1
Exhibit 2.1
------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
dated
December 1, 1994
by and among
LWI HOLDINGS, INC.,
a Delaware corporation,
HANOVER DIRECT, INC.,
a Delaware corporation,
BANKERS TRUST COMPANY,
a New York banking corporation,
LEICHTUNG, INC.,
an Ohio corporation,
and
DRI INDUSTRIES, INC.,
an Ohio corporation
------------------------------------------------------------------------------
2
TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES................ 1
1. Purchase and Sale of Assets..................................... 1
1.1 Purchase of Assets..................................... 1
1.2 Assumption of Liabilities.............................. 3
ARTICLE II
PURCHASE PRICE AND CLOSING............................................... 6
2. Purchase Price and Payment...................................... 6
2.1 Purchase Price......................................... 6
2.2 The Closing............................................ 6
2.3 Instruments of Transfer................................ 6
2.4 Further Assurances..................................... 6
2.5 Certain Reserves and Uses of Cash...................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER................................. 8
3. Seller's Representations and Warranties......................... 8
3.1 Corporate Existence and Qualification.................. 8
3.2 Subsidiaries........................................... 8
3.3 Authority and Absence of Conflict...................... 8
3.4 Title to Purchased Assets.............................. 8
3.5 Financial Statements................................... 9
3.6 Absence of Undisclosed Liabilities..................... 9
3.7 Insurance.............................................. 9
3.8 Inventory.............................................. 10
3.9 Leases................................................. 10
3.10 Tax Matters............................................ 10
3.11 Accounts Receivable.................................... 10
3.12 Books and Records...................................... 10
3.13 Contracts and Commitments.............................. 11
3.14 Customer Lists......................................... 11
3.15 Intellectual Property.................................. 11
3.16 Litigation and Compliance with Laws.................... 12
3.17 Suppliers.............................................. 12
3.18 Employee Benefits...................................... 12
3.19 Employee Relations..................................... 13
3.20 Absence of Certain Changes or Events................... 13
3.21 Customs................................................ 14
3.22 Environmental and Safety Matters....................... 14
3.23 Certain Payments....................................... 15
3.24 Disclosure............................................. 15
3.25 DRI.................................................... 15
i
3
3.26 Survival of Representations............................ 15
3.27 Recalls................................................ 15
ARTICLE III-A
REPRESENTATIONS AND WARRANTIES OF BANK................................... 16
3A. Bank's Representations and Warranties........................... 16
3A.1 Corporate Existence and Qualification.................. 16
3A.2 Authority and Absence of Conflict...................... 16
3A.3 Title to Purchased Assets.............................. 16
3A.4 Tax Matters............................................ 16
3A.5 Absence of Certain Changes or Events................... 16
3A.6 Disclosure............................................. 16
3A.7 Survival of Representations............................ 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND HANOVER.................. 18
4. Purchaser's and Hanover's Representations and Warranties........ 18
4.1 Corporate Existence and Qualification.................. 18
4.2 Authority and Absence of Conflict...................... 18
4.3 Authority.............................................. 18
4.4 Disclosure............................................. 18
4.5 Survival of Representations............................ 18
4.6 Seller's Representations............................... 19
ARTICLE V
PRE-CLOSING COVENANTS OF SELLER AND BANK................................. 20
5. Pre-Closing Covenants of Seller and Bank........................ 20
5.1 Conduct of Business.................................... 20
5.2 Absence of Material Changes............................ 20
5.3 Taxes.................................................. 21
5.4 Communication with Customers and Suppliers............. 21
5.5 Compliance with Laws................................... 21
5.6 Continued Truth of Representations and Warranties...... 21
5.7 Continuing Obligation to Inform........................ 22
5.8 Exclusive Dealing...................................... 22
5.9 Employees.............................................. 22
5.10 Estoppel Certificates.................................. 22
5.11 Information to Purchaser............................... 22
5.12 Break-Up Fee........................................... 22
5.13 Notification of Sale to Individuals.................... 23
ARTICLE VI
ii
4
CONDITIONS TO OBLIGATIONS OF PURCHASER................................... 24
6. Conditions to Obligations of Purchaser.......................... 24
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLER...................................... 27
7. Conditions to Obligations of Seller............................. 27
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF EACH PARTY.................................. 29
8. Conditions to Obligations of Each Party......................... 29
8.1 Illegality or Legal Constraint......................... 29
8.2 Governmental Authorizations............................ 29
8.3 Cooperation............................................ 29
ARTICLE IX
INDEMNIFICATION.......................................................... 30
9. Indemnification................................................. 30
9.1 Survival of Representations and Warranties............. 30
9.2 Indemnification by Seller and Bank..................... 30
9.3 Indemnification by Purchaser and Hanover............... 31
9.4 Procedure for Indemnification with Respect
to Third-Party Claims................................. 31
9.5 Bulk Sales Waiver and Indemnification.................. 32
9.6 Break-Up Fee Indemnification........................... 32
ARTICLE X
CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS................................. 33
10. Confidentiality and Public Announcements........................ 33
10.1 Confidentiality........................................ 33
10.2 Public Announcements................................... 33
ARTICLE XI
POST-CLOSING AGREEMENTS.................................................. 34
11. Post-Closing Agreements......................................... 34
11.1 Use of Name............................................ 34
11.2 Injunctive Relief...................................... 34
11.3 Transition............................................. 34
11.4 Other Provision........................................ 34
11.5 Tax Filings............................................ 34
ARTICLE XII
TERMINATION.............................................................. 35
iii
5
12. Termination of Agreement........................................ 35
12.1 Termination by Lapse of Time........................... 35
12.2 Termination by Agreement of the Parties................ 35
ARTICLE XIII
MISCELLANEOUS............................................................ 36
13. Miscellaneous................................................... 36
13.1 Definitions............................................ 36
13.2 Expenses............................................... 37
13.3 Brokers................................................ 37
13.4 Amendment and Waiver................................... 37
13.5 Successors and Assigns................................. 37
13.6 Notices................................................ 38
13.7 Entire Understanding................................... 38
13.8 Counterparts........................................... 38
13.9 Headings............................................... 39
13.10 Applicable Law......................................... 39
13.11 Invalidity............................................. 39
13.12 No Waiver.............................................. 39
13.13 Construction of Agreement; Damages; Knowledge.......... 39
13.14 Absence of Third Party Beneficiary Rights.............. 39
13.15 Mutual Drafting........................................ 39
iv
6
EXHIBITS
Exhibit A Form of Instrument of Assumption of Liabilities
Exhibit B Irrevocable Instructions
Exhibit C Clement Release
Exhibit D Clement Certificate
Exhibit E Business Plan
Exhibit F Form of Bill of Sale
SCHEDULES
Schedule 1.1(a)(i) Purchased Inventory
Schedule 1.1(a)(ii) Other Purchased Inventory
Schedule 1.1(d) Material Contracts
Schedule 1.1(e) Purchased Records
Schedule 1.1(g) Motor Vehicles
Schedule 1.1(h) Fixed Assets
Schedule 1.1(i) Customer List Exchange Balance
Schedule 1.1(j) Governmental Licenses and Permits
Schedule 1.1(k) Intellectual Property
Schedule 1.1(l) Investments
Schedule 1.2(a)(i) Year End Balance Sheet
Schedule 1.2(a)(ii) Accounts Payable Not Assumed
Schedule 1.2(a)(vii) Real Property Leases
Schedule 1.2(a)(ix) Equipment Leases
Schedule 1.2(b)(ix) Retention Bonuses
Schedule 3.3 Breaches
Schedule 3.4(a) Encumbrances on Purchased Assets
Schedule 3.4(b) Permitted Encumbrances on Purchased Assets
Schedule 3.7 Insurance Policies
Schedule 3.10 Tax Deficiencies
Schedule 3.11 Accounts Receivable
Schedule 3.13(b) Exceptions to Purchased Contracts
Schedule 3.13(b)(v) Third Party Consents to Assignment of Contracts
Schedule 3.15(a) Trademarks, Patents and Copyrights Owned by Others
Schedule 3.15(b) Royalty and License Agreements
Schedule 3.16 Litigation
Schedule 3.17 Suppliers
Schedule 3.18 Employee Benefit Plans
Schedule 3.19 Labor Agreements/Grievances
Schedule 3.21 Customs Assists
Schedule 3.25 DRI's Business Conduct
Schedule 3.27 Recalls
Schedule 5.10 Estoppel Certificates
Schedule 6(n)(ii) Exceptions to Assignment of Intellectual Property
Schedule 7(g) Third Party Consents
v
7
ASSET PURCHASE AGREEMENT ("Agreement" ) entered into this 1st
day of December, 1994, by and among LWI HOLDINGS, INC., a Delaware corporation
("Purchaser"), HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), BANKERS
TRUST COMPANY, a New York banking corporation ("Bank"), LEICHTUNG, INC., an Ohio
corporation ("Leichtung") and DRI Industries, Inc., an Ohio corporation ("DRI",
and collectively with Leichtung, "Seller").
R E C I T A L S
A. Seller is engaged in the business of mail order sales
of merchandise including tools, hardware, certain furnishings such as interior
design items, and other specialty products through the "Improvements" and
"Leichtung Workshops" catalogs and Seller operates office, warehouse and
fulfillment centers located in Solon, Ohio and Warrensville Heights, Ohio to
receive and distribute inventory to be sold to its mail order customers, a
telephone call center in Beachwood, Ohio and retail stores in Ohio and Michigan
(all of the foregoing, collectively, the "Business").
B. Seller desires to sell all of the tangible assets of
the Business and all of its intangible assets and other rights relating thereto,
including all trademarks or trade names (including the marks or names
"Improvements", "Leichtung", "Leichtung Workshops" and "Pastimes"), patents and
copyrights, and the rights to the same worldwide.
C. Purchaser desires to purchase all assets and all
such other rights related to the Business, and to assume liabilities of
Seller relating thereto, on the terms and conditions as set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements
