Exhibit 10.11
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is made as of the 14th day of
August, 1998, by and among Dover Saddlery, Inc., a Delaware corporation
("Buyer") and James F. Powers, David J. Powers and Michele R. Powers
(collectively, the "Sellers" and individually a "Seller"), being all of the
shareholders of Dover Saddlery, Inc., a Massachusetts corporation (the
"Company").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the issued
and outstanding capital stock of the Company (the "Shares"), for the
consideration and on the terms set forth in this Agreement. The parties,
intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms not otherwise defined
herein have the meanings specified or referred to in this Section 1:
"AFFILIATE" - a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, the
first mentioned person, or any relative by blood or marriage or any entity in
which any person has, directly or indirectly, an interest of five percent or
more.
"APPLICABLE CONTRACT" - any Contract (a) under which the Company has or may
acquire any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"BALANCE SHEET" - any balance sheet setting forth the assets, liabilities and
equity of the Company, whether in draft or final form.
"BEST EFFORTS" - the efforts that a prudent Person desirous of achieving a
result would reasonably use in similar circumstances to achieve such result
expeditiously having due regard for the legitimate interests of that Person's
business.
"BREACH" - a "Breach" of representation, warranty, covenant, obligation, or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been any material
inaccuracy in or material breach of, or any material failure to perform or
comply with, such representation, warranty, covenant, obligation, or other
provision.
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"BUYER MATERIAL ADVERSE EFFECT" - any change, effect or circumstance that,
individually or when taken together with all other such changes, effects or
circumstances that have occurred prior to the date of determination of the
occurrence of the Buyer Material Adverse Effect, is or is reasonably likely to
be materially adverse to Buyer or the business, assets (including intangible
assets), financial condition, prospects or results of operations of the Company
as to be conducted by Buyer after the Closing;
"CLOSING DATE" - as defined in Section 2.3.
"COMPANY" - as defined in the Recitals of this Agreement.
"COMPANY DEBT" - with respect to the Company, (i) capitalized lease
obligations, (ii) obligations pursuant to letters of credit, (iii) obligations
representing the deferred purchase price of property or services (other than
accounts payable arising in the ordinary course of business payable on terms
customary in the trade), (iv) obligations secured by Liens, and (v) obligations
arising under any agreement, undertaking or arrangement by which the Company
agrees to purchase or provide funds for the payment of, or otherwise is
contingently liable upon, the obligation or liability of another person,
including without limitation guarantees or comfort letters, to the extent shown
on the Interim Balance Sheet, or incurred in the Ordinary Course of Business
subsequent thereto.
"CONSENT" - any approval, consent, ratification, waiver, or other authorization
(including Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" - all of the transactions contemplated by this
Agreement, including:
(a) the transactions described in Section 2.4(d);
(b) the execution, delivery, and performance of the Non-Competition
Agreements, the Shareholders' Agreement, the Sellers' Releases, the Buyer's
Releases, and the Escrow Agreement;
(c) the performance by Buyer and Sellers of their respective covenants and
obligations under this Agreement;
(d) Buyer's acquisition and ownership of the Shares and exercise of control
over the Company; and
(e) the obtaining by Buyer of senior and subordinated debt and equity
capital upon substantially the terms and conditions of the term sheets from
BankBoston and Citizens Capital Corporation attached as Exhibit 1 hereto (the
"Term Sheets").
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"CONTRACT" - any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"CONTROL" - (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise.
"DISCLOSURE STATEMENT" - the Disclosure Statement delivered by Sellers to Buyer
attached hereto and made a part hereof.
"ENVIRONMENT" - soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, rivers, streams, lakes, ponds,
drainage basins, and wetlands), groundwaters, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life, and any
other environmental medium or natural resource.
"ENVIRONMENTAL LAW" - as defined in Section 3.16.
"ERISA" - the Employee Retirement Income Security Act of 1974 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"ESCROW AGENT" - means BankBoston, N.A., in its capacity as escrow agent under
the Escrow Agreement.
"ESCROW AGREEMENT" - means that certain Escrow Agreement to be negotiated and
mutually agreed upon among the parties and to be dated as of the Closing Date
among Buyer, Sellers, the Company and the Escrow Agent.
"EXCHANGE ACT" - the Securities Exchange Act of 1934 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"FACILITIES" - any real property, leaseholds, or other real property interests
currently or formerly owned or operated by the Company and any buildings,
plants, structures, or equipment (including motor vehicles and rolling stock)
currently or formerly owned or operated by the Company.
"GAAP" - generally accepted United States accounting principles, consistently
applied.
"GOVERNMENTAL AUTHORIZATION" - any approval, consent, license, permit, waiver,
or other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
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"GOVERNMENTAL BODY" - any:
(a) nation, state, province, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and any court
or other tribunal); or
(d) governmental, quasi-governmental or administrative body exercising, or
entitled to exercise, any administrative, executive, judicial, legislative,
police, regulatory, or taxing authority or power of any nature.
"HAZARDOUS ACTIVITY" - the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment.
"HAZARDOUS MATERIALS" - any waste or other substance that is listed, defined,
designated, or classified as hazardous, radioactive, or toxic or a pollutant or
a contaminant under or pursuant to any Environmental Law, including any
admixture or solution thereof, and specifically including petroleum, petroleum
products and oil and all derivatives thereof or synthetic substitutes therefor
and asbestos or asbestos-containing materials.
"IRC" - the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS" - The United States Internal Revenue Service or any successor agency.
"KNOWLEDGE" - an individual will be deemed to have "Knowledge" of a particular
fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) except as otherwise specifically provided for herein, such individual
could have reasonably been expected to discover or otherwise become aware of
such fact or other matter in the course of making reasonable inquiries of those
Persons likely to have knowledge concerning the subject involved.
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A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
"LEGAL REQUIREMENT" - any federal, state, local, municipal, foreign,
international, or other administrative order, constitution, law, ordinance,
principle of common law, regulation, statute, or treaty.
"MATERIAL ADVERSE EFFECT" - any change, effect or circumstance that,
individually or when taken together with all other such changes, effects or
circumstances that have occurred prior to the date of determination of the
occurrence of the Material Adverse Effect, is or is reasonably likely to be
materially adverse to the business, assets (including intangible assets),
financial condition, prospects or results of operations of the Company;
"NON-COMPETITION AGREEMENTS - the Non-Competition Agreements to be negotiated
and mutually agreed upon among the parties and to be entered into on or about
the Closing Date between Buyer and each of the Sellers.
"OCCUPATIONAL SAFETY AND HEALTH LAW" - any Legal Requirement designed to provide
safe and healthful working conditions and to reduce occupational safety and
health hazards.
"ORDER" - any award, decision, injunction, judgment, order, ruling, subpoena, or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" - an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" only if:
(a) such action is generally consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day operations
of such Person; and
(b) such action is not required to be authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority).
"ORGANIZATIONAL DOCUMENTS" - (a) the articles or certificate of incorporation
and the bylaws of a corporation; (b) any charter or similar document adopted or
filed in connection with the creation, formation, or organization of a Person;
and (c) any amendment to any of the foregoing.
"PERMITTED LIENS" - statutory liens (including warehouseman's, materialman's,
and mechanic's liens) arising in the ordinary course of business for amounts not
yet due and payable, liens for taxes not yet due and payable, liens securing
surety, appeal and
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performance bonds in the ordinary course of business, liens in favor of customs
authorities arising in the ordinary course, liens with respect to trade letters
of credit, and liens with respect to zoning restrictions, easement licenses,
reservations, covenants, rights of way, utility easements, building restrictions
and other similar charges or encumbrances on the use of real property which do
not interfere with the ordinary conduct of the business of the Company.
"PERSON" - any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, limited liability
partnership, joint venture, estate, trust, association, organization, labor
union, or other entity or Governmental Body.
"PROCEEDING" - any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"RELEASE" - any spilling, leaking, emitting, discharging, depositing, escaping,
leaching, dumping, or other releasing into the Environment, whether intentional
or unintentional.
"SECURITIES ACT" - the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SHAREHOLDERS' AGREEMENT" - means that certain Shareholders' Agreement between
the Sellers, Stephen L. Day, Jonathan A. R Grylls, David Post, Donald
Motsenbocker, Thomas Gaines (for a total equity investment by such parties other
than the Sellers of approximately $1,000,000, of which approximately $750,000 is
anticipated to be provided by Stephen L. Day) and the equity capital provider
(whose equity shall be in the approximate amounts and substantially on the terms
stated in the term sheet for an equity investment attached hereto as Exhibit 1)
to be negotiated and mutually agreed upon by such parties and to be dated as of
the Closing Date.
"SUBSIDIARY" - any corporation with respect to which a specified Person (or
Subsidiary thereof) owns a majority of common stock or otherwise has the power
to vote or direct the voting of sufficient securities to elect a majority of the
board of directors or otherwise direct the business and policies of that
corporation.
"TAX" - any tax (including any income tax, capital gains tax, value-added tax,
sales tax, property tax, gift tax, or estate tax), levy, assessment, tariff,
duty (including any customs duty), deficiency, or other fee, and any related
charge or amount (including any fine, penalty, interest, or addition to tax),
imposed, assessed, or collected by or under the authority of any Governmental
Body or payable pursuant to any tax-sharing agreement or any other Contract
relating to the sharing or payment of any such tax, levy, assessment, tariff,
duty, deficiency, or fee.
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"TAX RETURN" - any return (including any information return), report, statement,
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any Tax
or in connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE" - a substantial likelihood of a Release that may require
action in order to prevent or mitigate damage to the Environment that may result
from such a Release.
"THREATENED" - a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) upon the Company or the Sellers or any notice has been
given (orally or in writing) to the Company or the Sellers, or if any other
event has occurred or any other circumstances exist, that would lead Sellers
(individually or collectively) to reasonably conclude that such a claim,
Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing, Sellers
will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares
from Sellers.
2.2 PURCHASE PRICE; NON-COMPETITION
(a) The aggregate purchase price (the "Purchase Price") for the Shares will
be Seventeen Million Five Hundred Fifty Thousand Dollars ($17,550,000), subject
to increase as and to the extent provided in Section 2.4(b)(i), and will be paid
as set forth in Section 2.4(b).
(b) In addition to the Purchase Price, Buyer shall pay to each of the
Sellers One Hundred Fifty Thousand Dollars ($150,000.00) at the Closing (i.e.
$450,000 in the aggregate) in consideration of Sellers entering into the
Non-Competition Agreements with Buyer.
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will take
place at the offices of Pepe & Hazard LLP, 150 Federal Street, Boston, MA 02110
at 10:00 a.m. EST on August 28, 1998, or at such other time and place as the
parties may agree in writing.
2.4 CLOSING OBLIGATIONS
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At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), with such signature guarantees
as may be required by Buyer's counsel for transfer to Buyer;
(ii) releases in form satisfactory to Buyer and its counsel executed
by the Sellers (collectively, "the Sellers' Releases");
(iii) The Non-Competition Agreements duly executed by the Sellers.
(iv) a certificate executed by the Sellers representing and warranting
to Buyer that each of the Sellers' representations and warranties in this
Agreement was accurate in all material respects as of the date of this
Agreement and is accurate in all material respects as of the Closing Date
as if made on the Closing Date (giving full effect to any supplements to
the Disclosure Statement that were delivered by Sellers to Buyer prior to
the Closing Date;
(v) a Certificate of the corporate Clerk or Assistant Clerk of the
Company dated the Closing Date certifying as to true copies of all
corporate action taken by the shareholders and directors of the Company
relative to this Agreement and all related documents thereto, the Articles
of Organization (certified by the Secretary of the Commonwealth of
Massachusetts as of a recent date), and the By-Laws of the Company as
amended to date, and the names, true signatures and incumbency of the
officers of the Company authorized to execute this Agreement and the other
documents executed or to be executed in connection herewith;
(vi) Certificates of Corporate and Tax Good Standing of the Company
from the Secretary of the Commonwealth of Massachusetts and the
Massachusetts Department of Revenue;
(vii) Resignations of officers and directors of the Company; and
(viii) A consent of the Company's landlord, pursuant to, and as
required by, the Company's lease regarding Seller's facility located in
Wellesley, Massachusetts, as is required in connection with carrying out
the Contemplated Transactions, together with an executed landlord's waiver
and consent and estoppel letter in form satisfactory to Buyer's lenders
(the "Wellesley Lease Approvals").
(ix) Assignments of all material liabilities, contracts, intellectual
property rights and the like.
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(b) Buyer will deliver to Sellers:
(i) the sum of Fifteen Million Eight Hundred Seventy-Five Thousand
Dollars ($15,875,000.00) plus (and the Purchase Price shall be increased
by) the amount of any cash and cash equivalents of the Company on the
Closing Date in excess of Two Hundred Seventy-Five Thousand Dollars
($275,000.00), in immediately available funds by wire transfer to accounts
designated by the Sellers;
(ii) the sum of One Hundred Seventy-Five Thousand Dollars
($175,000.00), which shall be delivered in immediately available funds to
the Escrow Agent in accordance with the Escrow Agreement;
(iii) a number of shares of the common stock of Buyer to be determined
by the parties, having an agreed-upon value on the Closing Date of One
Million Five Hundred Thousand Dollars ($1,500,000.00) and having certain
rights to be negotiated and agreed upon between the Buyer and the Sellers
and set forth in the Shareholders' Agreement;
(iv) the sum of Four Hundred Fifty Thousand Dollars ($450,000), in
immediately available funds by wire transfer in increments of One Hundred
Fifty Thousand Dollars ($150,000) each to accounts designated by each
Seller;
(v) a certificate executed by Buyer representing and warranting to the
Sellers that except as otherwise stated in such certificate, each of
Buyer's representations and warranties in this Agreement was accurate in
all material respects as of the date of this Agreement and is accurate in
all material respects as of the Closing Date as if made on the Closing Date
except as otherwise disclosed to Sellers;
(vi) the Non-Competition Agreements, duly executed by Buyer;
(vii) a Certificate of the corporate Secretary or Assistant Secretary
of the Buyer dated the Closing Date certifying as to true copies of all
corporate action taken by the shareholders and directors of the Buyer
relative to this Agreement and all related documents thereto, the Articles
of Organization Certified by the Secretary of State of Delaware as of a
recent date) and the By-Laws of the Buyer as amended to date, and the
names, true signatures and incumbency of the officers of the Buyer
authorized to execute this Agreement and the other documents executed or to
be executed in connection herewith;
(viii) Releases of Sellers in form satisfactory to Sellers and their
counsel executed by the Buyer (the "Buyer's Releases");
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(ix) a Certificate of Good Standing of the Buyer from the Secretary of
State of Delaware together with evidence of the qualification of Buyer to
do business as a foreign corporation in the Commonwealth of Massachusetts;
(x) Appointment of JP and DP as directors of Buyer; and
(xi) the Shareholders' Agreement, duly executed by Day, Grylls, David
Post, Donald Motsenbocker, Thomas Gaines and the equity capital provider
listed in Exhibit 1.
(c) On the Closing Date, Buyer and the Sellers will enter into the Escrow
Agreement (the "Escrow Agreement") with the Escrow Agent. One Hundred
Seventy-Five Thousand Dollars ($175,000.00) of the Purchase Price shall be held
in Escrow by the Escrow Agent pursuant to the terms of the Escrow Agreement.
