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ASSET PURCHASE AGREEMENT
AMONG
TANDYCRAFTS, INC., TAC HOLDINGS, INC.
AND
TANDYARTS, INC., AS SELLERS
AND
PINNACLE FRAMES AND ACCENTS, INC., AS BUYER
Dated: As of November 22, 2002
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TABLE OF CONTENTS
PAGE
1. Sale and Purchase of Assets..............................................1
1.1 Sale of Assets to Buyer............................................1
1.2 Excluded Assets....................................................2
2. Purchase Price...........................................................3
2.1 Amount and Payment of Consideration................................3
2.2 Assumption of Liabilities..........................................4
2.3 Additional Payments................................................5
2.4 Deposit............................................................5
2.5 Post-Petition Taxes................................................6
3. Closing Date.............................................................7
4. Representations and Warranties by Sellers................................7
4.1 Organization and Authority.........................................7
4.2 Authorization of Agreement.........................................7
4.3 Consents of Third Parties..........................................7
4.4 Title to Assets....................................................7
4.5 Financial Statements...............................................7
4.6 Absence of Certain Changes.........................................8
4.7 Intangible Assets..................................................8
4.8 Litigation; Compliance with Laws...................................9
4.9 List of Agreements.................................................9
4.10 Status of Agreements...............................................9
4.11 Equipment.........................................................10
4.12 Inventory.........................................................10
4.13 Taxes.............................................................10
4.14 Labor Matters.....................................................11
4.15 Employee Benefits.................................................11
4.16 Customers and Suppliers...........................................12
4.17 Environmental Matters.............................................12
4.18 Brokers Fees; No Commissions......................................12
4.19 Books and Records.................................................12
4.20 Sufficiency of Assets.............................................12
4.21 Professional Fees and Working Capital.............................13
5. Representations and Warranties by the Buyer.............................13
5.1 The Buyer's Organization and Authority............................13
5.2 Authorization of Agreement........................................13
5.3 Consents of Third Parties.........................................13
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5.4 Litigation........................................................13
5.5 Equity............................................................13
6. Further Agreements of the Parties.......................................13
6.1 Financing.........................................................13
6.2 Operations of the Sellers.........................................14
6.3 Access to Information.............................................14
6.4 Employees; ERISA..................................................15
6.5 Determination of Working Capital..................................17
6.6 Break-Up Fee; Expenses............................................18
6.7 Non-Solicitation..................................................18
6.8 Assumed Contracts and Cure Amounts................................19
6.9 Further Assurances................................................19
6.10 Buyer's Covenant to Satisfy Conditions............................19
6.11 Sellers' Covenant to Satisfy Conditions...........................19
7. Conditions Precedent to Closing.........................................20
7.1 Conditions Precedent to the Obligations of the Buyer..............20
7.2 Conditions Precedent to the Obligations of Sellers................21
8. Transactions at the Closing.............................................22
8.1 Documents to be Delivered by Sellers..............................22
8.2 Documents to be Delivered by the Buyer............................22
9. No Survival.............................................................22
10. Termination.............................................................22
10.1 Termination.......................................................22
10.2 Effect of Termination.............................................23
10.3 Deposit...........................................................23
10.4 Expense Reimbursement.............................................24
11. Miscellaneous...........................................................24
11.1 Notices...........................................................24
11.2 Entire Agreement..................................................25
11.3 Headings..........................................................25
11.4 Governing Law.....................................................25
11.5 Separability......................................................25
11.6 Assignment........................................................25
11.7 Publicity.........................................................25
11.8 Bankruptcy Court Jurisdiction.....................................26
11.9 Counterparts......................................................26
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ASSET PURCHASE AGREEMENT
AS OF NOVEMBER 22, 2002
The parties to this agreement are Tandycrafts, Inc., a Delaware
corporation ("Tandycrafts"), TAC Holdings, Inc., a Delaware corporation ("TAC"),
and Tandyarts, Inc., a Nevada corporation ("Tandyarts" and together with
Tandycrafts and TAC, the "Sellers"), as debtors and debtors-in-possession in a
Chapter 11 case (No. 01-01764-MFW) (the "Case") pending before the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), and
Pinnacle Frames and Accents, Inc., a Delaware corporation (the "Buyer").
On May 15, 2001 (the "Filing Date"), the Sellers filed with the
Bankruptcy Court voluntary petitions for relief under chapter 11 of the United
States Code, 11 U.S.C. ss.ss. 101 et seq. (the "Bankruptcy Code"). Sellers
continue to operate their businesses and manage their properties as
debtors-in-possession.
The Sellers desire to sell to the Buyer, and the Buyer desires to
purchase from the Sellers, substantially all of the assets of the Sellers, and
assume certain contracts or leases, pursuant to Sections 363 and 365 of the
Bankruptcy Code, and on the terms and conditions of this agreement, with an
aggregate of $20,800,000 of the purchase price (the "Secured Lender Proceeds")
payable to Wells Fargo Bank Texas, N.A. and Bank One, N.A., the pre-petition
lenders to the Sellers (the "Banks"). The Banks, which have security interests
in and liens on substantially all of the assets of Sellers, are willing to
consent (to the extent such consent is required under the Bankruptcy Code) to
the sale of the Sellers' assets to the Buyer, and to the waiver and release of
certain claims against the Debtors, their estates and the assets to be sold
hereunder all in exchange for the Secured Lender Proceeds and certain additional
non-monetary consideration, subject to the terms and the conditions specified in
this agreement.
Accordingly, the parties agree as follows:
1. Sale and Purchase of Assets.
1.1 Sale of Assets to Buyer . Subject to the other terms and
conditions set forth in this agreement, and at the closing referred to in
section 3.1, the Sellers shall sell and assign to the Buyer, and the Buyer shall
purchase and acquire, all of the assets of the Sellers (excluding only the
assets referred to in section 1.2) as those assets exist on the Closing Date
referred to in section 3.1, free and clear of all liens, claims and encumbrances
("Liens") (except for those Liens to be assumed by Buyer pursuant to section
2.2). Except as otherwise provided in section 1.2, the assets of the Sellers to
be sold and assigned (collectively, the "Assets") include, but are not limited
to, the following:
(a) all inventory, including all work-in-process and finished
goods, and all raw materials;
(b) all equipment, furniture, fixtures and leasehold
improvements, office equipment, supplies and all other tangible
personal property, wherever located, that are owned by the Sellers,
including without limitation those listed on schedule 1.1(b);
(c) all rights of the Sellers under the executory contracts,
unexpired leases and other agreements (the "Assumed Contracts")
relating to the business and operations of the Sellers that are listed
on schedule 1.1(c);
(d) all prepaid expenses and security deposits;
(e) all accounts receivable of the Sellers as of the close of
business on the Closing Date;
(f) all cash, bank accounts, certificates of deposit,
commercial paper, treasury bills and notes and all other marketable
securities as of the close of business on the Closing Date;
(g) all patents, trademarks, trade names, logos and other
tangible and intangible personal property relating to the business of
the Sellers together with the good will of the business associated with
those patents, trademarks, trade names and logos, including without
limitation those listed on schedule 1.1(g);
(h) all of the Sellers' rights under manufacturers' and
vendors' warranties relating to items included in the Assets and all
similar rights against third parties relating to items included in the
Assets;
(i) all causes of action, choses in action and rights of
recovery and counterclaims or setoffs of the Sellers that relate to the
Assumed Contracts or the liabilities assumed by Buyer pursuant to
Section 2.2 hereof, and the preference or avoidance actions and claims
of Sellers pursuant to sections 547 and/or 550 of the Bankruptcy Code
listed on schedule 1.1(i);
(j) all files, logs and business records of every kind
relating to the operations of the business of the Sellers, including,
but not limited to, sales correspondence, promotional materials, and
credit and sales records; and
(k) all tax refunds for state and local taxes, any portion of
federal tax refunds relating to the Post-Petition Tax Period, insurance
policies (excluding any policy that by its terms is not assignable,
unless the Court orders assignment of such policy) and insurance
claims, including without limitation those listed on schedule 1.1(k).
1.2 Excluded Assets. The following assets (the "Excluded Assets")
shall be retained by Sellers and shall not be sold or assigned to the Buyer:
(a) any executory contract, unexpired lease or other
agreement not listed on schedule 1.1(c) or for which assumption by
Sellers and assignment to the Buyer is not approved by the Bankruptcy
Court (the "Excluded Contracts");
(b) cash in the amount of (i) $350,000 (the "Excluded Cash"),
to be applied to pay Post Closing Professional Fees and Costs of
Administration as defined in section 2.3 and (ii) the Estimated
Post-Petition Tax Amount, calculated and delivered to Sellers in
accordance with section 2.5;
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(c) the real property located in Fort Worth, Texas (the "Fort
Worth Property") described on schedule 1.2(c), together with any and
all liabilities and obligations related thereto;
(d) the account books of original entry and general ledgers
and all corporate records of Tandycrafts and its subsidiaries,
including tax returns and stock transfer books;
(e) all causes of action, choses in action and rights of
recovery and counterclaims or setoffs of the Sellers and all actions or
claims of any Seller under sections 510, 544, 545 and 547-553 of the
Bankruptcy Code, other than those that relate to the Assumed Contracts
or the liabilities assumed by Buyer pursuant to Section 2.2 hereof and
the preference or avoidance actions and claims of Sellers pursuant to
sections 547 and/or 550 of the Bankruptcy Code listed on schedule
1.1(i); and
(f) the capital stock of the Sellers and any subsidiaries of
the Sellers;
(g) tax refunds for federal income taxes, other than portions
thereof relating to the Post-Petition Tax Period;
(h) prepaid retainers relating to professional fees and
expenses in connection with the Case; and
(i) the other assets listed on schedule 1.2(i).
2. Purchase Price.
2.1 Amount and Payment of Consideration. As full consideration for
the Assets, the Buyer shall:
(a) pay to or for the benefit of Sellers at the closing a
cash purchase price (the "Purchase Price") of $23,450,000 plus the
amount of all "cure" payments required to be paid in connection with
the assumption of the Assumed Contracts (by Bankruptcy Court order or
pursuant to an agreement with a contracting party to any Assumed
Contract), minus any professional fees and expenses and costs of
administration paid by Sellers between September 30, 2002 and the
Closing Date, and assume the non-tax priority claims set forth on
schedule 2.1(a), of which $20,800,000 will be indefeasibly paid to the
Banks;
(b) pay to Sellers (i) after the Closing Date, any amounts
payable pursuant to section 2.2(c) as provided in sections 2.2(b) and
2.2(c) and (ii) on the Closing Date, the Estimated Post-Petition Tax
Amount as provided in section 2.5; and
(c) assume, and agree to pay, perform and discharge, certain
specific obligations and liabilities of Sellers as set forth in section
2.2(a).
The Banks have agreed that subject to the fulfillment of the
conditions precedent and delivery of the documents specified in Sections 7 and 8
hereof and the occurrence of a
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closing no later than December 30, 2002 of the sale of the Assets for an amount
not greater than the Purchase Price (as the same may be adjusted pursuant to
this agreement), the Banks will accept cash payment to them of $20,800,000 at
closing pursuant to this agreement and the transfer to them of the Fort Worth
Property to be in full and final satisfaction of all liabilities and obligations
of Sellers to the Banks pursuant to the Amended and Restated Revolving Credit
Agreement, dated October 13, 2000, and all related documents (the "Bank Debt")
or otherwise, and at such closing the Banks will release all Liens they may have
against the Assets and waive any rights to assert a deficiency claim against any
other assets of the Sellers, including any proceeds from the sale of the Assets
that are not payable to the Banks pursuant to the terms of this Agreement.