hereinafter set forth and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
AND ASSUMPTION OF LIABILITIES
1. Purchase and Sale of Assets.
1.1 Purchase of Assets. Subject to and upon
the terms and conditions of this Agreement, at the Closing (as defined in
Section 2.2 hereof), Seller shall sell, transfer, convey, assign and deliver to
the Purchaser, and Purchaser shall purchase from Seller, all of the Seller's
right, title and interest in and to the business, properties, assets and other
claims, rights and interests of the Business, including, without limiting the
generality of the foregoing:
(a) all inventories of finished goods, work
in process and raw materials, owned by Seller on the Closing Date (as defined
in Section 2.2 hereof), including, without limitation, those set forth on
Schedule 1.1(a)(i) hereto, and office supplies, maintenance supplies, packaging
materials and similar items owned by Seller on the Closing Date, including,
without limitation, those set forth on Schedule 1.1(a)(ii) hereto which
schedule shall list each category which has a value in excess of $10,000 and
stating the approximate value of such category, (collectively, all of the above
the "Purchased Inventory");
1
8
(b) subject to Section 2.5, all cash and
cash equivalents (collectively, the "Cash") and accounts, accounts
receivable, notes and notes receivable (collectively, the "Accounts
Receivable") owned by Seller on the Closing Date (including any security held
by Seller for the payment thereof);
(c) all prepaid expenses and deferred items
owned by Seller on the Closing Date except for the $2,415,655 deferred tax item
and the $903,000 intercompany tax receivable as reflected on Seller's Year End
Balance Sheet (as defined in Section 1.2(a)(i)), as they may both be adjusted
in the ordinary course of business prior to the Closing Date (collectively, the
"Purchased Prepaid Items");
(d) all rights of Seller as of the Closing
Date under contracts, agreements, leases, subleases, franchises and licenses
(including, without limitation, all computer program licenses) as in effect on
the Closing Date (collectively, the "Purchased Contracts"), and to the extent
material to the Business, as set forth on Schedule 1.1(d) hereto (the "Material
Contracts") ;
(e) all operating data and records of Seller
as they exist on the Closing Date including, without limitation, customer and
mailing lists, mailing list derivative source data (including all customer
data, computer tapes and cartridges, hard copies and the like) (collectively,
the "Customer Lists"), credit information, vendor information, product
information, list rental historical information, sales data and such other
records and information, including, without limitation, those set forth on
Schedule 1.1(e) hereto (collectively, with the Customer Lists, the "Purchased
Records");
(f) all goodwill of Seller existing on the
Closing Date;
(g) all motor vehicles and other rolling stock
owned by the Seller on the Closing Date, including, without limitation, those
set forth on Schedule 1.1(g) hereto;
(h) all machinery, equipment, tools,
fixtures (including all fixtures in leased space where Purchaser is assuming
Seller's obligations under the lease, to the extent removable, and to the
extent Seller has the right to remove such fixtures), maintenance, molds and
furniture owned, licensed or used by Seller (whether in the United States or
abroad) on the Closing Date, whether or not located at the locations set forth
in Schedule 1.2(a)(vii) and whether or not reflected as capital assets in the
accounting records of the Seller, including, without limitation, those assets
with a value greater than $3,000 as set forth on Schedule 1.1(h) hereto
(collectively, the "Fixed Assets");
(i) the customer list exchange balance of
Seller with other companies and other related information, including, without
limitation, as set forth on Schedule 1.1(i) hereto and existing on the
Closing Date;
(j) all agreements, licenses, permits,
consents and certificates of any regulatory, administrative or other
governmental agency or body issued to or held by Seller necessary or incidental
to the Business after the Closing Date, but only to the extent the same are
transferable (collectively, the "Governmental Licenses and Permits"),
including, without limitation, those set forth and described on Schedule 1.1(j)
hereto, provided, however, that to the extent any Governmental Licenses and
Permits are not transferable, such permits and licenses shall be noted on
Schedule 1.1(j);
(k) all of Seller's right, title and interest,
in and to all intangible property rights, including, without limitation, trade
secrets, proprietary programs and information, proprietary rights, patents,
patent applications, patent registrations, trademarks, trademark applications,
trademark registrations, symbols, service marks, logos, copyrights and
registrations thereof, including, without limitation, those material rights set
forth and described on Schedule 1.1(k) hereto, all films, plates, digital
separations, digitized images, sketches, lay-outs, photography and similar
items used by Seller in the production, lay-out and design of the catalogs used
in the Business and
2
9
designs and drawings owned or, where not owned, used by Seller in the Business
(collectively, the "Intellectual Property");
(l) all investments, joint-venture interests,
equity participations and securities (excluding the capital stock of DRI but
including the capital stock of Leichtung of Michigan, Inc.) including,
without limitation, those set forth on Schedule 1.1 (l) hereto; and
(m) all other assets and rights that are
material or necessary to the conduct or operations of the Business.
All of the properties, assets and other claims, rights and
interests to be sold, transferred, conveyed, assigned and delivered to
Purchaser pursuant to this Section 1.1 are hereinafter collectively referred
to as the "Purchased Assets."
1.2 Assumption of Liabilities.
(a) At the Closing, Purchaser shall
execute and deliver an Instrument of Assumption of Liabilities (the
"Instrument of Assumption") substantially in the form attached hereto as
Exhibit A, pursuant to which Purchaser shall assume and agree to perform, pay
and discharge all of the following liabilities, obligations and commitments of
Seller:
(i) all accounts payable and accrued
liabilities of Seller reflected on the balance sheet of Seller as of June 25,
1994 (the "Balance Sheet Date"), a true and correct copy of which is attached
hereto as Schedule 1.2(a)(i) (the "Year End Balance Sheet"), less any payments
made from the Balance Sheet Date to the Closing Date and less any accounts
payable of Seller to any affiliate;
(ii) all accounts payable and accrued
liabilities of Seller incurred in the ordinary course of business from the
Balance Sheet Date to the Closing Date, other than those specified on Schedule
1.2(a)(ii) hereto;
(iii) all liabilities for refunds to
customers for returned merchandise which are accepted by Seller in the
ordinary course of business pursuant to Seller's existing policies from the
Balance Sheet Date to the Closing Date;
(iv) all obligations and liabilities
existing with respect to any Accounts Receivable which represent property held
by Seller for customers;
(v) all obligations and liabilities
arising or accruing after the Closing Date under or with respect to the
Purchased Contracts, the Governmental Licenses and Permits being transferred
pursuant to Section 1.1(j) hereto, or the Intellectual Property;
(vi) all obligations and liabilities
of Seller for purchase orders or purchase commitments, which are issued with
Purchaser's consent or in compliance with the limitation set forth in Section
5.2(1) hereof, and unfilled special orders and back orders entered into in the
ordinary course of business;
(vii) the real property leases
(including the ground lease) set forth on Schedule 1.2(a)(vii) hereto;
(viii) any payments, by way of
compensation or otherwise, to be made to Coy L. Clement ("Clement") in
connection with this Agreement, and any obligations owed by Bank or Seller to
Clement with respect to (A) Clement's employment with Seller, (B) Clement's
ownership of Seller's capital stock, or (C) the proceeds from the sale of the
Business;
(ix) the equipment leases set forth on
Schedule 1.2(a)(ix) hereto;
(x) all other liabilities, obligations
and commitments of Seller to the extent incurred in the ordinary course
of business;
3
10
(xi) any liabilities or obligations
of Seller not in the ordinary course or not set forth on the Current Balance
Sheet, to the extent such liabilities or obligations shall not exceed $50,000
in the aggregate, provided, however, that to the extent any such liability or
obligation is paid for by insurance, then such amount shall not be included in
the $50,000 cap;
(xii) any sales taxes payable with
respect to the sale of the Purchased Assets to Purchaser; and
(xiii) any litigation against the
Business or Seller, arising in the ordinary course of business, except
for any litigation relating to or arising from those agreements or
circumstances set forth in Section 1.2(b).
All of the liabilities, obligations and commitments to be performed,
paid or discharged pursuant to this Section 1.2(a) are hereinafter collectively
referred to as the "Assumed Liabilities".
(b) At the Closing, the Purchaser shall not
assume or agree to perform, pay or discharge, and Seller shall remain
unconditionally liable for, all obligations, liabilities, debts, claims, causes
of action, contracts or other commitments, fixed or contingent, of Seller other
than the Assumed Liabilities, and Purchaser shall not have any liability
whatsoever relating to any liabilities other than the Assumed Liabilities as
described in Section 1.2(a) hereof. Specifically, and without limiting the
generality of foregoing, Purchaser shall not have any liability or obligations
with respect to:
(i) any and all trade accounts
payable and accrued liabilities of Seller not reflected on the balance sheet
of Seller as of the Balance Sheet Date or incurred other than in the ordinary
course of business between the Balance Sheet Date and the Closing Date;
(ii) any and all bank or other
institutional debt of Seller including interest or fees thereon, including
without limitation any outstanding liability or debt to Bank or any of its
affiliates, including without limitation, any obligations due and owing to the
Bank under (A) that certain Credit Agreement dated as of June 10, 1987, by and
between Leichtung, DRI and Bank, as amended and modified (the "Credit
Agreement"), (B) the Agreement dated September 20, 1993 by and among Leichtung,
DRI, the Individuals (as defined therein), the Pledgors (as defined therein)
and Bank, as amended and modified (the "Restructuring Agreement"), and (C) that
certain Subordinated Loan and Warrant Purchase Agreement, dated as of June 10,
1987, by and among Leichtung, DRI and the Bank, as amended and modified;
(iii) any liabilities or claims for taxes,
penalties or interest arising or accruing with respect to the Business prior to
the Closing Date, or any tax liabilities arising from the transactions
contemplated by this Agreement, except as provided by Section 1.2(a)(xii)
hereof, including, without limitation, any potential liability relating to the
$2,415,655 deferred tax item and the $903,000 intercompany tax receivable as
reflected on Seller's Year End Balance Sheet;
(iv) any claims for liabilities of
Seller under any contracts (including consignment contracts), guarantees,
obligations, agreements (including employment and consulting agreements),
licenses or leases with any third parties to the extent not specifically
assumed by Purchaser including, but not limited to, any claims, obligations or
liabilities relating to (A) the Restructuring Agreement, (B) the Leichtung
Guaranty (as defined in the Restructuring Agreement), (C) the Subordinated
Loans, the Subordinated Notes, and/or the Subordination Agreement (all as
defined in the Restructuring Agreement), (D) the Transaction (as defined in the
Restructuring Agreement), (E) the Stockholders Pledge Agreement (as defined in
the Restructuring Agreement), and (F) the Pledge and Security Agreement (as
defined in the Restructuring Agreement);
4
11
(v) all past wages, bonuses,
commissions or other compensation due to any current or former employee or
consultant of Seller, any accrued pension, sick leave, vacation, medical
benefits, severance pay or any other right to compensation or benefits claimed
by any person in connection with his or her employment by Seller, in each case,
unless reflected on the Year End Balance Sheet or incurred in the ordinary
course of business from the Balance Sheet Date to the Closing Date;
(vi) any claims, obligations,
fines, penalties or other liabilities relating to or incurred by DRI, in
each case, unless reflected on the Year End Balance Sheet or incurred in the
ordinary course of business from the Balance Sheet Date to the Closing Date;
(vii) any claims, obligations,
fines, penalties or other liabilities relating to unclaimed property
statutes or regulations;
(viii) except for the Leases (as defined
in Section 3.9 hereto) as set forth in Schedule 1.2(a)(vii), any leases for
real property between Seller and any third party, and nothing in this Agreement
is intended to be or shall be construed as an assumption by Purchaser of any
rights, obligations or liabilities of any kind under any such lease;
(ix) any retention bonuses (and the
payroll costs incurred thereby) to be paid to certain officers of the Seller
upon the consummation of the transactions contemplated by this Agreement (the
"Retention Bonuses") all as set forth on Schedule 1.2(b)(ix); and
(x) any liability of Bank for its
actions as a director, shareholder or creditor of Seller, including, without
limitation, as signatory to any agreements to which Bank is a party in any such
capacity or any rights or causes of action which may arise therefrom;
5
12
ARTICLE II
PURCHASE PRICE AND CLOSING
2. Purchase Price and Payment.
2.1 Purchase Price. The aggregate purchase price for the
Purchased Assets, including, without limitation, all intangibles, the Customer
Lists, Intellectual Property and the goodwill of the Business, shall be Eleven
Million Dollars ($11,000,000) plus (i) the assumption of the Assumed
Liabilities, (ii) the delivery of the items referred to in Section 2.2(b)(iv),
and (iii) the payment of the outstanding balance of the Revolving Loan (as
defined by the Credit Agreement), if any, due and owing to the Bank under the
Credit Agreement as of the Closing Date (as defined below) (collectively, the
"Purchase Price"). Purchaser shall pay, and Hanover shall provide the funds for
the payment of, the cash portion of the Purchase Price and the outstanding
balance, if any, of the Revolving Loan at the Closing by wire transfer of
immediately available funds.
2.2 The Closing.
(a) The closing of the transactions
contemplated under this Agreement (the "Closing") shall take place at 5:01
p.m. on January 17, 1995 (the "Closing Date"), at the offices of Latham &
Watkins, 885 Third Avenue, New York, New York 10022, subject to extension upon
mutual agreement of Purchaser and Seller. The parties further agree that, if
the consent of the Individuals (as defined in Section 5.8 hereto) is obtained
prior to the Closing Date, Purchaser may accelerate the Closing Date.
(b) At the Closing, (i) Bank shall, by wire
transfer, remit to Purchaser all of the funds contained in the Bank's blocked
account, (ii) Bank shall issue irrevocable instructions (in the form set forth
on Exhibit B annexed hereto) to Society Bank to rescind the blocked account
agreement dated August 15, 1991 and, subject to Section 2.5, to forward all
funds to Purchaser's designated bank, (iii) Seller shall provide satisfactory
evidence of payment of the Retention Bonuses, and (iv) Purchaser shall deliver
the unconditional release and discharge of Bank and Seller by Clement in the
form annexed hereto as Exhibit C which release shall include provision for the
delivery by Clement to Bank of any and all stock certificates representing his
equity ownership in Seller ("Clement's Release").
