in Control. Except for this Agreement, Storybook is
not a party to any material contract, agreement or
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understanding which contains a "change in control," "potential change in
control," or similar provision. Except as otherwise contemplated by this
Agreement, the consummation of the transactions contemplated by this Agreement
will not (either alone or upon the occurrence of any additional acts or events)
result in any payment (whether of severance pay or otherwise) becoming due from
Storybook to any person.
SECTION 3.17 Intellectual Property.
(a) Storybook owns, or is licensed or otherwise has the full right to
use, all copyrights, trademarks and service marks (including all applications
and registrations therefor), trade names, patents (including, applications
therefor), and all other intellectual property, which are necessary for the
conduct of its business as heretofore conducted (collectively, the "Intellectual
Property"). Attached as Exhibit 3.17 hereto are copies of all such applications
and registrations for such Intellectual Property.
(b) There are no outstanding claims, judgments, settlements or
proceedings against Storybook asserting the invalidity, abuse, misuse or
unenforceability of any of the Intellectual Property, there are no threatened
claims or proceedings relating to the validity of or enforceability of the
Intellectual Property. To the best knowledge of Storybook and Xxxxxxx, there are
no pending or threatened opposition or other administrative proceedings with
respect to any Intellectual Property which is the subject of a pending
application that could reasonably be expected to prevent the registration in due
course of such Intellectual Property.
SECTION 3.18 Contracts and Commitments. (a) Except as set forth in
Section 3.18(a) of the Storybook Disclosure Schedule and attached thereto:
(i) Storybook does not have any agreements, contracts, commitments, or
restrictions that are material to its business, prospects, financial condition,
working capital, assets, liabilities (absolute, accrued, contingent or
otherwise) or operations;
(ii) There are no purchase contracts or commitments under which
Storybook is required to pay in excess of $25,000, which continue for a period
of more than twelve (12) months;
(iii) There are no outstanding sales contracts or commitments of
Storybook that call for the payment to, or receipt by, Storybook of more than
$25,000, which continue for a period of more than twelve (12) months;
(iv) Storybook does not have any contracts, agreements, arrangements,
or understandings with any officers, directors or employees that are not
cancelable by Storybook on notice of not longer than thirty (30) days and
without liability, penalty, or premium;
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(v) Storybook is not in default, nor is Storybook or Xxxxxxx aware of
any facts or circumstances which could serve as the basis for any valid claim of
material default by Storybook, under any contract made or obligation owed by it;
(vi) Storybook is not restricted by agreement from carrying on its
business anywhere in the world;
(vii) Storybook does not have any debt obligation for borrowed money,
including guarantees of or agreements to acquire any such debt obligation of
others, not reflected in the Financial Statements;
(viii) Storybook does not have any outstanding loan to any person other
than to Xxxxxxx;
(ix) Storybook does not have any power of attorney outstanding or any
material obligations or liabilities (whether absolute, accrued, contingent, or
otherwise), as guarantor, surety, co-signer, endorser, co-maker or indemnitor
for the material obligation of any person, corporation, partnership, joint
venture, association, organization, or other entity; and
(x) None of the officers, directors or stockholders of Storybook has
any ownership or other property interest in any property, real or personal,
tangible or intangible, including without limitation Intellectual Property, that
is used in the business of Storybook.
(b) Each contract specified in Section 3.18(a) of the Storybook
Disclosure Schedule: (i) to the best knowledge of Storybook and Xxxxxxx, is
valid and binding on the respective parties thereto and is in full force and
effect, (ii) is not subject to restrictions regarding a change in ownership or
control and (iii) upon consummation of the transactions contemplated by this
Agreement, shall continue in full force and effect without penalty or other
adverse consequence and shall be unaffected by the transactions contemplated
herein. Storybook is not in breach or default in any material respect under the
terms of any such contract, the result of which could result in a Material
Adverse Effect.
(c) To the best knowledge of Storybook and Xxxxxxx, no other party to
any such contract is, in any material respect, in breach or default thereunder.
SECTION 3.19 Labor Relations. As of the date hereof, there is no strike
or other labor dispute pending against Storybook. Storybook is not bound by or
subject to (and none of its properties or assets is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the best knowledge of
Storybook and Xxxxxxx has sought to represent any of the employees,
representatives or agents of Storybook, nor is Storybook aware of any labor
organization activity involving its employees.
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Except as previously disclosed to Fulcrum, no officer or key employee of
Storybook has any plans to terminate his employment with Storybook.