2.2 Assumption of Liabilities.
(a) At the closing, the Buyer shall assume, and shall agree
to pay, perform and discharge and shall agree to indemnify and hold
Sellers harmless from (1) the accounts payable and accrued expenses
(including post-petition taxes, if any, other than the Business Taxes
described in section 2.5) of Sellers that arose in the ordinary course
of business after the Filing Date and on or before the Closing Date
(excluding for all purposes the amount owing to Bankers Direct Leasing,
a division of EAB Leasing Corp. ("Bankers Leasing"), professional fees
and all other expenses and costs of administration of Sellers'
bankruptcy proceeding, including U.S. Trustee's fees, and accrued
interest); and (2) all of the obligations and liabilities of Sellers to
the extent arising exclusively during the period after the close of
business on the Closing Date under the Assumed Contracts that are
assumed and assigned to Buyer pursuant to Section 365 of the Bankruptcy
Code.
(b) At the closing, from the $20,800,000 payable to the Banks
pursuant to section 2.1, the Banks will deposit into escrow pursuant to
an escrow agreement reasonably satisfactory to the Banks and the other
parties thereto, $800,000. If the Buyer assumes the Allowed Tax
Priority Claims in accordance with section 2.2(c), the amount in escrow
shall be released and paid to the Banks. If the Buyer does not assume
the Allowed Tax Priority Claims in accordance with section 2.2(c), the
Banks will lend the Alternative Bank Loan to the Buyer, pursuant to
documentation reasonably satisfactory to the Banks and the other
parties thereto but generally on the terms set forth on schedule
2.2(b), to be applied by the Buyer to pay to the Sellers all or a
portion of the Additional Purchase Price for the Assets, as provided in
section 2.2(c).
(c) After the Closing Date, the Sellers will seek to resolve
the amount of any disputed priority tax claims (the aggregate amount of
the filed, deemed-filed, or otherwise allowed priority tax claims are
set forth on schedule 2.2(c) hereto). The aggregate amount of the
priority tax claims that ultimately become "allowed" claims (pursuant
to Section 502 of the Bankruptcy Code and Bankruptcy Rules 3003(b)(1),
(c)(4) and 3007), shall hereinafter be referred to as "Allowed Tax
Priority Claims." After the amount of Allowed Tax Priority Claims has
been resolved, the Sellers (or any successor thereto) and Buyer will
seek a Bankruptcy Court order permitting the Buyer to assume the
Allowed Tax Priority Claims, so long as (a) the aggregate amount of (i)
the Allowed Tax Priority Claims and (ii) the non-tax priority claims
set forth on schedule
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2.1(a) ("Non-Tax Priority Claims") does not exceed $1,000,000, and (b)
any such Bankruptcy Court order is reasonably satisfactory to the
Buyer and would enjoin the holders of the Allowed Tax Priority Claims
under Sections 105 and 1129(a)(9)(c) of the Bankruptcy Code from
pursuing any action against Buyer so long as Buyer complies with the
Section 1129(a)(9)(c) payout procedures (such an order hereinafter
referred to as a "Tax Claim Assumption Order"). If either (a) the
aggregate amount of (i) the Allowed Tax Priority Claims and (ii) the
Non-Tax Priority Claims exceeds $1,000,000, or (b) the Bankruptcy
Court will not enter a Tax Claim Assumption Order, then the Buyer
shall pay to Sellers, as additional purchase price for the Assets, the
lesser of: (1) $1,000,000 minus the amount of the Non-Tax Priority
Claims or (2) the amount of the Allowed Tax Priority Claims
("Additional Purchase Price"), and the Banks shall loan to the Buyer
the lesser of $800,000 and the Additional Purchase Price ("Alternative
Bank Loan"), as provided in section 2.2(b). Notwithstanding the
foregoing, if the aggregate amount of (i) the Allowed Tax Priority
Claims and (ii) the Non-Tax Priority Claims exceeds $1,000,000, the
Buyer and Sellers (or their successor) will nevertheless make good
faith efforts to obtain from the Bankruptcy Court a Tax Claims
Assumption Order, authorizing the Buyer to assume as many of the
Non-Tax Priority Claims as feasible, up to a level where the aggregate
amount of Allowed Tax Priority Claims and Non-Tax Priority Claims
assumed by the Buyer reach (but not exceed) $1,000,000, and, in such
event, the Additional Purchase Price shall be the amount (if any) by
which $1,000,000 exceeds the aggregate amount of Allowed Tax Priority
Claims and Non-Tax Priority Claims assumed by the Buyer (and, in such
case, the Alternative Bank Loan shall equal the lesser of the
Additional Purchase Price and $800,000).
Except as provided in sections 2.1(a), 2.2(a), 2.2(b) and 6.4, the Buyer shall
not assume, and shall not pay, perform, discharge or be liable for, any other
liabilities, obligations, claims or contracts of Sellers of any kind or
description, whether arising from or based on contract, breach of contract,
warranty, tort, strict liability, the design, manufacture or distribution of
products (including without limitation products liability), employment,
environmental claims, taxes, law, violation of law, the operations and business
of the Sellers or otherwise.
2.3 Additional Payments. The Sellers anticipate asking the
Bankruptcy Court for permission to set aside up to $1.5 million of the Purchase
Price, less the amount of any professional fees and expenses and costs of
administration paid by Sellers between September 30, 2002 and the Closing Date,
for the payment of accrued and unpaid pre-closing professional fees and costs of
the bankruptcy case ("Professional Fees and Case Administration Fund"). Upon the
final administration of the Case, the Sellers shall pay to the Buyer an amount
equal to the amount by which the total actual professional fees and expenses and
the costs of administration of Sellers' bankruptcy proceeding paid after the
Closing Date (the "Post-Closing Professional Fees and Costs of Administration")
are less than the sum of $350,000 plus any remainder left in the Professional
Fees and Case Administration Fund, after payment of professional fees and
expenses and costs of administration paid by Sellers through the Closing Date.
2.4 Deposit. Upon execution of this agreement and approval of the
Bid Protections as further described in section 6.6, the Buyer shall deliver to
an escrow agent reasonably acceptable to the Buyer and Sellers (the "Escrow
Agent") the sum of $750,000 (the
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"Deposit"), to be held by the Escrow Agent pursuant to the terms of an escrow
agreement in form of and substance reasonably satisfactory to Buyer and Sellers.
If the closing occurs, the Deposit will be paid as part of the Purchase Price.
2.5 Post-Petition Taxes.
(a) No later than five days prior to the Closing Date, each
Seller shall prepare and deliver to Buyer a schedule, certified by the
Chief Financial Officer of each Seller, that sets forth a good faith
estimate of the aggregate amount of unpaid federal, state and local
income, franchise (based on net income) and sales taxes (collectively,
the "Business Taxes") owed by each Seller (the "Estimated
Post-Petition Tax Amount") for the period beginning on the Filing Date
and ending on the Closing Date (the "Post-Petition Tax Period"). At
closing, Buyer shall pay to Sellers the Estimated Post Petition Tax
Amount, which shall be placed in a separate bank account by Sellers
and set aside for the payment of Business Taxes of the Sellers for the
Post-Petition Tax Period.
(b) As soon as reasonably practicable after the Closing Date,
Sellers shall prepare or shall cause to be prepared, in accordance
with past practices of the Sellers, all returns with respect to
Business Taxes owed by Sellers for the year ended December 31, 2002 or
for such other applicable taxable period as may apply. Sellers shall
provide to Buyer copies of each such Business Tax return and
supporting work papers for its review, comment and approval (which
shall not be unreasonably withheld) at least thirty days prior to the
due date for filing such returns (taking into account requested
extensions), accompanied by a separate schedule that shows the amount
of Business Taxes set forth on such return that relate to the
Post-Petition Tax Period. Unless Buyer provides Sellers written notice
of its disapproval of a Business Tax return or accompanying schedule
within twenty days of its receipt thereof, Buyer shall be deemed to
have consented to the accuracy and correctness of the amounts set
forth therein. Sellers shall be responsible for and shall timely file
all such Business Tax returns and pay all Business Taxes reported on
such returns no later than the applicable due date for each such
return (taking into account requested extensions).
(c) The aggregate amount of Business Taxes that are shown as
due on the Business Tax returns delivered by Sellers pursuant to
section 2.5(b) and that relate to the Post-Petition Tax Period is
referred to herein as the "Actual Post-Petition Tax Amount." If the
Estimated Post-Petition Tax Amount exceeds the Actual Post-Petition
Tax Amount, then within five days of the latest due date for any
Business Tax return submitted to Buyer pursuant to section 2.5(b)
(taking into account requested extensions), Sellers shall pay to Buyer
the difference of the Estimated Post-Petition Tax Amount minus the
Actual Post-Petition Tax Amount.
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3. Closing Date. Subject to the terms and conditions of the Sale
Approval Order (as defined in section 7.1(d)), the closing under this agreement
shall take place at the Dallas offices of Haynes and Boone, LLP (or at such
other place as may be agreed upon by the Buyer and Sellers) on December 17, 2002
or on such other date as the parties may agree upon. The date on which the
closing is held is referred to in this agreement as the "Closing Date." At the
closing, the parties shall execute and deliver the documents referred to in
section 8.
4. Representations and Warranties by Sellers.The Sellers jointly and
severally represent and warrant to the Buyer as follows:
4.1 Organization and Authority. Each of the Sellers is a
corporation duly organized, validly existing and in good standing under the law
of its jurisdiction of incorporation with full power and authority under
applicable law to own, operate and lease the Assets and conduct their businesses
as presently conducted, and subject to Bankruptcy Court Approval, to enter into
and to perform this agreement. Each Seller is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
ownership or operation or leasing of the Assets makes such qualification
necessary.
4.2 Authorization of Agreement. (a) The execution, delivery and
performance of this agreement by the Sellers have been duly authorized by all
necessary corporate action of the Sellers and, subject to Bankruptcy Court
approval, this agreement constitutes a valid and binding obligation of each of
the Sellers enforceable against it in accordance with its terms, except as may
be limited by general principles of equity.
4.3 Consents of Third Parties. The execution and delivery of this
agreement and the other agreements contemplated hereby and the consummation of
the transactions contemplated hereby and thereby do not and will not: (a)
conflict with, violate or result in any default or breach of (i) any provision
of the charter or bylaws of any of the Sellers, (ii) any of the Assumed
Contracts, or (iii) any statute, law, code, regulation, writ, judgment, decree,
governmental order or rule, binding upon or applicable to any Seller or by which
the property or assets of any Seller, including the Assets, are bound or
affected, or (b) contravene, conflict with or result in the violation or breach
of any provision of or give any person the right to declare a default or
exercise any remedy under, or accelerate the maturity or performance of, or
cancel, terminate or modify any interest or right of any Seller, or result in
the creation or imposition of any Lien on any Asset, except in each case those
that are permanently excused, discharged and rendered unenforceable as a result
of the filing of the bankruptcy petition by the Sellers or of any provision of
the Bankruptcy Code.
4.4 Title to Assets. Except as set forth on schedule 4.4, the
Sellers have good and marketable title to all of the Assets owned by them, free
and clear of any Lien. At the closing of the transactions contemplated hereby,
Buyer will receive good and marketable title to the Assets, free and clear of
all Liens and other adverse claims, except for such claims that are to be
assumed by the Buyer pursuant to this Agreement. The schedules to section 1.1
are accurate and complete in all respects.
