Document:

EXHIBIT 2.1

 

ASSET PURCHASE AGREEMENT

 

by and among

 

RBSACQ, INC.

 

and

 

SASSY, INC. and its SHAREHOLDERS

 

Dated July 26, 2002

 

 

TABLE OF CONTENTS

 

	

  1.

  	

  DEFINITIONS AND USAGE

  
	

   

  	

  1.1.

  	

  Definitions.

  
	

   

  	

  1.2.

  	

  Usage.

  
	

   

  	

   

  	

   

  
	

  2.

  	

  SALE AND TRANSFER OF ASSETS; CLOSING

  
	

   

  	

  2.1.

  	

  Assets to Be Sold.

  
	

   

  	

  2.2.

  	

  Excluded Assets.

  
	

   

  	

  2.3.

  	

  Consideration.

  
	

   

  	

  2.4.

  	

  Liabilities.

  
	

   

  	

  2.5.

  	

  Allocation.

  
	

   

  	

  2.6.

  	

  Closing.

  
	

   

  	

  2.7.

  	

  Closing Obligations.

  
	

   

  	

  2.8.

  	

  Adjustment Amount, EBITDA Adjustment Amount

  and Payment.

  
	

   

  	

  2.9.

  	

  Adjustment Procedures.

  
	

   

  	

  2.10.

  	

  Consents.

  
	

   

  	

   

  	

   

  
	

  3.

  	

  REPRESENTATIONS AND WARRANTIES OF SELLER

  AND SHAREHOLDERS.

  
	

   

  	

  3.1.

  	

  Organization and Good Standing.

  
	

   

  	

  3.2.

  	

  Enforceability; Authority; No Conflict.

  
	

   

  	

  3.3.

  	

  Capitalization.

  
	

   

  	

  3.4.

  	

  Financial Statements.

  
	

   

  	

  3.5.

  	

  Books and Records.

  
	

   

  	

  3.6.

  	

  Sufficiency of Assets.

  
	

   

  	

  3.7.

  	

  Description of Owned Real Property.

  
	

   

  	

  3.8.

  	

  Description of Leased Real Property.

  
	

   

  	

  3.9.

  	

  Title to Assets; Encumbrances.

  
	

   

  	

  3.10.

  	

  Condition of Facilities.

  
	

   

  	

  3.11.

  	

  Accounts Receivable.

  
	

   

  	

  3.12.

  	

  Inventories.

  
	

   

  	

  3.13.

  	

  No Undisclosed Liabilities.

  
	

   

  	

  3.14.

  	

  Taxes.

  
	

   

  	

  3.15.

  	

  No Material Adverse Change.

  
	

   

  	

  3.16.

  	

  Employee Benefits.

  
	

   

  	

  3.17.

  	

  Compliance With Legal Requirements;

  Governmental Authorizations.

  
	

   

  	

  3.18.

  	

  Legal Proceedings; Orders.

  
	

   

  	

  3.19.

  	

  Absence of Certain Changes and Events.

  
	

   

  	

  3.20.

  	

  Contracts; No Defaults.

  
	

   

  	

  3.21.

  	

  Insurance.

  
	

   

  	

  3.22.

  	

  Environmental Matters.

  
	

   

  	

  3.23.

  	

  Employees.

  
	

   

  	

  3.24.

  	

  Labor Disputes; Compliance.

  

 

i

 

	

   

  	

  3.25.

  	

  Intellectual Property Assets.

  
	

   

  	

  3.26.

  	

  Compliance With the Foreign Corrupt

  Practices Act and Export Control and Anti–boycott Laws.

  
	

   

  	

  3.27.

  	

  Euro-Affected Products and Services.

  
	

   

  	

  3.28.

  	

  Relationships With Related Persons.

  
	

   

  	

  3.29.

  	

  Brokers or Finders.

  
	

   

  	

  3.30.

  	

  Solvency.

  
	

   

  	

  3.31.

  	

  Disclosure.

  
	

   

  	

  3.32.

  	

  Collective Bargaining Agreement.

  
	

   

  	

  3.33.

  	

  Addition.

  
	

   

  	

  3.34.

  	

  Procter & Gamble

  
	

   

  	

  3.35.

  	

  I-9

  Forms

  
	

   

  	

   

  	

   

  
	

  4.

  	

  REPRESENTATIONS AND WARRANTIES OF BUYER.

  
	

   

  	

  4.1.

  	

  Organization and Good Standing.

  
	

   

  	

  4.2.

  	

  Authority; No Conflict.

  
	

   

  	

  4.3.

  	

  Certain Proceedings.

  
	

   

  	

  4.4.

  	

  Operation of Buyer.

  
	

   

  	

  4.5.

  	

  Sufficient Resources.

  
	

   

  	

  4.6.

  	

  Brokers or Finders.

  
	

   

  	

   

  	

   

  
	

  5.

  	

  COVENANTS OF SELLER PRIOR TO CLOSING.

  
	

   

  	

  5.1.

  	

  Access and Investigation.

  
	

   

  	

  5.2.

  	

  Operation of the Business of Seller.

  
	

   

  	

  5.3.

  	

  Negative Covenant.

  
	

   

  	

  5.4.

  	

  Required Approvals.

  
	

   

  	

  5.5.

  	

  Notification.

  
	

   

  	

  5.6.

  	

  No Negotiation.

  
	

   

  	

  5.7.

  	

  Best

  Efforts.

  
	

   

  	

  5.8.

  	

  Payment of Liabilities.

  
	

   

  	

  5.9.

  	

  Change of Name.

  
	

   

  	

  5.10.

  	

  Current Evidence of Title.

  
	

   

  	

   

  	

   

  
	

  6.

  	

  COVENANTS OF BUYER PRIOR TO CLOSING.

  
	

   

  	

  6.1.

  	

  Required Approvals.

  
	

   

  	

  6.2.

  	

  Notification.

  
	

   

  	

  6.3.

  	

  Best

  Efforts.

  
	

   

  	

   

  	

   

  
	

  7.

  	

  CONDITIONS PRECEDENT TO BUYER’S OBLIGATION

  TO CLOSE.

  
	

   

  	

  7.1.

  	

  Accuracy of Representations.

  
	

   

  	

  7.2.

  	

  Seller’s Performance.

  
	

   

  	

  7.3.

  	

  Consents.

  
	

   

  	

  7.4.

  	

  Additional Documents.

  
	

   

  	

  7.5.

  	

  No Proceedings.

  
	

   

  	

  7.6.

  	

  No

  Conflict.

  
	

   

  	

  7.7.

  	

  Title Insurance.

  
	

   

  	

  7.8.

  	

  Governmental Authorizations

  
	

   

  	

  7.9.

  	

  Environmental Report.

  
	

   

  	

  7.10.

  	

  Employees.

  

 

ii

 

	

   

  	

  7.11.

  	

  Due Diligence Review.

  
	

   

  	

  7.12.

  	

  Required Approvals.

  
	

   

  	

  7.13.

  	

  Resignation.

  
	

   

  	

  7.14.

  	

  Notice.

  
	

   

  	

  7.15.

  	

  MAM Agreement.

  
	

   

  	

  7.16.

  	

  Intellectual Property Forms.

  
	

   

  	

   

  	

   

  
	

  8.

  	

  CONDITIONS PRECEDENT TO SELLER’S OBLIGATION

  TO CLOSE.

  
	

   

  	

  8.1.

  	

  Accuracy of Representations.

  
	

   

  	

  8.2.

  	

  Buyer’s Performance.

  
	

   

  	

  8.3.

  	

  Additional Documents.

  
	

   

  	

  8.4.

  	

  No Injunction.

  
	

   

  	

   

  	

   

  
	

  9.

  	

  TERMINATION.

  
	

   

  	

  9.1.

  	

  Termination Events.

  
	

   

  	

  9.2.

  	

  Effect of Termination.

  
	

   

  	

   

  	

   

  
	

  10.

  	

  ADDITIONAL COVENANTS.

  
	

   

  	

  10.1.

  	

  Employees and Employee Benefits.

  
	

   

  	

  10.2.

  	

  Payment of All Taxes Resulting From Sale of

  Assets by Seller.

  
	

   

  	

  10.3.

  	

  Payment of Other Retained Liabilities.

  
	

   

  	

  10.4.

  	

  Restrictions on Seller Dissolution and

  Distributions.

  
	

   

  	

  10.5.

  	

  Removing Excluded Assets.

  
	

   

  	

  10.6.

  	

  Reports and Returns.

  
	

   

  	

  10.7.

  	

  Assistance in Proceedings.

  
	

   

  	

  10.8.

  	

  Noncompetition, Nonsolicitation and

  Nondisparagement.

  
	

   

  	

  10.9.

  	

  Customer and Other Business Relationships.

  
	

   

  	

  10.10.

  	

  Retention of and Access to Records.

  
	

   

  	

  10.11.

  	

  Kentwood Operations.

  
	

   

  	

  10.12.

  	

  Insurance.

  
	

   

  	

  10.13.

  	

  Further Assurances.

  
	

   

  	

  10.14.

  	

  Post-Closing Payments.

  
	

   

  	

  10.15.

  	

  MAM Agreement.

  
	

   

  	

  10.16.

  	

  Escrow.

  
	

   

  	

  10.17.

  	

  Straub Assignments.

  
	

   

  	

  10.18.

  	

  K-Mart.

  
	

   

  	

  10.19.

  	

  Escrow Trust Instructions.

  
	

   

  	

  10.20.

  	

  Letter of Credit.

  
	

   

  	

   

  	

   

  
	

  11.

  	

  INDEMNIFICATION; REMEDIES.

  
	

   

  	

  11.1.

  	

  Survival.

  
	

   

  	

  11.2.

  	

  Indemnification and Reimbursement by Seller

  and Shareholders.

  
	

   

  	

  11.3.

  	

  Indemnification and Reimbursement by Seller

  and Shareholders — Environmental Matters.

  
	

   

  	

  11.4.

  	

  Indemnification and Reimbursement by Buyer.

  
	

   

  	

  11.5.

  	

  Limitations on Amount — Seller and

  Shareholders.

  
	

   

  	

  11.6.

  	

  Limitations on Amount — Buyer.

  
	

   

  	

  11.7.

  	

  Time Limitations.

  
	

   

  	

  11.8.

  	

  Third-Party Claims.

  
	

   

  	

  11.9.

  	

  Other Claims.

  

 

iii

 

	

  12.

  	

  CONFIDENTIALITY.

  
	

   

  	

  12.1.

  	

  Definition of Confidential Information.

  
	

   

  	

  12.2.

  	

  Restricted Use of Confidential Information.

  
	

   

  	

  12.3.

  	

  Exceptions.

  
	

   

  	

  12.4.

  	

  Legal Proceedings.

  
	

   

  	

  12.5.

