EXHIBIT 2.1
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered
into as of this 17th day of January 2002 (the "Execution Date"), by and between
Direct Focus, Inc., a Washington corporation and its permitted assignees
hereunder (the "Buyer"), on the one hand, and StairMaster Sports/Medical
Products, Inc., dba StairMaster Health & Fitness Products, a Delaware
corporation and Debtor and Debtor in Possession (the "Seller") under Case No.
01-19658 (the "Case") in the United States Bankruptcy Court for the Western
District of Washington at Seattle (the "Bankruptcy Court").
RECITALS
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A. Seller is engaged in the fitness equipment business, (the "Business")
B. Seller wishes to sell to Buyer substantially all the assets it uses
in connection with the Business at the price and on the other terms
and conditions specified in detail below and Buyer wishes to so
purchase and acquire such assets from Seller.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. TRANSFER OF ASSETS
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1.1 PURCHASE AND SALE OF ASSETS. On the Closing Date, as hereinafter
defined, in consideration of the covenants, representations and obligations of
Buyer hereunder, and subject to the conditions hereinafter set forth, Seller
shall sell, assign, transfer, convey and deliver to Buyer free and clear of all
liens, interests and encumbrances of any kind or nature whatsoever, and Buyer
shall purchase from Seller, free and clear of all liens, interests and
encumbrances of any kind or nature whatsoever, all of Seller's right, title and
interest as of the Closing Date in and to the following assets, wherever located
(collectively, the "Property").
1.1.1 LEASES AND CONTRACTS. Seller's rights, title and interest
to the following leases and contracts which are assumed by Seller and assigned
to Buyer pursuant to a final order of the Bankruptcy Court assuming and
assigning the lease or contract (the "Assignment Order"), or if post-petition,
to the extent transferable at no cost to Seller: wherein Seller is lessee or
party (a) under a real property lease (the "Real Property Leases"), (b) under an
equipment, personal property or intangible property lease, rental agreement,
license, contract, agreement or similar arrangement (the "Other Leases") and (c)
a party to other contracts, leases, orders, purchase orders, licenses,
contracts, agreements and similar arrangements (the "Other Contracts") (all
collectively the "Assumed Contracts"). Buyer initially designates the list of
leases and contracts that Seller shall assume and assign to Buyer as set forth
in EXHIBIT A-1 (Real Property Leases), EXHIBIT A-2 (Other Leases) and EXHIBIT
A-3 (Other Contracts). Buyer shall have the option to add to or exclude from the
list of designated leases and contracts on Exhibits A-1, A-2 and A-3, and to
make such added designated leases and contracts
Assumed Contracts, so long as Buyer notifies Seller of the lease or contract to
be added or excluded from the list before the Auction (as such term is defined
below).
1.1.2 IMPROVEMENTS. Any improvements located on the real
property (collectively, the "Real Property") occupied by Seller under the Real
Property Leases, but in all events only to the extent, if any, of Seller's
interest in the same (collectively, the "Improvements").
1.1.3 PERSONAL PROPERTY. All of those items of equipment and
tangible personal property owned by Seller (including those listed in EXHIBIT
"B" attached to this Agreement) and any other tangible personal property
acquired by Seller after the date hereof but prior to the Closing Date
exclusively used in connection with the Business (collectively, the "Personal
Property"). As used in this Agreement, the Personal Property shall not include
the Inventory (as such term is defined below). Buyer shall have the option to
add to or exclude from the list of Personal Property on Exhibit "B", so long as
Buyer notifies Seller of the Personal Property to be added or excluded from the
list before the Auction (as such term is defined below).
1.1.4 INTANGIBLE PROPERTY. All intangible property or rights
owned or held by Seller and used in connection with the Business, including, but
not limited to, all (a) fictitious business names, tradenames, registered or
unregistered trademarks, service marks, domain names and related applications,
(b) patents, patent rights and patent applications and continuations,
disclosures, reissues, and improvements thereto, (c) trade secrets, data,
process technology, plans, drawings, blueprints, inventions and discoveries (d)
registered and unregistered copyrights in published and unpublished works and
applications therefor, (e) computer programs, software, data, source code and
other related items including, but not limited to, operating computer hardware
and software for all manufacturing and accounting systems used in the Business,
and all other related documentation; (f) logos, tradenames and artwork related
to the Property and all know-how, designs, technical data, proprietary processes
and specifications related to the Property, (g) domain names and websites or
uniform resource locators, telephone numbers, toll free numbers, (h) license
agreements, permits, orders or approvals or other rights related to the
foregoing and any rights or causes of action related to the foregoing, and (i)
goodwill related to the foregoing, (j) all books, records and like items
pertaining to the operation of the Business presently and historically and (k)
all customer, vendor, dealer, distributor lists and all other books, records and
data pertaining to products, accounting and all other facets of operation of the
Business, but in all cases only to the extent of Seller's interest therein and
only to the extent transferable (collectively, the "Intangible Property"),
including, without limitation, the names "StairMaster", "Linear" and "Arcuate"
and the items identified on Exhibit "C" hereto and all derivations thereof.
Buyer shall have the option to add to or exclude from the list of Intangible
Property on Exhibit "C", so long as Buyer notifies Seller of the Intangible
Property to be added or excluded from the list before the Auction (as such term
is defined below). As used in this Agreement, Intangible Property shall in all
events exclude Seller's corporate books and records relating to its organization
and corporate existence (collectively, the "Books and Records"). The Books and
Records shall not be deemed to include the Seller's accounting records.
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1.1.5 RECEIVABLES. All accounts receivable arising out of the
operation of the Business and, subject to Section 1.2, all causes of action
relating or pertaining to the foregoing (collectively, the "Receivables"),
except as otherwise excluded pursuant to Section 1.2 below. Seller shall,
additionally, convey to Buyer all "lockbox" bank accounts in which Receivables
are collected and, Buyer shall have the right to cash therein from any
Receivable purchased at the Closing Date.
1.1.6 INVENTORY. All supplies, goods, materials, work in
process, inventory and stock in trade owned by Seller for use or sale in the
ordinary course of the Business (collectively, the "Inventory").