2.3 Instruments of Transfer. Seller and Bank agree that
the sale and transfer of the Purchased Assets under this Agreement shall be made
by bills of sale, assignments or other instruments of transfer together with all
required consents, if any, as shall be appropriate to carry out the intent of
this Agreement and as shall be sufficient to convey valid and marketable title
to the Purchased Assets to Purchaser.
2.4 Further Assurances. Seller and Bank agree that, at
any time and from time to time after the Closing Date, either or both of them,
as the case may be, upon the request of Purchaser will do, execute, acknowledge
and deliver or shall cause to be done, executed, acknowledged or delivered all
such further acts, deeds, assignments, transfers, conveyances, powers of
attorney or assurances as may be required for the assigning, transferring,
granting, conveying, assuring and confirming to Purchaser or for aiding and
assisting in the collection of, or reducing to possession, any or all of the
Purchased Assets to Purchaser as provided herein. In addition, Purchaser shall,
by appropriate instruments to be executed and delivered at the Closing, agree to
6
13
perform, pay or discharge, to the extent not theretofore performed, paid or
discharged, all of the Assumed Liabilities.
2.5 Certain Reserves and Uses of Cash. Notwithstanding
any other provision of this Agreement, at or prior to the Closing, Bank shall,
for the benefit of Seller, withdraw from the blocked accounts referred to in
Section 2.2(b) the following:
(i) funds sufficient for Seller to
pay all wages, compensation and related taxes, withholding and other
payroll related items accrued through the close of business on the Closing
Date, any other items for which Seller is responsible pursuant to Section 5.9
or 5.12, all sales taxes withheld from customers in the ordinary course of
business for which Seller is responsible pursuant to this Agreement, and
Seller's fees and expenses in connection with this transaction, all of which,
to the extent practicable, Seller shall pay (and Bank shall cause Seller to
pay) from such funds at or prior to the Closing; and
(ii) to the extent not paid at or prior
to the Closing, funds sufficient for Seller to create an adequate and
appropriate escrow reserve which Seller shall retain for the payment of all
wages, compensation and related taxes, withholding and other payroll related
items accrued through the close of business on the Closing Date, any other
items for which Seller is responsible pursuant to Section 5.9 or 5.12, all
sales taxes withheld from customers in the ordinary course of business for
which Seller is responsible pursuant to this Agreement, and Seller's fees and
expenses in connection with this transaction, all of which Seller shall pay
(and Bank shall cause Seller to pay) as soon as practicable after the Closing
Date.
Seller shall remit, and Bank shall cause Seller to remit to
Purchaser, any sums remaining in the reserve referred to in (ii) above within
ten (10) days after the payment in full of the last of the items for which such
reserve is established. In the event such reserve shall be inadequate for the
payment in full of all of the items for which such reserve is established,
Hanover shall cause Purchaser promptly to remit to Seller, upon Seller's written
request accompanied by reasonable documentation supporting such request, funds
sufficient to make up any shortfall, provided, however, that if such shortfall
shall be due to a breach of a representation or warranty of Seller, neither
Hanover nor Purchaser shall have any obligation to remit the requested amount.
7
14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3. Seller's Representations and Warranties. In order to induce
Purchaser and Hanover to enter into this Agreement and to consummate the
transactions contemplated hereunder, Seller makes the following representations
and warranties (with such exceptions to such representations and warranties as
set forth in any schedule hereto):
3.1 Corporate Existence and Qualification. Leichtung and
DRI are corporations, each of which is duly organized, validly existing and in
good standing under the laws of the State of Ohio and each is authorized and has
the power, corporate and otherwise, to own or lease and operate its properties
and assets and conduct its business as such business is presently conducted.
Leichtung is duly qualified to do business as a foreign corporation and is in
good standing in the States of Ohio and Michigan, and in every other
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operations or financial condition of Leichtung. Leichtung has
furnished Purchaser with true and complete copies of its Certificate of
Incorporation and By-Laws, as amended to date and presently in effect.
3.2 Subsidiaries. Leichtung owns or controls, directly or
indirectly, the shares of capital stock of the corporations set forth in
Schedule 1.1(l), (collectively, with DRI, the "Subsidiaries", and each, a
"Subsidiary"). Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its respective state of incorporation and
has the power, corporate and otherwise, to own or lease and operate its
properties and assets and conduct its business as such business is presently
conducted. Each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in such states, and in every other
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operations or financial condition of such Subsidiary. Neither
Leichtung nor any of its Subsidiaries owns or controls, directly or indirectly,
any interest in any partnership, joint venture or other business enterprise.
Leichtung has furnished Purchaser with true and complete copies of each
Subsidiary's Certificate of Incorporation and By-Laws, each as amended to date
and presently in effect.
3.3 Authority and Absence of Conflict. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Leichtung and DRI have been duly authorized, and no additional
corporate action is required for the approval of this Agreement, which is valid
and binding upon Leichtung and DRI and enforceable in accordance with its terms,
subject to applicable laws regarding bankruptcy or insolvency and to principles
of equity generally. Except as set forth on Schedule 3.3, the fulfillment of,
and compliance by, Leichtung and DRI with the terms, conditions, and provisions
hereof will not conflict with or result in a breach of any relevant laws, the
terms, conditions or provisions of its respective Certificate of Incorporation
or By-Laws, each as amended to date and presently in effect, or other similar
instrument affecting Leichtung or DRI, or any agreement or document to which
either is a party or by which any of them or any of their property or assets may
be bound, or constitute (with or without the giving of notice or the passage of
time, or both) a default under any such instrument, agreement or document or
accelerate the maturity of or otherwise modify any obligation of Leichtung or
DRI being assumed by Purchaser hereunder.
3.4 Title to Purchased Assets. Schedule 3.4(a) attached
hereto sets forth a true, correct and complete list of all claims, liabilities,
liens, pledges, charges, security interests and encumbrances of any kind
affecting the Purchased Assets (collectively, the "Encumbrances"). Seller
8
15
shall at the Closing Date have good, clear, record and marketable title to those
Purchased Assets capable of ownership (the "Owned Assets"), and the Owned Assets
and the remaining Purchased Assets (the "Other Assets") are free and clear of
all Encumbrances except as set forth on Schedule 3.4(b) hereto (the "Permitted
Encumbrances"). Seller shall at the time of delivery, have the full power and
right to sell, assign and deliver the Purchased Assets in accordance with the
terms of this Agreement. The delivery to Purchaser of the instruments of
transfer of ownership contemplated by this Agreement shall vest valid and
marketable title to the Owned Assets in the Purchaser and all of Seller's right,
title and interest in and to the Other Assets in the Purchaser, free and clear
of all Encumbrances, except for the Permitted Encumbrances; provided, however,
that the failure of one or more Purchased Assets to vest in the Purchaser shall
not result in a breach hereof if such Purchased Asset or Assets have an
aggregate value of less than $25,000.
3.5 Financial Statements.
(a) Seller has previously delivered to the
Purchaser its Year End Balance Sheet, and the related statements of income,
shareholders' equity, retained earnings and cash flows for the fiscal year then
ended (collectively, including the Year End Balance Sheet, the "Year End
Financial Statements"). Seller shall, within ten (10) calendar days after
November 30, 1994, deliver to Purchaser its balance sheet and the related
statement of income of Seller for the five-month fiscal period ended November
30, 1994 (collectively, the "Current Financial Statements"). Seller shall,
within ten (10) calendar days after December 31, 1994, deliver to Purchaser its
balance sheet for the six month fiscal period ended December 31, 1994 (the
"Closing Balance Sheet"). The Year End Financial Statements, the Current
Financial Statements and the Closing Balance Sheet (collectively, the
"Financial Statements") have been or will be prepared on a consistent basis and
in accordance with Seller's past practice and have been or will be prepared in
accordance with generally accepted accounting principles, ("GAAP"), and all
such statements have been or will be certified to that effect by Seller's chief
financial officer.
(b) The Financial Statements fairly present,
or will fairly present, as of their respective dates, the financial condition,
retained earnings, assets and liabilities of Seller, on a consolidated basis,
and the results of operations of the Business for the periods indicated. With
respect to the sale of goods by Seller, the Financial Statements contain and
reflect reserves which have been determined in a manner consistent with each
other, and with Seller's past practice.
3.6 Absence of Undisclosed Liabilities. Except as and to
the extent (i) reflected and reserved against in the Current Balance Sheet, (ii)
set forth herein or on any schedule hereto, or (iii) incurred in the ordinary
course of business, Seller does not have any liability or obligation, secured or
unsecured, whether accrued, absolute, contingent, to the best of Seller's
knowledge, unasserted, or otherwise affecting the Purchased Assets.
3.7 Insurance. Schedule 3.7 hereto sets forth a true,
correct and complete list of all fire, theft, casualty, general liability,
workers compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies insuring the Purchased Assets
or the Business and of all life, health, disability and other insurance policies
maintained for any of its employees, specifying the type of coverage, the amount
of coverage, the premium, the insurer and the expiration date of each such
policy (collectively, the "Insurance Policies") and all claims made under such
Insurance Policies since January 1, 1994. True, correct and complete copies of
all of the Insurance Policies have been previously made available by Seller to
Purchaser. The Insurance Policies are in full force and effect and are
consistent with the amounts and nature which have been
9
16
maintained by Seller during the past five (5) fiscal years. All premiums due on
the Insurance Policies or renewals thereof have been paid and, except as set
forth on Schedule 3.7 hereto, there is no default under any of the Insurance
Policies. Except as set forth on Schedule 3.7 hereto, Seller has not received
any notice or other communication from any issuer of the Insurance Policies
since January 1, 1994 cancelling any of the Insurance Policies.
3.8 Inventory. The Purchased Inventory consists of items
of a quality and quantity typically offered for sale or used by Seller in the
ordinary course of the business conducted by Seller. The values at which such
items of Purchased Inventory are carried reflect the normal inventory valuation
policy of Seller of stating the Purchased Inventory in accordance with GAAP.
3.9 Leases.
(a) Schedule 1.2(a)(vii) attached hereto sets
forth a true, correct and complete list as of the date hereof of all leases and
subleases of real property, identifying separately each ground lease, to which
Seller is a party (the "Leases"). True, correct and complete copies of the
Leases, and all amendments, modifications and supplemental agreements thereto,
have previously been delivered by Seller to Purchaser. The Leases are in full
force and effect and binding and enforceable against Seller and, to the best of
Seller's knowledge, against each of the other parties thereto in accordance with
its terms.
(b) Schedule 1.2(a)(ix) attached hereto sets
forth a true, correct and complete list as of the date hereof of all equipment
leases ("Equipment Leases"). True, correct and complete copies of the Equipment
Leases, and all amendments, modifications and supplemental agreements thereto,
have previously been delivered by Seller to Purchaser. The Equipment Leases are
in full force and effect and binding and enforceable against the Seller and, to
the best of Seller's knowledge, against each of the other parties thereto in
accordance with its terms.
3.10 Tax Matters. Seller has filed all foreign, federal,
state and local tax returns which are required to be filed and has paid all
taxes, interests, penalties, assessments and deficiencies which have become
due or which have been claimed to be due. Seller is current in the payment of
all income, franchise, real estate, payroll, sales, use and withholding taxes
and other employee benefits, taxes or imposts. Except as provided for in the
Current Financial Statements or as set forth on Schedule 3.10 attached hereto,
no deficiencies have been asserted or assessed as a result of any audit by the
Internal Revenue Service or by any foreign, state or local taxing authority and
no such deficiency or audit has been proposed or, to the best of Seller's
knowledge, threatened.
3.11 Accounts Receivable. Schedule 3.11 attached hereto,
as updated within the time parameters set forth in Section 3.5(a) hereof, sets
forth or will set forth a true, correct and complete list of all Accounts
Receivable of Seller by category, including an aging thereof for trade accounts
receivable, as of the date of each Financial Statement. All Accounts Receivable
arose out of the sales of inventory or services in the ordinary course of
business. The reserve for doubtful accounts as set forth on any balance sheet
which is a part of the Financial Statements has been or will be determined on a
consistent basis and in accordance with GAAP and Seller's past practice.
