<PAGE> 1
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): May 25, 1995
HANOVER DIRECT, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
1-12082
-----------------------------
(Commission File Number)
Delaware 13-0853260
---------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) identification number)
1500 Harbor Boulevard,
Weehawken, New Jersey 07087
---------------------- ----------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (201) 863-7300
------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
(a) On May 25, 1995, Hanover Direct, Inc. ("Hanover") purchased from
Austad Holdings, Inc., a Delaware corporation (the "Company") formed by The
Austad Company, a South Dakota corporation ("Austad"), pursuant to a Stock
Purchase Agreement dated as of May 19, 1995 (the "Purchase Agreement") among the
Company, Austad, Hanover, David Austad, President of Austad ("Mr. Austad"), both
individually and as custodian, Denise Austad ("Mrs. Austad") and certain former
stockholders of Austad, 67,500 shares of common stock, par value $1.00 per
share, of the Company (constituting 67.5% of the capital stock of the Company)
for a purchase price of $1,800,000 in cash. The balance (32.5%) of the
outstanding shares of capital stock of the Company is owned by Mr. and Mrs.
Austad and their minor children (collectively, the "David Austad Group"), after
the redemption of certain outstanding securities of Austad owned by others and
certain related transactions. The purchase price was determined as a result of
arm's-length negotiations among the parties as to the value of the stock
acquired as of the closing date. The cash for the purchase price was derived
from Hanover's working capital.
Austad publishes the Austad's catalog, the largest catalog
merchandiser of golf equipment and related apparel and accessories in the United
States. Austad emphasizes high quality specialty golf merchandise offered at
competitive prices. Its products include a broad mix of proprietary private
label goods, as well as quality brand name merchandise. Austad is headquartered
in Sioux Falls, South Dakota and operates four retail stores in the midwest
region. Austad mails its catalogs nationwide and translates its catalogs for
Japanese customers, mailing more than 350,000 catalogs annually to Japan. The
Board of Directors of the Company consists of five members, including Mr. Austad
and a person designated by him as well as three persons designated by Hanover,
including Alan G. Quasha, the Chairman of the Board of Hanover, Jack E.
Rosenfeld, the President and Chief Executive Officer of Hanover, and Charles E.
Hudson, an officer of a subsidiary of Hanover. Austad will continue to be
managed by its existing management team headed by Mr. Austad.
Concurrent with the execution and delivery of the Purchase
Agreement, Hanover Finance Corporation, a wholly-owned subsidiary of Hanover
("Finance"), entered into a loan agreement with Austad pursuant to which Finance
lent Austad the sum of $2,200,000 which was applied to repay certain existing
indebtedness of Austad to First National Bank of Omaha, N.A. Such loan bears
interest at the rate of 10%, is due by May 25, 2000, is subordinated as to
security and time of payment to Austad's existing bank indebtedness and is
guaranteed by the Company. In addition, Finance entered into a loan agreement
with Austad pursuant to which Finance lent Austad the sum of $400,000 which was
applied to repay certain indebtedness of Austad to Valley Bank. Such loan bears
interest at a fluctuating rate (8.75% per annum through April 1996), is secured
by a second mortgage on Austad's office and warehouse facility in Sioux Falls,
South Dakota and is due on the earlier of the refinancing of the first mortgage
or the sale of the underlying property.
-2-
<PAGE> 3
Pursuant to the Purchase Agreement, Hanover has agreed to make an
additional capital contribution of up to $2,200,000 to the Company if certain
financial targets are met during the 1995 fiscal year of the Company and Austad.
Such additional capital contribution, if any, is to be paid on or before April
30, 1996 either in cash or as an offset against any amount owed by Austad to
Hanover or any subsidiary of Hanover (including Finance under the loan
agreements described above) on such payment date. The making of the additional
capital contribution, if any, by Hanover will not change the relative share
ownership of Hanover and the members of the David Austad Group in the Company.
Concurrent with the execution and delivery of the Purchase
Agreement,Hanover and the members of the David Austad Group entered into a
stockholders' agreement (the "Stockholders' Agreement"). Pursuant to the
Stockholders' Agreement, the members of the David Austad Group received a
five-year option (the "Put") exercisable so long as the Company shall not have
made an initial public offering of shares of its capital stock, to put his
shares of the Company's capital stock to Hanover, for a price to be determined
based upon an agreed formula. The Put is also exercisable for certain time
periods and at certain prices in certain other events, including the termination
of Mr. Austad's employment with the Company and Austad and in the event of Mr.
Austad's permanent and total disability or death.
Concurrent with the execution and delivery of the Purchase
Agreement, the Company and certain former stockholders of Austad entered into a
warrant agreement pursuant to which the Company granted such persons the right
to acquire an aggregate of approximately 2% of the Company's capital stock for a
period of five years from the closing date.
The foregoing description of the Purchase Agreement and related
agreements is a summary of certain of the provisions thereof and reference is
made to a copy of such Purchase Agreement which is attached hereto as Exhibit 1
and incorporated herein by reference for all of their terms and conditions.
(b) The Company's principal asset is the stock of Austad. Austad's
assets consist of those assets related to the operation of its business as
described above. The primary tangible assets of Austad as of March 31, 1995 were
real property, computer equipment, store fixtures, warehouse and fulfillment
center equipment and inventories. Austad currently intends to continue to use
its assets in the manner in which they were used before the acquisition of the
stock of its parent company described above.
-3-
<PAGE> 4
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired:
(i) The Austad Company -- Financial Statements for the years ended
December 31, 1994 and 1993
Report of Coopers & Lybrand L.L.P.
Balance Sheet as of December 31, 1994 and 1993
Statement of Operations for the years ended
December 31, 1994 and 1993
Statement of Changes in Shareholders' Equity
for the years ended December 31, 1994 and 1993
Statement of Cash Flows for the years ended
December 31, 1994 and 1993
Notes to Financial Statements
(ii) The Austad Company -- Condensed Financial Statements for the periods ended
March 31, 1995 and 1994 (unaudited)
Condensed Balance Sheet as of March 31, 1995
Condensed Statement of Operations for the
three months ended March 31, 1995 and 1994
Condensed Statement of Cash Flows for the
three months ended March 31, 1995 and 1994
Notes to Condensed Financial Statements
(b) Pro Forma Financial Information:
Hanover Direct, Inc. -- Pro Forma Consolidated Condensed Financial Statements
(Unaudited )
Introduction
Condensed Consolidated Pro Forma Balance Sheet as of April 1, 1995
Condensed Consolidated Pro Forma Statement of
Operations for the year ended December 31, 1994
Condensed Consolidated Pro Forma Statement of
Operations for the three months ended April 1, 1995
(c) Exhibits:
(1) Stock Purchase Agreement, dated as of May 19, 1995, among Austad,
Hanover, David Austad, individually and as custodian, Denise Austad, the Company
and certain former stockholders of Austad.
Pursuant to paragraph (b)(2) of Item 601 of Regulation S-K, Hanover agrees
to furnish supplementally to the Securities and Exchange Commission upon request
a copy of any omitted schedule to the Stock Purchase Agreement described above.
-4-
<PAGE> 5
Item 7 (a) (i)
THE AUSTAD COMPANY
------------
REPORT ON AUDITS OF FINANCIAL STATEMENTS
for the years ended December 31, 1994 and 1993
F-1
<PAGE> 6
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
The Austad Company:
We have audited the accompanying balance sheets of The Austad
Company as of December 31, 1994 and 1993 and the related statements of
operations, changes in shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of The Austad
Company as of December 31, 1994 and 1993, and results of its operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
F-2
<PAGE> 7
As discussed in Note 4 to the financial statements, effective
January 1, 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes."
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
9 to the financial statements, the Company has incurred substantial losses in
each of the last two years, had minimal shareholders' equity at December 31,
1994 and is required to repay its existing bank debt no later than May 31, 1995.
These matters raise substantial doubt about its ability to continue as a going
concern. Management's plans for resolving these matters include the sale of
majority ownership of the Company in connection with a contribution of capital
to the Company as described in Note 9. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Minneapolis, Minnesota /s/ COOPERS & LYBRAND L.L.P.
May 5, 1995
F-3
<PAGE> 8
THE AUSTAD COMPANY
BALANCE SHEET
as of December 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 106,386 $ 271,069
Accounts receivable, net 634,159 943,219
Inventories 9,469,653 12,893,039
Deferred catalog costs 511,296 770,124
Refundable income taxes 2,000 429,450
Other current assets 47,255 136,267
----------- -----------
Total current assets 10,770,749 15,443,168
Property and equipment, net 3,708,384 3,657,653
Intangibles, net 32,904 59,959
----------- -----------
Total assets $14,512,037 $19,160,780
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt 5,069,519 7,050,450
Long-term debt, current portion 51,621 48,023
Capital lease obligations, current portion 281,322 193,651
Accounts payable 3,184,003 3,766,613
Customer returns 737,166 887,013
Accrued expenses 1,098,278 1,311,124
----------- -----------
Total current liabilities 10,421,909 13,256,874
Long-term debt, less current portion 2,138,089 2,192,500
Capital lease obligations, less current portion 931,184 903,522
Notes payable to shareholders 767,878 767,878
Commitments (Note 7)
Shareholders' equity:
Common stock, $1 par value, 500,000 shares authorized,
28,963 shares issued and outstanding 28,963 28,963
Series A preferred stock, $1 par value, 10,328 shares
authorized and outstanding, $4.46 annual cumula-
tive dividends, $111.56 per share liquidation
preference 1,141,500 1,141,500
Series B preferred stock, $1 par value, 4,934 shares
authorized and outstanding, $4.46 annual cumula-
tive dividends, $111.56 per share liquidation
preference 550,437 550,437
Series C preferred stock, $1 par value, 592 shares
authorized and outstanding, convertible, voting,
$111.56 per share liquidation preference 592 592
Additional paid-in capital 4,584 4,584
(Accumulated deficit) retained earnings (1,473,099) 313,930
----------- -----------
Total shareholders' equity 252,977 2,040,006
----------- -----------
Total liabilities and shareholders' equity $14,512,037 $19,160,780
=========== ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-4
<PAGE> 9
THE AUSTAD COMPANY
STATEMENT OF OPERATIONS
for the years ended December 31, 1994 and 1993
-----------
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Net sales $39,197,896 $42,881,713
Cost of sales 24,688,608 28,049,589
----------- -----------
Gross profit 14,509,288 14,832,124
Selling, general and administrative
expenses 14,365,241 14,238,707
Depreciation and amortization expense 815,371 679,972
----------- -----------
Operating loss (671,324) (86,555)
Other income (expense):
Financing costs:
Amortization of loan origination
costs (60,805) (104,760)
Interest (1,048,236) (815,987)
----------- -----------
(1,109,041) (920,747)
Other, net (6,664) (18,993)
----------- -----------
Net loss $(1,787,029) $(1,026,295)
=========== ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-5
<PAGE> 10
THE AUSTAD COMPANY
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
------------------
$4.46 Cumulative/
Redeemable
Common Stock Series A
-------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 44,817 $ 44,817
Series A preferred stock issued
in exchange for common stock (10,328) (10,328) 10,328 $1,141,500
Series B preferred stock issued
in exchange for common stock (4,934) (4,934)
Series C preferred stock issued
in exchange for common stock (592) (592)
Net loss
------- -------- ------ ----------
Balance, December 31, 1993 28,963 28,963 10,328 1,141,500
Net loss
------- -------- ------ ----------
Balance, December 31, 1994 28,963 28,963 10,328 $1,141,500
======= ======== ====== ==========
<CAPTION>
Preferred Stock
------------------------------------
$4.46 Cumulative/
Redeemable Convertible Retained
Series B Series C Additional Earnings Total
----------------- --------------- Paid-In (Accumulated Shareholders'
Shares Amount Shares Amount Capital Deficit) Equity
------ ------ ------ ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $4,584 $ 3,016,900 $ 3,066,301
Series A preferred stock issued
in exchange for common stock (1,131,172)
Series B preferred stock issued
in exchange for common stock 4,934 $550,437 (545,503)
Series C preferred stock issued
in exchange for common stock 592 $592
Net loss (1,026,295) (1,026,295)
----- -------- --- ---- ------ ----------- -----------
Balance, December 31, 1993 4,934 550,437 592 592 4,584 313,930 2,040,006
Net loss (1,787,029) (1,787,029)
----- -------- --- ---- ------ ----------- -----------
Balance, December 31, 1994 4,934 $550,437 592 $592 $4,584 $(1,473,099) $ 252,977
===== ======== === ==== ====== =========== ===========
</TABLE>
The accompanying notes are an integral
part of the financial statement.
F-6
<PAGE> 11
THE AUSTAD COMPANY
STATEMENT OF CASH FLOWS
for the years ended December 31, 1994 and 1993
-------
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,787,029) $(1,026,295)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 876,176 784,732
Allowance for market decline in inventories (150,000) 790,000
Other (8,856) 3,166
Change in assets and liabilities, exclusive
of investing and financing activities:
Accounts receivable 309,060 (214,030)
Inventories 3,573,386 (3,389,209)
Deferred catalog costs 258,828 15,661
Refundable income taxes 427,450 (429,450)
Other current assets 89,012 (15,138)
Accounts payable (808,782) 44,299
Customer returns (149,847) (110,227)
Accrued expenses (212,846) 256,848
----------- -----------
Net cash provided by (used in) operating
activities 2,416,552 (3,289,643)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (534,625) (482,882)
Proceeds from sale of property and equipment 57,500
----------- -----------
Net cash used in investing activities (477,125) (482,882)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of debt 5,069,519 9,322,975
Payments on debt (7,101,263) (6,607,002)
Payments on notes payable to shareholders (241,000)
Payments on capital lease obligations (264,788) (79,127)
Increase in cash overdraft 226,172 421,844
Payment of loan origination costs (33,750) (164,719)
----------- -----------
Net cash (used in) provided by financing
activities (2,104,110) 2,652,971
----------- -----------
Decrease in cash and cash equivalents (164,683) (1,119,554)
Cash and cash equivalents:
Beginning of year 271,069 1,390,623
----------- -----------
End of year $ 106,386 $ 271,069
=========== ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-7
<PAGE> 12
THE AUSTAD COMPANY
NOTES TO FINANCIAL STATEMENTS
-------------
1. Business Description and Significant Accounting Principles:
BUSINESS DESCRIPTION:
The Company's operations consist principally of the worldwide mail
order distribution of sports and leisure equipment, and related apparel
and accessories, specializing in golf. In addition, the Company
maintains retail stores in Blaine and Edina, Minnesota; Oak Brook,
Illinois and Sioux Falls, South Dakota. Sales to customers are
primarily by cash, credit card or credit terms that the Company
establishes for individual customers.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The cash
balances are concentrated primarily in two banks.
ACCOUNTS RECEIVABLE, NET:
Accounts receivable is comprised primarily of amounts due from
worldwide distributors of the Company's products and amounts due from
lessees of the Company's mailing lists, net of an allowance for
doubtful accounts.
Four distributors and one lessee comprised approximately 47% of the
December 31, 1994 accounts receivable balance. Of the 47%,
approximately one-half is comprised of foreign distributors. Four
distributors and one lessee comprised approximately 61% of the December
31, 1993 accounts receivable balance. Of the 61%, approximately
one-third is comprised of foreign distributors.
The Company performs ongoing credit evaluations of its customers,
generally does not require collateral and maintains an allowance for
potential credit losses.
INVENTORIES:
Inventories are stated at the lower of cost or market with cost
determined on the weighted average method.
PROPERTY AND EQUIPMENT:
Property and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation and amortization of
property and equipment are computed on the straight-line method over
estimated useful asset lives (shorter of asset life or lease term for
leasehold improvements).
Continued
F-8
<PAGE> 13
THE AUSTAD COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
-----------
1. Business Description and Significant Accounting Principles,
continued:
PROPERTY AND EQUIPMENT, continued:
Expenditures for maintenance and repairs and minor renewals and
betterments which do not improve or extend the life of the respective
assets are expensed. All other expenditures for renewals and
betterments are capitalized. The assets and related depreciation
accounts are adjusted for property retirements and disposals with the
resulting gain or loss included in income. Fully depreciated assets
remain in the accounts until retired from service.
REVENUE RECOGNITION AND MERCHANDISE RETURNS:
The Company's policy is to recognize revenue upon shipment of
inventory. The Company records prepaid customer orders as a liability
until the inventory is shipped. The Company's policy is to accept
returns of merchandise throughout the product's life with normal use.
The Company will accept trade-in of used clubs for in-store credit. The
Company records a liability in connection with sales activity for
projected merchandise returns based on historical return experience.
DEFERRED CATALOG COSTS:
The Company defers and amortizes catalog preparation and distribution
costs over the projected sales demand of the catalogs, which is
principally three to six months from the date catalogs are mailed.
PREOPENING COSTS:
Advertising, sales promotion and expenditures associated with opening
of new locations are charged to operations as incurred.
INCOME TAXES:
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109). SFAS No. 109 requires recognition of
deferred income tax assets and liabilities for the expected future tax
consequences of events
Continued
F-9
<PAGE> 14
THE AUSTAD COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
------------
1. Business Description and Significant Accounting Principles,
continued:
INCOME TAXES, continued:
that have been included in the financial statements or tax returns.