SECTION 3.20 Employee Benefit Plans. Storybook has previously given to
Fulcrum true and correct copies of Storybook's material work rule manuals,
employee salary and bonus rules, retirement and severance pay rules, director
compensation rules, director retirement allowance regulations and other
compensation and benefit regulations and arrangements and each employment or
consulting contract to the extent they exist. Except as previously disclosed to
Fulcrum in writing by Storybook, there are no other significant employee benefit
plans, programs or arrangements, maintained or contributed to by Storybook.
SECTION 3.21 Personnel. Schedule 3.21(i) of the Storybook Disclosure
Schedule sets forth a list of the names and current salaries of each officer and
employee of Storybook as of the date of this Agreement. Section 3.21(ii) of the
Storybook Disclosure Schedule sets forth a complete and correct list of all
written employment, compensation, severance, consulting or indemnification
contracts between Storybook and its present or former employees, officers,
directors and consultants to the extent Storybook has any continuing obligations
thereunder. Storybook has made available to Fulcrum true and correct copies of
all such agreements.
SECTION 3.22 Environmental Matters. (a) For purposes of this Agreement,
the term "Environmental and Safety Requirements" means all federal, state, local
and foreign statutes, regulations, ordinances and other provisions having the
force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law, in each case
concerning public health and safety, worker health and safety and pollution or
protection of the environment (including, without limitation, all those relating
to the presence, use, production, generation, handling, transport, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
Release, threatened Release, control or cleanup of any hazardous or otherwise
regulated materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation); "Release"
shall have the meaning set forth in CERCLA (as defined below); and
"Environmental Lien" shall mean any Lien, whether recorded or unrecorded, in
favor of any governmental entity, relating to any liability of Storybook arising
under any Environmental and Safety Requirements.
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(b) Except as has not had or would not reasonably be expected to have a
Material Adverse Effect:
(1) Storybook has complied with and is currently in
compliance with all Environmental and Safety Requirements, and has not
received any oral or written notice, report or information regarding
any liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) or any corrective, investigatory or remedial obligations
arising under Environmental and Safety Requirements which relate to
Storybook or any of its properties or facilities, except for any such
noncompliance, liability or obligation which has not had or would not
reasonably be expected to have a Material Adverse Effect.
(2) Without limiting the generality of the foregoing,
Storybook has obtained and complied with, and is currently in
compliance with, all permits, licenses and other authorizations that
may be required pursuant to any Environmental and Safety Requirements
for the occupancy of its properties or facilities or the operation of
its businesses. A list of all such permits, licenses and other
authorizations is set forth in Section 3.22(b)(2) of the Storybook
Disclosure Schedule.
(3) Neither this Agreement nor the consummation of
the transactions contemplated by this Agreement will impose any
obligations on Storybook or otherwise for site investigation or
cleanup, or notification to or consent of any government agencies or
third parties under any Environmental and Safety Requirements
(including, without limitation, any so called "transaction-triggered"
or "responsible property transfer" laws and regulations).
(4) To the best knowledge of Storybook and Xxxxxxx,
none of the following exists at any property or facility occupied or
operated by Storybook:
(i) underground storage tanks or surface
impoundments;
(ii) asbestos-containing materials in any form
or condition; or
(iii) materials or equipment containing
polychlorinated biphenyls.
(5) Storybook has not treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled or
Released any substance (including, without limitation, any hazardous
substance) or occupied or operated any facility or property, so as to
give rise to liabilities of Storybook for response costs, natural
resource damages or attorneys fees pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA"),
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as amended, or any other Environmental and Safety Requirements.
(6) Without limiting the generality of the foregoing,
no facts, events or conditions relating, to the best knowledge of
Storybook and Xxxxxxx, to the past or present properties, or to the
facilities or operations of Storybook will prevent, hinder or limit
continued compliance with Environmental and Safety Requirements, give
rise to any corrective, investigatory or remedial obligations pursuant
to Environmental and Safety Requirements or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements
(including, without limitation, those liabilities relating to onsite or
offsite Releases or threatened Releases of hazardous materials,
substances or wastes, personal injury, property damage or natural
resources damage, except for any such noncompliance, obligation or
liability which has not had or would not reasonably be expected to have
a Material Adverse Effect
(7) Storybook has not, either expressly or by
operation of law, assumed or undertaken any material liability or
corrective, investigatory or remedial obligation of any other person
relating to any Environmental and Safety Requirements.
(8) No Environmental Lien has attached to any
property owned, leased or operated by Storybook during such ownership,
lease or operation by Storybook.
