SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported): February 9, 1999.
SCHOOL SPECIALTY, INC.
(Exact name of registrant as specified in its charter)
Delaware 000-24385 39-0971239
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1000 North Bluemound Drive
Appleton, Wisconsin 54914
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (920) 734-2756
<PAGE>
Item 2. Acquisition or Disposition of Assets
On February 9, 1999, School Specialty, Inc. (the
"Company") acquired all of the limited liability
company interests in Sportime, LLC, a subsidiary of
Genesis Direct, Inc. ("Sportime"). The Company intends
to continue using the assets acquired through its
acquisition of Sportime for substantially the same
purposes. Sportime is a marketer and producer of
physical education, athletic and recreation products.
The purchase price for the equity of Sportime was
approximately $23 million in cash subject to
adjustment. The purchase price was based on the
Company's evaluation of the financial condition,
business operations and prospects of Sportime and was
negotiated in an arms-length transaction among
unrelated and unaffiliated parties. Funds for the
acquisition were obtained from a draw on the Company's
existing line of credit with NationsBank, NA.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements. It is impracticable to
provide the required financial statements at this time.
The required financial statements will be filed as soon
as practicable, but not later than 60 days after the
date by which this report on Form 8-K must filed.
(b) Pro Forma Financial Information. It is
impracticable to provide the required pro forma
financial information at this time. The required pro
forma financial information will be filed as soon as
practicable, but not later than 60 days after the date
by which this report on Form 8-K must be filed.
(c) The following exhibits are filed with this
report:
Exhibit No. Description
2.1 Limited Liability Interests Purchase
Agreement among School Specialty, Inc. and
Genesis Direct, Inc. and Little Genesis, Inc.,
dated as of February 1, 1999. (Exhibits and
Schedules have been omitted based on Rule
601(b)(2) of Regulation S-K. Such Exhibits and
Schedules are described in the Agreement. The
Registrant hereby agrees to furnish to the
Commission upon its request, any or all of such
omitted Exhibits or Schedules).
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 24, 1999
SCHOOL SPECIALTY, INC.
By: /s/ Donald J. Noskowiak
-------------------------
Donald J. Noskowiak
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
2.1 Limited Liability Interests Purchase
Agreement among School Specialty, Inc.
and Genesis Direct, Inc. and Little Genesis,
Inc., dated as of February 1, 1999. (Exhibits
and Schedules have been omitted based on Rule
601(b)(2) of Regulation S-K. Such Exhibits and
Schedules are described in the Agreement. The
Registrant hereby agrees to furnish to the
Commission upon its request, any or all of such
omitted Exhibits or Schedules).
LIMITED LIABILITY INTERESTS
PURCHASE AGREEMENT
AMONG
SCHOOL SPECIALTY, INC.
AND
GENESIS DIRECT, INC.
AND
LITTLE GENESIS, INC.
February 1, 1999
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS. 1
SECTION 2. BASIC TRANSACTION. 1
(A) PURCHASE AND SALE OF LIMITED LIABILITY INTERESTS. 1
(B) PURCHASE PRICE. 1
(C) THE CLOSING. 1
(D) DELIVERIES. 2
(E) POST-CLOSING ADJUSTMENT AND PAYMENT 2
SECTION 3. REPRESENTATIONS AND WARRANTIES CONCERNING
THE COMPANY. 3
(A) ORGANIZATION AND POWERS OF COMPANY. 4
(B) [INTENTIONALLY OMITTED]. 4
(C) NONCONTRAVENTION. 4
(D) BROKERS' FEES. 5
(E) LIMITED LIABILITY INTERESTS. 5
(F) TITLE TO ASSETS. 5
(G) FINANCIAL STATEMENTS. 5
(H) EVENTS SUBSEQUENT TO DECEMBER 31, 1997. 6
(I) UNDISCLOSED LIABILITIES. 8
(J) LEGAL COMPLIANCE. 8
(K) TAX MATTERS. 8
(L) REAL PROPERTY. 9
(M) INTELLECTUAL PROPERTY. 9
(N) TANGIBLE ASSETS. 12
(O) INVENTORY. 12
(P) CONTRACTS. 13
(Q) PREDOMINANT CUSTOMERS. 13
(R) CHANGE IN CUSTOMERS OR VENDORS. 13
(S) NOTES AND ACCOUNTS RECEIVABLE. 13
(T) INSURANCE. 13
(U) PRODUCT WARRANTY. 14
(V) LITIGATION. 14
(W) EMPLOYEES. 14
(X) EMPLOYEE BENEFITS. 15
(Y) ENVIRONMENT, HEALTH AND SAFETY. 15
(Z) CERTAIN BUSINESS RELATIONSHIPS WITH COMPANY. 15
(AA) DISCLOSURE. 15
(BB) PROCESSING OF RETURNS. 16
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. 16
(A) REPRESENTATIONS AND WARRANTIES OF THE SELLERS. 16
(B) REPRESENTATIONS AND WARRANTIES OF BUYER. 17
SECTION 5. COVENANTS. 18
(A) FURTHER ASSURANCES. 18
(B) CONFIDENTIALITY. 18
(C) INDEMNIFICATION PROVISIONS FOR THE BENEFIT OF BUYER. 19
(D) INDEMNIFICATION PROVISIONS FOR THE BENEFIT OF
THE SELLERS AND COMPANY. 20
(E) INDEMNIFICATION MATTERS INVOLVING THIRD PARTIES. 21
(F) FRAUD. 22
(G) RECORDS. 22
(H) THIRD PARTY CONSENTS. 22
(I) [INTENTIONALLY OMITTED.] 22
(J) ACCESS. 23
(K) SATISFACTION OF CLOSING CONDITIONS. 23
(L) CONDUCT OF BUSINESS. 23
(M) INSURANCE, ETC. 23
(N) CONSENTS, ETC. 24
(O) MATERIAL ADVERSE CHANGE. 24
(P) HSR ACT. 24
SECTION 6. CONDITIONS TO OBLIGATION TO CLOSE. 25
(A) CONDITIONS TO OBLIGATION OF BUYER. 25
(B) CONDITIONS TO OBLIGATION OF SELLERS. 26
SECTION 7. CLOSING DOCUMENTS. 27
(A) SELLERS DELIVERIES. 27
(B) BUYER DELIVERIES. 28
SECTION 8. ARBITRATION OF DISPUTES. 29
(A) MANDATORY ARBITRATION. 29
(B) ARBITRATOR'S QUALIFICATIONS AND SELECTION. 29
(C) GOVERNING LAW; WRITTEN DECISION. 30
(D) PROCEDURES; EVIDENCE; EXPERTS. 30
(E) COSTS. 30
(F) CONSENT TO JURISDICTION. 30
(G) INJUNCTIVE RELIEF. 31
(H) INDEMNIFICATION. 31
(I) SURVIVAL. 31
(J) WAIVER OF JURY TRIAL; EXEMPLARY DAMAGES. 31
(K) ATTORNEYS' FEES. 31
(L) INTEREST. 31
SECTION 9. OTHER AGREEMENTS. 32
(A) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. 32
(B) FILINGS. 32
(C) NO THIRD-PARTY BENEFICIARIES. 32
(D) ENTIRE AGREEMENT. 32
(E) SUCCESSION AND ASSIGNMENT. 32
(F) COUNTERPARTS. 32
(G) HEADINGS. 33
(H) NOTICES. 33
(I) GOVERNING LAW. 34
(J) AMENDMENTS AND WAIVERS. 34
(K) SEVERABILITY. 34
(L) EXPENSES. 34
(M) CONSTRUCTION. 34
(N) INCORPORATION OF APPENDICES, EXHIBITS AND SCHEDULES. 35
(O) TERMINATION. 35
TABLE OF CONTENTS
OF
SCHEDULES
Schedule 3(a) Foreign Jurisdictions; D.B.A., Assumed and
Fictitious Names
Schedule 3(c) Third-Party Consents
Schedule 3(e) Limited Liability Interests
Schedule 3(f)(i) Title to Assets
Schedule 3(h) Events Subsequent to December 31, 1997
Schedule 3(i) Undisclosed Liabilities
Schedule 3(k) Tax Matters
Schedule 3(l) Real Property Leased or Subleased to the
Company
Schedule 3(m(ii) Intellectual Property
Schedule Grants of Rights of Intellectual Property by Company
3(m)(iii)
Schedule Intellectual Property Used by Company
3(m)(iv)
Schedule Governmental Permits
3(m)(viii)
Schedule 3(n) Tangible Assets
Schedule 3(o) Inventory
Schedule 3(p) Contracts
Schedule 3(s) Notes and Accounts Receivable
Schedule 3(t) Insurance
Schedule 3(u) Product Warranty
Schedule 3(v) Litigation
Schedule 3(w) Employees
Schedule 3(x) Employee Benefits
Schedule 3(y) Environment, Health and Safety
Schedule 3(z) Certain Business Relationships With Company
Schedule Noncontravention
4(a)(iii)
Schedule 7(a)(v) Liens
LIMITED LIABILITY INTERESTS PURCHASE AGREEMENT
This Agreement is entered into as of February 1,
1999, among School Specialty, Inc., a Delaware
corporation ("Buyer") Genesis Direct, Inc., a Delaware
corporation ("Genesis Direct"), and Little Genesis ,
Inc. ("Little Genesis") ("Genesis Direct" and, together
with Little Genesis, "Sellers" and each, individually,
a "Seller"). Buyer and Sellers are referred to
collectively herein as the "Parties."
Sellers own all of the outstanding limited
liability company interests ("Limited Liability
Interests") of Sportime, LLC (f/k/a Genesis Direct Six,
LLC), a Delaware limited liability company (the
"Company").
This Agreement contemplates a transaction in which
Buyer will, on the terms and conditions set forth
herein, purchase all of the outstanding Limited
Liability Interests from the Sellers for the
consideration specified herein.
NOW, THEREFORE, in consideration of the premises
and the mutual promises herein made and in
consideration of the representations, warranties and
covenants herein contained, the Parties agree as
follows.
Section 1. Definitions.
Capitalized terms used herein and not otherwise
defined herein are defined in Appendix I to this
Agreement.
Section 2. Basic Transaction.
(a) Purchase and Sale of Limited Liability
Interests.
Upon the Closing (as defined below) pursuant to
this Agreement and subject to the terms hereof, Buyer
will purchase from Sellers and Sellers will sell to
Buyer the Limited Liability Interests.
(b) Purchase Price.
In consideration of the purchase by Buyer of the
Limited Liability Interests, the Buyer agrees to pay to
Sellers an aggregate purchase price of $23,000,000
(subject to adjustment as provided below) by delivery
of (i) cash in the amount of Seven Hundred Fifty
Thousand Dollars ($750,000) (the "Escrow Deposit
Amount") by wire transfer to the escrow account (the
"Escrow Account") established pursuant to the terms and
provisions of an escrow agreement substantially in the
form of Exhibit A (the "Escrow Agreement") and
(ii) cash for the balance of the Purchase Price, being
$22,250,000, less the NTA Shortfall, if any, or plus
the NTA Excess, if any, as such terms are defined in
Section 2(e)(iii) and (iv) below payable by wire
transfer or delivery of other immediately available
funds (the "Purchase Price"). The Purchase Price shall
be allocated among the Sellers in proportion to their
respective Limited Liability Interests as set forth in
Schedule 3(e).