Under this method, deferred income tax assets and liabilities are
determined based on the differences between the financial statement and
tax bases of assets and liabilities using currently enacted tax rates
in effect for the years in which the differences are expected to
reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. Other Financial Statement Data:
The following provides additional information concerning selected
balance sheet accounts at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Property and equipment:
Land $ 42,341 $ 42,341
Buildings and improvements 2,204,753 2,160,790
Equipment, furniture and leasehold
improvements 4,384,995 4,508,154
Capitalized lease property 1,556,427 1,176,300
----------- -----------
8,188,516 7,887,585
Less accumulated depreciation and amorti-
zation (including $256,931 in 1994
and $44,146 in 1993 related to
capitalized lease property) (4,480,132) (4,229,932)
----------- -----------
$ 3,708,384 $ 3,657,653
=========== ===========
Accrued expenses:
Payroll and accrued vacation $ 325,603 $ 442,037
Payroll, property and sales taxes 160,587 157,143
Advance payments on orders 436,964 388,250
Accrued promotions 14,919 163,684
Accrued commissions 71,225 62,501
Other 88,980 97,509
----------- -----------
$ 1,098,278 $ 1,311,124
=========== ===========
</TABLE>
Continued
F-10
<PAGE> 15
THE AUSTAD COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
------
2. Other Financial Statement Data, continued:
Accounts payable included a cash overdraft of $648,016 and $421,844 at
December 31, 1994 and 1993, respectively, in connection with the
Company's controlled disbursements account.
Selling, general and administrative expenses are net of revenues from
shipping and handling, list rentals, package inserts and fulfillment of
$3,807,660 and $4,402,607 for the years ended December 31, 1994 and
1993, respectively.
The following provides supplemental disclosures of cash flow activity
for the years ended December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash paid (received) during the
year for:
Interest $1,033,069 $ 808,630
Income taxes (427,450) 429,450
Noncash investing and financing
activities:
Property and equipment acquired
through capital lease
obligations 380,121 1,176,300
</TABLE>
3. Financing Arrangements:
The Company's short-term and long-term debt consists of the following
at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Revolving loan $ 5,069,519 $ 7,050,450
Mortgage loan 2,189,710 2,240,523
----------- -----------
Total short-term and
long-term debt 7,259,229 9,290,973
Less current portion (5,121,140) (7,098,473)
----------- -----------
Long-term portion $ 2,138,089 $ 2,192,500
=========== ===========
</TABLE>
Continued
F-11
<PAGE> 16
THE AUSTAD COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
------
3. Financing Arrangements, continued:
During 1993, the Company entered into a revolving loan agreement with a
bank which allowed for borrowings of up to $8,500,000 as of December
31, 1993 at an interest rate equal to the prime rate plus 2%. The prime
rate at December 31, 1994 and 1993 was 8.5% and 6%, respectively. In
January 1994, the revolving loan agreement commitment was increased to
allow borrowings of up to $9,500,000, less outstanding letters of
credit, based on adequacy of underlying collateral, and as of June 1,
1994, had been amended to extend through December 21, 1994. At December
21, 1994, the revolving agreement was decreased to $6,500,000 and was
amended to extend through March 31, 1995. At March 31, 1995, the
revolving loan agreement was amended to extend through May 31, 1995
(see Note 9 - Subsequent Events).
The loan is collateralized by accounts receivable, inventories,
property and equipment and intangible assets of the Company, and the
president of the Company has signed as a guarantor. In addition, the
agreement contains provisions for the bank to provide letters of credit
to the Company. As of December 31, 1994, the Company had outstanding
letters of credit totaling $13,400. As of December 31, 1993, the
Company did not have any outstanding letters of credit.
The Company was required to maintain a specified tangible net worth
ratio, but did not meet this covenant in 1993 and through June 1, 1994.
Under the June 1, 1994 amended agreement, this covenant was deleted.
Under the June 1, 1994 amended agreement, the Company was required to
attain prescribed minimum year-to-date net profits before taxes, but
did not meet this covenant in 1994. Under the December 21, 1994 amended
agreement, the Company was required to attain prescribed pretax net
profits as of January 31, 1995, February 28, 1995 and March 31, 1995,
which it likewise did not meet. In addition, the revolving loan
agreement contains covenants including limitations on incurrence of
debt, granting of liens, payment of dividends, investments, capital
expenditures, merger or consolidation, loans or advances to related
parties and capital stock transactions.
During 1993, the Company entered into a mortgage loan agreement with
the bank for $2,272,525, which bears interest at a rate of 8.75%.
Monthly principal and interest payments are $20,100 with a final
payment of $1,600,080 due in March 2003.
Continued
F-12
<PAGE> 17
THE AUSTAD COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
------
3. Financing Arrangements, continued:
Aggregate maturities of bank debt are as follows:
<TABLE>
<S> <C>
1995 $5,121,140
1996 57,878
1997 64,174
1998 69,937
1999 76,217
Thereafter 1,869,883
----------
$7,259,229
==========
</TABLE>
The Company has notes payable to shareholders of $767,878 as of
December 31, 1994 and 1993. Interest expense paid to shareholders was
$69,109 and $79,865 in 1994 and 1993, respectively. The notes are
payable at the Company's option, accrue interest at 9% payable
quarterly and are subordinated to the bank debt discussed above.
4. Income Taxes:
In years prior to 1993, the shareholders of the Company had elected to
be taxed as an S Corporation under the Internal Revenue Code. In March
1993, the shareholders terminated the Company's S Corporation election,
effective January 1, 1993.
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." This change in accounting for income taxes had no effect
on the Company's financial position, results of operations and cash
flows.
As of December 31, 1994 and 1993, the Company has a net deferred income
tax asset of approximately $2,488,000 and $889,000, respectively, which
are offset by a valuation allowance based on the uncertainty associated
with ultimate realization of the deferred income tax asset. The
principal sources of temporary differences include the allowance for
sales returns, deferred catalog costs, allowance for inventory
write-downs and other accrued expenses, such as accrued vacation and
accrued gift certificates.
As of December 31, 1994, the net deferred income tax asset includes
asset amounts arising from net operating loss (NOL) carryforwards of
approximately $1,586,000, $157,000 and $125,000 available for federal,
Minnesota and Illinois income tax purposes, respectively. These
carryforwards expire in 2008 and 2009.
Continued
F-13
<PAGE> 18
THE AUSTAD COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
------
4. Income Taxes, continued:
Under the Internal Revenue Code, certain corporate stock transactions
into which the Company may enter in the future could limit the amount
of NOL carryforwards which may be utilized and the timing of the NOL
utilization. Ultimate realization of the NOL carryforwards is dependent
on the Company attaining profitable operations and compliance with
certain requirements regarding any further changes in shareholder
control (see Note 9 - Subsequent Events).
5. Retirement Plans:
The Company has a profit-sharing plan which includes a 401(k) component
that covers substantially all employees. Contributions to the
profit-sharing component of the plan are at the discretion of the Board
of Directors and the Company matches employee contributions to the
401(k) component of the plan, up to a maximum of $200 per employee. The
Company contributed $21,160 and $16,575 to the plan for the years ended
December 31, 1994 and 1993, respectively.
6. Shareholders' Equity:
During 1993, the Company approved agreements with four shareholders for
the exchange of 15,854 shares of their common stock for preferred
stock. The preferred stock was recorded at its estimated fair value on
the effective date of the transaction. The Company issued 10,328 shares
of Series A cumulative, redeemable preferred stock and 4,934 shares of
Series B cumulative, redeemable preferred stock which accumulate
dividends at a rate of $4.46 per share per year, commencing January 1,
1995, and also issued 592 shares of Series C noncumulative, convertible
preferred stock.
The Company did not pay or accrue any dividends during 1994 and 1993.
The Company is restricted from paying dividends on its common stock if
Series A and Series B preferred stock is outstanding.
Series A cumulative, redeemable and Series B cumulative, redeemable
preferred stock have a liquidation preference over the common stock and
the Series C preferred stock equal to $111.56 per share plus unpaid
dividends. Payments to Series A
Continued
F-14
<PAGE> 19
THE AUSTAD COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
------
6. Shareholders' Equity, continued:
and Series B preferred shareholders are to be made on a pro rata basis.
Series A and Series B preferred stock are redeemable at the discretion
of the Board of Directors between January 1, 1996 and June 30, 1996, at
a value for the Series A preferred stock of $1,141,500 plus cumulative
dividends and plus an amount based on 22.83% times the difference, if
positive, between 1) five times fiscal 1995 earnings before interest,
tax, depreciation, amortization and extraordinary and nonrecurring
amounts less capital expenditures and outstanding debt; and 2)
$5,000,000, and at a value of $111.56 per share plus cumulative
dividends for the Series B preferred stock.
Series C preferred stock has liquidation preference over the common
stock equal to $111.56 per share. The Series C may be converted to
common stock on a share-for-share basis at the shareholder's discretion
within 15 days after notice by the Company of its intention to conduct
an initial public offering of its common stock, subject to certain
limitations.
The Company has an agreement with its common stock shareholders that
allows the Company to have the first option of purchasing the stock of
a selling shareholder. If the Company does not purchase the stock, the
other shareholders have the second option to purchase the stock based
on their proportionate ownership of stock. The purchase price per share
is the lower of the price per share from a bona fide third-party offer
or the book value of the shares on the last day of the fiscal year
ending on or before the date of the offer to sell.
7. Commitments:
OPERATING LEASES:
The Company is committed under operating lease agreements covering
their retail stores. The operating leases expire in varying terms
through March 2005, and certain leases include escalation provisions.
The Company is generally required to pay additional rent based on a
percentage of sales. In addition to rental payments, the Company is
required to reimburse the lessors for various operating expenses
including a pro rata share of real estate taxes and common area
expenses.
Continued
F-15
<PAGE> 20
THE AUSTAD COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
------
7. Commitments, continued:
OPERATING LEASES, continued:
Total rent expense includes the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Minimum rent $301,032 $308,567
Percentage rent based on sales 64,848 71,260
Real estate taxes and other expenses 67,278 24,846
-------- --------
$433,158 $404,673
======== ========
</TABLE>
FUTURE MINIMUM LEASE PAYMENTS:
As of December 31, 1994, future minimum lease payments (excluding
percentage rents based on sales) due under capital lease and existing
noncancellable operating leases with remaining terms of greater than
one year are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------- ----------
<S> <C> <C>
1995 $ 395,295 $ 304,856
1996 402,419 292,297
1997 391,467 293,017
1998 282,581 296,235
1999 262,934
Thereafter 613,101
---------- ----------
Total minimum lease payments 1,471,762 $2,062,440
==========
Less amounts representing interest 259,256
==========
Capital lease obligations,
including current maturities
of $281,322 with interest
ranging from 5.35% to 17.4% $1,212,506
==========
</TABLE>
EMPLOYEE AGREEMENTS:
During 1993, the Company entered into a two-year noncompete agreement
with a shareholder and former employee. Under the terms of the
agreement, the Company is required to make monthly payments of $6,250
from August 1, 1993 through July 31, 1995, in addition to paying
medical and health insurance premiums and certain membership fees.
Expenses under this agreement were $78,535 and $35,655 in 1994 and
1993, respectively, and are included in selling, general and
administrative expenses.
Continued
F-16
<PAGE> 21
THE AUSTAD COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
------
7. Commitments, continued:
EMPLOYEE AGREEMENTS, continued:
During 1993, the Company entered into a noncompete agreement with
another shareholder and former employee. Under the terms of the
agreement, the Company made payments of $132,500 during 1993. The
agreement was amended effective December 31, 1993, whereby the Company
is required to make quarterly payments of $10,000 from March 31, 1994
through December 1998. Expenses under this agreement were $40,000 and
$132,500 in 1994 and 1993, respectively, and are included in selling,
general and administrative expenses.
PHANTOM STOCK PLAN:
In November 1993, the Board of Directors (the Board) approved a
unfunded Phantom Stock Plan (the Plan) to provide incentive deferred
compensation for certain key employees of the Company. The value of the
incentive deferred compensation is measured based on performance units
awarded to eligible employees by the Board. Performance units vest at a
rate of 20% per year on the anniversary of the grant date, provided the
participant remains an employee of the Company. If a participant is
terminated, the participant is entitled to receive their vested
portion. Payments are to be made either in a lump sum or, at the
Board's sole discretion, in equal annual installments of principal and
interest over five years.
Participants become fully vested upon termination of employment with
the Company due to death, disability or retirement or upon termination
of the Plan.
The value of a performance unit is equal to the net book value of an
outstanding share of the Company's common stock as of the end of the
fiscal year immediately preceding the date of grant. The Plan has not
awarded any performance units as of December 31, 1994.
8. Foreign Sales:
Foreign sales, primarily to distributors located in Japan, Canada,
Sweden and Great Britain were $1,601,608 and $1,905,898 during 1994 and
1993, respectively.
Continued
F-17
<PAGE> 22
THE AUSTAD COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
------
9. Subsequent Events:
FINANCING ARRANGEMENTS:
Subsequent to year end, the Company entered into an amendment to its
revolving loan agreement whereby the agreement was extended through May
31, 1995 and the maximum borrowings from May 10, 1995 through May 31,
1995 were decreased to $5,000,000.
SALE OF MAJORITY OWNERSHIP:
Subsequent to year end, the Company entered into a nonbinding letter of
intent whereby majority ownership of the Company would be transferred
to an unaffiliated third party. As part of the change in control, the
new shareholder indicated it would make a capital contribution and a
loan to the Company, the proceeds of which would be used for the
redemption of stock of certain shareholders, a distribution to a
shareholder and partial payment of the Company's indebtedness. As part
of this transaction, if it is consummated, the Company plans to
refinance its remaining obligations under the existing revolving loan
agreement.
F-18
<PAGE> 23
Item 7 (a) (ii)
THE AUSTAD COMPANY
CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
F-19
<PAGE> 24
THE AUSTAD COMPANY
CONDENSED BALANCE SHEET
AS OF MARCH 31, 1995
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash and cash equivalents $ 127,579
Accounts receivable, net 892,775
Inventories 10,065,102
Prepaid catalog costs 1,066,276
Other current assets 45,134
-----------
Total current assets 12,196,866
Property and equipment, net 3,538,119
Intangible assets, net 38,884
-----------
Total assets $15,773,869
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 5,830,188
Long-term debt, current portion 52,261
Capital lease obligations, current portion 292,883
Accounts payable 4,162,202
Customer returns and accrued expenses 1,560,874
-----------
Total current liabilities 11,898,408
Long-term debt 2,124,342
Capital lease obligations 855,051
Notes payable to shareholders 767,878
Shareholders' equity
Common stock 28,963
Series A preferred stock 1,141,500
Series B preferred stock 550,437
Series C preferred stock 592
Additional paid in capital 4,584
Retained earnings (1,597,886)
-----------
Total shareholders' equity 128,190
-----------
Total liabilities and shareholders' equity $15,773,869
===========
</TABLE>
F-20
<PAGE> 25
THE AUSTAD COMPANY
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
------------------------------------
March 31, 1995 March 31, 1994
--------------- --------------
<S> <C> <C>
Net sales $ 9,163,157 $ 10,720,103
Cost of sales 5,830,512 6,963,497
--------------- --------------
Gross profit 3,332,645 3,756,606
Selling, general and administrative
expenses 3,197,462 3,998,248
--------------- --------------
Operating income (loss) 135,183 (241,642)
Other expense:
Interest 259,968 238,632
--------------- --------------
Net loss $ (124,785) $ (480,274)
=============== ==============
</TABLE>
F-21
<PAGE> 26
THE AUSTAD COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
-------------------------------
March 31, 1995 March 31, 1994
--------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (124,785) $ (480,274)
Adjustments to reconcile net loss to
cash from operating activities:
Depreciation and amortization 204,171 216,331
Decline in inventory values (10,000) (167,627)
Changes in assets and liabilities:
Accounts receivable (258,616) 78,268
Inventories (585,449) (519,047)
Prepaid catalog costs (554,980) (993,246)
Other current assets 4,121 436,981
Accounts payable 978,198 2,507,181
Customer returns and accrued expenses (274,570) (889,056)
----------- -----------
Net cash (used in) provided by
operating activities (621,910) 189,511
----------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (24,887) (156,478)
----------- -----------
Net cash used in investing activities (24,887) (156,478)
----------- -----------
Cash flows from financing activities
Borrowing (payments) of debt, net 747,562 (96,503)
Payments on capital lease obligations (64,572) (70,969)
Payment of loan origination costs (15,000) --
Net cash provided by (used in) ----------- -----------
financing activities 667,990 (167,472)
----------- -----------
Increase (Decrease) in cash and cash equivalents 21,193 (134,439)
Cash and cash equivalents:
Beginning of period 106,386 271,069
----------- -----------
End of period $ 127,579 $ 136,630
=========== ===========
</TABLE>
F-22
<PAGE> 27
THE AUSTAD COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X and, therefore, do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations or cash flows in conformity with generally
accepted accounting principles. Reference should be made to the annual financial
statements, including the footnotes thereto, described in Item 7(a) of this Form
8-K and filed as part of this Current Report.
2. Transaction with Shareholders
Under a stock redemption agreement dated April 29, 1995, The Austad Company
redeemed all outstanding shares not owned by the President and his immediate
family in exchange for a $1.2 million promissory note. The promissory note was
paid in May 1995.
3. Acquisition by Hanover Direct, Inc.
On May 25, 1995, Austad Holdings, Inc. (a Delaware corporation formed by The
Austad Company), The Austad Company and its current and former shareholders
entered into various agreements with Hanover Direct, Inc. ("Hanover") and its
wholly-owned subsidiaries which provided for, among other things, the following:
Austad Holdings, Inc. acquired 100% of the outstanding common stock of
The Austad Company.
Hanover acquired 67.5% of the outstanding common stock of Austad
Holdings, Inc. for a cash payment of $1.8 million. The remaining 32.5%
of Austad Holdings, Inc.'s common stock is held by the President of The
Austad Company and his immediate family. The President and his
immediate family received a five year option, subject to certain
limitations, to put their 32.5% ownership interest to Hanover at a
price to be determined based upon an agreed formula.
Austad Holdings, Inc. granted certain former shareholders of The
Austad Company the right to acquire an aggregate of approximately
2% of Austad Holdings, Inc.'s capital stock for a period of five
years.