SECTION 3.23 Insurance. Section 3.23(a) of the Storybook Disclosure
Schedule contains an accurate and complete description of all material policies
of fire, liability, workmen's compensation and other forms of insurance owned or
held by Storybook. Such policies are in amounts customarily used and cover risks
customarily insured against, by businesses of the type and size operated by
Storybook. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the Closing will have
been paid, and no notice of cancellation or termination has been received with
respect to any such policy. Such policies will remain in full force and effect
through the respective dates set forth in Section 3.23(a) of the Storybook
Disclosure Schedule without the payment of additional premiums; and will not be
materially affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. All of such policies have been issued by
insurance companies with ratings of BBB+ or higher from a nationally recognized
rating agency. All known claims, if any, made against Storybook that are covered
by insurance have been disclosed to, and to the best knowledge of Storybook and
Xxxxxxx, have been accepted by the appropriate insurance companies and, to the
best knowledge of Storybook and Xxxxxxx, are being defended by such appropriate
insurance companies and are described in Section 3.23(b) of the Storybook
Disclosure Schedule and no claims by Storybook have been
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denied coverage during the last three years.
SECTION 3.24 Related Party Contracts. Each of the related-party
agreements described in Sections 3.18(a)(4) and 3.18(a)(10) of the Storybook
Disclosure Schedule were entered into between Storybook and the other party or
parties thereto on an arm's length basis on terms no less favorable to Storybook
than it could obtain from an unrelated third party.
SECTION 3.25 Real Property; Leased Premises.
(a) Storybook owns no real property or land.
(b) Section 3.25(b) of the Storybook Disclosure Schedule sets forth a
true and complete list of each lease of premises executed by or binding upon
Storybook as lessee, sublessee, tenant or assignee (the "Leased Premises"). Each
such lease is in full force and effect without any default or breach thereof by
Storybook or, to the best knowledge of Storybook and Xxxxxxx, any other party
thereto. True and complete copies of all leases listed on Schedule 3.25(b) of
the Storybook Disclosure Schedule (including all amendments, addenda, waivers
and all other binding documents relating thereto) have been made available to
Fulcrum.
(c) Except as set forth in Section 3.25(c) of the Storybook Disclosure
Schedule, Storybook has not, to the best knowledge of Storybook and Xxxxxxx,
received any notice of or writing referring to any requirements by any insurance
company that has issued a policy covering any part of any Leased Premises or by
any board of fire underwriters or other body exercising similar functions,
requiring any repairs or work to be done on any part of any Leased Premises. All
public utilities used in the operation of each Leased Premises in the manner
currently operated are installed and operating, and all installation and
connection charges with respect to Leased Premises have been paid in full or
provided for. The plumbing, electrical, heating, air conditioning, ventilating
and all other structural or material mechanical systems in the buildings upon
the Leased Premises are, to the best knowledge of Storybook and Xxxxxxx, in good
working order and working condition, so as to be adequate for the operation of
the business of Storybook as heretofore conducted. To the best knowledge of
Storybook and Xxxxxxx, the roof, basement and foundation walls of all buildings
on the Leased Premises are free of leaks and other material defects.
SECTION 3.26 Absence of Certain Payments. Neither Storybook nor any of
its affiliates or any of their respective officers, directors, employees or
agents or other people acting on behalf of any of them have (i) engaged in any
activity prohibited by the United States Foreign Corrupt Practices Act of 1977
or any other similar law, regulation, decree, directive or order of any other
country and (ii) without limiting the generality of the preceding clause (i),
used any corporate or other funds for unlawful contributions, payments, gifts or
entertainment, or made any unlawful expenditures relating to political activity
to government
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officials or others. None of Storybook or any of its affiliates or to the best
knowledge of Storybook and Xxxxxxx, any of their respective directors, officers,
employees or agents of other persons acting on behalf of any of them, has
accepted or received any unlawful contributions, payments, gifts or
expenditures.
SECTION 3.27 Disclosure. (a) Since the date of the latest audited
Financial Statements, Storybook has not suffered any event which may be
reasonably expected to have a Material Adverse Effect.
(b) No representation or warranty by Storybook or Xxxxxxx,
respectively, in this Agreement and no statement contained in any document,
schedule or certificate furnished or to be furnished by or on behalf of
Storybook or Xxxxxxx, respectively, to Fulcrum or any of its representatives
pursuant to the provisions hereof or in connection with transactions
contemplated hereby, contains as of the date hereof or will contain as of the
Closing any untrue statement of material fact or omits or will omit to state any
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
SECTION 3.28 Books and Records. The books of account, minute books,
stock certificate books and stock transfer ledgers of Storybook are complete and
correct in all material respects, and there have been no material transactions
involving the business of Storybook which properly should have been set forth
therein and which have not been so set forth.