1.2 EXCLUDED ASSETS. Notwithstanding anything to the contrary in this
Agreement, the Property shall not include (a) those items excluded pursuant to
the provisions of Section 1.1 above; (b) all of Seller's cash and cash
equivalents including all Receivable proceeds received through midnight on the
Closing Date; (c) Inventory transferred or used by Seller in the ordinary course
of the Business prior to the Closing Date; (d) any lease, rental agreement,
contract, agreement, license or similar arrangement ("Contracts") terminated or
expired prior to the Closing Date in accordance with its terms or in the
ordinary course of the Business; (e) Sellers' capital stock or other equity
holdings in any corporation or entity which is not formed or organized under the
laws of any of the United States, and in StairMaster Switzerland LLC
(collectively, the "Foreign Entities"), including all accounts receivable owed
to Seller by the Foreign Entities as of the Closing Date; (f) all receivables
and inventory of the Foreign Entities; (g) all preference or avoidance claims
and actions of the Seller, including, without limitation, any such claims and
actions arising under Sections 544, 547, 548, 549, and 550 of the United States
Bankruptcy Code; (h) the Seller's rights under this Agreement and all cash and
non-cash consideration payable or deliverable to the Seller pursuant to the
terms and provisions hereof; and (i) insurance proceeds, claims and causes of
action with respect to or arising in connection with any Contract which is not
assigned to Buyer at the Closing, or any item of tangible or intangible property
not acquired by Buyer at the Closing.
1.3 Instruments of Transfer. The sale, assignment, transfer,
conveyance and delivery of the Property to Buyer and the assumption of
liabilities provided herein by Buyer shall be made by assignments, bill of sale,
and other instruments of assignment, transfer and conveyance provided for in
Section 3 below and such other instruments as may reasonably be requested by
Buyer or Seller. None of the foregoing documents shall increase in any material
way the burdens imposed by this Agreement upon Seller or Buyer.
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2. CONSIDERATION.
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2.1 PURCHASE PRICE.
2.1.1 The cash consideration to be paid by Buyer to Seller for
the Property (the "Purchase Price") shall be U.S.$25,000,000, subject to the
Purchase Price Adjustment set forth in Section 2.1.2 below. The Purchase Price
by Buyer is based upon the state of Sellers' "Domestic Receivables" and "Gross
Inventory" as set forth in the schedule of Receivables and Inventory, as of
January 14, 2002 and January 13, 2002, respectively, attached hereto as Schedule
2.1.2A (the "Initial Asset Schedule"). "Domestic Receivables" do not include
Receivables due from Foreign Entities.
2.1.2 PURCHASE PRICE ADJUSTMENT. The terms used in this Section
that are not otherwise defined shall have the meanings assigned to them in
Schedule 2.1.2B.
(a) Within five (5) days following the Execution Date,
Buyer shall deliver to Seller Buyer's schedule of Receivables and Inventory,
which excludes the Receivables and Inventory of the Foreign Entities, prepared
by Buyer corresponding to the dates reflected on the Initial Asset Schedule and
with respect to those line items included on the Initial Asset Schedule
("Buyer's Initial Asset Schedule"). The Buyer's Initial Asset Schedule shall
fairly present, in all material respects, the individual financial statement
elements relating to the Receivables and the Inventory as of the same dates as
referred to in the Seller's Initial Asset Schedule.
(b) Within thirty (30) days following the Closing Date,
Buyer shall deliver to Seller a special purpose balance
sheet prepared by Buyer with respect to those line items included on the Initial
Asset Schedule attached to Schedule 2.1.2A hereto (the "Closing Date Asset
Schedule"). The Closing Date Asset Schedule shall fairly present, in all
material respects, the individual financial statement elements relating to the
Receivables and the Inventory as of the Closing Date in accordance with GAAP,
subject to changes resulting from audit and normal year end adjustments.
(c) Seller shall have thirty (30) days after receipt of
the Closing Date Asset Schedule and related supporting documentation (the
"Dispute Period") to dispute any item, calculation or amount in the Buyer's
Initial Asset Schedule and Closing Date Asset Schedule (a "Dispute"). If Seller
does not give written notice of a Dispute setting forth the basis of any
disagreement (a "Dispute Notice") to the Buyer within the Dispute Period, the
Buyer's Initial Asset Schedule and Closing Date Asset Schedule shall be deemed
to be irrevocably accepted by Seller in the form in which it was delivered by
Buyer and not subject to further challenge and shall become the final Initial
Asset Schedule (the "Final Initial Asset Schedule") and final Closing Date Asset
Schedule (the "Final Closing Date Asset Schedule"). In the event that Seller
gives Buyer a Dispute Notice within the Dispute Period, setting forth the basis
of any disagreement, and Seller and Buyer shall, within ten (10) days of receipt
by Buyer of the Dispute Notice (the "Resolution Period"), attempt to resolve
such Dispute and agree in writing upon the Final Initial Asset Schedule and
Final Closing Date Asset Schedule. In the event that Seller and Buyer are unable
to resolve any such Dispute within the Resolution Period (the "Resolution
Period"), then such Dispute shall be resolved by the Bankruptcy Judge assigned
to the Case as soon as reasonably practicable, and the Buyer's Initial Asset
Schedule and the Closing Date Asset Schedule, in each case in such form as
determined by the Bankruptcy Judge, shall become the "Final Initial Asset
Schedule" and the "Final Closing Date Asset Schedule".
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(d) The Purchase Price, as defined in Section 2.1.1,
shall be adjusted to reflect the "Domestic Receivables" and "Gross Inventory"
and increased or decreased dollar-for-dollar in an amount that reflects the
difference between the amount of "Domestic Receivables" and "Gross Inventory",
as of January 14, 2002 and January 13, 2002, respectively, set forth on Schedule
2.1.2A, and as set forth in the Seller's books and records for such dates as
reflected on the Final Initial Asset Schedule. For the avoidance of doubt,
Receivables and Inventory of the Foreign Entities shall be excluded from the
foregoing adjustments.