Hanover provided a loan of $2.2 million to The Austad Company. The loan
bears interest at the rate of 10% per annum and is payable through May
25, 2000 based on The Austad Company's free cash flow, as defined, and
is subordinated to certain outstanding indebtedness of The Austad
Company.
In the event that The Austad Company reaches certain earnings goals in
1995, Hanover is required to contribute up to $2.2 million to The
Austad Company. Such contribution can be in cash or through forgiveness
of any outstanding indebtedness, including the $2.2 million loan
discussed above.
F-23
<PAGE> 28
Hanover provided a loan of $.4 million to The Austad Company which is
secured by a second mortgage on The Austad Company's office and
warehouse in Sioux Falls, South Dakota. The loan bears interest at a
fluctuating rate (8.75% per annum through April 1996). The loan is
repayable in the event that The Austad Company's office and warehouse
are sold or its first mortgage on the building is refinanced.
Hanover will provide various direct marketing services to The Austad
Company pursuant to a cost sharing and reimbursement agreement.
The Austad Company paid the $1.2 million promissory note due to the
former shareholders of The Austad Company (see note 2 above).
F-24
<PAGE> 29
Item 7 (b)
HANOVER DIRECT, INC.
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
F-25
<PAGE> 30
HANOVER DIRECT, INC.
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following represents the consolidated condensed balance sheet of Hanover at
April 1, 1995 and the consolidated condensed statements of operations of Hanover
for the year ended December 31, 1994 and for the 13 weeks ended April 1, 1995 as
adjusted to reflect the pro forma impact of the acquisition of The Austad
Company which was consummated on May 25, 1995.
The adjustments to the consolidated condensed statement of operations for the
year ended December 31, 1994 and the 13 weeks ended April 1, 1995 reflect the
impact of the acquisition of The Austad Company as if the transaction occurred
at the beginning of the respective periods.
The adjustments to the consolidated condensed balance sheet as of April 1, 1995
reflect the impact of the acquisition of The Austad Company as if the
transaction occurred on April 1, 1995.
The Pro Forma Unaudited Consolidated Condensed Financial Statements include the
historical unaudited financial statements of Hanover and The Austad Company
which have been adjusted for transactions and changes that will occur in
connection with the acquisition and to reflect entries, based on estimated
amounts, that are to be made in accordance with the purchase method of
accounting. The pro forma information is not necessarily indicative of the
results that would have occurred or that may be achieved in the future.
The Pro Forma Unaudited Consolidated Condensed Financial Statements should be
read in connection with the historical financial statements of The Austad
Company described in Item 7(a) and filed as part of this Current Report.
F-26
<PAGE> 31
HANOVER DIRECT, INC.
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Hanover The Austad
ASSETS Direct, Inc. Company
April 1, 1995 March 31, 1995 Adjustments As adjusted
------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,215 $ 128 - $ 1,343
Accounts receivable, net 20,835 893 - 21,728
Inventories 88,283 10,065 $ (500)(a) 97,848
Deferred catalog costs 36,824 1,066 - 37,890
Other current assets 6,529 45 (n) 6,574
--------- -------- ------- ---------
Total current assets 153,686 12,197 (500) 165,383
Property and equipment, net 50,656 3,538 196 (b) 54,390
Intangible assets, net 63,929 39 2,976 (c) 66,944
--------- -------- ------- ---------
Total assets $ 268,271 $ 15,774 $ 2,672 $ 286,717
========= ======== ======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes and dividends payable - - $ 1,800 (d) -
(1,800)(e)
Short-term debt - $ 5,830 (1,432)(g) $ 4,398
Long-term debt, current portion $ 814 346 - 1,160
Accounts payable 83,552 4,162 - 87,714
Customer returns and accrued expenses 25,463 1,561 1,000 (h) 28,024
--------- -------- ------- ---------
109,829 11,899 (432) 121,296
Long-term debt 45,863 2,124 4,400 (k) 51,987
(400)(f)
2,200 (i)
(2,200)(j)
Capital lease obligations 1,031 855 - 1,886
Other 1,065 - - (l) 1,065
Notes payable to shareholders - 768 (768)(e) -
Shareholders' equity
Common stock 62,033 29 (29)(m) 62,033
Series A preferred stock 1,615 1,142 (1,142)(m) 1,615
Series B preferred stock 5,500 550 (550)(m) 5,500
Series C preferred stock - 1 (1)(m) -
Additional paid in capital 253,348 4 (4)(m) 253,348
Retained earnings (206,050) (1,598) 1,598 (m) (206,050)
--------- -------- ------- ---------
116,446 128 (128) 116,446
Other equity (5,963) - - (5,963)
--------- -------- ------- ---------
110,483 128 (128) 110,483
--------- -------- ------- ---------
-
Total liabilities and
shareholders' equity $ 268,271 $ 15,774 $ 2,672 $ 286,717
========= ======== ======= =========
</TABLE>
(a) Represents increase in inventory reserve from $700 to $1,200 to
reflect revised Hanover product strategies.
(b) Represents adjustment to reflect estimated fair value of Austad's
property and equipment.
(c) Represents excess of purchase price over net tangible assets
acquired. Primarily represents customer list, trade name and
goodwill.
(d) Represents conversion of Austad's minority shareholders's equity to
notes payable by Austad and declaration of a dividend prior to the
transaction with Hanover.
(e) Represents payment of notes payable to minority
shareholders and payment of dividend.
(f) Represents payment of $400 on the first mortgage on Austad office
and warehouse.
(g) Represents remaining proceeds from loan from Hanover used to
reduce outstanding short-term debt after payment of notes and
dividends payable and $400 mortgage.
(h) Represents accruals for transaction and transition costs.
(i) Represents $2,200 loan to Austad from Hanover.
(j) Represents $2,200 loan to Austad from Hanover eliminated in
consolidation.
(k) Represents Hanover borrowings for investment in and loan to Austad.
(l) 32.5% minority interest shown as zero due to Austad's negative
equity.
(m) Represents elimination of Austad opening equity balances.
(n) The deferred tax asset relating to Austad's net
operating loss carryforwards is fully reserved.
F-27
<PAGE> 32
HANOVER DIRECT, INC.
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(Unaudited)
Dollar amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
Hanover The Austad
Direct, Inc. Company Adjustments As adjusted
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 768,884 $ 39,198 $ 808,082
Cost of sales 486,477 24,689 $ (76)(c) 514,897
3,807 (b)
------------ ---------- ----------- -----------
Gross profit 282,407 14,509 (3,731) 293,185
Selling, general and administrative
expenses 266,432 15,180 148 (a) 277,953
(3,807)(b)
------------ ---------- ----------- -----------
Operating income (loss) 15,975 (671) (72) 15,232
Other expense
Interest 2,813 1,109 240 (d) 4,162
Other, net 1,833 7 0 (e) 1,840
------------ ---------- ----------- -----------
Income (loss) before taxes 11,329 (1,787) (312) 9,230
Income tax benefit 3,509 0 0 3,509
------------ ---------- ----------- -----------
Net income 14,838 (1,787) (312) 12,739
Preferred stock dividends 135 135
------------ ---------- ----------- -----------
Net loss applicable to common $ 14,703 $ (1,787) $ (312) $ 12,604
============ ========== =========== ===========
EPS applicable to common $ 0.16 $ 0.14
Average shares outstanding 93,285,190 93,285,190
</TABLE>
(a) Reflects the revised depreciation of property and equipment and
amortization of goodwill and intangible assets.
(b) Reflects the reclassification of certain Austad expenses to conform to
Hanover's method of presentation.
(c) Reflects the cost savings to Austad from the reduced telecommunication
rate under Hanover's contract.
(d) Reflects increased interest expense from the $4,400 of incremental
Hanover borrowings, partially offset by reduced interest expense from the
reduction of Austad's short term borrowings.
(e) Due to the debit balance in the minority interest account, there is no
minority interest impact on the statement of operations.
F-28
<PAGE> 33
HANOVER DIRECT, INC.
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 1, 1995
(unaudited)
Dollar amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
Hanover The Austad
Direct, Inc. Company Adjustments As adjusted
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 176,592 $ 9,163 $ 185,755
Cost of sales 113,687 5,831 $ (19)(c) 120,451
952 (b)
------------ ---------- ----------- -----------
Gross profit 62,905 3,332 (933) 65,304
Selling, general and administrative
expenses 67,052 3,405 37 (a) 69,542
(952)(b)
------------ ---------- ----------- -----------
Operating loss (4,147) (73) (18) (4,238)
Other income (expense)
Interest 666 260 29 (d) 955
------------ ---------- ----------- -----------
Loss before taxes (4,813) (333) (47)(e) (5,193)
Income tax provision 90 90
------------ ---------- ----------- -----------
Net loss (4,903) (333) (47)(e) (5,283)
Preferred stock dividends 45 45
------------ ---------- ----------- -----------
Net loss applicable to common stock $ (4,948) $ (333) $ (47) $ (5,328)
============ ========== =========== ===========
EPS applicable to common stock $ (0.05) $ (0.06)
Average shares outstanding 92,790,015 92,790,015
</TABLE>
(a) Reflects the revised depreciation of property and equipment and
amortization of goodwill and intangible assets.
(b) Reflects the reclassification of certain Austad expenses to conform to
Hanover's method of presentation.
(c) Reflects the cost savings to Austad from the reduced telecommunication
rate under Hanover's contract.
(d) Reflects increased interest expense from the $4,400 of incremental
Hanover borrowings, partially offset by reduced interest expense from the
reduction of Austad's short term borrowings.
(e) Due to the debit balance in the minority interest account, there is no
minority interest impact on the statement of operations.
F-29
<PAGE> 34
SIGNATURES
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.
HANOVER DIRECT, INC.
---------------------------------
(Registrant)
June 9, 1995 /s/ Wayne P. Garten
---------------------------------
Name: Wayne P. Garten
Title: Executive Vice President &
Chief Financial Officer
-5-
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description of Exhibit Number
------- ---------------------- ------
<S> <C> <C>
(1) Stock Purchase Agreement, dated as of May 19, 1995, among The
Austad Company, Hanover Direct, Inc., David Austad, individually
and as custodian, Denise Austad, Austad Holdings, Inc. and certain
former stockholders of The Austad Company.
6
</TABLE>
<PAGE> 1
EXHIBIT (1)
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of May 19, 1995 (this "Agreement"),
by and among The Austad Company, a South Dakota corporation ("Austad"); Hanover
Direct, Inc., a Delaware corporation (the "Buyer"); David Austad, President and
a majority shareholder of Austad, individually and as custodian for other
individuals as set forth on the signatory pages hereof; Denise Austad, also a
shareholder of Austad (together with David Austad, both in his individual and
custodial capacities, the "David Austad Group"); Austad Holdings, Inc., a
Delaware corporation (the "Company") formed by Austad; and certain other
individuals who are either signatories hereto or whose custodian is executing on
their behalf (the "Former Stockholders," and together with the members of the
David Austad Group, the "Individuals").
W I T N E S S E T H:
WHEREAS, Austad engages in the direct marketing of golf equipment,
supplies, apparel and related goods and services through its Austad's catalog,
and operates four retail stores offering the same or similar goods and services
(the "Stores");
WHEREAS, pursuant to that certain stock redemption agreement dated
April 29, 1995 to which the Former Stockholders and Austad are parties (the
"Stock Redemption Agreement") Austad has redeemed all the shares of the capital
stock of Austad owned by the Former Stockholders (such transactions being
hereinafter referred to collectively as the "Redemption"), in exchange for
certain promissory notes of Austad which are currently outstanding (the
"Redemption Notes");
WHEREAS, the members of the David Austad Group are the owners, in the
aggregate, of all the outstanding shares of the capital stock of Austad;
WHEREAS, the Company desires to purchase from the members of the David
Austad Group all the outstanding shares of capital stock of Austad and in
exchange therefor to issue and sell to the members of the David Austad Group, in
the aggregate, 32,500 shares of the Common Stock of the Company, $1.00 par value
(the "Common Stock"), which will represent, in the aggregate, 32.5% of the
issued and outstanding shares of the Common Stock (collectively, the "David
Austad Group Shares"), all upon the terms and subject to the conditions set
forth in that certain stock purchase agreement to be entered into between the
Company and the members of the David Austad Group (the "David Austad Group
Acquisition");
WHEREAS, the Company desires to issue and sell to the Buyer, and the
Buyer desires to acquire from the Company, simultaneously with the David Austad
Group Acquisition, 67,500 shares of the Common Stock, which will represent 67.5%
of the issued and outstanding shares of the Common Stock (collectively, the
"Buyer Shares"), for an aggregate cash purchase price of $1,800,000, all upon
the terms and subject to the conditions set forth in this Agreement (the "Buyer
Acquisition");
<PAGE> 2
WHEREAS, upon the satisfaction of certain financial goals during the
1995 fiscal year of the Company and Austad, the Buyer has agreed to make an
additional capital contribution to the Company in an amount determined as set
forth in Section 1.04 below;
WHEREAS, upon consummation of the David Austad Group Acquisition and
the Buyer Acquisition, the Company, Austad and the Buyer or a wholly owned
subsidiary of the Buyer will enter into loan agreements substantially in the
forms set forth in Exhibits A and B, with such additions and changes as shall be
agreed upon by the parties (collectively, the "Loan Agreements"), pursuant to
which the Buyer will lend Austad the sums of (a) $2,200,000 (the "Subordinated
Term Loan"), and (b) a further $400,000 to be secured by a second mortgage (the
"Second Mortgage") on Austad's office and warehouse facility in Sioux Falls,
South Dakota (the "Second Mortgage Loan," and collectively with the Subordinated
Term Loan, the "Loans"), all pursuant to the terms and conditions thereof;
WHEREAS, upon the consummation of the David Austad Group Acquisition
and the Buyer Acquisition and the provision of the Loans pursuant to the Loan
Agreements, Austad will repay $1,500,000 of its existing indebtedness to First
National Bank of Omaha, N.A. ("FNBO") under the Revolving Loan Agreement dated
March 31, 1993 between Austad and FNBO, as amended (the "Revolving Loan
Agreement"), in consideration of the extension of the Loan Termination Date
under the Revolving Loan Agreement to a date no earlier than May 31, 1997, and
will repay $400,000 of its existing indebtedness to Valley Bank ("Valley") under
the Mortgage dated March 15, 1993 between Austad and Valley (the "Valley
Mortgage"), in consideration of Valley's release of certain personal guarantees
of David Austad and of Randall Austad, a Former Stockholder, outstanding in
favor of Valley and, if required, Valley's consent to the Second Mortgage;
WHEREAS, upon the consummation of the David Austad Group Acquisition
and the Buyer Acquisition and the provision of the Loans pursuant to the Loan
Agreements, Austad will also repay to certain Individuals notes payable in the
aggregate amount of $767.878.32 outstanding at December 31, 1994 plus accrued
interest through the Closing Date, and will pay to the respective members of the
David Austad Group outstanding cash dividends, declared but as yet unpaid, in
the aggregate amount of $600,000;
WHEREAS, upon the consummation of the David Austad Group Acquisition
and the Buyer Acquisition,
(a) the members of the David Austad Group and the Buyer will
become parties to a stockholders' agreement (the "Stockholders'
Agreement"), and David Austad and the Company will become parties to a
license agreement relating to new Stores to be developed by David
Austad (the "License Agreement");
(b) the Company and the Buyer will enter into a cost sharing
and reimbursement agreement (the "Reimbursement Agreement"), respecting
cost allocations, cost reimbursements and related issues; and
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(c) the Company and each of the Former Stockholders other than
Oscar Austad, Dorothy Austad and Randall Austad will enter into a
warrant agreement respecting those parties' rights to acquire certain
shares of the Company's Common Stock (the "Warrant Agreements");
(d) the Buyer and each of David Austad and Randall Austad will
enter into an indemnification agreement respecting certain potential
liabilities (the "Indemnification Agreements");
such agreements to be substantially in the respective forms set forth in
Exhibits C through G hereto, with such additions and changes as shall be agreed
upon by the respective parties (together with the Loan Agreements, the "Other
Agreements"; the transactions contemplated by the Other Agreements, together
with the David Austad Group Acquisition and the Buyer Acquisition, being
referred to as the "Transactions");
NOW, THEREFORE, in reliance upon the representations, warranties and
agreements made herein and in consideration of the premises and mutual promises
herein contained, the parties agree as follows:
ARTICLE I
TERMS OF THE BUYER ACQUISITION
SECTION 1.01. SALE AND PURCHASE OF THE BUYER SHARES. On
the Closing Date (as defined in Section 1.05), and simultaneously with the David
Austad Group Acquisition, the Company shall issue, sell, transfer and deliver to
the Buyer the Buyer Shares by delivering to the Buyer, against payment therefor
as provided in Section 1.02, certificates for the Buyer Shares together with
funds sufficient for the payment of all transfer taxes, if any.
SECTION 1.02. PURCHASE PRICE. The Buyer Shares shall be
sold by the Company and shall be purchased by the Buyer for an aggregate
purchase price of $1,800,000 (the "Purchase Price"). The Purchase Price shall be
paid to the Company against delivery of the certificates representing the Buyer
Shares as provided in Section 1.01, on the Closing Date, by wire transfer of
immediately available funds to an account designated by the Company at least two
business days before the Closing Date.