SECTION 3.29 Accounts; Lockboxes; Safe Deposit Boxes. Section 3.29 of
the Storybook Disclosure Schedule lists (a) the name of each bank, savings and
loan association, or other financial institution in which Storybook has an
account and (b) the location of all lockboxes and safe deposit boxes of
Storybook.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders (including Xxxxxxx) represents and warrants to
Fulcrum, severally, as to such respective Shareholder, as follows:
SECTION 4.1 Ownership. All of the Storybook Common Shares set forth
opposite such Shareholder's name in Section 4.1 of the Storybook Disclosure
Schedule are owned of record and beneficially by such Shareholder, and such
Shareholder has good and marketable title to such Storybook Common Shares, free
and clear of all security interests, claims, liens, pledges, options,
encumbrances, charges, agreements, voting trusts, proxies and other arrangements
or restrictions whatsoever ("Encumbrances"). Except for such Storybook Common
Shares, such Shareholder owns no other shares of the capital stock of the
Storybook or rights to acquire any such shares. At the Closing, such Shareholder
shall transfer to Fulcrum
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good and marketable title to such Storybook Common Shares, free and clear of all
Encumbrances.
SECTION 4.2 Authorization. This Agreement has been duly authorized,
executed and delivered by such Shareholder and constitutes a valid and legally
binding obligation of such Shareholder, enforceable in accordance with its
terms, except as enforcement may be limited by bankruptcy, moratorium and other
creditors' rights laws and by any limitations as to enforceability of equitable
remedies as may be observed by the relevant judicial body.
SECTION 4.3 Conflicts. The execution, delivery and performance of this
Agreement by such Shareholder does not conflict with, violate or result in the
breach of, require the execution or delivery of any consents or other
instruments, or create any lien or encumbrance on, such Shareholder's Storybook
Common Shares pursuant to, any agreement, instrument, order, judgment, decree,
law or governmental regulation to which such Shareholder is a party or is
subject or by which such Shareholder's Storybook Common Shares are bound.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FULCRUM
Fulcrum represents and warrants to Storybook and to each Shareholder,
severally, as follows:
SECTION 5.1 Corporate Organization. Fulcrum is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
SECTION 5.2 Authority Relative to this Agreement. Fulcrum has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by the Board of Directors of
Fulcrum at a meeting held June 10, 1997. This Agreement has been duly and
validly executed and delivered by Fulcrum and constitutes a valid and binding
agreement of Fulcrum, enforceable against Fulcrum in accordance with its terms,
except as enforcement may be limited by bankruptcy, moratorium and other
creditors' rights laws and by any limitations as to enforceability of equitable
remedies as may be observed by the relevant judicial body.
SECTION 5.3 Consents and Approvals; No Violations. No filing with or
notification to, and no permit, authorization, consent, waiver or approval of,
any Governmental Entity, is necessary for the consummation by Fulcrum of the
transactions contemplated by this Agreement except for such filing,
notification, permit,
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authorization, consent, waiver or approval for which the failure to obtain would
not, individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect. Neither the execution and delivery of this Agreement by Fulcrum
nor the consummation by Fulcrum of the transactions contemplated hereby nor
compliance by Fulcrum with any of the provisions hereof will (i) conflict with
or result in any breach of any provision of the Certificate of Incorporation or
By-Laws of Fulcrum or any of its subsidiaries, (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration
or result in the creation of any Lien) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract, agreement
or other instrument or obligation to which Fulcrum or any of its subsidiaries is
a party or by which any of them or any of their respective properties or assets
may be bound or (iii) violate any order, writ, injunction, decree, statute,
treaty, rule or regulation applicable to Fulcrum, any of its subsidiaries or any
of their properties or assets, except in the case of (ii) or (iii) for
violations, breaches or defaults that would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect.
SECTION 5.4 Disclosure. No representation or warranty by Fulcrum in
this Agreement and no statement contained in any document, schedule or
certificate furnished or to be furnished by Fulcrum to Storybook or any of its
representatives pursuant to the provisions hereof or in connection with the
transactions contemplated hereby, contains as of the date hereof or will contain
as of the Closing any untrue statement of material fact or omits or will omit to
state any material fact necessary in order to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE VI
COVENANTS OF STORYBOOK AND SHAREHOLDERS
Storybook and the Shareholders covenant and agree as follows:
SECTION 6.1 Repayment of Debt. (a) At the Closing, Fulcrum shall pay to
Storybook, on behalf of, and at the direction of, Xxxxxxx, $1,100,638.19 as
payment in full of the obligation owed by Xxxxxxx to Storybook under a revolving
line of credit, which amount shall be deducted from the portion of the Purchase
Price otherwise payable to Xxxxxxx pursuant to Section 1.1(a) hereof, and such
revolving credit line shall be terminated as of the Closing Date.