4.5 Financial Statements. The Sellers have previously delivered
to the Buyer the financial statements listed on schedule 4.5. All of those
financial statements fairly present
7
the financial position and the results of operations of the Sellers as of the
dates and for the periods indicated. As of the date of this agreement, no Seller
has any liability of any kind or matter, either direct, accrued, absolute or
otherwise which should be reflected in the financial statements to fairly
present the financial position and results of operations of the Company that is
not reflected in the financial statements listed on schedule 4.5. All accounts
receivable represented in the financial statements were generated in the
ordinary course of business and are fully collectible net of reserves for
doubtful accounts and sales allowances.
4.6 Absence of Certain Changes. Since September 30, 2002, except
as set forth on schedule 4.6, the Sellers have conducted their businesses in the
ordinary course of business consistent with past practice. Without limiting the
generality of the foregoing, except as disclosed on schedule 4.6, since
September 30, 2002:
(a) there has been no adverse change in the assets or
businesses of the Sellers;
(b) none of the Sellers has entered into any agreement,
contract, arrangement or transaction or incurred any liability or
obligation except in the ordinary course of its business consistent
with past practice;
(c) none of the Sellers has sold or transferred any of its
assets, or subjected its assets to any type of Lien, other than in the
ordinary course of business consistent with past practice;
(d) none of the Sellers has incurred any indebtedness other
than indebtedness to trade creditors incurred in the ordinary course
of business consistent with past practice;
(e) none of the Sellers has granted or agreed to grant any
increase in any rate or rates of salaries or compensation or other
benefits or bonuses payable to employees of the Sellers, except for
increases in the ordinary course of business and in accordance with
its past employment practices, and none of the Sellers has granted or
agreed to effect any changes in its management personnel, policies or
employee benefits; and
(f) there has not been any damage, destruction or loss to any
of the Assets.
4.7 Intangible Assets.
(a) As used in this agreement, the term "Intellectual
Property" means (i) fictional business names, registered and
unregistered trademarks, service marks, trade names and pending
applications therefor, (ii) logos, designs and drawings, (iii)
patents, patent applications and inventions and discoveries that may
be patentable, (iv) copyrights in published works and unpublished
works (including web sites), (v) internet domain names and (vi)
know-how, trade secrets, confidential information, customer lists,
software, technical information, process technology, plans, or blue
prints.
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(b) Schedule 4.7 contains a complete list of the patents,
trademarks, trade names and fictional business names used by each
Seller in the operations of its business. Except as set forth on
schedule 4.7, each of the Sellers owns, free and clear of any Liens,
all Intellectual Property necessary to operate its respective business
as currently conducted. The rights of each Seller relating to such
Intellectual Property will not cease to be valid by reason of the
execution, delivery and performance of this agreement or the
transactions contemplated hereby. To the best of Sellers' knowledge,
none of the Sellers is operating its business in a manner that
infringes on the Intellectual Property of any third party or otherwise
violates the Intellectual Property rights of any third party, and no
claim has been made or threatened against any of the Sellers alleging
any such violation. To the best of Sellers' knowledge, there has been
no violation by others of any right of any Seller in any Intellectual
Property. No Seller has granted to any third party any license or
other right to the Intellectual Property.
4.8 Litigation; Compliance with Laws. Schedule 4.8 lists and
briefly describes all pending or, to the best of the knowledge of Sellers,
threatened litigation or investigation matters concerning Sellers or the Assets.
except with respect to the bankruptcy case before the Bankruptcy Court,
including contested matters and adversary proceedings which arise in or relate
to the Case (including without limitation, claim objections), and except as set
forth in schedule 4.8, there is no claim, litigation proceeding or investigation
pending or, to the best of the knowledge of the Sellers, threatened against any
Seller pertaining to the operation of its business or the Assets in any federal,
state or local court, or before any administrative agency, arbitrator or other
tribunal authorized to resolve disputes. Each Seller holds all permits and other
governmental or regulatory authorizations necessary for the lawful conduct of
its business with respect to the Assets and is in compliance with the terms
thereof. No Seller has received any notice of any violation of any laws
applicable to the operation of its business or the Assets. The Assets are in
compliance with all applicable laws.
4.9 List of Agreements. Schedule 4.9 and schedule 1.1(c)
collectively contain a complete list of: (a) all future commitments and other
agreements for the purchase of materials, supplies or equipment, other than
commitments and other agreements of Sellers that were entered into in the
ordinary course of business and involve an expenditure by a Seller of less than
$50,000 for any one commitment or two or more related commitments; (b) all notes
and agreements relating to any indebtedness of any Seller that is secured by any
of the Assets; (c) all leases or other rental agreements under which any Seller
is either lessor or lessee related to the operations or business of the Sellers;
(d) all collective bargaining agreements; (e) all other agreements, commitments
and understandings (written or oral) that require payment by any Seller of more
than $50,000 individually; and (f) all other Assumed Contracts in existence as
of the date hereof. True and complete copies of all written leases, commitments
and other agreements referred to on schedule 4.9 and schedule 1.1(c) have been
delivered or made available to the Buyer, including all amendments thereto. No
unwritten amendments or waivers exist to or under such leases, commitments and
contracts.
4.10 Status of Agreements. All Assumed Contracts were entered
into in the ordinary course of the business of the Sellers. Each of the
agreements, commitments and leases referred to in section 4.9 is a legal, valid
and binding commitment of the parties thereto and is presently in full force and
effect and enforceable in accordance with its terms and, except as set
9
forth on schedule 4.10, none of the Sellers is in default, and, to the best of
Sellers' knowledge, no other party is in default under any agreement referred to
in section 4.9. To each Seller's knowledge, no disputes or disagreements are
outstanding and none are threatened with respect to any agreement referred to in
section 4.9.
4.11 Equipment. All items of equipment and other tangible assets
that are in each case a part of the Assets and that are being used in the
operations of the business of any Seller as of the date of this agreement are in
reasonably good operating condition and repair, reasonable wear and tear
excepted, are usable in the ordinary course of the business of the Sellers and
conform to all applicable laws and regulations relating to their construction,
use and operation.
4.12 Inventory. The Inventory included in the Assets is usable
and salable in the ordinary course of business, is of consistent and
merchantable quality and quantity and is fit for its intended purposes, other
than Inventory for which allowances or write-offs have been taken, or should be
taken in accordance with past practices, and has been produced and labeled in
accordance with all applicable laws.
4.13 Taxes. Except as set forth in schedule 4.13, each Seller,
and any consolidated, combined or unitary group of which any Seller is or has
been a member (an "Affiliated Group"), has timely filed with the appropriate
Taxing authorities all Tax returns required to be filed regarding each Seller's
or Affiliated Group's ownership of the Assets or the operation of the business
of such Seller or Affiliated Group, and all such Tax Returns are true and
complete, (b) the Sellers and any Affiliated Group have each timely paid all
Taxes owed by such Seller or Affiliated Group which have become due and payable
regarding such Seller's or Affiliated Group's ownership of the Assets or the
operation of their business and (c) no Taxing authority has raised any issue
relating to Taxes which relate to the Assets or the business of any Seller or
any Affiliated Group for which a Lien could otherwise be imposed after the
Closing Date upon any Asset. No audit or other proceeding is pending or, to the
knowledge of each Seller, threatened with respect to any Taxes due from any
Seller or any Affiliated Group, or with respect to any Tax return filed by any
Seller or any Affiliated Group, which relate to the Assets or the business of
any Seller or any Affiliated Group. No assessment of Tax (other than assessments
of Taxes not yet due) is proposed against any Seller, any Affiliated Group, or
any of the Assets. No Seller has been or is now in violation (and with notice or
lapse of time, or both, would not be in violation) of any applicable law
relating to the payment or withholding of Taxes. The Sellers and any Affiliated
Group have each duly and timely withheld from employee salaries, wages and other
compensation and paid over to the appropriate Taxing authorities all amounts
required to be so withheld and paid over for all periods under all applicable
laws.
As used in this agreement, "Taxes" means all taxes, charges,
imposts, tariffs, fees, levies or other similar assessments or liabilities,
including income taxes, ad valorem taxes, excise taxes, withholding taxes or
other taxes of or with respect to gross receipts, premiums, real property,
personal property, windfall profits, sales, use, transfers, licensing,
employment, payroll and franchises imposed by or under any law; and such terms
shall include any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any such tax or
any contest or dispute thereof.
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4.14 Labor Matters. No Seller is a party to any labor or
collective bargaining agreement with respect to its employees; no employees of
any Seller are represented by any labor organization; no labor organization or
group of employees of any Seller has made a pending demand for recognition or
request for certification to any Seller; and there are no representation or
certification proceedings or petitions seeking a representation election
presently pending or, to the knowledge of each Seller, threatened, to be brought
or filed with the National Labor Relations Board or other labor relations
tribunal involving any Seller. There are no strikes, lockouts, work stoppages or
slowdowns pending or, to the knowledge of each Seller, threatened against or
involving any Seller.
4.15 Employee Benefits.
(a) Schedule 4.15 contains a true and complete list of all
"employee benefit plans" as defined by Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), all
specified fringe benefit plans as defined in Section 6039D of the
Internal Revenue Code of 1986, as amended (the "Code"), and all other
bonus, incentive compensation, deferred compensation, profit sharing,
stock option, stock appreciation right, stock bonus, stock purchase,
employee stock ownership, savings, severance, supplemental
unemployment, layoff, salary continuation, retirement, pension,
health, life insurance, dental, disability, accident, group insurance,
vacation, holiday, sick leave, fringe benefit or welfare plan, and any
other employee compensation or benefit plan, agreement, policy,
practice, commitment, contract, or understanding (whether qualified or
nonqualified, written or unwritten), and any trust, escrow or other
agreement related thereto, which currently is sponsored, established,
maintained or contributed to or required to be contributed by the
Sellers or for which the Sellers have any liability, contingent or
otherwise (collectively, the "Benefit Plans").
(b) Each Benefit Plan is in compliance with the provisions of
ERISA and the Code, with its governing documents and all other
applicable laws including without limitation all notice and other
requirements of the Health Insurance Portability and Accountability
Act of 1996, as amended, and the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA").
(c) There are no pending, or to the knowledge of the Sellers,
threatened or anticipated disputes, law suits, investigations, audits,
complaints, or claims (other than routine claims for benefits) by, on
behalf of, or against any of the Benefit Plans or any trusts related
thereto, except as, individually or in the aggregate, would not result
in any liability or loss to the Buyer or the imposition of any lien or
encumbrance on the Assets.
(d) Neither the Sellers nor any other trade or business
(whether or not incorporated) which is or at any time would have been
treated as a "single employer" with the Sellers under section 414(b),
(c), (m), or (o) of the Code ("ERISA Affiliates") has at any time,
sponsored, contributed to, had an obligation to contribute to or
otherwise participated in any Benefit Plan that is subject to Title IV
of ERISA or Section 412 of the Code, including any "multiemployer
plan" (as defined in Section 3(37) of ERISA) with
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respect to which the Sellers or the Buyer would have any liability or
loss or that could result in an encumbrance or lien on any Assets.
(e) No Benefit Plan provides for post-employment or retiree
health, life insurance and/or other welfare benefits (other than
pursuant Section 4980B of the Code) and has unfunded liabilities, and
the Sellers has no obligation to provide any such benefits to any
active employees following such employee's retirement or termination
of service, to any retired or former employees, or to any beneficiary
of any retired or former employee following such employees' death
(other than pursuant to Section 4980B of the Code).