SECTION 1.03. CERTAIN EXPENSES. At the Closing (as
defined in Section 1.05), the Company may pay up to 75% of the balance of the
fee payable to Mesirow Financial, Inc. ("Mesirow") pursuant to a certain
investment banking agreement among Austad, the Individuals and Mesirow, but not
more than $56,250. Except as otherwise set forth below, neither Austad nor the
Company, however, shall pay or be liable for or be required to pay any of the
following liabilities, fees or expenses related to the Transactions, all of
which shall be borne and paid for by the Individuals:
(a) fees and expenses, if any, of Mesirow in excess of such
amount, or of any person or entity other than Mesirow retained by the
Company, Austad
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and/or any Individual for financial services or services as a finder
rendered to any such party in connection with the Transactions;
(b) professional fees of counsel and any accountant or auditor
for the Company, Austad or any of the Individuals for services rendered
to any of such parties, or out-of-pocket disbursements and other
expenses of any of such parties or professionals, any of their counsel
or accountants, incurred in connection with the Transactions, including
the expenses of the Company or Austad in connection with the
preparation of the Balance Sheet; provided, that the Company shall be
responsible for 80% of the professional fees payable to Lynn, Jackson,
Shultz & Lebrun, P.C. and to Coopers & Lybrand, L.L.P. (the "Auditors")
related to the Transactions and the Individuals shall pay the remaining
20% of such fees, such fees being estimated by the parties not to
exceed $85,000 in the aggregate;
(c) documentary stamp taxes or other similar charges, taxes or
expenses incurred by the Company in connection with the transfer of the
Buyer Shares to the Buyer;
(d) any income, capital gains or other taxes incurred by the
Company, Austad, any Individual, or any other person or entity as a
result of the Redemption or the Transactions; and
(e) any taxes of the Company or Austad not reflected in the
Balance Sheet, other than taxes incurred in the ordinary course of
business since the date of the Balance Sheet.
SECTION 1.04. ADDITIONAL CAPITAL CONTRIBUTION. Provided
certain financial targets are met during the 1995 fiscal year of the Company and
Austad, as set forth below, the Buyer agrees to make an additional capital
contribution (the "Additional Capital Contribution"), the amount (if any) to be
determined as follows:
(a) If 1995 EBIT (as defined in Section 1.04(c) below) shall be
at least equal to $1,200,000 but less than $1,500,000, the Additional
Capital Contribution shall be $700,000;
(b) If 1995 EBIT shall be at least equal to $1,500,000 but less
than $1,800,000, the Additional Capital Contribution shall be
$1,400,000; and
(c) If 1995 EBIT shall equal or exceed $1,800,000, the
Additional Capital Contribution shall be $2,200,000.
(d) For purposes of this Agreement, "1995 EBIT" shall mean the
pro forma earnings before interest and income taxes of the Company and
its subsidiaries for the twelve months ending on or about December 31,
1995, all in accordance with generally accepted accounting principles
consistently applied throughout the periods covered ("GAAP"), but
adjusted to exclude (i) any decrease in expenses for such period
(compared with Austad's projected 1995 Business Plan, a copy of which
is attached hereto as Exhibit H (the "Business Plan")) resulting from
the activities of the Buyer and its subsidiaries during such
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period on behalf of the Company and its subsidiaries, (ii) any
expenses, profits or losses incurred by the Company or its subsidiaries
in connection with the proposed opening in Fall 1995 of a new Austad's
retail store and (iii) subject to the Buyer's reasonable review and
approval, any costs incurred by the Company or Austad in connection
with the Transactions and not payable by the Individuals pursuant to
Section 1.03 above.
(e) The Additional Capital Contribution, if any, shall be paid
on or before April 30, 1996 (the "Payment Date"). At the Buyer's
option, payment shall be either in cash or as an offset against any
amount owed by Austad to the Buyer or any subsidiary of the Buyer and
outstanding on the Payment Date. The parties agree that the making of
the Additional Capital Contribution, if any, by the Buyer shall not
change the relative share ownership of the Buyer and the members of the
David Austad Group.
SECTION 1.05. THE CLOSING. The closing of the Transactions (the
"Closing") shall be held at the offices of Lynn, Jackson, Shultz & Lebrun, P.C.,
141 North Main Avenue, Sioux Falls, South Dakota or at such other place or
places as the parties may agree upon, at 10:00 A.M., local time, on May 19,
1995, or such other time and date as may be mutually approved by the parties in
writing, but not later than May 31, 1995 (the "Closing Date"). At the Closing,
(a) the appropriate parties will execute and deliver the Other
Agreements, and will deliver the instruments and documents required
hereby and thereby;
(b) the Company will purchase from the members of the David
Austad Group all the outstanding shares of capital stock of Austad and
in exchange therefor will issue and sell the David Austad Group Shares
to the respective members of such Group;
(c) the Buyer will purchase the Buyer Shares pursuant to this
Agreement and make or cause a subsidiary to make the Loans pursuant to
the Loan Agreements;
(d) Austad will make a payment of $1,500,000 to FNBO, in
reduction of principal and accrued interest as agreed upon between
Austad and FNBO, in consideration of which payment FNBO will execute
and deliver an agreement extending the Loan Termination Date applicable
under the Revolving Loan Agreement to a date not earlier than May 31,
1997 (the "FNBO Extension");
(e) Austad will make a payment of $400,000 to Valley, in
reduction of principal and accrued interest on the Valley Mortgage as
agreed upon between Austad and Valley, in consideration of which
payment Valley will execute and deliver a release and discharge of each
of the outstanding personal guarantees of David Austad and Randall
Austad in favor of Valley (the "Valley Releases"), and Austad will
execute and deliver the Second Mortgage to Buyer or its subsidiary;
(f) Austad will repay to certain Individuals notes payable
outstanding at December 31, 1994 in the aggregate amount of $767,878.32
plus accrued interest through the Closing Date, as set forth in
Schedule 1.05;
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(g) Austad will pay to the members of the David Austad Group
outstanding cash dividends in the aggregate amount of $600,000 declared
on April 28, 1995, as set forth in Schedule 1.05; and
(h) Austad will pay to the Former Stockholders the amount of
their Redemption Notes outstanding pursuant to the Redemption
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY, AUSTAD AND THE INDIVIDUALS
The Company, Austad, the members of the David Austad Group and
the Former Stockholders represent and warrant, jointly and severally (but Denise
Austad and the Former Stockholders only to the best of their knowledge), that:
SECTION 2.01. THE COMPANY AND AUSTAD--ORGANIZATION AND
AUTHORITY. The Company and Austad are corporations duly organized and
validly existing and in good standing under the laws of the States of Delaware
and South Dakota, respectively. Set forth in Schedule 2.01 is a list of
jurisdictions in which each of the Company and Austad is qualified to do
business. Except as set forth in Schedule 2.01, each of the Company and Austad
is duly qualified and in good standing in each jurisdiction in which (i) the
nature of the business conducted by it or the character or location of the
properties owned or leased by it makes such qualification necessary and (ii)
failure so to qualify would, if not remedied, materially impair title to its
properties or its rights to enforce contracts against others or expose it to
substantial liability in such jurisdictions. Each of the Company and Austad has
all necessary corporate power and authority to own all of its properties and
assets and to carry on its businesses as now conducted.
SECTION 2.02. COMPANY AND AUSTAD CAPITALIZATION. The
Company has an authorized capital of 200,000 shares of Common Stock, $1.00 par
value, of which no shares are issued and outstanding, and no shares are held in
the treasury of the Company. Austad has an authorized capital of 500,000 shares
of capital stock, $1.00 par value, of which 14,569 shares are issued and
outstanding, all of which are owned by the members of the David Austad Group,
and 30,248 shares are held in the treasury of Austad, in consequence of the
Redemption, it being Austad's intent that such treasury shares will be cancelled
on or about the Closing Date. Upon issuance and payment therefor in accordance
with this Agreement, each of the Buyer Shares and the David Austad Group Shares
will be duly authorized and validly issued, fully paid and non-assessable and
issued by the Company in compliance with all applicable Federal and state
securities laws, rules and regulations. Except for the warrants to be issued
pursuant to the Warrant Agreements, there are no outstanding options, warrants,
convertible securities or other rights to subscribe for or purchase any
securities of the Company or Austad.
SECTION 2.03. SUBSIDIARIES. There are no corporations with
respect to which the Company beneficially owns, directly or indirectly, in
excess of 50% of the outstanding stock or other equity interests, the holders of
which are entitled to vote for election of a majority of the board of directors
or other governing body (hereinafter such an entity being sometimes referred to
as a "Subsidiary"). On the Closing Date, upon consummation of the David Austad
Group Acquisition, Austad will become the Company's sole Subsidiary. Set forth
in Schedule 2.03 is a
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list (including the capitalization thereof) of each partnership and joint
venture agreement or arrangement (the "Joint Ventures") to which the Company or
Austad is a party. Also set forth in Schedule 2.03 is a list of the corporations
or entities with respect to which the Company beneficially owns, directly or
indirectly, in excess of 5% of the outstanding stock or other equity interests,
the holders of which are entitled to vote for election of a majority of the
board of directors or other governing body.
SECTION 2.04. FINANCIAL STATEMENTS; NO COMPANY ACTIVITIES OR
OPERATIONS.
(a) Austad has furnished the Buyer with copies, certified by
the chief financial officer of Austad, of the audited financial
statements of Austad for each of the two fiscal years ended December
31, 1993 and 1992, including in each case a balance sheet, the related
statements of income and of changes in financial position for the
period then ended, the accompanying notes and the reports thereon of
the Auditors, all such reports being unqualified. Austad has also
furnished the Buyer with copies, certified by the chief financial
officer of Austad, of the unaudited financial statements of Austad for
the fiscal year ended December 31, 1994, including a balance sheet, the
related statements of income and of changes in financial position for
the period then ended. The unaudited balance sheet of Austad as of
December 31, 1994, a copy of which is attached hereto as Exhibit I, is
herein referred to as the "Balance Sheet." All such financial
statements (i) are correct and complete and have been prepared in
accordance with the books and records of Austad, (ii) have been
prepared in accordance with GAAP, (iii) reflect and provide adequate
reserves in respect of all known liabilities of Austad in accordance
with GAAP, including all known contingent liabilities as of their
respective dates and (iv) present fairly the financial condition of
Austad at such dates and the results of its operations for the periods
then ended.
(b) The Company was formed on May 12, 1995 and except as
referred to in, or contemplated by, this Agreement, the Company has not
engaged in any activities or incurred any liabilities.
SECTION 2.05. REAL PROPERTY. (a) Except as identified and
described in Schedule 2.05, Austad does not own, have legal or equitable title
in, or have a leasehold interest in any real property.
(b) Austad has good and marketable title in fee simple to the
land described as owned by Austad in Part A of Schedule 2.05 (the "Owned
Realty") and to all plants, buildings and improvements thereon, free and clear
of any mortgage, lien, claim, charge, exception, imperfection of title,
easement, or encumbrance (collectively "Encumbrances"), except for those
Encumbrances (i) which are described in Part A of Schedule 2.05, (ii) which
relate to imperfections of title or easements with respect to the properties
identified in Part B of Schedule 2.05, or (iii) which, individually or in the
aggregate, are not material in character, amount or extent and do not materially
adversely affect the title to, or the present use of, the property subject
thereto or affected thereby or otherwise materially impair the business
operations of Austad. True and complete copies of (i) all mortgages, pledge
agreements and similar documents and agreements relating to the Owned Realty and
all loan agreements and other instruments of
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indebtedness secured thereby or relating thereto (collectively, the "Mortgages")
and (ii) all deeds, title policies and surveys relating to Austad's ownership of
such Owned, as the same may exist, have been delivered to the Buyer.
(c) Austad has a valid leasehold interest in the real property
described as leased by Austad in Part C of Schedule 2.05 (the "Leased Realty").
True and complete copies of all leases, agreements and instruments (the
"Leases") respecting the Leased Realty have been delivered to the Buyer.
(d) With respect to the Leases and Mortgages referred to in
Schedule 2.05, no default or event of default on the part of Austad as lessee or
mortgagor or, to the knowledge of the Individuals or any officer of Austad, no
default or event of default on the part of the lessor or mortgagee, under the
provisions of any of said Leases or Mortgages, and no event which with the
giving of notice or passage of time, or both, would constitute such default or
event of default on the part of Austad or, to the knowledge of any Individual or
any officer of Austad, on the part of any such lessor or mortgagee, has occurred
and is continuing unremedied or unwaived.
(e) The buildings and improvements owned or leased by Austad,
and the operation or maintenance thereof as now operated and maintained, do not
(i) contravene any zon-ing or building law or ordinance or administrative
regulation or (ii) violate any restrictive cov-enant or any provision of
Federal, state or local law, the effect of which materially interferes with or
prevents the continued use of such properties for the purposes for which they
are now being used, or would materially affect the value thereof. All of the
plants, buildings and structures owned or leased by Austad are in good operating
condition and in a state of reasonable maintenance and repair to the extent
necessary for the efficient operation of the business of Austad.
(f) Except as set forth in Schedule 2.05 there exists no
pending or, to the knowledge of the Individuals or any officer of Austad,
threatened condemnation, eminent domain or similar proceeding with respect to,
or which could affect, any Owned Realty, Leased Realty or buildings or
improvements thereon by the Company or Austad.
SECTION 2.06. PERSONAL PROPERTY; ACCOUNTS RECEIVABLE.
(a) Except as set forth in Schedule 2.06, Austad has good and
marketable title to all personal property reflected in the Balance Sheet and all
personal property acquired by Austad since the date of the Balance Sheet (except
such personal property as has been disposed of in the ordinary course of the
business of Austad), free and clear of any Encumbrance, except for those, if
any, which in the aggregate are not material and which do not materially affect
the continued use of such personal property or the continued operation of the
business of Austad as now conducted.
(b) Except for items disposed of in the ordinary course of
business since the date of the Balance Sheet, all machinery, tools, equipment
and other tangible assets (i) reflected in the Balance Sheet (other than
inventories), (ii) leased by Austad or (iii) acquired by Austad since the date
of the Balance Sheet, currently are used, useable by or useful to Austad in the
ordinary
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course of its business and in the manufacture of its products, and are in good
operating condition and in a state of reasonable maintenance and repair.
(c) The inventories reflected in the Balance Sheet were on the
date thereof in good condition; such inventories, and any inventories acquired
by Austad after the date of the Balance Sheet to the extent not sold or
otherwise disposed of in the ordinary course of business, are in good condition,
are used, useable by or useful to Austad in the ordinary course of its business
and in the manufacture of its products, and, except as set forth in Schedule
2.06, are not in excess of reasonable requirements for the next six months.
Except as set forth in such Schedule, no material item of inventory reflected in
the Balance Sheet was valued in excess of the lower of cost (on a first-in,
first-out basis) or market value. The finished goods produced by Austad conform
to customary trade standards for marketable goods.
(d) Except as indicated in the Balance Sheet or in Schedule
2.06, the accounts receivable reflected on the Balance Sheet, or acquired by
Austad after the date of the Balance Sheet, have been collected or are (or will
be) collectible within 120 days following the Closing Date in amounts not less
than the aggregate amount recorded on the Balance Sheet, in the case of
receivables reflected in the Balance Sheet, or not less than the aggregate
amount recorded on the books of Austad, in the case of receivables acquired
after the date of the Balance Sheet. Any payment on the accounts receivable made
by any obligor thereon shall be applied first to the accounts receivable of such
obligor outstanding for the longest period of time, unless such obligor shall
have directed that the payment be applied to a specific receivable.
SECTION 2.07. PERSONNEL; ETC. (a) Set forth in Schedule 2.07 is
a correct and complete list of:
(i) all contracts or agreements with directors, officers or
employees, or consulting agreements, to which Austad is a party or is
subject, provided that no such contracts or agreements need be listed
in Schedule 2.07 if all such contracts and agreements, in the
aggregate, involve a sum not in excess of $2,000; and provided further,
that oral agreements entered into in the ordinary course of Austad's
business with employees respecting their employment by Austad on an
at-will basis at an annual salary of less than $30,000 need not be
listed;
(ii) all group insurance programs in effect for employees of
Austad;
(iii) the officers of Austad specifying their respective
office;
(iv) the directors of Austad;
(v) the name of each bank with which the Company or Austad has
an account or safe deposit box, the identifying numbers or symbols
thereof and the name of each person authorized to draw thereon or to
have access thereto; and
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(vi) the name of each person, if any, holding tax or other
powers of attorney from the Company or Austad and a summary statement
of the terms thereof.
(b) Austad is not in default under any agreement or contract
listed in Schedule 2.07, and all such agreements and contracts are legally valid
and binding on Austad and are in full force and effect.
(c) A list of (i) all employees and consultants of Austad,
including the title or job classification of each such person, and (ii) the
names, positions and current salary rates of the 25 highest-paid employees of
Austad has been provided to the Buyer.
SECTION 2.08. ERISA.
(a) Set forth in Schedule 2.08 is a correct and complete list
of each employee benefit plan within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended and the rules and regulations
issued thereunder (collectively "ERISA") and other profit-sharing, deferred
compensation, bonus, stock option, stock purchase and employee benefit plans or
arrangements maintained or contributed to by or on behalf of Austad with respect
to employees of Austad at any time on or after September 2, 1974, or to which
Austad contributes or is required to contribute for its employees (collectively,
the "Plans"). Each Plan (a "Tax-Qualified Plan") intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") is
identified as a Tax-Qualified Plan in such Schedule 2.08 and is so qualified.
(b) Austad has heretofore delivered to the Buyer true and
correct copies of the following:
(i) each Plan listed in Schedule 2.08 and all amendments
thereto to the date hereof;
(ii) each trust agreement and annuity contract (or any other
funding instruments) pertaining to any Plan, including all amendments
to such documents to the date hereof;
(iii) the most recent determination letter issued by the
Internal Revenue Service (the "IRS") with respect to each of the
Tax-Qualified Plans;
(iv) the three most recent actuarial valuation reports for
each Plan for which an actuarial valuation report is required to be
prepared; and
(v) the two most recent Annual Reports (IRS Forms 5500 series),
including Schedules A and B and plan audits, if applicable, required to
be filed with respect to each Plan.