(c) The Closing.
The closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices
of Morrison & Foerster LLP, 1290 Avenue of the
Americas, 40th Floor, New York, New York 10104 at
10:00 a.m. on February 8, 1999, or at such other date
and time as the Parties shall agree, following (or
simultaneously with) the satisfaction or waiver of all
conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (the
date of the Closing is referred to as the "Closing
Date").
(d) Deliveries.
At the Closing, (i) the Sellers will deliver to
the Buyer the various certificates, instruments and
documents referred to in Section 7(a) below, (ii) the
Buyer will deliver to the Sellers the various
certificates, instruments, and documents referred to in
Section 7(b) below, (iii) each of the Sellers will
deliver to the Buyer certificates representing all of
its Limited Liability Interests, endorsed in blank or
accompanied by duly executed assignment documents, and
(iv) the Buyer will deliver to each of the Sellers the
consideration specified in Section 2(b) above.
(e) Post-Closing Adjustment and Payment
(i) Preparation of December 1998 Net
Tangible Assets Statement. No later than 90 days
after the Closing Date, Buyer shall prepare and
deliver to the Sellers a statement (the
"December 1998 Net Tangible Assets Statement") of
the Net Tangible Assets of the Company as of
December 26, 1998 (the "December 1998 Net Tangible
Assets") derived from the balance sheet of Seller
as of December 26, 1998 (the "Audited
December 1998 Balance Sheet"), which balance sheet
shall be audited, at Buyer's expense, by
Pricewaterhouse Coopers, LLP (the "Accountant"),
in accordance with GAAP consistently applied.
(ii) Adjustments to December 1998 Net
Tangible Assets Statement. If Sellers have any
objections to the December 1998 Net Tangible
Assets Statement, Sellers shall deliver to Buyer,
within 30 days after receiving the December 1998
Net Tangible Assets Statement, a detailed
statement (the "NTA Objections Statement")
describing its specific objections. Thereafter,
Seller and Buyer shall seek to resolve Sellers'
objections by mutual agreement in order to
determine the December 1998 Net Tangible Assets.
If Sellers and Buyer are unable to resolve such
objections within 15 days after delivery of the
NTA Objections Statement, they shall promptly
jointly appoint a third-party "Big Five"
independent certified public accountant (the
"Third-Party Firm") for the purpose of resolving
Sellers' objections in order to determine the
December 1998 Net Tangible Assets. The written
determination (the "Post-Closing Determination")
by agreement of Seller and Buyer or by the Third-
Party Firm, as applicable, of the December 1998
Net Tangible Assets pursuant to the December 1998
Net Tangible Assets Statement, after considering
all written objections thereto in accordance with
the foregoing procedure, shall be conclusive and
binding upon the Parties. Any fees and expenses
payable to the Third-Party Firm for services
pursuant to this Section 2(e)(ii) shall be borne
solely (x) by Buyer if the absolute value of the
difference between the Post-Closing Determination
by the Third-Party Firm of the December 1998 Net
Tangible Assets and the amount of December 1998
Net Tangible Assets set forth in the December 1998
Net Tangible Assets Statement originally delivered
by Buyer pursuant to Section 2(e)(i) (the "Buyer's
Difference") is greater than the absolute value of
the difference between the Post-Closing
Determination by the Third-Party Firm of the
December 1998 Net Tangible Assets set forth in the
NTA Objections Statement originally delivered by
Sellers pursuant to Section 2(e)(ii) (the
"Sellers' Difference") and (y) by Sellers if the
Sellers' Difference is greater than the Buyer's
Difference.
(iii) Purchase Price Reduction. If the
December 1998 Net Tangible Assets are less than
$9,803,000, Sellers shall pay, no later than ten
(10) Business Days after delivery of the Post-
Closing Determination pursuant to Section 2(e)(ii)
above, to Buyer the amount equal to one dollar for
each one dollar that such December 1998 Net
Tangible Assets are less than $9,803,000 (the "NTA
Shortfall"). Any such payment shall be made by
wire transfer in immediately available funds from
the Escrow Account (by joint instructions of Buyer
and Sellers to the Escrow Agent) to an account
designated by Buyer and such payment obligation
shall not be considered an indemnification claim
and accordingly will be paid in full even if it is
less than the Basket Amount (as defined in
Section 5(c)(iii) below).
(iv) Purchase Price Increase. If the
December 1998 Net Tangible Assets are more than
$10,200,000, Buyer shall pay, no later than
ten (10) Business Days after delivery of the Post-
Closing Determination pursuant to Section 2(e)(ii)
above, to Seller the amount equal to one dollar
for each one dollar that such December 1998 Net
Tangible Assets are greater than $10,200,000 (the
"NTA Excess"). Any such payment shall be made by
wire transfer in immediately available funds to an
account designated by Sellers.
(f) Allocation of Purchase Price. The
consideration paid by Buyer to Sellers pursuant to this
Agreement shall be allocated among the assets of the
Company, including any intangible assets, as Sellers
and Buyer have mutually agreed on or prior to the
Closing Date. The allocation of the Purchase Price was
bargained and negotiated for and each party agrees to
report the transactions contemplated hereby for federal
income Tax and all other Tax purposes (including
without limitation, for purposes of 1060 of the Code)
in a manner consistent with the allocation set forth on
Exhibit E (to be prepared and approved by the Parties
prior to the Closing and revised as mutually agreed by
the Parties within fifteen (15) days of the Closing)
determined pursuant to this Section 2(f) and in
accordance with all applicable rules and regulations
and to take no position inconsistent with such
allocation in any administrative or judicial
examination or other proceeding. Each of Buyer and
Sellers shall timely file the appropriate forms in
accordance with the requirements of 1060 of the Code
and this Section 2(f).
Section 3. Representations and Warranties
Concerning the Company.
Each Seller jointly and severally represents and
warrants to the Buyer that, except as set forth in the
disclosure schedules accompanying this Agreement and
initialed by the Parties (the "Disclosure Schedules")
and as set forth in each schedule referenced in the
Sections of this Agreement and attached and delivered
in connection herewith, all of which are hereby
incorporated by reference, the statements set forth
below are correct and complete in all respects as of
the date of this Agreement. The Disclosure Schedules
will be arranged in paragraphs corresponding to the
lettered paragraphs contained in this Section 3. Such
representations and warranties and the covenants and
agreements contained herein constitute a material
inducement to the Buyer to enter into this Agreement,
to enter into the other Transaction Documents, to
purchase the Limited Liability Interests and to
consummate the other transactions contemplated hereby
and thereby.
References in this Section 3 to the "Company" that
relate to periods prior to January 7, 1998 (the "Prior
Period") refer to the Business as owned and operated by
Select Service & Supply Co., Inc., the Company's
predecessor ("Select Service").
(a) Organization and Powers of Company.
Company is a limited liability company duly
organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite
power and authority to own, lease and operate its
properties and to carry on its Business. Except as set
forth in Schedule 3(a)(i), Company neither owns or
leases any real property nor has any employees, sales
representatives, agents or inventory in any state of
the United States other than the State of Georgia
(except pre-paid inventory or work-in-process in
transit) and there are no other jurisdictions in which
the nature of the business of Company or the locations
of its assets requires Company to obtain qualification
or licensing to do business as a foreign limited
liability company, except where the failure to so
qualify or become licensed would not have a Material
Adverse Effect. Company has no Subsidiaries and does
not, directly or indirectly, conduct any of the
Business through, or have any investment or other
interest in, any Person. Schedule 3(a)(ii) identifies
each d.b.a., assumed or fictitious name in all
jurisdictions where such d.b.a., assumed or fictitious
names are registered with the Secretaries of State or
where Company does business using such d.b.a., assumed
or fictitious name.
(b) [Intentionally Omitted].
(c) Noncontravention.
Except as set forth on Schedule 3(c) and subject
to compliance with the HSR Act, if necessary, neither
the execution and the delivery of this Agreement, the
other Transaction Documents or the other documents
contemplated hereby and thereby, nor the consummation
of the transactions contemplated hereby and thereby
will (i) violate any Law or Order of any Governmental
Body or court to which Company is subject or any
provision of the Certificate of Formation or Limited
Liability Company Agreement of Company or (ii) conflict
with, result in a breach of, constitute a default
under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or
cancel, or require any notice under, any Contract to
which Company is a party or by which it is bound or to
which any of its assets are subject (or result in the
imposition of any Security Interest upon any of their
assets), except where the violation, conflict, breach,
default, acceleration, termination, modification,
cancellation, failure to give notice or other specified
occurrence would not have a Material Adverse Effect.
Except as set forth in Schedule 3(c), Company does not
need to give any notice to, make any filing with, or
obtain any authorization, consent or approval of any
Governmental Body or other Person in order for the
Parties to consummate the transactions contemplated by
this Agreement, except where the failure to give
notice, to file, or to obtain any authorization,
consent or approval would not have a Material Adverse
Effect. The consents, approval and filings described
on Schedule 3(c) and identified with an asterisk shall
be deemed "Required Consents" for purposes of this
Agreement.
(d) Brokers' Fees.
Company has no Liability or obligation to pay any
fees or commissions or other compensation to any
broker, finder or agent with respect to the
transactions contemplated by this Agreement for which
Buyer could become liable or obligated.
(e) Limited Liability Interests.
Except as set forth on Schedule 3(e), each Seller
holds of record and owns beneficially the number of
Limited Liability Interests set forth next to its name
on Schedule 3(e) free and clear of any restrictions on
transfer (other than any restrictions under the
Securities Act of 1933, as amended, and state
securities laws or as set forth on Schedule 3(e))
Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims and
demands. Neither Seller is a party to any options,
warrants, purchase rights, or other contract or
commitment that could require either Seller to sell,
transfer, or otherwise dispose of any Limited Liability
Interests (other than this Agreement). Neither Seller
is a party to any voting trust, proxy, or other
agreement or understanding with respect to any of the
Limited Liability Interests.
(f) Title to Assets.
Except as set forth in Schedule 3(f)(i), Company
has good and valid title to, or a valid leasehold
interest in, or the right to use, as the case may be,
all of the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet
or acquired after the date thereof, free and clear of
all Security Interests, except for properties and
assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet.
Without limiting the generality of the foregoing,
Company has good and valid title to, or the right to
use, the Catalog Names and associated logos, if any,
free and clear of any Security Interest.
(g) Financial Statements.
(i) Company has delivered to Buyer true and
complete copies of the following financial
statements (collectively the "Historical Financial
Statements") of Select Service: the balance sheet
of Select Service as at December 31, 1995 and as
at December 31, 1996, and the related statements
of income, retained earnings and cash flows of
Company's predecessor for the fiscal years then
ended, certified by Braver, Schimler & Co., P.C.
The Historical Financial Statements (including the
notes thereto) have been prepared from the books
and records of Select Service in accordance with
GAAP applied on a consistent basis throughout the
periods covered thereby and the Historical
Financial Statements present fairly in all
material respects the financial condition of
Select Service as of such dates and the results of
operations of Select Service for such periods.