(d) The Contemplated Transactions shall be effected with the intent of
complying with Section 351(a) of the IRC. To that end the following
transactions shall occur at the closing:
(i) Sellers shall contribute certain of the Shares to Buyer in
exchange for the common stock of Buyer described in Section 2.4(b)(iii);
(ii) The other parties to the Shareholders' Agreement shall transfer
property to Buyer in exchange for common stock of Buyer;
(iii) Citizens Capital Corporation shall transfer property to Buyer in
exchange for preferred stock of the Buyer;
(iv) Buyer shall purchase the remaining shares for the cash described
in Sections 2.4(b)(i), (ii) and (iv); and
(v) After giving effect to these transactions, (1) the transferors
discussed in clauses (i), (ii) and (iii) of this Section 2.4(d) will have
control of the Buyer within the meaning of Section 368(c) of the IRC; and
(2) the equity ownership of Buyer shall be substantially as set forth in
the capitalization table attached hereto and made a part hereof, being
subject to nominal increases or decreases. Buyer agrees that it shall not
merge the Company into Buyer or otherwise liquidate Buyer for a period of
two years from the Closing Note unless it shall, at any time prior thereto,
receive the consent of Sellers based upon the advice of Sellers'
accountants to the effect that a merger of liquidation prior to the end of
such period will not cause the Contemplated Transactions to violate such
Section 351(a).
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2.5 CLOSING DATE BALANCE SHEET
(a) Within forty-five (45) days after the Closing Date, the Sellers shall
cause the preparation and delivery to Buyer of a draft balance sheet, together
with all relevant items of disclosure (the "Draft Closing Date Balance Sheet")
for the Company as of the close of business on the Closing Date (determined as
though the parties had not consummated the transactions contemplated in this
Agreement but provided that the transaction fees and expenses of Sellers or the
Company which are being paid by Buyer or the Company pursuant to Section 11.1
shall be excluded from such balance sheet). The Sellers will prepare the Draft
Closing Date Balance Sheet on a basis consistent with the preparation of the
Company Financial Statements (as defined herein).
(b) If Buyer has any objections to the Draft Closing Date Balance Sheet, it
will deliver a statement describing such objections to the Sellers within
forty-five (45) days after receiving the Draft Closing Date Balance Sheet.
Buyer, and the Sellers will use reasonable efforts to resolve any such
objections themselves. If the parties do not negotiate a final resolution within
thirty (30) days after Buyer has forwarded the statement of its objections,
Buyer and the Sellers will retain a mutually acceptable "big five" accounting
firm other than Arthur Andersen LLP to resolve any remaining objections. The
Buyer will revise the Draft Closing Date Balance Sheet as appropriate to reflect
the resolution of any objections thereto pursuant to this Section 2.5. The
"Closing Date Balance Sheet" shall mean the Draft Closing Date Balance Sheet as
affected by any final revisions as a result of any objections resolved pursuant
to this Section 2.5. Buyer agrees that it will not raise objections to the Draft
Closing Date Balance Sheet with respect to (i) any matter, the presentation of
which does not conform to GAAP, if such matter is nevertheless presented in a
manner consistent with the Company's past practices of presenting such matters,
and if such deviation from GAAP or such presentation is not materially
misleading as to the condition of the Company's business and operations; and
(ii) any matter which does not conform to GAAP, but which has the nature of such
non-conformance identified in disclosures provided with such financial
statements or the Disclosure Statement.
(c) Responsibility for the fees and expenses incurred in connection with
the services rendered by an accounting firm engaged pursuant to Section 2.5(b)
shall be borne equally by the Buyer and Sellers.
(d) The workpapers and back-up materials used in preparing the Closing Date
Balance Sheet, and the books, records, and financial staff of the Company, and
books and records of any consultants utilized in the preparation of the Closing
Date Balance Sheet shall be made available to the Buyer, its accountants and
other representatives, upon their request.
(e) In the event that the Closing Date Balance Sheet shows that the cash
and cash equivalents of the Company on the Closing Date was less than Two
Hundred Seventy-Five Thousand Dollars ($275,000.00) before payment of expenses
related to the Contemplated
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Transactions, the Sellers shall, within five (5) business days following the
delivery of the Closing Date Balance Sheet, pay to Buyer the difference between
$275,000.00 and the amount of such cash and cash equivalents. In the event that
the Closing Date Balance Sheet shows that the cash and cash equivalents of the
Company on the Closing Date was greater than Two Hundred Seventy-Five Thousand
Dollars ($275,000.00) before payment of expenses related to the Contemplated
Transactions, the Buyer shall, within five (5) business days following the
delivery of the Closing Date Balance Sheet, pay to the Sellers, without
duplication of any amounts paid pursuant to Section 2.4(b)(i), an aggregate
amount equal to the difference between $275,000.00 and the amount of such cash
and cash equivalents.
2.6 THIRD PARTY CONSENTS
(a) The Company and the Sellers agree to use their best efforts to assist
the Buyer in obtaining within seventy five (75) days of the Closing Date, a
short term written lease, pursuant to which the Company shall be obligated to
pay the same amount of rent, from the Company's landlord regarding that of the
Facilities located in Holliston, Massachusetts together with such other
agreements (including without limitation a landlord's waiver and consent and
estoppel letter) as shall be required by the providers of senior and
subordinated debt to Buyer.
(b) To the extent that the Company's rights under any agreement, contract,
commitment, lease, authorization or other asset may not be assigned without the
consent of another person which has not been obtained, this Agreement shall not
constitute an agreement to assign the same if an attempted assignment would
constitute a breach thereof or be unlawful, and the Company shall use best
efforts to obtain any such required consent as promptly as possible. If any such
consent shall not be obtained or if any attempted assignment would be
ineffective or would impair Buyer's rights under the such asset in question so
that Buyer would not in effect acquire the benefit of substantially all such
rights, the Company, to the maximum extent permitted by law and the asset,
shall, if Buyer so requests, cooperate with Buyer in any reasonable arrangement
designed to provide such benefits thereunder to Buyer, including as agent of
Buyer, provided that Buyer shall undertake to pay or satisfy the corresponding
liabilities for the enjoyment of such benefit only to the extent Buyer would
have been responsible therefor hereunder if such consent had been obtained.
Nothing in this Section shall be deemed a waiver by Buyer of its right to have
received on or before the Closing an effective assignment of such assets.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Attached to this Agreement is the Disclosure Statement divided into sections
which are numbered to correspond to sections of the Agreement. Any matter which
is disclosed in any particular section of the Disclosure Statement or schedules
thereto, by way of qualifying the corresponding representations and warranties
of this Agreement, shall be deemed to be
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disclosed in all sections of the Disclosure Statement and to qualify all of the
representations and warranties contained in this Agreement, as applicable.
The Sellers jointly and severally represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES
The Company is a corporation duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the
requisite corporate power and authority and is in possession of all franchises,
grants, authorizations, licenses, permits, easements, consents, certificates,
approvals and orders ("Approvals") necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business as
it is now being conducted except where the failure to possess the Approvals has
not had, and would not have, a Material Adverse Effect. The Company is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary except where the failure to be so qualified
or licensed has not had, and would not have, a Material Adverse Effect. All of
the business and operations of the Company are conducted in Massachusetts
through, and all of the properties and assets of the Company are owned, licensed
or leased by, the Company and are located in Massachusetts. The Company does not
have any subsidiaries and does not have any equity interest in, or have the
right or obligation to purchase any equity interest in, any person.
3.2 CAPITALIZATION
The authorized capital stock of the Company consists of 12,500 shares of common
stock, no par value (the "Common Stock"). As of the date hereof the Sellers are
the owners of, and the only parties which have any claim to, all issued and
outstanding shares of Common Stock, and all of such shares are validly issued,
fully paid and nonassessable and are owned as set forth on the Disclosure
Statement. With the exception of the Shares (which are owned by Sellers), there
are no equity securities and other securities of the Company issued and
outstanding. No legend or other reference to any purported encumbrance appears
upon any certificate representing equity securities of the Company. None of the
outstanding equity securities or other securities of the Company was issued in
violation of the Securities Act or any other Legal Requirement. The Company does
not own, or has any Contract to acquire, any equity securities or other
securities of any Person or any direct or indirect equity or ownership interest
in any other business. Except as set forth in the Disclosure Statement there are
no options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of the Company
or obligating the Company to issue or sell any shares of capital stock of, or
other equity interests in, the Company.
3.3 AUTHORITY RELATIVE TO THIS AGREEMENT
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The Sellers have all necessary power and authority to execute and deliver this
Agreement and to perform their obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Sellers and the consummation by the Sellers of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action, and no other proceedings on the part of the Sellers are necessary to
authorize this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by the Sellers and,
constitutes a legal, valid and binding obligation of the Sellers enforceable
against the Sellers in accordance with its terms.
3.4 NO CONFLICT: REQUIRED FILINGS AND CONSENTS
(a) Except as set forth in Section 3.4(a) of the Disclosure Statement, the
execution and delivery of this Agreement by the Sellers does not, and the
performance of this Agreement by the Sellers and the consummation of the
transactions contemplated hereby will not, (i) conflict with or violate any
federal, state or local law, rule, regulation, order, judgment or decree
(collectively, "Laws") applicable to the Sellers or to the Company or by which
any of their properties are bound or affected, or (ii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or materially impair the Sellers' rights or alter
the rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of any security interest, lien, claim, pledge, agreement, limitations
in the Sellers' voting rights, charge or other encumbrance of any nature
whatsoever (collectively, "Liens") on any of the Shares or any of the properties
or assets of the Company pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Sellers or the Company is a party or by which the
Sellers or the Company or their respective properties is bound or affected,
except in the case of clause (ii) for any such conflicts, violations, breaches,
defaults or other occurrences that do not constitute, individually or in the
aggregate, a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Sellers does not,
and the performance of this Agreement by the Sellers will not (i) require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Body except where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the transactions contemplated hereby,
or otherwise prevent or delay the Sellers from performing their obligations
under this Agreement, or would not constitute, individually or in the aggregate,
a Material Adverse Effect, (ii) cause Buyer or the Company to become subject to,
or to become liable for the payment "of, any tax (except any tax of the Buyer or
Company resulting from the Contemplated Transactions); or (iii) cause any of the
assets owned by the Company to be reassessed or revalued by any taxing authority
or other governmental body.
3.5 COMPLIANCE; PERMITS
14
(a) Except as disclosed in Section 3.5(a) of the Disclosure Statement, (i)
the Sellers and the Company are not in conflict with, or in default or violation
of any Law applicable to the Company or by which their respective properties are
bound or affected which could result in a Material Adverse Effect or (ii) the
Company is not in conflict with, or in default or violation of, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company is a party or by which the
Company or any of its properties is bound or affected which could result in a
Material Adverse Effect.
(b) Except as disclosed in Section 3.5(b) of the Disclosure Statement or
where such failure has not had, or would not have, individually or in the
aggregate, a Material Adverse Effect, the Company holds all permits, licenses,
registrations, easements, variances, exemptions, consents, certificates, orders
and approvals from governmental authorities which are necessary or appropriate
in order to enable it to own and conduct its business as it is now being
conducted, and, to Sellers' knowledge, to occupy or lease its real property as
it is now being occupied (collectively, the "Company Permits") and the Company
is in material compliance with the terms of the Company Permits. The Company
Permits are valid and in full force and effect and there are not pending, or, to
the knowledge of the Company, threatened, any proceedings which could result in
the termination, revocation, limitation or impairment of any Company Permit
which could result in a Material Adverse Effect.
3.6 FINANCIAL STATEMENTS AND RELATED MATTERS
(a) Financial Statements. Sellers have delivered to Buyer true and complete
copies of (a) the unaudited, internally prepared balance sheets of the Company
at July 31, 1996 and July 31, 1997 and the related statements of income for the
fiscal years then ended (the "Company Financial Statements"); and (b) the
Interim Balance Sheet (together with the Company Financial Statements, the
"Financial Statements"). Such balance sheets fairly present the financial
position, assets and liabilities (whether accrued, absolute, contingent or
otherwise) of the Company, at the dates indicated and such statements of income
fairly present the results of operations, of the Company for the periods
indicated, using the manner of accounting consistently used by the Company in
prior periods, except as disclosed to Buyer in written materials delivered
together with such balance sheets and statements of income. Buyer acknowledges
that the Financial Statements have not been prepared in accordance with GAAP.
(b) Accounts Receivable. The accounts receivable of the Company arising
from the operation of its business and set forth on the Interim Balance Sheet or
arising since the date thereof are valid and genuine; have arisen solely out of
bona fide sales and deliveries of goods, performance of services and other
business transactions in the ordinary course of business consistent with past
practice, are not subject to valid defenses, set-offs or counterclaims; and are,
to Sellers' Knowledge, collectible, except as set forth in the
15
Disclosure Statement, within 90 days after billing at the full recorded amount
thereof less, customer returns and customary bad debt expense.
(c) Inventory. Except as set forth in the Disclosure Statement, all
inventory of the Company, including without limitation raw materials, work-in
process and finished goods reflected on the Interim Balance Sheet or acquired
since the date thereof, was acquired and has been maintained in the ordinary
course of business; is of good and merchantable quality; consists of a quality,
quantity and condition reasonably believed to be usable, salable in the Ordinary
Course of Business; is valued at reasonable amounts based on the Ordinary Course
of Business of the Company during the past six months; and is not subject to any
material write-down or write-off. The Company is not under any liability or
obligation with respect to the return of inventory in the possession of
wholesalers, retailers or other customers except for returns allowed in the
Ordinary Course of Business.
(d) Books and Records. The books, records and accounts of the Company
maintained with respect to its business accurately and fairly reflect, in all
material respects and in reasonable detail, the transactions and the assets and
liabilities of the Company. The Company has not engaged in any material
transaction, maintained any bank account or used any of the funds of the Company
except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained books and records of the business. The
minute books of the Company contain accurate and complete records of all
meetings held of, and corporate action taken by, the shareholders, the Board of
Directors, and the committees of the Boards of Directors of the Company, and no
meeting of any such shareholders, Board of Directors, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books. At the Closing, all of those books and records will be in the possession
of the Company.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except (i) as set forth in Section 3.7(a) through Section 3.7(n) of the
Disclosure Statement and (ii) as permitted by Section 5.1, or as otherwise
disclosed in writing, since April 30, 1998, the Company has conducted its
business in the Ordinary Course of Business and there has not occurred:
(a) any Material Adverse Effect;
(b) any damage to, destruction or loss of any asset of the Company (whether
or not covered by insurance) that would require expenditures in excess of
$25,000 to repair or replace;
(c) any change by the Company in its accounting methods, principles or
practices;
16
(d) any revaluation by the Company of any of its assets, including, without
limitation, writing down the value of inventory or writing off notes or accounts
receivable;
(e) any sale, pledge, disposition of or encumbrance upon any assets of the
Company (except (i) sales of assets in the ordinary course of business and in a
manner consistent with past practice, (ii) dispositions of obsolete or worthless
assets, (iii) sales of immaterial assets not in excess of $25,000 in the
aggregate, (iv) shareholder distributions and/or repayments of Shareholder Debt
which, individually or in the aggregate, result in the cash and cash equivalents
described in Section 2.4(b)(i) being less then $275,000 and (v) dispositions of
two automobiles, one pick-up truck, and one horse trailer, all as more
specifically described in the Disclosure Statement;
(f) any cancellation of any debts owed to or held by the Company;
(g) any execution or implementation of any employment, bonus, deferred
compensation, severance or similar agreement (or amendment of any such
agreement), any increase in employee welfare or retirement benefits;
(h) any labor dispute or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Company, or any
lockouts, strikes, slowdowns, picketing, work stoppages or threats thereof by or
with respect to such employees;
(i) any termination or notice of termination of any material contract,
lease or agreement;
(j) any failure to replenish the Company's inventories and supplies, to pay
the Company's creditors or to collect debt or obligations owed to the Company in
the normal and customary manner, or any material and adverse change in the
Company's selling, pricing or advertising practices inconsistent with prior
practice;
(k) any contract or commitment for capital expenditures in excess of
$25,000;
(l) any transaction, contract or commitment to pay any legal, accounting,
brokerage, finder's fee or other expenses (other than in connection with this
Agreement or the transactions contemplated hereby) which are out of the ordinary
course of the business of the Company and payable after the Closing; or
(m) any commitment or agreement to undertake any of the foregoing other
than in the ordinary course of business.