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(c) Each Plan is legally valid and binding and, except for
Plans listed in Schedule 2.08 as having been terminated, shall be maintained in
full force and effect through the Closing Date. The status of each Plan is set
forth in Schedule 2.08, including (i) the amount of Austad's contribution to
such Plan for each of the past three fiscal years and the plan year in which the
Closing Date occurs, (ii) the amount of any liability of Austad for payments or
contributions past due with respect to such Plan as of the last day of its most
recent plan year and as of the end of any subsequent month ending prior to the
Closing Date, and the date any such amounts were paid, (iii) any contribution to
such Plan in a form other than in cash and (iv) whether such Plan has been
terminated. Except as set forth in Schedule 2.08, neither the Company nor Austad
has any obligations or liabilities with respect to any Plan or liabilities
relating to any Plan under any collective bargaining agreement to which it is a
party or by which it is bound.
(d) Each Tax-Qualified Plan and any related trust agreements or
annuity contracts (and any other funding instruments) currently comply, and have
complied in the past, both as to form and operation, including compliance with
all reporting and disclosure requirements, with the provisions of ERISA and the
Code, as well as the provisions of any applicable collective bargaining
agreement. The IRS has issued a favorable determination letter with respect to
the qualification under Sections 401(a) and 501(a) of the Code of each
Tax-Qualified Plan and related trust, if any, and has not taken any action to
revoke such letters. In addition, all necessary governmental approvals for the
Tax-Qualified Plans have been obtained.
(e) With respect to each Tax-Qualified Plan that is subject to
Title I, Subtitle B, Part 3 of ERISA (a "Pension Plan"), Schedule 2.08 sets
forth as of the last day of the plan year (i) the actuarial present value (based
upon the same actuarial assumptions as those heretofore used for funding
purposes) of all vested and nonvested accrued benefits (whether on account of
retirement, termination, death, or disability) under such Pension Plan (computed
on the basis of an ongoing plan and without any assumption that nonvested
accrued benefits have become nonforfeitable), (ii) if such Pension Plan uses a
benefit accrual formula having reference to final earnings, the actuarial
present value of the benefits under such Pension Plan as calculated in (i), but
based upon projected earnings increases of five percent per annum, (iii) the
actuarial present value (based upon the same actuarial assumptions, other than
turnover assumptions, as those heretofore used for funding purposes) of vested
benefits under such Pension Plan (computed on the basis of an ongoing plan),
(iv) the net fair market value of the assets held to fund such Pension Plan and
(v) the funding method used in connection with such Pension Plan.
(f) With respect to all Pension Plans, except as set forth in
Schedule 2.08, (i) Austad has paid all premiums (and interest charges and
penalties for late payment, if applicable) due the Pension Benefit Guaranty
Corporation ("PBGC") with respect to each plan year thereof for which such
premiums are required; (ii) on and after September 2, 1974, there has been no
"reportable event" (as defined in Section 4043(b) of ERISA and the regulations
of the PBGC under that Section) subject to Title IV of ERISA; (iii) no liability
to the PBGC has been incurred by the Company, Austad or any corporation or other
trade or business under common control with the Company or Austad (as determined
under Section 414(b) and (c) of the Code) ("Common Control Entity") on account
of any termination subject to Title IV of ERISA; (iv) on and after September 2,
1974, no filing has been made by the Company or Austad or any Common Control
Entity with the PBGC, and no proceeding has been commenced by the PBGC, to
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termination any Pension Plan subject to Title IV of ERISA maintained, or wholly
or partially funded, by the Company or Austad or any Common Control Entity; (v)
neither the Company nor Austad nor any Common Control Entity has (A) ceased
operations at a facility so as to become subject to the provisions of Section
4062(f) of ERISA, (B) withdrawn as a substantial employer so as to become
subject to the provisions of Section 4063 of ERISA, (C) ceased making
contributions on or before the Closing Date so as to become subject to Section
4064(a) of ERISA to which the Company or Austad or any Common Control Entity
made contributions during the five years prior to the Closing Date, or (D) made
a complete or partial withdrawal from a "Multiemployer Plan" (as defined in
Section 3(37) of ERISA) so as to incur withdrawal liability as defined in
Section 4201 of ERISA (without regard to a subsequent reduction or waiver of
such liability under Sections 4207 or 4208 of ERISA); and (vi) future compliance
with the requirements of ERISA as in effect on the Closing Date or any
collective bargaining agreements to which the Company or Austad is a party will
not result in any increase in the rate of benefit accrual.
(g) In addition, with respect to all Plans, except as set forth
in Schedule 2.08, (i) other than routine claims for benefits, there are no
material actions, suits or claims pending or threatened against any Plan or the
fiduciaries thereof, or against the assets of any Plan and (ii) on and after
January 1, 1975, neither the Company nor Austad nor, to the knowledge of the
Individuals, any plan fiduciary of any Plan has engaged in any prohibited
transaction within the meaning of Title I of ERISA or Section 4975 of the Code
and no imposition of excise tax penalties has occurred with respect thereto.
SECTION 2.09. COMPLIANCE WITH LAW; PERMITS.
(a) Except as set forth in Schedule 2.09, the Company and
Austad have complied with all applicable statutes, regulations, orders and
restrictions of the United States of America, all states, possessions and
municipalities thereof, and all agencies and instrumentalities of the foregoing,
the failure to comply with which could result in any liability, penalty or
disability material to the conduct of the business of the Company or Austad or
the ownership or operation by Austad of its properties.
(b) Except as set forth in Schedule 2.09, the operations,
practices, policies and procedures of the Company, Austad and their employees
have been conducted and will be conducted in compliance with, and have not and
will not give rise to any loss, liability, damage, costs or expenses under, all
applicable Federal, state and local laws, orders, regulations, directives and
restrictions concerning protection of the environment, the disposal of
hazardous, toxic or industrial chemicals, substances or wastes and health and
safety, including the following statutes and all orders, rules, regulations,
directives and restrictions issued thereunder or promulgated in connection
therewith:
(i) the Clean Air Act, as amended;
(ii) the Federal Water Pollution Control Act, as amended;
(iii) the Resource Conservation and Recovery Act of 1976, as
amended;
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(iv) the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended;
(v) the Toxic Substances Control Act, as amended;
(vi) the Surface Mining Control and Reclamation Act of
1977, as amended;
(vii) the Mine Safety and Health Act of 1977, as amended;
(viii) the Occupational Safety and Health Act, as amended
("OSHA"); and
(ix) any applicable state or local environmental statutes,
including, without limitation, those of the states of
Illinois, Minnesota and South Dakota.
(c) Except as set forth in Schedule 2.09, Austad has all
permits, licenses, authorizations and bonds necessary to the conduct of its
business operations as presently conducted (collectively, the "Permits"). All
such Permits are listed in Schedule 2.09 and, except as noted in Schedule 2.09,
are currently valid and in full force and effect, and there are no material
violations or breaches of or exceptions to any such Permits.
(d) Except as set forth in Schedule 2.09, there are, under
applicable Federal, state and local laws, orders, regulations, directives and
restrictions concerning protection of the environment and health and safety, no
outstanding notices of violations or consent orders to which the Company or
Austad, or any of its or their properties, are subject or may become subject.
Austad has set aside adequate capital reserves to fund all pending and
threatened notices of violations, all as reflected on the Balance Sheet.
(e) Austad has furnished the Buyer with (i) copies of all
reports or other documents in Austad's files concerning Austad or its employees
made by Austad during the past five years (A) pursuant to Title VII of the Civil
Rights Act of 1964, as amended, (B) pursuant to OSHA, (C) pursuant to workers'
compensation statutes, and (D) pursuant to the National Labor Relations Act, as
amended, and copies or complete and accurate summaries of all notices, orders or
other documents or correspondence notifying or indicating to Austad that any of
its buildings or improvements or the operation or maintenance thereof as now
maintained and operated contravene any zoning or building law or ordinance or
other administrative regulation or violate any restrictive covenant or any
provision of Federal, state or local law.
SECTION 2.10. LITIGATION.
(a) Except as set forth in Schedule 2.10 there is no (i)
action, suit, claim, proceeding or investigation pending or, to the knowledge of
the Individuals or any Austad officer, threatened against or affecting the
Company or Austad or its or their assets or properties, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
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commission, board, bureau, agency or instrumentality, domestic or foreign which
is individually for an amount in excess of $1,000, (ii) arbitration proceedings
relating to the Company or Austad or their respective assets or properties or
(iii) governmental inquiries pending or, to the knowledge of the Individuals or
any Austad officer, threatened relating to or involving the Company, Austad,
their respective assets, the properties or business of Austad, or the
Transactions (including inquiries as to the qualification of the Company or
Austad to hold or receive any Permit).
(b) Except as set forth in Schedule 2.10, neither the Company
nor Austad has received any opinion or memorandum or legal advice or notice from
legal counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to its business. Neither the
Company nor Austad is in default with respect to any order, writ, injunction or
decree known to or served upon the Company or Austad of any court or of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign. There is no pending
action or suit brought by the Company or Austad against others. Neither the
Individuals nor any Austad officer knows of any violation of the Federal or
state antitrust laws by the Company or Austad; there has not been any claim
received by the Company or Austad of violation of the Federal or state antitrust
laws by the Company or Austad, and, so far as is known to the Individuals or any
Austad officer, no basis for any such claim exists.
SECTION 2.11. INTELLECTUAL PROPERTY. Set forth in
Schedule 2.11 is a list and brief description or identification of (i) all
patents, patent rights, patent applications, trademarks, trademark applications,
trade names and copyrights licensed to, applied for, used by, owned by, or
registered in the name of, the Company or Austad, or in which the Company or
Austad has any rights, and (ii) all manufacturing methods or processes, designs,
technical data, product development data, research data, know-how, secret
processes, market reports, consumer investigations, product surveys,
distribution methods and customer lists and trade secrets, computer and
electronic data processing programs and software processes and other proprietary
and intellectual property, rights and interests that Austad uses and believes
are not within the general knowledge of the industry and in each case a brief
description of the nature of such rights (the assets described in clauses (i)
and (ii), collectively, hereinafter are referred to as "Intellectual Property").
Except as set forth in Schedule 2.11, Austad is not a licensor in respect of any
Intellectual Property. Austad owns or possesses adequate licenses or other
rights to use all Intellectual Property necessary to permit Austad to conduct
its business as now operated. No claim is pending or, to the knowledge of any
Individual or any officer of Austad, threatened to the effect that the present
or past operations of Austad infringe upon or conflict with the asserted rights
of any other person in respect of any Intellectual Property, and except only as
set forth in Schedule 2.11 no claim is pending or threatened to the effect that
any of such Intellectual Property is invalid or unenforceable. No contract,
agreement or understanding with any party exists which would impede or prevent
the continued use by Austad of the entire right, title and interest of Austad in
and to the Intellectual Property.
SECTION 2.12. MATERIAL CONTRACTS. Austad has delivered
to the Buyer true copies of all written contracts, obligations and commitments
of the Company and Austad now in effect to which the Company or Austad is a
party or by which it or its property may be bound,
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under which the total obligation of the Company or Austad is in excess of $5,000
(other than purchase orders by Austad which have been entered into in the
ordinary course of business), all of which are described or otherwise referred
to in Schedule 2.12 (the "Material Contracts"). No default, alleged default or
anticipatory breach exists on the part of the Company or Austad or, to the
knowledge of the Individuals or any Austad officer, on the part of any other
party, under any Material Contract, and there are no material agreements of the
parties relating to such Material Contracts which have not been disclosed to the
Buyer. Neither the Company nor Austad is a party to any written or oral contract
which could materially adversely affect the business of the Company or Austad.
Except as set forth in Schedule 2.12, neither the Company nor Austad is a party
to any written or oral:
(a) contract not made in the ordinary course of business, other
than this Agreement and the Other Agreements;
(b) employment or consulting contract which is not terminable
without cost or other liability to the Company, Austad or any successor
thereof, upon notice of 30 days or less, other than those listed in
Schedule 2.07;
(c) contract or collective bargaining agreement with any labor
union other than those listed in Schedule 2.13;
(d) bonus, pension, profit-sharing, retirement, stock purchase,
stock option, incentive compensation, hospitalization, insurance or
similar plan, contract or understanding providing for employee benefits
other than those listed in Schedule 2.08;
(e) lease with respect to any property, real or personal,
whether as lessor or lessee other than those listed in Schedule 2.05 or
2.06;
(f) contract for the purchase of real property, equipment or
fixed assets which involve in the aggregate more than $5,000;
(g) contract for the future purchase of materials, supplies or
inventory (i) which is in excess of the requirements of the business of
Austad now booked or the requirements of Austad for its normal
operating inventories, or (ii) which is not terminable without cost or
liability to the Company or Austad, or any successor thereof, upon
notice of 30 days or less except for those purchase orders described in
Schedule 2.12;
(h) contract for the sale of goods (i) involving more than
$5,000 or (ii) which is not terminable without cost or liability to the
Company or Austad, or any successor thereof, upon notice of 30 days or
less;
(i) contract for the performance of services for or by the
Company or Austad which is not terminable without cost or liability to
the Company or Austad, or any successor thereof, upon notice of 30 days
or less;
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(j) insurance contract other than those listed in Schedule
2.17;
(k) contract continuing for a period of more than three months
from its date, which is not terminable by the Company or Austad without
cost or liability to the Company or Austad, or any successor thereof,
upon notice of 30 days or less;
(l) manufacturers' representative, sales agency, dealer or
advertising contract which is not terminable on notice without cost or
other liability to the Company or Austad;
(m) agreement or indenture for the borrowing or lending of
money;
(n) agreement or indenture for the mortgaging or pledging of,
or otherwise placing a lien or security interest on, any assets of the
Company or Austad;
(o) option, warrant or other contract for the issuance of any
debt or equity security, or the conversion of any obligation,
instrument or security, into debt or equity securities of the Company
or Austad other than those contemplated in connection with the
Transactions;
(p) guaranty of any obligation for borrowed money or otherwise,
excluding endorsements made for collection;
(q) settlement agreement of any administrative or judicial
proceedings within the past five years; or
(r) agreement under which the Company or Austad has advanced or
agreed to advance moneys in excess of $500 to any one individual or
$1,000 in the aggregate.
SECTION 2.13. LABOR AND EMPLOYMENT MATTERS. Except as
disclosed in Schedule 2.13, neither the Company nor Austad is a party to any
collective bargaining agreement with any labor organization. There is not
pending, or to the knowledge of the Company or Austad threatened, any labor
dispute, strike or work stoppage involving the employees of Austad. Except as
indicated in Schedule 2.13, none of the key employees of Austad has terminated
or indicated an intention or plan to terminate his or her employment with Austad
or had such employment terminated.
SECTION 2.14. CONDUCT OF BUSINESS. Except as set forth in
Schedule 2.14, since the date of the Balance Sheet, the Company has not
conducted any business, and Austad has conducted its business in the ordinary
course, has maintained its assets and property in at least such order and
condition as is necessary to continue so to conduct its business, and neither
the Company nor Austad has:
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(a) incurred any material obligation or liability (absolute,
accrued, contingent or otherwise), except in connection with the
Transactions or the Redemption or, in the case of Austad, in the
ordinary course of Austad's business;
(b) discharged or satisfied any lien or encumbrance, or paid or
satisfied any obligation or liability (absolute, accrued, contingent or
otherwise) except, in the case of Austad, for (i) liabilities shown or
reflected on the Balance Sheet or (ii) liabilities incurred since the
date of the Balance Sheet in the ordinary course of business;
(c) increased or established any reserve for taxes or other
liability on its books or otherwise provided therefor, except as may
have been required in accordance with GAAP due to the operations or
income of Austad since the date of the Balance Sheet;
(d) mortgaged, pledged or subjected to any lien, charge or
other encumbrance any of the assets, properties or business of the
Company or Austad;
(e) sold, assigned or transferred any asset, property or
business or cancelled any debt or claim or waived any right, except, in
the case of Austad, in the ordinary course of Austad's business, and
except for that Owned Realty located at 208 N. Sycamore Avenue, Sioux
Falls, South Dakota and identified in Part A of Schedule 2.05, such
property being sold by Austad under the terms previously disclosed to
the Buyer;
(f) sold, assigned, transferred or permitted to lapse any
rights with respect to any Intellectual Property or other intangible
asset;
(g) granted any general or uniform increase in the rates of pay
of employees of Austad or any increase in salary payable or to become
payable to any officer, employee, consultant or agent of Austad, or
changed or increased the compensation payable to any officer, employee,
consultant or agent of Austad for any period before or after the date
of the Balance Sheet, or by means of any bonus or pension plan,
contract or other commitment increased the compensation of any officer,
employee, consultant or agent of Austad, or, in the case of the
Company, engaged any employee, consultant or agent except in connection
with the Transactions;
(h) made or authorized any capital expenditures for additions
to the plant or equipment of Austad in excess of $5,000 in the
aggregate except as may have been involved in connection with ordinary
repair, maintenance and replacement and minor plant equipment
additions;
(i) made any loan or payment to any stockholder, or declared,
set aside or paid to any stockholder any dividend or other distribution
in respect of its
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capital stock, or redeemed or purchased any of its capital stock, or
agreed to take any such action except as contemplated by the
Transactions;
(j) issued, sold or transferred, or agreed to issue, sell or
transfer, any stock, bond, debenture or other corporate security of the
Company or Austad, whether newly issued or held in treasury, except as
contemplated by the Redemption or the Transactions;
(k) except as contemplated by the Redemption or the
Transactions, entered into any material transaction, in the case of the
Company, or any material transaction other than in the ordinary course
of business of Austad, in the case of Austad;
(l) experienced damage, destruction or loss (whether or not
covered by insurance) materially and adversely affecting its
properties, assets or business, or experienced any other material
adverse change in its financial condition, assets, liabilities or
business;
(m) experienced any material change in the assets, liabilities,
business, condition (financial or otherwise) from that disclosed on the
Balance Sheet; or
(n) taken any action which would have the effect of terminating
any Permit.
SECTION 2.15. TAX MATTERS.