(ii) Company has delivered to Buyer true and
complete copies of the audited balance sheet of
Select Service as at December 31, 1997 and the
related statements of income, retained earnings
and cash flows for the year then ended audited by
Ernst & Young LLP.
(iii) Company has delivered to Buyer true
and complete copies of the balance sheet of the
Company as of March 28, 1998, and the related
statement of income of Company for the period from
January 8, 1998 to March 28, 1998.
(iv) Company has delivered to Buyer true and
complete copies of the balance sheet of the
Company as of December 26, 1998, and the related
statement of income of Company for the period from
March 29, 1998 to December 26, 1998 (collectively
the "December 1998 Financial Statements"). For
purposes of this Agreement, December 26, 1998 is
referred to herein as the "Most Recent Quarter
End," and the balance sheet referred to in the
previous sentence as of December 26, 1998 is
referred to herein as the "Most Recent Balance
Sheet".
(h) Events Subsequent to December 31, 1997.
Except as set forth on Schedule 3(h), since
December 31, 1997 there has not been any Material
Adverse Effect and neither the officers or directors of
either Seller has Knowledge of any such event,
circumstance or change which is threatened. Without
limiting the generality of the foregoing, since that
date and except in the Ordinary Course of Business or
as set forth on Schedule 3(h):
(i) Company has not sold, leased,
transferred or assigned any material assets
(individually or in the aggregate), tangible or
intangible;
(ii) Company has not entered into any
material Contract;
(iii) Company has not, and no officer or
director of either Seller has Knowledge that any
other Person has, accelerated, terminated, made
material modifications to, or canceled any
material Contract to which Company is a party or
by which it is bound;
(iv) Company has not, and no officer or
director of either Seller has Knowledge that any
other Person has, imposed any Security Interest
upon any of Company's assets, tangible or
intangible;
(v) Company has not made any material
capital expenditures;
(vi) Company has not made any material
investment in, or any material loan to, any other
Person;
(vii) Company has not created, incurred,
assumed or guaranteed more than $5,000 in
aggregate indebtedness for borrowed money (other
than borrowings for the payment of trade payables
in the Ordinary Course of Business) and
capitalized lease obligations;
(viii) Company has not granted any license
or sublicense of any material rights (individually
or in the aggregate) under or with respect to any
Intellectual Property;
(ix) Except for a change in the name of the
Company from Genesis Direct Six, LLC to Sportime,
LLC, there has been no change made or authorized
in the Certificate of Formation or Limited
Liability Company Agreement or other
organizational documents of Company;
(x) Neither Company, nor Sellers, have
issued, sold or otherwise disposed of (other than
pursuant to a bona fide gift) any of Company's
Limited Liability Interests, or granted any
options, warrants or other rights to purchase or
obtain (including upon conversion, exchange, or
exercise) any of Company's Limited Liability
Interests;
(xi) Company has not experienced any material
damage, destruction or loss (whether or not
covered by insurance) to any of its properties or
assets;
(xii) Company has not entered into any
employment Contract or collective bargaining
agreement, written or oral, or modified the terms
of any existing such Contract or agreement;
(xiii) Company has not granted any
increase in the base compensation of any of its
officers or, other than in the Ordinary Course of
Business, of any of its non-officer employees;
(xiv) Except as contemplated by the
provisions of this Agreement, Company has not
adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance or
other plan, Contract or commitment for the benefit
of any of its officers or employees (or taken any
such action with respect to any other employee
benefit plan, Contract or arrangement);
(xv) Company has not made any other material
change in employment terms for any of its officers
or employees;
(xvi) Company has not paid any
Transaction Expenses;
(xvii) Company has kept in full force and
effect insurance comparable in amount and scope to
coverage maintained by it and required pursuant to
any material agreement, instrument or document to
which it is a party;
(xviii) Company has not made any material
change in any method of accounting, or accounting
principle, method or practice;
(xix) Company has not settled, released
or forgiven any material claim or litigation or
waived any material right;
(xx) Company has not committed to do any of
the foregoing;
(xxi) Company has conducted the Business
in the Ordinary Course of Business and has used
its reasonable best efforts to preserve its
goodwill intact; and
(xxii) Company has not incurred any
indebtedness for borrowed money from any Affiliate
and Company has not made any loan to any
Affiliate.
(i) Undisclosed Liabilities.
Except as set forth on Schedule 3(i), Company has
no material Liabilities, except for (i) liabilities set
forth on the Most Recent Balance Sheet which have
arisen in the Ordinary Course of Business and in
connection with and for the benefit of the Business and
(ii) liabilities which have arisen after the date of
the Most Recent Balance Sheet in the Ordinary Course of
Business.
(j) Legal Compliance.
Company has complied with all applicable Laws and
Orders of all Governmental Bodies (including, without
limitation, all applicable Laws and Orders of the U.S.
Food and Drug Administration and other Governmental
Bodies with respect to the manufacture, labeling,
recordkeeping, advertising, offer and sale of medical
devices) and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or
notice has been filed or commenced against Company
alleging any failure so to comply, except where the
failure to comply with any of the above would not have
a Material Adverse Effect.
(k) Tax Matters.
(i) Company has filed all Tax Returns that
it was required to file. All such Tax Returns were
correct and complete in all material respects.
All Taxes owed by Company (whether or not shown on
any Tax Return) have been paid or accrued on the
Most Recent Balance Sheet. Company currently is
not the beneficiary of, or subject to, any
extension of time within which to file any Tax
Return.
(ii) There is no material dispute or claim
concerning any Tax liability of Company either
claimed or raised, or, to the Knowledge of the
directors or officers of either Seller, threatened
by any Governmental Body.
(iii) Company has reported and duly paid
state and local sales and use taxes in all states
in which it believes it is required to report and
pay such taxes, including sales and/or use taxes
on sales of merchandise and on catalogs and other
promotional materials. A list of all such states
is set forth in Schedule 3(k).
(iv) There is no material dispute or claim of
Liability against Company for sales or use taxes
either formally asserted or raised or, to the
Knowledge of the directors or officers of either
Seller, threatened by any Governmental Body, nor,
to the Knowledge of the directors or officers of
either Seller, is there any Basis for such a claim
of Liability.
(l) Real Property.
Company owns no real property. Schedule 3(l)
lists and describes briefly all real property leased or
subleased to Company. Company has delivered to Buyer
correct and complete copies of the leases and subleases
listed in Schedule 3(l) (as amended to date). With
respect to each lease and sublease listed in
Schedule 3(l):
(i) Except as set forth in Schedule 3(l),
Company will submit at the Closing an estoppel
certificate substantially in the form of Exhibit B
from all lessors of leased property that: (i) the
lease or sublease is legal, valid, binding,
enforceable and in full force and effect; (ii) all
rent and other amounts payable to date have been
paid and no party to the lease or sublease is in
material breach or default and no event has
occurred which, with notice or lapse of time or
both, would constitute a material breach or
default or permit termination, modification, or
acceleration thereunder; (iii) no party to the
lease or sublease has repudiated any material
provision thereof; and (iv) the lessor consents to
the change in ownership of the Company from
Sellers to Buyer on the same terms and at the same
lease rate as in effect prior to the Closing Date;
(ii) to the Knowledge of each director and
officer of either Seller, there are no material
disputes, oral agreements, or forbearance programs
in effect as to the lease or sublease;
(iii) Company has not assigned,
transferred, conveyed, mortgaged, deeded in trust,
or encumbered any interest in the leasehold or
subleasehold and the property is leased free and
clear of all Security Interests;
(iv) all facilities leased or subleased
thereunder have received all material approvals of
governmental authorities (including material
licenses and permits) required in connection with
the operation thereof and have been operated and
maintained in accordance with applicable laws,
rules and regulations in all material respects;
(v) none of Sellers or Company has received
notice and has no Knowledge of, any pending,
threatened or contemplated condemnation proceeding
affecting any such leased property or any part
thereof or of any sale or other disposition of
such leased property or any part thereof in lieu
of condemnation; and
(vi) no portion of any such leased property
has suffered any material damage by fire or other
casualty which has not heretofore been completely
repaired and restored to its original condition.
(m) Intellectual Property.
(i) To the Knowledge of each of each
director and officer of either Seller, Company has
not interfered with, infringed upon,
misappropriated, or violated any material
Intellectual Property rights of any Person in any
material respect and none of the directors or
officers of either Seller has ever received any
charge, complaint, claim, demand or notice
alleging any such interference, infringement,
misappropriation or violation (including any claim
that Company must license or refrain from using
any Intellectual Property rights of any Person).
To the Knowledge of any of the directors or
officers of either Seller, no third party has
interfered with, infringed upon, misappropriated
or violated any Intellectual Property rights of
Company in any material respect.
(ii) Except as set forth on
Schedule 3(m)(ii), Company is not registered as or
has not applied to be registered as the owner of,
or is not the unregistered owner of (as opposed to
licensee of), any Intellectual Property other than
Mailing Lists. Schedule 3(m)(ii) also identifies
each material trade name, domain name, fictitious
or d/b/a name, 800- or 888- prefix phone number,
or other identifier used by Company in connection
with any aspect of the Business. With respect to
each item of Intellectual Property required to be
identified in Schedule 3(m)(ii) and except as set
forth in such Schedule:
(A) Company possesses all right, title
and interest in and to, or has the right to
use, without payment to any Person, the item,
free and clear of any Security Interest,
license, or other restriction, including,
without limitation, all rights to the Catalog
Names and associated logos;
(B) the item is not subject to any
outstanding Order;
(C) the item has not lapsed, expired or
been abandoned;
(D) no Claim is pending or, to the
Knowledge of any of the directors or officers
of either Seller, is threatened, which
challenges the legality, validity,
enforceability, use or ownership of the item
or application, registration or grant
therefor; and
(E) Company has not agreed to indemnify
any Person for or against any interference,
infringement, misappropriation or other
conflict with respect to the item.
(iii) Schedule 3(m)(iii) sets forth a
complete and accurate list of each license,
sublicense, agreement or other Contract or other
permission, whether written or oral, pursuant to
which Company has granted to any other party any
rights with respect to any of its Intellectual
Property. Company has delivered to Buyer correct
and complete copies of all such licenses,
sublicenses, agreements and other Contracts or
permissions (as amended to date).
(iv) Schedule 3(m)(iv) identifies each
material item of Intellectual Property that any
other party owns and that Company uses pursuant to
license, sublicense, agreement or other Contract,
or permission. Company has delivered to Buyer
correct and complete copies of all such licenses,
sublicenses, agreements, Contracts and permissions
(as amended to date). With respect to each such
item of used Intellectual Property required to be
identified in Schedule 3(m)(iv):
(A) the license, sublicense, agreement,
Contract or permission covering the item is,
with respect to Company, legal, valid,
binding, enforceable and in full force and
effect in all material respects and, with
respect to the other party or parties
thereto, is, to the Knowledge of the
directors and officers of either Seller,
legal, valid, binding, enforceable and in
full force and effect in all material
respects;
(B) Company is not, and, to the
Knowledge of each of the directors and
officers of either Seller, no other party to
the license, sublicense, agreement, Contract
or permission is in material breach or
default, and no event has occurred which,
with notice or lapse of time or both, would
constitute a material breach or default or
permit termination, modification, or
acceleration thereunder;
(C) Company has not, and no party to
the license, sublicense, agreement, Contract
or permission has notified Company that it
has, repudiated any material provision
thereof or indicated to any director or
officer of either Seller of its intent to
cancel, or not renew on comparable terms,
such license, sublicense, agreement, contract
or permission, and neither any of the
directors or officers of either Seller has
any reason to believe such other party may
take any such action after the Closing; and
(D) Company has not granted any
sublicense or similar right with respect to
the license, sublicense, agreement, Contract
or permission.