  	

  Return or Destruction of Confidential

  Information.

  
	

   

  	

  12.6.

  	

  Attorney-Client Privilege.

  
	

   

  	

   

  	

   

  
	

  13.

  	

  GENERAL PROVISIONS.

  
	

   

  	

  13.1.

  	

  Expenses.

  
	

   

  	

  13.2.

  	

  Public Announcements.

  
	

   

  	

  13.3.

  	

  Notices.

  
	

   

  	

  13.4.

  	

  Jurisdiction; Service of Process.

  
	

   

  	

  13.5.

  	

  Enforcement of Agreement.

  
	

   

  	

  13.6.

  	

  Waiver; Remedies Cumulative.

  
	

   

  	

  13.7.

  	

  Entire Agreement and Modification.

  
	

   

  	

  13.8.

  	

  Schedules.

  
	

   

  	

  13.9.

  	

  Assignments, Successors and No Third-Party

  Rights.

  
	

   

  	

  13.10.

  	

  Severability.

  
	

   

  	

  13.11.

  	

  Construction.

  
	

   

  	

  13.12.

  	

  Governing Law.

  
	

   

  	

  13.13.

  	

  Execution of Agreement.

  
	

   

  	

  13.14.

  	

  Shareholder Obligations.

  

 

iv

 

ASSET PURCHASE AGREEMENT

 

This Asset

Purchase Agreement (“Agreement”) is dated July 26, 2002, by and among

RBSACQ, Inc., a Delaware corporation (“Buyer”); Sassy, Inc., an Illinois

corporation (“Seller”); Robert Kaplan, a resident of Wyoming (“Kaplan”);

Fritz Hirsch, a resident of Illinois (“Hirsch”); Steve Rotblatt, a

resident of Illinois (“Rotblatt”); and Homer Douglas, a resident of

Michigan (“Douglas”) (Kaplan, Hirsch, Rotblatt and Douglas are referred

to herein as “Shareholders”).

 

RECITALS

 

Shareholders

own one hundred percent of the issued and outstanding shares of capital stock

of Seller.  Seller desires to sell, and

Buyer desires to purchase, the Assets of Seller for the consideration and on

the terms and conditions set forth in this Agreement.

 

The parties,

intending to be legally bound, agree as follows:

 

1.                                      DEFINITIONS

AND USAGE

 

1.1. Definitions. 

For purposes of this Agreement, the following terms and variations

thereof have the meanings specified or referred to in this Section 1.1:

 

“Accounts Receivable” —

(a) all trade accounts receivable and other rights to payment from

customers of Seller and the full benefit of all security for such accounts or

rights to payment, including all trade accounts receivable representing amounts

receivable in respect of goods shipped or products sold or services rendered to

customers of Seller, (b) all other accounts or notes receivable of Seller

and the full benefit of all security for such accounts or notes and

(c) any claim, remedy or other right related to any of the foregoing.

 

“Active Employees” —

as defined in Section 10.1(a).

 

“Adjustment Amount”

— as defined in Section 2.8.

 

“Appurtenances” —

all privileges, rights, easements, hereditaments and appurtenances belonging to

or for the benefit of the Land, including all easements appurtenant to and for

the benefit of any Land (a “Dominant Parcel”) for, and as the primary means of

access between, the Dominant Parcel and a public way, or for any other use upon

which lawful use of the Dominant Parcel for the purposes for which it is

presently being used is dependent, and all rights existing in and to any streets,

alleys, passages and other rights-of-way included thereon or adjacent thereto

(before or after vacation thereof) and vaults beneath any such streets.

 

“Assets” — as

defined in Section 2.1.

 

“Assignment and Assumption Agreement”

— as defined in Section 2.7(a)(ii).

 

“Assumed Liabilities”

— as defined in Section 2.4(a).

 

“Balance Sheet” — as

defined in Section 3.4.

 

 

“Bargaining Unit Employees”

— as defined in Section 10.1(f).

 

“Basket” — as

defined in Section 11.5.

 

“Best Efforts” — the

efforts that a prudent Person desirous of achieving a result would use in

similar circumstances to achieve that result as expeditiously as possible,

provided, however, that a Person required to use Best Efforts under this

Agreement will not be thereby required to take actions that would result in a

material adverse change in the benefits to such Person of this Agreement and

the Contemplated Transactions or to dispose of or make any material change to

its business, expend any material funds or incur any other material burden.

 

“Bill of Sale” — as

defined in Section 2.7(a)(i).

 

“Bulk Sales Laws” —

as defined in Section 5.8.

 

“Business Day” — any

day other than (a) Saturday or Sunday or (b) any other day on which

banks in New York, New Jersey or Illinois are permitted or required to be

closed.

 

“Buyer” — as defined

in the first paragraph of this Agreement.

 

“Cap” — as defined

in Section 11.5.

 

“Buyer Contact” — as

defined in Section 12.2(a).

 

“Buyer Indemnified Persons” —

as defined in Section 11.2.

 

“Cash Consideration” —

as defined in Section 2.3.

 

“Closing” — as

defined in Section 2.6.

 

“Closing Balance Sheet”

— as defined in Section 2.9(b).

 

“Closing Date” — the

date on which the Closing actually takes place.

 

“Closing Income Statement” —

as defined in Section 2.9(b).

 

“Closing Working Capital” —

as defined in Section 2.9(b).

 

“COBRA” — the

requirements of Part 6 of Subtitle B of Title I of ERISA and

Code Section 4980B and of any similar applicable state law.

 

“Code” — the

Internal Revenue Code of 1986.

 

“Collective Bargaining Agreement”

— as defined in Section 10.1(f).

 

“Confidential Information” —

as defined in Section 12.1.

 

“Consent” — any

approval, consent, ratification, waiver or other authorization.

 

2

 

“Contemplated Transactions” —

all of the transactions contemplated by this Agreement.

 

“Contract” — any

agreement, contract, Lease, consensual obligation, promise or undertaking

(whether written or oral and whether express or implied), including open

purchase and sale orders.

 

“Copyrights” — as

defined in Section 3.25(a)(iii).

 

“Damages” — as

defined in Section 11.2.

 

“Disclosing Party” —

as defined in Section 12.1(a).

 

“EBITDA” — with

respect to the Seller, at the time of determination, the earnings of the Seller

before interest, income taxes, depreciation and amortization.

 

“EBITDA Adjustment Amount” —

as defined in Section 2.8(b).

 

“Employee Plans” —

as defined in Section 3.16(a).

 

“Employment Agreements” —

the Hirsch Employment Agreement, the Rotblatt Employment Agreement and the

Douglas Employment Agreement.

 

“Encumbrance” — any

charge, claim, community or other marital property interest, condition,

equitable interest, lien, option, pledge, security interest, mortgage, right of

way, easement, encroachment, servitude, right of first option, right of first

refusal or similar restriction, including any restriction on use, voting (in

the case of any security or equity interest), transfer, receipt of income or

exercise of any other attribute of ownership.

 

“Environment” — soil,

land surface or subsurface strata, surface waters (including navigable waters

and ocean waters), groundwaters, drinking water supply, stream sediments,

ambient air (including indoor air), plant and animal life and any other

environmental medium or natural resource.

 

“Environmental, Health and Safety

Liabilities” — any cost, damages, expense, liability,

obligation or other responsibility required under any Environmental Law or

Occupational Safety and Health Law, including those consisting of or relating

to:  (a) any environmental, health

or safety matter or condition (including on-site or off-site contamination,

occupational safety and health and regulation of any chemical substance or

product);  (b) any fine, penalty,

judgment, award, settlement, legal or administrative Proceeding, damages, loss,

claim, demand or response, remedial or inspection cost or expense required

under any Environmental Law or Occupational Safety and Health Law;

(c) financial responsibility imposed under any Environmental Law or Occupational

Safety and Health Law for cleanup costs or corrective action, including any

cleanup, removal, containment or other remediation or response actions required

by any Environmental Law or Occupational Safety and Health Law and for any

natural resource damages; or (d) any other compliance, corrective or

remedial measure required under any Environmental Law or Occupational Safety

and Health Law.  The terms “removal,”

“remedial” and “response action” include the types of activities covered by the

United States

 

3

 

Comprehensive Environmental

Response, Compensation and Liability Act of 1980, as amended (CERCLA).

 

“Environmental Law” —

any Legal Requirement in effect as of the Closing Date, relating to public health

or safety, worker health or safety, pollution or protection of human health or

the Environment, including natural resources, including, without limitation,

the Clean Air Act, 42 U.S.C. Section 7401 et  seq., the Clean

Water Act, 33 U.S.C. Section 1251 et  seq., the Resource

Conservation Recovery Act (“RCRA”), 42 U.S.C. Section 6901 et  seq.

and any similar or implementing federal, state or local law, which governs: (a)

the existence, clean-up, removal and/or remedy of contamination or threat of

contamination on or about real property; (b) the emission or discharge of

Hazardous Materials into the Environment; (c) the control of Hazardous

Materials; or (d) the use, generation, or transport, treatment, storage,

disposal, removal, recycling, handling, or recovery of Hazardous Materials.

 

“ERISA” — the

Employee Retirement Income Security Act of 1974.

 

“Excluded Assets” —

as defined in Section 2.2.

 

“Facilities” — any

Real Property, leasehold or other interest in real property currently owned or

operated by Seller, including the Tangible Personal Property used or operated

by Seller at the respective locations of the Real Property specified in

Section 3.7.  Notwithstanding the

foregoing, for purposes of the definitions of “Hazardous Activity” and

“Remedial Action” and Sections 3.22 and 11.3, “Facilities” shall mean any

real property, leasehold or other interest in real property currently or

formerly owned or operated by Seller, including the Tangible Personal Property

owned, used or operated by Seller at the respective locations of the Real

Property specified in Section 3.7.

 

“GAAP” — generally

accepted accounting principles for financial reporting in the United States,

applied on a basis consistent with the basis on which the Balance Sheet and the

other financial statements referred to in Section 3.4 were prepared.

 

“Governing Documents” —

with respect to a party hereto, (a) the articles or certificate of

incorporation and the bylaws of such Person; (b) all stockholders’

agreements, voting agreements, voting trust agreements, joint venture

agreements, registration rights agreements or other agreements or documents

relating to the organization, management or operation of such Person or

relating to the rights, duties and obligations of the stockholders of such

Person; and (c) any amendment or supplement to any of the foregoing.

 

“Governmental Authorization” —

any Consent, license, registration or permit issued, granted, given or

otherwise made available by or under the authority of any Governmental Body or

pursuant to any Legal Requirement.