(a) Austad has filed all tax returns required to be filed by it
under the laws of the United States of America, the State of South Dakota and
each state or other jurisdiction in which its business activities (i) require
qualification, as specified in Schedule 2.01, or (ii) could result in the
imposition of liability for the payment of any taxes, as specified in Schedule
2.15. Austad has paid or set up an adequate reserve in respect of all taxes for
the periods covered by such returns, as well as all other taxes, assessments and
governmental charges which have become due or payable, including all taxes which
Austad is obligated to withhold from amounts owing to employees, creditors and
third parties. Such reserves include reserves for all tax liabilities of Austad
in all jurisdictions in which Austad has business activities requiring
qualification as specified in Schedule 2.01. Austad has set up as provisions for
taxes in the Balance Sheet amounts sufficient for all accrued and unpaid
Federal, foreign, state, county and local taxes of Austad, whether or not
disputed, including any interest and penalties in connection therewith, for all
fiscal periods ending on or before the date of the Balance Sheet.
(b) Austad's Federal income tax returns have never been
examined by the United States Internal Revenue Service and no such examinations
are in progress, nor has Austad been notified of an impending audit. There have
been no state tax examinations of Austad except as set forth in Schedule 2.15
and no such examinations are in progress, nor has Austad been notified of an
impending audit. Any deficiencies proposed as a result of any examination set
forth in Schedule 2.15 have been paid or finally settled and no issue has been
raised in any such
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examinations which, by application of similar principles, reasonably can be
expected to result in the assertion of a deficiency for any other year not so
examined. The results of any settlements and any necessary adjustments in taxes
resulting therefrom are either set forth in Schedule 2.15 or set forth in the
financial statements referred to in Section 2.04 above. Neither Austad nor any
Individual is aware of any fact which would constitute grounds for any further
tax liability with respect to any years. No agreements or waivers have been made
by or on behalf of Austad for the extension of time for the assessment of any
tax or for any applicable statute of limitations.
(c) Except for taxes for the payment of which an adequate
reserve has been established on the Balance Sheet, there are no tax liens,
whether imposed by any Federal, foreign, state or local taxing authority,
outstanding against any of the assets, properties or business of Austad.
For purposes of this Section 2.15, the term "Austad" shall include the Company.
SECTION 2.16. ABSENCE OF UNDISCLOSED LIABILITIES. The
Company and Austad have no indebtedness or liabilities of any character
whatsoever, whether or not accrued and whether or not fixed or contingent, which
exceed $5,000 individually or $25,000 in the aggregate, except, in the case of
Austad, for (i) liabilities reflected in the Balance Sheet, (ii) liabilities
incurred in the ordinary course of business of Austad subsequent to the date of
the Balance Sheet, none of which has been or is materially adverse to the
assets, properties or business of Austad and, in the case of Austad and the
Company, (iii) liabilities incurred in connection with performance of this
Agreement.
SECTION 2.17. INSURANCE. All policies of insurance, together
with the premiums currently paid thereon, covering the plant, machinery,
equipment and inventory used in the business of Austad, or providing for
business interruption, general liability, personal and product liability
coverage, are described in Schedule 2.17. Such policies adequately cover all
risks reasonably and prudently foreseeable in the operation and conduct of the
assets, properties, business, operations, products and services of the Company
and Austad as the same are presently owned or conducted. All such policies will
be outstanding and in full force and effect at the Closing Date, subject to the
provisions of Section 4.04 below. Except as set forth in Schedule 2.17, there
are no claims, actions, suits or proceedings arising out of or based upon any of
such policies of insurance, and, so far as is known to the Individuals or any
Austad officer, no basis for any such claim, action, suit or proceeding exists.
There are no notices of any pending or threatened terminations or substantial
premium increases with respect to any of such policies and Austad is in
compliance with all conditions contained therein.
SECTION 2.18. TRANSACTIONS WITH AFFILIATES. Except as
set forth in Schedule 2.18, there are no outstanding notes payable to or
accounts receivable from, or advances by the Company or Austad to, and the
Company and Austad are not otherwise creditors of, any officer, employee,
subsidiary or affiliate of the Company or Austad.
SECTION 2.19. SUPPLIERS. Except as set forth in
Schedule 2.19, Austad is not aware of any loss or threatened loss of any key
supplier of Austad. For purposes of this Section,
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the term "key supplier" means any supplier of Austad the loss of which might
materially adversely affect its business.
SECTION 2.20. CORPORATE NAME. Set forth in Schedule
2.20 is a correct and complete list of all locations in which the corporate name
"The Austad Company," or any variation thereof, is currently used by the Company
or Austad or any of their affiliates. Austad or one of its affiliates has the
full legal right to so use such name and variations in each of such
jurisdictions. Neither the Individuals, Austad, nor any affiliate thereof knows,
or has reason to know, of any actual or threatened claim by any third party with
respect to the use of such name or of any actual or proposed use of the name
"The Austad Company," or any variation thereof, by any third party in conflict
with the use thereof by the Company or Austad. The use by the Company and Austad
of the name "The Austad Company" and the variations thereof used by them does
not, to the knowledge of the Individuals, Austad and the Company, infringe upon
the rights of any third party, and neither the Company nor any Individual nor
any affiliate or associate of either has granted any third party any right to
use such name or any variation thereof.
SECTION 2.21. INDIVIDUALS' AUTHORITY. Each Individual
has all necessary power and, as of the Closing Date, will be duly authorized to
perform his or her obligations under this Agreement and the other documents,
agreements and certificates executed and delivered by each in connection with
the Transactions. Those Individuals signing as a custodian for any other
Individual are, as of the date hereof, duly authorized to execute this Agreement
on behalf of such other Individual and have provided to the Buyer documentation
satisfactory in form and substance evidencing such authority.
SECTION 2.22. BINDING OBLIGATION; CONSENTS. The execution and
delivery of this Agreement by the Individuals, the Company and Austad do not,
and the consummation of the Transactions will not, violate any provision of the
certificate of incorporation or by-laws of the Company or Austad or violate any
provision of, or result in a breach of any of the terms or provisions of, or
result in the acceleration of any obligation under, or constitute a default
under, any mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment or decree, to which any Individual or the Company or Austad is a
party, or to which any Individual or the Company or Austad is, or the assets,
properties or business of any Individual or the Company or Austad are, subject.
Each of this Agreement and the respective Warrant Agreement is a valid and
binding agreement of the Individuals, enforceable against the respective
Individuals in accordance with its terms; the Stockholders' Agreement is a valid
and binding agreement of the members of the David Austad Group, enforceable
against each member in accordance with its terms; the License Agreement is a
valid and binding agreement of the Company and David Austad, enforceable against
such parties in accordance with its terms; each of the Loan Agreements is a
valid and binding agreement of Austad, enforceable against it in accordance with
its terms; each of the Indemnification Agreements is a valid and binding
agreement of David Austad and Randall Austad, as applicable, enforceable against
each of them in accordance with its terms; and each of this Agreement and the
Reimbursement Agreement is a valid and binding agreement of the Company and
Austad, enforceable against such parties in accordance with its terms. All
authorizations, approvals and consents necessary for the execution and delivery
(a) by the Individuals, of this Agreement and the respective Warrant Agreements,
(b) by the members of the David Austad Group, of the Stockholders' Agreement,
(c) by the Company and David Austad, of
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the License Agreement, (d) by David Austad, of his Indemnification Agreement,
(e) by Austad, of the Loan Agreements, (f) by Randall Austad of his
Indemnification Agreement, and (g) by the Company and Austad, of this Agreement
and the Reimbursement Agreement, have been given or made. Except as set forth in
Schedule 2.22 or otherwise referred to herein, no consent, action, approval or
authorization of, or registration, declaration or filing with, any governmental
department, commission, agency or other instrumentality having jurisdiction over
the Individuals or the Company or Austad is required to be obtained by any of
them to authorize their execution, delivery or performance of this Agreement or
the Other Agreements to which they are party.
SECTION 2.23. THE BUYER SHARES. On the Closing Date, all stock
transfer or other taxes and charges (other than income taxes) which are required
to be paid in connection with the issue, sale and transfer of the Buyer Shares
to the Buyer hereunder will have been fully paid by the Individuals and all laws
imposing such taxes or charges will have been fully complied with in respect of
the Buyer Shares by the Individuals and the Company.
SECTION 2.24. CUSTOMER LISTS. The disks, cartridges and tapes
containing customer lists and data of Austad (the "Customer Lists") contain a
true, correct and complete list of the customers who have actually purchased
merchandise from Austad by year of last purchase and the approximate number of
catalogs mailed, reported on an annual basis for the periods of time that such
information is reported. The Customer Lists are the only customer lists which
exist and such lists are deposited with Acxiom Corporation and with no other
vendors. At least 10 days prior to the Closing, Austad shall authorize this
vendor to make the Customer Lists available to the Buyer and its representatives
as they may reasonably request.
SECTION 2.25. CUSTOMS. All goods imported into the United
States or any other country by Austad (the "Imported Goods") have been properly
valued and classified in accordance with applicable tariff laws, rules and
regulations and all proper duties, tariffs or excise taxes have been paid with
respect to the Imported Goods, no penalties have been assessed, asserted or
claimed with respect to any Imported Goods, and no written inquiries relating
thereto have been received by the Company, Austad or any Individual. All
Imported Goods have been properly marked as to country of origin, content and
material. Austad has filed with the U.S. Customs Service all required buying
agency agreements, as applicable, with respect to Imported Goods. Except as set
forth in Schedule 2.25, Austad has not delivered to any agents, suppliers or
vendors any tools, equipment, molds, additional products or other assistance
(collectively, the "Assists") which would be considered a dutiable assist.
Schedule 2.25 sets forth a true, complete and correct list of all Assists.
SECTION 2.26. DISCLOSURE; REPRESENTATIONS AND WARRANTIES. The
Individuals, the Company and Austad have made full, true and complete responses
to all the Buyer's requests for information, documents, contracts and records.
Neither this Agreement nor any statement, certificate, writing or document
furnished to the Buyer in connection with this Agreement by any Individual or by
the Company or Austad contains, as of the dates of such documents, any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained therein not misleading. Except as set forth in this
Agreement or in a Schedule hereto, no fact (other than circumstances or events
which are common knowledge or normal business risks) with respect to the
Company's and Austad's business, operations or condition is known to
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any Individual or the Company or Austad which materially and adversely affects
the business, operations or condition of the Company or Austad or any of their
respective assets or properties.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants that:
SECTION 3.01. ORGANIZATION AND AUTHORITY. The Buyer is a
corporation duly organized and validly existing in good standing under the laws
of the State of Delaware. The Buyer has the corporate power to execute, deliver
and perform this Agreement and the other documents, agreements and certificates
executed and delivered by it in connection herewith and therewith. The Buyer has
taken all action required by law, its certificate of incorporation, its by-laws
or otherwise to authorize the execution and delivery of this Agreement, the Loan
Agreements, the Stockholders' Agreement, the Warrant Agreements, the License
Agreement, the Reimbursement Agreement and the Indemnification Agreements and
the documents, agreements and certificates executed and delivered by the Buyer
in connection herewith and therewith. The execution and delivery of this
Agreement and the Stockholders' Agreement, the Warrant Agreements, the License
Agreement, the Loan Agreements, the Reimbursement Agreement and the
Indemnification Agreements by the Buyer (or, in the case of the Loan Agreements,
by a subsidiary of the Buyer), do not, and the consummation of the transactions
contemplated hereby and thereby will not, violate any provision of the
certificate of incorporation or by-laws of the Buyer, or any provision of any
agreement, instrument, order, judgment or decree to which the Buyer is a party
or by which it is bound.
SECTION 3.02. BINDING OBLIGATION; CONSENTS. The execution and
delivery of this Agreement by the Buyer does not, and the consummation of the
Transactions will not, violate any provision of the certificate of incorporation
or by-laws of the Buyer or violate any provision of, or result in a breach of
any of the terms or provisions of, or result in the acceleration of any
obligation under, or constitute a default under, any mortgage, lien, lease,
agreement, instrument, order, arbitration award, judgment or decree, to which
the Buyer is a party or to which its assets, properties or business are subject.
Each of this Agreement, the Stockholders' Agreement, the Reimbursement
Agreement, the Indemnification Agreements and the License Agreement (as to
Article IX only) is a valid and binding agreement of the Buyer, enforceable
against the Buyer in accordance with its terms, or, in the case of the Loan
Agreements and the Second Mortgage, a valid and binding agreement of the Buyer's
subsidiary, enforceable against such party in accordance with its terms. All
authorizations, approvals and consents necessary for the execution and delivery
by the Buyer of this Agreement, the Stockholders' Agreement, the Reimbursement
Agreement, the Indemnification Agreements and the License Agreement (as to
Article IX only), or, in the case of the Loan Agreements and the Second
Mortgage, the Buyer's subsidiary, have been given or made. Except as set forth
in Schedule 3.02 or otherwise referred to herein, no consent, action, approval
or authorization of, or registration, declaration or filing with, any
governmental department, commission, agency or other instrumentality having
jurisdiction over the Buyer or any subsidiary is required to be obtained by any
of them to authorize their execution, delivery or performance of this Agreement
or the Other Agreements to which they are party.
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SECTION 3.03. ACQUISITION OF BUYER SHARES. The Buyer is
purchasing the Buyer Shares for its own account for investment only and not with
a present view to, or for sale in connection with, any distribution of the Buyer
Shares.
SECTION 3.04. LITIGATION; CONSENTS.
(a) The Buyer knows of no pending or threatened action, suit,
proceeding or investigation before any court or governmental body, or by any
governmental agency to restrain or prevent the performance of the Transactions
or which might affect the right of the Buyer to own the Buyer Shares.
(b) Except as otherwise referred to herein, no consent, action,
approval or authorization of, or registration, declaration or filing with, any
governmental department, commission, agency or other instrumentality having
jurisdiction over the Buyer is required to be obtained by the Buyer to authorize
the execution, delivery and performance by the Buyer of this Agreement or the
Other Agreements or their respective terms.
SECTION 3.05. DISCLOSURE; REPRESENTATIONS AND WARRANTIES. The
Buyer has made full, true and complete responses to all requests for
information, documents, contracts and records. Neither this Agreement nor any
statement, certificate, writing or document furnished to the Company, Austad or
any Individual in connection with this Agreement by the Buyer contains, as of
the dates of such documents, any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein not
misleading.
ARTICLE IV
COVENANTS OF THE COMPANY, AUSTAD AND THE BUYER
SECTION 4.01. MAINTAIN BUYER SHARES. Before the Closing
Date, neither the Company nor Austad nor David Austad will, without the consent
of the Buyer, (a) issue, sell or otherwise transfer any of the Buyer Shares or
(b) incur or permit to exist any lien, charge or encumbrance on any of the Buyer
Shares.
SECTION 4.02. APPROVALS; CONSENTS. The Company and/or Austad
will obtain or cause to be obtained all consents, approvals and authorizations
required by law, statute, rule, regulation, contract or agreement to be obtained
by the Company or Austad in connection with the consummation of the sale and
transfer by the Company to the Buyer of the Buyer Shares and the transactions
contemplated hereby, all such consents, approvals and authorizations being set
forth in the attached Schedule 4.02.
SECTION 4.03. MAINTAIN COMPANY BUSINESS.
(a) From the date hereof to and including the Closing Date, the
Company, Austad and the Individuals will use their best efforts to preserve the
business organization of the Company and Austad intact, to keep available to the
Buyer the services of the incorporator of the Company and the present officers
and employees of Austad, and to preserve for the Buyer the good will of the
suppliers, customers and others having business relations with Austad.
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(b) From the date hereof to and including the Closing Date, the
Company, Austad and the Individuals will use their best efforts to cause Austad
to continue the operation of its business in the ordinary course, and to cause
the Company and/or Austad, as the case may be, to maintain their respective real
property and other assets, properties and rights in at least as good order and
condition as exists on the date hereof, and will not permit the Company or
Austad to:
(i) encumber any of its assets, properties or right or enter
into any transaction or make any contract or commitment relating to its
assets, properties or business, except in the ordinary course of
business;
(ii) enter into any employment contract which is not terminable
without cost or other liability to the Company or Austad, or any
successor thereof, except for normal severance arrangements and accrued
vacation pay, upon notice of 30 days or less;
(iii) without the Buyer's consent, enter into any contract or
agreement (x) which cannot be performed within three months or less or
(y) which involves the expenditure of over $50,000;
(iv) reclassify or change in any manner its outstanding shares
of capital stock or issue or sell any shares of its capital stock or
other securities, or redeem or otherwise acquire, or enter into any
contract or commitment to redeem or otherwise acquire, any shares of
capital stock of the Company or Austad other than as set forth in
Schedule 2.12 hereof;
(v) make any declaration, payment or distribution of a dividend
or any other payment to any stockholder other than as set forth in
Schedule 2.12 hereof;
(vi) transfer any assets of the Company or Austad to any
stockholder;
(vii) make any payment or distribution to any trustee under
any bonus, pension, profit sharing or retirement plan or incur any
obligation to make any such payment or contribution which is not in
accordance with the Company's or Austad's usual past practice, or make
any payment or contribution or incur any obligation pursuant to or in
respect of any other plan, contract or arrangement providing for any
bonus, incentive compensation, pension, deferred compensation,
retirement payment, profit sharing contribution or any other employee
benefit, which is not in accordance with the Company's or Austad's
usual past practice;
(viii) extend credit in excess of $10,000 to any customer who
was not a customer before the date of this Agreement, or depart from
the normal and customary trade, discount and credit policies of the
Company or Austad;
(ix) guarantee the obligation of any person, firm or
corporation, except by the endorsement of negotiable instruments for
deposit or collection in the ordinary course of business;
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(x) take any action of the character described in Section 2.14
(Conduct of Business) which would have been required to be disclosed
pursuant thereto had such action been taken after the date of the
Balance Sheet and before the date of this Agreement;
(xi) purchase or sell any securities for investment;
(xii) amend either its charter or by-laws;
(xiii) make any changes in any of its methods of accounting or
in any of its accounting practices; or
(xiv) change the banking or safety deposit arrangements of the
Company or Austad (except as contemplated by the Transactions).