3.8 NO UNDISCLOSED LIABILITIES
17
Except as is disclosed in Section 3.8 of the Disclosure Statement, the Company
has no material liabilities (absolute, accrued, contingent or otherwise), except
liabilities (a) in the aggregate adequately reserved or provided for in the
Financial Statements (including any related notes thereto), (b) incurred since
July 31, 1997 in the ordinary course of business consistent with past practice,
or (c) incurred in connection with this Agreement.
3.9 ABSENCE OF LITIGATION
Except as set forth in Section 3.9 of the Disclosure Statement, there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company, or any properties or
rights of the Company, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign.
3.10 EMPLOYEE BENEFIT PLANS: EMPLOYMENT AGREEMENTS
(a) Except in each case as set forth in Section 3.10 of the Disclosure
Statement, (i) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the IRC, with respect to any
employee pension plans (as defined in Section 3(2) of ERISA, any employee
welfare plans (as defined in Section 3(1) of ERISA) or any bonus stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar fringe or employee benefit plans, programs or
arrangements (collectively, the "Company Employee Plans"), which could result in
any material liability of the Company; (ii) all Company Employee Plans are in
compliance in all material respects with the requirements prescribed by any and
all Laws (including ERISA and the Code), currently in effect with respect
thereto (including all applicable requirements for notification to participants
or the Department of Labor, Pension Benefit Guaranty Corporation (the "PBGC"),
the IRS or the Secretary of the Treasury), and the Company has performed all
material obligations required to be performed by it under, is not in any
material respect in default under or violation of, and has no knowledge of any
material default or violation by any other party to, any of the Company Employee
Plans; (iii) each Company Employee Plan intended to qualify under Section 401
(a) of the Code and each trust intended to qualify under Section 501(a) of the
Code is the subject of a favorable determination letter from the IRS, and
nothing has occurred to the Knowledge of Sellers which may reasonably be
expected to impair such determination; (iv) all contributions required to be
made to any Company Employee Plan pursuant to Section 412 of the Code, or the
terms of the Company Employee Plan or any collective bargaining agreement, have
been made on or before their due dates; (v) with respect to each Company
Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the 30-day notice requirement has been
waived under the regulations to Section 4043 of ERISA) nor any event described
in Section 4062, 4063 or 4041 of ERISA has occurred; (vi) the Company is not a
member of or a party to any multiemployer plan within the meaning set forth in
Section 3(37) of ERISA; (vii) the Company has not incurred, or does not
reasonably expect to incur, any liability under Title IV of ERISA (other than
liability for premium payments to the PBGC, and contributions not
18
in default to the respective plans, arising in the ordinary course), and (viii)
the Company does not have liabilities for post-retirement welfare benefits,
including retiree medical benefits. The Company Employee Plans are described in
Section 3.10 of the Disclosure Statement and a copy of each plan has been
furnished to Buyer.
(b) Except as described in Section 3.10 of the Disclosure Statement, the
Company is not a party to or bound by any oral or written employment agreement,
consulting, advisory or service agreement or deferred compensation agreement
(other than agreements terminable by the Company without penalty on notice of 30
days or less) or any confidentiality agreement or covenant not to compete. No
employee of the Company whose salary and bonus is reasonably expected to exceed
$50,000 in the aggregate in the Company's current fiscal year or whose salary
and bonus exceeded such amount in the Company's prior fiscal year has ceased to
be employed by the Company (other than through death or retirement at normal
retirement age) during the preceding 6-month period.
3.11 LABOR MATTERS
Except as set forth in Section 3.11 or 3.7 of the Disclosure Statement: (i)
there are no claims or proceedings pending or, to the knowledge of the Company,
threatened, between the Company and any of its employees, which claims or
proceedings constitute, individually or in the aggregate, a Material Adverse
Effect; (ii) the Company is not a party to any collective bargaining agreement
or other labor union contract applicable to persons employed by the Company, nor
does the Company know of any activities or proceedings of any labor union to
organize any such employees; and (iii) the Company has no knowledge of any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of the Company.
3.12 [INTENTIONALLY OMITTED]
3.13 CONTRACTS
(a) Except as set forth in Section 3.13 of the Disclosure Statement, the
Company is not a party to or bound by the following (collectively, "Company
Agreements"):
(i) any consignment, distributor, dealer, manufacturer's
representative, sales agency, advertising representative or advertising or
public relations contract, agreement or commitment which the Company
reasonably anticipates will involve the payment after the date hereof of
more than $25,000 during the Company's current or next succeeding
fiscal year, or which extends beyond July 31, 1999;
(ii) any Contract, agreement or commitment regarding the sale or other
disposition of products or services by the Company, or for the purchase of
raw materials, products or services by the Company, which the Company
reasonably
19
anticipates will involve the receipt or payment after the date hereof of
more than $25,000 during the Company's current or next succeeding fiscal
year, or which extends beyond July 31, 1999;
(iii) any guarantee or indemnification agreement for the benefit of
any third party;
(iv) any tax sharing agreements;
(v) any employment contracts, agreements (including noncompetition
agreements and confidentiality agreements), arrangements and commitments
with any employees agents, representatives or distributors of the Company
(other than as set forth in Section 3.10(a) of the Disclosure Statement) or
any non-competition, confidentiality, secrecy, invention disclosure or
assignment agreement with any other Person;
(vi) any contract, agreement or commitment which provides for the
incurrence by the Company of indebtedness for borrowed money;
(vii) any partnership or joint venture agreement;
(viii) any collective bargaining or other such agreement;
(ix) any contract, agreement or commitment pursuant to which any
person is granted a general or special power of attorney by the Company; or
(x) any other contract, agreement, commitment, understanding or
instrument involving payment or receipt after the date hereof of more than
$50,000 in the aggregate in the current or next succeeding fiscal year of
the Company and not terminable without penalty by the Company on 30 days'
or less notice, or which is otherwise material to the operations of the
Company.
(b) Except as set forth in Section 3.13(b) of the Disclosure Statement,
(i) each of the Company's leases, contracts and other agreements
listed in the Disclosure Statement constitute a valid and binding
obligation of the Company and, to the Company's knowledge, the other
parties thereto, enforceable in accordance with its terms (subject to
bankruptcy, insolvency, moratorium and creditor's rights generally and to
equitable principles), and is in full force and effect;
(ii) the Company has not been notified that it is in breach or default
under any of the agreements to which it is a party which could be expected
to have a
20
Material Adverse Effect and, to the Company's knowledge, no other party to
any of the such agreements is in material breach or material default
thereunder;
(iii) the Company has not received notice and does not have any
knowledge of, nor has the Company given notice of, an intention to cancel
or terminate a Contract or to exercise options or rights under a Contract
which could be expected to have a Material Adverse Effect; and
(iv) Buyer will be provided with access to true and complete copies of
all company agreements, including any amendments thereto.
3.14 REAL ESTATE
(a) The Company does not have any ownership interest in any real property
other than as set forth in Section 3.14(a) of the Disclosure Statement.
(b) All real property leased by the Company is, to Sellers' knowledge but
without any investigation or inquiry by Sellers, in compliance with all
applicable zoning, building, health, fire, water, use or similar statutes,
codes, ordinances, laws, rules or regulations and the Company has all licenses,
certificates of occupancy, permits and authorizations required to operate the
Business and utilize such real property, except where failure to be in
compliance with any such statute, code, ordinance, law, rule or regulation or
failure to have any such license, certificate of occupancy, permit and
authorization would, to Sellers' knowledge but without any investigation or
inquiry by Sellers, not have a Material Adverse Effect.
(c) The Company leases the real property set forth in Section 3.14(c) of
the Disclosure Statement. The Company is not in default under any such lease and
has not received notice of a default or an event of default thereunder from the
landlord thereof.
3.15 TAXES
(a) Other than as disclosed in Section 3.15(a) of the Disclosure Statement,
(i) Sellers and the Company have filed all United States federal income tax
returns and all other tax returns required to be filed by them, (ii) Sellers and
the Company have paid and discharged all Federal and State Taxes, including
without limitation sales taxes, due in connection with or with respect to the
periods or transactions covered by such tax returns and have paid all other
Taxes as are due, except such as are being contested in good faith by
appropriate proceedings (to the extent that any such proceedings are required)
and with respect to which, in the case of the Company, the Company is
maintaining adequate reserves, and (iii) there are no other Taxes that would be
due if asserted by a taxing authority, except with respect to which, in the case
of the Company, Company is maintaining reserves to the extent currently
required. Except as disclosed in Section 3.15(b) of the Disclosure Statement:
21
(i) there are no pending or Threatened tax liens on any assets of the Sellers or
the Company (other than liens for Taxes not yet due and payable); and (ii)
Sellers or the Company have not granted any waiver of any statute of limitations
with respect to, or any extension of a period for the assessment of, any Tax.
The accruals and reserves for Taxes (including deferred taxes) reflected in the
Interim Balance Sheet are in all material respects adequate to cover all Taxes
required to be accrued through the date thereof (including interest and
penalties, if any, thereon and Taxes being contested), and the accrual and
reserves for Taxes (including deferred taxes) reflected in the books and records
of the Company as of the last day of the Company's most recently completed
fiscal month end are in all material respects adequate to cover all Taxes
required to be accrued through such date (including interest and penalties, if
any, thereon and Taxes being contested).
3.16 ENVIRONMENTAL MATTERS
Except as set forth in Section 3.16 of the Disclosure Statement, the Company:
(i) has obtained all Approvals which are required to be obtained under, and are
in compliance with, all applicable federal, state, or local laws or any
regulation, code, plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder relating to pollution or protection
of the environment, including laws relating to emissions, discharges, releases
or threatened releases of pollutants, contaminants, or hazardous or toxic
materials or wastes into ambient air, surface water, ground water, or land or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants, contaminants or
hazardous or toxic materials or wastes ("Environmental Laws") by the Company or
its respective agents except where the failure to obtain any Approval or to
comply with any Approval or any Environmental Law would not have a Material
Adverse Effect; (ii) is in compliance with all terms and conditions of such
required Approvals, and also is in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in applicable Environmental Laws, except
where the failure to be in compliance would not have a Material Adverse Effect;
(iii) as of the date hereof, has no knowledge of nor has received notice of any
past or present material violations of Environmental Laws or any event,
condition, circumstance, activity, practice, incident, action or plan which is
reasonably likely to interfere with or prevent continued material compliance by
it with Environmental Laws or which would give rise to any material common law
or statutory liability, or otherwise form the basis of any material claim,
action, suit or proceeding, against the Company based on or resulting from the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge or release into the
environment, of any pollutant, contaminant or hazardous or toxic material or
waste; and (iv) has taken all actions necessary under applicable Environmental
Laws to register any products or materials required to be registered by the
Company (or any of its agents) thereunder; and (v) there is not, to Sellers'
knowledge but without investigation or inquiry located at any of the real
property used by the Company any underground storage tank, asbestos-containing
material or equipment containing polychlorinated biphenyls).
22
3.17 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets - The term "Intellectual Property Assets"
includes the following, foreign and domestic:
(i) the name Dover Saddlery, all fictional business names, trading
names, registered and unregistered trademarks, service marks, licenses and
applications used by the Company to identify itself or its own products
(collectively, "Marks");
(ii) all patents, patent applications, and inventions and discoveries
that may be patentable as are owned or were developed by the Company
(collectively, "Patents"); and
(iii) all registered and unregistered copyrights and pending copyright
applications in both published works and unpublished works of the Company
(collectively, "Copyrights"); and
(iv) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "Trade Secrets"), owned, used, or
licensed by the Company as licensee or licensor.
(b) Agreements - Part 3.17(b) of the Disclosure Statement contains a
complete and accurate list and summary description, including any royalties paid
or received by the Company, of all Contracts relating to the Intellectual
Property Assets to which the Company is a party or by which the Company is
bound, except for any license implied by the sale of a product and perpetual,
paid-up licenses for commonly available software programs under which the
Company is the licensee. There are no outstanding and, to the Sellers'
Knowledge, no Threatened disputes or disagreements with respect to any such
agreement.
(c) Know-How Necessary for the Business -
(i) The Intellectual Property Assets are all those necessary for the
operation of the Company business as currently conducted. Except as set
forth in the Disclosure Statement, the Company is the owner of all right,
title, and interest in and to each of the Intellectual Property Assets,
free and clear of all liens, security interests, charges, encumbrances,
and, to the Knowledge of Seller, other equities or adverse claims, and has
the right to use without payment to a third party all of the Intellectual
Property Assets.
(ii) Except as set forth in Part 3.17(c) of the Disclosure Statement,
all former and current employees of the Company have executed written
Contracts with the Company that assign to the Company all rights to any
inventions, improvements,
23
discoveries, or information relating to the business of the Company. To the
Knowledge of Sellers but without investigation or inquiry, no employees of
the Company have entered into any Contract that restricts or limits in any
way the scope or type of work in which those employees may be engaged or
require the employees to transfer, assign, or disclose information
concerning their work to anyone other than the Company.
(d) Patents -
(i) The Company owns no Patents.
(e) Trademarks -
(i) Part 3.17(e) of the Disclosure Statement contains a complete and
accurate list and summary description of all Marks, which have been listed
as either Class A Marks or Class B Marks. The Company is the owner of all
right, title, and interest in and to or otherwise has a valid right to use
each of the Class A Marks, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims. To the Knowledge
of the Sellers, the Company is the owner of all right, title, and interest
in and to or otherwise has a valid right to use each of the Class B Marks,
free and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims.
(ii) All Marks that have been registered with the United States Patent
and Trademark Office are currently in compliance with all Legal
Requirements (including the timely post-registration filing of affidavits
of use and incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or taxes or
actions falling due within ninety (90) days after the Closing Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation proceeding and, no such action is Threatened
with the respect to any of the Marks.
(iv) To Sellers' Knowledge, there are no potentially interfering
trademarks or trademark applications of any third party.
(v) To Sellers' Knowledge, no Mark is infringed or, has been
challenged or threatened in any way. None of the Class A Marks used by the
Company infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party. To Sellers' Knowledge, none of the Class B
Marks used by the Company infringes or is alleged to infringe any trade
name, trademark, or service mark of any third party.
24
(vi) The names "Dover" and "Dover Saddlery" are not and have not been
registered with the United States Patent and Trademark Office. The dates of
first use of each such name by the Sellers or the Company was on or about
1976 in the case of "Dover" and on or about 1975 in the case of "Dover
Saddlery".
(f) Copyrights -
(i) Part 3.17(f) of the Disclosure Statement contains a complete and
accurate list and summary description of all Copyrights pertaining to the
Company's catalog or other promotional materials of significant value to
the Company (the "Listed Copyrights"). The Company is the owner of all
right, title, and interest in and to each of the Listed Copyrights, free
and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims.