(v) The Intellectual Property identified on
Schedules 3(m)(ii) through 3(m)(iv) constitutes
all of the material Intellectual Property used in
or necessary for the conduct of the Business as
presently being conducted.
(vi) Company possesses all rights and
interest necessary to (A) sell all merchandise
currently sold through Company's catalogs and
(B) to use the likeness of persons used in such
catalogs for the specific purpose and in the
specific catalogs in which such likenesses
appeared, in the case of both (A) and (B), without
infringing the Intellectual Property rights of any
other Person. To the Knowledge of the directors
or officers of either Seller, each Person from
which Company acquires products and goods
(1) obtained or made and sold such products and
goods without violation of the Intellectual
Property or other rights of any Person, (2) has
all rights and permissions necessary to distribute
such products and goods to Company and (3) has all
rights and permissions necessary to grant to
Company the right to redistribute such products
and goods.
(vii) All mailing lists used in the
conduct of the Business, other than those rented
by Company for a single use, (the "Mailing Lists")
are owned by Company and are (A) in a magnetic
tape form in readable format, (B) contain all
names and addresses of customers who have in the
past purchased a product from Company, sorted to
indicate which customers have purchased products
(1) within 12 months prior to the Closing Date,
(2) 12-24 months prior to the Closing Date, (3)
24-36 months prior to the Closing Date and (4)
more than 36 months prior to the Closing Date and
(C) include a detailed transaction listing, with
original source data including the names and
addresses of people who have inquired about
Company's catalogs, although they have not yet
purchased, sorted to indicate which persons have
made such inquiries during each of the four time
periods set forth in clause (B) immediately above.
The use of the mailing lists by Company does not
violate, without limitation, Intellectual Property
rights and rights of publicity or privacy of any
Person, and is not in violation of any applicable
Law or Order. There is no limitation on the right
of Company to transfer to Buyer any of the Mailing
Lists. As of the date of this Agreement, the
Mailing Lists contain the following approximate
numbers of customers and prospective customers:
Number Customers who purchased Company
products during the calendar
year:
48,900 to October 31, 1997
57,800 1996
49,500 1995
43,600 1994
35,100 1993 and prior to such year
Number Customers who have inquired
about Company products during
the
calendar year:
6,500 to October 31, 1997
8,000 1996
8,000 1995
7,000 1994
7,000 1993 and prior to such year
(viii) Set forth on Schedule 3(m)(viii) is
a list of permits obtained from governments and
governmental agencies.
(n) Tangible Assets.
The buildings, machinery, equipment (including the
computer software technology, telephone and
telecommunication systems) and other tangible assets
that Company owns, leases or uses in the Business are
free from material defects, have been maintained in
accordance with normal industry practice, are in good
operating condition and repair (subject to normal wear
and tear), are suitable for their intended use and are
capable of meeting all fulfillment service and call
service needs and performance standards required of
Company during periods of peak order activity relating
to the Business as heretofore conducted. Set forth on
Schedule 3(n) is a list of the tangible assets owned by
the Company as of December 26, 1998.
(o) Inventory.
Set forth on Schedule 3(o) is a priced-out
inventory detail listing of all inventory owned by
Company as of a date within five days of the Closing
Date, which is complete and correct in all material
respects. The inventory of Company consists of raw
materials, work-in-process, supplies and finished
goods, all of which is in good and merchantable
condition and fit for the purpose for which it was
procured or manufactured and none of which is obsolete,
and none of which is damaged or defective. The
inventory has been valued at the lower of cost or
market, in accordance with FIFO accounting and GAAP.
(p) Contracts.
Schedule 3(p) lists all Contracts to which Company
is a party or by which Company or any of its assets may
be bound or subject. Company has delivered to Buyer a
correct and complete copy of each written Contract.
With respect to each such Contract: (i) except as
otherwise provided in Schedule 3(p), the Contract is
legal, valid, binding, enforceable and in full force
and effect in all material respects; (ii) Company is
not, and to the Knowledge of each of the directors and
officers of either Seller, no other party is, in
material breach or default and no event has occurred
which, with notice or lapse of time or both, would
constitute a material breach or default or permit
termination, modification or acceleration under the
Contract; (iii) Company has not, and no party has
notified Company that it has, repudiated any material
provision of the Contract or indicated to any director
or officer of either Seller of its intent to cancel or
not renew the Contract; and (iv) except as disclosed on
Schedule 3(p), no consent is required of any party
thereto to transfer the benefits of each such Contract
to Buyer in connection with the transactions
contemplated in this Agreement.
(q) Predominant Customers.
No single customer of Company accounts or
accounted for over five percent (5%) of the total
revenues of Company during any of the three (3)
complete fiscal years immediately preceding the date of
this Agreement.
(r) Change in Customers or Vendors.
No customer or vendor whose annual volume of
purchases or sales during the year ended December 26,
1998 exceeded $5,000, in the case of a customer, or
$50,000, in the case of a vendor, has indicated to
Company that it intends to cease doing business with
Company or materially alter the amount or pricing of
the business done with Company.
(s) Notes and Accounts Receivable.
Except as set forth in Schedule 3(s), all notes
and accounts receivable of Company are reflected
properly on their books and records, are valid
receivables subject to no setoffs or counterclaims, and
are current and collectible within 60 days at their
recorded amounts, subject only to the reserve for bad
debts set forth on the face of the Most Recent Balance
Sheet as adjusted in a manner consistent with past
practice for operations and transactions in the
Ordinary Course of Business through the Closing Date.
(t) Insurance.
Company has supplied Buyer with a copy of each
insurance policy (including policies providing
property, casualty, liability and workers' compensation
coverage and bond and surety arrangements) with respect
to which Company is or is required to be (pursuant to
the provisions of any agreement or license or other
Contract to which it is party) a party, a named
insured, or otherwise the beneficiary of coverage.
With respect to each such insurance policy: (i) the
policy is legal, valid, binding, enforceable and in
full force and effect in all material respects; (ii)
neither Company nor any other party to the policy is in
material breach or default (including with respect to
the payment of premiums or the giving of notices), and
no event has occurred which, with notice or the lapse
of time or both, would constitute a material breach or
default, or permit termination, modification or
acceleration under the policy; (iii) no party to the
policy has repudiated any material provision thereof;
and (iv) Company has not been notified by any of its
insurance carriers that any premiums will materially
increase in the future or that any insurance coverage
provided by such policy will not be available in the
future on substantially the same terms as now in
effect. Schedule 3(t) describes any and all policies
currently in effect and self-insurance arrangements
affecting Company or the Business.
(u) Product Warranty.
All of the products manufactured, sold, leased or
delivered by Company have conformed in all material
respects with all applicable contractual commitments,
with all express and implied warranties, and with all
applicable Laws and Company has no material Liability
for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve, if
any, for product warranty claims set forth on the face
of the Most Recent Balance Sheet (rather than in any
notes thereto) as adjusted for operations and
transactions in the Ordinary Course of Business through
the Closing Date. Substantially all of the products
manufactured, sold, leased or delivered by Company are
subject to standard terms and conditions of sale or
lease. Schedule 3(u) includes copies of the standard
terms and conditions of sale or lease for Company
(containing applicable guaranty, warranty and indemnity
provisions).
(v) Litigation.
Schedule 3(v) sets forth each instance in which
Company (i) is subject to any outstanding Order or (ii)
is a party or, to the Knowledge of the directors or
officers of either Seller, is threatened to be made a
party to any Claim of, in, or before any Governmental
Body or before any arbitrator, which could reasonably
be expected to have a Material Adverse Effect. Except
as set forth in Section 3(v), Company's insurance
policies as currently in effect will pay for the full
amount of any Adverse Consequences that may be suffered
by Company or Buyer with respect to any event specified
in Schedule 3(v). Without limiting the generality of
the foregoing, Company has no material Liability
arising out of any injury (or alleged injury) to
individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold,
leased or delivered by Company.
(w) Employees.
Schedule 3(w) sets forth a complete list of
employees of Company, including the position or title
and the current annual compensation of each employee of
Company. Company is not a party to or bound by any
collective bargaining agreement or other Contract with
a labor union or association representing any employee,
nor has it experienced any strike, work slowdown or
stoppage, or material grievance, claim of unfair labor
practices, or other collective bargaining dispute
within the past three years. Company has not committed
any material unfair labor practice. None of the
directors or officers of either Seller has any
Knowledge of any organizational effort presently being
made or threatened by or on behalf of any labor union
with respect to employees of Company.
(x) Employee Benefits.
Except as set forth on Schedule 3(x), there are no
employee benefit plans or arrangements of any type
(whether or not described in section 3(3) of the
Employee Retirement Income Security Act of 1974, as
amended and the regulations thereunder, including,
without limitation, plans or arrangements providing for
deferred compensation, bonuses, stock options, fringe
benefits, cafeteria plan deferrals, flexible
arrangements or other similar plans or arrangements),
under which Company has or Buyer in the future could
have, directly or indirectly, any liability with
respect to any current or former employee of Company or
any Commonly Controlled Entity (within the meaning of
section 414(b), (c), (m), (n) or (o) of the Code). The
Company has funded all amounts currently required to be
funded to its 401-k plan.
(y) Environment, Health and Safety.
Except as disclosed on Schedule 3(y), to the
Knowledge of the directors and officers of either
Seller , Company and its predecessors and Affiliates:
(i) are and have been in compliance with all applicable
Environmental, Health and Safety Laws; (ii) there is no
judgment or Claim pending or threatened against Company
or any of its predecessors or Affiliates pursuant to
Environmental, Health and Safety Laws or principles of
common law relating to pollution, protection of the
environment or health and safety; and (iii) there are
no past or present events, conditions, circumstances,
activities, practices, incidents, agreements, actions
or plans which may prevent compliance with
Environmental, Health and Safety Laws, or which have
given rise to or could give rise to any Claim in
connection therewith.
(z) Certain Business Relationships With Company.
Except as disclosed on Schedule 3(z), neither
Seller nor any of their Affiliates (other than Company)
owns any material asset, tangible or intangible, which
is used by Company in the Business. All transactions
between Company, on the one hand, and any Affiliate of
Company, on the other hand, have occurred in the
Ordinary Course of Business on a basis no less
favorable to Company as would be obtained in a
comparable arm's length transaction with a Person not
an Affiliate.
(aa) Disclosure.