SECTION 4.04. INSURANCE. At any time before the Closing
Date, Austad will add, if possible, new coverage or increase the coverage on, or
otherwise amend, any of the insurance policies described in Schedule 2.17, the
extent of such added or increased coverage or the nature of such amendment being
a matter solely in the discretion of the Buyer.
SECTION 4.05. NON-COMPETE.
(a) The Former Stockholders agree that from and after the
Closing Date, they will not use the name "Austad" or any confusingly
similar name or any other Intellectual Property in connection with any
business related to the business of the Company, Austad or any of their
Subsidiaries.
(b) David Austad agrees that he will not use any Intellectual
Property, his name, likeness or voicemail announcements in connection
with any business related to the business of the Company, Austad or any
of their Subsidiaries except as permitted by the License Agreement.
(c) For a period of one year following the Closing Date, no
Individual shall, directly or indirectly, in association with or as a
stockholder, director, officer, consultant, employee, member or
otherwise of or through any person, firm, corporation, partnership,
association or other entity, engage in or conduct any enterprise or
business anywhere in the world which distributes, designs,
manufactures, markets, sells or otherwise deals in products or services
of the type manufactured or sold by the Company, Austad, any of their
Subsidiaries or Joint Ventures or competitive with the business of the
Company, Austad, any of their Subsidiaries or the Joint Ventures or
their successors as such business is currently being conducted by the
Company, Austad, any of their Subsidiaries or the Joint Ventures on the
date hereof except as may be otherwise provided for by the
Stockholders' Agreement or the License Agreement; provided, however ,
that an investment in not more than five percent in the aggregate of
the total capital of any such competitive enterprise whose stock is
listed on a national securities exchange shall not be deemed a
violation of this Section; and provided further, that (i) in the case
of Randall
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Austad, the applicable period shall be two years following the Closing
Date, and (ii) in the case of the members of the David Austad Group,
the provisions of the Stockholders' Agreement and the License Agreement
(as applicable) and not this Section 4.05(c) shall apply.
SECTION 4.06. NOTICE OF BREACH. The Company will immediately
give notice to the Buyer of the occurrence of any event or the failure of any
event to occur that results in a breach of any representation or warranty
hereunder by the Company, Austad or any Subsidiary or a failure by the Company,
Austad or any Subsidiary to comply with any covenant, condition or agreement
contained herein.
SECTION 4.07. UNIFORM COMMERCIAL CODE SEARCHES. Austad shall,
at its own expense, conduct, or cause to be conducted, a search in each state
and county in which either the Company or Austad conducts its business or
maintains any assets or properties for financing statements filed in such states
and counties under the applicable provisions of the Uniform Commercial Code. Not
later than 10 days prior to the Closing Date, Austad shall deliver a list,
certified as true and complete by an officer of Austad, of all financing
statements or other liens recorded in such jurisdictions and a description of
the property and assets encumbered thereby. Austad shall, prior to the Closing
Date, (i) remove or cause to be removed all such liens and encumbrances except
those permitted encumbrances set forth in Schedule 2.06, (ii) file or cause to
be filed in such jurisdictions a release of such lien or encumbrance and (iii)
deliver to the Buyer evidence satisfactory in form and substance to the Buyer of
compliance by Austad with the provisions of this Section.
SECTION 4.08. AUDITED FINANCIAL STATEMENTS. Before the Closing
Date, Austad shall deliver to the Buyer audited financial statements of Austad
for the fiscal year ended December 31, 1994, including a balance sheet, the
related statements of income and of changes in financial position for the period
then ended, the accompanying notes and reports of the Auditors, the only
qualification of which shall relate to the effect of the current status of
Austad's indebtedness to FNBO on Austad's ability to continue as a going
concern.
ARTICLE V
COVENANTS OF THE PARTIES
SECTION 5.01. ACCESS. The Individuals, the Company and Austad
will (a) supply the Buyer with all information necessary or beneficial for the
carrying out of the Transactions and will permit the Buyer and its accounting,
legal and other representatives to complete, to its satisfaction, a review of
the assets (including, without limitation, the Intellectual Property),
liabilities, business, operations and prospects of the Company and Austad, (b)
provide such assistance in connection with the Transactions as is reasonably
requested and (c) will give the Buyer and its representatives and lenders access
at all reasonable times to all things related to the assets, liabilities,
business, operations and prospects of the Company and Austad and, as the same
may relate to the Company and Austad, the Individuals. The Buyer will provide
the Individuals with information reasonably required for their review of the
Other Agreements.
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SECTION 5.02. RETURN OF INFORMATION. In the event that
the parties are unable to consummate the Transactions, each party will, if
requested by another party, promptly return all records and information
concerning the Company or Austad, the Individuals, the Buyer and their
subsidiaries and affiliates (as the case may be) in such party's possession.
SECTION 5.03. CONFIDENTIALITY. Each party will treat as
confidential all confidential information concerning the Company, Austad, the
Individuals, the Buyer and their subsidiaries and affiliates disclosed to such
party and which does not become generally available to third parties without
fault of the receiving party, unless disclosure thereof is required by law. In
the event that the parties are unable to consummate the Transactions, no party
shall at any time thereafter disclose to third parties, or use, directly or
indirectly, for its own benefit, any such information, written or oral, about
the business or affairs of the other parties hereto.
SECTION 5.04. REPRESENTATIONS. The parties hereto (a)
will take all action necessary to render accurate as of the Closing Date their
respective representations and warranties contained herein, (b) will refrain
from taking any action which would render any such representation or warranty
inaccurate in any material respect as of such time, and (c) will perform or
cause to be satisfied each covenant or condition to be performed or satisfied by
it or them as contemplated by this Agreement.
SECTION 5.05. GOVERNMENT REVIEWS. Austad and the Buyer,
in a timely manner, shall (i) make required filings with, prepare applications
to and conduct negotiations with each governmental agency as to which such
filings, applications or negotiations are necessary or appropriate for the
consummation of the transactions contemplated hereby, and (ii) provide such
information as each may be required to make such filings, prepare such
applications and conduct such negotiations. Austad and the Buyer shall cooperate
with each other and use their best efforts to assist the other in making and
pursuing such filings and applications and conducting such negotiations and
promptly shall respond to all requests for additional information or
documentation.
SECTION 5.06. PRESS RELEASES. The timing and content of
all announcements regarding any aspect of the Transactions to the financial
community, government agencies, employees of Austad or the public generally will
be mutually agreed upon by the parties hereto in advance.
SECTION 5.07. BEST EFFORTS. Each of the Individuals,
the Company and the Buyer shall use its best efforts to cause all of the
conditions to the obligations of the others to consummate the Transactions to be
met as soon as practicable after the date of this Agreement.
SECTION 5.08. NOTICE OF BREACH. The Buyer will
immediately give notice to David Austad, acting in such event as representative
of all the Individuals, of the occurrence of any event or the failure of any
event to occur that results in a breach of any representation or warranty
hereunder by the Buyer or a failure by the Buyer to comply with any covenant,
condition or agreement contained herein.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.01. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
INDEMNITIES. The parties hereto agree that their respective representations,
warranties and indemnities contained in this Agreement shall survive for a
period of two years from the Closing Date, except that those set forth in
Section 2.15 (Tax Matters) shall survive for the applicable statute of
limitations, and those set forth in Section 2.09(b) (Compliance With Law;
Permits) respecting environmental matters shall survive for an unlimited period
(the applicable period of survival of any representation or warranty being
referred to herein as the "Limitation Period"). No claim shall be made by any
party for breach of any representation or warranty unless (i) pursuant to the
indemnification provisions set forth in this Agreement and (ii) notice thereof
is given prior to the end of the applicable Limitation Period.
SECTION 6.02. INDEMNIFICATION BY THE COMPANY, AUSTAD AND
THE INDIVIDUALS. The Company, Austad and the Individuals shall, jointly and
severally, save, defend and indemnify the Buyer and its officers, directors,
employees, affiliates, stockholders, agents, representatives, attorneys,
consultants, principals and associates (individually, an "Indemnitee" and
collectively, "Indemnitees") against, and hold each of them harmless from, any
and all Damages (as defined in Section 6.04 below):
(a) arising from any breach of a representation or warranty of
the Company, Austad or the Individuals contained in or made pursuant to
this Agreement or the Other Agreements or in any certificate,
instrument or agreement delivered to any Indemnitee pursuant to or in
connection with this Agreement or the Other Agreements;
(b) resulting from a default in the performance of any of the
covenants or obligations that the Company, Austad or any Individual is
required to perform under this Agreement or the Other Agreements;
provided, that no Individual shall be responsible for Damages resulting
from a default in the performance of any of the covenants or
obligations that the Company or Austad is required to perform under
either Loan Agreement or under the Second Mortgage, the License
Agreement, the Reimbursement Agreement or the Warrant Agreements unless
such Individual, acting in breach of his or her obligations to the
Company or Austad, as the case may be, whether pursuant to this
Agreement or any of the Other Agreements or otherwise, caused the
Company or Austad, as the case may be, to so default; or
(c) resulting from any foreign, Federal, state or local income
or franchise tax payable (i) with respect to the period ending on the
Closing Date or (ii) in consequence of the Redemption or the payment of
the Redemption Notes;
provided, however, that neither the Company, Austad nor any Individual shall be
required to pay any Damages unless (i) the aggregate amount of Damages exceeds
$100,000, in which event the indemnity pursuant to this Section 6.02 shall
require payment of all Damages incurred by the Indemnitees in excess of $50,000
(e.g., if total Damages incurred are $150,000, payment of
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$100,000 shall be required), and (ii) the claim for such Damages is made by an
Indemnitee and received by the Company, Austad or any Individual in accordance
with the provisions of Sections 6.01 and 6.05, it being understood and agreed
that the Indemnitee may elect, in its sole discretion, to bring such claim
against any or all of the Company, Austad or an Individual. In no event,
however, shall the Damages payable pursuant to this Section 6.02 by a Former
Stockholder exceed, in the aggregate, the sum set forth opposite the name of
such Former Stockholder in Schedule 6.02 attached hereto, nor shall the Damages
payable pursuant to this Section 6.02 by parties who are not Former Stockholders
exceed, in the aggregate, the sum of $4,000,000.
SECTION 6.03. INDEMNIFICATION BY THE BUYER. The Buyer
shall be liable for, save, defend and indemnify the Company, Austad and the
Individuals and their respective officers, directors, employees, affiliates,
stockholders, agents, representatives, attorneys, consultants, principals and
associates (also individually, an "Indemnitee" and collectively, "Indemnitees")
against, and hold each of them harmless from, any and all Damages:
(a) arising from any breach of a representation or warranty of
the Buyer contained in or made pursuant to this Agreement or the Other
Agreements or in any certificate, instrument or agreement delivered to
an Indemnitee pursuant to or in connection with this Agreement or the
Other Agreements; or
(b) resulting from a default in the performance of any of
the covenants or obligations that the Buyer is required to perform
under this Agreement or the Other Agreements;
provided, however, that the Buyer shall not be required to pay any Damages
unless (i) the aggregate amount of such Damages exceeds $100,000, in which event
the indemnity pursuant to this Section 6.03 shall require payment of all Damages
incurred by the Indemnitees in excess of $50,000 (e.g., if total Damages
incurred are $150,000, payment of $100,000 shall be required), and (ii) the
claim for such Damages is made by an Indemnitee and received by the Buyer in
accordance with the provisions of Sections 6.01 and 6.05. In no event, however,
shall the Damages payable pursuant to this Section 6.03 exceed, in the
aggregate, the sum of $4,000,000.
SECTION 6.04. DAMAGES. For the purposes of this
Agreement, "Damages" shall mean any loss, liability, damage, cost or expense,
including, without limitation, reasonable costs of defense and prosecution of
litigation and counsel fees incurred by an Indemnitee.
SECTION 6.05. LEGAL PROCEEDINGS.
(a) If any legal proceeding shall be instituted, or any claim
or demand made, against an indemnified party in respect of which an indemnifying
party may be liable hereunder, the indemnified party shall give prompt written
notice thereof to the indemnifying party. The indemnifying party, at its
expense, may participate in and, with the consent of the Indemnitee, direct any
such legal proceeding and the negotiation and settlement of any such claim or
demand. The Indemnitee shall have the absolute right, in its sole discretion and
without the consent of the indemnifying party, to settle any such legal
proceeding, claim or demand; provided, however, that if the Indemnitee shall so
settle without the consent of the indemnifying party, the indemnifying
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party shall be discharged from any liability hereunder with respect to the
proceeding, claim or demand so settled.
(b) If the amount of Damages paid, at any time subsequent to
such payment, shall be reduced by any recovery, settlement or otherwise, the
amount of such reduction, less any expense incurred by the party receiving such
recovery in connection therewith, promptly shall be repaid to the indemnifying
party.
(c) The parties hereto shall consult and use their best efforts
to cooperate in resolving questions regarding Damages. If a party hereto shall
believe that it has a claim under this Article VI, such party shall give notice
of such claim to the other parties, specifying in reasonable detail the nature
of the Damages for which payment is claimed, the Section or Sections of this
Agreement upon which such claim is based and the amount payable in respect
thereof.
ARTICLE VII
TERMINATION OF AGREEMENT
SECTION 7.01. TERMINATION OF AGREEMENT. This Agreement and
the Transactions may be terminated or abandoned at any time before the Closing
Date:
(a) by mutual consent of the parties;
(b) by the Buyer, if there has been a material
misrepresentation in this Agreement by the Company, Austad or any Individual, or
a material breach by the Company, Austad or any Individual of any warranty or
covenant set forth herein, or a failure of any condition to which the
obligations of the Buyer are subject;
(c) by the Company, if there has been a material
misrepresentation in this Agreement by the Buyer, or a material breach by the
Buyer of any warranty or covenant set forth herein, or a failure of any
condition to which the obligations of the Company are subject; or
(d) by either the Company or the Buyer, if the Closing Date
shall not have occurred on or before May 31, 1995, for any reason other than the
failure of the party seeking to terminate this Agreement to perform its
obligations hereunder.
ARTICLE VIII
CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligations of the Buyer to purchase the Buyer Shares
pursuant to this Agreement, enter into the Other Agreements and perform
thereunder, shall be subject to the satisfaction, at or before the Closing Date,
of the following conditions (any of which may be waived, in whole or in part, by
the Buyer):
SECTION 8.01. REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company, Austad and the Individuals
contained in this Agreement (including the Schedules and Exhibits hereto), or in
any certificate or document delivered to the Buyer in connection herewith, shall
be true in all material respects at the Closing Date as if made again on
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and as of the Closing Date. The Company, Austad and the Individuals shall have
duly performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by them at or before the Closing
Date. The Buyer shall have been furnished with certificates of the Individuals
and of appropriate officers of the Company and Austad certifying in such detail
as the Buyer may reasonably request to the fulfillment of the foregoing
conditions.
SECTION 8.02. CERTAIN DOCUMENTS. Austad shall have
furnished the Buyer with the following documents:
(a) The Certificate or Articles (as the case may be) of
Incorporation of the Company and Austad and all amendments thereto, duly
certified by the proper officials of the jurisdictions in which the Company and
Austad were organized;
(b) Certificates as to the good standing of the Company and
Austad and payment of all applicable state taxes thereby, executed, in the case
of the Company, by the appropriate official of the State of Delaware and each
jurisdiction listed in Schedule 2.01, and, in the case of Austad, by the
appropriate official of the State of South Dakota and each jurisdiction listed
in Schedule 2.01;
(c) The by-laws of the Company and Austad, duly certified
by the incorporator of the Company and the Secretary or an Assistant Secretary
of Austad as being in full force and effect;
(d) Uniform Commercial Code search reports, on Form UCC-11 or
other appropriate form, from the appropriate official for the States of
Delaware, South Dakota and other jurisdictions in which Austad is qualified to
do business, and from the appropriate official or recording office in each
county or other jurisdictional subdivision of each state in which the Company or
Austad leases any real property or maintains an office or any assets, as to any
liens, claims, charges, exceptions or encumbrances of record on any of the
assets, properties or business of the Company or Austad;
(e) Resignations, effective on the Closing Date, of
certain of the officers and directors of Austad, other than David Austad, as may
be requested by the Buyer;
(f) The complete and correct corporate minute books, stock
transfer records and corporate seals of the Company and Austad;
(g) A certificate of the Secretary or an Assistant Secretary of
Austad certifying (i) that attached thereto is a true and complete copy of all
instruments reflecting actions of the incorporator of the Company, and of all
resolutions of the board of directors of Austad pertaining to the Transactions,
the latter being duly adopted at meetings of such board at which a quorum of
directors was present and acting throughout, and certifying (ii) as to the
incumbency and authority of the incorporator and officers of the Company and
Austad executing this Agreement and the documents executed and delivered by the
Company and Austad in connection herewith;
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(h) Evidence satisfactory to the Buyer that the members of
the David Austad Group are the sole stockholders of Austad and that the Company
has no stockholders;
(i) Evidence satisfactory to the Buyer respecting the
declaration of a dividend by Austad to the members of the David Austad Group, in
return of a capital contribution, in the aggregate amount of $600,000;
(j) Third-party and governmental and regulatory approvals and
consents necessary to consummate the Transactions, including, without
limitation, all required approvals and consents of (i) FNBO, Valley and any
other lenders to Austad, (ii) lessors of Leased Realty and (iii) the Lease
Finance Group and/or its assignees, as applicable;
(k) Evidence satisfactory to the Buyer that (i) the Revolving
Loan Agreement shall have been amended to provide for a Loan Termination Date
not earlier than May 31, 1997, and shall have been amended in no other manner
except for changes, if any, required to reflect the payment of $1,500,000 to be
made to FNBO at the Closing as contemplated by Section 1.05(d) above, and (ii)
the Valley Releases shall have been executed and delivered to David Austad and
Randall Austad, respectively;
(l) A copy of the memorandum of the Auditors respecting certain
tax matters;
(m) A copy of the audited financial statements of Austad for
the fiscal year ended December 31, 1994, including a balance sheet, the related
statements of income and of changes in financial position for the period then
ended, the accompanying notes and reports of the Auditors, the only
qualification of which shall relate to the effect of the current status of
Austad's indebtedness to FNBO on Austad's ability to continue as a going
concern;
(n) Evidence satisfactory to the Buyer that David Austad has
obtained at least $130,000 in loan funds from his family members; and
(o) All documents referred to herein and such other documents
as the Buyer may reasonably request.