 

“Governmental Body” —

any:  (a) nation, state, county,

city, town, borough, village, district or other jurisdiction; (b) federal,

state, local, municipal, foreign or other government or political subdivision

thereof; (c) governmental or quasi-governmental authority of any nature

(including any agency, branch, department, board, commission, court, tribunal

or other entity exercising governmental or quasi-governmental powers);

(d) multinational organization or body;

 

4

 

(e) body exercising, or

entitled or purporting to exercise, any administrative, executive, judicial,

legislative, police, regulatory or taxing authority or power; or

(f) official of any of the foregoing.

 

“Ground Lease” — any

long–term lease of land in which most of the rights and benefits

comprising ownership of the land and the improvements thereon or to be

constructed thereon, if any, are transferred to the tenant for the term

thereof.

 

“Ground Lease Property” —

any land, improvements and appurtenances subject to a Ground Lease in favor of

Seller.

 

“Guarantee” — as

defined in Section 4.2.

 

“Hazardous Activity” —

the distribution, generation, handling, importing, management, manufacturing,

processing, production, refinement, Release, storage, transfer, transportation,

treatment or use of Hazardous Material in, on, under, about or from any of the

Facilities or any part thereof into the Environment.

 

“Hazardous Material” —

any substance, material or waste which is regulated by any Governmental Body,

including any material, substance or waste which is defined as a “hazardous

waste,” “hazardous material,” “hazardous substance,” “extremely hazardous

waste,” “restricted hazardous waste,” “contaminant,” “toxic waste” or “toxic substance”

under any provision of Environmental Law, and including petroleum, petroleum

products, asbestos, presumed asbestos–containing material or asbestos–containing

material, urea formaldehyde and polychlorinated biphenyls.

 

“HSR Act” — the Hart–Scott–Rodino

Antitrust Improvements Act of 1976.

 

“Improvements” — all

buildings, structures, fixtures and improvements located on the Land or

included in the Assets, including those under construction.

 

“Indemnified Person” —

as defined in Section 11.8.

 

“Indemnifying Person” —

as defined in Section 11.8.

 

“Independent Accountants” —

as defined in Section 2.9(b).

 

“Initial Working Capital” —

$12,000,000, as calculated pursuant to the methodology set forth in

Schedule 2.9(b).

 

“Intellectual Property Assets” —

as defined in Section 3.25(a).

 

“Interim Balance Sheet” —

as defined in Section 3.4.

 

“Inventories” — all

inventories owned by Seller, wherever located, including all finished goods,

work in process, raw materials, spare parts and all other materials and

supplies to be used or consumed by Seller in the production of finished goods.

 

5

 

“IRS” — the United

States Internal Revenue Service and, to the extent relevant, the United States

Department of the Treasury, and any successor entities thereof.

 

“Kentwood Operations” —

the receiving, packaging, warehousing, shipping, quality inspection, inventory

control, marketing, research and development, engineering, customer service,

consumer relations, information systems and financial and administrative

functions currently conducted by Seller in the Kentwood, Michigan facility of

Seller.

 

“Knowledge” — an

individual will be deemed to have Knowledge of a particular fact or other

matter if:  (a) that individual is

actually aware of that fact or matter; or (b) that individual would

discover or otherwise become aware of that fact or matter in the course of

conducting a reasonably comprehensive investigation regarding the accuracy of

any representation or warranty contained in this Agreement.

 

Seller will be

deemed to have Knowledge of a particular fact or other matter if any of Kaplan,

Hirsch, Rotblatt, Douglas, Torjus Lundevall or Phil Minster had Knowledge of

that fact or other matter (as set forth in (a) and (b) above), and any such

individual will be deemed to have conducted a reasonably comprehensive

investigation regarding the accuracy of the representations and warranties made

herein by Seller.  Buyer will be deemed

to have Knowledge of a particular fact or other matter if either of Tom Bowles

or John Wille had Knowledge of that fact or other matter (as set forth in (a)

and (b) above), and any such individual will be deemed to have conducted a

reasonably comprehensive investigation regarding the accuracy of the

representations and warranties made herein by Buyer.

 

“Land” — all parcels

and tracts of land in which Seller has an ownership interest in fee.

 

“Lease” — any Real

Property Lease or any lease or rental agreement, license, right to use or

installment and conditional sale agreement to which Seller is a party and any

other Seller Contract pertaining to the leasing or use of any Tangible Personal

Property.

 

“Legal Requirement” —

any federal, state, local, municipal, foreign, international, multinational or

other constitution, law, ordinance, code, regulation, statute or treaty.

 

“Letters of Credit” —

as defined in Section 7.4(b).

 

“Liability” — with

respect to any Person, any liability or obligation of such Person of any kind,

character or description, whether known or unknown, absolute or contingent,

accrued or unaccrued, disputed or undisputed, liquidated or unliquidated,

secured or unsecured, joint or several, due or to become due, vested or

unvested, executory, determined, determinable or otherwise, and whether or not

the same is required to be accrued on the financial statements of such Person.

 

“MAM Agreement” —

the Distribution Agreement, dated June 15, 2000, between Seller and MAM

Babyartikel G.M.B.H. (“MAM”).

 

“Marks” — as defined

in Section 3.25(a)(i).

 

“Material Consents” —

as defined in Section 7.3.

 

6

 

“Noncompetition Agreement” —

as defined in Section 2.7(a)(vii).

 

“Occupational Safety and Health Law” —

any Legal Requirement designed to provide safe and healthful working conditions

and to reduce occupational safety and health hazards, including the

Occupational Safety and Health Act.

 

“Order” — any order,

injunction, judgment, decree, ruling, assessment or arbitration award of any

Governmental Body or arbitrator.

 

“Patents” — as

defined in Section 3.25(a)(ii).

 

“Permitted Encumbrances” —

as defined in Section 3.9.

 

“Permitted Real Estate Encumbrances” —

as defined in Section 3.9(b).

 

“Person” — an

individual, partnership, corporation, business trust, limited liability company,

limited liability partnership, joint stock company, trust, unincorporated

association, joint venture or other entity or a Governmental Body.

 

“Proceeding” — any

action, arbitration, audit, hearing, investigation, litigation or suit (whether

civil, criminal, administrative, judicial or investigative, whether formal or

informal, whether public or private) commenced, brought, conducted or heard by

or before, or otherwise involving, any Governmental Body or arbitrator.

 

“Product Liability Insurance Policies” —

as defined in Section 10.12.

 

“Purchase Price” —

as defined in Section 2.3.

 

“RB” — as defined in

Section 4.2.

 

“Real Property” —

the Land and Improvements and all Appurtenances thereto and any Ground Lease

Property.

 

“Real Property Lease” —

any Ground Lease or Space Lease.

 

“Receiving Party” —

as defined in Section 12.1(a).

 

“Related Person” —

 

With respect

to a particular individual: (a) each other member of such individual’s

Family; and (b) any Person that is directly or indirectly controlled by any

one or more members of such individual’s Family.

 

With respect

to a specified Person other than an individual:  any Person that directly or indirectly controls, is directly or

indirectly controlled by or is directly or indirectly under common control with

such specified Person.

 

For purposes

of this definition the “Family” of an individual includes (i) the

individual, (ii) the individual’s spouse, (iii) any other natural

person who is related to the individual or the

 

7

 

individual’s spouse within the

second degree and (iv) any other natural person who resides with such

individual.

 

“Release” — any

release, spill, emission, leaking, pumping, pouring, dumping, emptying,

injection, deposit, disposal, discharge, dispersal or leaching on or into the

Environment or into or out of any property.

 

“Remedial Action” —

all actions, including any capital expenditures, required under Environmental

Law (a) to clean up, remove, treat or in any other way address any Hazardous

Material; (b) to prevent the Release or Threat of Release or to minimize

the further Release of any Hazardous Material; (c) to perform pre–remedial

studies and investigations or post–remedial monitoring and care; or

(d) to bring all Facilities and the operations conducted thereon into

compliance with Environmental Laws and environmental Governmental

Authorizations.

 

“Representative” —

with respect to a particular Person, any director, officer, manager, employee,

agent, consultant, advisor, accountant, financial advisor, legal counsel or

other representative of that Person.

 

“Retained Liabilities” —

as defined in Section 2.4(b).

 

“Seller” — as

defined in the first paragraph of this Agreement.

 

“Seller Contract” —

any Contract (a) under which Seller has or may acquire any rights or

benefits; (b) under which Seller has or may become subject to any

obligation or liability; or (c) by which Seller or any of the assets owned

or used by Seller is or may become bound.

 

“Shareholders” — as

defined in the first paragraph of this Agreement.

 

“Space Lease” — any

lease or rental agreement pertaining to the occupancy of any improved space on

any Land.

 

“Subsidiary” — with

respect to any Person (the “Owner”), any corporation or other Person of which

securities or other interests having the power to elect a majority of that

corporation’s or other Person’s board of directors or similar governing body,

or otherwise having the power to direct the business and policies of that

corporation or other Person (other than securities or other interests having

such power only upon the happening of a contingency that has not occurred), are

held by the Owner or one or more of its Subsidiaries.

 

“Tangible Personal Property” —

all machinery, equipment, tools, furniture, office equipment, computer

hardware, supplies, materials, vehicles and other items of tangible personal

property (other than Inventories) of every kind owned or leased by Seller

(wherever located and whether or not carried on Seller’s books), together with

any express or implied warranty by the manufacturers or sellers or lessors of

any item or component part thereof and all maintenance records and other

documents relating thereto.

 

“Tax” — any income,

gross receipts, license, payroll, employment, excise, severance, stamp, occupation,

premium, property, environmental, windfall profit, customs, vehicle, airplane,

boat, vessel or other title or registration, capital stock, franchise,

employees’ income

 

8

 

withholding, foreign or domestic

withholding, social security, unemployment, disability, real property, personal

property, sales, use, transfer, value added, alternative, add-on minimum and

other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever

and any interest, penalty, addition or additional amount thereon imposed,

assessed or collected by or under the authority of any Governmental Body or

payable under any tax-sharing agreement or any other Contract.

 

“Tax Return” — any

return (including any information return), report, statement, schedule, notice,

form, declaration, claim for refund or other document or information filed with

or submitted to, or required to be filed with or submitted to, any Governmental

Body in connection with the determination, assessment, collection or payment of

any Tax or in connection with the administration, implementation or enforcement

of or compliance with any Legal Requirement relating to any Tax.

 

“Third Party” — a

Person that is not a party to this Agreement.

 

“Third–Party Claim” —

any claim against any Indemnified Person by a Third Party, whether or not

involving a Proceeding.

 

“Threat of Release” —

a reasonable likelihood of a Release that can reasonably be expected to require

action pursuant to any applicable Legal Requirement in order to prevent or

mitigate damage to the Environment that may result from such Release.

 

“Title Commitment” —

as defined in Section 5.10(a).

 

“Title Insurer” — as

defined in Section 5.10(a).

 

“Title Objection” —

as defined in Section 5.10(c).