(b) At the Closing, Fulcrum shall pay to CoAmerica Bank ("CoAmerica")
on behalf of, and at the direction of, Xxxxxxx, $1,814,500.00 as payment in full
of the obligations owed by Xxxxxxx to CoAmerica and Xxxxxxx and Storybook shall
take all actions necessary at or prior to the Closing to have all liens and
security
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interests held by CoAmerica in the Storybook Common Shares owned by Xxxxxxx, and
sold to Fulcrum pursuant to the Agreement, terminated as of the Closing.
SECTION 6.2 Further Assurances. Each of Storybook and the Shareholders
shall execute such documents and perform such further acts (including, without
limitation, obtaining any consents, exemptions, authorizations, or other actions
by, or giving any notices to, or making any filings with, any governmental
agency or any other person) as may be reasonably requested by Fulcrum, prior to,
or after, the Closing, to carry out or to perform the provisions of this
Agreement.
ARTICLE VII
MUTUAL COVENANTS
SECTION 7.1 Best Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate the transactions contemplated
herein. Each party shall promptly consult with the other with respect to,
provide any necessary information with respect to and provide the other (or its
counsel) copies of, all filings made by such party with any Governmental Entity
in connection with this Agreement and the transactions contemplated hereby.
SECTION 7.2 Brokers or Finders. Each of Storybook and Fulcrum
represents, as to itself, its subsidiaries and its affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any brokers' or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement,
except Xxxxxx Capital, whose fees and expenses will be paid out of the Purchase
Price (and deducted therefrom) in accordance with Storybook's agreement with
such firm (a copy of which has been delivered by Storybook to Fulcrum prior to
the date of this Agreement), and Xxxxxxxxx & Xxxxx LLC and Fulcrum Capital
Partners, L.P., whose fees and expenses will be paid by Fulcrum in accordance
with Fulcrum's agreement with such firms. Each of Storybook and Xxxxxxx, and
Fulcrum agrees to indemnify and hold the other harmless from and against any and
all claims, liabilities or obligations with respect to any other fees,
commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by or on behalf of such party. Each of the
Shareholders agrees to indemnify Fulcrum and hold it harmless from and against
any and all claims liabilities or obligations with respect to any other fees,
commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by or on behalf of such party.
SECTION 7.3 Fees and Expenses. All costs and expenses incurred in
connection with this Agreement and the transactions
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contemplated hereby shall be paid by the Shareholders pro rata from the Purchase
Price as a reduction on the one hand as specified in Exhibit 7.3 and Fulcrum on
the other.
ARTICLE VIII
INDEMNIFICATION, ETC.
SECTION 8.1 Survival of Representations and Covenants.
(a) The representations, warranties, covenants and obligations in this
Agreement shall survive the Closing and the sale of the Storybook Common Shares
to Fulcrum and shall expire on the second anniversary of the Closing Date.
(b) Notwithstanding the foregoing, if a Claim Notice (as defined below)
relating to any representation, warranty, covenant or obligation is given to
Xxxxxxx or a Shareholder on or prior to the second anniversary of the Closing
Date then, notwithstanding anything to the contrary contained in Section 8.1(a),
such representation or warranty shall not so expire solely with respect to such
claim, but rather shall remain in full force and effect until such time as each
and every claim specifically set forth in such Claim Notice has been fully and
finally resolved, either by means of a written settlement agreement executed on
behalf of Fulcrum and Xxxxxxx or a Shareholder, as the case may be, or by means
of a final, non-appealable judgment issued by a court of competent jurisdiction.
(c) For purposes of this Agreement, a "Claim Notice" relating to a
particular representation or warranty shall be deemed to have been given if any
Indemnitee (as defined below) acting in good faith, delivers to Xxxxxxx or a
Shareholder, as the case may be, a written notice stating that such Indemnitee
believes that there is or has been a possible breach of a representation or
warranty and containing (i) a brief description, providing reasonable detail, of
the circumstances supporting such Indemnitee's belief that there is or has been
such a possible breach, and (ii) a non-binding, preliminary estimate of the
aggregate dollar amount of the actual and potential damages that have arisen and
may arise as a direct or indirect result of such possible breach.