(ii) All of the Listed Copyrights have been registered and are
currently in compliance with all Legal Requirements, and are valid and
enforceable.
(iii) No Listed Copyright is infringed or, has been challenged or
threatened in any way. None of the subject matter of any of the Listed
Copyrights infringes or is alleged to infringe any copyright of any third
party or is a derivative work based on the work of a third party.
(iv) All works encompassed by the Listed Copyrights have been marked
with the proper copyright notice.
(g) Trade Secrets -
(i) With respect to each Trade Secret, the documentation (to the
extent it exists) relating to such Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it and to allow
its full and proper use without reliance on the knowledge or memory of any
individual.
(ii) The Sellers and the Company have taken all reasonable precautions
to protect the secrecy, confidentiality, and value of their Trade Secrets.
(iii) The Company has good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets. The Trade Secrets are not part
of the public knowledge or literature, and have not been used, divulged, or
appropriated either for the benefit of any Person or to the detriment of
the Company. No Trade Secret is known to be subject to any adverse claim or
been challenged or threatened in any way.
(h) Availability -
25
The Company has made available to Buyer documents which accurately and
completely identify as of the date hereof all material trademarks and patents
(and applications therefor) with respect to which the Company owns any interest
and describes the nature of such interest.
(i) Information in Catalog - The Company has good title and/or an absolute
right to use all information, pictures, likenesses, and the like used, published
or otherwise set forth in its catalogs and neither this Agreement nor the
consummation of the transactions contemplated herein shall interfere with or
interrupt such use, publication and the like or require any consent or approval
with respect thereto.
3.18 CONDITIONS AFFECTING THE COMPANY
To Sellers' Knowledge, there is no fact, development or threatened development
with respect to the markets, products, services, customers, facilities, computer
software, data bases, personnel, vendors, suppliers, operations, assets or
prospects of the Company (collectively "Conditions") which are known to the
Sellers which will have a Material Adverse Effect other than such Conditions as
may affect as a whole the economy generally or other businesses similar to the
Company generally, and excepting normal competitive and marketplace situations
and developments. The Company has used Best Efforts to retain the services of
the employees, agents, customers and suppliers of the Company who are material
to the conduct of its businesses. The Company does not have any reason to
believe that any loss of any key employee, agent, customer or supplier will
result because of the consummation of the transactions contemplated hereby.
3.19 PRODUCT WARRANTY
Except as set forth in Section 3.19 of the Disclosure Statement, none of the
Company's products manufactured (whether for sale or as a prototype) or sold
prior to the date hereof are the subject of any warranty claim or, to Sellers'
knowledge contain any defects or otherwise fail to meet specifications or
requirements related thereto which may reasonably be expected to result in
warranty claims after the date hereof, in either case in excess of $25,000 on an
individual basis. Section 3.19 of the Disclosure Statement includes all
warranties, made by the Company with respect to products of the Company.
3.20 EMPLOYEES, INSURANCE, BANKS, ETC.
Section 3.20 of Disclosure Statement contains a complete and correct list and,
where applicable, a summary description of:
(a) The name and current annual rates of compensation paid by the Company
to each employee or agent whose annual rate of compensation (inclusive of
bonuses,
26
commissions, etc.) for the current fiscal year of the Company exceeds or is
expected to exceed $50,000 and information as to the basis for, and the manner
of computing, such compensation and as to any employment agreements with or
commitments to any such persons.
(b) All insurance policies of the Company (including insurance on the lives
of any employees of the Company) and performance, surety and similar bonds
presently in force and effect with respect to the business, operations and
assets of the Company, all of which policies and bonds are validly outstanding
and in full force and effect and, to the Knowledge of the Sellers, provide
adequate coverage for all normal risks incident to the business of the Company.
The Company has not been advised that any insurer or surety intends or proposes
to cancel any such policy or bond prior to the present expiration or termination
date thereof or to materially increase the applicable premium rate, rate
classification or charge therefor prior to or following such expiration or
termination date or is not willing to renew or extend any such policy or bond
following its normal expiration or termination date.
(c) The names of all persons, if any, holding tax, customs and other powers
of attorney from the Company and a brief description thereof.
(d) Neither the Sellers nor the Company is a party to, or is otherwise
bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such Person and any
other Person ("Proprietary Rights Agreement") that in any way adversely affects
or will affect the ability of the Company to conduct its business. Nothing has
come to the attention of the Sellers (or any individual Seller) that would lead
them to believe that any director, officer, or other key employee of the Company
(other than the Sellers) intends to terminate his or her employment with the
Company except as set forth in Schedule 3.20(b).
3.21 TRANSACTIONS WITH THE COMPANY
Neither the Sellers, nor any Affiliate of the Sellers directly or indirectly (i)
has any claim of any kind against the Company or is owed any amounts by the
Company other than (a) compensation payable by the Company for its current (but
not any prior) pay period, (b) amounts disclosed in the Disclosure Statement and
(c) the Shareholder Debt, (ii) is obligated to the Company with respect to
monies owed, (iii) except as set forth in Section 3.21 of the Disclosure
Statement, has any interest (other than as a shareholder) in the assets of the
Company, whether pursuant to any lease, other agreement or otherwise, (iv) is a
party to any executory agreement with the Company, (v) is an adverse party,
directly or indirectly, to any litigation or other proceedings to which the
Company or any of its assets are or may be subject, or (vi) except as set forth
in Section 3.21 of the Disclosure Statement, owns, manages, operates, controls,
is employed by or is otherwise in any manner connected with or interested in any
entity with which the Company has had any material business relationships,
whether as a customer, supplier or otherwise, or which has been a competitor,
directly or indirectly, of the Company.
27
3.22 [INTENTIONALLY OMITTED]
3.23 SUPPLIERS
Section 3.23 of the Disclosure Statement sets forth (a) the names of the 10
largest suppliers from which the Company ordered raw materials, supplies,
merchandise and other goods and services during the 12-month period ended on the
Interim Balance Sheet date and (b) the amount for which each supplier invoiced
the Company during such period. The Company has not received any notice that
there has been any material adverse change in the price of such raw materials,
supplies, merchandise or other goods or services other than changes in the
ordinary course of business which are not likely to have a Material Adverse
Effect, or that any such supplier will not sell raw materials, supplies,
merchandise and other goods to the Company at any time after the Closing on
terms and conditions similar to those used in its current sales to the Company.
3.24 TITLE TO ASSETS; SUFFICIENCY
Except as set forth in Section 3.24 of the Disclosure Statement, the Company is
the sole and exclusive legal and equitable owner of all right, title and
interest in and has good and marketable title to all of its assets. Except as
set forth in Section 3.24 of the Disclosure Statement, none of its assets are
subject to (a) any material title defect or objection; (b) any contract of
lease, license or sale; (c) any security interest, mortgage, pledge, lien,
charge or encumbrance of any kind or character, direct or indirect, whether
accrued, absolute, contingent or otherwise, other than Permitted Liens or
liabilities set forth in the Disclosure Statement; or (d) any claim or
restrictive covenant. The assets include all of the assets used in the conduct
of the business of the Company and are adequate and suitable to meet all present
requirements of the business as presently conducted, subject to reasonable wear
and tear and the need to replace inventory in the ordinary course of business.
No person other than the Company owns any equipment or other tangible assets
used in the operation of die business, except for leased items disclosed in die
Disclosure Statement and for items of immaterial value.
3.25 CERTAIN PAYMENTS
Neither the Company nor any director, officer, or, to Seller's Knowledge,
employee or agent of the Company or any other Person associated with or acting
for or on behalf of the Company have directly or indirectly (a) made any
improper or illegal contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business for the Company (ii) to pay for favorable
treatment for business secured for the Company, or (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
the Company or (b) established or maintained any fund
28
or asset for such purposes that has not been recorded in the books and records
of the Company.
3.26 COMPLETENESS OF DISCLOSURE
No representation or warranty by the Company in this Agreement, or any schedule
or exhibit hereto, the Disclosure Statement, or the certificate being delivered
pursuant to Section 2.4(a)(iv), contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make any statement herein or therein
not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES
Buyer is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite power and
authority and is in possession of all Approvals necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted. Buyer is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary. Buyer has no subsidiaries and, after giving effect to the
Contemplated Transactions will have no subsidiaries other than the Company.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT
Buyer has all necessary corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Buyer and the consummation by Buyer of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of Buyer, and no other corporate proceedings on the part of Buyer is
necessary. This Agreement has been duly and validly executed and delivered by
Buyer and constitutes a legal, valid and binding obligation of Buyer enforceable
against it in accordance with its terms.
4.3 NO CONFLICT, REQUIRED FILINGS AND CONSENTS
(a) The execution and delivery of this Agreement by Buyer do not, and the
performance of this Agreement by Buyer and the consummation of the transactions
contemplated hereby will not and, solely with respect to Section 4.3(iii) the
participation of Day in such transactions does not, (i) conflict with or violate
the Certificate of Incorporation or By-Laws of Buyer, (ii) conflict with or
violate any Laws applicable to Buyer or by which
29
its respective properties are bound or affected, (iii) conflict with or violate
the provisions of the non-competition agreement between Day and Petsmart, or
(iv) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or impair Buyer's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a Lien on any of the properties or assets of Buyer
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Buyer is a
party or by which Buyer or its properties are bound or affected, except in the
case of clause (iv) for any such conflicts, violations, breaches, defaults or
other occurrences that do not constitute a Material Adverse Effect.
(b) The execution and delivery of this Agreement by Buyer do not, and the
performance of this Agreement by Buyer will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, except (i) for applicable
requirements, if any, of the Securities Act of 1933, as amended and compliance
with applicable "Blue Sky" requirements, and (ii) where the failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or
notifications would not (A) prevent or delay consummation of the transactions
contemplated hereby, (B) otherwise prevent Buyer from performing its obligations
under this Agreement, or (C) do not constitute a Material Adverse Effect.
4.4 CAPITALIZATION
After giving effect to the Contemplated Transactions including without
limitation the Shareholders' Agreement and the management options described
therein, (i) the authorized capital stock of Buyer will consist of common stock,
no par value, (the "Common Stock") and preferred stock, no par value,
substantially as required by the equity capital provider (the "Preferred Stock")
and the issued and outstanding capital stock of Buyer shall be substantially as
set forth in the capitalization table attached hereto and made a part hereof
being subject to nominal increases or decreases, and (ii) Buyer shall not have
outstanding convertible securities or options exercisable or convertible into or
exchangeable for any interest in or other equity rights of the Buyer, nor shall
it have outstanding any agreements providing for the issuance (contingent or
otherwise) of any interests in or equity rights of the Buyer or to acquire
capital stock of or convertible securities exercisable or convertible into or
exchangeable for any interests or equity rights of the Buyer, except for the
Preferred Stock issued to the equity capital provider and those options reserved
for issuance to Stephen L. Day, Jonathan Grylls and certain other employees of
the Buyer contemplated by such capitalization table and to be described by the
Shareholders' Agreement.
4.5 CONDITION OF BUYER
Buyer is a newly formed corporation, organized under the laws of the State of
Delaware. As of the date hereof, Buyer has not engaged in any business, acquired
any assets, entered into
30
any contracts, or taken any other actions other than those necessary for the
purpose of carrying out the transactions referenced in this Agreement and in
obtaining financing for such purpose.
4.6 TRANSACTIONS WITH BUYER
Neither the Buyer, nor any Affiliate of the Buyer directly or indirectly (i) has
any claim of any kind against the Buyer, (ii) is obligated to the Buyer with
respect to monies owed, (iii) has any interest (other than as a shareholder) in
the assets of the Buyer, whether pursuant to any lease, other agreement or
otherwise, (iv) is a party to any executory agreement with the Buyer, (v) is an
adverse party, directly or indirectly, to any litigation or other proceedings to
which the Buyer or any of its assets are or may be subject, or (vi) owns,
manages, operates, controls, is employed by or is otherwise in any manner
connected with or interested in any entity with which the Buyer has had any
material business relationships, whether as a customer, supplier or otherwise,
or which has been a competitor, directly or indirectly, of the Buyer.
4.7 COMPLETENESS OF DISCLOSURE
No representation or warranty by the Buyer in this Agreement, any schedule or
exhibit hereto, or the certificate being delivered pursuant to Section 2.4
(b)(v), contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact required to be stated herein or
therein or necessary to make any statement herein or therein not misleading.
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Closing Date, unless Buyer
shall otherwise agree in writing, the Company shall, and the Sellers shall cause
the Company to, take the following actions;
5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE CLOSING
The Company shall conduct the Company's business and not take any action except
in the Ordinary Course of Business and shall use all reasonable efforts to
preserve substantially intact the business organization of the Company, to keep
available the services of the present officers, employees and consultants of the
Company and to preserve the present relationships of the Company with customers,
suppliers and other persons with which the Company has significant business
relations subject to changes arising in the Ordinary Course of Business. By way
of amplification and not limitation, except as contemplated by this Agreement,
the Company shall not and the Sellers shall cause the Company not to, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement
31
or the Closing Date, directly or indirectly do, or propose to do, any of the
following without the prior written consent of Buyer (which consent shall not be
unreasonably withheld or delayed):
(a) issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock of any
class, or any options, warrants, convertible securities or other rights of any
kind to acquire any shares of capital stock, or any other ownership interest in
the Company;
(b) sell, pledge, dispose of or encumber any assets of the Company (except
for (i) sales or licenses of assets in the Ordinary Course of Business, (ii)
dispositions of obsolete or worthless assets, (iii) dispositions of scrap raw
materials in a manner consistent with past practice and (iv) sales of immaterial
assets not in excess of $25,000 in the aggregate);
(c) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any capital stock or debt instruments thereof, (ii) create any
subsidiary as joint venture entities, (iii) incur any indebtedness for borrowed
money or issue any debt securities, except for short-term, working capital and
commercial paper borrowings or obligations incident to letters of credit
incurred in the Ordinary Course of Business (iv) assume, guarantee or endorse or
otherwise as an accommodation become responsible for, the obligations of any
person, (v) enter into or amend any material contract or agreement outside the
Ordinary Course of Business, (vi) authorize any capital expenditures or purchase
of fixed assets which are, in the aggregate, in excess of $25,000 for the
Company, or (vii) enter into or amend any contract, agreement, commitment or
arrangement to effect any of the matters prohibited by this Section 5.1(c),
provided, however, that nothing herein shall restrict the Company from operating
the business in the Ordinary Course of Business.
(d)(i) increase the compensation payable or to become payable to the
Sellers or, except in the Ordinary Course of Business, to employees, (ii) grant
any severance or termination pay to, or enter into any employment or severance
agreement with any officer or other employee of the Company, or (iii) establish,
adopt, enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan, trust
fund, policy or arrangement for the benefit of any current or former directors,
officers or employees, except, in each case, as may be required by law;
(e) except as may be required as a result of a change in law or in order to
comply with GAAP, take any action to materially change accounting policies or
procedures (including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable);
32
(f) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations (other than in respect of
income taxes);
(g) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
(i) the payment, discharge or satisfaction in the Ordinary Course of Business
liabilities either reflected or reserved against in the Company Financial
Statements or incurred in the Ordinary Course of Business or (ii) the
Shareholder Debt; or
(h) take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through (g) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect (except to the extent arising in the Ordinary
Course of Business) or prevent the Company from performing or cause the Company
not to perform its covenants hereunder.