SECTION 8.03. OPINION OF COUNSEL. The firm of Lynn, Jackson,
Shultz & Lebrun, P.C. shall have delivered to the Buyer a favorable opinion or
opinions, dated the Closing Date, substantially in the form of Exhibit J.
SECTION 8.04. LEGAL MATTERS SATISFACTORY. All legal
matters, and the form and substance of all documents to be delivered by the
Company, Austad and the Individuals to the Buyer at the Closing, shall have been
approved by and satisfactory to the Buyer.
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SECTION 8.05. THE BUYER SHARES. The Company shall have
delivered to the Buyer a certificate or certificates for the Buyer Shares
together with funds sufficient for payment of any applicable stock transfer tax
payable in respect of the transfer of the Buyer Shares to the Buyer.
SECTION 8.06. FORMER STOCKHOLDER RELEASES. Each Former
Stockholder shall have delivered to the Buyer, the Company, Austad and the
members of the David Austad Group a general release of all claims he or she may
have through the Closing Date against the Company, Austad or any member of the
David Austad Group.
SECTION 8.07. NO MATERIAL CHANGE. There shall not have
been any material adverse change in the assets, liabilities, results of
operations, business, or prospects of the Company or Austad at the Closing Date
from that disclosed in the Balance Sheet for the period from the date of the
Balance Sheet to the Closing Date, or in the assets or properties of the Company
and Austad, taken as a whole, from the date of the Balance Sheet to the Closing
Date, and the Buyer shall have been furnished with a certificate to that effect
executed by the President or Vice President and the Treasurer or Chief Financial
Officer of Austad and the incorporator of the Company.
SECTION 8.08. NO LITIGATION. No action, suit,
proceeding or investigation shall be pending or, so far as is known to the
Buyer, the Individuals, the Company or Austad's executive officers, be
threatened before any court or governmental body, or by any governmental agency
challenging the transactions contemplated by this Agreement or otherwise seeking
damages, or seeking to restrain or prevent the consummation of the Transactions
or to prohibit or limit the ability of the Buyer to exercise full rights of
ownership of the Buyer Shares.
SECTION 8.09. OTHER AGREEMENTS. The Company, Austad and
the Individuals, in each case as applicable, shall have executed and delivered
the Loan Agreements, the Stockholders' Agreement, the License Agreement, the
Reimbursement Agreement, their respective Warrant Agreements and Indemnification
Agreements.
SECTION 8.10. TITLE INSURANCE. The Buyer shall have
obtained title insurance for the Owned Realty which represents the principal
place of business of Austad in amounts and pursuant to such terms and conditions
as the Buyer shall reasonably require.
SECTION 8.11. COMPANY CONSENTS, ETC. The Company and
Austad shall have received all written consents, authorizations and approvals
for the Transactions (i) required by any applicable law, rule or regulation of
any Federal or state governmental or administrative body, (ii) from the lessors
under the Leases, (iii) from FNBO, such consent to include the FNBO Extension,
(iv) from Valley and from any other lender pursuant to the Mortgages, (v) from
the Lease Finance Group and/or its assignees, as required, and (vi) from any
other third party to a material contract with the Company or Austad as deemed
necessary by the Buyer.
SECTION 8.12. BUYER CONSENTS. The Buyer shall have
received consent to the Transactions from such of its lenders as may be
required.
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SECTION 8.13. ENVIRONMENTAL. The Buyer shall have
received a Phase I environmental study with respect to the Owned Realty and the
Leased Realty satisfactory in form and substance to the Buyer.
ARTICLE IX
CONDITIONS TO THE COMPANY'S AND DAVID AUSTAD'S OBLIGATIONS
The obligations of the Company to sell the Buyer Shares to the
Buyer pursuant to this Agreement and of David Austad to execute and deliver this
Agreement and the Other Agreements to which he is a party shall be subject to
the satisfaction, at or before the Closing Date, of the following conditions
(any of which may be waived, in whole or in part, by the Company or David
Austad):
SECTION 9.01. REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Buyer contained in this Agreement or in
any certificate or document delivered to the Company pursuant hereto shall be
true in all material respects at the Closing Date as if made on and as of the
Closing Date. The Buyer shall have duly performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by the Buyer at or before the Closing Date. The Company shall have been
furnished with certificates of appropriate officers of the Buyer, dated the
Closing Date, certifying in such detail as the Company may reasonably request to
the fulfillment of the foregoing conditions.
SECTION 9.02. PAYMENT. The Buyer shall have paid to the
Company by wire transfer on the Closing Date the amount required to be paid to
the Company pursuant to Section 1.02.
SECTION 9.03. OPINION OF COUNSEL. The Buyer shall have
furnished to the Company and David Austad a favorable opinion, dated the Closing
Date, of Michael P. Sherman, Esq., General Counsel of the Buyer, substantially
in the form of Exhibit K.
SECTION 9.04. CERTAIN DOCUMENTS. The Buyer shall have
furnished the Company with the following documents:
(a) The Certificate of Incorporation of the Buyer and all
amendments thereto;
(b) Certificate as to the good standing of the Buyer,
executed by the appropriate official of the State of Delaware.
(c) The By-laws of the Buyer, duly certified by the
Secretary or an Assistant Secretary of the Buyer as being in full force and
effect;
(d) A certificate of the Secretary or an Assistant Secretary of
the Buyer certifying (i) that attached thereto is a true and complete copy of
all resolutions of the executive committee of the board of directors of the
Buyer pertaining to the Transactions, duly adopted at meetings of such committee
at which a quorum of directors was present and acting throughout
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and (ii) as to the incumbency and authority of the officers of the Buyer
executing this Agreement and the documents executed and delivered by the Buyer
in connection herewith; and
(e) such other documents as the Company may reasonably
request.
SECTION 9.05. OTHER AGREEMENTS. The Buyer shall have
executed and delivered the Stockholders' Agreement, the License Agreement (in
acknowledgment of its obligations pursuant to Article IX thereof), the
Reimbursement Agreement and the Indemnification Agreements.
SECTION 9.06. LEGAL MATTERS SATISFACTORY. All legal
matters, and the form and substance of all documents to be delivered by the
Buyer to the Company, Austad and the Individuals, shall have been approved by
and satisfactory to the Company, Austad and the Individuals.
SECTION 9.07. CONSENTS. The Buyer shall have received
all written consents, authorizations and approvals required by any applicable
law, rule or regulation of any Federal or state governmental or administrative
body respecting the sale of the Buyer Shares pursuant to the provisions of this
Agreement.
SECTION 9.08. VALLEY RELEASES. David Austad and Randall
Austad shall have received their respective Valley Releases, each such release
to be satisfactory in form and substance to such party and his counsel.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. BANK AND VENDOR TRANSACTIONS. At the
Closing, the Company and/or Austad shall provide satisfactory evidence of (a)
the payment of $1,500,000 to FNBO and the receipt of the FNBO Extension; (b) the
payment of $400,000 to Valley and the receipt of the Valley Release; (c) the
repayment of certain notes payable to the Former Stockholders as set forth in
Schedule 1.05; (d) the payment to the members of the David Austad Group of cash
dividends in the aggregate amount of $600,000 declared on April 28, 1995 as set
forth in such Schedule; and (e) the payment to the Former Stockholders of the
outstanding Redemption Notes.
SECTION 10.02. OTHER COMMITMENTS OF DAVID AUSTAD.
(a) At the Closing, David Austad shall purchase from Austad the
meeting facility of Austad located at Okoboji Lake, Iowa, as more fully
described in Exhibit L attached hereto, for a cash purchase price of
$75,000, payable one third at the Closing, one third on or before July
1, 1995 and one third on or before December 31, 1995, in each case by
certified check or wire transfer with no prepayment penalties or
interest charges to an account designated by Austad, in exchange for a
quitclaim deed in recordable form to be delivered to David Austad by
Austad upon full payment of all such amounts.
(b) David Austad will expend at least $800,000 in the opening
and roll out of the two New Stores to be opened pursuant to the License
Agreement.
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SECTION 10.03. OTHER COMMITMENTS OF THE BUYER.
(a) The Buyer agrees to cause its subsidiaries to phase in the
receipt of Austad catalog telemarketing activities pursuant to a
schedule to be mutually agreed upon by Austad, David Austad and the
Buyer. The Buyer further agrees that it shall not allocate to the
Company or Austad any telemarketing customer contact costs incurred
from the Closing Date through December 30, 1995 in excess of $3.28 per
customer order, representing a guaranteed savings of at least 10% over
Austad's projected 1995 Business Plan cost of $3.64 per customer order
(based upon such Plan's budgeted talk time and call to order ratio).
For the 1996 fiscal year and beyond, costs shall be allocated in the
same manner as for the Buyer's other catalogs, as set forth in the
Reimbursement Agreement. The Buyer will retain and produce for
inspection during normal business hours, on reasonable notice by
Austad, data sufficient to verify the accuracy of the costs incurred
and allocations made. The Buyer agrees that Austad shall not approve
the relocation of warehouse and telemarketing facilities for the Austad
business in the absence of a demon-strated plan for savings of at least
10% over Austad's now- current fulfillment costs.
(b) The Buyer agrees that the Buyer will, at its expense, use
its best efforts to link the Buyer's MACSII system with Austad's
Richter and inventory forecasting systems on a one-way outbound feed
from a data center operated by the Buyer or one of its subsidiaries.
The Buyer further agrees to use its best efforts to integrate Austad's
operations with the Buyer's MACSII system by March 31, 1996 and to
complete such outbound-feed link within sixty (60) days following such
integration into the MACSII system.
(c) The Buyer acknowledges to David Austad its present
intention to cause the Company and/or Austad to open one new Austad's
retail store in 1995 and four in 1996, provided in each case that (i)
the Company's Austad's retail stores collectively are profitable, (ii)
the Company as a whole is operating on budget and (iii) the new stores
in question are self-funding (including use of availability under the
Revolving Loan Agreement provided that such use does not restrict in
any way other business activities of the Company and/or Austad) so that
no financing need be obtained in order to open any such store. The
parties acknowledge that the statement of intention set forth in this
Section 10.03(c) shall be a nonbinding expression of intent only.
(d) The Buyer agrees with each of David Austad and Randall
Austad that, within the following time periods, the Buyer will obtain
the release and discharge of the respective personal guarantees made by
each: (i) the guarantees in favor of FNBO, on or before May 31, 1997,
and (ii) the guarantees in favor of the Lease Finance Group as set
forth in Schedule 2.06, on or before May 31, 1998.
(e) The Buyer agrees with each of David Austad and Randall
Austad to execute and deliver, at the Closing, the Indemnification
Agreements, substantially in the form set forth in Exhibit G, with such
additions and changes as shall be agreed upon by the Buyer, David
Austad and Randall Austad.
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SECTION 10.04. REPRESENTATIONS AND WARRANTIES. The
representations and warranties made in this Agreement and in any certificate,
Schedule, Exhibit, release or other instrument or document delivered in
connection therewith shall survive the Closing Date. The covenants of the
parties hereto shall continue in full force and effect in accordance with their
terms.
SECTION 10.05. NO BROKERS. Except as contemplated by
Section 1.03 hereof, each party hereto represents and warrants that there are no
claims for brokerage commissions or finder's fees in connection with the
transactions contemplated hereby resulting from any action taken by any party,
or the officers or directors of any corporate party.
SECTION 10.06. GOVERNING LAW. This Agreement shall be
construed and enforced in accordance with the internal, substantive laws of the
State of New Jersey, without giving effect to the conflict of law rules thereof.
SECTION 10.07. NOTICES. All notices, consents,
requests, instructions, approvals and other communications provided for herein
shall be deemed validly given, made or served if in writing and delivered
personally (as of such delivery) or sent by certified mail, return receipt
requested (as of two days after deposit in a United States post office), postage
prepaid, or by facsimile transmission (as of such transmission provided it is
subsequently confirmed in writing) or by prepaid overnight courier (as of the
time of delivery):
(a) if to the Buyer, addressed to:
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman, Esq.
Fax No.: 201-392-5005
(b) if to the Company or Austad, addressed to:
Austad Holdings, Inc.
4500 East 10th Street
Sioux Falls, South Dakota 57196
Attention: David Austad
Fax. No.: 605-336-7221
(c) if to the Individuals, addressed to:
c/o David Austad
812 Bayberry Circle
Sioux Falls, South Dakota 57106
and also to:
c/o Randall Austad
1508 South Gray Goose Circle
Sioux Falls, South Dakota 57103
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or such other address as shall be furnished in writing by a party to the others.
It is understood and agreed that the confirmed receipt by either of David Austad
or Randall Austad of a notice sent to them on behalf of the Individuals shall
constitute notice to all of the Individuals.
SECTION 10.08. JURISDICTION; AGENT FOR SERVICE. Legal
proceedings commenced by any party hereto arising out of any of the Transactions
or obligations contemplated by this Agreement shall be brought exclusively in
the Federal courts or, in the absence of Federal jurisdiction, state courts, in
either case in the State of New Jersey. The parties hereto irrevocably and
unconditionally submit to the jurisdiction of such courts and agree to take any
and all future action necessary to submit to the jurisdiction of such courts.
Each of the parties hereto irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding brought
in any Federal or state court in the State of New Jersey and further irrevocably
waives any claims that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. The Company hereby irrevocably
designates, appoints and empowers Corporation Trust Company, whose present
address is 820 Bear Tavern Road, West Trenton, New Jersey 08628, as its
authorized agent to receive, for and on behalf of the Company, service of
process in the State of New Jersey as and when such actions and proceedings may
be brought, and such service of process shall be deemed completed upon the date
of delivery thereof to such agent, whether or not such agent gives notice
thereof to the Company, or upon the earliest of any other date permitted by
applicable law. Final judgment against the Company in any such suit shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment, a
certified or true copy of which shall be conclusive evidence of the fact and the
amount of any indebtedness or liability of the Company therein described, or by
appropriate proceedings under any applicable treaty or otherwise.
SECTION 10.09. ASSIGNMENT; AMENDMENTS, WAIVERS.
(a) Neither the Buyer nor the Company shall assign any of its
rights or obligations under this Agreement without the prior written consent of
the other, except that the Buyer may assign its rights hereunder to one or more
direct or indirect wholly-owned subsidiaries of the Buyer provided that the
Buyer shall continue to be obligated to perform all the obligations to be
performed by the Buyer hereunder.
(b) This Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective successors and permitted assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement.
(c) No provision of this Agreement may be amended, modified or
waived except by written agreement duly executed by each of the parties.
SECTION 10.10. ENTIRE AGREEMENT. This Agreement
represents the entire agreement between the parties and supersedes and cancels
any prior oral or written agreement, letter of intent or understanding related
to the subject matter hereof, including, without limitation, that certain letter
of intent dated March 15, 1995 among the Buyer, Austad, and David Austad
individually and on behalf of the other Individuals.
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SECTION 10.11. BINDING AGREEMENT. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns, and no other person shall acquire
or have any right under or by virtue of this Agreement.
SECTION 10.12. COUNTERPARTS. This Agreement may be executed
in one or more counterparts, and shall become effective when one or more
counterparts have been signed by
--BALANCE OF PAGE LEFT INTENTIONALLY BLANK--
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each of the parties.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto on the day and year first above written.
HANOVER DIRECT, INC.
By: /s/ Michael P. Sherman
-----------------------------------
Name: Michael P. Sherman
Title: EVP
AUSTAD HOLDINGS, INC.
By: /s/ David Austad
-----------------------------------
Name: David Austad
Title: Incorporator
THE AUSTAD COMPANY
By: /s/ David Austad
-----------------------------------
Name: David Austad
Title: President/CEO
THE INDIVIDUALS:
(a) THE DAVID AUSTAD GROUP:
/s/ David Austad
--------------------------------------
David Austad, individually
/s/ David Austad UTMA
--------------------------------------
David Austad, as custodian for each of
Ryan, Sara and Melissa Austad
/s/ Denise Austad
--------------------------------------
Denise Austad
(b) THE FORMER STOCKHOLDERS:
/s/ Oscar Austad
--------------------------------------
Oscar Austad
--SIGNATURES CONTINUED ON FOLLOWING PAGE--
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--SIGNATURES CONTINUED FROM PRECEDING PAGE--
/s/ Dorothy Austad
------------------------------------------------
Dorothy Austad
/s/ Randall Austad
------------------------------------------------
Randall Austad
/s/ Kristi Austad
------------------------------------------------
Kristi Austad
/s/ Lori Miller
------------------------------------------------
Lori Miller, individually
/s/ Robin Miller
------------------------------------------------
Robin Miller
/s/ Kerri Derenge
------------------------------------------------
Kerri Derenge
/s/ Sharon Stahl
------------------------------------------------
Sharon Stahl
/s/ Lori Miller, as custodian for Andrew Miller
------------------------------------------------
Lori Miller, as custodian for Andrew Miller
/s/ Oscar Austad by Dorothy Austad
------------------------------------------------
Oscar Austad by Dorothy Austad, his
attorney in fact
/s/ Kara Miller
------------------------------------------------
Kara Miller
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