4.16 Customers and Suppliers. Except as described in schedule
4.16, there has not been any adverse change in the business relationship among
any Seller with any customer or supplier since June 30, 2002, and no Seller has
reason to believe that there will be any such adverse change in the future as a
result of the consummation of the transactions contemplated by this agreement or
otherwise.
4.17 Environmental Matters. Each Seller is in compliance with all
applicable Environmental Laws (defined below) relating to the Assets and no
Seller has received any communication (written or oral), from any person that
alleges that any Seller is not in compliance with such applicable Environmental
Laws. As used herein, "Environmental Laws" mean all federal, state, or local
statutes, regulations, ordinances or orders relating to the regulation or
protection of public health, safety or the Environment (defined below),
including, without limitation, statutes and regulations relating to
Environmental releases, to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, recycling or handling of hazardous
materials, and to the protection of environmentally sensitive areas. As used in
this Agreement, "Environment" means ambient air, soil, surface water, sediment,
ground water, wetlands, land or subsurface strata, and natural resources.
4.18 Brokers Fees; No Commissions. Except as disclosed on schedule
4.18, all negotiations relative hereto and the transactions contemplated hereby
have been carried on by Sellers directly with Buyer without any act by any
Seller that would give rise to any claim against any Seller, Buyer or their
respective affiliates for a brokerage commission, finder's fee or other similar
payment.
4.19 Books and Records. The books, records and accounts of each
Seller maintained with respect to the their business activities accurately and
fairly reflect, in reasonable detail, the transactions and the assets and
liabilities of each Seller with respect to their businesses. No Seller has
engaged in any transaction with respect to its business, maintained any bank
account for its business or used any of its funds in the conduct of its business
except for transactions, bank accounts and funds which have been and are
reflected in the Seller's normally maintained books and records.
4.20 Sufficiency of Assets. The Assets constitute all of the
assets, rights and properties used by Sellers in their businesses or that are
necessary for the conduct of their businesses in the manner and to the extent
currently conducted by them. The Assets will be
12
adequate to enable Buyer to continue to conduct the businesses of the Sellers on
the Closing Date in the manner currently conducted.
4.21 Professional Fees and Working Capital. The total amount of
professional fees and expenses and costs of administration accrued by the
Sellers as of September 30, 2002 is $634,929. Assuming that the amount of
accrued professional fees and expenses (net of deposits) and costs of
administration in connection with the Case are $1,500,000 as of September 30,
2002, the Working Capital as of September 30, 2002 is $17,842,000, as set forth
on schedule 4.21.
5. Representations and Warranties by the Buyer. The Buyer represents
and warrants to the Sellers as follows:
5.1 The Buyer's Organization and Authority. The Buyer is a
corporation duly organized and validly existing under the law of the state of
Delaware and has the full power and authority to enter into and perform this
agreement and to own and operate the business conducted by the Sellers.
5.2 Authorization of Agreement. The execution, delivery and
performance of this agreement by the Buyer have been duly authorized by all
necessary action of the Buyer and this agreement constitutes a valid and binding
obligation of the Buyer enforceable against it in accordance with its terms,
except as may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights in general and subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
5.3 Consents of Third Parties. The execution and delivery of this
agreement and the other agreements contemplated hereby and the consummation of
the transactions contemplated hereby and thereby do not and will not (a)
conflict with the Buyer's certificate of incorporation or bylaws or (b)
constitute a violation by the Buyer of any law applicable to it. No consent,
approval or authorization of, or designation, declaration or filing with, any
governmental authority is required on the part of the Buyer in connection with
the execution, delivery and performance of this agreement, the other agreements
contemplated hereby or the consummation of the transactions contemplated hereby
and thereby.
5.4 Litigation(a) . There is no claim, litigation, proceeding or
governmental investigation pending or, to the best of the Buyer's knowledge,
threatened, or any order, injunction or decree outstanding, against the Buyer or
any of its affiliates that would prevent the consummation of the transactions
contemplated by this agreement.
5.5 Equity. Affiliates of Buyer have at least $5,000,000 in
equity available to contribute to Buyer to fund a portion of the Purchase Price
payable pursuant to this agreement.
6. Further Agreements of the Parties.
6.1 Financing. On or prior to the Closing Date, the Buyer shall
provide at least $5,000,000 in equity (including the amount paid as the Deposit)
to finance the purchase of
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the Assets pursuant to this agreement. In addition, and in order to consummate
the purchase of the Assets as provided herein, the Buyer shall use commercially
reasonable efforts to obtain a customary commitment from an unaffiliated lender
for additional financing in an amount not less than the difference between the
Purchase Price and $5,000,000 (the "Financing Commitment"). If the Buyer obtains
such a reasonably acceptable Financing Commitment, the Buyer will promptly
deliver a copy thereof to the Sellers, together with evidence that reasonably
substantiates the proposed lender's financial ability to fund the financing. If
the Buyer does not deliver such a Financing Commitment to Sellers on or before
December 13, 2002, Sellers may terminate this agreement, by notice to the Buyer.
6.2 Operations of the Sellers. From the date of this agreement
through the Closing Date:
(a) Sellers shall operate their businesses in the usual and
ordinary course and substantially consistent with past practices,
subject to the requirements of the Bankruptcy Court and the Bankruptcy
Code.
(b) Sellers shall not, except in the ordinary course and
substantially consistent with past practice, (i) enter into any
agreement or other transaction or incur any liability or obligation
that is material to the business or operations of the Sellers or (ii)
sell or transfer any of the Assets other than assets that have worn
out or been replaced with other assets of equal or greater value.
(c) Sellers shall not grant or agree to grant any increase in
any rate or rates of salaries or compensation or other benefits or
bonuses payable to employees of the Sellers. None of the Sellers shall
grant or agree to effect any changes in its management personnel,
policies or employee benefits.
(d) Except as set forth on schedule 6.2(d), Sellers shall not
pay any prepetition claims against the estate unless approved in
writing by the Buyer and approved by the Bankruptcy Court.
Notwithstanding the foregoing, subject to Bankruptcy Court approval, the Sellers
may adopt a Stay-Bonus and Severance Plan to incentivize management to remain
with the Sellers until the Closing Date and a Performance Bonus Plan on the
terms described on schedule 6.2(c).
6.3 Access to Information. Prior to the closing, the Buyer and
its representatives may make such investigation of the property, assets and
businesses of the Sellers as it may desire, and Sellers shall give to the Buyer
and to its counsel, accountants and other representatives, upon reasonable
notice, full access during normal business hours throughout the period prior to
the closing to all of the assets, books, commitments, agreements, records and
files of Sellers and Sellers shall furnish to the Buyer during that period all
documents and copies of documents and information concerning the businesses and
affairs of the Sellers as the Buyer reasonably may request. The Buyer shall
hold, and shall cause its representatives to hold, all such information and
documents and all other information and documents delivered pursuant to this
agreement confidential and, if the purchase and sale contemplated by this
agreement is not consummated for any reason, shall return to Sellers all such
information and documents and any copies as soon as practicable, and shall not
disclose any such information (that has not previously
14
been disclosed other than by the Buyer) to any third party unless required to do
so pursuant to a request or order under applicable laws and regulations or
pursuant to a subpoena or other legal process. For a period of not less than two
years following the Closing Date, Buyer shall not destroy or otherwise dispose
of any records relating to the Assets and the business of the Sellers prior to
the Closing Date. Buyer agrees upon reasonable advance notice that it shall make
available to Sellers records of Sellers and permit Sellers and their
representatives, agents or attorneys to review and, at their expense, copy such
records of Sellers relating to the Assets and the business of the Sellers during
normal business hours to the extent reasonably required in connection with the
winding-up and liquidation of the Sellers and the remaining administration of
the Case, and the Buyer shall make Nathan New and other financial personnel
reasonably available to the Sellers without charge in connection therewith.
Buyer hereby agrees that Mike Walsh and Nathan New may remain as officers of the
Sellers to administer the Sellers' winding-up and liquidation and the remaining
administration of the Case.
6.4 Employees; ERISA.
(a) Employment. At the closing, the Buyer shall enter into
employment agreements with the members of management of the Sellers
set forth in schedule 6.4(a), containing the material terms described
on such schedule. In addition, after the Closing the Buyer shall adopt
a Management Equity Plan and Bonus Plan on the terms set forth on
schedule 6.4(a). Effective as of the Closing Date, the Buyer also
shall offer employment to each employee of the Sellers on
substantially similar terms and conditions to each employee, in the
aggregate, to those in place as of the date of this Agreement. The
Buyer shall pay severance to any participant (other than those
employees of Seller who are employed by Buyer after the Closing Date
("Transferred Employees") who enter into employment agreements with
the Buyer) in the Stay Bonus and Severance Plan referred to in section
6.2 that the Buyer terminates within one year after the Closing Date
in the amount specified under that plan and shall pay severance to any
other employee of the Sellers that the Buyer terminates within one
year after the Closing Date in accordance with the policy of the
Sellers described on schedule 6.4(a).
(b) Employee Benefits Generally. The Buyer shall provide the
Transferred Employees with employee benefits that are substantially
similar for each employee, in the aggregate, to those provided to
Transferred Employees as of the date of this Agreement. The Buyer is
not assuming, and will not have any responsibility for the
continuation of any employee benefit plan of the Sellers and the Buyer
will not be deemed a successor employer to the Sellers with respect to
any Benefit Plan (except as otherwise provided by Section 6.4(c) of
this agreement). No plan adopted or maintained by the Buyer with
respect to Transferred Employees will be deemed a successor plan of
the Seller. For purposes of determining eligibility to participate and
the vesting of benefits under plans maintained or contributed to by
the Buyer for the benefit of the Transferred Employees, including, but
not limited to, severance, 401(k), vacation and sick leave plans, and
for purposes of calculating benefits under any severance, sick leave
or vacation plans, the Buyer shall give credit for years of service
with the Sellers to the extent recognized by the Sellers under the
applicable similar plan maintained by the Sellers. The Buyer shall use
its commercially reasonable efforts to recognize such service for
purposes of satisfying any waiting period, evidence of insurability
15
requirements or the application of any preexisting condition
limitation. The Buyer shall also use its commercially reasonable
efforts to give Transferred Employees credit for amounts paid under
any corresponding plan maintained by the Sellers during the same
period for purposes of applying deductibles, copayments and
out-of-pocket maximums as though such amounts had been paid in
accordance with the terms and conditions of the benefit plan sponsored
or maintained by the Buyer.
(c) COBRA. The Buyer agrees that it shall be responsible for
compliance with all requirements under Sections 4980B of the Code and
Section 601, et seq. of ERISA with respect to any employee (or former
employee) of the Sellers whose employment was associated with the
Assets (or any dependent of such employee) and who is an "M&A
Qualified Beneficiary" (as such term is defined by Section 54.4980B-9,
Q&A-4 of the Income Tax Regulations) with respect to the transactions
contemplated by this Agreement. Schedule 6.4(c) contains a true and
complete list of all current and former employees of the Sellers and
their dependents, including each person employed by the Sellers within
the 36 month period immediately preceding the Closing Date, who: (i)
as of the Closing Date are receiving health care continuation coverage
under COBRA; (ii) are eligible, as of the Closing Date, to receive
health care continuation coverage under COBRA but are within the sixty
(60) day election period provided by COBRA; or (iii) are eligible, as
of the Closing Date, to receive health care continuation coverage
under COBRA but elected not to receive such coverage. For each person
who had coverage from any of the Seller's group health plans and lost
such coverage at any time during the 36 months immediately preceding
the Closing Date, the Sellers shall make available to the Buyer
Sellers' records of: procedures used to notify each such qualified
beneficiary of the qualifying event, evidence of any election of COBRA
coverage, evidence of the reason for termination of such COBRA
coverage, evidence of any election not to take COBRA, and evidence of
COBRA premiums paid and any delinquency.