 

“Twelve Month EBITDA” —

as defined in Section 2.8(b).

 

“Union” — as defined

in Section 10.1(f).

 

“WARN Act” — as

defined in Section 10.1(c).

 

“Working Capital” —

as defined in Section 2.9(a).

 

1.2. Usage.

 

(a)           Interpretation.  In this Agreement, unless a clear contrary

intention appears:

 

(i)            the singular number

includes the plural number and vice versa;

 

(ii)           reference to any

Person includes such Person’s successors and assigns but, if applicable, only

if such successors and assigns are not prohibited by this Agreement, and

reference to a Person in a particular capacity excludes such Person in any

other capacity or individually;

 

9

 

(iii)          reference to any

gender includes each other gender;

 

(iv)          reference to any agreement,

document or instrument means such agreement, document or instrument as amended

or modified and in effect from time to time in accordance with the terms

thereof;

 

(v)           reference to any

Legal Requirement means such Legal Requirement as amended, modified, codified,

replaced or reenacted, in whole or in part, and in effect from time to time,

including rules and regulations promulgated thereunder, and reference to any

Section or other provision of any Legal Requirement means that provision of

such Legal Requirement from time to time in effect and constituting the

substantive amendment, modification, codification, replacement or reenactment

of such Section or other provision;

 

(vi)          “hereunder,”

“hereof,” “hereto,”  and words of

similar import shall be deemed references to this Agreement as a whole and not

to any particular Article, Section or other provision hereof;

 

(vii)         “including” (and

with correlative meaning “include”) means including without limiting the

generality of any description preceding such term;

 

(viii)        “or” is used in the

inclusive sense of “and/or”;

 

(ix)           with respect to the

determination of any period of time, “from” means “from and including” and “to”

means “to but excluding”; and

 

(x)            references to

documents, instruments or agreements shall be deemed to refer as well to all

addenda, exhibits, schedules or amendments thereto.

 

(b)           Accounting Terms and

Determinations.  Unless otherwise

specified herein, all accounting terms used herein shall be interpreted and all

accounting determinations hereunder shall be made in accordance with GAAP.

 

(c)           Legal Representation of the

Parties.  This Agreement was

negotiated by the parties with the benefit of legal representation, and any

rule of construction or interpretation otherwise requiring this Agreement to be

construed or interpreted against any party shall not apply to any construction

or interpretation hereof.

 

2.             SALE AND TRANSFER OF ASSETS; CLOSING

 

2.1. Assets to Be Sold. 

Upon the terms and subject to the conditions set forth in this Agreement,

at the Closing, Seller shall sell, convey, assign, transfer and deliver to

Buyer, and Buyer shall purchase and acquire from Seller, free and clear of any

Encumbrances other than Permitted Encumbrances, all of Seller’s right, title  and interest in and to all of Seller’s

property and assets, real, personal or mixed, tangible and intangible, of every

kind and description, wherever located, including the following (but excluding

the Excluded Assets):

 

10

 

(a)           all Real Property, including the Real

Property described on Schedule 3.7 and the Real Property Leases described

on Schedule 3.8;

 

(b)           all Tangible Personal Property,

including those items described on Schedule 2.1(b);

 

(c)           all Inventories;

 

(d)           subject to Section 2.10(c), all

Accounts Receivable;

 

(e)           all Seller Contracts, including those

listed on Schedule 3.20(a), and all outstanding offers or solicitations

made by or to Seller to enter into any Contract;

 

(f)            all Governmental Authorizations and

all pending applications therefor or renewals thereof, in each case to the

extent transferable to Buyer, including those listed on Schedule 3.17(b);

 

(g)           all data and records related to the

operations of Seller, including client and customer lists, supplier lists and

records, referral sources, research and development reports and records,

production reports and records, service and warranty records, equipment logs,

operating guides and manuals, financial and accounting records, creative

materials, advertising materials, promotional materials, studies, reports,

correspondence and other similar documents and records and, subject to Legal

Requirements, copies of all personnel records and other records described in

Section 2.2(g);

 

(h)           all of the intangible rights and property

of Seller, including Intellectual Property Assets, going concern value,

goodwill, telephone, telecopy and e-mail addresses and listings and those items

listed on Schedules 3.25(d), (e), (f), (g) and (h);

 

(i)            all insurance benefits, including

rights and proceeds, arising from or relating to the Assets or the Assumed

Liabilities prior to the Closing Date;

 

(j)            all claims of Seller against Third

Parties relating to the Assets, whether choate or inchoate, known or unknown,

contingent or noncontingent, including all such claims listed on

Schedule 2.1(j); and

 

(k)           all rights of Seller relating to

deposits and prepaid expenses, claims for refunds and rights to offset in

respect thereof that are not listed on Schedule 2.2(d) and that are

not excluded under Section 2.2(h).

 

All of the property and assets

to be transferred to Buyer hereunder are herein referred to collectively as the

“Assets.”

 

Notwithstanding

the foregoing, the transfer of the Assets pursuant to this Agreement shall not

include the assumption of any Liability related to the Assets unless Buyer

expressly assumes that Liability pursuant to Section 2.4(a).

 

11

 

2.2. Excluded Assets.  Notwithstanding

anything to the contrary contained in Section 2.1 or elsewhere in this

Agreement, the following assets of Seller (collectively, the “Excluded

Assets”) are not part of the sale and purchase contemplated hereunder, are

excluded from the Assets and shall remain the property of Seller after the

Closing:

 

(a)           all cash, cash equivalents and

short-term investments;

 

(b)           all minute books, stock records and

corporate seals;

 

(c)           the shares of capital stock of Seller

held in treasury;

 

(d)           those rights relating to deposits and

prepaid expenses and claims for refunds and rights to offset in respect thereof

listed on Schedule 2.2(d);

 

(e)           all insurance policies and rights

thereunder (except to the extent specified in Sections 2.1(i) and (j) and

7.4(c));

 

(f)            all of the Seller Contracts listed

on Schedule 2.2(f);

 

(g)           all personnel records and other

records that Seller is required by law to retain in its possession;

 

(h)           all claims for refund of Taxes and

other Governmental Body charges of whatever nature, including, without

limitation, the anticipated duty refund in connection with customs duties paid

under the MAM Agreement prior to the Closing Date;

 

(i)            all rights in connection with and

assets of the Employee Plans;

 

(j)            all rights of Seller under this

Agreement, the Bill of Sale and the Assignment and Assumption Agreement; and

 

(k)           the property and assets expressly

designated on Schedule 2.2(k).

 

2.3. Consideration.

 

(a)           The aggregate consideration for the

Assets (the “Purchase Price”) will be (x) $44,990,000 (the “Cash

Consideration”), plus or minus the Adjustment Amount, (y) the EBITDA

Adjustment Amount, if any, and (z) the assumption of the Assumed

Liabilities.

 

(b)           In accordance with

Section 2.7(b), at the Closing, Buyer shall deliver to Seller (i) the

Cash Consideration by wire transfer and (ii) an executed Assignment  and Assumption Agreement.  The Adjustment Amount and the EBITDA

Adjustment, if any, shall be paid in accordance with Section 2.8 below.

 

(c)           In addition, the Buyer will establish

the Cash Bonus plan described in Exhibit 8.3(b)(i) and the EBITDA Earnout

plan described in Exhibit 8.3(b)(ii).

 

12

 

2.4. Liabilities.

 

(a)           Assumed Liabilities.  On the Closing Date, Buyer shall assume and

agree to discharge only the following Liabilities of Seller (the “Assumed

Liabilities”):

 

(i)            any trade account

payable reflected on the Closing Balance Sheet (as defined in

Section 2.9(b) below) (other than a trade account payable to any

Shareholder or a Related Person of Seller or any Shareholder) that remains

unpaid at and is not delinquent as of the Closing Date;

 

(ii)           any Liability

arising after the Closing Date under (w) the Seller Contracts described on

Schedule 3.20(a), including any liability under the Mam Agreement arising

out of the matter described on Item 1 of Schedule 3.13, other than the excluded

Seller Contracts described on Schedule 2.2(f); (x) purchase or sale

orders or supplier purchase orders entered into by Seller in the ordinary

course of business, consistent with past practice; and (y) Seller Contracts affecting

the ownership or leasing any interest in real or personal property (including

personal property leases and installment and conditional sales agreements)

having a value per item or aggregate payments of less than $20,000 or with a

term of less than one year, entered into in the ordinary course of business,

consistent with past practice, and in each case, any amendments thereto or

arising out of or relating to a breach by Seller that occurred prior to the

Closing Date);

 

(iii)          any Liability of

Seller arising after the Closing Date under any Seller Contract included in the

Assets that is entered into by Seller after the date hereof in accordance with

past practice and in the ordinary course of business (other than any Liability

arising out of or relating to a breach by Seller that occurred prior to the

Closing Date);

 

(iv)          Liabilities listed

on Schedule 2.4(b)(vii); and

 

(v)           two-thirds of any

Liabilities with respect to preference claims arising as a result of the K-Mart

bankruptcy, which shall in no event exceed $255,425.

 

(b)           Retained Liabilities.  The Retained Liabilities shall remain the

sole responsibility of and shall be retained, paid, performed and discharged

solely by Seller. “Retained Liabilities” shall mean every Liability of

Seller other than the Assumed Liabilities, and notwithstanding anything to the

contrary in Section 2.4(a), shall include, without limitation:

 

(i)            subject to Sections

10.12, 11.2(e), 11.4(g) and 11.5 of this Agreement, any Liability

arising out of or relating to products of Seller to the extent manufactured or

sold prior to the Closing Date other than to the extent assumed under

Section 2.4(a)(ii);

 

(ii)           any Liability under any Contract

assumed by Buyer pursuant to Section 2.4(a) that arises after the Closing

Date but that arises as a result of any breach that occurred prior to the

Closing Date;

 

13

 

(iii)          any Liability for Taxes, including

(A) any Taxes arising as a result of Seller’s operation of its business or

ownership of the Assets prior to the Closing Date, (B) any Taxes that will

arise as a result of the sale of the Assets pursuant to this Agreement imposed

on Seller by applicable Legal Requirements and (C) any deferred Taxes of

any nature, except for any Taxes set forth on the Closing Balance Sheet;

 

(iv)          any Liability under any Contract not

assumed by Buyer under Section 2.4(a), including any Liability arising out

of or relating to Seller’s credit facilities or any security interest related

thereto;

 

(v)           any Environmental, Health and Safety

Liabilities arising out of or relating to the operation of Seller’s business

prior to the Closing Date or Seller’s leasing, ownership or operation of real

property;

 

(vi)          any Liability under the Employee Plans

or to the extent not accrued as a current liability on the Closing Balance

Sheet, relating to payroll, vacation, sick leave, workers’ compensation,

unemployment benefits, pension benefits, employee stock option or

profit-sharing plans, health care plans or benefits or any other employee plans

or benefits of any kind for Seller’s employees or former employees or both;