The representations and warranties of each Seller
contained in this Agreement, including the schedules
hereto and the documents required to be delivered by
the Company and/or Sellers hereunder (i) do not contain
any untrue statement of a material fact or (ii) omit to
state any material fact of which Sellers, or any of
their officers or directors has actual knowledge, which
fact is necessary in order to make the statements and
information contained in this Agreement not misleading.
(bb) Processing of Returns.
Company has consistently and timely processed all
customer claims with respect to returns of sold
products.
Section 4. Representations and Warranties of the
Sellers and the Buyer.
(a) Representations and Warranties of the
Sellers.
Each Seller jointly and severally represents and
warrants to the Buyer that the statements set forth
below are correct and complete in all respects as of
the date of this Agreement. Such representations and
warranties and the covenants and agreements contained
herein constitute a material inducement to the Buyer to
enter into this Agreement, to enter into the other
Transaction Documents, to purchase the Limited
Liability Interests and to consummate the other
transactions contemplated hereby and thereby.
(i) Organization and Corporate Powers of the
Sellers.
Each Seller is a corporation duly organized,
validly existing, and in good standing under the
laws of the State of Delaware.
(ii) Authorization of Transaction.
Each Seller has full power and authority
(including full corporate power and authority) to
execute and deliver this Agreement and the other
Transaction Documents to which it is a party and
to perform its obligations hereunder and
thereunder. Without limiting the generality of
the foregoing, the Board of Directors of each
Seller has duly authorized the execution, delivery
and performance of this Agreement by such Seller
in accordance with applicable law including the
General Corporation Law of the State of Delaware
and the provisions of the Certificate of
Incorporation and Bylaws of such Seller. This
Agreement and the other Transaction Documents to
which it is a party constitute the valid and
legally binding obligations of each Seller,
enforceable in accordance with their respective
terms and conditions, subject to bankruptcy,
insolvency, reorganization, moratorium and other
laws of general application affecting the rights
and remedies of creditors and to general
principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or
at law).
(iii) Noncontravention.
Subject to obtaining the consents listed on
Schedule 4(a)(iii) and compliance with the HSR
Act, as necessary, neither the execution and the
delivery of this Agreement, the other Transaction
Documents or the other documents contemplated
hereby and thereby, nor the consummation of the
transactions contemplated hereby and thereby will
(i) violate any Law or Order of any Governmental
Body or court to which either Seller is subject or
any provision of the Certificate of Incorporation
and Bylaws of either Seller or (ii) conflict with,
result in a breach of, constitute a default under,
result in the acceleration of, create in any party
the right to accelerate, terminate, modify or
cancel, or require any notice under, any Contract
to which either Seller is a party or by which it
is bound or to which any of its assets are subject
(or result in the imposition of any Security
Interest upon any of their assets) except where
the violation, conflict, breach, default,
acceleration, termination, modification,
cancellation, failure to give notice or other
specified occurrence would not have a Material
Adverse Effect. Except as set forth in Schedule
3(c), neither Seller needs to give any notice to,
make any filing with, or obtain any authorization,
consent or approval of any Governmental Body or
other Person in order for the Parties to
consummate the transactions contemplated by this
Agreement.
(iv) Brokers' Fee.
Neither Seller has any Liability or
obligation to pay any fees or commissions or other
compensation to any broker, finder, or agent with
respect to the transactions contemplated by this
Agreement for which the Buyer could become liable
or obligated.
(v) Worker's Compensation Insurance.
Sellers agree that for any claims occurring prior
to acquisition by the Buyer it is solely
responsible for the payment of all premiums due
under its Retrospectively Rated Workers
Compensation Insurance and they agree that it
shall not look to the Company to pay any such
premium, regardless of claims history for the
Company. The obligation of the Sellers to pay
such premiums pursuant hereto shall not be limited
by the provisions of Section 5(c)(iii) of this
Agreement.
(b) Representations and Warranties of Buyer.
Buyer represents and warrants to each Seller that
each of the statements set forth below is true and
correct in all respects. Such representations,
warranties, covenants and agreements have constituted a
material inducement to each Seller to enter into this
Agreement, to enter into the other Transaction
Documents to which it has become a party, to sell the
Limited Liability Interests sold by it pursuant hereto
and to consummate the other transactions contemplated
hereby and thereby.
(i) Organization of Buyer.
Buyer is a corporation duly organized,
validly existing and in good standing under the
laws of the State of Delaware, and has all
requisite power and authority to own, lease and
operate its properties and to carry on its
business as now conducted. Buyer is duly
qualified or licensed to do business and is in
good standing in each jurisdiction in which the
property owned, leased or operated by it makes
such qualification or licensing necessary, except
in any jurisdiction where the failure to be so
duly qualified or licensed or in good standing
would not reasonably be expected to have a
material adverse effect on the ability of Buyer to
perform its obligations under this Agreement.
(ii) Authorization of Transaction.
Buyer has full power and authority to execute
and deliver this Agreement and the other
Transaction Documents to which it is a party and
to perform its obligations hereunder and
thereunder. Without limiting the generality of the
foregoing, the execution, delivery and performance
of this Agreement by Buyer have been duly
authorized in accordance with applicable law, and
the provisions of the Certificate of Incorporation
and Bylaws of Buyer, including due authorization
by the Board of Directors of Buyer. This Agreement
constitutes the valid and legally binding
obligation of Buyer, enforceable in accordance
with its terms and conditions, subject to
bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting
the rights and remedies of creditors and to
general principles of equity (regardless of
whether such enforcement is sought in a proceeding
in equity or at law).
(iii) Noncontravention.
Subject to compliance with the HSR Act, as
necessary, neither the execution and the delivery
of this Agreement, the other Transaction Documents
or the other documents contemplated hereby and
thereby, nor the consummation of the transactions
contemplated hereby and thereby will (i) violate
any Law or Order of any Governmental Body or court
to which Buyer is subject or any provision of its
certificate of formation or operating agreement or
(ii) conflict with, result in a breach of,
constitute a default under, result in the
acceleration of, create in any party the right to
accelerate, terminate, modify or cancel or require
any notice under, any Contract to which Buyer is a
party or by which it is bound or to which any of
its assets is subject. Buyer does not need to give
any notice to, make any filing with or obtain any
authorization, consent or approval of any
Governmental Body or other Person in order for the
Parties to consummate the transactions
contemplated by this Agreement, except for such
notices, filings, authorizations, consents or
approvals as have been duly made or received, as
the case may be.
(iv) Brokers' Fees.
Buyer has no liability or obligation to pay
any fees or commissions or other compensation to
any broker, finder or agent with respect to the
transactions contemplated by this Agreement for
which Company or either Seller could become liable
or obligated.
Section 5. Covenants.
(a) Further Assurances.
In the event that at any time after the Closing
any further action is necessary to carry out the
purposes of this Agreement or the other Transaction
Documents, each of the Parties will take such further
action (including the execution and delivery of such
further instruments and documents) as any other Party
reasonably may request, all at the sole cost and
expense of the requesting Party (unless the requesting
Party is entitled to indemnification therefor under
this Section 5).
(b) Confidentiality.
Subject to the provisions of Section 9(a)
(entitled "Press Releases and Other Announcements")
each Seller will and will cause their respective
Affiliates, directors, officers and employees to, treat
and hold confidential all of the Confidential
Information and all terms of the transactions
contemplated by the Transaction Documents, refrain from
using any of the Confidential Information or any
transactional terms except in connection with this
Agreement (or as required to be disclosed to taxing
authorities in connection with the payment of Taxes)
and shall deliver promptly to Buyer or destroy, at the
request and option of Buyer, all tangible embodiments
(and all copies) of the Confidential Information which
are in his or its possession; provided, however, that
the foregoing shall not prevent any Person who is an
employee of Buyer from after the Closing to utilize any
Confidential Information as necessary in connection
with the exercise of his or her duties on behalf of
Buyer. In the event that any of the Parties or their
respective directors, officers or employees is
requested or required (by oral question or request for
information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand or
similar process) to disclose any Confidential
Information or any terms of the transactions
contemplated by the Transaction Documents, then such
Party will notify the other Parties promptly of the
request or requirement so that the other Parties may
seek an appropriate protective order or waive
compliance with the provisions of this Section 5(b).
If, in the absence of a protective order or the receipt
of a waiver hereunder, such Party or its director,
officer or employee is, on the advice of counsel,
compelled to disclose any Confidential Information or
any terms of the transactions contemplated by the
Transaction Documents to any tribunal or else stand
liable for contempt, such Party or director, officer or
employee may disclose such Confidential Information or
such transaction terms to the tribunal; provided,
however, that the disclosing Person shall use his or
its reasonable best efforts to obtain, at the
reasonable request of Buyer, an order or other
assurance that confidential treatment will be accorded
to such portion of the Confidential Information or
transaction terms required to be disclosed as Buyer
shall designate.
(c) Indemnification Provisions for the Benefit of
Buyer.
(i) Breach of Representations, Warranties or
Covenants. In the event that either Seller
breaches any of its representations, warranties
(which representations and warranties shall
survive for a period of twelve (12) months from
and after the Closing Date, except for (A) the
representations and warranties in Section 3(k)
(captioned "Tax Matters"), which shall remain in
full force and effect until the expiration of all
applicable statutes of limitations, and (B) the
representations and warranties in Section 3(e)
(captioned "Title to Assets"), and Section 3(b)
and Section 4(a)(ii) (captioned "Authorization of
Transaction"), which shall remain in full force
and effect forever) or covenants contained in this
Agreement and a Buyer Indemnified Party (as
hereinafter defined) makes a written claim for
indemnification against either Seller then, each
Seller agrees jointly and severally to indemnify
Buyer, its Affiliates and agents and their
respective officers, directors and employees
(collectively, the "Buyer Indemnified Parties";
each a "Buyer Indemnified Party") from and against
the entirety of Adverse Consequences (subject to
the limitations in Section 5(c)(iii) below) any
Buyer Indemnified Party may suffer through and
after the date of the claim for indemnification,
resulting from, arising out of, relating to, in
the nature of, or caused by any such breach.
(ii) Brokers. Each Seller agrees jointly and
severally to indemnify the Buyer Indemnified
Parties from and against the entirety of any
Adverse Consequences (subject to the limitations
in Section 5(c)(iii) below) any Buyer Indemnified
Party may suffer through and after the date of the
claim for indemnification, resulting from, arising
out of, relating to, in the nature of, or caused
by the claims of any broker or finder engaged by
or on behalf of Company or either Seller.
(iii) Limitations.
(A) Neither Seller shall have any
obligation to indemnify the Buyer Indemnified
Parties from and against any Adverse
Consequences resulting from or arising out of
this Agreement or the transactions
contemplated hereby until the Adverse
Consequences suffered in the aggregate by all
Buyer Indemnified Parties is in excess of One
Hundred Thousand Dollars ($100,000) (the
"Basket Amount") (and then only for Losses in
excess of the Basket Amount); provided,
further, however, that except in respect of
Adverse Consequences resulting from breaches
of the representations and warranties of
either Seller (if applicable) contained in
Section 3(b) or Section 4(a)(ii) (captioned
"Authorization of Transaction"), Section 3(e)
(captioned "Limited Liability Interests") and
Section 3(f) (captioned "Title to Assets") of
this Agreement, the obligation of each Seller
to jointly and severally indemnify the Buyer
Indemnified Parties shall not exceed the
aggregate amount of Eight Million Dollars
($8,000,000).