(e) If the aggregate sum of the cost of the Net Inventory
or the amount of the Net Receivables as reflected in the Final Closing Date
Asset Schedule is greater than the aggregate sum of the cost of the Net
Inventory or the amount of the Net Receivables, respectively, as reflected in
the Final Initial Asset Schedule (an "Excess"), the Purchase Price shall be
increased by the amount of such Excess attributable to each category of such
assets set forth on Schedule 2.1.2A multiplied by the corresponding percentage
assigned to each category of such assets by such schedule. If the aggregate sum
of the cost of the Net Inventory or the amount of the Net Receivables as
reflected in the Final Closing Date Asset Schedule is less than the aggregate
sum of the cost of the Net Inventory or the amount of the Net Receivables,
respectively, as reflected in the Final Initial Asset Schedule (a "Deficiency"),
the Purchase Price shall be decreased by the amount of such Deficiency
attributable to each category of such assets set forth on Schedule 2.1.2A
multiplied by the corresponding percentage assigned to each category of such
assets by such schedule. An amount equal to such adjusted increase or decrease
in the Purchase Price, together with interest on such amount at an annual rate
equal to five percent (5%) from the Closing Date to the Payment Date, shall be
paid by the applicable party to the other party or by the Escrow Agent from the
Deposit to the applicable party within ten (10) days after the Dispute Period if
no Dispute Notice is delivered, or, if a Dispute Notice is delivered, ten (10)
days after the Bankruptcy Judge's determination or as otherwise agreed to by the
parties.
2.1.3 Prior to the execution and delivery of this Agreement,
Buyer has deposited into escrow with Heller Ehrman White & McAuliffe, $1,000,000
(the "Initial Deposit"). Within twenty-four hours following the Execution Date,
Seller will cause the Initial Deposit to be deposited into escrow (the
"Escrow"), with an escrow agent or company (the "Escrow Agent") reasonably
designated by Seller, and Buyer shall deposit the difference between the Initial
Deposit and 5% of the Purchase Price (collectively, the "Deposit") in
immediately available, good funds (funds delivered in this manner are referred
to herein as "Good Funds"), pursuant to the Escrow Agreement in substantially
the form attached hereto as EXHIBIT "D", to be delivered to and acknowledged by
the Escrow Agent on or before the Execution Date. Upon receipt of the Deposit,
the Escrow Agent shall immediately deposit the Deposit into an interest-bearing
account. The Deposit shall become nonrefundable upon the earlier of (a) the
approval of Buyer as the approved Buyer at the hearing on the Sale Motion (as
defined in Section 8.4.2 below), or
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(b) the termination of the transaction contemplated by this Agreement by reason
of Buyer's default (a "Buyer Default Termination"). The Deposit (and any
interest accrued thereon) shall be held by the Escrow Agent and delivered to the
applicable party after the Dispute Period or final decision of the Bankruptcy
Judge, as set forth in paragraph 2.1.2, and credited towards the Purchase Price.
In the event the Deposit becomes non-refundable by reason of a Buyer Default
Termination, Escrow Agent shall within five days disburse the Deposit and all
interest accrued thereon to Seller to be retained by Seller for its own account;
provided, however, if the transaction contemplated herein terminates by reason
of (i) Seller's default, (ii) the failure of a condition to Buyer's obligations,
or (iii) an event terminating the Agreement set forth in Section 4.3, the Escrow
Agent shall, within five (5) days, return to Buyer the Deposit (together with
all interest thereon). The Escrow Agent's escrow fees and charges shall be paid
one-half by Seller and one-half by Buyer.
2.1.4 On the Closing Date, subject to Sections 4.1 and 4.2 ,
Buyer shall pay and deliver to Seller, by wire transfer in Good Funds, the
Purchase Price less the Deposit (and interest accrued thereon) to Seller, by
wire transfer of Good Funds. Seller shall pay a portion of the Purchase Price to
ABN AMRO Bank NV on the Closing Date in accordance with the Procedure Order (as
such term is defined below) and any other order of the Bankruptcy Court. The
Deposit shall be delivered pursuant to Section 2.1.3 above.
2.2 ASSUMED LIABILITIES. Seller has represented to Buyer that the
aggregate Cure Amounts (as hereinafter defined) for the Assumed Contracts will
not exceed $200,000. In the event that the Bankruptcy Court orders a Cure Amount
with respect to any of the Assumed Contracts as a condition for assignment of
any one or more of the Assumed Contracts (the Cure Amount"), Buyer shall pay
such Cure Amount for any such Assumed Contracts up to the aggregate amount of
$200,000. Any Cure Amounts in excess of this aggregate Cure Amount shall be paid
by Seller. Buyer shall, effective as of the Closing Date, assume and perform all
liabilities accruing under the Assumed Contracts on and after the Closing Date
and/or as otherwise required to be performed with respect to the Property on or
after the Closing Date. Other than the liabilities and obligations of Seller
expressly assumed by Buyer hereunder, Buyer is not assuming and shall not be
liable for any liabilities or obligations of Seller, including those described
in Section 2.3 below
2.3 EXCLUDED LIABILITIES.
Notwithstanding any other provision of this Agreement, all liabilities or
obligations of the Seller not constituting Assumed Liabilities, including
without limitation the following, shall not be assumed by the Buyer and shall
remain the sole responsibility of the Seller (the "Excluded Liabilities").
2.3.1 All accounts payable arising prior to the Closing,
including all amounts owed to vendors, suppliers or representatives and all
commissions.
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2.3.2 All liabilities or obligations for borrowed money,
deferred purchase price of goods or services and guarantees or other credit
support obligations in respect of any of the foregoing, including without
limitation all obligations under capitalized leases that are not Assumed
Contracts, whether direct or in the form of a guarantee or similar contingent
obligations.
2.3.3 All liabilities, obligations, claims, actions or
proceedings, whether or not contingent and whether or not asserted on or prior
to the Closing, to the extent they relate to occurrences, events or periods
prior to the Closing.
2.3.4 All liabilities, obligations, claims, actions or
proceedings, whether or not contingent and whether or not asserted on or prior
to the Closing, that relate to any income Tax (as defined below) of the Seller
or that relate to any other federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, profits, customs, duties, franchise, withholding, employment, real
property, personal property, sales, use, transfer, registration, estimated, or
other taxes, fees, levies, duties, imposts or charges of any kind, including any
interest, penalty, or addition thereto, whether disputed or not ("Tax"), except
those Taxes for which Buyer is liable pursuant to Sections 3.5 and 3.6 below.