 

(vii)         except as set forth on Schedule

2.4(b)(vii), any Liability under any employment, severance, retention or

termination Contract with any employee of Seller or any of its Related Persons;

 

(viii)        any Liability arising out of or relating

to any employee grievance whether or not the affected employees are hired by

Buyer;

 

(ix)           any Liability of Seller to any

Shareholder or Related Person of Seller or any Shareholder;

 

(x)            any Liability to indemnify,

reimburse or advance amounts to any officer, director, employee or agent of

Seller;

 

(xi)           any Liability to distribute to any of

Seller’s Shareholders or otherwise apply all or any part of the consideration

received hereunder;

 

(xii)          any Liability arising out of any

Proceeding pending as of the Closing Date;

 

(xiii)         any Liability arising out of any

Proceeding commenced after the Closing Date and arising out of or relating to

any occurrence or event happening prior to the Closing Date, except to the

extent expressly assumed hereunder;

 

(xiv)        any Liability arising out of or

resulting from Seller’s compliance or noncompliance with any Legal Requirement

or Order of any Governmental Body;

 

14

 

(xv)         any Liability of Seller under this

Agreement or any other document executed in connection with the Contemplated

Transactions;

 

(xvi)        any Liability of Seller based upon

Seller’s acts or omissions, or arising out of or in connection with the business

conducted by Seller, occurring prior to the Closing Date, except to the extent

expressly assumed hereunder;

 

(xvii)       any Liability of Seller based upon

Seller’s acts or omissions occurring after the Closing Date;

 

(xviii)      any Liability of Seller to RBK Management

Company; and

 

(xix)         any Liability incurred by Seller

relating to any duties on tooling located in foreign countries.

 

2.5. Allocation.  The Purchase Price shall be

allocated in accordance with the determination of a reputable valuation firm designated

mutually by the Seller and the Buyer (at Buyer’s expense). After the Closing,

the parties shall make consistent use of the allocation, fair market value and

useful lives specified by such valuation firm for all Tax purposes and in all

filings, declarations  and reports with

the IRS in respect thereof, including the reports required to be filed under

Section 1060 of the Code.  Buyer

shall prepare and deliver IRS Form 8594 to Seller within

seventy-five (75) days after the Closing Date to be filed with the

IRS.  In any Proceeding related to the

determination of any Tax, neither Buyer nor Seller or Shareholders shall

contend or represent that such allocation is not a correct allocation.

 

2.6. Closing.  The purchase and sale provided

for in this Agreement (the “Closing”) will take place at the offices of

Kaye Scholer LLP at 425 Park Avenue, New York, NY 10022, commencing at

10:00 a.m. (local time) on the later of (a) July 26, 2002, or

(b) the date that is five (5) Business Days following the satisfaction

or waiver of all conditions to Closing hereunder unless Buyer and Seller

otherwise agree.  Subject to the

provisions of Article 9, failure to consummate the purchase and sale

provided for in this Agreement on the date and time and at the place determined

pursuant to this Section 2.6 will not result in the termination of this

Agreement and will not relieve any party of any obligation under this

Agreement.  In such a situation, the

Closing will occur as soon as practicable, subject to Article 9.

 

2.7. Closing Obligations.  In addition to any other

documents to be delivered under other provisions of this Agreement, at the

Closing:

 

(a)           Seller and Shareholders, as the case

may be, shall deliver to Buyer, together with funds sufficient to pay all Taxes

necessary for the transfer, filing or recording thereof:

 

(i)            a bill of sale for

all of the Assets that are Tangible Personal Property in the form of Exhibit 2.7(a)(i)

(the “Bill of Sale”) executed by Seller;

 

(ii)           an assignment of all of the Assets

that are intangible personal property in the form of Exhibit 2.7(a)(ii),

which assignment shall also contain

 

15

 

Buyer’s undertaking and

assumption of the Assumed Liabilities (the “Assignment and Assumption

Agreement”) executed by Seller;

 

(iii)          for each interest in Real Property

identified on Schedules 3.7 and 3.8, a recordable warranty deed, an

Assignment and Assumption of Lease in the form of Exhibit 2.7(a)(iii)

or such other appropriate document or instrument of transfer, as the case may

require, each in form and substance satisfactory to Buyer and its counsel and

executed by Seller;

 

(iv)          assignments of all Intellectual

Property Assets and separate assignments of all registered Marks, Patents,

Copyrights and Net Names in the form of Exhibit 2.7(a)(iv) executed

by Seller;

 

(v)           such other deeds, bills of sale,

assignments, certificates of title, documents 

and other instruments of transfer and conveyance as may reasonably be

requested by Buyer, each in form and substance satisfactory to Buyer and its

legal counsel and executed by Seller;

 

(vi)          (1)           an employment

agreement in the form of Exhibit 2.7(a)(vi)(1), executed by Hirsch

(the “Hirsch Employment Agreement”);

 

(2)           an employment

agreement in the form of Exhibit 2.7(a)(vi)(2), executed by

Rotblatt (the “Rotblatt Employment Agreement”);

 

(3)           an employment agreement in the

form of Exhibit 2.7(a)(vi)(3), executed by Douglas (the “Douglas

Employment Agreement”);

 

(vii)         a noncompetition

agreement in the form of Exhibit 2.7(a)(vii), executed by

Kaplan (the “Noncompetition Agreement”);

 

(viii)        a certificate executed by Seller and

each Shareholder as to the accuracy of their representations and warranties as

of the date of this Agreement  and as of

the Closing in accordance with Section 7.1 and as to their compliance with

and performance of their covenants and obligations to be performed or complied

with at or before the Closing in accordance with Section 7.2;  and

 

(ix)           a certificate of the Secretary of

Seller certifying, as complete and accurate as of the Closing, attached copies

of the Governing Documents of Seller, certifying and attaching all requisite

resolutions or actions of Seller’s board of directors and shareholders

approving the execution and delivery of this Agreement and the consummation of

the Contemplated Transactions and the change of name contemplated by

Section 5.9 and certifying to the incumbency and signatures of the

officers of Seller executing this Agreement and any other document relating to

the Contemplated Transactions and accompanied by the requisite documents for

amending the relevant Governing Documents of Seller

 

16

 

required to

effect such change of name in form sufficient for filing with the appropriate Governmental

Body.

 

(b)           Buyer shall deliver to

Seller and Shareholders, as the case may be:

 

(i)            the Cash

Consideration by wire transfer to an account specified by Seller in a

writing delivered to Buyer at least three (3) Business Days prior to the

Closing Date;

 

(ii)           the Assignment and Assumption

Agreement executed by Buyer;

 

(iii)          the Employment Agreements executed by

Buyer;

 

(iv)          the Noncompetition Agreement executed

by Buyer;

 

(v)           a certificate executed by Buyer as to

the accuracy of its representations  and

warranties as of the date of this Agreement and as of the Closing in accordance

with Section 8.1 and as to its compliance with and performance of its

covenants and obligations to be performed or complied with at or before the

Closing in accordance with Section 8.2; and

 

(vi)          a certificate of the Secretary of

Buyer certifying, as complete and accurate as of the Closing, attached copies

of the Governing Documents of Buyer and certifying and attaching all requisite

resolutions or actions of Buyer’s board of directors and shareholders, if required,

approving the execution and delivery of this Agreement and the consummation of

the Contemplated Transactions and certifying to the incumbency and signatures

of the officers of Buyer executing this Agreement and any other document

relating to the Contemplated Transactions.

 

2.8. Adjustment Amount, EBITDA Adjustment

Amount and Payment.

 

(a)           Adjustment Amount.  Subject to Section 2.10(c), the “Adjustment

Amount” (which may be a positive or negative number) will be equal to the

amount determined by subtracting Closing Working Capital (as determined in

accordance with Section 2.9(b) below) from Initial Working Capital.  If the Adjustment Amount is positive, the

Adjustment Amount shall be paid by wire transfer by Seller to an account

specified by Buyer, and if the Adjustment Amount is negative,  the absolute value of the Adjustment Amount

shall be paid by wire transfer by Buyer to an account specified by Seller.  Within three Business Days after the

calculation of the Closing Working Capital becomes binding and conclusive on

the parties pursuant to Section 2.9(b), Seller or Buyer, as the case may

be, shall make the wire transfer payment provided for in this Section 2.8.

 

(b)             

EBITDA Adjustment Amount If the EBITDA of Seller for the twelve

months (to the day) immediately preceding the Closing Date (the “Twelve

Month EBITDA”) is greater than $7.277 million, an amount (the “EBITDA

Adjustment Amount”) equal to the lesser of $2 million and the amount,

determined by the following calculation: 

(Twelve Month EBITDA minus $7.277 million) times 6.184, shall be paid by

Buyer to Seller by wire transfer within three Business Days after the

calculation thereof becomes binding and conclusive on the

 

17

 

parties pursuant to

Section 2.9(c).  The calculation of

the Twelve Month EBITDA shall be computed taking into account the following

add-back items to net income used in calculating EBITDA for the Seller for the

year ended December 31, 2001, which, taking into account a LIFO adjustment

of $188,314, resulted in EBITDA of $7,096,008 for such year; provided,

however, that (x) in the case of point-in-time events resulting in an

add-back item, such add-back item shall only be included to the extent that the

corresponding event occurred during the twelve-month period (to the day)

immediately preceding the Closing Date, and (y) in the case of ratable

events resulting in an add-back item, only the portion of such add-back item

accruing during the twelve-month period (to the day) immediately preceding the

Closing Date shall be included.  Such

add-backs to net income in 2001 are as follows: (i) management fees of

$1,341,250; (ii) tooling costs of $163,805 (such costs were expensed, not

capitalized); (iii) excess compensation of $250,000; (iv) interest

expense of $702,084; (v) depreciation of $315,847; (vi) taxes of

$104,576; (vii) $220,370 of goods shipped to Kmart and written off;

(viii) a LIFO adjustment equal to (x) $188,314 minus (y) the

lesser of (1) $94,157 and (2) 50% of the amount, if any, by which

Twelve Month EBITDA would exceed $7.277 million if the add-back provided by

this clause (viii) were $188,314; (ix) $64,000 in costs relating to

an unconsummated acquisition; and (x) $83,411 from a MAM goods pricing

adjustment for the fiscal year ended December 31, 2000.  Such add-backs to net income in 2002 are as

follows:  (i) management fees;

(ii) tooling costs (that are expensed, not capitalized); (iii) excess

compensation; (iv) interest expense; (v) depreciation;

(vi) taxes; (vii) unconsummated acquisition costs and 50% of the

costs directly associated with the Contemplated Transactions; and (viii) a

LIFO adjustment, all as calculated in accordance with past practice.