(d) 401(k) Plan. The Sellers shall take all necessary and
legally permissible actions in order to cause the Seller's 401(k) Plan
to distribute the account balances thereunder for each Transferred
Employee who participated in the Sellers' 401(k) Plan as soon as
practicable following the Closing Date. Buyer shall use commercially
reasonable efforts to (i) establish a new 401(k) Plan for the benefit
of the Transferred Employees as promptly as reasonably practicable
after the Closing Date and (ii) afford the Transferred Employees the
opportunity to roll over cash amounts (and any promissory note
evidencing a plan loan and the applicable loan documentation)
distributed to them from Sellers' 401(k) Plan to such new 401k) Plan
established by Buyer, as permitted by applicable law and regulations.
The Sellers and the Buyer shall provide each other with such records
and information as may be necessary or appropriate to carry our their
respective obligations under this section 6.4(d), including, in
connection with any transfer of notes representing plan loans to
participants, the provision of amortization schedules and other
documents relating thereto.
(e) Cooperation. The Sellers and the Buyer agree to cooperate
fully with respect to the actions necessary to effect the transactions
contemplated in this section 6.4 including the provision of records
(including payroll records) and information as each may reasonably
request from the other.
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(f) Buyer's Actions. Subject to the terms of any employment
agreement entered into between Buyer and the members of management of
Sellers pursuant to section 6.4(a) hereof, nothing in this section 6.4
shall require the continued employment of any person or prevent the
Buyer from taking any action or refrain from taking any action which
any Seller, prior to the Closing Date, could have taken or refrained
from taking.
(g) No Third Party Rights. No provisions of this Section 6.4
shall create nor is intended to create nor shall be construed to
confer: (i) any third party beneficiary rights in any employee or
former employee, or any beneficiary or dependent thereof, of the
Sellers or the Buyer in respect of continued employment or resumed
employment or in respect of any benefits that may be provided,
directly or indirectly, under any employee benefit plans, program,
policies, practices or arrangements, of the Sellers or the Buyer,
whether prior to, on, or after the Closing Date, or (ii) any rights,
remedies, obligations or liabilities, legal or equitable, on any
person, firm, corporation, organization or other entity other than the
Sellers and the Buyer and their respective successors and assigns.
6.5 Determination of Working Capital(a) . Not later than five
days prior to the Closing Date, Tandycrafts shall prepare and deliver to the
Buyer a statement estimating the Current Assets, Current Liabilities and
Bankruptcy Claims (calculated in accordance with this section 6.5) as of the
close of business on December 31, 2002 together with a certification by the
chief financial officer of the Sellers, on behalf of the Sellers, (a) that the
Current Assets, Current Liabilities and Bankruptcy Claims were determined in
accordance with the books and records of the Sellers and in accordance with the
terms of this agreement and (b) whether the Sellers reasonably believe, based on
the estimate, that the Working Capital of the Sellers as of December 31, 2002
will be at least $19,637,000. The estimate of Working Capital as of the close of
business on December 31, 2002 shall be calculated in a manner consistent with
the calculation as of September 30, 2002 and the terms of this agreement.
As used in this agreement:
(a) "Working Capital" means the excess of Current Assets over
the sum of Current Liabilities and Bankruptcy Claims;
(b) "Current Assets" means cash, wherever located and however
held, accounts receivable (net of a reserve determined in accordance
with generally accepted accounting principles consistently applied),
inventory (valued in accordance with generally accepted accounting
principles consistently applied) and prepaid expenses and deposits
(excluding prepaid expenses or deposits relating to professional
fees);
(c) "Current Liabilities" means accounts payable and accrued
expenses (including without limitation post-petition taxes including
the Business Taxes) arising after the Filing Date, excluding accrued
interest, professional fees and expenses and the costs of
administration of Sellers' bankruptcy proceeding and the liability to
Bankers Leasing; and
17
(d) "Bankruptcy Claims" mean the amounts payable to Bankers
Leasing up to $400,000, to non-priority claims against the bankruptcy
estates of the Sellers of up to $750,000 (exclusive of any avoidance
claims) and in payment of tax and non-tax priority claims of up to
$1,000,000, and the amount of accrued and unpaid professional fees and
expenses (net of deposits) and costs of administration of Sellers'
bankruptcy proceeding.
6.6 Break-Up Fee; Expenses. Sellers acknowledge that Buyer has
incurred, and will incur, substantial expense and risk in pursuing consummation
of the transactions contemplated by this agreement. Sellers agree that, subject
to approval of the Bidding Procedures Order referred to in section 7.1(d), Buyer
shall be entitled to a break-up fee of $250,000 ("Break-Up Fee") and
reimbursement of actual, reasonable documented out-of-pocket expenses up to
$125,000 ("Expense Reimbursement"), which shall be paid to Buyer as follows: if
Sellers receive a higher and better offer for the Assets than the Purchase Price
set forth herein from a third party that is not affiliated with the Buyer at the
Auction (as such term is defined in the Bidding Procedures Order) to be
conducted pursuant to the Bidding Procedures Order, then Sellers shall pay to
Buyer the Expense Reimbursement and the Break-Up Fee upon the closing of the
sale of the Assets to such third party, regardless of whether such closing
occurs on, prior or after December 30, 2002, unless Sellers terminate this
agreement (i) pursuant to section 10.1(c) solely because Buyer commits a
material breach of any of its representations, warranties, covenants or
obligations hereunder prior to December 30, 2002 or (ii) pursuant to section
10.1(e).
The Break-Up Fee and Expense Reimbursement is a necessary cost of the
administration of Sellers' bankruptcy estate, and the Bidding Procedures Order
shall provide that the Break-Up Fee and Expense Reimbursement are entitled to
administrative expense priority, to the extent payable pursuant to this
agreement.
Any state or local sales taxes or other transfer taxes or recording
fees payable in connection with the sale of the Assets shall be paid by the
Buyer. Each party shall bear its own expenses incurred in connection with the
negotiation and preparation of this agreement and in connection with all
obligations required to be performed by it under this agreement, except where
specific expenses have been otherwise allocated by this agreement.
6.7 Non-Solicitation. Until the Bankruptcy Court enters the
Bidding Procedures Order, the Sellers and their affiliates, officers, directors,
stockholders, agents or representatives shall not, directly or indirectly,
solicit, initiate or seek from any person or entity other than Buyer (a "Third
Person") the submission of any Acquisition Proposal. For purposes of this
agreement an "Acquisition Proposal" means any proposal with respect to a merger,
consolidation, share exchange, sale of assets outside the ordinary course of
business or similar transaction involving the Sellers, or any equity or other
ownership interest in or control of the Sellers, or other means of funding of a
plan or reorganization or liquidation, other than the transactions contemplated
by this agreement. Notwithstanding the foregoing, nothing contained in this
agreement or elsewhere shall prevent the Sellers or any of their affiliates,
officers, directors, stockholders, agents or representatives (consistent with
the fiduciary duties of a debtor to obtain the highest and best offer for the
assets of the estate) from (a) cooperating with or responding to unsolicited
inquiries from or negotiating with, any Third Person who expresses, or has
expressed prior to date hereof, interest in making an Acquisition Proposal,
including by
18
granting to such Third Person access to the books, records and documents made
available to Buyer and pertaining to the Sellers and the Assets; (b) providing
notice of the transactions contemplated hereby, as required under Bankruptcy
Code or the rules thereunder, to all creditors and parties in interest and any
and all Third Persons who have expressed an interest in or who may have an
interest in making an Acquisition Proposal; (c) cooperating, negotiating or
entering into an agreement with any Third Person that expresses, or has
expressed prior to the date hereof, an interest in an Acquisition Proposal on
terms more favorable to the Sellers than those contained in this agreement, as
reasonably determined in good faith by the board of directors of Tandycrafts; or
(d) complying in all respects with an order of the Bankruptcy Court.
6.8 Assumed Contracts and Cure Amounts. The Buyer desires to have
assumed and assigned to it those executory contracts, unexpired leases, and
other agreements set forth on schedule 1.1(c), pursuant to Section 365 of the
Bankruptcy Code. At Closing all amounts required to cure pre- and post-petition
defaults under the Assumed Contracts as required pursuant to Section 365 of the
Bankruptcy Code shall be paid from the Purchase Price; such proposed "cure"
amounts are included on schedule 1.1(c). To the extent required under Section
365(b)(1) of the Bankruptcy Code, Buyer shall produce evidence to the Bankruptcy
Court of its ability to perform its obligations under this agreement, including
its obligations under the Assumed Contracts. The Sellers shall, prior to the
Bankruptcy Court hearing on approval of the transactions set forth herein, give
due and proper notice, with opportunity to object, to the counter-parties to the
Assumed Contracts of the proposed assumption and assignment of the Assumed
Contracts and the proposed "cure" amounts set forth in schedule 1.1(c). The
Buyer reserves the right not to assume any of the Assumed Contracts set forth on
schedule 1.1(c) and to amend schedule 1.1(c) to delete certain Assumed
Contracts, which reservation of rights will expire the day before the Bankruptcy
Court hearing on approval of the transactions set forth herein. Notwithstanding
the foregoing, the Buyer may amend schedule 1.1(c) at any time prior to entry of
the Bankruptcy Court's Sale Approval Order if the Bankruptcy Court allows a
counter-party to an Assumed Contract a "cure" amount that is both more than the
amount set forth on schedule 1.1(c) and will cause the aggregate of all "cure"
amounts, the Non-Tax Priority Claims and the Allowed Tax Priority Claims to
exceed $1,000,000.
6.9 Further Assurances. At any time and from time to time after
the closing, each of the parties shall, without further consideration, execute
and deliver or cause to be executed and delivered to the other such additional
instruments and shall take such other action as the other may reasonably request
to carry out the transactions contemplated by this agreement.
6.10 Buyer's Covenant to Satisfy Conditions. Prior to the Closing
Date, the Buyer will use commercially reasonable efforts to cause the conditions
set forth in section 7.2 to be satisfied. In the case of sections 7.2(c), 7.2(d)
and 7.2(e), such commercially reasonable efforts shall consist solely of making
any appearance as deemed reasonably necessary by the Buyer's bankruptcy counsel
in the Case, providing testimony required by the Bankruptcy Court or reasonably
requested by Sellers and giving the Bankruptcy Court reasonable assurances of
the Buyer's intentions with respect to the transactions described in this
agreement.
6.11 Sellers' Covenant to Satisfy Conditions. Prior to the Closing
Date, the Sellers will use commercially reasonable efforts to cause the
conditions set forth in section 7.1 to be satisfied. In the case of section
7.1(f), such commercially reasonable efforts shall consist
19
solely of cooperating with the Buyer and its proposed lender to make information
available to the proposed lender and to make officers, directors and agents of
the Sellers available to respond to inquiries from such proposed lender. As soon
as practicable after the date hereof, Sellers shall deliver to Buyer a final and
complete set of the schedules contemplated by this agreement.uyer a final and
complete set of the schedules contemplated by this agreement.