(B) Neither Seller shall have any
obligation to indemnify any Buyer Indemnified
Party from and against any Adverse
Consequences resulting from or arising out of
a breach of a representation or warranty made
by such Party in this Agreement, if such
Buyer Indemnified Party (1) had actual
knowledge of such breach prior to the
Closing, and (2) failed to communicate such
knowledge in writing to a representative of
Company.
(d) Indemnification Provisions for the Benefit of
the Sellers and Company.
(i) Breach of Representations, Warranties
and Covenants. In the event Buyer breaches any of
its representations, warranties (which
representations and warranties shall survive for a
period of twelve (12) months from and after the
Closing Date, except for the representations and
warranties in Section 4(b)(ii) (captioned
"Authorization of Transaction"), which shall
remain in full force and effect forever and
covenants contained in this Agreement and a Seller
Indemnified Party (as hereinafter defined) makes a
written claim for indemnification against Buyer,
then Buyer agrees to indemnify each of Company,
each Seller and their respective officers,
directors, employees, Affiliates and agents
(collectively, the "Seller Indemnified Parties";
each a "Seller Indemnified Party") from and
against the entirety of the Adverse Consequences
any Seller Indemnified Party may suffer through
and after the date of the claim for
indemnification resulting from, arising out of,
relating to, in the nature of, or caused by such
breach.
(ii) Brokers. Buyer agrees to indemnify the
Seller Indemnified Parties from and against the
entirety of any Adverse Consequences any Seller
Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or
caused by the claims of any broker or finder
engaged by or on behalf of Buyer.
(e) Indemnification Matters Involving Third
Parties.
(i) If any third party shall notify any
Party (the "Indemnified Party") with respect to
any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against any
other Party (the "Indemnifying Party") under this
Section 5, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in
writing; provided, however, that no delay on the
part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and
then solely to the extent) the Indemnifying Party
is prejudiced thereby. In determining the amount
of Adverse Consequences for purposes of
Sections 5(c), (d) and (e) hereof, the Parties
shall make appropriate adjustments for tax effects
and insurance coverage and take into account the
time cost of money (using the Applicable Rate as
the discount rate).
(ii) Any Indemnifying Party will have the
right to assume the defense of the Third Party
Claim with counsel of its choice reasonably
satisfactory to the Indemnified Party at any time
within 20 days after the Indemnified Party has
given notice of the Third Party Claim; provided,
however, that the Indemnifying Party must conduct
the defense of the Third Party Claim actively and
diligently thereafter in order to preserve its
rights in this regard; and provided further that
the Indemnified Party may retain separate co-
counsel at its sole cost and expense and
participate in the defense of the Third Party
Claim; provided, that, if the named parties to any
such Third Party Claim (including any impleaded
parties) include an Indemnified Party and the
Indemnifying Party or one or more other
Indemnified Parties and such Indemnified Party
shall have been advised by its counsel in writing
that there is a conflict of interest between such
Indemnified Party and the Indemnifying Party or
any such other Indemnified Party in the conduct of
the defense thereof, then in any such case the
reasonable fees and expenses of such separate
counsel shall be borne by the Indemnifying Party.
In the event that the Indemnifying Party fails to
assume the defense of a Third Party Claim in the
manner provided above in this Paragraph (ii) or
fails to conduct the defense of a Third Party
Claim actively and diligently after such
assumption, the Indemnified Party shall have the
right to select counsel of his or its choice (and
at his or its sole discretion) and the reasonable
fees and expenses of such counsel shall be paid by
the Indemnifying Party.
(iii) So long as the Indemnifying Party
has assumed and is conducting the defense of the
Third Party Claim in accordance with
Paragraph (ii) above, (A) the Indemnifying Party
will not consent to the entry of any judgment or
enter into any settlement with respect to the
Third Party Claim without the prior written
consent of the Indemnified Party (not to be
withheld unreasonably) unless the judgment or
proposed settlement involves only the payment of
money damages by one or more of the Indemnifying
Parties and does not impose an injunction or other
equitable relief upon the Indemnified Party and
(B) the Indemnified Party will not consent to the
entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party
(not to be withheld unreasonably).
(iv) In the event none of the Indemnifying
Parties assumes and conducts the defense of the
Third Party Claim in accordance with
Paragraph (ii) above, (A) the Indemnified Party
may defend against and consent to the entry of any
judgment, or enter into any settlement with
respect to, the Third Party Claim in any manner he
or it reasonably may deem appropriate (although
the Indemnified Party shall use reasonable efforts
to consult with, and obtain prior written consent
from, any Indemnifying Party in connection
therewith, which consent shall not be unreasonably
withheld or delayed) and (B) the Indemnifying
Parties will remain responsible for any Adverse
Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in
the nature of, or caused by, the Third Party Claim
to the fullest extent provided in this Section
5(e).
(v) Buyer shall have the option of recouping
any portion or all of any Adverse Consequences it
may suffer out of the Escrow Deposit Amount
provided, however, that in the event Sellers
dispute the Buyer's right to make such election,
such amount shall not be paid out of escrow, but
such dispute shall promptly be submitted to
binding arbitration pursuant to the provisions of
Section 8 of this Agreement, in which case Buyer
shall have the option of recouping any portion or
all of any Adverse Consequences it may suffer as
determined by such arbitration out of the Escrow
Deposit Amount.
(f) Fraud.
Except for a claim for indemnity which is related
to an Adverse Consequence which resulted from
intentional fraud on the part of a Seller, in which
case such Seller responsible for such intentional fraud
will not have the benefit of any of the limitations of
Section 5(c)(iii) or the twelve (12) month survival
limitation period, the foregoing provisions in
Sections 5(c) and (e) shall be the sole remedy of the
Buyer Indemnified Parties as against any Seller.
(g) Records.
Buyer shall preserve and retain the corporate,
accounting, legal and other records of Company and the
Business that shall come into Buyer's possession as a
result of the transactions contemplated hereby for a
period of not less than seven (7) years from the
Closing Date and give reasonable access to each Seller
and their auditors, counsel and other authorized
representatives for the purpose of preparing or
defending tax returns or for other reasonable business
purposes.
(h) Third Party Consents.
If the Parties have not obtained a consent or
approval necessary for the consummation of this
Agreement prior to the Closing Date and any condition
precedent to the Closing relating thereto shall have
been waived by Buyer, then such failure shall not
constitute by itself a breach of any representation or
warranty of Company or a Seller and Buyer shall
attempt, with the reasonable assistance of Company and
each Seller, when requested by Buyer, to obtain such
consents and approvals promptly after the Closing Date.
(i) (x) Sellers shall assign to Buyer the right
to the proceeds of all insurance claims in connection
with the insured fortuitous events which occurred prior
to Closing. (y) Sellers will leave in the Company's
bank account all cash credited to such account on the
day of Closing.
(j) Access.
Prior to the Closing, Buyer shall be entitled,
through its employees and representatives, to make such
investigations and examinations of Company, its books
and records, business, and assets as Buyer may
reasonably request. The Company shall appoint a
primary contact for such inquiries. In order that
Buyer may have the full opportunity to do so, Company
shall furnish Buyer and its representatives during such
period with all information concerning the Business as
Buyer or such representatives may reasonably request
and cause Company's officers, employees, consultants
agents, accountants and attorneys to cooperate fully
with Buyer and such representatives and to make full
disclosure of all information and documents requested
by Buyer or such representatives. Any such
investigations and examinations shall be conducted at
reasonable times and under reasonable circumstances.
Except as otherwise provided in Section 5(c)(iii)(B),
no investigation by Buyer shall, however, limit,
diminish or obviate in any way the effectiveness of any
of the representations, warranties, covenants, or
agreements of Company or the Sellers contained in this
Agreement or the other Transaction Documents.
(k) Satisfaction of Closing Conditions.
Company, on the one hand, and Buyer, on the other,
shall use best efforts to cause the satisfaction of the
conditions precedent to the obligation of the other
Parties to consummate the transactions contemplated
hereby.
(l) Conduct of Business.
From the date hereof through the Closing Date,
except as otherwise previously approved in writing by
Buyer, Company shall conduct the Business only in the
Ordinary Course of Business and consistent with its
prior practices, shall not make or institute any
unusual or novel methods of purchase, sale, lease,
management, accounting or operation or that vary
materially from those in use as of the date hereof and
shall maintain, keep, and preserve the Business and
assets in good condition and repair. In addition,
Company shall use its best efforts (i) to preserve the
business, properties and organization of Company
intact, (ii) to keep available to Buyer the services of
Company's present officers, employees, agents and
independent contractors, and (iii) to preserve for the
benefit of Buyer the goodwill of Company's suppliers,
customers, licensors, distributors of Company's
catalogs and others having business relations with it.
Without limiting the generality of the foregoing, prior
to the Closing Company shall not, without Buyer's prior
written approval which shall not be unreasonably
withheld or delayed, amend or propose to amend its
Certificate of Formation or Limited Liability Company
Agreement or take any action or enter into any
transaction of the sort described in Section 3(h) and
3(l), or which would cause any representation or
warranty made in Section 3(h) and 3(l) to be untrue.
(m) Insurance, etc.
From the date hereof through the Closing Date,
Company shall: (i) maintain in force (including
necessary renewals thereof) the insurance policies
currently in effect, except to the extent that they may
be replaced with equivalent policies appropriate to
insure the Business, to the same extent as currently
insured, without material increase in cost. Company
shall hold any proceeds from any policies received by
it prior to the Closing in trust for Buyer; (ii) comply
in all material respects with all Contracts and other
agreements to which it is a party and will not suffer
or permit to exist any condition or event that, with
notice or lapse of time or both, would constitute a
material default by it under any material Contract,
license or governmental authorization or permit, except
for lapses or terminations deemed to be appropriate in
the Ordinary Course of Business; (iii) duly observe and
conform, in all material respects, to all applicable
Laws and Orders; and (iv) notify Buyer of any lawsuit,
claim, proceeding, or investigation that after the date
hereof is threatened or commenced against it.
(n) Consents, etc.
Each Party shall cooperate in obtaining all
required consents listed in Schedule 3(c) and
Schedule 4(a)(iii) and completion of other transactions
contemplated to have occurred as of the Closing and to
use best efforts to cause the fulfillment of the
conditions to the other Party's obligation to
consummate the transactions contemplated hereby.
Notwithstanding anything to the contrary herein
contained, the absence for any reason of any consents
(other than Required Consents) shall not be deemed a
breach of any of the conditions to the obligation of
Buyer to Close contained in Section 6 hereto. Company
shall update the Schedules hereto to a date that is
within one week of the Closing Date.
(o) Material Adverse Change.
Each party will give to the other prompt written
notice of any material adverse change in any fact
respecting which a representation or warranty has been
made by it herein.
(p) HSR Act.
The Parties will use their reasonable best efforts
to cooperate with each other in the connection with all
filings required to be made in connection with the
transaction contemplated by this Agreement pursuant to
the Hart Scott Rodino Antitrust Improvements Act of
1976, as amended ("the HSR Act") and to make all such
filings promptly following the date of this Agreement.