 

2.9. Adjustment Procedures.

 

(a)           “Working Capital” as of a

given date shall mean the amount calculated by subtracting the current

liabilities (accounts payable and accrued liabilities) of Seller included in

the Assumed Liabilities as of that date from the current assets of Seller

included in the Assets as of that date.

 

(b)           Adjustment Amount.

 

(i)            Seller shall

prepare a balance sheet (“Closing Balance Sheet”) and income statement

(“Closing Income Statement”) of Seller as of the Closing Date and for

the period from the date of the Balance Sheet through the Closing Date, all in

accordance with GAAP.  The Closing

Balance Sheet shall reflect the results of a physical inventory to be conducted

by Seller, effective as of the Closing Date. 

Buyer shall be present for such physical inventory and the parties shall

mutually agree to the methods and results thereof.  Seller shall then determine the Working Capital as of the Closing

Date, plus half the amount of capital expenditures set forth on

Schedule 2.9(b) (the “Closing Working Capital”) based upon the

Closing Balance Sheet and Closing Income Statement and using the same

methodology as was used to calculate the Initial Working Capital, as set forth

on Schedule 2.9(b)(i).  Seller

shall deliver the Closing Balance Sheet, Closing Income Statement and its

determination of the Closing Working Capital to Buyer within ninety (90) days

following the Closing Date.  In

preparing the Closing Balance Sheet, Closing Income Statement and Closing

Working Capital, Buyer

 

18

 

agrees that

Seller may use Buyer’s employees (former Seller employees) and records during

normal business hours, upon reasonable advance notice, to facilitate such

preparation, provided that any such use shall not interfere to any

significant extent with the normal operations of Buyer and/or its business.

 

(ii)           In connection with

its review of the Closing Balance Sheet and the Closing Income Statement, Buyer

shall have the right to audit such statements and determinations, and Seller

agrees to cooperate with Buyer during the preparation thereof to accommodate

any such audit.  If within

thirty (30) days following delivery of the Closing Balance Sheet, Closing

Income Statement and the Closing Working Capital calculation Buyer has not

given Seller written notice of its objection as to the Closing Working Capital

calculation (which notice shall state in reasonable detail the basis of Buyer’s

objection), then the Closing Working Capital calculated by Seller shall be

binding and conclusive on the parties and be used in computing the Adjustment

Amount.

 

(iii)          If Buyer timely

gives Seller such notice of objection, and if Seller and Buyer fail to resolve

the issues outstanding with respect to the Closing Income Statement and the

calculation of the Closing Working Capital in good faith within thirty (30)

days of Seller’s receipt of Buyer’s objection notice, Seller and Buyer shall

submit the issues remaining in dispute to PriceWaterhouseCoopers (the “Independent

Accountants”) for resolution applying the principles, policies and

practices referred to in Section 2.9(b). 

If issues are submitted to the Independent Accountants for resolution,

(i) Seller and Buyer shall furnish or cause to be furnished to the

Independent Accountants such work papers and other documents and information

relating to the disputed issues as the Independent Accountants may request and

are available to that party or its agents and shall be afforded the opportunity

to present to the Independent Accountants any material relating to the disputed

issues and to discuss the issues with the Independent Accountants;

(ii) the determination by the Independent Accountants, as set forth in a

notice to be delivered to both Seller and Buyer within sixty (60) days of the

submission to the Independent Accountants of the issues remaining in dispute,

shall be final, binding and conclusive on the parties and shall be used in the

calculation of the Closing Working Capital; and (iii) if the

determinations of either party differ from those of the Independent Accountants

by more than 15%, such party shall pay the fees and costs of the Independent

Accountants and the costs and expenses, including reasonable attorney’s fees,

of the other party; if the determinations of both parties differ from those of

the Independent Accountants by either (i) 15% or less, or (ii) more than 15%,

Seller and Buyer will each bear fifty percent (50%) of the fees and costs of

the Independent Accountants for such determination, and each party shall pay

its own costs and expenses.

 

(c)           EBITDA

Adjustment Amount.

 

(i)            Seller shall

determine (x) the Twelve Month EBITDA and (y) the EBITDA Adjustment

Amount, if any, in accordance with the provisions of

 

19

 

Section 2.8(b).  Seller shall deliver such determinations,

including a description of the basis upon which such determination was made, to

Buyer within ninety (90) days following the Closing Date.  In determining the Twelve Month EBITDA and

the EBITDA Adjustment Amount, if any, Buyer agrees that Seller may use Buyer’s

employees (former Seller employees) and records during normal business hours,

upon reasonable advance notice, to facilitate such preparation, provided

that any such use shall not interfere to any significant extent with the normal

operations of Buyer and/or its business.

 

(ii)           If within

thirty (30) days following delivery of such determinations, Buyer has not

given Seller written notice of its objection thereto (which notice shall state

in reasonable detail the basis of Buyer’s objection), then such determinations

shall be binding and conclusive on the parties.

 

(iii)          If Buyer timely

gives Seller such notice of objection, and if Seller and Buyer fail to resolve

the issues outstanding with respect to the determination of the Twelve Month

EBITDA and the EBITDA Adjustment Amount in good faith within thirty (30)

days of Seller’s receipt of Buyer’s objection notice, Seller and Buyer shall

submit the issues remaining in dispute to the Independent Accountants for

resolution applying the principles, policies and practices referred to in

herein and in Section 2.8(b).  If

issues are submitted to the Independent Accountants for resolution,

(i) Seller and Buyer shall furnish or cause to be furnished to the

Independent Accountants such work papers and other documents and information

relating to the disputed issues as the Independent Accountants may request and

are available to that party or its agents and shall be afforded the opportunity

to present to the Independent Accountants any material relating to the disputed

issues and to discuss the issues with the Independent Accountants;

(ii) the determination by the Independent Accountants, as set forth in a

notice to be delivered to both Seller and Buyer within sixty (60) days of the

submission to the Independent Accountants of the issues remaining in dispute,

shall be final, binding and conclusive on the parties and shall be used in the

calculation of the Twelve Month EBITDA and the EBITDA Adjustment Amount; and

(iii) if the determinations of either party differ from those of the

Independent Accountants by more than 15%, such party shall pay the fees and

costs of the Independent Accountants and the costs and expenses, including

reasonable attorney’s fees, of the other party; if the determinations of both

parties differ from those of the Independent Accountants by either (i) 15% or

less, or (ii) more than 15%, Seller and Buyer will each bear fifty percent

(50%) of the fees and costs of the Independent Accountants for such

determination, and each party shall pay its own costs and expenses.

 

2.10.                     Consents.

 

(a)           If there are any Material Consents

that have not yet been obtained (or otherwise are not in full force and effect)

as of the Closing, in the case of each Seller Contract as to which such

Material Consents were not obtained (or otherwise are not in full force and

effect) (the “Restricted Material Contracts”), Buyer may waive the

closing conditions as to any such

 

20

 

Material Consent and

either:  (i) elect to have Seller

continue its efforts to obtain the Material Consents; or (ii) elect to

have Seller retain that Restricted Material Contract and all Liabilities

arising therefrom or relating thereto.

 

(b)           If Buyer waives the

closing condition as to any Material Consent and elects to have Seller continue

its efforts to obtain such Material Consent and the Closing occurs,

notwithstanding Sections 2.1 and 2.4, neither this Agreement nor the

Assignment and Assumption Agreement nor any other document related to the consummation

of the Contemplated Transactions shall constitute a sale, assignment,

assumption, transfer, conveyance or delivery or an attempted sale, assignment,

assumption, transfer, conveyance or delivery of the Restricted Material

Contracts, and following the Closing, the parties shall use Best Efforts, and

cooperate with each other, to obtain the Material Consent relating to each

Restricted Material Contract as quickly as practicable.  Pending the obtaining of such Material

Consents relating to any Restricted Material Contract, the parties shall

cooperate with each other in any reasonable and lawful arrangements designed to

provide to Buyer the benefits of use of the Restricted Material Contract for

its term (or any right or benefit arising thereunder, including the enforcement

for the benefit of Buyer of any and all rights of Seller against a third party

thereunder).  Once a Material Consent

for the sale, assignment, assumption, transfer, conveyance and delivery of a

Restricted Material Contract is obtained, Seller shall promptly assign,

transfer, convey and deliver such Restricted Material Contract to Buyer, and

Buyer shall assume the obligations under such Restricted Material Contract

assigned to Buyer from and after the date of assignment to Buyer pursuant to a

special-purpose assignment and assumption agreement substantially similar in

terms to those of the Assignment and Assumption Agreement (which

special-purpose agreement the parties shall prepare, execute and deliver in

good faith at the time of such transfer, all at no additional cost to Buyer).

 

(i)            If there are any

Consents listed on Exhibit 7.3 necessary for the assignment and transfer

of any Seller Contracts to Buyer (the “Nonmaterial Consents”) which have

not yet been obtained (or otherwise are not in full force and effect) as of the

Closing (the “Restricted Nonmaterial Contracts”), Buyer shall, at the

Closing, accept the assignment of such Restricted Nonmaterial Contracts, in

which case, as between Buyer and Seller, such Restricted Nonmaterial Contracts

shall, to the maximum extent practicable and notwithstanding the failure to

obtain the applicable Nonmaterial Consent, be transferred at the Closing

pursuant to the Assignment and Assumption Agreement as elsewhere provided under

this Agreement.

 

(c)           Notwithstanding

anything to the contrary contained herein, the assignment of the right to

receive payments under the Wal-Mart Stores, Inc. Vendor Agreement between

Wal-Mart Stores, Inc. and the Seller (the “Walmart Agreement”) shall not be

effective until the 30th day after notice has been given to Walmart Stores,

Inc., under the Walmart Agreement Standards for Vendors, under the section

titled “Notice Regarding Assignment of Accounts” (the “WM Assignment Effective

Date”).  During the period between the Closing

Date and the WM Assignment Effective Date, Seller agrees to pay an amount to

the Buyer, as and when collected, equal to the amount of any receivables

collected under the WalMart Agreement (the “Receivables Amount”), without

regard to when such receivables arose. 

For purposes of calculating the Adjustment Amount under Section 2.8,

Working Capital shall be calculated to

 

21

 

include as an asset (i) any

accounts receivable attributable to the Walmart Agreement on the Closing Date,

as shown on the Closing Balance Sheet that remain outstanding and are assigned

to Buyer on the WM Assignment Effective Date plus (ii) any payments made to

Buyer in respect of any Receivable Amount pursuant to the preceding sentence in

respect of collections of receivables outstanding on the Closing Date, and the

calculation of Working Capital shall not include as an asset any other

receivables under the Walmart Agreement. 

Seller agrees that no Receivable Amount shall be distributed to any

Shareholder prior to the WM Assignment Effective Date.