7. Conditions Precedent to Closing.
7.1 Conditions Precedent to the Obligations of the Buyer. The
Buyer's obligation to consummate the transactions described in this agreement is
subject to the fulfillment, at or prior to the closing, of each of the following
conditions (any of which may be waived in writing by the Buyer):
(a) all representations and warranties of Sellers under this
agreement shall be true and correct in all respects at and as of the
Closing Date with the same effect as though those representations and
warranties had been made again at and as of that time, except for any
breach or inaccuracy of such representations and warranties that would
not have a Material Adverse Effect (defined below);
(b) Sellers shall have performed and complied with all
obligations, covenants and conditions required by this agreement to be
performed or complied with by Sellers prior to or at the closing, and
the circumstances disclosed in item (a) of schedule 4.6 shall not
reasonably be expected to cause a Material Adverse Effect;
(c) on or before November 30, 2002, the Bankruptcy Court
shall have entered an order (the "Bidding Procedures Order") in
substantially the form of exhibit 7.1(c) approving the auction and
bidding procedures (including the Break-Up Fee and Expense
Reimbursement referred to in section 6.6) included in Sellers' motion
to the Bankruptcy Court for approval of the transactions contemplated
herein;
(d) on or before December 27, 2002, the Bankruptcy Court
shall have entered an order (the "Sale Approval Order"), authorizing,
among other things, the sale of the Assets to the Buyer in accordance
with the terms and conditions of this agreement pursuant to sections
363(b) and (f) of the Bankruptcy Code (including a finding that the
Buyer is a "good faith" purchaser entitled to the protections of
section 363(m) of the Bankruptcy Code), in form and substance
reasonably satisfactory to Buyer and the Banks, and Sellers shall have
delivered a copy thereof to the Buyer;
(e) the Bidding Procedures Order and the Sale Approval Order
shall be in full force and effect as of the Closing Date, and each
such order shall not have been reversed, stayed, modified or amended
as of the Closing Date;
(f) the Buyer shall have obtained financing for the Purchase
Price of the Assets pursuant to section 6.1;
(g) the Sellers shall have delivered a certificate pursuant
to section 6.5 reasonably certifying that the Sellers' Working Capital
as of December 31, 2002 will be at least $19,637,000;
20
(h) the accrued and unpaid professional fees and expenses and
the costs of administration of Sellers' bankruptcy proceeding through
the Closing Date accrued as of the Closing Date, together with all
other professional fees and expenses of Sellers and costs of
administration of the Case paid after September 30, 2002 under
procedures approved by the Bankruptcy Court, shall not exceed
$1,850,000; and
(i) the Buyer shall have been furnished with a certificate of
an officer of Tandycrafts, on behalf of Tandycrafts, dated the Closing
Date, in form and substance reasonably satisfactory to the Buyer,
certifying to the fulfillment of the conditions set forth in this
section 7.1 (other than section 7.1(f)).
As used in this section 7.1, the term "Material Adverse Effect" shall
mean any result, occurrence, fact, change, event or effect (whether or not (a)
foreseeable or known as of the date of this agreement or (b) covered by
insurance) that, individually or in the aggregate with any such other results,
occurrences, facts, changes, events or effects, has resulted in or could
reasonably be expected to cause (i) any loss, damage or expense with a
corresponding impact of greater than $250,000 to (A) the projected business and
operations of Buyer during the 12-month period following the Closing Date, (B)
the Assets or (C) the Assumed Contracts or (ii) adversely affect the ability of
any Seller to perform on a timely basis any material obligation under this
agreement or to consummate the transactions contemplated hereby.
7.2 Conditions Precedent to the Obligations of Sellers. Sellers'
obligation to consummate or cause the consummation of the transactions described
in this agreement is subject to the fulfillment, at or prior to the closing, of
each of the following conditions (any of which may be waived in writing by
Sellers; provided, however, that the condition in subsection (f) below must be
waived in writing by both the Sellers and the Banks):
(a) all representations and warranties of the Buyer under
this agreement shall be true in all material respects at and as of the
Closing Date with the same effect as though those representations and
warranties had been made at and as of that time;
(b) the Buyer shall have performed and complied with all
obligations, covenants and conditions required by this agreement to be
performed or complied with by it prior to or at the closing;
(c) the Bankruptcy Court shall have entered the Bidding
Procedures Order (including approval of the Break-Up Fee and Expense
Reimbursement);
(d) the Bankruptcy Court shall have entered the Sale Approval
Order;
(e) the Bidding Procedures Order and the Sale Approval Order
shall be in full force and effect as of the Closing Date and each such
order shall not have been reversed, stayed, modified or amended as of
the Closing Date;
(f) The Banks shall have approved the Bidding Procedures
Order and the Sale Approval Order, and no modifications shall have
been made thereto without the written consents of the Banks; and
21
(g) Sellers shall have been furnished with a certificate of
an officer of the Buyer, on behalf of the Buyer, dated the Closing
Date, in form and substance reasonably satisfactory to Tandycrafts,
certifying to the fulfillment of the conditions set forth in section
7.2(a) and (b).
8. Transactions at the Closing.
8.1 Documents to be Delivered by Sellers. At the closing, Sellers
shall deliver or cause to be delivered to the Buyer or the Banks, as applicable,
the following:
(a) such bills of sale, assignments or other instruments of
transfer and assignment, all in form and substance reasonably
satisfactory to Buyer and its counsel, as shall be effective to vest
in Buyer title to the Assets free and clear of all Liens;
(b) the certificates referred to in sections 7.1(g) and
7.1(i); and
(c) a release and covenant not to sue from the Sellers in
favor of the Banks in a form satisfactory to the Banks.
8.2 Documents to be Delivered by the Buyer. At the closing, the
Buyer shall deliver to Sellers or the Banks, as applicable, the following:
(a) wire transfer of immediately available funds in the
amount of $23,450,000, plus the amount of all "cure" payments ordered
to be paid by the Bankruptcy Court in connection with the assumption
of the Assumed Contracts set forth on schedule 1.1(c), minus any
professional fees and expenses and costs of administration paid by
Sellers between September 30, 2002 and the Closing Date;
(b) instruments, in form and substance reasonably
satisfactory to Sellers and its counsel, pursuant to which the Buyer
shall assume the obligations of the Sellers to be assumed by the Buyer
pursuant to section 2.2(a);
(c) the certificate referred to in section 7.2(g); and
(d) a release and covenant not to sue from the Buyer in favor
of the Banks in a form satisfactory to the Banks.
9. No Survival. None of the representations, warranties, covenants or
agreements (except those in sections 2.2, 2.3, 6.3, 6.4, 6.9 and 6.10, this
section 9, and section 11, in each case to the extent relating to the period
after the Closing Date) in this agreement shall survive the closing, but instead
shall terminate upon consummation of the transactions described herein.
10. Termination.
10.1 Termination. Notwithstanding the Bankruptcy Court's entry of
the Bidding Procedures Order or the Sale Approval Order, this agreement may be
terminated prior to the closing as follows:
22
(a) by written mutual agreement of the Buyer and the Sellers;
(b) by the Buyer, by notice to Tandycrafts, if at any time
prior to the closing any event shall have occurred or any state of
facts shall exist that renders any of the conditions to Buyer's
obligations as provided in section 7.1 of this agreement reasonably
incapable of fulfillment;
(c) by the Sellers, by notice to Buyer, if at any time prior
to the closing any event shall have occurred or any state of facts
shall exist that renders any of the conditions to Sellers' obligations
as provided in section 7.2 of this agreement reasonably incapable of
fulfillment;
(d) by the Buyer, by notice to Tandycrafts (i) given on or
before November 27, 2002, if the Sellers have not delivered to Buyer
schedules to this agreement in form and substance satisfactory to
Buyer, or (ii) given on or before December 5, 2002, if the Buyer is
not reasonably satisfied with the results of its due diligence
investigation of the Sellers;
(e) by the Sellers, if Buyer has not delivered the Financing
Commitment to Sellers by December 13, 2002, pursuant to section 6.1;
or
(f) by either the Buyer or the Sellers, if the closing has
not occurred by December 30, 2002.
10.2 Effect of Termination. Upon termination of this agreement
pursuant to section 10.1, the undertakings of the parties set forth herein shall
thereafter be of no force and effect; provided, that (a) this section 10 and
section 11 and the obligations, rights and remedies relating thereto shall
survive such termination, (b) the rights and remedies of any party hereto for
any breach of this agreement occurring prior to such termination shall survive
such termination and (c) Buyer shall remain entitled to the Expense
Reimbursement and Break-Up Fee if payable pursuant to the terms of section 6.6
upon the closing of the sale of the Assets to a third party.
10.3 Deposit. Upon termination of this agreement pursuant to
section 10.1, the Deposit shall be distributed in accordance with the following:
(a) Except as set forth in section 10.3(b) below, if this
agreement is terminated due to the nonfulfilment of any of the
conditions in sections 6.1 or 7.1, or for any other reason, the Buyer
shall be entitled to receive the Deposit (together with all interest
thereon) and, immediately after the termination of this agreement,
Sellers shall execute and deliver to the Escrow Agent written
instructions directing the Escrow Agent to pay the Deposit (together
with all interest thereon) to the Buyer.
(b) If this agreement is terminated as a result of the
Buyer's (i) failure to obtain at least $4,250,000 in equity (in
addition to the Deposit) prior to the closing (or commitments for the
contribution at the closing of such equity) from affiliates of the
Buyer, (ii) failure to obtain the additional financing as a result of
the Buyer's failure to use commercially reasonable efforts to obtain
such financing or (iii) failure to consummate the transactions
described in this agreement notwithstanding the satisfaction
23
of the conditions to the Buyer's obligations set forth in section 7.1
hereof, other than any condition listed in sections 7.1(d) or (e) that
is not satisfied because of a material breach by the Buyer of an
obligation of the Buyer hereunder, then, if Sellers have not breached
any of their material obligations under this agreement, Sellers shall
be entitled to receive, as liquidated damages and not as a penalty,
the Deposit (together with the interest thereon). If Sellers receive
the Deposit in accordance with the immediately-preceding sentence,
such receipt by Sellers of the Deposit (together with interest
thereon) shall be in full settlement of any damages that Sellers may
suffer or allege to have suffered as a result of any such breach by
the Buyer and shall be the sole and exclusive remedy of Sellers in
such event.
10.4 Expense Reimbursement. Upon termination of this agreement
pursuant to (i) section 10.1(b) or 10.1(f) other than as a result of a material
breach by Buyer or (ii) Section 10.1(c) as a result of the conditions specified
in sections 7.2(d) or 7.2(e) not being satisfied, Tandycrafts shall immediately
pay to the Buyer the Expense Reimbursement; provided, however, that Buyer shall
not be entitled to receive the Expense Reimbursement if Buyer terminates this
agreement pursuant to section 10.1(b) as a result of the failure of the
satisfaction of the condition set forth in Section 7.1(f).
11. Miscellaneous.
11.1 Notices. Any notice or other communication under this
agreement shall be in writing and shall be considered given when delivered
personally, one day after being sent by recognized overnight courier or three
days after being mailed by registered mail, return receipt requested, to the
parties at the addresses set forth below (or at such other address as a party
may specify by notice to the other):
if to the Buyer:
Newcastle Partners, L.P.
200 Crescent Court, Suite 670
Dallas, TX 75201
Attention: Steve Pully
with a copy to:
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, TX 75202
Attention: Tom D. Harris
and
Stacey G. Jernigan
if to Sellers, to Tandycrafts (on its own behalf and on
behalf of the other Sellers):
TandyCrafts, Inc.