2.3.5 All liabilities and obligations relating to Excluded
Assets.
2.3.6 All liabilities relating to warranty, product liability
and similar matters arising from occurrences prior to the Closing or from any
product manufactured, remanufactured, sold or distributed prior to the Closing.
2.3.7 All liabilities resulting from any obligation of the
Business arising prior to the Closing that relate to any account receivable,
including without limitation product returns, deductions, off-sets, chargebacks,
price protection provisions, cooperative advertising allowances or other
reductions or dilutions.
2.3.8 All liabilities accrued on the balance sheet of the
Seller, including without limitation employee bonuses and other compensations,
bonuses related to the transactions contemplated hereby and similar obligations
pursuant to any contract constituting an Excluded Asset.
2.3.9 All compensation, benefit and other employment related
claims, including wages, severance, vacation, sick leave, Comprehensive Omnibus
Budget Reconciliation Act ("COBRA") claims and similar claims arising under
state law, all Worker Adjustment Retraining Notification Act ("WARN Act")
claims, and all medical, dental and similar claims and disability claims.
2.3.10 All royalties and similar obligations relating to the use
of any trade name, trademark, service mark, patent right or to the sale or
products for periods prior to the Closing Date.
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2.3.11 All liabilities and obligations arising under any
intercompany account.
2.3.12 All liabilities and obligations arising under any
contract, license, real or personal property lease, purchase order, customer
order or other agreement or obligation of the Seller that is not expressly
assumed by the Buyer pursuant to this Agreement, including without limitation
the Buyer does not hereby assume any purchase orders now or hereafter entered
into by the Seller and assumes no obligation to complete the Seller's
work-in-progress.
2.3.13 All liabilities and obligations of the Seller arising as
a result of or in connection with any failure by the Seller to comply with any
bulk sales or bulk transfers laws.
2.3.14 All liabilities and obligations arising out of or
resulting from noncompliance prior to the Closing Date with any treaty or
national, regional or local laws, including judicial and administrative rules
and directives, and including all such laws relating to environmental
liabilities.
2.3.15 All liabilities and obligations of the Foreign Entities.
2.3.16 All other liabilities and obligations of the Seller of
any nature, past, present or future, fixed or contingent, disclosed or
undisclosed, now existing or hereafter arising, that are not expressly assumed
by the Buyer pursuant to this Agreement.
2.4. ALLOCATION OF PURCHASE PRICE. The Purchase Price will be
allocated to the Property as jointly determined by the Buyer and Seller within
30 days after the Closing Date. The Buyer and the Seller shall, not later than
180 days after the Closing, execute and cause to be filed Form 8594 under the
Internal Revenue Code of 1986, as amended, reflecting such allocation and, upon
the request of the Buyer, the Seller shall execute and file such other documents
as may be necessary to document such allocation.
3. CLOSING TRANSACTIONS.
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3.1 CLOSING. The Closing of the transaction as provided for herein
(the "Closing") shall take place at the offices of Heller Ehrman White &
McAuliffe LLP, Suite 6100, Seattle, Washington 98104-7098.
3.2 CLOSING DATE. The Closing shall be held within five days after
satisfaction or waiver of the conditions to closing in Section 4 (the "Closing
Date") but in no event later than February 8, 2002, provided, however, that
Buyer shall have the right to extend the date of the Closing until the Approval
Order becomes non-appealable (the "Outside Date"). In the event the conditions
to Closing have not been satisfied or waived by the Outside Date, then any party
who is not in default hereunder may terminate this Agreement. Alternatively, the
parties may mutually agree to an extended Closing Date. Until this Agreement is
terminated, the parties shall diligently continue to work to satisfy all
conditions to Closing.
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3.3 Seller's Deliveries to Buyer at Closing. On the Closing Date,
Seller shall make the following deliveries to Buyer:
3.3.1 The Assignment Order and the Order setting the Cure
Amounts in which the Bankruptcy Court has set the Cure Amount and approved
assignment of the Assumed Contracts to Buyer.
3.3.2 A bill of sale, duly executed by Seller, in the form and
on the terms of the bill of sale attached hereto as EXHIBIT "E," pursuant to
which Seller transfers the Property other than the Assumed Contracts to Buyer
(the "Bill of Sale").
3.3.3 The Seller's Officer Certificate.
3.3.4 All of Seller's books and records and other data related
to the Property and Seller's operation thereof, except the Books and Records
retained by the Seller pursuant to Section 1.1.4 above.
3.3.5 The keys, security codes and passwords to the Property.
3.3.6 Such other instruments, documents and information as is
required by any other provision in this Agreement or that is necessary to convey
title to any of the Property and/or to facilitate operation of the Property by
Buyer.
3.4 BUYER'S DELIVERIES TO SELLER AT CLOSING. On the Closing Date,
Buyer shall make or cause the following deliveries to be made to Seller:
3.4.1 That portion of the Purchase Price to be delivered by
Buyer directly to Seller at the Closing under Section 2.1.
3.5 PRORATIONS. Rent, current taxes, prepaid advertising and other
items of expense (including, without limitation, any prepaid insurance under any
of the Assumed Contracts) and items of income such as rents and royalties
relating to or attributable to the Property and/or the Assumed Contracts shall
be prorated between Seller and Buyer as of the Closing Date. All obligations due
in respect of periods prior to Closing, other than the Cure Amounts with respect
to the Assumed Contracts, if any, shall be paid in full or otherwise satisfied
by Seller and all obligations due in respect of periods after Closing shall be
paid in full or otherwise satisfied by Buyer. Rent shall be prorated on the
basis of a thirty (30) day month.