 

3.                                      REPRESENTATIONS

AND WARRANTIES OF SELLER AND SHAREHOLDERS.

 

Seller

represents and warrants, jointly and severally, and each Shareholder represents

and warrants, severally, to Buyer as follows:

 

3.1.

Organization and Good Standing.

 

(a)           Schedule 3.1(a) contains a

complete and accurate list of Seller’s jurisdiction of incorporation and any

other jurisdictions in which it is qualified to do business as a foreign

corporation.  Seller is a corporation

duly organized, validly existing and in good standing under the laws of its

jurisdiction of incorporation, with full corporate power and authority to

conduct its business as it is now being conducted, to own or use the properties

and assets that it purports to own or use, and to perform all its obligations

under the Seller Contracts. Seller is duly qualified to do business as a

foreign corporation and is in good standing under the laws of each state or

other jurisdiction in which either the ownership or use of the properties owned

or used by it, or the nature of the activities conducted by it, requires such

qualification, except where the absence to be so qualified would not have a

material adverse effect on the business, operations, assets, results of

operations or condition (financial or other) of Seller.

 

(b)           Complete and accurate copies of the

Governing Documents of Seller, as currently in effect, are attached to

Schedule 3.1(b).

 

(c)           Seller has no Subsidiary nor does it

own any shares of capital stock or other securities of any other Person.

 

3.2.

Enforceability; Authority; No Conflict.

 

(a)           This Agreement constitutes the legal,

valid and binding obligation of Seller and each Shareholder, enforceable

against each of them in accordance with its terms, except to the extent that

enforceability is limited by the laws of bankruptcy, insolvency or similar laws

affecting creditors’ rights and remedies, or by equitable principles.  Upon the execution and delivery by Seller

and Shareholders of the Employment Agreements, the Noncompetition Agreement and

each other agreement to be executed or delivered by any or all of Seller and

Shareholders at the Closing (collectively, the “Seller’s Closing Documents”),

each of Seller’s Closing Documents will constitute the legal, valid and binding

obligation of each of Seller and the Shareholders, enforceable against each of

them in accordance with its terms, except to the extent that enforceability is

limited by the laws of bankruptcy, insolvency or similar laws

 

22

 

affecting creditors’ rights and

remedies, or by equitable principles. Seller has the absolute and unrestricted

right, power and authority to execute and deliver this Agreement and, at

Closing, the Seller’s Closing Documents to which it is a party and to perform

its obligations under this Agreement and, at Closing, the Seller’s Closing

Documents, and such action has been duly authorized by all necessary action by

the Shareholders and Seller’s board of directors.  Each Shareholder has all necessary legal capacity to enter into

this Agreement and the Seller’s Closing Documents to which such Shareholder is

a party and to perform his obligations hereunder and thereunder.

 

(b)           Except as set forth on

Schedule 3.2(b), neither the execution and delivery of this Agreement nor

the consummation or performance of any of the Contemplated Transactions will,

directly or indirectly (with or without notice or lapse of time):

 

(i)            breach (A) any

provision of any of the Governing Documents of Seller or (B) any

resolution adopted by the board of directors of the Seller or the Shareholders;

 

(ii)           breach or give any

Governmental Body or other Person the right to challenge any of the

Contemplated Transactions or to exercise any remedy or obtain any relief under

any Legal Requirement or any Order to which Seller or either Shareholder, or

any of the Assets, may be subject;

 

(iii)          contravene,

conflict with or result in a violation or breach of any of the terms or

requirements of, or give any Governmental Body the right to revoke, withdraw,

suspend, cancel, terminate or modify, any Governmental Authorization that is

held by Seller or that otherwise relates to the Assets or to the business of

Seller;

 

(iv)          cause Buyer to

become subject to, or to become liable for the payment of, any Tax;

 

(v)           breach any provision

of, or give any Person the right to declare a default or exercise any remedy

under, or to accelerate the maturity or performance of, or payment under, or to

cancel, terminate or modify, any Seller Contract of an amount or value in

excess of $25,000;

 

(vi)          result in the

imposition or creation of any Encumbrance upon or with respect to any of the

Assets; or

 

(vii)         result in any

Shareholder of the Seller having the right to exercise dissenters’ appraisal

rights.

 

(c)           Except as set forth on

Schedule 3.2(c), neither Seller nor any Shareholder is required to give

any notice to or obtain any Consent from any Person in connection with the

execution and delivery of this Agreement or the consummation or performance of

any of the Contemplated Transactions.

 

23

 

3.3. Capitalization.  The

authorized equity securities of Seller consist of 10,000 shares of common

stock, par value one dollar per share, of which 1,200 shares are issued and

outstanding, 960 of which are owned by Kaplan, 120 of which are owned by

Hirsch, 60 of which are owned by Rotblatt and 60 of which are owned by

Douglas.  Shareholders are and will be on

the Closing Date the record and beneficial owners and holders of the shares

owned by each of them, free and clear of all Encumbrances.  There are no Contracts relating to the

issuance, sale or transfer of any equity securities or other securities of Seller.  Other than the Shareholders, no other Person

owns, holds or has the right to acquire any equity securities or other

securities of Seller.

 

3.4. Financial

Statements.  Seller has delivered to

Buyer:  (a) an unaudited (but

reviewed by Friduss, Lukee, Schiff & Co., P.C., the independent certified

public accountants of the Seller (“Reviewed”)) balance sheet of Seller

as at December 31, 2001 (including the notes thereto, the “Balance

Sheet”), and the related Reviewed unaudited statements of income, changes

in shareholders’ equity and cash flows for the fiscal year then ended,

including in each case the notes thereto, (b) Reviewed balance sheets of

Seller as at December 31 in each of the fiscal years 1998 through 2000,

and the related Reviewed statements of income, changes in shareholders’ equity

and cash flows for each of the fiscal years then ended, including in each case

the notes thereto; and (c) an unaudited balance sheet of Seller as at

March 31, 2002, (the “Interim Balance Sheet”) and the related

unaudited statement of income for the three months then ended, certified by

Seller’s chief financial officer.  Such

financial statements fairly present the financial condition and the results of

operations, changes in shareholders’ equity and cash flows of Seller, as

applicable, as at the respective dates of and for the periods referred to in

such financial statements, all in accordance with GAAP, subject, in the case of

interim financial statements, to normal recurring year-end adjustments (the

effect of which will not, individually or in the aggregate, be significant) and

the absence of notes (that, if presented, would not differ materially from

those included in the Balance Sheet). 

The financial statements referred to in this Section 3.4 reflect

the consistent application of such accounting principles throughout the periods

involved, except as set forth on Schedule 3.4 or as disclosed in the notes

to such financial statements.  The

financial statements have been and will be prepared from and are in accordance

with the accounting records of Seller. 

Seller has also delivered to Buyer copies of all letters from Seller’s

auditors to Seller’s board of directors during the thirty-six (36) months

preceding the execution of this Agreement, together with copies of any

responses thereto.

 

3.5. Books and Records.  The

books of account and other financial records of Seller, all of which have been

made available to Buyer, are complete and correct, in all material respects,

and represent actual, bona fide transactions and have been maintained in

accordance with sound business practices including the maintenance of an

adequate system of internal controls. 

The minute books of Seller, all of which have been made available to

Buyer, contain accurate and complete, in all material respects, records of all

meetings held of, and corporate action taken by, the Shareholders, the board of

directors and any committees of the board of directors of Seller, and no

meeting of any such Shareholders, board of directors or committee at which

action has been taken to obligate the Seller or subject the Seller to any

liability after the date hereof has been held for which minutes have not been

prepared or are not contained in such minute books.

 

3.6. Sufficiency of Assets.  Except as set forth on

Schedule 3.6, the Assets (a) constitute all of the assets, tangible

and intangible, of any nature whatsoever, necessary to operate Seller’s

 

24

 

business in the manner

presently operated by Seller and (b) include all of the operating assets

of Seller.

 

3.7.

Description of Owned Real Property.  Schedule 3.7

contains a correct legal description, street address and tax parcel

identification number of all tracts, parcels and subdivided lots in which

Seller has an ownership interest in fee.

 

3.8.

Description of Leased Real Property.  Schedule 3.8

contains a street address of all tracts, parcels and subdivided lots in which

Seller has a leasehold interest and an accurate description (by location, name

of lessor, date of Lease and term expiry date) of all Real Property Leases.

 

3.9.

Title to Assets; Encumbrances.

 

(a)           Seller owns good and marketable title

to its respective estates in the Real Property, free and clear of any

Encumbrances, other than: 

(i) liens for Taxes for the current tax year which are not yet due

and payable; and (ii) those described on Schedule 3.9(a)(i) (“Real

Estate Encumbrances”).  True and

complete copies of (A) all deeds, existing title insurance policies and

surveys of or pertaining to the Real Property and (B) all instruments,

agreements and other documents evidencing, creating or constituting any Real

Estate Encumbrances have been delivered to Buyer.  Seller warrants to Buyer that, at the time of Closing, the Real

Property shall be free and clear of all Real Estate Encumbrances other than

those identified on Schedule 3.9(a)(ii) as acceptable to Buyer (“Permitted

Real Estate Encumbrances”), it being understood by the parties that, except

for liens for Taxes for the current year which are not yet due and payable, any

liens against the Real Property that are capable of discharge with the payment

of money shall not constitute Permitted Real Estate Encumbrances.

 

(b)           Seller owns good and transferable

title to all of the other Assets free and clear of any Encumbrances other than

those described on Schedule 3.9(b)(i) (“Non-Real Estate Encumbrances”).  Seller warrants to Buyer that, at the time

of Closing, all other Assets shall be free and clear of all Non-Real Estate

Encumbrances other than those identified on Schedule 3.9(b)(ii) as

acceptable to Buyer (“Permitted Non-Real Estate Encumbrances” and,

together with the Permitted Real Estate Encumbrances, “Permitted

Encumbrances”).

 

3.10.       Condition of Facilities.

 

(a)           Use of the Real Property for the

various purposes for which it is presently being used is permitted as of right

under all applicable zoning Legal Requirements and is not subject to “permitted

nonconforming” use or structure classifications.  All Improvements are in substantial compliance with all

applicable Legal Requirements, including those pertaining to zoning, building

and the disabled.  No part of any

Improvement encroaches on any real property not included in the Real Property,

and there are no buildings, structures, fixtures or other improvements

primarily situated on adjoining property which encroach on any part of the

Land.  The Land for each owned Facility

abuts on and has vehicular access to a public road, is supplied with public or

quasi-public utilities appropriate for the operation of the Facilities located

thereon and, except as described on Schedule 3.10(a), is not located

within any flood plain or area subject to wetlands regulation or any similar

restriction.  With respect to the lease

of property

 

25

 

located at 2101 Waukegan Rd,

Suite 203 Bannockburn, Illinois  60015,

the foregoing representations set forth in this Section 3.10(a) shall be

qualified to the Knowledge of Seller and Shareholders.  To the Knowledge of Seller and Shareholders,

there is no existing or proposed plan to modify or realign any street or

highway or any existing or proposed eminent domain Proceeding that would result

in the taking of all or any part of any Facility or that would prevent or

hinder the continued use of any Facility as heretofore used in the conduct of

the business of Seller.