3.12 Books and Records. The general ledgers and books of
account of Seller and with respect to the Purchased Assets, and all other books
and records of Seller are in all material respects complete and correct and have
been maintained in accordance with good business practice and in accordance with
all applicable laws and regulations.
10
17
3.13 Contracts and Commitments.
(a) Schedule 1.1(d) attached hereto contains a
true, complete and correct list of all Material Contracts.
(b) Except as set forth on Schedule 3.13(b)
attached hereto:
(i) each Material Contract is a
valid and binding agreement of Seller enforceable against Seller in accordance
with its terms;
(ii) Seller has fulfilled all
material obligations required pursuant to the Material Contracts to have been
performed by Seller on its part prior to the date hereof, and Seller will
fulfill, when due, all of its obligations under the Material Contracts which
remain to be performed until Closing;
(iii) Seller is not in material breach
of or default under any Material Contract, and no event has occurred which
with the passage of time or giving of notice or both would constitute such a
default, result in a loss of rights or result in the creation of any lien,
charge encumbrance, thereunder or pursuant thereto;
(iv) to the best of Seller's
knowledge, there is no existing material breach or default by any other party to
any Material Contract, and no event has occurred which with the passage of time
or giving of notice or both would constitute a default by such other party,
result in a loss of rights or result in the creation of any lien, charge or
encumbrance thereunder or pursuant thereto;
(v) except as set forth on Schedule
3.13(b)(v) hereto, no consent, approval or authorization by any third party is
required to assign the Material Contract in connection with consummation of the
transactions contemplated hereunder; and
(vi) Seller does not have any material
financial interest, direct or indirect, in any other party to any Material
Contract which is material to the Business.
3.14 Customer Lists. The disks, cartridges and tapes to be
delivered to Purchaser at Closing contain a true, correct and complete list of
the customers who have actually purchased merchandise from each of the Seller's
catalogs by year of last purchase and the approximate number of catalogs mailed,
reported on an annual basis for each catalog separately for the periods of time
that such information is reported. The complete Customer Lists shall be in
readable tape format and such tapes will be delivered to Purchaser at such
designated location and time (at or after the Closing) as Purchaser shall
request. The Customer Lists are the only customer lists which exist and such
lists are deposited with FDC, Inc., a division of Donnelley Marketing, Inc.
("FDC"), Abacus Direct Corporation ("Abacus") and Safe Site, Inc. ("Safe-Site")
and with no other vendors. The Customer Lists delivered by FDC, Abacus and
Safe-Site to Purchaser on Seller's behalf pursuant hereto represent all
available information with respect to the subject matter hereof, and no copies
will be retained by Seller, or to the best of Seller's knowledge, any agent or
affiliate of Seller or any other party, as of the Closing Date.
3.15 Intellectual Property. Except as expressly set
forth in Schedule 3.15(a) attached hereto, Seller (i) does not own or use in the
operation of the Business any patents, trademarks, trade names or copyrights
owned by others, nor is Seller a party to any agreement, either as licensor or
licensee for the licensing of any patent, trademark, trade name, copyright or
applications for any thereof, (ii) has no notice that the use by the Business of
any Intellectual Property owned or used by it infringes or interferes with any
rights of any others, and (iii) owns the rights to, has valid registrations with
the United States Patent and Trademark Office for, and has the right to use and
assign, all of the Intellectual Property listed in Schedule 1.1(k), which,
together with the other Intellectual Property being transferred by Seller to
Purchaser pursuant hereto, are all the rights necessary to hold in order to
conduct the Business as presently conducted. Set forth on
11
18
Schedule 3.15(b) hereto are all of the agreements to which Seller, either
directly or indirectly, is a party with respect to all license and royalty
agreements, whether in writing or by oral understanding.
3.16 Litigation and Compliance with Laws. Schedule 3.16 hereto
is a true, complete and accurate list and description of (i) all inquiries,
investigations, actions or proceedings to the best of Seller's knowledge
pending, threatened in writing, or otherwise known to Seller, against the
Business or any of its assets, and (ii) all orders, writs, injunctions or
decrees of any court, governmental agency or tribunal directed at the Seller or
any of the Purchased Assets or Assumed Liabilities. Except as set forth in
Schedule 3.16, (i) the Business is conducted in material compliance with all
applicable federal, state and local laws, regulations (including, without
limitation, applicable regulations of the Federal Trade Commission, the Consumer
Product Safety Commission, the U.S. Customs Service and the U.S. Food and Drug
Administration), ordinances and orders pertaining thereto, and (ii) to the best
of Seller's knowledge, the Business is not the subject of any inquiries or
investigations, nor in default with respect to any order, written injunction, or
decree, of any court, governmental agency or other tribunal.
3.17 Suppliers. Schedule 3.17 hereto sets forth a true,
correct and complete list of the names and addresses of all of the suppliers of
Seller which accounted for purchases by Seller of at least Ten Thousand Dollars
($10,000) per supplier for the fiscal year ended June 30, 1994. None of such
suppliers has notified Seller that it intends to discontinue its relationship
with Seller and Seller has no knowledge or reason to believe that any supplier
would discontinue its relationship with Seller or with Purchaser upon the
completion of the transactions contemplated by this Agreement. Seller does not
have any material financial interest, direct or indirect, in any material
supplier or customer.
3.18 Employee Benefits.
(a) Schedule 3.18 hereto sets forth a list
which identifies each "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and each
written, and to the best of Seller's knowledge, other than written, employment
agreement, compensation agreement, bonus, commission or similar arrangement and
fringe benefit arrangement which is maintained, administered or contributed to
by Seller and covers any employee or former employee of Seller or under which
Seller has any liability. Copies (or, if not in writing, detailed summaries) of
such plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof have been delivered to Purchaser
together with (to the extent existing) (i) the most recent annual report (Form
5500 including, if applicable, Schedule B thereto) prepared in connection with
any such plan, and (ii) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred to collectively herein as
the "Employee Plans."
(b) Except as specified on Schedule 3.18
hereto, no Employee Plan constitutes a "multiemployer plan" as defined in
Section 3(37) of ERISA (a "Multiemployer Plan"), no Employee Plan is maintained
in connection with any trust described in Section 501(c)(9) of the Internal
Revenue Code of 1986, as amended (the "Code") and no Employee Plan is subject to
Title IV of ERISA or Section 412 of the Code. To the best of Seller's knowledge,
nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Employee Plan has or will make Seller, or any
officer or director thereof, subject to any liability under Title I of ERISA or
liable for any tax pursuant to Section 4975 of the Code.
12
19
(c) Seller has no projected liability in
respect of post-retirement health life and medical benefits for retired
employees of Seller. Other than provisions of applicable law, to the best of
Seller's knowledge, no condition exists that would prevent Seller from
terminating any Employee Plan.
3.19 Employee Relations. Seller has complied in all
material respects with the National Labor Relations Act, as amended, Title VII
of the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, and all
other applicable federal, state and municipal laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours,
and is not engaged in any unfair labor practice, and there are no arrearages in
the payment of wages or social security taxes. Except as set forth on Schedule
3.19 hereto:
(a) Seller is not and was not a party to
any collective bargaining agreements applicable to its current or former
employees and none of the employees of Seller is represented by any labor union;
(b) There is no unfair labor practice
complaint against Seller, or, to the best of Seller's knowledge, pending
before the National Labor Relations Board or any state or local agency;
(c) There is no pending labor strike, dispute,
disturbance or other material labor activity affecting Seller (including,
without limitation, any organizational drive);
(d) To the best of Seller's knowledge, there
is no material labor grievance pending against Seller;
(e) There are no pending arbitration
proceedings arising out of or under any collective bargaining agreement to which
Seller is a party, or to the best knowledge of Seller, any basis for which a
claim may be made under any collective bargaining agreement to which Seller is a
party;
(f) Certain information relating to all of
Seller's employees including the salary, job description, benefits and number of
years employed, all of which is true, correct and complete has previously been
made available by Seller to Purchaser; and
(g) For purposes of this Section 3.19, the term
"employee" shall also be construed to include (i) sales agents (whether in the
United States or abroad), (ii) telemarketers, (iii) graphic designers,
photographers or other artists who spend a majority of their time working on
Seller's Business, if any, and (iv) seasonal employees.
3.20 Absence of Certain Changes or Events. Except as
contemplated by this Agreement, since the Balance Sheet Date, (i) Seller has not
permitted Bank to apply, and Bank has not applied, any funds from each of the
Bank's and Society Bank's blocked accounts (collectively, the "Blocked Account")
to any of Seller's obligations to Bank except for (A) the payment of interest in
the ordinary course of business under the Credit Agreement, (B) the payment of
the Revolving Loan balance, (C) the payment of Seller's fees and expenses in
connection with this transaction, or (D) the retention by Seller of the reserve
and payments described in Section 2.5, provided, however, that with respect to
(A), (B), (C) and (D) above, after the date hereof, Seller agrees to notify
Purchaser in writing within five (5) business days of each such occurrence, (ii)
Seller has not entered into any transaction
13
20
which is not in the usual and ordinary course of business, and (iii) without
limiting the generality of the foregoing, Seller has not:
(a) incurred any material obligation or
liability for borrowed money;
(b) made any payments on any outstanding
indebtedness to Bank except as otherwise permitted hereby;
(c) discharged or satisfied any lien or
encumbrance or paid any obligation or liability other than in the ordinary
course of business or the Permitted Encumbrances;
(d) mortgaged, pledged or subjected to lien,
charge or other encumbrance any of the Purchased Assets except the Permitted
Encumbrances;
(e) sold or purchased, assigned or
transferred any of its tangible assets or cancelled any debts or claims, except
for transactions in the ordinary course of business;
(f) made any material amendment to or
termination of any Material Contract or done any act or omitted to do any act
which would cause the breach of any Material Contract;
(g) made any changes in compensation of its
officers or directors (other than agreeing to pay the Retention Bonuses) or,
other than in the ordinary course of business, any changes in compensation of
its employees;
(h) authorized or issued recall notices for
any of its products or initiated any safety investigations;
(i) entered into any purchase contract outside
of the ordinary course of business;
(j) received written notice of any
litigation, warranty claim, trademark infringement claim or products liability
claim;
(k) made any material change in its business
practices or its accounting practices relating thereto;
(l) suffered any material adverse
relationships or conditions with vendors or customers which would, or to the
best of Seller's knowledge, may have a material adverse effect on the financial
condition or operations of the Business or the Purchased Assets; or
(m) made any dispositions or abandonment of any
of Seller's Intellectual Property necessary to the conduct of the Business.
3.21 Customs. All goods imported into the United States
or any other country by Seller ("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, asserted or claimed with
respect to any Imported Goods, and no written inquiries relating thereto have
been received. All Imported Goods have been properly marked as to country of
origin, content and material. Seller has filed with the U.S. Customs Services
all required buying agency agreements, as applicable, with respect to Imported
Goods. Except as set forth on Schedule 3.21, Seller has not delivered to any
agents, suppliers or vendors any tools, equipment, molds, additional products or
other assistance (collectively, the "Assists") which would be considered a
dutiable assist. Schedule 3.21 sets forth a true, complete and correct list of
all Assists.
3.22 Environmental and Safety Matters. Seller's
operation of the Purchased Assets has been in material compliance with, and
Seller has complied in all material respects with all, and is not in material
violations of any, applicable United States federal, state and local laws,
ordinances, regulations and orders relating to environmental matters,
including, but not limited to, matters
14
21
related to air pollution, water pollution, noise control, on-site or off-site
hazardous substance (as defined in the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, and including any other dangerous
waste) handling, discharge, disposal or recovery, toxic or hazardous substances
or materials (whether products or waste), asbestos, PCBs, employee safety, and
transportation or shipping safety and no written notice of violation of any such
statutes, laws, ordinances, regulations and orders with respect thereto has been
received by Seller and no unwritten notice is known to officers of the Seller to
have been given, nor is any such notice threatened in writing. Seller has
obtained all material environmental permits, temporary and otherwise, required
for the lawful operation of the Business and all such permits are in full force
and effect and Seller has no reason to believe that any such permits will be
revoked, lapsed, or otherwise subject to modification.