5.2 NO SOLICITATION
Following the date hereof, and through the earlier of the Closing or the
termination of this Agreement, the Company shall not, directly or indirectly,
through any officer, director, employee, representative or agent of the Company,
(i) solicit, initiate or encourage the initiation of any inquiries or proposals
regarding any merger, recapitalization, sale of substantial assets, sale or
exchange of shares of capital stock or similar transactions involving the
Company other than the transactions set forth in this Agreement (any of the
foregoing inquiries or proposals being referred to herein as an "Acquisition
Proposal"), (ii) engage in negotiations or discussions concerning, or provide
any nonpublic information to any person relating to, any Acquisition Proposal or
(iii) agree to, approve or recommend any Acquisition Proposal.
5.3 ACCESS TO INFORMATION
Upon reasonable notice and at reasonable times and subject to Section 11.3, the
Company shall afford to the officers, employees, accountants, counsel and other
representatives (including without limitation Arthur Andersen LLP) of Buyer
reasonable access, during the period prior to the Closing Date, to all its
properties, books, contracts, commitments and records and, during such period,
the Company shall furnish promptly to Buyer all information concerning its
business, properties and personnel as Buyer may reasonably request, and shall
make available to Buyer the appropriate individuals (including attorneys,
accountants and other professionals) for such discussion of the Company's
business, properties and personnel as Buyer may reasonably request.
5.4 CONSENTS; APPROVALS
33
As promptly as practicable after the date of this Agreement, Sellers will, and
will cause the Company to, make all filings required by Legal Requirements to be
made by them in order to consummate the Contemplated Transactions. Between the
date of this Agreement and the Closing Date, the Sellers will, and will cause
the Company to, (a) cooperate with Buyer with respect to all filings that Buyer
elects to make or is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Buyer in obtaining all
required consents identified in part 3.4(a) of the Disclosure Statement. The
Company and Buyer shall furnish promptly all information required to be included
in any application or other filing to be made pursuant to the rules and
regulations of any federal, state or local governmental body in connection with
the transactions contemplated by this Agreement.
5.5 NOTIFICATION OF CERTAIN MATTERS
Following the date hereof, and through the earlier of the Closing or the
termination of this Agreement, the Company shall give prompt notice to Buyer,
and Buyer shall give prompt notice to the Company, upon becoming aware of (i)
the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to become materially untrue or inaccurate or which may make a
condition to the Closing incapable of fulfillment or which would have a Material
Adverse Effect, or (ii) any failure of the Company or Buyer, as the case may be,
materially to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice; and provided,
further that failure to give such notice shall not be treated as a breach of
covenant for the purposes of Sections 7.2(b) or 7.3(b) unless the failure to
give such notice results in material prejudice to the other party.
Notwithstanding the foregoing, the sole remedy available to Buyer shall be
termination of this Agreement.
5.6 FURTHER ACTION
Upon the terms and subject to the conditions hereof each of the parties hereto
shall use all reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, to obtain in a timely manner all necessary
waivers, consents and approvals and to effect all necessary registrations and
filings, and otherwise to satisfy or cause to be satisfied all conditions
precedent to its obligations under this Agreement.
5.7 PUBLIC ANNOUNCEMENTS
Prior to the Closing, Buyer, the Company and the Shareholder shall refrain from
issuing any press release or making any public statement with respect to the
transactions contemplated in this Agreement Sellers and Buyer will consult with
each other concerning the means by
34
which the Company's employees, customers, suppliers, the general public and
others having dealings with the Company will be informed of the Contemplated
Transactions, and Buyer will have the right to approve and be present for any
such communication.
5.8 CONVEYANCE TAXES
Buyer and the Company shall cooperate in the preparation, execution and filing
of all returns, questionnaires, applications, or other documents regarding any
real property transfer or gains, sales, use, transfer, value added, stock
transfer and stamp taxes, any transfer, recording, registration and other fees,
and any similar taxes which become payable in connection with the transactions
contemplated hereby that are required or permitted to be filed at or before the
Closing Date. The Company shall pay all such taxes and fees.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer will, and
will cause each of its Affiliates to, make all filings required by Legal
Requirements to be made by them to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date, Buyer will, and will
cause each Affiliate to, cooperate with Sellers with respect to all filings that
Sellers are required by Legal Requirements to make in connection with the
Contemplated Transactions, and (ii) cooperate with Sellers in obtaining all
consents identified in Part 3.4(a) of the Disclosure Statement; provided that
this Agreement will not require Buyer to dispose of or make any change in any
portion of its business or to incur any other burden to obtain a Governmental
Authorization.
6.2 ACCESS TO INFORMATION
Upon reasonable notice and at reasonable times and subject to Section 11.3, the
Buyer shall afford to the officers, employees, accountants, counsel and other
representatives of Sellers reasonable access, during the period prior to the
Closing Date, to all its properties, books, contracts, commitments and records
and, during such period, the Buyer shall furnish promptly to Sellers all
information concerning its business, properties and personnel as Sellers may
reasonably request, and shall make available to Sellers the appropriate
individuals (including attorneys, accountants and other professionals) for such
discussion of the Buyer's business, properties and personnel as Sellers may
reasonably request, provided that Sellers or their representatives may not
directly or indirectly contact any provider of senior or subordinated debt or
equity capital to Buyer without the prior written consent of Buyer, it being
understood that Buyer will furnish the Sellers copies of draft documents
relating to such senior and subordinated debt and equity capital promptly after
Buyer shall have had a reasonable opportunity to review the same.
35
6.3 LANDLORD'S CONSENT.
Buyer shall work together with the Company to obtain a consent of the Company's
landlord as to the assignment of the Company's lease regarding that of the
Facilities located in Wellesley, Massachusetts, together with an executed
landlord's waiver and consent and estoppel letter in form satisfactory to
Buyer's lenders.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
(a) Agreements. Each of the applicable parties, as the case may be, shall
have entered into this Agreement, the Shareholders Agreement, the
Non-Competition Agreements, the Escrow Agreement and all other documents or
instruments required by this Agreement;
(b) No Injunctions or Restraints; Illegality. No statute, rule, regulation,
executive order, decree, ruling, temporary restraining order, preliminary or
permanent injunction or other order shall have been enacted, entered,
promulgated, enforced or issued by any court or governmental authority of
competent jurisdiction or shall otherwise be in effect which prohibits,
restrains, enjoins or restricts the consummation of the transactions
contemplated hereby;
(c) Closing Documents. Sellers shall have delivered to the other parties
customary and usual closing documents and certificates, including without
limitation an opinion of Tarlow, Breed, Hart, Murphy & Rodgers, P.C. in form and
substance satisfactory to Buyer and its counsel;
(d) Representations and Warranties. The representations and warranties of
the Sellers contained in this Agreement shall be true and correct in all
material respects at and as of the Closing Date, regardless of any updates in
the Disclosure Statement, except for changes arising out of the Ordinary Course
of Business which individually or in the aggregate are not materially adverse,
and Buyer shall have received certificates to such effect signed by the
President of the Company and by the Sellers;
(e) Agreements and Covenants. The Company and the Sellers shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them at or prior
to the Closing Date, and Buyer shall have received certificates to such effect
signed by the President of the Company and by the Sellers;
36
(f) Consents. All notices to, consents, approvals, authorizations,
certificates and waivers from third parties and governmental agencies that are
required for the transfer of the Shares or that are otherwise required for the
consummation of the transactions contemplated hereby upon the terms hereof shall
have been obtained or provided for and shall remain in effect;
(g) No Material Adverse Effect. There shall not have occurred any event or
change in circumstances involving the Company that, individually or when taken
together with all other such events or changes in circumstances, will or is
reasonably likely to result in a Material Adverse Effect;
(h) Interim Balance Sheet. Sellers shall as soon as possible deliver to
Buyer an internally prepared, unaudited preliminary balance sheet, together with
all relevant items of disclosure (the "Interim Balance Sheet") for the Company
as of the close of business on July 31, 1998 showing the financial condition of
the Company as of its date. Buyer shall have a period of five (5) business days
in which to either accept or reject such Interim Balance Sheet and, if it
rejects such Interim Balance Sheet, to terminate this Agreement in writing prior
to the expiration of such 5-day period. Any such termination shall be without
recourse to or by Buyer, Day, Grylls, Sellers, the Company and their respective
Affiliates. The Sellers will prepare the Interim Balance Sheet on a basis
consistent with the preparation of the Company Financial Statements (as defined
herein). Without limiting any right Buyer has to otherwise reject the Interim
Balance Sheet, Buyer shall have the right to reject the Interim Balance Sheet in
the event the Adjusted Operating Income (defined as EBITDA plus compensation to
owners plus discretionary payments) of the Company for the fiscal year ending
July 31, 1998 as set forth in the Interim Balance Sheet, is materially and
adversely different from the $3,000,000.00 budgeted for fiscal 1998, or the
"Total Liabilities" minus transaction-related accruals and less shareholder
loans and profit-sharing payables of the Company as shown on the Interim Balance
Sheet are materially and adversely different from $600,000.00;
(i) Lease. Buyer shall have received the Wellesley Lease Approvals;
(j) Physical Inventory. Buyer shall be provided with a copy of a completed
physical inventory of the Company. Buyer shall have a period of five (5)
business days in which to either accept or reject such physical inventory and,
if rejected, to terminate this Agreement in writing prior to the expiration of
such 5-day period. Any such termination shall be without recourse to or by
Buyer, Day, Grylls, Sellers, the Company and their respective Affiliates.
(k) Litigation. Since the date of this Agreement, there must not have been
commenced or Threatened against Buyer, or against any Person affiliated with
Buyer, any Proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions;
37
(l) Challenge to Ownership. There must not have been made or Threatened by
any Person any claim asserting that such Person (a) is the holder or the
beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of, any stock of, or any other voting, equity, or ownership interest
in, the Company; and
(m) Legal Requirements. Neither the consummation nor the performance of any
of the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause Buyer or any Person affiliated with Buyer to
suffer any material adverse consequence under (a) any applicable Legal
Requirement or Order and hereafter coming into existence, or (b) any Legal
Requirement or Order that has been published, introduced, or otherwise formally
proposed by or before any Governmental Body and hereafter coming into existence.
(n) Shareholders Agreement and Escrow Agreement. Buyer and Sellers shall
have mutually agreed to the terms and conditions of the Shareholders Agreement
and the Escrow Agreement.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions required to
be taken by Sellers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Sellers, in whole or in part):
(a) Accuracy of Representations. All of Buyer's representations and
warranties in this Agreement, must have been accurate in all material respects
as of the date of this Agreement and must be accurate in all material respects
as of the Closing Date as if made on the Closing Date;
(b) Buyer's Performance, (i) The Buyer shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Sellers shall have received certificates to such effect signed by the
President of the Buyer; and
(ii) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.4 and must have made the cash payments
required to be made by Buyer pursuant to Sections 2.2 (a) and (b) and 2.4 (b).
(c) Consents. Each of the Consents identified in Part 3.4(a) of the
Disclosure Statement must have been obtained and must be in full force and
effect;
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(d) Closing Documents. Buyer shall have delivered to the other parties
customary and usual closing documents and certificates, including without
limitation an opinion of Pepe & Hazard LLP in form and substance satisfactory to
Sellers and their counsel;
(e) Litigation. Since the date of this Agreement, there must not have been
commenced or Threatened against Sellers, or against any Person affiliated with
Sellers, any Proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions;
(f) Buyer's Debt and Equity. Buyer shall simultaneously have closed the
debt and equity transactions described in subsection (f) of the definition of
Contemplated Transactions substantially on the terms described in the terms
sheets attached as Exhibit 1;
(g) Releases. Sellers shall have been or shall simultaneously with the
Closing be released from (i) any guarantees provided by them on behalf of
Company Debt, and (ii) liability as officers and directors of the Company
(except to the extent of liability covered by Section 10 of this Agreement);
(h) Agreements. Each of the applicable parties, as the case may be, shall
have entered into this Agreement, the Shareholders' Agreement, the
Non-Competition Agreements, the Escrow Agreement and all other documents or
instruments required by this Agreement;
(i) No Injunctions or Restraints; Illegality. No statute, rule, regulation,
executive order, decree, ruling, temporary restraining order, preliminary or
permanent injunction or other order shall have been enacted, entered,
promulgated, enforced or issued by any court or governmental authority of
competent jurisdiction or shall otherwise be in effect which prohibits,
restrains, enjoins or restricts the consummation of the transactions
contemplated hereby;
(j) No Buyer's Material Adverse Effect. There shall not have occurred any
event or change in circumstances involving the Buyer that, individually or when
taken together with all other such events or changes in circumstances, will or
is reasonably likely to result in a Buyer's Material Adverse Effect; and
(k) Shareholders Agreement and Escrow Agreement. Buyer and Sellers shall
have mutually agreed to the terms and conditions of the Shareholders Agreement
and the Escrow Agreement.
9. TERMINATION
9.1 TERMINATION EVENTS
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This Agreement may, by notice given prior to or at the Closing, be terminated;
(a) by either Buyer or the Sellers if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has not
been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by the Sellers, if any of the conditions in
Section 8 has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of the
Sellers to comply with their obligations under this Agreement) and the Sellers
have not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and the Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before September 30,
1998, or such later date as the parties may agree upon.
9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to any other
rights it may have under this Agreement, and the exercise of a right of
termination will not be an election of remedies but the rights and remedies of
any party upon the termination of this Agreement shall be subject to Section
10.5 hereof. If this Agreement is terminated pursuant to Section 9.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 11.1 and 11.3 will survive; provided, however,
that if this Agreement is terminated by a party because of a Breach of the
Agreement by the other party the terminating party's right to pursue all legal
remedies pursuant to Section 10 hereof will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties; covenants, and obligations in this Agreement,
the Disclosure Statement, supplements to the Disclosure Statement (if any), and
the certificate delivered pursuant to Section 2.4(a)(iv) will survive the
Closing for the period specified below.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
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Subject to the limitations of this Article 10, the Sellers, jointly and
severally, will indemnify and hold harmless Buyer and its, shareholders,
officers and directors (collectively, the "Indemnified Persons") for, and will
pay to the Indemnified Persons the amount of, any loss, liability, claim,
damage, expense (including costs of investigation and defense and reasonable
attorneys' fees) or diminution of value, whether or not involving a third-party
claim (collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any Breach of any representation or warranty made by the Sellers in
this Agreement, the Disclosure Statement, or any supplements to the Disclosure
Statement;
(b) any Breach of any representation or warranty made by the Sellers in
this Agreement as if such representation or warranty were made on and as of the
Closing Date, other than any such Breach that is disclosed in a supplement to
the Disclosure Statement and is expressly identified in the certificate
delivered pursuant to Section 2.4(a)(iv);
(c) any Breach by any Indemnifying Seller of any covenant or obligation of
such Indemnifying Seller in this Agreement;
(d) any differences between the Closing Date Balance Sheet and the Interim
Balance Sheet arising from anything other than the operation of the Company by
the Sellers in the Ordinary Course of Business during the period from the date
of the Interim Balance Sheet through the Closing Date; or
(e) any claim by any Person for brokerage or finder's fees or commissions
or similar payments (other than de Visscher, Olson & Allen LLC) based upon any
agreement or understanding alleged to have been made by any such Person with
either a Seller or the Company (or any Person acting on its behalf) in
connection with any of the Contemplated Transactions.