(q) Use of Mailing Lists by Sellers after
Closing.
(i) Buyer and Sellers agree that after the
Closing, Sellers may continue to use the Mailing Lists
for prospecting purposes in any of Sellers or their
Affiliates business that is not competitive with the
Company's business as conducted as of the Closing.
Without limiting the generality of the foregoing Buyer,
agrees that the businesses known Childswork/Childsplay
and Ninos are not competitive with the Company's
business as described above. Notwithstanding the
foregoing, Sellers agrees not to sell or rent to a
third party any names on the Mailing Lists.
(ii) and Sellers agree that after the
Closing, Sellers and their Affiliates shall not be
restricted from using any names included on the Mailing
Lists which, as of the Closing are also included on the
Mailing Lists of the other businesses of Sellers and
their Affiliates as having acquired or inquired about
the merchandise or catalog of such business.
Section 6. Conditions to Obligation to Close.
(a) Conditions to Obligation of Buyer.
The obligation of Buyer to consummate the
transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following
conditions;
(i) the representations and warranties set
forth in Section 3 and Section 4(a) above shall be
true and correct in all material respects at and
as of the Closing Date and the covenants of
Sellers in Section 5 above shall have been
complied with in all material respects;
(ii)Sellers shall have procured all of the
Governmental Body and third party consents
specified as Required Consents in Schedules 3(c)
and 4(a)(iii) at or prior to the Closing;
(iii) no action, suit or proceeding is
pending before any Governmental Body or arbitrator
wherein an unfavorable Order would (A) prevent
consummation of any of the transactions
contemplated by this Agreement or the other
Transaction Documents, (B) cause any of the
transactions contemplated by this Agreement or the
other Transaction Documents to be rescinded
following consummation or (C) materially affect
adversely the Limited Liability Interests or their
value or the right of Buyer to own the Limited
Liability Interests and to operate the Business
(and no such Order shall be in effect);
(iv)all registrations, filings,
applications, notices, consents, approvals,
orders, qualifications and waivers required in
respect of the transactions contemplated hereby
shall have been filed, made or obtained, and all
waiting periods applicable under Law, including,
without limitation, under the HSR Act, shall have
expired or been terminated;
(v) Sellers shall have delivered to Buyer a
certificate signed by the Chief Executive Officer
or a Vice President of Sellers to the effect that
each of the conditions specified above in
Section 6(a)(i)-(iv) is satisfied in all respects;
(vi)Buyer shall have received from or on
behalf of Sellers delivery of all the Closing
Documents listed in Section 7(a) below;
(vii) all actions to be taken by each
Seller in connection with consummation of the
transactions contemplated hereby and by the other
Transaction Documents and all certificates,
opinions, instruments and other documents required
to effect the transactions contemplated hereby and
thereby will be reasonably satisfactory in form
and substance to Buyer;
(viii) Sellers shall have delivered prior
to Closing a complete, accurate and current, as of
a date within one week prior to Closing,
"marketing extract" in electronic form useable by
Buyer, extracted from Company's database. The
marketing extract shall include, and each Seller
hereby covenants that it will include:
(A) The names of all customers and
potential customers, with addresses, ever
obtained by Company, including but not
limited to, the names and addresses of all
customers, inquirers, ship to's, "giftees,"
specifiers, resellers, etc.;
(B) For non-buyers, all retained
information, including but not limited to,
demographics, source codes and recency data;
(C) For buyers, associated transaction
details, including but not limited to, dates
and promotional sources of all transactions,
products purchased in each transaction since
January 1, 1995, partial customer service
history associated with each transaction, pay
type and credit worthiness information,
demographic information, etc.; and
(D) Tables, legends and other
explanatory information that will enable
Buyer to interpret all coded information,
such as source codes, product codes, etc.;
In the event Sellers are unable to deliver
the marketing extract in electronic form required
by this Section 6(a)(viii), Sellers shall be
deemed to have fulfilled its obligation hereunder
by delivering to Buyer at Closing a complete
system back-up of all of the data files containing
all of the information requested in this Section
6(a)(viii) and delivery to Buyer of the marketing
extract in electronic form requested by this
Section 6(a)(viii).
(ix) Sellers shall have received immediately
prior to the Closing or simultaneously with the
Closing the written consent of The CIT
Group/Business Credit, Inc. to the transactions
contemplated by this Agreement and appropriate
lien releases;
(x) Company shall have repaid,
simultaneously with the Closing and out of the
proceeds from the transactions contemplated by
this Agreement, in full all amounts payable to
Select Service pursuant to the Prior Agreement and
shall provide to Buyer evidence of such repayments
and appropriate lien releases;
(xi) Buyer shall have received an amendment
to that certain Sublease Agreement pursuant to
which the Company leases its headquarters, in form
and substance attached hereto as Exhibit F; and
Buyer may waive any condition specified
in this Section 6(a) if it executes a writing so
stating at the Closing.
(b) Conditions to Obligation of Sellers.
The obligation of Sellers to consummate the
transactions to be performed by them in connection with
the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set
forth in Section 4(b) above shall be true and
correct in all material respects at and as of the
Closing Date and the covenants of Buyer in
Section 5 above shall have been complied with in
all material respects;
(ii)no action, suit or proceeding is pending
before any Governmental Body or arbitrator wherein
an unfavorable Order would (A) prevent
consummation of any of the transactions
contemplated by this Agreement or the other
Transaction Documents or (B) cause any of the
transactions contemplated by this Agreement or the
other Transaction Documents to be rescinded
following consummation or (C) affect adversely the
ability of Buyer to acquire the Limited Liability
Interests free and clear of all liens and
encumbrances (and no such Order shall be in
effect);
(iii) all registrations, filings,
applications, notices, consents, approvals,
orders, qualifications and waivers required in
respect of the transactions contemplated hereby
shall have been filed, made or obtained, and all
waiting periods applicable under Law, including,
without limitation, under the HSR Act, shall have
expired or been terminated;
(iv)Buyer shall have delivered to Sellers a
certificate to the effect that each of the
conditions specified above Section 6(b)(i)-(iii)
is satisfied in all respects;
(v) Sellers shall have received from Buyer
all of the Closing Documents listed in
Section 7(b) below;
(vi)Sellers shall have received immediately
prior to the Closing or simultaneously with the
Closing the written consent of The CIT
Group/Business Credit, Inc. to the transactions
contemplated by this Agreement; and
(vii) all actions to be taken by Buyer in
connection with consummation of the transactions
contemplated hereby and by the other Transaction
Documents and all certificates, opinions,
instruments and other documents required to effect
the transactions contemplated hereby and thereby
will be reasonably satisfactory in form and
substance to Sellers.
Sellers may waive any condition specified in
this Section 6(b) if they execute a writing so
stating at the Closing.
Section 7. Closing Documents.
(a) Sellers Deliveries.
Sellers shall execute and deliver (or cause
the execution and delivery of) the following
documents to Buyer, prior to or simultaneously
with the Closing:
(i) certificates evidencing the Limited
Liability Interests duly endorsed by the Sellers
for transfer.
(ii) those Required Consents listed on
Schedule 3(c) and 4(a)(iii), and all other
documents necessary to convey good, valid and
marketable title to the Limited Liability
Interests.
(iii) a certificate, dated the Closing
Date, of the Secretary of Company: (A) attaching
copies, certified by such officer, as true and
complete, of the Certificate of Formation and
Limited Liability Company Agreement of Company, as
amended to the Closing Date; (B) attaching
resolutions of the Board of Directors of Sellers,
as the sole members of Company in connection with
the authorization and approval of the execution,
delivery and performance by Company of this
Agreement and the Transaction Documents;
(C) setting forth the incumbency of the officer or
officers of Company who have executed and
delivered this Agreement and each other
Transaction Document, including therein a
signature specimen of each such officer or
officers; (D) attaching copies, certified by the
Secretary of State of the State of Delaware, of
Company's Certificate of Formation; (E) certifying
that no action, suit or proceeding is pending
before any Governmental Body or arbitrator wherein
an unfavorable Order would (1) prevent
consummation of any of the transactions
contemplated by this Agreement or the other
Transaction Documents; (2) cause any of the
transactions contemplated by this Agreement or the
other Transaction Documents to be rescinded
following consummation or (3) affect adversely the
right of Sellers to acquire the Limited Liability
Interests or pay the Purchase Price;
(iv) an opinion of counsel to Company and the
Sellers in form and substance as set forth in
Exhibit C;
(v) UCC-3 financing statements terminating
UCC-1 financing statements filed wherever and
whenever, including with the Delaware Secretary of
State and the Gwinett County and Fulton County
Clerks' Offices from any Person holding a Security
Interest in any of Company's assets, releasing all
Security Interests held by each of them in the
Company's assets, including, without limitation,
those security interests evidenced by the UCC-1
financing statements set forth on Schedule 7(a)(v)
and those in favor of the CIT Group/Business
Credit, Inc. as creditor;
(vi) estoppel certificates in the form of
Exhibit B from all lessors of real property, as
required by Section 3(l)(i);
(vii) cancelled promissory note in the
principal amount of $1,000,000 dated as of January
7, 1998 made by Company payable to Select Service
& Supply Co., Inc. and a letter of acknowledgment
from Select Service & Supply Co., Inc. that such
note had been paid in full that the related pledge
and guaranty agreements had been terminated; and
(viii) the Escrow Agreement signed by
Sellers and the Escrow Agent.
(b) Buyer Deliveries.
Buyer shall execute and deliver to Sellers (or Sellers
shall receive from third parties) prior to or
simultaneously with the Closing:
(i) a wire transfer of $750,000 to the
Escrow Account;
(ii) a wire transfer of $22,250,000, of which
as of February 5, 1999, $543,178.08 shall be paid
directly to Select Service;
(iii) a certificate, dated the Closing
Date, of the Secretary or other authorized
representative of Buyer: (A) attaching
resolutions of the Buyer's Board of Directors in
connection with the authorization and approval of
the execution, delivery and performance of this
Agreement and the other Transaction Documents;
(B) attaching copies, certified by such officer as
true and complete of the Certificate of
Incorporation and By-laws of Buyer; (C) setting
forth the incumbency of the officer or officers of
Buyer who have executed and delivered this
Agreement and each other Transaction Document to
which Buyer is a party, including therein a
signature specimen of each such officer or
officers; (D) attaching copies, certified by the
Secretary of State of the State of Delaware, of
Buyer's Certificate of Incorporation;
(E) certifying that no action, suit or proceeding
is pending before any Governmental Body or
arbitrator wherein an unfavorable Order would
(1) prevent consummation of any of the
transactions contemplated by this Agreement or the
other Transaction Documents, (2) cause any of the
transactions contemplated by this Agreement or the
other Transaction Documents to be rescinded
following consummation or (3) affect adversely the
right of Buyer to acquire the Limited Liability
Interests or pay the Purchase Price;
(iv) all material authorizations, consents
and approvals of governments and governmental
agencies referred to in Section 4(b)(iii) hereof;
(v) an opinion of counsel to Buyer, in form
and substance as set forth in Exhibit D; and
(vi) the Escrow Agreement signed by Buyer and
the Escrow Agent.