3.23 Certain Payments. In connection with the Business,
Seller has not and no person, to the best of Seller's knowledge, directly or
indirectly on behalf of Seller has (i) made or received any payment that was
not legal to make or receive; (ii) engaged in any transaction or make or
receive any payment that was not properly recorded in Seller's books; or
(iii) created or used any "off-book" account or fund.
3.24 Disclosure. No representation or warranty by the
Seller in this Agreement or in any exhibit hereto, or in any list, statement,
document or information set forth in or attached to any schedule delivered or
to be delivered pursuant to this Agreement, except for schedules delivered
pursuant to Section 6(1) hereof, contains or will contain any untrue statement
of a material fact or omits or will omit any material fact necessary in order
to make the statements contained therein not misleading.
3.25 DRI. As of the date of hereof and from the date
hereof until the Closing, DRI has not and shall not conduct any business
except as set forth on Schedule 3.25 attached hereto.
3.26 Survival of Representations. Each representation and
warranty of the Seller set forth in this Agreement shall survive for a period of
sixteen months from the Closing Date except that the representations and
warranties contained in Sections 3.10, 3.18 and 3.19 hereof shall survive for a
period of sixteen months from the Closing Date or the applicable statue of
limitations, whichever shall be longer, and the representations and warranties
contained in Section 3.22 shall survive for a period of six (6) years from the
Closing Date or the applicable statute of limitations, whichever shall be
shorter . Each representation and warranty shall be true and correct on and as
of the Closing Date as though such representation and warranty was made again on
and as of such time.
3.27 Recalls. Except as set forth on Schedule 3.27
hereto, Seller has made no product recalls during the last three (3) years.
15
22
ARTICLE III-A
REPRESENTATIONS AND WARRANTIES OF BANK
3A. Bank's Representations and Warranties. In order to induce
Purchaser and Hanover to enter into this Agreement and to consummate the
transactions contemplated hereunder, Bank makes the following representations
and warranties:
3A.1 Corporate Existence and Qualification. Bank is a
banking corporation duly organized, validly existing and in good standing
under the laws of the State of New York, and is authorized and has the power,
corporate and otherwise, to own or lease and operate its properties and assets
and conduct its business as such business is presently conducted.
3A.2 Authority and Absence of Conflict. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Bank have been duly authorized, and no additional corporate action is
required for the approval of this Agreement, which is valid and binding upon
Bank and enforceable in accordance with its terms, subject to applicable laws
regarding bankruptcy or insolvency and to principles of equity generally. The
fulfillment of, and compliance by Bank with the terms, conditions, and
provisions hereof will not conflict with or result in a breach of any relevant
laws, the terms, conditions or provisions of its Certificate of Incorporation or
By-Laws, each as amended to date and presently in effect, or other similar
instrument affecting Bank, or cause a default under any agreement or document to
which the Bank is a party, or by which it or any of its property or assets may
be bound, which default would give any party to such agreement or document
rights against the Purchaser or Purchased Assets.
3A.3 Title to Purchased Assets. Except as may stem from
Bank's status as a shareholder and creditor of Seller, Bank has no ownership
or other right, title or interest in and to any of the Purchased Assets being
transferred to Purchaser pursuant hereto.
3A.4 Tax Matters. Bank has filed or will file when due,
and has paid or will pay when due, all consolidated tax returns required to be
filed and paid and will include Seller therein to the extent required by
applicable law.
3A.5 Absence of Certain Changes or Events. Except as
contemplated by this Agreement, since the Balance Sheet Date, Seller has not
permitted Bank to apply, and Bank has not applied, any funds from each of the
Blocked Accounts to any of Seller's obligations to Bank except for (A) the
payment of interest in the ordinary course of business under the Credit
Agreement, (B) the payment of the Revolving Loan balance, (C) the payment of
Seller's fees and expenses in connection with this transaction, or (D) the
retention by Seller of the reserve and payments described in Section 2.5,
provided, however, that, with respect to (A), (B), (C) and (D) above, after the
date hereof, Bank agrees to cause Seller to notify Purchaser in writing within
five (5) business days of each such occurrence.
3A.6 Disclosure. No representation or warranty by Bank
in this Agreement or in any exhibit hereto, or in any list, statement,
document or information set forth in or attached to any schedule delivered or
to be delivered pursuant to this Agreement, contains or will contain any untrue
16
23
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading.
3A.7 Survival of Representations. Each representation and
warranty of the Bank set forth in this Agreement shall survive for a period of
sixteen months from the Closing Date except that the representations and
warranties contained in Sections 3A.4 hereof shall survive for a period of
sixteen months from the Closing Date or the applicable statue of limitations,
whichever shall be longer. Each representation and warranty shall be true and
correct on and as of the Closing as though such representation and warranty was
made again on and as of such time.
17
24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND HANOVER
4. Purchaser's and Hanover's Representations and
Warranties. In order to induce Seller and Bank to enter into this Agreement
and consummate the transactions contemplated hereunder, Purchaser and Hanover,
severally and jointly, hereby make the following representations and warranties:
4.1 Corporate Existence and Qualification. Each of
Purchaser and Hanover is a corporation duly organized and validly existing and
in good standing under the laws of its state of incorporation, and each is
authorized and has the power, corporate and otherwise, to own or lease and
operate its respective properties and conduct its business as such are operated
or conducted. Purchaser is duly qualified to do business as a foreign
corporation and is in good standing in each other jurisdiction in which the
failure to qualify would have a material adverse affect on the operations or
financial condition of Purchaser. Purchaser has furnished to Seller true and
complete copies of its Certificate of Incorporation and By-Laws, as amended to
date and presently in effect.
4.2 Authority and Absence of Conflict. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Purchaser and Hanover have been duly authorized, and no additional
corporate action is required for the approval of this Agreement, which is valid
and binding upon Purchaser and Hanover and enforceable in accordance with its
terms, subject to applicable laws regarding bankruptcy or insolvency and to
principles of equity generally. The fulfillment of and compliance by Purchaser
and Hanover with the terms, conditions, and provisions hereof will not conflict
with or result in a breach of any relevant laws, the terms, conditions or
provisions of its Certificate of Incorporation or By-Laws, each as amended to
date and presently in effect, or other similar instrument affecting Purchaser or
Hanover or any agreement or document to which the Purchaser or Hanover is a
party or by which it or any of its property or assets may be bound, or
constitute (with or without the giving of notice or the passage of time, or
both) a default under any such instrument, agreement or document or accelerate
the maturity of or otherwise modify any obligation of Purchaser or Hanover.
4.3 Authority. Purchaser has the full power and right to
(i) execute and deliver this Agreement and any other agreement or document
contemplated hereby and consummate the transactions contemplated thereby, (ii)
purchase or otherwise acquire the Purchased Assets and (iii) assume the Assumed
Liabilities in accordance with the terms of this Agreement.
4.4 Disclosure. No representation or warranty by
Purchaser or Hanover in this Agreement or in any exhibit hereto, or in any
list, statement, document or information set forth in or attached to any
schedule delivered or to be delivered pursuant hereto, contains or will
contain any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make the statements contained therein not
misleading.
4.5 Survival of Representations. Each representation and
warranty of Purchaser and Hanover set forth in this Agreement shall survive for
a period of sixteen months from the Closing Date. Each representation and
warranty shall be true and correct on and as of the Closing as though such
representation and warranty was made again on and as of such time.
18
25
4.6 Seller's Representations. To the best of Purchaser's
and Hanover's knowledge, based solely upon the certificate of Clement attached
hereto as Exhibit D, the representations and warranties of Seller in this
Agreement and in the exhibits and schedules hereto or delivered pursuant hereto
would not, if made on and as of June 25, 1994, contain any untrue statement of a
material fact or omit any material fact necessary in order to make the
statements contained therein not misleading.
19
26
ARTICLE V
PRE-CLOSING COVENANTS OF SELLER AND BANK
5. Pre-Closing Covenants of Seller and Bank.
From and after the date hereof and until the Closing Date:
5.1 Conduct of Business. Seller shall carry on, and
Bank shall cause Seller to carry on, the Business substantially in the same
manner as is currently being conducted, including substantial compliance with
all material governmental rules and regulations and maintenance and renewal of
all governmental licenses and permits and shall not make or institute any
unusual or new business practices (which vary from Seller's ordinary course of
business) of purchase, sale, shipment or delivery, lease management,
accounting or operation, shall not ship or deliver any quantity of merchandise
in excess of normal shipment or delivery levels, except as agreed to in
writing by Purchaser. All of the property of Seller shall be used, operated,
repaired and maintained in a normal business manner consistent with past
practice. Seller shall conduct, and Bank shall cause Seller to conduct, the
Business in accordance with Seller's fiscal year 1995 business plan previously
delivered by Seller to Bank and dated July 14, 1994, as reforecast on November
30, 1994 (collectively, the "Business Plan"), a true and correct copy of which
is attached hereto as Exhibit C. Seller represents and warrants that the
Seller is executing all of the material operative steps as set forth in the
Business Plan. Purchaser and Hanover hereby agree that the Business Plan shall
not be deemed a guarantee of the results or performance set forth therein.
5.2 Absence of Material Changes. Without the prior
written consent of Purchaser, Seller shall not:
(a) take any action to amend its Certificate of
Incorporation or By-laws;
(b) issue any stock, bonds or other corporate
securities or grant any option or issue any warrant to purchase or subscribe to
any of such securities or issue any securities convertible into such securities;
(c) incur any obligation or liability
(absolute or contingent), except current liabilities incurred and obligations
under contracts entered into in the ordinary course of business;
(d) declare or make any payment or distribution
to its shareholders with respect to their stock or purchase or redeem any shares
of its capital stock;
(e) mortgage, pledge, or subject to any lien,
charge or any other encumbrance any of the Purchased Assets except for Permitted
Encumbrances;
(f) sell, assign or transfer any of the
Purchased Assets, except in the ordinary course of business;
(g) make any payments on any outstanding
indebtedness to Bank, except as contemplated by Section 3.20(b) hereof;
(h) cancel any material debts or claims, except
in the ordinary course of business;
(i) merge or consolidate with or into any
corporation or other entity;
(j) waive any rights of material value relating
to the Purchased Contracts;
(k) materially modify, amend, alter or
terminate any of the Material Contracts, or take or permit any act or omission
constituting a breach or default under any such Material Contract;
20
27
(l) place any new purchase orders for Purchased
Inventory which exceed One Hundred Thousand Dollars ($100,000) or which are
other than in the ordinary course of business;
(m) fail to (i) preserve the possession and
control of the Purchased Assets and Business, (ii) use its best efforts to
preserve the goodwill of its customers, suppliers, agents and others having
business relations with it, or (iii) use its best efforts to keep and preserve
the Business until the Closing Date, in each case within the ordinary course of
business, recognizing that it is the intention of the parties that sufficient
quantities of Purchased Inventory shall continue to be ordered to maintain the
Business as an ongoing business following the Closing as contemplated by the
Business Plan;
(n) fail to materially maintain its books,
accounts and records in the customary manner and in the ordinary and regular
course of business and maintain in accordance with past practice its business
premises, fixtures, machinery, furniture and equipment;
(o) enter into any leases, contracts,
agreements or understandings other than those entered into in the ordinary
course of business; or
(p) reduce the coverage amounts with respect to
any Insurance Policies.
5.3 Taxes. Seller shall, on a timely basis, file all tax
returns and pay any and all taxes which shall become due or shall have accrued
(i) on account of the operation of the Business or the ownership of the
Purchased Assets on or prior to the Closing Date or (ii) on account of the sale
to Purchaser of the Purchased Assets by Seller, except with regard to sales
taxes related to such sale, which shall be the obligation of Purchaser. Bank
agrees to cause the timely filing of all such returns and payment of all such
taxes.