3.6 SALES, USE AND OTHER TAXES. Notwithstanding any exemption that
may be available under section 1146(c) of the Bankruptcy Code and the Approval
Order with respect to any state and local transfer, recording, stamp or other
similar transfer taxes (collectively "Transaction Taxes") that may be imposed by
reason of the transactions contemplated by this Agreement , if Transaction Taxes
are assessed for any reason, Seller
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and Buyer shall each pay one-half of the Transaction Taxes and any recording and
filing fees. Buyer and Seller agree to cooperate to determine the amount of
Transaction Taxes payable in connection with the transactions contemplated under
this Agreement. At the Closing, Buyer and Seller shall remit to each other such
properly completed resale exemption certificates and other similar certificates
or instruments as are applicable to claim available exemptions from the payment
of sales, transfer, use or other similar taxes under applicable law. Buyer and
Seller will cooperate in preparing such forms and will execute and deliver such
affidavits and forms as are reasonably requested by the other party. Seller and
Buyer shall, if necessary, cooperate to seek any determination of the exemption
from Transaction Taxes through submitting any dispute thereof to the State or
local government unit charged with responsibility for collection or
determination of the disputed tax pursuant to Bankruptcy Code Section 1146(d).
3.7 SELLERS' EMPLOYEES. Buyer may, in its sole discretion, offer
employment to any or all of Seller's employees on such terms and conditions as
shall be determined by Buyer. Seller shall be responsible for any and all wages,
bonuses, commissions, employee benefits and other compensation to the Employees
arising out of their employment with Seller prior to and as of the Closing.
Buyer shall be responsible for any and all wages, bonuses, commissions, employee
benefits and other compensation that may be due to the Seller's Employees
arising out of their employment with Buyer after the Closing. Further, in
respect of notices and payments relating to events occurring on or prior to the
Closing, Seller shall be responsible for and assume all Liability for any and
all notices, payments, fines or assessments due to any governmental or
regulatory authority or to any other Person, pursuant to any law, order or
contract with respect to the employment, discharge, termination or layoff of
Employees by Seller as of or before the Closing, including but not limited to
the Workers' Adjustment & Retraining Notification ("WARN") Act and any related
rules or regulations.
3.8 POSSESSION. Right to possession of the Property shall transfer
to Buyer on the Closing Date. Seller shall transfer and deliver to Buyer on the
Closing Date such keys, lock and safe combinations and other similar items as
Buyer shall require to obtain immediate and full occupation and control of the
Property, and shall also make available to Buyer at their then existing
locations the originals of all documents in Seller's possession that are
required to be transferred to Buyer by this Agreement.
3.9 USE OF CERTAIN REAL PROPERTY NOT ASSUMED BY BUYER. Seller shall
use commercially reasonable efforts to obtain an order of the Bankruptcy Court
permitting Buyer to occupy and use the Real Property designated in Exhibit A-1,
which is not among the Assumed Contracts, for the corresponding periods
described in Exhibit A-1, on the same terms as conditions as currently in
effect. Buyer shall reimburse the Seller for the actual cost to Seller of
Buyer's occupancy of the Real Property, including contracted monthly rental
payments, for the duration of Buyer's occupancy of the Real Property.
3.10 POST-PETITION CONTRACTS AND LEASES. Seller will use its best
efforts to assign its rights in post-petition contracts and leases, provided
that Seller shall not be
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required to pay any costs associated with such assignment (including, without
limitation, any costs associated with obtaining third party consent to any such
assignment.)
4. CONDITIONS PRECEDENT TO CLOSING.
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4.1 CONDITIONS TO SELLER'S OBLIGATIONS. Seller's obligation to make
the deliveries required of Seller at the Closing Date shall be subject to the
satisfaction or waiver by Seller of each of the following conditions.
4.1.1 All of the representations and warranties of Buyer
contained herein shall continue to be true and correct at the Closing in all
material respects, all covenants and obligations to be performed by Buyer prior
to the Closing shall have been performed in all material respects and an
executive officer of Buyer shall have certified the foregoing to Seller in
writing.
4.1.2 Buyer shall have executed and delivered to Seller each of
the documents reasonably requested by Seller pursuant to Section 1.3.
4.1.3 Seller shall have received the total Purchase Price, less
any amount held by the Escrow Agent under Section 2.1.3, in immediately
available funds.
4.1.4 Buyer shall have delivered to Seller appropriate evidence
of all necessary action by Buyer in connection with the transactions
contemplated hereby, including, without limitation: (a) certified copies of
resolutions duly approving and authorizing Buyer to enter into the transactions
contemplated by this Agreement and authorizing the execution, delivery, and
performance by Buyer of this Agreement; and (b) a certificate as to the
incumbency of officers of Buyer executing this Agreement and any instrument or
other document delivered in connection with the transactions contemplated by
this Agreement (the "Officer's Certificate").
4.1.6 The Bankruptcy Court shall have entered the Approval Order
as contemplated by and defined in Section 8.4.2 below and the Approval Order
shall not have been stayed as of the Closing Date.
4.2 CONDITIONS TO BUYER'S OBLIGATIONS. Buyer's obligation to make the
deliveries required of Buyer at the Closing shall be subject to the satisfaction
or waiver by Buyer of each of the following conditions:
4.2.1 All representations and warranties of Seller contained
herein shall continue to be true and correct at the Closing in all material
respects, all covenants and obligations to be performed by Seller prior to the
Closing shall have been performed in all material respects and an executive
officer of Seller shall have certified the foregoing to Buyer in writing.
4.2.2 Seller shall have executed and delivered to Buyer the Bill
of Sale and each other document reasonably requested by Buyer pursuant to
Section 1.3.
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4.2.3 Seller shall have filed a motion seeking to assume and
assign the Assumed Contracts, setting the Cure amount and assigning the Assumed
Contracts to Buyer; and, (b) the Bankruptcy Court shall have entered the
Approval Order in accordance with Section 8.4.2 below and the Approval Order
shall not have been stayed as of the Closing Date.
4.3 TERMINATION. Anything in this Agreement to the contrary
notwithstanding, this Agreement and the transactions contemplated hereby may be
terminated in any of the following ways at any time before the Closing and in no
other manner:
(a) by mutual written consent of Buyer and Seller;
(b) by Buyer, at any time prior to the Auction (as such term is
defined below), if Buyer is not, in Buyer's sole discretion, satisfied with its
investigation of the assets and affairs of Seller through due diligence, which
shall be completed on or before the Auction. In such event, Buyer shall notify
Seller in writing of the termination of this Agreement prior to commencement of
the Auction.
(c) by Buyer or Seller, upon the Bankruptcy Court approval of
the sale of assets contemplated herein to be sold to Buyer, to a third party
other than Buyer.