Subject to the limitation on remedies contained in Section 10.5 hereof, the
remedies provided in this Section 10.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the Indemnified Persons.
10.3 [Intentionally Omitted]
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10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless the Sellers and, to the extent, but only
to the extent, that the Contemplated Transactions do not close, the Company, and
will pay to the Sellers and, as applicable, the Company (provided the Buyer
shall not be required to pay duplicative Damages to both the Sellers and the
Company on account of any claims made under this Section 10.4) the amount of any
Damages arising, directly or indirectly, from or in connection with (a) any
Breach of any representation or warranty made by Buyer in this Agreement or in
any certificate delivered by Buyer pursuant to this Agreement (as updated
through the closing date), (b) any Breach by Buyer of any covenant or obligation
of Buyer in this Agreement or (c), to the extent the Contemplated Transactions
have closed, any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with either a Seller or the Company
(or any Person acting on its behalf) in connection with any of the Contemplated
Transactions and any claim by de Visscher, Olson & Allen LLC for such brokerage
commissions due them and any and all claims involving Company Debt (other than
Shareholder Debt).
10.5 LIMITATIONS.
Notwithstanding anything to the contrary contained in this Agreement, and
notwithstanding any otherwise available right or remedy of Buyer, Sellers or the
Company (or of any other Person that is one of their respective Indemnified
Persons) (Buyer and any of its Indemnified Persons being collectively referred
to in this Article 10 as "Buyer" and Sellers and any of their respective
Indemnified Persons [which term shall include the Company for the purposes of
this clause if and only if the Contemplated Transactions do not close] being
collectively referred to in this Article 10 as "Sellers") at law or in equity,
the parties hereto agrees on the following limitations:
(a) Time Limitation. All claims by Buyer or Sellers seeking to recover
Damages under this Agreement, or otherwise arising out or relating to the
transactions contemplated hereby, must be asserted on or before the termination
of the Survival Period, as defined in clause (b) below. Any claim by Buyer or
Sellers to recover Damages not brought within the Survival Period shall be
barred, waived and deemed null and void.
(b) Survival of Representations and Warranties, Etc. The representation and
warranties of Sellers and Buyers contained in this Agreement shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby for a period of twelve (12) months from the
Closing Date (the date which is twelve (12) months following the Closing Date
being referred to as the "Twelve Month Date"). Any claim for indemnification
shall be asserted by an indemnified party against one or more indemnifying
parties, as applicable, in writing on or before the Twelve Month Date, or such
later date is permitted by clauses (i), (ii) or (iii), as applicable, of this
Section 10.5(b), or else be deemed
42
waived. A claim for indemnification may be asserted after the Twelve Month Date
in the following circumstances and subject to the following conditions:
(i) with respect to any matter that forms the basis for a claim that
is of the type that is covered by or would reasonably be expected to be
revealed in the course of a year-end financial statement audit of the
Company or Buyer and the precipitating event on which the claim is based
took place on or before the Twelve Month Date, then such claim shall be
asserted on or before the date that is 120 days after the Twelve Month Date
(provided that if Buyer's primary lender does not require Buyer to deliver
audited financial statements until 120 days after the Twelve Month Date
then any such claim shall be asserted on or before the date that is 140
days after the Twelve Month Date); and
(ii) notwithstanding the first sentence of this Section 10.5(b) to the
contrary, the representations and warranties contained in Section 3.15
shall survive for a period of three (3) years from the Closing Date; and
(iii) notwithstanding the first sentence of this Section 10.5(b) to
the contrary, the representations and warranties contained in Section
4.4(ii) shall survive for a period of three (3) years from the Closing
Date.
The foregoing time limitations to assert a claim shall not limit a party's
ability to prosecute a specific claim thereafter so long as written notice of
such claim is given to the other party in writing prior to the expiration of the
applicable limitation period. The respective survival periods set forth in this
paragraph 10.5(b) above shall individually and collectively, as the context
permits or requires, be known as the "Survival Period".
(c) Claim Deductible. The liability of Sellers to Buyer for any Damages
sustained by Buyer arising out of or connected with this Agreement or any breach
of representation, warranty, covenant or agreement of Sellers contained herein,
in the Disclosure Statement, or the certificate delivered pursuant to Section
2.4 (a) (iv) shall be payable by, or recoverable from, Sellers only to the
extent that the aggregate amount of any such liability, loss, cost, Damage or
expense exceeds the sum of $30,000 (the "Claim Threshold"). In no event shall
Sellers ever be liable to Buyer for any Damages arising out of or connected with
this Agreement or otherwise relating to or, arising out of the Contemplated
Transactions hereby in an aggregate amount in excess of the $175,000 (the
"Escrow Cap") placed in escrow pursuant to the Escrow Agreement, provided,
however, that in the case of a breach of the representations and warranties
contained in Section 3.15 relating to the amount of federal income tax payable
by any of the Sellers or by the Company with respect to the period prior to the
Closing Date, such amount shall not be subject to the Escrow Cap, but shall be
limited to the lesser of the actual amount of such liability or the amount of
$100,000 plus 80% of the amount of such liability in excess of $100,000,
provided that any such claims are made in writing to the Sellers within three
(3) years of the Closing Date (and shall be subject to the
43
Claim Threshold). In no event shall Buyer ever be liable to Sellers and/or the
Company for any damages arising out of or connected with this Agreement or
arising out of the Contemplated Transactions in an amount in excess of $50,000,
provided that Buyer's liability with respect to a breach of its representations
and warranties contained in Section 4.4(ii) shall be unlimited.
(d) Disclaimer of Consequential Damages, etc. In no instance will (i)
Sellers ever be liable to Buyer or (ii) Buyer be liable to Sellers for (1)
consequential or indirect damages arising out of, related to, or in any way
connected to this Agreement or the transactions contemplated hereby, (2) any
claims for Damages sustained by Buyer or Sellers which are not timely asserted
within the Survival Period, as applicable, or (iii), in the case of liability of
Sellers to Buyer, for any amounts included within a Claim or Claims as fall
below the Claim Threshold.
(e) Exclusive Remedy. Buyer and Sellers each agree that its sole and
exclusive remedy for any breach of this Agreement, including without limitation,
any misrepresentation, breach of covenant or warranty, or for any other Damages
relating to, arising out of or otherwise connected with this Agreement or the
transactions contemplated hereby, shall be the right of indemnification as and
to the extent set forth in this Article 10, and in all events subject to all of
the limitations herein, Buyer and Sellers waiving all and each other remedy
available to it at law or in equity.
(f) Recourse to Insurance. Buyer agrees that with respect to any claim for
Damages it shall seek indemnity or reimbursement, as applicable (but shall not
be required to incur fees or expenses of third parties in doing so), under any
policy or policies of insurance maintained by the Company or Buyer, as
applicable which provides coverage against the loss that is the subject matter
of such claim, which shall not delay or otherwise affect the obligation of
Sellers to satisfy their indemnity obligations under this Article 10, provided
that any subsequent recovery shall be returned to the indemnifying party if the
effect of such recovery would be to give to the Indemnified Party an amount in
excess of the maximum indemnity coverage set forth in Section 10.5(c) in an
amount equal to such excess.
(g) Avoidance of Doubt. For the avoidance of doubt and without intending to
suggest any exception to the exclusive remedies contained in Section 10.5 (e)
hereof, in the event that Buyer or Sellers shall seek to recover any Damages
from the other party under any theory of recovery other than indemnification as
provided for in this Section 10, the parties hereby agree that the limitations
and protections afforded to Sellers by the provisions of this Section 10.5 shall
be equally applicable to any claim for such Damages sought to be recovered under
such theory. This Section 10.5 (g) shall survive any termination of this
Agreement.
(h) Continuing Effectiveness of other Agreements. Nothing contained in this
Section 10.5 shall serve in any way to limit in amount, time or scope any claim
any party hereto may have against another in connection with the continuing
relations between the
44
parties hereafter, but only to the extent arising out of the Shareholders
Agreement, the Non-Competition Agreement, Escrow Agreement or any other
agreement entered into by or between the parties after Closing.
10.6 ESCROW
Upon notice to the Sellers specifying in reasonable detail the basis for any
claim under this Section 10, and the amount thereof, Buyer shall simultaneously
give notice of such claim under the Escrow Agreement.
10.7 PROCEDURE FOR INDEMNIFICATION - THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 10.2, or
Section 10.4 of notice of the assertion of any claim or the commencement of any
Proceeding against it, such indemnified party will, if a claim is to be made
against an indemnifying party under such Section, give notice to the
indemnifying party of the commencement of such claim, but the failure to notify
the indemnifying party will not relieve the indemnified party of its
indemnification obligations hereunder, except to the extent that (i) the
indemnifying party demonstrates that the defense of such action is prejudiced by
the indemnifying party's failure to give such prompt notice or (ii) notice of
such claim is given after the expiration of the Survival Period, as extended as
provided above.
(b) If any Proceeding referred to in Section 10.7(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding. If the indemnifying party assumes the defense of a
Proceeding, (i) no compromise or settlement of such claims may be effected by
the indemnifying party without the indemnified party's consent unless (A) there
is no finding or admission of any violation of Legal Requirements by the
Indemnified Party or any violation by the Indemnified Party of the rights of any
Person and no effect on any other claims that may be made against the
indemnified party, (B) the sole relief against any indemnified party provided is
monetary damages that are paid in full by the indemnifying party, and (C) the
indemnified party is given
45
a complete release from such claims and (ii) the indemnified party will have no
liability with respect to any compromise or settlement of such claims effected
without its consent.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) The Indemnifying Parties hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding is brought by a third party
against any Indemnified Person for purposes of any claim that an Indemnified
Person may have under this Agreement with respect to such Proceeding or the
matters alleged therein, and agree that process may be served on the
Indemnifying Parties with respect to such a claim anywhere in the world.
(e) With respect to tax matters relating to the periods prior to the
Closing, Buyer agrees to promptly provide Sellers with a copy of all
communications from the Internal Revenue Service and any state taxing authority
regarding federal or state income tax matters applicable to any taxable period
preceding the Closing Date. Buyer agrees that Sellers will have the authority
and responsibility to resolve any tax matter in its discretion, provided that
any resolution which could have an adverse financial impact on the Buyer shall
require the written consent of the Buyer, which shall not be unreasonably
withheld, unless Sellers agree to hold the Buyer harmless therefrom and Buyer
determines to accept such "hold harmless". The other party shall be notified of,
and shall have the right to attend, any meeting between the responsible party
and any such taxing authority and to participate in any telephone conference or
discussions among such parties. Buyer agrees that it will not amend any pre-
closing tax return filed by or on behalf of the Company in a manner that would
have an adverse financial impact on the Sellers without the written consent of
the Sellers.
10.8 PROCEDURE FOR INDEMNIFICATION - OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
11. GENERAL PROVISIONS
11.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and
46
performance of this Agreement and the Contemplated Transactions, including all
fees and expenses of agents, representatives, counsel, and accountants, provided
that the fees of de Visscher, Olson & Allen LLC and the reasonable fees and
expenses of Tarlow, Breed, Hart, Murphy & Rodgers P.C. shall be paid at closing
by Buyer without reduction of the Purchase Price. Sellers will cause the Company
not to incur any out-of-pocket expenses in connection with this Agreement except
as otherwise permitted by this Agreement.
11.2 POST-CLOSING CONSULTING AND BENEFITS
(a) Each Seller will be paid a salary by Buyer of $6,250.00 per month for
the three months following the Closing Date. If Buyer requests the services of
any Sellers following such three- month period, Buyer shall pay each such Seller
a consulting fee of $750 per day for the actual number of days on which such
Seller's services are utilized by Buyer
(b) Following the Closing Date, each of the Sellers will be entitled to
purchase, and Buyer shall sell or cause the Company to sell to each of the
Sellers, any and all goods sold by the Company or Buyer from the Company or
Buyer at the Company's or Buyer's cost strictly for Seller's private use,
provided that any subsequent resale of such goods by a Seller during the term of
the Non-Competition Agreements shall constitute a breach of such Seller's
Non-Competition Agreement. In addition, for so long as a Seller is a member of
the Board of Directors of Buyer or is a party to the Shareholders' Agreement,
Buyer or Company shall, if requested by such Seller, provide medical and other
benefits to such Seller consistent with those provided to senior managers of
Buyer or its Affiliates and/or the Company.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and Sellers will
maintain in confidence, and will cause the directors, officers, employees,
agents, and advisors of Buyer and the Company to maintain in confidence,
written, oral, or other information obtained in confidence from another party in
connection with this Agreement or the Contemplated Transactions, unless (a) such
information is already known to such party or to others free from any duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary in making any filing
or obtaining any consent or approval required for the consummation of the
Contemplated Transactions and then only upon the consent of Sellers, which
consent shall not be unreasonably withheld, or (c) the furnishing or use of such
information is required by legal proceedings and the party has sought and
obtained a protective order reasonably satisfactory to the other party thereto.
If the Contemplated Transactions are not consummated, each party will return
such information as the other party may reasonably request and the provisions of
this Section 11.3
47
and the provisions of that certain agreement regarding confidentiality between
the parties evidence in a certain letter dated March 31, 1998 from James A.
Murphy to Stephen L. Day, shall continue to be binding on, and observed by, all
parties notwithstanding the termination of this Agreement.
11.4 NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand, (b) sent by telecopier (with confirmation of receipt), provided that a
copy is mailed by certified mail, return receipt requested, or (c) when received
by the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Buyer: Dover Saddlery, Inc.
c/o Blue Grass Investments
Suite 200
75 Gilcreast Road
Londonderry, NH 03053
Attention: Stephen L. Day, President
Telephone: (603) 421-1783
Facsimile: (603) 434-2646
E-Mail: toad@bit-net.com
with a Pepe & Hazard LLP
copy to: Goodwin Square
Hartford, CT 06103
Attention: James C. Schulwolf, Esq.
Telephone: (860) 241-2684
Facsimile: (860) 552-2796
E-Mail: jschulwolf@pepehazard.com
Sellers: James F. Powers
97 Dedham Street
Dover, MA 02030
Telephone: (508) 785-2416
Facsimile: (508) 785-0411
David J. Powers
50 Springdale Avenue
Dover, MA 02030
Telephone: (508) 785-2894
48
Michele R. Powers
157 Center Street
Dover, MA 02030
Telephone: (508) 785-0210
with a Tarlow, Breed, Hart, Murphy & Rodgers, P.C.
copy to: 21 Custom House Street
Boston, MA 02110
Attention: William R. Rodgers, Esq.
Telephone: (617) 261-7600
Facsimile No: (617) 261-7673
E-Mail: tbhmr@tiac.net
11.5 DISPUTE RESOLUTION/ARBITRATION
Buyer and Sellers shall make a good faith effort to resolve all disputes arising
from this Agreement, including but not limited to questions regarding its
existence, validity, or termination. Such efforts shall include but not be
limited to the engagement of a qualified mediator to assist in settlement
discussions.
In the event the Parties are unable to settle any controversy hereunder then any
dispute or claim arising under or relating to this Agreement shall be determined
by arbitration in accordance with rules and procedures of the American
Arbitration Association applicable to commercial disputes. There shall be a
single arbitrator and the place of arbitration shall be Boston, Massachusetts.
Any award or determination shall be final, binding and conclusive upon the
parties and an award rendered may be entered in any court having jurisdiction
thereof. Each party shall bear the cost of its own expenses relating to the
arbitration, unless otherwise determined in the arbitration proceedings.