(d) For purposes of this Agreement, each statement or other item of
information set forth in the Storybook Disclosure Schedule shall be deemed to be
a representation, warranty, covenant or obligation of Xxxxxxx in this Agreement.
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SECTION 8.2 Indemnification.
(a) Xxxxxxx or a Shareholder, as the case may be, shall hold harmless
and indemnify each of Fulcrum, its affiliates, officers, agents, employees and
directors (the "Indemnitees") from and against, and shall compensate and
reimburse each of the Indemnitees for, any and all liabilities, losses, costs,
payments, damages, claims, obligations and expenses (including reasonable
attorney's fees and out-of-pocket costs) (collectively, the "Damages") that are
suffered or incurred by any of the Indemnitees or to which any of the
Indemnitees may otherwise become subject at any time (regardless of whether or
not such Damages relate to any third-party claim) and that arise from or as a
result of, or are connected with:
(1) Any breach of any of the representations, warranties, covenants or
obligations made by Xxxxxxx or a Shareholder, as the case may be, in this
Agreement, it being understood that a Shareholder will only be liable for any
breach of such Shareholder's respective representation, warrant, covenant or
obligation under Article IV and Sections 9.2(a), (b), (c) and (k); or
(2) Any breach of any representation, warranty, statement, information
or provision contained in the Storybook Disclosure Schedule or in any other
document delivered or otherwise made available to Fulcrum or any of its
representatives by or on behalf of Xxxxxxx or any representative of Xxxxxxx.
(b) Xxxxxxx or a Shareholder, as the case may be, shall not be required
to make any indemnification payment pursuant to Section 8.2(a) for any breach of
their respective representations and warranties until such time as, and only to
the extent that, the total amount of all Damages (including the Damages arising
from such breach and all other Damages arising from any other breaches of
Xxxxxxx'x, or such shareholder's, respective representations and warranties)
that have been directly or indirectly suffered or incurred by Indemnitees, or to
which Indemnitees have otherwise become subject, equals or exceeds the amount of
$10,000 in the aggregate. The aggregate indemnification payments that any
Shareholder is required to make pursuant to Section 7.2(a) shall in no event
exceed the Purchase Price received by such Shareholder pursuant hereto.
(c) The parties hereto acknowledge that notwithstanding the fact that
an Indemnitee is not a party to this Agreement, such Indemnitee is entitled to
the benefits of and to enforce all provisions hereof as an intended third party
hereof.
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SECTION 8.3 Dispute Resolution.
(a) Within the period of thirty (30) business days following their
receipt of any Claim Notice applicable to them, Xxxxxxx or a Shareholder, as the
case may be, shall have the right to deliver a notice (a "Dispute Notice")
stating that Xxxxxxx or such Shareholder, as the case may be, disputes the
validity or the amount specified in such Claim Notice or any portion thereof as
applicable to such Shareholder (a "Disputed Amount") and providing in reasonable
detail the reasons therefor. In case Xxxxxxx or such Shareholder, as the case
may be, delivers a Dispute Notice with regard to any claim or claims by an
Indemnitee made in any Claim Notice, the Indemnitee(s) will have thirty (30)
business days to respond in a written statement to the objection of Xxxxxxx or
such Shareholder, as the case may be. If after such thirty (30) business day
period there remains a dispute as to any claims, Xxxxxxx or such Shareholder, as
the case may be, and the Indemnitee(s) will attempt in good faith for thirty
(30) days to agree upon the rights of the respective parties with respect to
each of such claims. Thereafter, if Xxxxxxx or such Shareholder, as the case may
be, and the Indemnitee(s) should so agree, a memorandum setting forth such
agreement will be prepared and signed by both parties and any agreed upon
indemnification shall be paid promptly by Xxxxxxx or a Shareholder, as the case
may be. If no Agreement is reached, then the parties may submit such matter to a
court of competent jurisdiction.
(b) If agreement is reached pursuant to such Section 8.3(a) above or if
a court of competent jurisdiction so orders, with respect to any claim for
indemnification hereunder, then Xxxxxxx or a Shareholder, as the case may be,
shall promptly pay the total amount of Damages arising out of such claim to the
Indemnitee(s), subject to the limitations of Section 8.2(b) hereof. If Xxxxxxx
is required to make an indemnification payment hereunder, then the obligation to
make such payment may be satisfied by, and to the extent of, the release of all
or a part of the Escrowed Amount pursuant to the terms of the Escrow Agreement,
provided, that the release of all or any portion of the Escrowed Amount to
Xxxxxxx, pursuant to the terms of the Escrow Agreement shall in no way limit the
rights of the Indemnitee(s) or the obligations of Xxxxxxx hereunder.