(d) by Buyer or Seller, if the Closing has not occurred (other
than by reason of the breach by the party seeking termination of this Agreement)
by the Closing Date set forth in Section 3.2, as extended.
5. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby makes the
following representations and warranties to Buyer:
5.1 VALIDITY OF AGREEMENT. Upon obtaining the Approval Order, this
Agreement shall constitute the valid and binding obligation of Seller that is
enforceable in accordance with its terms.
5.2 ORGANIZATION, STANDING AND POWER. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Subject to the applicable provisions of bankruptcy law, Seller has all
requisite corporate power and authority to own, lease and operate its
properties, to carry on its business as now being conducted and, subject to the
Seller's obtaining the Approval Order, to execute, deliver and perform this
Agreement and all writings relating hereto.
5.3 NO CONFLICTS OR VIOLATIONS. Upon obtaining the Approval Order,
the execution and delivery of this Agreement, the consummation of the
transactions herein contemplated, and the performance of, fulfillment of and
compliance with the terms and conditions hereof by Seller do not and will not:
(a) conflict with or result in a breach of the articles of incorporation or the
by-laws of Seller; (b) violate any statute, law, rule or regulation, or any
order, writ, injunction or decree of any court or governmental
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authority; or (c) violate or conflict with or constitute a default under any
agreement, instrument or writing of any nature to which Seller is a party or by
which Seller or its assets or properties may be bound.
5.4 TITLE TO PROPERTY. To the Seller's knowledge (which consists of
matters actually known to Seller's senior management), Seller has good and
marketable title to the Property. At the Closing, Buyer will acquire all of
Seller's right, title and interest in and to all the Property, free and clear of
any liens, claims or encumbrances of any kind or nature whatsoever, subject to
Sections 2.2 and 3.5 hereof.
6. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer hereby makes the
following representations and warranties to Seller:
6.1 VALIDITY OF AGREEMENT. All action on the part of Buyer necessary
for the authorization, execution, delivery and performance of this Agreement by
Buyer, including, but not limited to, the performance of Buyer's obligations
hereunder, has been duly taken. This Agreement, when executed and delivered by
Buyer, shall constitute the valid and binding obligation of Buyer enforceable in
accordance with its terms.
6.2 ORGANIZATION, STANDING AND POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington. Buyer has all requisite corporate power and authority to own, lease
and operate its properties, to carry on its business as now being conducted and
to execute, deliver and perform this Agreement and all writings relating hereto.
6.3 NO CONFLICTS OR VIOLATIONS. The execution and delivery of this
Agreement, the consummation of the transactions herein contemplated, and the
performance of, fulfillment of and compliance with the terms and conditions
hereof by Buyer do not and will not: (a) conflict with or result in a breach of
the articles of incorporation or by-laws of Buyer; (b) violate any statute, law,
rule or regulation, or any order, writ, injunction or decree of any court or
governmental authority; or (c) violate or conflict with or constitute a default
under any agreement, instrument or writing of any nature to which Buyer is a
party or by which Buyer or its assets or properties may be bound.
6.4 FINANCING. Buyer has sufficient funds available to consummate
the transactions contemplated hereby.
7. "AS IS" Transaction. BUYER HEREBY ACKNOWLEDGES AND AGREES THAT,
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 5 ABOVE, THE SELLER MAKES NO
REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO
ANY MATTER RELATING TO THE PROPERTY INCLUDING, WITHOUT LIMITATION, INCOME TO BE
DERIVED OR EXPENSES TO BE INCURRED IN CONNECTION WITH THE PROPERTY, THE PHYSICAL
CONDITION OF ANY PERSONAL PROPERTY COMPRISING A PART OF THE PROPERTY OR WHICH IS
THE SUBJECT OF ANY OTHER LEASE OR CONTRACT TO BE ASSUMED BY BUYER AT THE
CLOSING, THE ENVIRONMENTAL CONDITION OR OTHER MATTER RELATING TO THE PHYSICAL
CONDITION OF
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ANY REAL PROPERTY OR IMPROVEMENTS WHICH ARE THE SUBJECT OF ANY REAL PROPERTY
LEASE TO BE ASSUMED BY BUYER AT THE CLOSING, THE ZONING OF ANY SUCH REAL
PROPERTY OR IMPROVEMENTS, THE VALUE OF THE PROPERTY (OR ANY PORTION THEREOF),
THE TRANSFERABILITY OF PROPERTY, THE TERMS, AMOUNT, VALIDITY OR ENFORCEABILITY
OF ANY ASSUMED LIABILITIES, THE TITLE OF THE PROPERTY (OR ANY PORTION THEREOF)
THE MERCHANTABILITY OR FITNESS OF THE PERSONAL PROPERTY OR ANY OTHER PORTION OF
THE PROPERTY FOR ANY PARTICULAR PURPOSE, OR ANY OTHER MATTER OR THING RELATING
TO THE PROPERTY OR ANY PORTION THEREOF. WITHOUT IN ANY WAY LIMITING THE
FOREGOING, SELLER HEREBY DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE AS TO ANY PORTION OF THE
PROPERTY. BUYER FURTHER ACKNOWLEDGES THAT BUYER PRIOR TO THE AUCTION DATE WILL
HAVE CONDUCTED AN INDEPENDENT INSPECTION AND INVESTIGATION OF THE PHYSICAL
CONDITION OF THE PROPERTY AND ALL SUCH OTHER MATTERS RELATING TO OR AFFECTING
THE PROPERTY AS BUYER DEEMS NECESSARY OR APPROPRIATE AND THAT IN PROCEEDING WITH
ITS ACQUISITION OF THE PROPERTY AND THE EXECUTION OF THIS AGREEMENT, EXCEPT FOR
ANY REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN SECTION 5, BUYER IS
DOING SO BASED SOLELY UPON SUCH INDEPENDENT INSPECTIONS AND INVESTIGATIONS. AND
ACCORDINGLY, BUYER WILL ACCEPT THE PROPERTY AT THE CLOSING "AS IS," "WHERE IS,"
AND "WITH ALL FAULTS."