5.4 Communication with Customers and Suppliers. Seller
shall accept customer orders, and subject to Section 5.2(l) hereof,
place purchase orders for Purchased Inventory with suppliers in the ordinary
course of business consistent with past practice for all Purchased Inventory
offered by Seller but expected to be shipped or sold by Purchaser after the
Closing Date. Seller shall cooperate with Purchaser in communication with
suppliers and customers to accomplish the transfer of the Purchased Assets to
Purchaser on the Closing Date. At all times prior to the Closing, Seller shall
inform Purchaser if any supplier listed in Schedule 3.17 has notified Seller of
its intention to discontinue its relationship with Seller, provided, however,
Seller's failure to inform Purchaser shall not be a basis for termination of
this Agreement unless such failure to inform or loss has a material adverse
effect on the Business.
5.5 Compliance with Laws. Seller shall comply in all
material respects with all laws and regulations which are applicable to it,
its ownership of the Purchased Assets or to the conduct of the Business and
will perform and comply in all material respects with the Purchased Contracts.
5.6 Continued Truth of Representations and Warranties.
Seller and Bank will not take any actions which would result in any of the
representations, warranties, covenants and agreements set forth in this
Agreement to be untrue, incorrect or unsatisfied in any material respect at any
time.
21
28
5.7 Continuing Obligation to Inform. From time to time
prior to Closing, Seller and Bank shall promptly deliver or cause to be
delivered to Purchaser supplemental information concerning events subsequent
to the date hereof which would render any statement, representation or warranty
in this Agreement or any information contained in any Schedule inaccurate or
incomplete in any material respect at any time after the date hereof until the
Closing Date.
5.8 Exclusive Dealing. Seller and Bank will not,
directly or indirectly, through any officer, director, agent or otherwise
(a) solicit, initiate or encourage submission of proposals or offers from any
person relating to any acquisition or purchase of all or a material portion of
the Purchased Assets, or any equity interest in Seller or any equity
investment, merger, consolidation or business combination with Seller, or
(b) participate or authorize, directly or indirectly, any other person to
participate in any negotiations with third parties regarding any of the
foregoing, provided, however, that the notice or any information given to or
negotiations or dealings with Andrew N. Heine, Spencer M. Partrich, and Mickey
Shapiro (collectively, the "Individuals") in connection with such Individuals'
right of first refusal as set forth in the Restructuring Agreement shall not
be considered to be a violation of this Agreement. In addition, Seller and Bank
shall be entitled to provide any of the Individuals with a copy of this
Agreement provided that any such Individual is subject to a confidentiality
agreement which requires such Individuals to maintain the confidentiality of
this transaction in accordance with Article X hereof prior to such Individuals'
receipt of this Agreement.
5.9 Employees. Subject to Section 2.5, Seller shall be
solely responsible for payment of all compensation, payroll and unemployment
taxes, and other costs payable to, or accrued in respect of, all of Seller's
employees up to and including the Closing Date and payment of the Retention
Bonuses (collectively, the "Employee Obligations"). Bank shall cause Seller to
comply with this Section 5.9.
5.10 Estoppel Certificates. Prior to Closing, Seller shall
obtain estoppel certificates from each contracting party to a Material Contract
set forth on Schedule 5.10, and from each lessor under a Lease, consenting to
the assumption of such contracts and leases by Purchaser and acknowledging that
there are no outstanding claims against Seller or Bank under such leases.
5.11 Information to Purchaser. Prior to Closing, Seller
shall inform Purchaser if it has suffered any losses after the date hereof,
whether insured or uninsured, and whether or not in control of Seller, in
excess of Ten Thousand Dollars ($10,000) in the aggregate, or waived any
rights of any value.
5.12 Break-Up Fee. In the event that Seller or Bank
accepts any Individual's exercise of the right of first refusal under the
Restructuring Agreement, Seller shall pay to Purchaser One Hundred Thousand
Dollars ($100,000)(the "Break-Up Fee") as hereinafter provided. Within five
(5) days of such acceptance, the Break-Up Fee shall be placed into escrow at
Bank by Seller and such Break-Up Fee will automatically be released to
Purchaser upon the earliest of (i) the consummation of the sale of the stock
or assets of Seller to any Individual, (ii) March 1, 1995, or (iii) forty-two
(42) days after receipt by the Bank of any Individual's exercise of the right
of first refusal under the Restructuring Agreement. The Bank and Seller agree
to accept or reject any proposed exercise of the right of first refusal from
any Individual within seven (7) days from the date of the receipt by Bank of
such notice of exercise of the right of first refusal by such Individual. It
is understood and agreed that the payment of the Break-Up Fee shall be the
sole and exclusive remedy of Purchaser and Hanover for
22
29
such sale to the Individual(s) pursuant to the terms of the
Restructuring Agreement. This Section 5.12 shall not expire upon any termination
of this Agreement. Notwithstanding anything herein to the contrary, in the event
that the sale of the Purchased Assets to Purchaser between the parties hereto is
consummated, the Break-Up Fee shall not be payable to Purchaser.
5.13 Notification of Sale to the Individuals. Seller and
Bank shall promptly notify Purchaser of any objection to the completion of the
transactions contemplated hereunder made to Seller, Bank or any of their
representatives by the Individuals, in writing or, if other than in writing,
shall use their reasonable business efforts to notify Purchaser promptly.
23
30
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER
6. Conditions to Obligations of Purchaser.
The obligations of Purchaser under this Agreement are, at the option of
Purchaser, subject to the conditions that, at or before the Closing Date:
(a) All the terms, covenants and conditions
of this Agreement to be complied with and performed by Seller and Bank on or
before the Closing Date shall have been duly complied with and performed in all
material respects;
(b) The representations and warranties made
by Seller and Bank herein shall be correct in all material respects, as of the
Closing Date, with the same force and effect as though such representations and
warranties had been made as of the Closing Date;
(c) The Boards of Directors and shareholders
of Seller shall have voted to authorize this Agreement and the transactions
herein contemplated and the Secretary of Seller shall have delivered to
Purchaser a certified copy of the resolutions of its Boards of Directors and
shareholders to such effect;
(d) The property, business, operations or
prospects of the Seller shall not have been materially adversely affected in any
manner, the determination of such material adverse change to be in the
Purchaser's sole reasonable discretion exercised in good faith in a commercially
reasonable manner in accordance with Hanover's current business practices;
(e) Seller shall have delivered to Purchaser
a certificate executed by Seller's Chief Financial Officer, dated as of the
Closing Date, to the effect that the conditions set forth in Sections 6(a), 6(b)
and 6(c) have been satisfied (but only with respect to Seller's representations,
warranties and covenants);
(f) Bank shall have delivered to Purchaser a
certificate executed by a Managing Director of Bank, dated as of the Closing
Date, to the effect that the conditions set forth in Sections 6(a) and 6(b) have
been satisfied (but only with respect to Bank's representations, warranties and
covenants);
(g) Purchaser shall have received an
opinion of Latham & Watkins, counsel to Seller (or such other counsel as shall
be reasonably satisfactory to Purchaser), dated the Closing Date, in form and
substance reasonably satisfactory to Purchaser;
(h) All corporate and other proceedings
required to be taken on the part of Seller and Bank to authorize or carry out
this Agreement shall have been taken;
(i) Seller and Bank shall have obtained all
consents or approvals of all third parties set forth in Schedule 5.10 hereto in
order for Seller and Bank to consummate the transactions contemplated by this
Agreement;
(j) No action by any third party (other than by
the Individuals) shall have been made which would materially interfere with the
Purchaser's conduct of the Business;
(k) Except for the Permitted Encumbrances, at
the Closing, Purchaser shall receive good, clear, record and marketable title to
the Purchased Assets, free and clear of all liens, liabilities, security
interests and encumbrances of any nature whatsoever;
(l) Seller will use its reasonable efforts to
provide Purchaser with a list and amount (which list shall be prepared to the
best of the Seller's knowledge), as of the close of business on January 13,
1995, of
(1) the Purchased Inventory (by
classification);
(2) a summary of the Accounts
Receivable, including an aging of trade receivables;
(3) open purchase orders;
24
31
(4) the Purchased Contracts;
(5) the Fixed Assets;
(6) accounts payable; and
(7) accrued expenses.
(m) Seller shall have delivered to Purchaser a
Phase I environmenal study which shall not reflect a material adverse
environmental condition as determined by Purchaser in its sole discretion
exercised in good faith in a commercially reasonable manner;
(n) Purchaser shall have received at or prior to
the Closing each of the following documents:
(i) a bill of sale substantially in the
form attached hereto as Exhibit F;
(ii) assignments of all Intellectual
Property, except as set forth on Schedule 6(n)(ii) attached hereto, in such
forms as are satisfactory to Purchaser, which shall include original
certificates of registration (whether United States or foreign);
(iii) such other instruments of
conveyance, assignment, sublease, sublicense and transfer, in form and
substance satisfactory to Purchaser, as shall be appropriate to convey,
transfer and assign to, and to vest in Purchaser, good, clear, record and
marketable title to the Purchased Assets;
(iv) copies of such contracts, files and
other data and documents pertaining to the Purchased Assets or the Business, in
addition to the Purchased Records, as the Purchaser may reasonably request;
(v) a certificate of the Secretary of
State of the States of Ohio and Minnesota as to the legal existence and good
standing (including tax) of Leichtung and DRI in Ohio and Minnesota,
respectively;
(vi) a certificate of good standing of
Leichtung as a foreign corporation in the State of Michigan;
(vii) a certificate of the Secretary of
Seller attesting to the incumbency of the Seller's officers, the authenticity
of the resolutions authorizing the transactions contemplated by the Agreement,
and the authenticity and continuing validity of the charter documents delivered
pursuant to Section 3.1;
(viii) a certificate of an authorized
officer of the Bank attesting to the incumbency and authority of the Bank's
signatory(ies) hereto;
(ix) any estoppel certificates obtained
by Seller pursuant to Section 5.10 hereof;
(x) a list of all employees of Seller
and certain information relating thereto;
(xi) a cross-receipt executed by
Purchaser and Seller;
(xii) UCC-3 termination statements
executed by Bank terminating all currently effective financing statements held
by Bank on the assets of Seller; and
(xiii) such other documents, instruments
or certificates as Purchaser may reasonably request; and
(o) Seller will use its reasonable efforts to
cooperate with Purchaser in its undertaking of a physical inspection of the
inventory during the 72 hours prior to the Closing;
(p) On or before December 15, 1994, Seller shall
have delivered to Purchaser a true and materially complete and correct list of
all Intellectual Property owned or used by Seller;
25
32
(q) Seller shall deliver to Purchaser executed
instruction letters to FDC, Abacus, R.R. Donnelley & Company and Safe-Site
(collectively, the "Managers") instructing the Managers that Purchaser is the
new owner of all Customer Lists, Records, Intellectual Property and other
assets as may be kept at the Managers' locations; and
(r) All proceedings taken by Seller and all
instruments executed and delivered by Seller on or prior to the Closing Date in
connection with the transactions herein contemplated shall be approved as to
both form and substance by counsel for Purchaser, which approval shall not be
unreasonably withheld.
26
33
ARTICLE VII
CONDITIONS TO OBLIGATION OF SELLER
7. Conditions to Obligations of Seller.
The obligations of Seller under this Agreement are, at the
option of Seller, subject to the conditions that, at or before the Closing
Date:
(a) All the terms, covenants and conditions of
this Agreement to be complied with and performed by Purchaser and Hanover on or
before the Closing Date shall have been duly complied with and performed in all
material respects;
(b) The representations and warranties made by
Purchaser and Hanover herein shall be correct in all material respects, as of
the Closing Date, with the same force and effect as though such representations
and warranties had been made as of the Closing Date;
(c) The Boards of Directors of Purchaser and
Hanover shall have voted to authorize this Agreement and the transactions
herein contemplated and the Secretary of Purchaser shall have delivered a
certified copy of the resolutions of the Board of Directors to such effect;
(d) Purchaser and Hanover shall have delivered
to Seller a certificate executed by Purchaser's and Hanover's Executive Vice
President, respectively, dated as of the Closing Date, to the effect that the
conditions set forth in Sections 7(a), 7(b) and 7(c) have been satisfied;
(e) Seller shall have received an opinion of the
Executive Vice President and General Counsel to Purchaser and Hanover, in form
and substance reasonably satisfactory to Seller;
(f) All corporate and other proceedings required
to be taken on the part of Purchaser and Hanover to authorize or carry out this
Agreement shall have been taken;
(g) Purchaser and Hanover shall have obtained
all consents or approvals of the third parties set forth in Schedule 7(g)
hereto in order for Purchaser to consummate the transactions contemplated by
this Agreement;
(h) Seller shall have received each of the
following:
(1) a certificate of each of the
Secretary of Purchaser and Hanover attesting to the incumbency of Purchaser's
and Hanover's officers and the authenticity of the resolutions authorizing the
transactions contemplated by this Agreement;
(2) the Instrument of Assumption of
Liabilities (as set forth on Exhibit A) executed by Purchaser and accepted by
Seller;
(3) payment of the cash portion of the
Purchase Price;
(4) cross-receipt executed by Purchaser
and Seller;
(5) payment of the outstanding balance
of the Revolving Loan, if any; and
(6) such other documents, instruments
or certificates as Seller may reasonably request.