24
1400 Everman Parkway
Fort Worth, Texas 76140
Attention: Michael J. Walsh
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Lawrence H. Budish, Esq.
and
Scott K. Rutsky, Esq.
and another copy to:
William L. Wallander
Vinson & Elkins L.L.P
3700 Trammel Crow Center
2001 Ross Avenue
Dallas, Texas 75201
11.2 Entire Agreement. This agreement, including the schedules and
exhibits, contains a complete statement of all the arrangements among the
parties with respect to its subject matter, supersedes any previous agreement
among them relating to that subject matter, and cannot be changed or terminated
orally. Except as specifically set forth in this agreement, there are no
representations or warranties by any party in connection with the transactions
contemplated by this agreement.
11.3 Headings. The section headings of this agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this agreement.
11.4 Governing Law. This agreement shall be governed by and
construed in accordance with the law of the State of New York applicable to
agreements made and to be performed entirely in New York.
11.5 Separability. If any provision of this agreement is invalid
or unenforceable, the balance of this agreement shall remain in effect.
11.6 Assignment. No party may assign any of its rights or delegate
any of its duties under this agreement without the consent of the others.
11.7 Publicity. Except as required by applicable law, no party
shall issue any press release or other public statement regarding the
transactions contemplated by this agreement without consulting with the other
parties hereto.
25
11.8 Bankruptcy Court Jurisdiction. Buyer and Sellers agree that
the Bankruptcy Court shall have exclusive jurisdiction over all disputes and
other matters relating to the interpretation and enforcement of this agreement
or any document executed pursuant hereto, and the parties expressly consent to
and agree not to contest such exclusive jurisdiction.
11.9 Counterparts. This agreement may be executed in any number of
counterparts, which together shall constitute one and the same instrument.
* * * * *
26
PINNACLE FRAMES AND ACCENTS, INC.
By:
-------------------------------------------
Name:
Title:
TANDYCRAFTS, INC.
By:
-------------------------------------------
Name:
Title:
TAC HOLDINGS, INC.
By:
-------------------------------------------
Name:
Title:
TANDYARTS, INC.
By:
-------------------------------------------
Name:
Title:
27
FIRST AMENDMENT TO
ASSET PURCHASE AGREEMENT
This First Amendment to Asset Purchase Agreement (this "Amendment") is
made as of the __ day of November 2002 by and among Tandycrafts, Inc., a
Delaware corporation ("Tandycrafts"), TAC Holdings, Inc., a Delaware corporation
("TAC"), Tandyarts, Inc., a Nevada corporation (collectively with Tandycrafts
and TAC, the "Sellers") and Pinnacle Frames and Accents, Inc., a Delaware
corporation ("Buyer").
RECITALS
A. Sellers and Buyer are parties to that certain Asset Purchase
Agreement, dated November 22, 2002 (the "Agreement"), whereby Buyer has agreed
to purchase substantially all of the assets of Sellers. Capitalized Terms used
herein that are not defined herein shall have the meanings set forth in the
Agreement.
B. Section 6.6 of the Agreement provides for the payment of a Break-Up
Fee and Expense Reimbursement to Buyer under certain circumstances. However, the
order entered by the Bankruptcy Court on November 22, 2002 in connection the
administration of the Case (the "Order") establishes a Break-Up Fee and Expense
Reimbursement that vary in some respects from the provisions of Section 6.6 of
the Agreement.
C. Sellers and Buyer desire to enter into this Amendment to conform
the provisions of Section 6.6 of the Agreement to the provisions of the Order.
NOW, THEREFORE, in exchange for the mutual covenants contained herein
and in the Agreement, and other good and valuable consideration, the parties
hereto agree as follows:
1. Amendment of Section 6.6. The first paragraph of Section 6.6 of
the Agreement is hereby deleted and replaced in its entirety to read as follows:
"Sellers acknowledge that Buyer has incurred, and will incur, substantial
expense and risk in pursuing consummation of the transactions contemplated
by this agreement. Sellers agree that Buyer shall be entitled to
reimbursement of actual, reasonable documented out-of-pocket expenses of
up to $275,000 ("Expense Reimbursement"), and, subject to Bankruptcy Court
approval, a break-up fee in an amount equal to the difference of (i)
$375,000 minus (ii) the total amount of Expense Reimbursement paid to
Buyer ("Break-Up Fee"). The Break-Up Fee and the Expense Reimbursement
shall be paid to Buyer as follows: if Sellers receive a higher and better
offer for the Assets than the Purchase Price set forth herein from a third
party that is not affiliated with the Buyer at the Auction (as such term
is defined in the Bidding Procedures Order) to be conducted pursuant to
the Bidding Procedures Order, then Sellers shall pay to Buyer the Expense
Reimbursement and the Break-Up Fee upon the closing of the sale of the
Assets to such third party, regardless of whether such closing occurs on,
prior or after December 30, 2002, unless Sellers terminate this agreement
(i) pursuant to section 10.1(c) solely because Buyer commits a material
breach of any of its representations, warranties, covenants or obligations
hereunder prior to December 30, 2002 or (ii) pursuant to section 10.1(e)."
2. No Further Amendments. Except as expressly amended hereby, all
other provisions of the Agreement remain unchanged and in full force and effect.
3. Governing Law; Severability. This Amendment shall be governed by
the laws of the State of New York. The provisions of this Amendment shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions thereof.
4. Counterparts. This Amendment may be executed in one or more
counterparts that, when taken collectively, shall be deemed to constitute one
original document.
5. Disclosure Schedules. Attached hereto as Exhibit 1 are the
disclosure schedules to the Agreement (the "Schedules") contemplated by Section
6.11 thereof. The undersigned hereby acknowledge that (i) the attached Schedules
are the final and complete disclosure schedules to the Agreement and (ii) such
Schedules shall be deemed to have been delivered effective as November 22, 2002.
6. Bidding Procedures Order Governs. In case of any inconsistency
between the provisions of this Amendment and the provisions of the Order, the
provisions of the Order shall govern.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
PINNACLE FRAMES AND ACCENTS, INC.
By:
-------------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
TANDYCRAFTS, INC.
By:
-------------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
TAC HOLDINGS, INC.
By:
-------------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
TANDYARTS, INC.
By:
-------------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
2
EXHIBIT 1
DISCLOSURE SCHEDULES
(see attached)
SECOND AMENDMENT TO
ASSET PURCHASE AGREEMENT
This Second Amendment to Asset Purchase Agreement (this "Amendment")
is made as of the __ day of December 2002 by and among Tandycrafts, Inc., a
Delaware corporation ("Tandycrafts"), TAC Holdings, Inc., a Delaware corporation
("TAC"), Tandyarts, Inc., a Nevada corporation (collectively with Tandycrafts
and TAC, the "Sellers") and Pinnacle Frames and Accents, Inc., a Delaware
corporation ("Buyer").
RECITALS
A. Sellers and Buyer are parties to that certain Asset Purchase
Agreement dated November 22, 2002, as amended by that certain First Amendment to
Asset Purchase Agreement by and among Sellers and Buyer dated November 27, 2002
(as amended, the "Agreement"), whereby Buyer has agreed to purchase
substantially all of the assets of Sellers. Capitalized Terms used herein that
are not defined herein shall have the meanings set forth in the Agreement.
B. Buyer and Sellers have subsequently agreed to (i) reduce the
Purchase Price from $23,450,000 to $22,650,000, (ii) reduce the amount of the
Purchase Price to be paid to the Banks from $20,800,000 to $20,000,000, (iii)
eliminate provisions in the Agreement that provide for an Alternative Bank Loan,
(iv) change the anticipated Closing Date to December 30, 2002 and extend the
time period by which the closing must occur from December 30, 2002 until 11:30
a.m. central time on December 31, 2002, (v) permit Buyer and its affiliates to
fund their Purchase Price contribution of at least $5 million from equity
contributions, debt or other sources of capital provided by Buyer or its
affiliates that are acceptable to the lender providing the Financing Commitment,
(vi) adjust the principal amount of the Financing Commitment to $15,887,600,
(vii) delete certain preference and avoidance actions of Sellers from the Assets
to be purchased by Buyer and (viii) specify certain items or events that will
not result in a Material Adverse Effect. Sellers and Buyer desire to enter into
this Amendment to conform the provisions of the Agreement to such subsequent
agreements made by Buyer and Sellers.
NOW, THEREFORE, in exchange for the mutual covenants contained herein
and in the Agreement, and other good and valuable consideration, the parties
hereto agree as follows:
1. Amendment of Introductory Paragraph. The third paragraph of the
introductory information set forth on page one of the Agreement is hereby
deleted and replaced in its entirety to read as follows:
"The Sellers desire to sell to the Buyer, and the Buyer desires to
purchase from the Sellers, substantially all of the assets of the Sellers, and
assume certain contracts or leases, pursuant to Sections 363 and 365 of the
Bankruptcy Code, and on the terms and conditions of this agreement, with an
aggregate of $20,000,000 of the purchase price (the "Secured Lender Proceeds")
payable to Wells Fargo Bank Texas, N.A. and Bank One, N.A., the pre-petition
lenders to the Sellers (the "Banks"). The Banks, which have security interests
in and liens on substantially all of the assets of Sellers, are willing to
consent (to the extent such consent is required under the Bankruptcy Code) to
the sale of the Sellers' assets to the Buyer, and to the
waiver and release of certain claims against the Debtors, their estates and the
assets to be sold hereunder all in exchange for the Secured Lender Proceeds and
certain additional non-monetary consideration, subject to the terms and the
conditions specified in this agreement."
2. Amendment of Section 1.1(i). Section 1.1(i) of the Agreement is
hereby deleted and replaced in its entirety to read as follows:
"(i) all causes of action, choses in action and rights of
recovery and counterclaims or setoffs of the Sellers that relate to the
Assumed Contracts or the liabilities assumed by Buyer pursuant to
Section 2.2 hereof;"
3. Amendment of Section 1.2(e). Section 1.2(e) of the Agreement is
hereby deleted and replaced in its entirety to read as follows:
"(e) all causes of action, choses in action and rights of
recovery and counterclaims or setoffs of the Sellers, other than those
that relate to the Assumed Contracts or the liabilities assumed by
Buyer pursuant to Section 2.2 hereof, and all actions or claims of any
Seller under sections 510, 544, 545 and 547-553 of the Bankruptcy
Code;"
4. Amendment of Section 2.1(a). Section 2.1(a) of the Agreement is
hereby deleted and replaced in its entirety to read as follows:
"(a) pay to or for the benefit of Sellers at the closing a
cash purchase price (the "Purchase Price") of $22,650,000 plus the
amount of all "cure" payments required to be paid in connection with
the assumption of the Assumed Contracts (by Bankruptcy Court order or
pursuant to an agreement with a contracting party to any Assumed
Contract), minus any professional fees and expenses and costs of
administration paid by Sellers between September 30, 2002 and the
Closing Date, and assume the non-tax priority claims set forth on
schedule 2.1(a), of which $20,000,000 will be indefeasibly paid to the
Banks;"
5. Amendment of Paragraph Following Section 2.1(c). The last
paragraph in Section 2.1 of the Agreement, which immediately follows Section
2.1(c), is hereby deleted and replaced in its entirety as follows:
"The Banks have agreed that subject to the fulfillment of the
conditions precedent and delivery of the documents specified in
Sections 7 and 8 hereof and the occurrence of a closing no later than
11:30 a.m. central time on December 31, 2002 of the sale of the Assets
for an amount not greater than the Purchase Price (as the same may be
adjusted pursuant to this agreement), the Banks will accept cash
payment to them of $20,000,000 at closing pursuant to this agreement
and the transfer to them of the Fort Worth Property to be in full and
final satisfaction of all liabilities and obligations of Sellers to the
Banks pursuant to the Amended and Restated Revolving Credit Agreement,
dated October 13, 2000, and all related documents (the "Bank Debt") or
otherwise, and at such closing the Banks will release all Liens they
may have against the Assets and waive any rights to
2
assert a deficiency claim against any other assets of the Sellers,
including any proceeds from the sale of the Assets that are not
payable to the Banks pursuant to the terms of this Agreement."