8. CONDUCT AND TRANSACTION PRIOR TO CLOSING.
----------------------------------------
8.1 ACCESS TO RECORDS AND PROPERTIES OF SELLER. From and after the
date of this Agreement until the Closing Date, Seller shall, upon reasonable
advance notice, afford to Buyer's officers, independent public accountants,
counsel, lenders, consultants and other representatives, reasonable access
during normal business hours to the Property and all records pertaining to the
Property or the Business. Buyer expressly acknowledges that nothing in this
Section 8.1 is intended to give rise to any contingency, after the Auction, to
Buyer's obligations to proceed to Closing the transactions contemplated herein.
8.2 OPERATION OF SELLER'S BUSINESS PENDING CLOSING. Unless Buyer
otherwise consents, during the period prior to the Closing Date, Seller shall
use commercially reasonable efforts to operate the Business as currently
operated and only in the ordinary course and, consistent with such operation,
and to preserve intact the Business and its relationships with employees and
persons having dealings with it, in each case to the extent within its sole
control. Seller shall not, except as required or contemplated by this Agreement,
or as otherwise agreed by Buyer and Seller, make any material change in the
Property or enter into any transaction not in the ordinary course of business
which affects the Property. During the period prior to the Closing Date, Seller
shall take reasonable measures to maintain and safeguard the Property.
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8.3 [Intentionally Left Blank]
8.4 BANKRUPTCY COURT APPROVALS.
8.4.1 BANKRUPTCY COURT APPROVAL OF SALE PROCEDURES. The
Bankruptcy Court entered an Order Approving Timeline and Procedures for Sale on
November 16, 2001, as amended on January 4, 2002 (the "Procedure Order"). Under
the Procedure Order (a) January 25, 2002 at 10:30 a.m. is the time and date of a
hearing (the "Approval Hearing") to approve Seller's consummation of the Sale of
Seller's assets after Auction, (b) January 17, 2002 at 10:00 a.m. is the time
and date of an auction (the "Auction") to be held at the offices of Seller's
counsel at which higher and better offers may be presented to the Seller; and
(c) overbids at the Auction must be in increments of at least $50,000. Buyer
shall have the right, but not the obligation, to participate in overbidding at
the Auction and to be approved as the overbidder at the Approval Hearing based
upon any such overbid.
8.4.2 BANKRUPTCY COURT'S APPROVAL OF SALE. No later than
promptly following the Auction Date, Seller shall file a motion or motions with
the Bankruptcy Court (the "Sale Motion") requesting entry of an order (the
"Approval Order") which (a) approves the sale of the Property to Buyer on the
terms and conditions set forth in this Agreement and authorizes the Seller to
proceed with the transaction, (b) includes a specific finding that Buyer is a
good faith purchaser of the Property, (c) provides that Buyer is not a successor
in interest to Seller and that Buyer is not continuing Seller's business
operations; (d) states that the sale of the Property to Buyer shall be free and
clear of all liens, claims, interests and encumbrances whatsoever (except as
expressly provided in this Agreement), and (e) approves the Seller's assumption
and assignment of the pre-petition Assumed Contracts pursuant to Section 365 of
the United States Bankruptcy Code and orders the Buyer to pay the Cure Amounts,
if any, payable to the other parties to the Assumed Contracts as a condition to
such assumption and assignment. Following the filing of the Sale Motion, the
Seller shall use reasonable efforts to obtain entry of the Approval Order. Both
Buyer's and Seller's obligations to consummate the transactions contemplated in
this Agreement which the Buyer and Seller may hereafter enter into shall be
conditioned upon the Bankruptcy Court's entry of the Approval Order.
9. MISCELLANEOUS.
-------------
9.1 ATTORNEYS' FEES. In the event that either party hereto brings an
action or other proceeding to enforce or interpret the terms and provisions of
this Agreement, the prevailing party in that action or proceeding shall be
entitled to have and recover from the non-prevailing party all such fees, costs
and expenses (including, without limitation, all court costs and reasonable
attorneys' fees) as the prevailing party may suffer or incur in the pursuit or
defense of such action or proceeding.
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9.2 REASONABLE ACCESS TO RECORDS AND CERTAIN PERSONNEL. So long as
the Case is pending, (a) the Buyer shall permit Seller's counsel and other
professionals employed in the Case reasonable access to the financial and other
books and records relating to the Property or the Business (whether in
documentary or data form) for the purpose of the continuing administration of
the Case (including, without limitation, the pursuit of any avoidance,
preference or similar action), which access shall include (i) the right of such
professionals to copy, at the Seller's expense, such documents and records as
they may request in furtherance of the purposes described above, and (ii)
Buyer's copying and delivering to Seller or its professionals such documents or
records as they may request, but only to the extent Seller or its professionals
furnishes Buyer with reasonably detailed written descriptions of the materials
to be so copied and Seller reimburses the Buyer for the reasonable costs and
expenses thereof), and (b) Buyer shall provide, for a period not to exceed
ninety (90) days after Closing, Seller and such professionals (at no cost to the
Seller) with reasonable access to Michael Quinn and Everette Hinson, so long as
each are employed by Buyer, during regular business hours to assist the Seller
in the continuing administration of the Case, provided that: (a) such access
does not unreasonably interfere with the Buyer's business operations; and, (b)
such access does not exceed ten (10) hours in any calendar week.
9.3 TRANSITION ASSISTANCE. Seller shall cooperate with Buyer in all
commercially reasonable ways to assist Buyer in obtaining the use of any
licenses, authorizations or permits that Seller may have that are necessary to
operate the Business, provided, however, that Buyer shall pay any costs
associated with the foregoing.
9.4 NOTICES. Unless otherwise provided herein, any notice, tender,
or delivery to be given hereunder by either party to the other may be effected
by personal delivery in writing, or by registered or certified mail, postage
prepaid, return receipt requested, and shall be deemed communicated as of the
date of mailing. Mailed notices shall be addressed as set forth below, but each
party may change his address by written notice in accordance with this
paragraph.
To Seller: StairMaster Sports/Medical Products, Inc.
12421 Willows Road NE, Suite 100
Kirkland, Washington 98034-8736
Attention: Michael R. Quinn
Dick Hooper
With a copy to: Heller Ehrman White & McAuliffe LLP
701 Fifth Avenue, Suite 6100
Seattle, Washington 98104-7098
Attention: Frederick P. Corbit, Esq.