(i) All proceedings taken by Purchaser and
Hanover and all instruments executed and delivered by Purchaser and Hanover on
or prior to the Closing Date in connection with the transactions herein
contemplated shall be approved as to form and substance by counsel for Seller,
which approval shall not be unreasonably withheld; and
(j) Bank shall have received from Clement, on or
prior to the Closing (i) his consent, acknowledgement and agreement to this
Agreement, (ii) his release and discharge of Bank and Seller from any claims
Clement may have, ever had or now has against Bank and Seller, directly or
indirectly arising out of or in any way relating to his employment by Seller,
his ownership
27
34
of stock of Seller, this Agreement and the transactions contemplated hereby,
and (iii) his stock certificate(s) evidencing his ownership of stock of
Seller. Hanover agrees to cause Clement to deliver the documents referred to
herein.
28
35
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF EACH PARTY
8. Conditions to Obligations of Each Party.
The respective obligations of Seller, Bank, Purchaser and
Hanover hereunder are subject to the fulfillment, on and as of the Closing
Date, of each of the following conditions:
8.1 Illegality or Legal Constraint. No statute, rule,
regulation, executive order, decree, injunction or restraining order shall have
been enacted, promulgated, entered or enforced (and not repealed, superseded or
otherwise made inapplicable) by any court or governmental authority which
prohibits the consummation of the transactions contemplated hereby (each party
agreeing to use its reasonable best efforts to have any such order, decree or
injunction lifted). No action or proceeding by or before any court or other
governmental body shall have been instituted or threatened in writing by any
governmental body whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might
materially interfere with Purchaser's ability to own or use the Purchased
Assets or conduct the Business after the Closing.
8.2 Governmental Authorizations. There shall have been
obtained any and all governmental authorizations, permits, and approvals of any
governmental body or agency, that may reasonably be deemed necessary so that
the consummation of the transactions contemplated hereby will be in compliance
with applicable laws.
8.3 Cooperation. The parties hereto agree to cooperate
with each other and use their reasonable best efforts to satisfy all of the
conditions to Closing as promptly as practicable and, in any event, by no later
than January 17, 1995.
29
36
ARTICLE IX
INDEMNIFICATION
9. Indemnification.
9.1 Survival of Representations and Warranties.
Purchaser and Hanover and Seller and Bank agree that their respective
representations and warranties contained in this Agreement shall survive for a
period of sixteen months from the Closing Date, except that the representations
and warranties contained in Sections 3.10, 3.18, 3.19 and 3A.4 hereof shall
survive for a period of sixteen months from the Closing Date or the applicable
statute of limitations, whichever shall be longer, and the representations and
warranties contained in Section 3.22 shall survive for a period of six (6)
years from the Closing Date or the applicable statute of limitations, whichever
shall be shorter (the applicable period of survival of any representation or
warranty being referred to herein as the "Limitation Period"). No claim shall
be made by any party for breach of any representation or warranty unless (i)
pursuant to the indemnification provisions set forth in this Article IX and
(ii) notice thereof is given prior to the end of the applicable Limitation
Period. Bank and Seller shall be liable for the accuracy of any
representation or warranty made by either of them and contained in this
Agreement and/or any exhibit, schedule or certificate provided for herein.
Hanover and Purchaser shall be liable for the accuracy of any representation or
warranty made by either of them and contained in this Agreement and/or any
exhibit, schedule or certificate provided for herein.
9.2 Indemnification by Seller and Bank. Seller and Bank,
jointly and severally, agree to save, defend and indemnify Purchaser and
Hanover and their respective officers, directors, employees, affiliates,
agents, representatives, principals and associates (individually, a "Purchaser
Indemnitee" and collectively, the "Purchaser Indemnitees") against, and hold
each of them harmless from, any and all Damages (as defined in Section 13.13),
arising from or on account of (i) subject to Section 9.1, any breach of any
representation, warranty or covenant by Seller or Bank contained in this
Agreement, or any material misrepresentation by Seller or Bank in any exhibit,
schedule or certificate provided for herein, (ii) any employment action
asserted by any current or former employee of Seller (except with respect to
any employment action by Clement) against Purchaser or Hanover including,
without limitation, any claims for lost wages or benefits (including severance
pay), wrongful termination, breach of a covenant of good faith and fair
dealing, negligent or intentional infliction of emotional distress or
employment discrimination, resulting from or arising out of the employment or
the termination of employment of such employee by Seller, (iii) any litigation
against the Seller or the Business arising prior to the Closing and not in the
ordinary course of business unless set forth in Schedule 3.16 hereto, (iv) any
sales tax (other than sales taxes payable, if any, with respect to the sale of
the Purchased Assets to Purchaser, which shall be Purchaser's responsibility)
or other taxes, penalties or interest, fixed or contingent or, in each case,
now due or hereafter arising which are attributable to Seller's operation of
the Business prior to Closing, (v) any of Bank's actions as a director,
shareholder or creditor of Seller, including, without limitation, as signatory
to any agreements to which Bank is a party in any such capacity or any rights
or causes of action which may arise therefrom, (vi) the intercompany
receivable and deferred tax item retained by Seller as contemplated by Section
1.1(c), or (vii) any liability arising out of any provision of the consolidated
return regulations which is imposed upon Purchaser or Hanover for periods prior
to the Closing based upon taxes owed by any member of Bank's consolidated
return group (including, with regard to all of the foregoing, without
limitation, reasonable counsel fees and expenses in connection with any action,
claim or proceeding relating
30
37
to such liabilities) except as such claims shall arise from the fraudulent acts
or fraudulent omissions of Purchaser. Any claim for indemnification pursuant
to this Section 9.2 shall be made in accordance with the procedures set forth
in Sections 9.4 hereof. Except as set forth in this Article IX, the
indemnification obligations of Bank and Seller set forth herein shall not be
effective until such time as Purchaser or Hanover in the aggregate has
incurred, or received a claim in the excess of, Damages in excess of $100,000
(the "Threshold"), at which time, Seller and Bank, jointly and severally,
shall be responsible for payment to Purchaser and Hanover of all such amounts
in excess of $50,000. In no event shall Seller's and Bank's indemnification
obligation exceed, in the aggregate, the amount of the cash portion of the
Purchase Price.
9.3 Indemnification by Purchaser and Hanover. Purchaser
and Hanover, jointly and severally, agree to save, defend and indemnify Seller
and Bank, and their respective officers, directors, employees, affiliates,
agents, representatives, principals and associates (individually, a "Seller
Indemnitee" and collectively, the "Seller Indemnitees") against, and hold each
of them harmless from, any and all Damages arising from or on account of (i)
the Assumed Liabilities , (ii) any liability stemming from the failure to make
any potentially required filing for this transaction under the Hart Scott
Rodino Act, as amended, (iii) sales taxes, if any, incurred in connection with
this transaction, or (iv) subject to Section 9.1, any breach of any
representation, warranty or covenant by Purchaser or Hanover contained in this
Agreement (including, with regard to all of the foregoing, without limitation,
reasonable counsel fees and expenses in connection with any action, claim or
proceeding relating to such liabilities) except as such claims shall arise from
the fraudulent acts or fraudulent omissions of Seller or Bank. Any claim for
indemnification pursuant to this Section 9.3 shall be made in accordance with
the procedures set forth in Section 9.4 hereof.
9.4 Procedure for Indemnification with Respect to
Third-Party Claims.
(a) If any Purchaser Indemnitee or Seller
Indemnitee seeks indemnification for any claim (each, an "Indemnifiable Claim")
under this Article IX (the party seeking such indemnification, whether a
Purchaser Indemnitee pursuant to Section 9.2 hereof or a Seller Indemnitee
pursuant to Section 9.3 hereof, shall be referred to herein as the "Indemnified
Party" and the party against whom such indemnification is sought shall be
referred to herein as the "Indemnifying Party") resulting from the assertion of
liability by third parties, the Indemnified Party shall give notice to the
Indemnifying Party within thirty (30) days of the Indemnified Party becoming
aware of any such Indemnifiable Claim or of facts upon which any such
Indemnifiable Claim will be based. Such notice shall set forth such material
information with respect thereto as is then reasonably available to the
Indemnified Party. In case any such liability is asserted against the
Indemnified Party, and the Indemnified Party notifies the Indemnifying Party
thereof, the Indemnifying Party will be entitled, if it so elects by written
notice delivered to the Indemnified Party within twenty (20) days after
receiving the Indemnified Party's notice, to assume the defense thereof (with
counsel selected by the Indemnifying Party, which counsel may also be counsel
to the Indemnifying Party unless a material conflict of interest would thereby
arise). Notwithstanding the foregoing, the rights of the Indemnified Party to
be indemnified hereunder in respect of Indemnifiable Claims resulting from the
assertion of liability by third parties shall not be adversely affected by its
failure to give notice pursuant to the foregoing unless and, if so, only to the
extent that, the Indemnifying Party is prejudiced thereby. With respect to any
assertion of liability by a third party that results in an Indemnifiable Claim
the parties hereto shall make available to each other all relevant information
in their possession material to any such assertion.
31
38
(b) In the event that the Indemnifying Party,
within twenty (20) days after receipt of the aforesaid notice of an
Indemnifiable Claim, fails to assume the defense of the Indemnified Party
against such Indemnifiable Claim, the Indemnified Party shall have the right to
undertake the defense, compromise or settlement of such action on behalf of and
for the account and risk of the Indemnifying Party.
(c) Notwithstanding anything in this Section 9.4
to the contrary (i) if there is a reasonable probability that an Indemnifiable
Claim may materially and adversely affect the Indemnified Party, other than as
a result of money damages or other money payments, the Indemnified Party shall
have the right to participate at its own expense in such defense, compromise or
settlement and the Indemnifying Party shall not, without the Indemnified
Party's written consent (which consent shall not be unreasonably withheld),
settle or compromise any Indemnifiable Claim or consent to entry of any
judgement in respect thereof unless such settlement, compromise or consent
includes as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such Indemnifiable Claim.
9.5 Bulk Sales Waiver and Indemnification. In addition
to any other rights that Purchaser and Hanover may have pursuant to this
Agreement or otherwise, Bank hereby agrees to indemnify, defend and hold
Purchaser and Hanover harmless for all Damages as a result of Bank's, Seller's
or DRI's failure to comply with any bulk sales transfer laws other than any
Damages arising from Purchaser's failure to pay the Assumed Liabilities. Bank
acknowledges that Purchaser and Hanover have waived Bank's and Seller's
compliance with bulk sales transfer laws in reliance upon Bank's obligation to
fully indemnify Purchaser and Hanover, within thirty (30) days of any claim, of
all liabilities relating to such non-compliance. Bank's indemnification
obligation pursuant to this Section 9.5 shall not be subject to reaching the
Threshold in order for Purchaser and Hanover to receive such indemnification
reimbursement.
9.6 Break-Up Fee Indemnification. Bank's and Seller's
indemnification obligation for any breach of Section 5.12 shall survive any
termination of this Agreement and shall not be subject to reaching the
Threshold in order for Purchaser and Hanover to receive such indemnification
reimbursement.