Section 8. Arbitration of Disputes.
(a) Mandatory Arbitration.
Buyer, on the one hand and each Seller, on the
other, shall promptly submit any dispute, claim or
controversy arising out of or relating to this
Agreement or any Transaction Document (including,
without limitation, with respect to the meaning,
effect, validity, termination, interpretation,
performance or enforcement of this Agreement or such
Transaction Document) or any alleged breach (including
any action in tort, contract, equity or otherwise) to
binding arbitration before one arbitrator (the
"Arbitrator"). The Parties agree that, except as
otherwise provided herein respecting temporary or
preliminary injunctive relief, binding arbitration
shall be the sole means of resolving any dispute, claim
or controversy arising out of or relating to this
Agreement or any Transaction Document (including,
without limitation, with respect to the meaning,
effect, validity, termination, interpretation,
performance or enforcement of this Agreement or such
Transaction Document) or any alleged breach (including
any claim in tort, contract, equity or otherwise).
(b) Arbitrator's Qualifications and Selection.
The Arbitrator shall be an active member of the
New York Bar, specializing for at least 15 years in
mergers and acquisitions. The Arbitrator shall be
selected by the New York chapter head of the American
Arbitration Association upon the request of any Party.
The Arbitrator shall be selected within 30 days of
request.
(c) Governing Law; Written Decision.
Any arbitration hereunder or under any Transaction
Document, shall be governed by the laws of the State of
New York applicable to a contract negotiated, signed
and wholly to be performed in New York, which laws the
Arbitrator shall apply in rendering his or her
decision. The Arbitrator shall issue a written
decision, setting forth findings of fact and
conclusions of law, within 60 days after he or she
shall have been selected. The Arbitrator shall have no
authority to award punitive or other exemplary damages.
(d) Procedures; Evidence; Experts.
Any arbitration instituted by a Party shall be
held in New York, New York, in accordance with and
under the then-current provisions of the rules of the
American Arbitration Association, except as otherwise
provided herein.
(i) On application to the Arbitrator, any
Party shall have rights to discovery to the same
extent as would be provided under the Federal
Rules of Civil Procedure and the Federal Rules of
Evidence shall apply to any Arbitration under this
Agreement; provided, however, that the Arbitrator
shall limit any discovery or evidence such that
his or her decision shall be rendered within the
period referred to in Section 8(c).
(ii) The Arbitrator may, at his or her
discretion and at the expense of the Party(ies)
who will bear the cost of the Arbitration, employ
experts to assist him or her in his or her
determinations.
(e) Costs.
The costs of the Arbitration proceeding and any
proceeding in court to confirm or to vacate any
arbitration award or to obtain temporary or preliminary
injunctive relief as provided in Section 8(g), as
applicable (including, without limitation, actual
attorneys' fees and costs), shall be borne solely by
the unsuccessful Party and shall be awarded as part of
the Arbitrator's decision, unless the Arbitrator shall
otherwise allocate such costs, for reasons set forth in
such decision.
(f) Consent to Jurisdiction.
Any judgment upon any award rendered by the
Arbitrator may be entered in and enforced by any court
of competent jurisdiction. The Parties expressly
consent to the jurisdiction of the courts (Federal and
state) in New York, New York to enforce any award of
the Arbitrator or to render any provisional or
injunctive relief in connection with or in aid of the
arbitration. The Parties expressly consent to the
personal and subject matter jurisdiction of the
Arbitrator to arbitrate any and all matters to be
submitted to arbitration hereunder. None of the
Parties hereto shall challenge any arbitration
hereunder on the grounds that any Person necessary to
such arbitration (including, without limitation, any
Party hereto) shall have been absent from such
arbitration for any reason, including, without
limitation, that such Person shall have been the
subject of any bankruptcy, reorganization or insolvency
proceeding.
(g) Injunctive Relief.
This Section 8 shall not prevent any Party from
seeking or obtaining temporary or preliminary
injunctive relief in a court for any breach or
threatened breach of any provision of this Agreement or
any Transaction Document; provided, that the
determination whether such breach or threatened breach
shall have occurred and the remedy therefor (other than
with respect to such preliminary or temporary relief)
shall be made by arbitration pursuant to this
Section 8.
(h) Indemnification.
The Parties shall indemnify the Arbitrator and any
experts employed by the Arbitrator and hold them
harmless from and against any Claim arising out of any
arbitration under this Agreement or any Transaction
Document, unless resulting from the willful misconduct
of the Person indemnified.
(i) Survival.
The provisions of this Section 8 shall survive the
termination of this Agreement and any Transaction
Document.
(j) WAIVER OF JURY TRIAL; EXEMPLARY DAMAGES.
ALL PARTIES HEREBY WAIVE THEIR RIGHTS TO TRIAL BY
JURY WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS
AGREEMENT OR ANY TRANSACTION DOCUMENT. No Party shall
be awarded punitive or other exemplary damages
respecting any dispute arising under this Agreement or
any Transaction Document.
(k) Attorneys' Fees.
The unsuccessful Party to any court or other
proceeding arising out of this Agreement that is not
resolved by arbitration shall pay to the prevailing
Party all attorneys' fees and costs actually incurred
by the prevailing Party, in addition to any other
relief to which it may be entitled. As used in this
Section 8 and elsewhere in this Agreement, "actual
attorneys' fees" or "attorneys' fees actually incurred"
means the full and actual costs of any real services
actually performed in connection with the matter for
which such fees are sought, calculated on the basis of
the usual fees charged by the attorneys performing such
services and shall not be limited to "reasonable
attorneys' fees" as that term may be defined in
statutory or decisional authority.
(l) Interest.
Any amount payable by one Party to another under
this Section 8, shall bear interest at the rate of 12%
per annum from the date due until paid.
Section 9. Other Agreements.
(a) Press Releases and Public Announcements.
Neither Seller shall issue any press release or
make any public announcement relating to the purchase
and sale of the Company or disclose to any third party,
other than its legal and financial advisors and others
who need to know in order to consummate this Agreement,
the terms of this Agreement or the other Transaction
Documents, without the prior written approval of Buyer;
provided, however, that any Party may make any public
disclosure it believes in good faith is required by
applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best
efforts to advise the other Parties prior to making the
disclosure).
(b) Filings.
Each of the Parties agrees to use commercially
reasonable efforts to effect all necessary
registrations, filings and submissions of information
requested by Governmental Bodies, necessary to
consummate and make effective as promptly as
practicable the transactions contemplated by this
Agreement and to cooperate with the other Parties in
connection with the foregoing.
(c) No Third-Party Beneficiaries.
This Agreement shall not confer any rights or
remedies upon any Person other than the Parties and
their respective successors and permitted assigns.
(d) Entire Agreement.
This Agreement and the Transaction Documents
(including the documents referred to herein and
therein) constitute the entire agreement among the
Parties and supersede any prior and contemporaneous
understandings, agreements or representations by or
among the Parties (including, without limitation),
written or oral, to the extent they related in any way
to the subject matter hereof.
(e) Succession and Assignment.
This Agreement shall be binding upon and inure to
the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party
may assign either this Agreement or any of its rights,
interests or obligations hereunder without the prior
written approval of the other Parties.
(f) Counterparts.
This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original
but all of which together will constitute one and the
same instrument.
(g) Headings.
The section headings contained in this Agreement
are inserted for convenience only and shall not affect
in any way the meaning or interpretation of this
Agreement.
(h) Notices.
All notices, requests, demands, claims and other
communications hereunder will be in writing. Any
notice, request, demand, claim or other communication
hereunder shall be deemed duly given if (and then two
Business Days after) it is sent by registered or
certified mail, return receipt requested, postage
prepaid and addressed to the intended recipient as set
forth below:
If to Sellers:
to:
Genesis Direct, Inc.
100 Plaza Drive
Secaucus, NJ 07094
Facsimile: (201) 583-3611
Attention: Raphael S. Grunfeld, Esq.
with a copy in each case, to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile: (212) 468-7900
Attn: Ira A. Greenstein, Esq.
If to Buyer:
School Specialty, Inc.
1000 North Bluemound Drive
Appleton, WI 54914
Facsimile: (920) 734-6276
Attention: Daniel P. Spalding
with a copy to each case, to:
Franzoi & Franzoi, S.C.
514 Racine Street
Menasha, WI54952
Facsimile: (920)725-0998
Attention: Joseph F. Franzoi, Esq.
Any Party may send any notice, request, demand,
claim or other communication hereunder to the intended
recipient at the address set forth above using any
other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary
mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is
received by the intended recipient. Any Party may
change the address to which notices, requests, demands,
claims and other communications hereunder are to be
delivered by giving the other Parties notice in the
manner herein set forth.
(i) Governing Law.
This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of
New York without giving effect to any choice or
conflict of law provision or rule (whether of the State
of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other
than the State of New York.
(j) Amendments and Waivers.
No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and
signed by each Party. No waiver by any Party of any
default, misrepresentation or breach of warranty or
covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
(k) Severability.
Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any
jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the
offending term or provision in any other situation or
in any other jurisdiction.
(l) Expenses.
Each Party will bear its own costs and expenses
(including, without limitation, fees and expenses of
accountants, attorneys, financial advisors and brokers)
incurred in connection with this Agreement, the other
Transaction Documents and the preparation and
negotiation thereof and the consummation of the
transactions contemplated hereby and thereby
("Transaction Expenses").
(m) Construction.
The Parties have participated jointly in the
negotiation and drafting of this Agreement and the
other Transaction Documents. In the event an ambiguity
or question of intent or interpretation arises, this
Agreement and the other Transaction Documents shall be
construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement and the other
Transaction Documents. Any reference to any federal,
state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The
word "including" shall mean including without
limitation.
(n) Incorporation of Appendices, Exhibits and
Schedules.
The Exhibits, Appendices and Schedules identified
in this Agreement are incorporated herein by reference
and made a part hereof
(o) Termination.
Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and
the transactions contemplated hereby abandoned at any
time prior to the Closing Date:
(i) By mutual consent of the respective
Boards of Sellers, on the one hand, and Buyer, on
the other;
(ii) By Sellers, if any of the conditions set
forth in Sections 6(b) and 7(b) shall have become
incapable of fulfillment and shall not have been
waived by Sellers;
(iii) By Buyer, if any of the conditions
set forth in Sections 6(a) or 7(a) shall have
become incapable of fulfillment and shall not have
been waived by Buyer; or
(iv) By any Party, if the transactions
contemplated hereby are not consummated on or
before March 31, 1999.
IN WITNESS WHEREOF, the Parties hereto have
executed this Agreement as of the date first above
written.
SCHOOL SPECIALTY, INC.
By:/s/ Daniel P. Spalding
--------------------------
Name: Daniel P. Spalding
Title: CEO
SELLERS:
GENESIS DIRECT, INC.
By:/s/ Warren Struhl
- ---------------------------
Name: Warren Struhl
Title: CEO
LITTLE GENESIS, INC.
By:/s/ Ronald Beranto
- --------------------------
Name: Ronald Beranto
Title: CFO