With a copy to: Houlihan Lokey Howard & Zukin
1930 Century Park West
Los Angeles, California 90067
Attention: Susanne Meline
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To Buyer: Direct Focus, Inc.
1400 N.E. 136th Ave.
Vancouver, WA 98684
Attention: Brian Cook
With a copy to: Garvey, Schubert & Barer
1191 Second Ave., 18th Floor
Seattle, WA 98101
Attention: Bruce A. Robertson
9.5 ENTIRE AGREEMENT. This instrument and the documents to be
executed pursuant hereto contain the entire agreement between the parties
relating to the sale of the Property. Any oral representations or modifications
concerning this Agreement or any such other document shall be of no force and
effect excepting a subsequent modification in writing, signed by the party to be
charged.
9.6 MODIFICATION. This Agreement may be modified, amended or
supplemented only by a written instrument duly executed by all the parties
hereto.
9.7 CLOSING DATE. All actions to be taken on the Closing pursuant to
this Agreement shall be deemed to have occurred simultaneously, and no act,
document or transaction shall be deemed to have been taken, delivered or
effected until all such actions, documents and transactions have been taken,
delivered or effected.
9.8 SEVERABILITY. Should any term, provision or paragraph of this
Agreement be determined to be illegal or void or of no force and effect, the
balance of the Agreement shall survive except that, if Buyer cannot acquire and
Seller cannot sell substantially all of the Property, either party may terminate
this Agreement, and it shall be of no further force and effect, unless both
parties agree in writing to the contrary.
9.9 CAPTIONS. All captions and headings contained in this Agreement
are for convenience of reference only and shall not be construed to limit or
extend the terms or conditions of this Agreement.
9.10 FURTHER ASSURANCES. Each party hereto will execute, acknowledge
and deliver any further assurance, documents and instruments reasonably
requested by any other party hereto for the purpose of giving effect to the
transactions contemplated herein or the intentions of the parties with respect
thereto.
9.11 WAIVER. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of other provisions, whether or
not such provisions are similar, nor shall any waiver constitute a continuing
waiver. No waiver shall be binding unless executed in writing by the party
making the waiver.
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9.12 BROKERAGE OBLIGATIONS. Seller is represented by HLHZ as its
exclusive sale agent with respect to the transactions contemplated herein
pursuant that certain order entered by the Bankruptcy Court on October 15, 2001
and HLHZ's commission, fees and expenses are to be paid by the Seller in
accordance with the terms and provisions of such order. The Seller and the Buyer
each represent and warrant to the other that, except for HLHZ, such party has
incurred no liability to any real estate broker or agent with respect to the
payment of any commission regarding the consummation of the transactions
contemplated hereby. Except for any claims of HLHZ (which are to be handled and
satisfied by Seller in accordance with the above-referenced order), it is agreed
that if any claims for commissions, fees or other compensation, including,
without limitation, brokerage fees, finder's fees, or commissions are ever
asserted against Buyer or the Seller in connection with this transaction, all
such claims shall be handled and paid by the party whose actions form the basis
of such claim and such party shall indemnify, defend (with counsel reasonably
satisfactory to the party entitled to indemnification), protect and hold the
other harmless from and against any and all such claims or demands asserted by
any person, firm or corporation in connection with the transaction contemplated
hereby.
9.13 PAYMENT OF FEES AND EXPENSES. Except as provided in Section 9.2
above, each party to this Agreement shall be responsible for and shall pay all
of its own fees and expenses, including those of its counsel, incurred in the
negotiation, preparation and consummation of the Agreement and the transaction
described herein.
9.14 SURVIVAL. Except for the covenants and agreements to be
performed after the Closing Date, none of the respective representations,
warranties, covenants and agreements of Seller and Buyer herein, or in any
certificates or other documents delivered prior to or at the Closing, shall
survive the Closing.
9.15 ASSIGNMENTS. This Agreement shall not be assigned by either
party hereto without the prior written consent of the other party hereto;
provided, that Buyer may assign its right to acquire the Property to one or more
wholly-owned subsidiaries of Buyer.
9.16 BINDING EFFECT. Subject to the provisions of Section 9.13 above,
this Agreement shall bind and inure to the benefit of the respective heirs,
personal representatives, successors, and assigns of the parties hereto.
9.17 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the state of Washington.
9.18 GOOD FAITH. All parties hereto agree to do all acts and execute
all documents required to carry out the terms of this Agreement and to act in
good faith with respect to the terms and conditions contained herein before and
after Closing.
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9.19 CONSTRUCTION. In the interpretation and construction of this
Agreement, the parties acknowledge that the terms hereof reflect extensive
negotiations between the parties and that this Agreement shall not be deemed,
for the purpose of construction and interpretation, to have been drafted by
either party hereto.
9.20 COUNTERPARTS. This Agreement may be signed in counterparts.
The parties further agree that this Agreement may be executed by the exchange of
facsimile signature pages.
9.21 TIME IS OF THE ESSENCE. Time is of the essence in this
Agreement, and all of the terms, covenants and conditions hereof.
9.22 BANKRUPTCY COURT JURISDICTION. BUYER AND SELLER AGREE THAT THE
BANKRUPTCY COURT SHALL HAVE EXCLUSIVE JURISDICTION OVER ALL DISPUTES OTHER
MATTERS RELATING TO (A) THE INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT OR
ANY ANCILLARY DOCUMENT EXECUTED PURSUANT HERETO; AND/OR (B) THE PROPERTY AND/OR
ASSUMED LIABILITIES. BUYER EXPRESSLY CONSENTS TO AND AGREES NOT TO CONTEST SUCH
EXCLUSIVE JURISDICTION.
IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase
Agreement as of the day and year first above written.
Direct Focus, Inc., a
Washington corporation
By: /s/
-----------------------------------
Name: Brian Cook
Its: Chief Executive Officer
StairMaster Sports/Medical Products, Inc.
Debtor and Debtor In Possession
By: /s/
-----------------------------------
Name: Michael R. Quinn
Its: Chief Executive Officer
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