ARTICLE IX
CONDITIONS TO CLOSING
SECTION 9.1 Conditions of the Obligations of the Shareholders. The
obligations of the Shareholders hereunder are further subject to the
satisfaction at or prior to the Closing of the following conditions:
(a) Fulcrum shall have delivered the Purchase Price to each Shareholder
in the manner provided in the letter attached hereto as Exhibit 9.1(a).
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(b) Fulcrum shall have performed and complied, in all material
respects, with all obligations and covenants required to be performed or
complied with by it under this Agreement at or prior to the Closing.
(c) Fulcrum shall have delivered to the Shareholders a Secretary's
Certificate, substantially in the form of Exhibit 9.1(c) attached hereto.
(d) Fulcrum shall have delivered to the Shareholders a cross-receipt
acknowledging receipt of the Storybook Common Shares.
(e) Storybook and the Shareholders shall have received from Fulcrum all
other documents reasonably requested by Storybook or the Shareholders which are
required to be delivered (and have not been previously delivered) by Fulcrum
under the provisions of this Agreement.
SECTION 9.2 Conditions of Obligations of Fulcrum. The obligations of
Fulcrum hereunder are further subject to the satisfaction at or prior to the
Closing of the following conditions:
(a) Each Shareholder individually, and all Shareholders in the
aggregate, shall have delivered to Fulcrum, stock certificate(s) representing
all Storybook Common Shares beneficially owned by such Shareholder and all
Shareholders, respectively, accompanied by duly executed stock powers executed
in blank, in form and substance reasonably satisfactory to Fulcrum, or a Lost
Certificate Indemnity Agreement and document of share ownership assignment to
Fulcrum in such form as Fulcrum approves in writing.
(b) Storybook and the Shareholders shall have performed and complied
with, in all material respects, with all obligations and covenants required to
be performed or complied with by them under this Agreement at or prior to the
Closing.
(c) Storybook and the Shareholders shall have obtained all consents,
approvals, authorizations and permits required from third parties and any
Governmental Entity necessary for the consummation of the transactions by
Storybook and the Shareholders of the transactions contemplated by this
Agreement.
(d) Fulcrum shall have received from Storybook an officer's certificate
substantially in the form of Exhibit 9.2(d) attached hereto.
(e) Fulcrum shall have received from Fenwick & West, LLP, counsel to
Storybook and Xxxxxxx, an opinion substantially in the form of Exhibit 9.2(e)
attached hereto.
(f) Fulcrum shall have received from Xxxxxxx, a fully executed
Severance, Confidentiality and Non-competition Agreement, substantially in the
form of Exhibit 9.2(f) attached hereto.
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(g) Fulcrum shall have received from each of Xxxxxxx XxXxxxx and Xxx
Xxxxx fully executed Employment Agreements substantially in the form of Exhibit
9.2(g) attached hereto.
(h) Fulcrum shall have received resignation letters and general
releases signed by each member of Storybook's Board of Directors (except for
Xxxxxxx XxXxxxx as President of Storybook) with respect to any and all positions
and/or offices each may hold with Storybook and any payments for compensation,
benefits or severance for any period prior to or following June 27, 1997.
(i) Fulcrum shall have received from Deloitte & Touche LLP a fully
executed letter agreement between Deloitte & Touche LLP and Fulcrum
substantially in the form attached hereto as Exhibit 9.2(i).
(j) Fulcrum shall have received from Storybook a Secretary's
Certificate, substantially in the form of Exhibit 9.2(j) attached hereto.
(k) Fulcrum shall have received from Storybook and each of the
Shareholders all other documents reasonably requested by Fulcrum which are
required to be delivered (and have not been previously delivered) to Fulcrum
under the provisions of this Agreement.
(l) Fulcrum shall have received from Xxxxxxx an agreement signed by
Xxxxxxx, Storybook and each holder of Options outstanding as of immediately
prior to Closing, transferring such Options to Xxxxxxx and subsequently
cancelling such Options on or before the Closing.