11.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
49
11.7 WAIVER
Except as provided in Section 10.5 the rights and remedies of the parties to
this Agreement are cumulative and not alternative. Neither the failure nor any
delay by any party in exercising any right, power, or privilege under this
Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power, or privilege, nor will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement or the documents referred to
in this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
waiving party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement or the documents
referred to in this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with respect
to its subject matter (including the Letter of Intent between Buyer and Sellers
dated June 10, 1998) and constitutes (along with the documents referred to in
this Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by the party to be charged
with the amendment.
11.9 DISCLOSURE STATEMENT
In the event of any inconsistency between the statements in the body of this
Agreement and those in the Disclosure Statement (other than an exception
expressly set forth as such in the Disclosure Statement), the statements in the
body of this Agreement will control.
11.10 ASSIGNMENT, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Subject to Section 10.5, no party may assign any of its rights under this
Agreement without the prior consent of the other parties, which will not be
unreasonably withheld, except that Buyer may assign any of its rights under this
Agreement to (i) any Subsidiary of Buyer and (ii) any lender of Buyer. Without
limiting the generality of the foregoing, Sellers hereby specifically
acknowledge and consent to the collateral assignment by Buyer of its rights
under this Agreement, including without limitation its rights under Section 10
hereof, to BankBoston N.A., and any successor thereto. This Agreement is
personal to Buyer and may not be transferred or assigned except as expressly
stated herein. Subject to the preceding, this Agreement will apply to, be
binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
50
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their permitted successors and assigns.
11.11 SEVERABELITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
11.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Sections or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding word or terms.
11.13 GOVERNING LAW
This Agreement will be governed by the laws of The Commonwealth of Massachusetts
without regard to its conflicts of laws principles.
11.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which when taken
together, will be deemed to constitute one and the same agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
51
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
BUYER: SELLERS:
DOVER SADDLERY, INC.
By: /s/ Stephen L. Day /s/ James F. Powers
--------------------------------- ----------------------------------------
Name: Stephen L. Day James F. Powers
Title: President
/s/ David J. Powers
----------------------------------------
David J. Powers
/s/ Michele R. Powers
----------------------------------------
Michele R. Powers
52
FINAL
DISCLOSURE SCHEDULE
Disclosure Schedule to the Stock Purchase Agreement ("Agreement") is made
as of the 14th day of August, 1998, by and among Dover Saddlery, Inc., a
Delaware corporation ("Buyer") and James F. Powers, David J. Powers and Michelle
R. Powers (collectively, the "Sellers" and individually a "Seller"), being all
of the shareholders of Dover Saddlery, Inc. a Massachusetts corporation (the
"Company").
This Disclosure Schedule is divided into sections which are numbered to
correspond to sections of the Agreement. Cross-references set forth herein
(e.g., Sec Section ...) are cross -references to other sections of this
Disclosure Schedule. Notwithstanding anything to the contrary contained in the
Agreement and notwithstanding any cross-references in any section hereof (which
cross-references are offered only for the convenience of the reader), any matter
which is disclosed in any particular section of or exhibit to this Disclosure
Schedule, or in any other schedule or exhibit to the Agreement, shall be deemed
to be disclosed in all sections of the Disclosure Schedule and in all schedules
and exhibits to the Agreement, as applicable, and shall serve to qualify all of
the representations and warranties of Sellers contained in the Agreement. Any
capitalized term not defined herein shall have the meaning assigned to it in the
Agreement. The inclusion of any disclosures or information in this Disclosure
Schedule or any other schedule or exhibit which goes beyond the requirements of
the Agreement therefor are offered for informational purposes only and shall not
form the basis for any inference that such disclosures or information constitute
a complete listing of information of a similar nature which is not required by
the terms of the Agreement to be disclosed.
Schedule No. Disclosure
3.1 ORGANIZATION State of Incorporation - Massachusetts
Foreign qualifications - none.
Except for goods in transit, all assets of the Company are
kept in Massachusetts
3.2 CAPITALIZATION In October, 1989, the company experienced a fire during
which its corporate records were destroyed. No corporate
records exist for periods prior to that date.
In December 1989 the Company, acting by the unanimous
approval of all directors and shareholders voted to
recapitalize
1
the Company's capital stock. The recaptialization
authorized 112,500 shares of no par value common stock, of
which 56,250 shares are Class A Voting and 56,250 shares
Class B Non-Voting (the "Recapitalization"). The Articles
of Amendment implementing this recapitalization was never
filed with the Massachusetts Secretary of State, although
both the Company and all of its shareholders have always
acted as if it had been filed. Only in connection with the
review of corporate records and state filings was this
oversight noted. The Company and Sellers intend to cause
new articles of amendment to be filed consistent with, and
on the same terms as, the 1989 documents and to otherwise
ratify and confirm all of the actions then taken and
subsequently taken in reliance on the Recapitalization,
notwithstanding that the articles of amendment were never
filed. Pursuant to the Recapitalization, and treating it as
if it were properly accomplished by the filing of said
articles of amendment, there are 54,000 shares issued and
outstanding, of which:
J. Powers owns 12,000 shares of voting stock and 12,000
shares of non-voting stock;
D. Powers owns 12,000 shares of voting stock and 12,000
shares of non-voting stock;
M. Powers owns 6,000 shares of such non-voting stock.
There are no other shares of stock outstanding nor are
there any other shareholders. By accepting this Disclosure
Statement, Buyer agrees that Sellers and Company may take
such steps as are necessary or appropriate to ratify and
confirm the Recapitalization and the record ownership of
the Company's outstanding stock, as set forth above.
There are currently two (2) Stock Purchase Agreements among
the Sellers, creating rights of purchase with respect to
the Company's stock. Both are dated December 22, 1989, and
the first is among James Powers, David Powers and Cecilia
Powers, and the second is among James Powers, David Powers
and Michelle Powers. All stock certificates bear a legend
as to the existence of restrictions on transfer arising
from such agreements, as applicable.
2
3.4 NO CONFLICT Sellers hereby disclaim any and all representations or
warranties concerning the tax implications to the Company
arising out of the Contemplated Transactions.
Transfer of the Wellesley lease requires consent of the
landlord.
See Section 3.13
3.5 COMPLIANCE;
PERMITS
3.6 (a) FINANCIAL See Arthur Anderson Agreed Upon Procedures Report for Blue
STATEMENTS AND Grass Investments and Chase Capital Partners, draft dated
RELATED MATTERS July 20, 1998 (the "AA Report").
See Exhibit 3.6(a) attached hereto and incorporated herein
for a description of various adjustments made to the
Interim Financial Statements and other disclosures
concerning the Financial Statements.
3.6 (B) ACCOUNTS See Section 3.6(a), above
RECEIVABLE
AMEX - $30,772.84 of accounts receivable due from American
Express which were included in amounts owed from such
party, as reflected in the 1997 statements, were
erroneously included. The 6/30/98 statement reflects the
proper accounts receivable balance due from AMEX after a
prior year write-down adjustment for such erroneous amount.
Accounts past 30 days - The company, in the Ordinary Course
of Business, has allowed certain long-time customers to
purchase merchandise on payment plans. These customers, who
include Tom Waters, David Olynick (Equestrian Enterprises)
& Skip Bellingham, are charged an agreed upon fixed amount,
not less than $100 per month, which is applied against the
balance of their individual accounts. As of 7/31/98, such
outstanding amounts were:
Equestrian Enterprises - $122.28
Tom Waters - $645.92
Skip Bellingham - $1,370.04
Dressage Today, recently acquired by Cowles Publications,
currently, owes $2,033.95 for a list rental and has
affirmed its
3
payment obligations. Payments seem delayed due to ownership
change.
Accounts Receivable include a note receivable from an
employee named Kimberly Kavanagh in the amount of $8,917,
dated 12/96 and payable monthly over 10 years.
36(C) INVENTORY See Section 3.6(a), above
The Company follows a liberal, full return policy -
unlimited right to return products except as otherwise
described in Section 3.19.
Due to an error in the inventory software, the Company
occasionally revalued its entire inventory of a particular
item whenever the cost of replacement goods taken into
inventory changed. Research has shown that, due to the high
rate of inventory roll-over, the valuation of the
merchandise in stock was not materially misleading.
Unrecorded assets - The Company, in the Ordinary Course of
Business, accumulates off record inventory items as a
result of returned goods and discontinued merchandise,
which are removed from inventory and which are periodically
offered at sale prices. The current value of this
off-record merchandise (which is not included in the
Interim Balance Sheet) is estimated to be approximately
S40,000.
The Sellers and their families in the Ordinary Course of
Business, periodically obtain products from inventory at no
cost for evaluation purposes.
3.6(D) BOOKS AND The Company's minute books and stock ledgers have not
RECORDS always been kept up to date or on a current basis, although
the board of directors and shareholders have periodically
met as required by its bylaws.
In October, 1989, the company experienced a fire during
which its corporate records were destroyed.
3.7 CERTAIN (c) See Section 3.6(a) and (c), above
CHANGES
(A)-(N)
4
(d) See Section 3.6, above
(e) The Company recently sold a 1986 BMW in need of
substantial repairs for $1,500. Further, the Company
owns a 1990 BMW, and 1995 GMC pick up truck, and a
1995 horse trailer, which are to be distributed to
Sellers prior to closing. The trailer was paid for
with personal funds of Jim Powers and was titled in
the name of the Company for convenience. See, also,
Section 3.21.
(g) The Company recently repaid $660,000 in shareholder
loans and also paid year end bonuses to the Sellers.
See Section 3.6(c), above.
3.8 UNDISCLOSED See Section 3.6(a), above
LIABILITIES
Interim Balance Sheet does not include all accruals for
costs of the transactions contemplated by this Agreement.
3.9 LITIGATION: See Section 3.17
CLAIMS
See Section 3.19
Approximately two years ago the company changed catalog
prep houses. Digital Media, Inc. ("DMI"), the former prep
house, was paid all bills due them, and the Company
requested the return of its archived catalog images in
DMI's possession. DMI subsequently attempted to bill the
Company $10,000 for the return of the archived images. The
Company refused payment, and later received a demand letter
dated June 16, 1997, from DMI's attorney. Dover refused
payment and has not been contacted by DMI or counsel for
DMI since that time.
3.10 EMPLOYEE (a) See Company's Profit Sharing Plan;
BENEFIT
PLANS;
EMPLOYEES
Tufts Health Plan - "Value Plan" available to all
full time employees, subject to customary waiting
period.
5
(b) Sec Section 3.20
From time to time in the Ordinary Course of Business,
the Company contracts out catalog production services
with independent contractors. Invoices are received
from these independent contractors based on hours
worked.
3.11 LABOR MATTERS
3.13 CONTRACTS Letters of credit are purchased from time to time in the
Ordinary Course of Business.
Agreement with Customer broker, Radix Group International
Long lead purchase order placed with Cavalry Marketing Ltd.
for horse blankets expected to be delivered from August
through November, 1998, aggregating $365,941.16, of which
$257,288 has been paid.
NBC America phone system lease
Pitney Bowes leases (meter, scale and associated
equipment);
Foreign Currency Hedging Agreement with Thos. Cook Currency
Services, Inc. Dated January 29, 1993
IRS Form 2848 Power of attorney granted to Janet Emmons,
Future Planning Associates, Inc. by Dover Saddlery, Inc.
Profit Sharing Plan, circa 1991
2 maintenance contracts with General Automation for
computer equipment.
Telephone long distance contract with Frontier
Communications, dated 11/15/96.
Merchant Agreements with credit card companies, including
American Express, Mastercard, Visa and Discover.
6
Copier Maintenance agreement for year-ending 10/21/98, $895
total, with Duplitron.
dcVisscher & Co. Engagement Letter dated March 31, 1998.
As of a recent date, the following is a list of Purchase
Orders over $25,000 still outstanding:
Horsewares Ireland $ 50,082.65 9/1/98
Horsewares Ireland $ 67,916.50 10/1/98
Horsewares Ireland $ 58,327.05 11/1/98
Horsewares Ireland $ 39,983.10 12/1/98
Horsewares Ireland $ 20,254.25 12/30/98
Devonaire $ 25,479.00 9/1/98
Ariat $ 49,670.25 1/2 shipment 9/30/98
1/2 shipment 11/30/98
EFI/Cavalry Marketing $ 51,605.40 9/1/98
EFI/Cavalry Marketing $ 69,546.80 9/15/98
EFI/Cavalry Marketing $ 57,019.00 9/15/98
EFI/Cavalry Marketing $ 41,137.15 9/15/98
EFI/Cavalry Marketing $ 34,308.28 9/30/98
EFI/Cavalry Marketing $ 67,306.15 10/15/98
EFI/Cavalry Marketing 45.018.38 11/1/98
-----------
TOTAL $365,941.16*
===========
* As of 7/31/98, the Company has prepaid $257,288 of the
EFI total.
See Section 3.20
See Section 3.14
3.14 REAL ESTATE Leases at 41 Pope Road, Holliston, consisting of 10,000 sq.
ft. in Building 6 and 17,500 sq. ft. in Building 7 and one
lease at 591-595 Washington Street, Wellesley. [NB: tenancy
at will in both Holliston locations]
7
3.15 TAXES The Company's anticipated tax liability for FY 1998, has
been increased in connection with the repayment of the
$660,000 in shareholder loans referred to above
See Sections 3.4 & 3.6, above
3.16 ENVIRONMENTAL
MATTERS
3.17 INTELLECTUAL Sellers have never performed any intellectual property
PROPERTY infringement or validity searches on its Intellectual
Properties, so, except in regards to the trade name "Dover
Saddlery" and the copyrights listed at Section 3.7(f), all
representations and warranties concerning title are made on
a best knowledge basis, but without investigation or
inquiry of anyone outside of the Company.
(b): Agreements - Royalties Paid/Received - The Company, in
the Ordinary Course of Business, routinely rents
mailing lists for catalog distribution from a variety
of sources. These rentals are accomplished through
purchase orders for each rental.
(c)(i): In producing and distributing its catalogs, the
Company routinely purchases in the Ordinary Course of
Business the right to use images owned by others.
(c)(ii): The Company does not have any agreements of this
type with its employees
(c)(i): Trademarks - Although the Company uses a variety of
words and names in the Ordinary Course of Business in
connection with its sale of products, and which may
amount to trademarks under law, none of the words or
names used by the company are registered trademarks.
The following names and words are currently used by
the Company in connection with the sale of certain
products:
CLASS A MARKS: Dover Saddlery
8
CLASS B MARKS:
Riding Sport (Breeches and Clothing)
The Circuit (Riding Hat and Saddles)
Premier 1 (Saddle)
International (Saddle)
Proride (Saddles)
Warendorf (Saddle)
Hanover (Saddle)
Rider's International (Saddle Pads)
Showmark Bridlework (Bridlework)
Wellington Bridle Collection (Bridlework)
Dover/Made in England (Bridlework)
Crown Bridlework (Bridlework)
Suffolk International (Bridlework)
Rider's Horse Clothing International (Horse Clothing)
Classic Ironsides (Horse Clothing)
The company routinely issues notices and warnings to third
parties using what the Company believes to be proprietary
materials of the Company; similarly, the Company
periodically receives notices from third parties objecting
to the Company's use of trademarks or tradenames claimed
to be owned or controlled by others; it is the Company's
policy to respect third party rights and upon learning of
any third party claims to cease and desist any offending
use; at present, there are no claims pending by or against
the Company.