6. Deletion of Section 2.2(b). Section 2.2(b) of the Agreement is
hereby deleted. In place of the provisions of Section 2.2(b) that are presently
set forth in the Agreement, the phrase "[intentionally deleted]" shall be deemed
to appear. Additionally, all cross-references made to Section 2.2(b) in the
Agreement are hereby deleted.
7. Amendment of Section 2.2(c). Section 2.2(c) of the Agreement is
hereby deleted and replaced in its entirety as follows:
"(c) After the Closing Date, the Sellers will seek to resolve
the amount of any disputed priority tax claims (the aggregate amount of
the filed, deemed-filed, or otherwise allowed priority tax claims are
set forth on schedule 2.2(c) hereto). The aggregate amount of the
priority tax claims that ultimately become "allowed" claims (pursuant
to Section 502 of the Bankruptcy Code and Bankruptcy Rules 3003(b)(1),
(c)(4) and 3007), shall hereinafter be referred to as "Allowed Tax
Priority Claims." After the amount of Allowed Tax Priority Claims has
been resolved, the Sellers (or any successor thereto) and Buyer will
seek a Bankruptcy Court order permitting the Buyer to assume the
Allowed Tax Priority Claims, so long as (a) the aggregate amount of (i)
the Allowed Tax Priority Claims and (ii) the non-tax priority claims
set forth on schedule 2.1(a) ("Non-Tax Priority Claims") does not
exceed $1,000,000, and (b) any such Bankruptcy Court order is
reasonably satisfactory to the Buyer and would enjoin the holders of
the Allowed Tax Priority Claims under Sections 105 and 1129(a)(9)(c) of
the Bankruptcy Code from pursuing any action against Buyer so long as
Buyer complies with the Section 1129(a)(9)(c) payout procedures (such
an order hereinafter referred to as a "Tax Claim Assumption Order"). If
either (a) the aggregate amount of (i) the Allowed Tax Priority Claims
and (ii) the Non-Tax Priority Claims exceeds $1,000,000, or (b) the
Bankruptcy Court will not enter a Tax Claim Assumption Order, then the
Buyer shall pay to Sellers, as additional purchase price for the
Assets, the lesser of: (1) $1,000,000 minus the amount of the Non-Tax
Priority Claims or (2) the amount of the Allowed Tax Priority Claims
("Additional Purchase Price"). Notwithstanding the foregoing, if the
aggregate amount of (i) the Allowed Tax Priority Claims and (ii) the
Non-Tax Priority Claims exceeds $1,000,000, the Buyer and Sellers (or
their successor) will nevertheless make good faith efforts to obtain
from the Bankruptcy Court a Tax Claims Assumption Order, authorizing
the Buyer to assume as many of the Non-Tax Priority Claims as feasible,
up to a level where the aggregate amount of Allowed Tax Priority Claims
and Non-Tax Priority Claims assumed by the Buyer reach (but not exceed)
$1,000,000, and, in such event, the Additional Purchase Price shall be
the amount (if any) by which $1,000,000 exceeds the aggregate amount of
Allowed Tax Priority Claims and Non-Tax Priority Claims assumed by the
Buyer."
8. Amendment of Section 3. Section 3 of the Agreement is hereby
deleted and replaced in its entirety as follows:
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"3. Closing Date. Subject to the terms and conditions of the
Sale Approval Order (as defined in section 7.1(d)), the closing under
this agreement shall take place at the Dallas offices of Haynes and
Boone, LLP (or at such other place as may be agreed upon by the Buyer
and Sellers) on December 30, 2002 or on such other date as the parties
may agree upon. The date on which the closing is held is referred to
in this agreement as the "Closing Date." At the closing, the parties
shall execute and deliver the documents referred to in section 8."
9. Amendment of Section 5.5. Section 5.5 of the Agreement is hereby
deleted and replaced in its entirety as follows:
"5.5 Available Capital. Affiliates of Buyer have access to at
least $5,000,000 in capital to fund a portion of the Purchase Price
payable pursuant to this agreement."
10. Amendment of Section 6.1. Section 6.1 of the Agreement is hereby
deleted and replaced in its entirety as follows:
"6.1 Financing. On or prior to the Closing Date, the Buyer or its
affiliates shall provide at least $5,000,000 in capital (including the amount
paid as the Deposit) to finance the purchase of the Assets pursuant to this
agreement. Sellers acknowledge that the sources of such capital may include
proceeds from equity contributions to Buyer, proceeds from financing available
to affiliates of Buyer, a loan from an affiliate of Buyer to Buyer, or other
financial arrangements established by Buyer or its affiliates that are
acceptable to the lender providing the financing contemplated by the Financing
Commitment (defined below). The Buyer has obtained a customary commitment from
an unaffiliated lender for additional financing in an amount not less than
$15,887,600 (the "Financing Commitment") and has delivered a copy thereof to the
Sellers, together with evidence that reasonably substantiates the proposed
lender's financial ability to fund the financing.
11. Amendment of Section 6.6. Section 6.6 of the Agreement is hereby
deleted and replaced in its entirety as follows:
"Sellers acknowledge that Buyer has incurred, and will incur,
substantial expense and risk in pursuing consummation of the
transactions contemplated by this agreement. Sellers agree that Buyer
shall be entitled to reimbursement of actual, reasonable documented
out-of-pocket expenses of up to $275,000 ("Expense Reimbursement"),
and, subject to Bankruptcy Court approval, a break-up fee in an amount
equal to the difference of (i) $375,000 minus (ii) the total amount of
Expense Reimbursement paid to Buyer ("Break-Up Fee"). The Break-Up Fee
and the Expense Reimbursement shall be paid to Buyer as follows: if
Sellers receive a higher and better offer for the Assets than the
Purchase Price set forth herein from a third party that is not
affiliated with the Buyer at the Auction (as such term is defined in
the Bidding Procedures Order) to be conducted pursuant to the Bidding
Procedures Order, then Sellers shall pay to Buyer the Expense
Reimbursement and the Break-Up Fee upon the closing of the sale of the
Assets to such third party, regardless of whether such closing occurs
on, prior or after 11:30 a.m. central time on December 31, 2002, unless
Sellers terminate this agreement pursuant to section 10.1(c) solely
because Buyer commits a material breach of any of its representations,
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warranties, covenants or obligations hereunder prior to 11:30 a.m.
central time on December 31, 2002."
12. Amendment of Section 7.1(b). Section 7.1(b) of the Agreement is
hereby deleted and replaced in its entirety as follows:
"(b) Sellers shall have performed and complied with all
obligations, covenants and conditions required by this agreement to be
performed or complied with by Sellers prior to or at the closing;"
13. Amendment of Paragraph Following Section 7.1(i). The last
paragraph in Section 7.1 of the Agreement, which immediately follows Section
7.1(i), is hereby deleted and replaced in its entirety as follows:
"As used in this section 7.1, the term "Material Adverse
Effect" shall mean any result, occurrence, fact, change, event or
effect (whether or not (a) foreseeable or known as of the date of this
agreement or (b) covered by insurance) that, individually or in the
aggregate with any such other results, occurrences, facts, changes,
events or effects, has resulted in or could reasonably be expected to
cause (i) any loss, damage or expense with a corresponding impact of
greater than $250,000 to (A) the projected business and operations of
Buyer during the 12-month period following the Closing Date, (B) the
Assets or (C) the Assumed Contracts or (ii) adversely affect the
ability of any Seller to perform on a timely basis any material
obligation under this agreement or to consummate the transactions
contemplated hereby. Notwithstanding the foregoing, (x) the "price
challenge" received by Sellers that is disclosed in item (a) of
schedule 4.6 and the resolution of that price challenge as disclosed by
Sellers to Buyer, and (y) the appraisal of certain real property and
certain items of equipment, machinery and other personal property of
the Sellers received by the proposed lender that provided the Financing
Commitment, shall not result in a Material Adverse Effect.
14. Amendment of Section 8.2(a). Section 8.2(a) of the Agreement is
hereby deleted and replaced in its entirety as follows:
"(a) wire transfer of immediately available funds in the
amount of $22,650,000, plus the amount of all "cure" payments ordered
to be paid by the Bankruptcy Court in connection with the assumption of
the Assumed Contracts set forth on schedule 1.1(c), minus any
professional fees and expenses and costs of administration paid by
Sellers between September 30, 2002 and the Closing Date;"
15. Deletion of Section 10.1(e). Section 10.1(e) of the Agreement is
hereby deleted. In place of the provisions of Section 10.1(e) that are presently
set forth in the Agreement, the phrase "[INTENTIONALLY DELETED]" shall be deemed
to appear. Additionally, all cross-references made to Section 10.1(e) in the
Agreement are hereby deleted.
16. Amendment of Section 10.1 (f). Section 10.1(f) of the Agreement is
hereby deleted and replaced in its entirety as follows:
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"(f) by either the Buyer or the Sellers, if the closing has not
occurred by 11:30 a.m. central time on December 31, 2002."
17. Amendment of Section 10.3(b). Section 10.3(b) of the Agreement is
hereby deleted and replaced in its entirety as follows:
"(b) If this agreement is terminated as a result of the
Buyer's (i) failure to obtain at least $4,250,000 in capital (in
addition to the Deposit) prior to the closing (or commitments for the
provision at the closing of such capital) as specified in the first two
sentences of section 6.1, (ii) failure to obtain the additional
financing contemplated by the Financing Commitment as a result of the
Buyer's failure to use commercially reasonable efforts to obtain such
financing or (iii) failure to consummate the transactions described in
this agreement notwithstanding the satisfaction of the conditions to
the Buyer's obligations set forth in section 7.1 hereof, other than any
condition listed in sections 7.1(d) or (e) that is not satisfied
because of a material breach by the Buyer of an obligation of the Buyer
hereunder, then, if Sellers have not breached any of their material
obligations under this agreement, Sellers shall be entitled to receive,
as liquidated damages and not as a penalty, the Deposit (together with
the interest thereon). If Sellers receive the Deposit in accordance
with the immediately-preceding sentence, such receipt by Sellers of the
Deposit (together with interest thereon) shall be in full settlement of
any damages that Sellers may suffer or allege to have suffered as a
result of any such breach by the Buyer and shall be the sole and
exclusive remedy of Sellers in such event."
18. No Further Amendments. Except as expressly amended hereby, all
other provisions of the Agreement remain unchanged and in full force and effect.
19. Governing Law; Severability. This Amendment shall be governed by
the laws of the State of New York. The provisions of this Amendment shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions thereof.
20. Counterparts. This Amendment may be executed in one or more
counterparts that, when taken collectively, shall be deemed to constitute one
original document.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
PINNACLE FRAMES AND ACCENTS, INC.
By:
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Name:
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Title:
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TANDYCRAFTS, INC.
By:
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Name:
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Title:
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TAC HOLDINGS, INC.
By:
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Name:
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Title:
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TANDYARTS, INC.
By:
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Name:
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Title:
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