ARTICLE X
AMENDMENT
SECTION 10.1 Amendment; Extension; Waiver. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. At any time following the Closing, the parties hereto may, in a
written instrument signed on behalf of the parties hereto by Fulcrum, Storybook
and Xxxxxxx, (i) extend the time for the performance of any of the obligations
or other acts of the other parties thereto, (ii) waive any inaccuracies in the
representations and warranties of the other parties hereto contained or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein by the other parties hereto.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Notices. All notices and other communications
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hereunder, following the Closing Date, shall be in writing, and shall be deemed
given upon receipt if delivered personally (including delivery by courier), sent
by facsimile transmission (receipt of which is confirmed) or by certified or
registered mail, return receipt requested, or by a nationally recognized private
overnight courier to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to the Shareholders, to:
c/o Xxxxx X. Xxxxxxx
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxx 00000-0000
Facsimile: (000) 000-0000
with copies to:
Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
and
(b) if to Storybook or Fulcrum, to:
Fulcrum Direct, Inc.
0000 Xxxxxxx Xxx
Xxx Xxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxxx & Xxxxx
Citicorp Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxx Xxxxx
Facsimile No.: (000) 000-0000
SECTION 11.2 Descriptive Headings. The descriptive headings herein are
inserted for convenience only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
SECTION 11.3 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more
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counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
SECTION 11.4 Entire Agreement; Assignment. This Agreement (with all
attachments and Exhibits hereto), the Severance, Confidentiality and
Non-Competition Agreement and the Employment Agreements (a) constitute the
entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (b) shall not be assigned by operation of law or otherwise.
SECTION 11.5 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without regard to
any applicable principles of conflicts of law.
SECTION 11.6 Specific Performance. The parties hereto agree that if any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur,
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
SECTION 11.7 Publicity. Except as reasonably determined to be required
by law, neither Storybook nor the Shareholders shall issue or cause the
publication of any press release or other public announcement with respect to
the transactions contemplated by this Agreement without prior approval of
Fulcrum.
SECTION 11.8 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and for the purpose of
Article VIII, the Indemnitees and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person or persons any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 11.9 Knowledge. As used in this Agreement, the terms
"knowledge" or "aware" as they relate to each of Storybook and Xxxxxxx,
respectively, shall mean and include the best knowledge or awareness of Xxxxxxx
XxXxxxx and Xxx Xxxxx, on the one hand, and Xxxxxxx, on the other, in each case
after diligent inquiry of the matters in question, provided that no search of
records outside of those kept by Storybook or Xxxxxxx within their own premises
is implied therein not need be undertaken.
SECTION 11.10 Waiver of Rights of First Refusal. Storybook and each
Shareholder hereby waives any and all preemptive rights, rights of first
refusal, rights of first offer of any other rights it may have with respect to
the sale of the Storybook Common Shares to Fulcrum hereunder.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by a duly authorized person as of the date first written above.
STORYBOOK HEIRLOOMS, INC. FULCRUM DIRECT, INC.
By: By:
Name: Name:
Title: Title:
Date signed: June 27, 1997 Date signed: June 27, 1997
XXXXX X. XXXXXXX, AS TO ARTICLE III SHAREHOLDERS
INDIVIDUAL SHAREHOLDER:
Xxxxx X. Xxxxxxx
Date signed: June 27, 1997 Printed name:
Date signed: June 27, 1997
ENTITY SHAREHOLDER:
Printed Name of Entity:
By:
Printed name:
Title:
Date signed: June 27, 1997
SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT DATED AS OF JUNE 27, 1997
STOCK POWER AND ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, and pursuant to that certain Securities
Purchase Agreement (the "Agreement") dated June 1997 among
Storybook Heirlooms, Inc., a California corporation (the
"Company"), Fulcrum Direct, Inc., a Delaware corporation, and
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certain shareholders of the Company, the undersigned hereby
sells, assigns and transfers unto:
______________________________________________________________
_______________ shares of the Common Stock of the Company, represented by
Certificate(s) No. _______________ delivered herewith, and
does hereby irrevocably constitute and appoint the Secretary of the
Company as the undersigned's attorney-in-fact, with full power of
substitution, to transfer said stock on the books of the Company.
Dated as of June __________, 1997
(Signature)
(Please Print Name)
(Spouse's Signature, if any)
(Please Print Spouse's Name)
INSTRUCTION: Please sign at the signature line and fill in all the blanks
EXCEPT for (1) the line reserved for the transferee information and
(2) the date. This information will be filled in by Fenwick & West upon
closing of the contemplated transaction with Fulcrum Direct, Inc. The purpose
of this Stock Power and Assignment is to enable the Company and/or its
assignee(s) to acquire the shares on the terms set forth in the Agreement
without requiring additional signatures on the part of the Shareholder.