(f) The Company, in the Ordinary Course of Business, has
routinely copyrighted material appearing in its
catalogs. It has been the Company's intention to
copyright all such materials.
The following is a list of copyrights filed by the Company:
1. Main Catalog - 1980 through 1998 (missing 1983)
2. Sale Catalog - 1987 through 1998 (missing 1989, 1990,
1991, 1994, 1995)
3. Fall/Winter Catalog - 1987 through 1997 (missing 1989,
1991)
3.18 CONDITIONS The Company has not yet re-programed or upgraded, as
AFFECTING applicable, it computer systems to be "Year 2000" compliant
9
nor has it accrued any expense for such purpose, although
the Company has spoken on a very preliminary basis with one
of the Company's software providers. The Company currently
expects to address the year 2000 issue in due course after
Closing.
3.19 PRODUCT Roxana Tinoco claim: The Company has received a $10,000
WARRANTY claim for damages allegedly sustained when reins sold by
the Company supposedly broke in the course of a competitive
event. The rider neither fell nor suffered any physical
injuries. This claim was referred to Kemper Insurance, who
has refused settlement. Kemper has indicated that it will
defend the Company should formal legal proceedings be
commenced by this individual.
Customer return policy, the Company accepts customer
returns without question or limitations, satisfaction
guaranteed except as indicated below.
Warranties - the Company's warranties are limited to the
description of its product in each catalog and a policy of
assuring customer satisfaction with every purchased
product.
Although the phrasing of the Company's warranties may have
changed slightly over the years, the following warranty
language appears in the 1998 catalog and is representative
of statements of warranty offered by the Company:
"SATISFACTION GUARANTEED - We stand behind the quality
and value of our products, outfitting both horse and
rider for any level of competition and riding. We want
you to have the most satisfying and rewarding riding
experience."
"DOVER'S CUSTOMER SATISFACTION GUARANTEE - We stand
behind the quality of our products. If you are not
satisfied with your purchase, simply return it and we
will refund, replace or exchange it for you. *
* We cannot accept personalized or custom items for
return.
10
* Saddles are returnable, if our saddle
instructions are followed closely."
EPC, Inc, product recall - the Company has been notified
of a nationwide product recall by Equestrian Products
Company, Inc. (a/k/a "EPC"), a wholesaler, due to
complaints received about a bit sold by EPC to the Company
for resale. The Company and, upon information and belief
EPC, contacted the approximately 49 customers of the
Company who purchased the product in question. Fliers
regarding this recall were also displayed at the Company's
stores. No claims have been filed against the Company
regarding this product or the recall thereof.
3.20 EMPLOYEES, See disclosures at Section 3.18 and 3.14
INSURANCE,
BANKS, ETC.
(a) James F. Powers: $177,000/yr.
+ discretionary bonus
David J. Powers: $177,000/yr.
+ discretionary bonus
Michelle R. Powers: $86,326/yr.
+ discretionary bonus
Kimberlee Kavanagh: $53,000/yr.+ bi-annual bonus
dependant on company and
employee performance (average
total pay: $83,000/yr.)
Susan Lavery-Buck: $50,000/yr. with 3 month
increase of $5,000 and 6 month
increase of $5,000 (total
standard pay: $60,000/yr.);
employee hire date 5/11/98.
11
PROJECT DRESSAGE - EQUITY INVESTMENTS
FULLY DILUTED
------------------
$ Value Number Cost/ Value/ Total $
Invested Shares Share Share Earnings IRR %
--------- ---------- ----- ------ --------- ------
Equity Investment
Purchased Stock
11 Stephen Day 750,000 492,000 1.52 8.57 3,467,750 45.96%
12 Jonathan Grylls 50,000 32,800 1.52 8.57 231,183 45 96%
13 Dave Post 100,000 65,600 1.52 8.57 462,367 45.96%
14 Don Molsenbockar 50,000 32,800 1.52 8.57 231,183 45.96%
15 Thomas Gaines 50,000 32,800 1.52 8.57 231,183 45.96%
16 Venture Capital 1,000,000 656,000 1.52 8.57 4,623,667 45.96%
17
Founders Stock
18 Stephen Day 0 172,800 0.00 8.57 1,481,356
19 Jonathan Grylla 0 115,200 0.00 8.57 987,571
Rolled-Over Equity
Purchased Stock
21 James Powers 675,000 540,000 1.25 8.57 3,954,238
22 David Powers 675,000 540,000 1.25 8.57 3,954,238
23 Michelle Powers 150,000 120,000 1.25 8.57 878,720
24
25 Other 0
Subordinated Debt
31 Subordinated Debt Warrants 0 350,000 0.00 8.57 3,00O,432
Management Stock Options
41 Total Management Stock Options 0 350,000 0.00 8.57 3,000,432
ASSUMPTIONS
Total Shares Issued 3,500,000
Shares Valued in Year 5
Equity Value in Above Year 29,566,821
Income from Excise of Stock Options 1.25 437,500
Final Stock Value 30,004,321
Final Share Value 8.57
* Notes on Management Stock Options
- The Stock Options would be vested over 5 years, and earned as annual
EBIT budgets are achieved.
- No Stock Options would be granted in a year when EBIT was less
than 75% of budget
- Between 75% and 100% of the annual EBIT budget, 50% to 100% of
the Stock Options would be awarded on a pro-rata basis
- The Stock Options would have an exercise price of $1.25 per share -
the initial value at closing
Blue Grass
Investments Illegible
OUTLINE OF DOVER'S STOCK OPTION PLAN FOR KEY EMPLOYEES
TYPE OF PLAN:- Qualified
AMOUNT OF EQUITY:- 10%
DISTRIBUTION:- Key Employees 5%
Stephen Day 3%
Jonathan Grylls 2%
VESTING SCHEDULE:- - 20% each year for 5 years if EBIT budgets are met
- Accelerated if Company sold.
AWARD SCHEDULE:- - Options must be earned each year by meeting EBIT
targets
- 20% of pool will be eligible to be earned each year
EBIT TARGETS:- - Set annually by the Board, but generally consistent
with the present plan, but modified by future
acquisitions and other developments.
- No stock options to be awarded when the company does
not achieve at least 75% of the EBIT budget.
- Between 75% and 100% of the annual EBIT budget, then
50% to 100% of the stock options will be awarded on a
pro-rata basis.
EXERCISE PRICE:- - Stock Options would have an exercise price of $1.25
per share.
EXHIBIT 3.6(A)
GAAP DISCLOSURES &
PRO FORMA INTERIM BALANCE SHEET
The Company's financial statements are unaudited and internally prepared
and do not contain all of the disclosures and accounting classifications that
financial statements prepared under Generally Accepted Accounting Principles
would include.
The Pro Forma Interim Balance Sheet estimated as of July 31, 1998 includes
certain adjustments that are made at each year end on a basis consistent with
prior practices. The following lists the adjustments made to the estimated July
31, 1998 financial statements that a) have been made in prior years, and b) have
not been made in prior years:
A) ADJUSTMENTS MADE IN PRIOR YEARS
- - Record depreciation expense
- - Accrual for estimated Federal and State taxes payable
- - Other miscellaneous items posted and reclassified
- - Record interest expense and payments on any Shareholder loans payable
- - Adjustments for accrued payroll
- - Adjustments for shareholder and key employee accrued bonuses and taxes
thereon
- - Adjustments for accrued profit sharing
- - Accruals for federal state and excise taxes
B) ADJUSTMENTS NOT MADE IN PRIOR YEARS -- MADE ON THE INTERIM BALANCE SHEET
- - Provide an allowance for uncollectable trade accounts receivable
- - Adjust accounts receivable to actual, realizable amounts
- - Record allowance for estimated inventory shrinkage and slow moving items
- - Accrual of earned wages and salary for the pay period, not paid until after
FYE
- - Accrue transaction advisory fees and expenses
- - Accrual of legal costs for transactions services provided
- - Repayment of shareholder loans as of July 31, 1998
- - Other miscellaneous items posted and reclassified
- - Distribution of two vehicles to shareholders
DEPARTURES FROM GAAP
The following represent the primary departures from GAAP for the Pro Forma
Interim Balance Sheet.
DEPRECIATION: Historically, depreciation expense has been recorded on the income
tax basis of accounting which includes expensing fixed assets under IRS Section
179.
SALES RETURNS ALLOWANCE: No allowance has been made to reflect an estimate of
sales returns.
DISCLOSURES: All of the footnote disclosures and GAAP accounting classifications
traditionally accompanying GAAP prepared financial statements have not been
made.
EXHIBIT 3.20(b)I
SUMMARY OF INSURANCE Prepared Illegible Page 1
For. Dover Saddlery Inc. Illegible
Attn: James Powers P.O. Box Illegible
P.O. Box 5837 10 Union Street
Holliston, MA Natick, MA
01746 01760 Illegible-1202
Illegible Amount Company Policy No. Illegible Illegible Premium
- --------- ------ ------- ---------- --------- --------- -------
Business Owners Policy Kemper National Insurance 7RF203839C2 03/14/98 03/14/99 13890.00
Co.
Location 1 :
595 Washington Street Welleslay, MA 02151
Personal Property Amount 341,000
Deductable 250
Valuation RC
Location 2 :
a Chestnut Holliston MA 01746
Personal Property Amount 12,600
Deductable 250
Valuation RC
Location 3 :
Pope Road Holliston, MA 01746
Personal Porperty Amount 1,000,000
Deductable 250
Valuation RC
Liability Limits
General Aggregate 2,000,000
Illegible 2,000,000
Illegible & Advertising 1,000,000
Each Occurence 1,000,000
Illegible 100,000
Illegible 10,000
Additional Coverages
Extra Expense Illegible
Valuable Papers 15,000
Accounts Receivable 25,000
Illegible 15,000
SUMMARY OF INSURANCE Prepaired Illegible Page 2
Dover Saddlery Inc. Illegible
Attn: James Powers P.O. Box 645
P.O. Box 5837 10 Union Street
Holliston, MA Natick, MA
01746 01760 Illegible-1202
Illegible Amount Illegible Policy No. Illegible Illegible Premium
- --------- ------ --------- ---------- --------- --------- -------
Illegible Kemper National Insurance 35X065-5010 03/14/98 03/14/99 1350
Co.
Limit of Liability 1,000,000
liability Aggregate Limit 1,000,000
Retained Limit 10,000
Crime Kemper National Insurance Illegible Illegible Illegible Illegible
Co.
Employee Dishonesty 200,000
Bond Kemper National Insurance Illegible Illegible Illegible 500
Co.
Illegible 50,000
Business Auto The Travellers Insurance Illegible Illegible Illegible Illegible
Co.
Liability
Illegible 500,000
Illegible 500,000
Illegible 500,000
Autos Specified On Schedule
Hired Autos
Non-Owned Autos
PTP Deductable 8,000
Autos Specified On Schedule
Medical Payments Illegible 5,000
Autos Specified On Schedule
Uninsured Illegible
Illegible 20,000
Illegible 40,000
Autos Specified On Schedule
Underinsured Motorists
Illegible 20,000
Illegible 40,000
Autos Specified On Schedule
Physical Damage
Comprehensive
Autos Specified On Schedule
Collision
Autos Specified On Schedule
* See Attached Vehicle Schedule
SUMMARY OF INSURANCE Prepaired Illegible Page 3
For: Dover Saddlery Inc. Illegible
Attn: James Powers P.O. Box 645
P.O. Box 5837 10 Union Street
Holliston, MA Natick, MA
01746 01760 Illegible-1202
Business Auto Vehicle Schedule Policy No. Illegible
Illegible Illegible Illegible Model Illegible Illegible Illegible Illegible Illegible Illegible
- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
1 90 BMW 5251 Illegible Sherborn, MA 739100 x 300 Illegible
2 94 Illegible Illegible Holliston, MA 739100 x 300 Illegible
3 85 BMW Illegible Dover, MA 739100 x 300 Illegible
4 73 Illegible Illegible Illegible Holliston, MA 502990 300
5 70 Illegible Illegible Holliston, MA 572990 300
6 Illegible Illegible Illegible Illegible Dover, MA 681980 x
7 95 GMC Sierra Illegible Holliston, MA 011990 x 300 Illegible
Illegible
EXHIBIT 3.20(b)II
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MASSACHUSETTS RETAIL MERCHANTS WORKERS' COMPENSATION GROUP, INC.
190 Forbes Road
Suite 237
Braintree MA 02184-2513
================================================================================
ENDORSEMENT
CERTIFICATE NUMBER: 133903 ENDORSEMENT NUMBER: 1
COVERAGE PERIOD: January 1, 1998 to January 1, 1999
ITEM: 1
Participant: Administrator:
Dover Saddlery, Inc. First Cardinal Corporation
P.O. Box 5837 1A Pine West Plaza
Holliston, MA 01746 Albany NY 12205
1(800) 438-0160
Business form: Corporation Agent
Other workplaces not shown above: See Schedule First Cardinal Corp.
ITEM: 2 Certificate period is from January 1, 1998 to January 1, 1999
12:01 AM standard time at the Participant's mailing address.
ITEM: 3A Workers' Compensation Coverage: Part One of the certificate applies
to the Workers' Compensation Law of the states listed here:
Applicable States: MA
B Employers' Liability Coverage: Part Two of the certificate applies to
work in each state listed in Item: 3A. The limits of our liability
under Part 2 are:
Bodily injury by accident: $100,000 Each accident.
Bodily Injury by disease: $500,000 Certificate limit.
Bodily Injury by disease: $100,000 Each employee.
C This certificate includes the endorsements listed on the attached
endorsement schedule.
ITEM: 4 The fee for this certificate will be determined by our manual of
rules, classifications, rates and rating plans. All information
required below is subject to verification and change by audit. See
attached schedule.
Minimum fee: $500 Total estimated fee for Coverage Period: $11,695
PARTICIPANT: DOVER SADDLERY, INC.
ENDORSEMENT
CERTIFICATE NUMBER: 133903 ENDORSEMENT NUMBER: 1
COVERAGE PERIOD: January 1, 1998 to January 1, 1999
ADDITIONAL NAMED INSUREDS: LOCATIONS:
- -------------------------- ----------
Dover Saddlery, Inc. 41 Pope Road, Holliston, MA 01746
595 Washington Street, Wellesley, MA 02181
SCHEDULE OF OPERATIONS:
Code Estimated Rate Per Estimated Effective
Number: Classification: Total Payroll: $100: Fee: Date:
- ------- --------------- ---------------- -------- --------- ---------
7380 Drivers, chauffeurs & their helpers, NOC $ 3.210 8.70 $ 714 1/1
8017 Store: retail NOC $133.147 1.98 $ 2,636 1/1
8018 Store: wholesale NOC $188.462 6.79 $ 11,303 1/1
8810 Clerical office employees NOC $883.260 0.23 $ 1,857 1/1
Total for period: 1/1/98 to 1/1/99 $ 16,510
Tentative 20% Rate Deviation: ($3,302)
Increased Limits Fee: $ 0
Tentative Experience Modification: .890 ($1,453)
A.R.A.P.: 1.000 $ 0
Total Modified Fee for period: 1/1/98 to 1/1/99 $ 11,755
Total Modified Fee: $ 11,755
Fee Discount ($160)
Estimated Certificate Fee: $ 11,595
Previous Certificate Estimated Fee: $ 7,568
Additional Fee Due (Return Fee): $ 4,027
Note: Payroll data and Fees may reflect pre-rata values if applicabla period is
other than one full year.
Reason: amend payrolls based on '97 audit