32
39
ARTICLE X
CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
10. Confidentiality and Public Announcements
10.1 Confidentiality. All information not previously
disclosed to the public or generally known to persons engaged in the respective
businesses of Seller, Bank, Purchaser or Hanover which shall have been
furnished by Seller, Bank, Purchaser or Hanover to the other party in
connection with the transactions contemplated hereby shall not be disclosed to
any person other than their respective employees, directors, attorneys,
accountants or financial advisors or other than as contemplated herein. In the
event that the transactions contemplated by this Agreement shall not be
consummated, all such information which shall be in writing shall be returned
to the party furnishing the same, including, to the extent reasonably
practicable, all copies or reproductions thereof which may have been prepared,
and no party shall at any time thereafter disclose to third parties, or use,
directly or indirectly, for its own benefit, any such information, written or
oral, about the business of the other party hereto. Purchaser and Hanover
understand and agree that the provisions of this Section 10.1 shall not include
the disclosures to the Individuals as described in Section 5.8 hereto.
10.2 Public Announcements. The parties agree that, prior
to and upon the Closing Date, except as otherwise required by law, any and all
public announcements or other public communications concerning this Agreement
and the purchase of the Purchased Assets by Purchaser shall be subject to the
approval of all parties, which approval shall not be unreasonably withheld.
33
40
ARTICLE XI
POST-CLOSING AGREEMENTS
11. Post-Closing Agreements
11.1 Use of Name. Seller and Bank agree not to use the
name "Leichtung", "Leichtung Workshop", "Improvements", "Pastimes" or any
other Intellectual Property or any derivations thereof after the Closing Date
in connection with any business related to, competitive with, or an outgrowth
of, the Business. Seller also agrees to change its corporate name immediately
after the Closing to a name which does not include any names of the
Intellectual Property.
11.2 Injunctive Relief. Seller and Purchaser acknowledge
and agree that their respective remedies at law for any breach of their
respective obligations under this Article XI would be inadequate, and agree and
consent that temporary and permanent injunctive relief may be granted in a
proceeding which may be brought to enforce any provision of this Article XI
without the necessity of proof of actual damage.
11.3 Transition.
(a) Purchaser shall not assume any obligation of
Seller or Bank with respect to liabilities relating to the Employee
Obligations.
(b) Purchaser and Seller agree to use their best
efforts to support the transition of the Business from Seller to Purchaser,
including without limitation, cooperation between Seller's personnel and
Purchaser's personnel to help assure an orderly transition of the Business,
customer accounts and the use of existing data processing systems.
(c) Purchaser shall offer continued employment to
all of Seller's employees under terms and conditions established by Purchaser
which shall not be materially different from those previously provided by
Seller to such employees.
11.4 Other Provision. Seller shall transfer to Purchaser,
as of the Closing Date and to the extent allowable by regulation, all of
Seller's right, title and interest in and to the telephone numbers used by the
Business.
11.5 Tax Filings. Seller shall file such forms and make
such payments, and Bank shall cause Seller to do the same, as shall be required
by law, with any federal, state, local or regulatory agency with respect to
payroll taxes and sales taxes to bring Seller's filings and payments current to
the Closing Date.
34
41
ARTICLE XII
TERMINATION
12. Termination of Agreement.
12.1 Termination by Lapse of Time. Either party may
terminate this Agreement any time after the earlier of (i) 5:00 p.m., New York
Time, on January 30, 1995 if the transactions contemplated hereby have not been
consummated and the Seller or the Bank has not accepted the exercise of the
right of first refusal by any Individual under the Restructuring Agreement, or
(ii) in the event that Seller or Bank has accepted the exercise of the right of
first refusal by any Individual under the Restructuring Agreement, then the
earlier of (A) March 1, 1995, or (B) forty-two (42) days after the receipt of
the exercise of the right of first refusal by any Individual under the
Restructuring Agreement. This Agreement shall automatically terminate upon the
closing of any transactions stemming from (ii) above.
12.2 Termination by Agreement of the Parties. This
Agreement may be terminated by the mutual written agreement of the parties
hereto. In the event of such termination by agreement, Purchaser shall have no
further obligation or liability to Seller under this Agreement, and Seller
shall have no further obligations or liability to Purchaser under this
Agreement, except as to Article IX to the extent necessary to the continuing
enforcement of the other surviving provisions hereof. If this Agreement is
terminated as provided in this Article XII:
(a) each party shall redeliver all documents,
work papers and other material of the other party relating to the transaction
contemplated hereby, whether so obtained before or after the execution hereof,
to the party furnishing the same; and
(b) Seller and Purchaser shall not disclose, and
shall use their best efforts to prevent their respective directors, officers,
employees, affiliates, attorneys, agents or representatives from disclosing,
any information furnished by either party in connection with the business,
assets and operation of the other party to any third party.
35
42
ARTICLE XIII
MISCELLANEOUS
13. Miscellaneous.
13.1 Definitions. The following terms are defined in
the Section of this Agreement referenced below:
Defined Term Reference
------------ ---------
Accounts Receivable Section 1.1(b)
Agreement Introduction
Assists Section 3.21
Assumed Liabilities Section 1.2(a)
Balance Sheet Date Section 1.2(a)(i)
Bank Introduction
Blocked Account Section 3.20
Break-Up Fee Section 5.12
Business Recitals
Business Plan Section 5.1
Cash Section 1.1(b)
Clement Section 1.2(a)(viii)
Clement's Release Section 2.2
Closing Balance Sheet Section 3.5(a)
Closing Section 2.2
Closing Date Section 2.2
Code Section 3.18(b)
Credit Agreement Section 1.2(b)(ii)
Current Financial Statements Section 3.5(a)
Customer Lists Section 1.1(e)
Damages Section 13.13
DRI Introduction
Employee Obligations Section 5.9
Employee Plans Section 3.18(a)
Encumbrances Section 3.4
Equipment Leases Section 3.9(b)
ERISA Section 3.18(a)
Financial Statements Section 3.5(a)
Fixed Assets Section 1.1(h)
GAAP Section 3.5(a)
Governmental Licenses and Permits Section 1.1(j)
Hanover Introduction
Imported Goods Section 3.21
Indemnifiable Claims Section 9.4(a)
Indemnified Party Section 9.4(a)
Indemnifying Party Section 9.4(a)
Individuals Section 5.8
36
43
Insurance Policies Section 3.7
Instrument of Assumption Section 1.2(a)
Intellectual Property Section 1.1(k)
Leases Section 3.9
Leichtung Introduction
Limitation Period Section 9.1
Managers Section 6(q)
Material Contracts Section 1.1(d)
Multiemployer Plan Section 3.18(b)
Other Assets Section 3.4
Owned Assets Section 3.4
Permitted Encumbrances Section 3.4
Purchase Price Section 2.1
Purchased Assets Section 1.1
Purchased Contracts Section 1.1(d)
Purchased Inventory Section 1.1(a)
Purchased Prepaid Items Section 1.1(c)
Purchased Records Section 1.1(e)
Purchaser Introduction
Purchaser Indemnitees Section 9.2
Restructuring Agreement Section 1.2(b)(ii)
Retention Bonuses Section 1.2(b)(ix)
Revolving Loan Section 2.1
Seller Introduction
Seller Indemnitees Section 9.3
Subsidiaries Section 3.2
Threshold Section 9.2
Year End Balance Sheet Section 1.2(a)(i)
Year End Financial Statements Section 3.5(a)
13.2 Expenses. Purchaser and Seller, respectively, shall
each pay all costs and expenses of their performance of and compliance with all
terms and conditions contained in this Agreement on their respective parts to
be complied with or performed.
13.3 Brokers. Seller and Purchaser each represents and
warrants to the other that it has not dealt, directly or indirectly, with any
broker of finder in connection with this Agreement or any of the transactions
contemplated by this Agreement.
13.4 Amendment and Waiver. This Agreement may not be
altered, amended, modified or terminated, except in writing and signed by the
parties hereto. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect its right at a
later time to enforce the same.
13.5 Successors and Assigns. All of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the successors and assigns of Purchaser and Seller.
37
44
13.6 Notices. All notices, requests, demands, or other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally, by facsimile and confirmed in writing, or
by United States first class mail, postage prepaid, registered or certified,
return receipt requested, addressed as follows:
a) If to Seller to:
Leichtung, Inc.
c/o Bankers Trust Company
280 Park Avenue
New York, New York 10017
Attention: Carl O. Roark
With a copy to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Robert J. Rosenberg, Esq.
Or at such other address as Seller may have furnished to Purchaser in writing.
b) If to Purchaser, to:
LWI Holdings, Inc.
c/o Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman, Esq.
Telecopier: (201) 392-5005
With a copy to:
Hanover Direct, Inc.
1500 Harbor Boulevard
New York, New York 07087
Attention: Michael P. Sherman, Esq.
or at such other address as Purchaser may have furnished to Seller in writing.
13.7 Entire Understanding. This Agreement sets forth the
entire agreement and understanding of the parties in respect of the
transactions contemplated hereby and supersedes all prior agreements,
arrangements and understandings relating to the subject matter hereof.
13.8 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
38
45
13.9 Headings. The headings preceding the text of
Sections of this Agreement are for convenience only and shall not be deemed
part of this Agreement.
13.10 Applicable Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of New York
for agreements executed and to be performed entirely within the State of New
York without regard to the conflicts of laws principles of such jurisdiction.
The parties hereto agree to submit to the exclusive jurisdiction of the federal
courts located in the State of New York and hereby waive any objection based on
venue or forum non-conveniences with respect to any action instituted thereby.
13.11 Invalidity. Should any of the obligations under this
Agreement be found illegal or unenforceable in any respect, such illegality or
unenforceability shall not affect the other provisions of this Agreement, all
of which shall remain enforceable in accordance with their terms. Despite the
preceding sentence, should any of the obligations under this Agreement be found
illegal or unenforceable because it is too broad with respect to duration,
geographical scope or subject matter, such obligation shall be deemed and
construed to be reduced to the maximum duration, geographical scope and subject
matter allowed under applicable law.
13.12 No Waiver. The failure of any party to enforce any
of the provisions hereof shall not be construed to be a waiver of the right of
such party thereafter to enforce such provisions.
13.13 Construction of Agreement; Damages; Knowledge. A
reference to an Article, Section, Schedule or Exhibit shall mean an Article of,
a Section in, or Schedule or Exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference
purposes only and shall not in any manner limit the construction of this
Agreement which shall be considered as a whole. The words "include",
"includes," and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." For the purposes of this
Agreement, "Damages", means any loss, liability, damage, cost or expense,
including without limitation, reasonable costs of defense and prosecution of
litigation and counsel fees, net of any insurance proceeds which are recovered
by, or available to the respective party without restriction and arise out of
such loss, liability, damage, cost or expense. For purposes of this Agreement,
and except as provided in the following sentence, the terms "known" or
"knowledge," when used in reference to a corporation means the knowledge of the
executive officers of such corporation after such officers shall have made
diligent inquiry under the circumstances to which reference is made, and when
used in reference to an individual means the actual knowledge of such
individual after the individual shall have made inquiry that is customary and
appropriate under the circumstances.
13.14 Absence of Third Party Beneficiary Rights. Except as
specifically set forth in Article XIII hereof, no provision of this Agreement
is intended, nor will be interpreted, to provide any third party beneficiary
rights or any other rights of any kind in any client, customer, affiliate,
stockholder, employee, partner or any party hereto or any other person or
entity and all provisions hereof will be personal solely between the parties
to this Agreement.
13.15 Mutual Drafting. This Agreement is the joint product
of the parties hereto, and each provision thereof has been subject to the
mutual consultation, negotiation and agreement of such parties, and shall not
be construed for or against any party hereto.
39
46
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized, all as
of the date and year first above written.
HANOVER DIRECT, INC.
a Delaware corporation
By: ______________________________
Title: ______________________________
LWI HOLDINGS, INC.
a Delaware corporation
By: ______________________________
Title: ______________________________
BANKERS TRUST COMPANY
a New York banking corporation
By: ______________________________
Title: ______________________________
LEICHTUNG, INC.
an Ohio corporation
By: ______________________________
Title: ______________________________
DRI INDUSTRIES, INC.
an Ohio corporation
By: ______________________________
Title: ______________________________
40