 

(b)           Each item of Tangible Personal

Property used in the day to day operation of Seller’s business, other than

those with a book value under $10,000 that are not material to the operations

of any aspect of Seller’s business, is in good repair and good operating

condition, ordinary wear and tear excepted, is suitable for immediate use in

the ordinary course of business and is free from latent and patent

defects.  No item of Tangible Personal

Property used in the day to day operation of Seller’s business, other than

those with a book value under $10,000 that are not material to the operations

of any aspect of Seller’s business, is in need of repair or replacement other

than as part of routine maintenance, provided however, that to the extent the

above representation applies to (i) tooling that is in the possession of

Seller’s suppliers or other third parties in the People’s Republic of China or

(ii) the items described on Schedule 3.10(b), the Seller only represents that

to the Seller’s Knowledge, such tooling and such items have been maintained in

the ordinary course of business by such supplier or third party.  Except as disclosed on

Schedule 3.10(b), all Tangible Personal Property used in Seller’s business

is in the possession of Seller.

 

3.11.       Accounts Receivable.  All

Accounts Receivable that are reflected on the Balance Sheet and the Interim

Balance Sheet, and on the accounting records of Seller as of the Closing Date

represent or will represent valid obligations arising from sales actually made

or services actually performed by Seller in the ordinary course of business

consistent with past practice. Except to the extent paid prior to the Closing

Date, such Accounts Receivable are or will be as of the Closing Date current

and collectible net of the respective reserves shown on the Balance Sheet, the

Interim Balance Sheet and on the Closing Balance Sheet (which reserves are

calculated as described on Schedule 3.11, and will not represent a

material adverse change in the composition of such Accounts Receivable in terms

of aging).  Except as set forth on

Schedule 3.11, there is no contest, claim, defense or right of setoff

under any Contract with any account debtor of an Account Receivable relating to

the amount or validity of such Account Receivable.  Schedule 3.11 contains a complete and accurate list of all

Accounts Receivable as of the date of the Interim Balance Sheet, which list

sets forth the aging of each such Account Receivable.

 

3.12.       Inventories.  (a)    Schedule 3.12(a) sets forth all of the

Inventories as of the date of the Interim Balance Sheet.

 

(b)           All items included in the Inventories

consist of a quality and quantity usable and, with respect to finished goods,

saleable, in the ordinary course of business of Seller, consistent with past

practice, and are in good and merchantable condition, in conformity with

applicable voluntary Toy Manufacturing Standards of the Toy Industry

Association, Inc. and for the purposes for which intended, and meet all Legal

Requirements of Governmental Bodies applicable to such Inventories, except for

the inventory reserve set forth on Schedule 3.12(b)

 

26

 

(which reserve is calculated as

set forth on Schedule 3.12(b)).  Seller

is not in possession of any inventory not owned by Seller, including goods

already sold.  All of the Inventories

have been valued at the lower of cost or net realizable value on a last in,

first out basis.  Inventories now on

hand that were purchased after the date of the Balance Sheet or the Interim

Balance Sheet were purchased in the ordinary course of business of Seller

consistent with past practice at a cost not exceeding market prices prevailing

at the time of purchase.  The quantities

of each item of Inventories (whether raw materials, work-in-process or finished

goods) are reasonable in the present circumstances of Seller.  Work-in-process Inventories are now valued,

and will be valued on the Closing Date, according to GAAP.  Except as set forth on Schedule 3.12(b),

(x) Seller has not made, within the past three years, nor are there any

pending, material claims against manufacturers of the Inventories, including,

without limitation, with respect to breach of warranty or the quality or

condition of such Inventories and (y) customers or consumers have not

made, within the past three years, nor are there any pending, material claims,

including, without limitation, with respect to breach of warranty or the

quality or condition of any products sold by Seller thereto.

 

3.13.       No Undisclosed Liabilities.  Except

as set forth on Schedule 3.13, Seller has no Liability that is required to

be reflected or reserved against on financial statements under GAAP that is not

so reflected or reserved against in the Balance Sheet, the Interim Balance

Sheet and/or the Closing Balance Sheet.

 

3.14.       Taxes.

 

(a)           Tax Returns Filed and Taxes Paid.  Seller has filed or caused to be filed on a

timely basis all federal, state and all other material Tax Returns and all

material reports with respect to Taxes that are or were required to be filed

pursuant to applicable Legal Requirements. All Tax Returns and reports filed by

Seller are true, correct and complete in all material respects. Seller has

paid, or made provision for the payment of, all Taxes that have or may have

become due for all periods covered by the Tax Returns or otherwise, or pursuant

to any assessment received by Seller, except such Taxes, if any, as are listed

on Schedule 3.14(a) and are being contested in good faith and as to which

adequate reserves (determined in accordance with GAAP) have been provided in

the Balance Sheet and the Interim Balance Sheet.  Except as provided on Schedule 3.14(a), Seller currently is

not the beneficiary of any extension of time within which to file any Tax

Return.  No claim has ever been made or,

to the Knowledge of Seller, is expected to be made by any Governmental Body in

a jurisdiction where Seller does not file Tax Returns that it is or may be

subject to taxation by that jurisdiction. 

There are no Encumbrances on any of the Assets that arose in connection

with any failure (or alleged failure) to pay any Tax, and Seller has no

Knowledge of any basis for assertion of any claims attributable to Taxes which,

if adversely determined, would result in any such Encumbrance.

 

(b)           Delivery of Tax Returns and

Information Regarding Audits and Potential Audits.  Seller has delivered or made available to

Buyer copies of, and Schedule 3.14(b) contains a complete and accurate

list of, all Tax Returns filed since January 1, 1998.  The federal and state income or franchise

Tax Returns of Seller have been audited by the IRS or relevant state tax

authorities or are closed by the applicable statute of limitations for all taxable

years through December 31, 1997.  Schedule 3.14(b)

contains a complete and accurate list of all Tax Returns of Seller that have

been audited or are currently under audit and accurately describes any

 

27

 

deficiencies or other amounts

that were paid or are currently being contested.  To the Knowledge of Seller, no undisclosed material deficiencies

are expected to be asserted with respect to any such audit.  All deficiencies proposed as a result of

such audits have been paid, reserved against, settled or are being contested in

good faith by appropriate proceedings as described on

Schedule 3.14(b).  Seller has

delivered, or made available to Buyer, copies of any examination reports,

statements or deficiencies or similar items with respect to such audits.  Except as provided on Schedule 3.14(b),

Seller has no Knowledge that any Governmental Body is likely to assess any

material additional taxes for any period for which Tax Returns have been filed.  There is no dispute or claim concerning any

material Taxes of Seller either (i) claimed or raised by any Governmental

Body in writing or (ii) as to which Seller has Knowledge.  Schedule 3.14(b) contains a list of all

Tax Returns for which the applicable statute of limitations has not run.  Except as described on

Schedule 3.14(b), Seller has not given or been requested to give waivers

or extensions (or is or would be subject to a waiver or extension given by any

other Person) of any statute of limitations relating to the payment of Taxes of

Seller or for which Seller may be liable.

 

(c)           Proper Accrual.  The charges, accruals and reserves with

respect to Taxes on the financial statements of Seller are adequate (determined

in accordance with GAAP) and are at least equal to Seller’s liability for

Taxes.  There exists no proposed tax

assessment or deficiency against Seller except as disclosed in the Interim

Balance Sheet or on Schedule 3.14(c).

 

(d)           Specific Potential

Tax Liabilities and Tax Situations.

 

(i)            Withholding.  All Taxes that Seller is or was required by

Legal Requirements to withhold, deduct or collect have been duly withheld,

deducted and collected and, to the extent required, have been paid to the

proper Governmental Body or other Person.

 

(ii)           Tax Sharing or

Similar Agreements.  There is no tax

sharing agreement, tax allocation agreement, tax indemnity obligation or

similar written or unwritten agreement, arrangement, understanding or practice

with respect to Taxes (including any advance pricing agreement, closing

agreement or other arrangement relating to Taxes) that will require any payment

by Seller.

 

(iii)          Consolidated

Group.  Seller (A) has not been

a member of an affiliated group within the meaning of Code Section 1504(a)

(or any similar group defined under a similar provision of state, local or foreign

law) and (B) has no liability for Taxes of any person (other than Seller

and its Subsidiaries) under Treas. Reg. sect. 1.1502-6 (or any similar

provision of state, local or foreign law), as a transferee or successor by

contract or otherwise.

 

(iv)          S Corporation.  Seller is, and has been since November 1,

1987, an S corporation as defined in Code Section 1361, and Seller has not

been required to pay any amounts of Tax pursuant to either the built-in-gains

tax under Code Section 1374 or the passive income tax under Code

Section 1375.

 

Schedule 3.14(d)(iv) lists all the states and localities with

respect to which

 

28

 

Seller has

filed any corporate, income or franchise tax returns and sets forth whether

Seller is treated as the equivalent of an S corporation by or with respect to

each such state or locality.  Seller has

properly filed Tax Returns with and paid and discharged any liabilities for

Taxes in any states or localities in which it is subject to Tax.  Seller has disclosed on its federal income

Tax Returns all positions taken therein that could give rise to a substantial

understatement of federal income Tax within the meaning of Code

Section 6662.

 

3.15.       No Material Adverse Change.  Since

the date of the Balance Sheet, there has not been any material adverse change

in the business, operations, prospects (to the Knowledge of Seller or any

Shareholder), assets, results of operations or condition (financial or other)

of Seller, and to Seller’s Knowledge, no event has occurred or circumstance

exists that may result in such a material adverse change; provided,

however, that any change resulting from conditions affecting Seller’s industry

or general business or economic conditions shall not constitute a material

adverse change in the business of Seller.

 

3.16.       Employee Benefits.  Set

forth on Schedule 3.16 is a complete and correct list of all “employee

benefit plans” as defined by Section 3(3) of ERISA, all specified fringe

benefit plans as defined in Section 6039D of the Code, and all other

bonus, incentive-compensation, deferred-compensation, profit-sharing,

stock-option, stock-appreciation-right, stock-bonus, stock-purchase,

employee-stock-ownership, savings, severance, change-in-control,

supplemental-unemployment, layoff, salary-continuation, retirement, pension,

health, life-insurance, disability, accident, group-insurance, vacation,

holiday, sick-leave, fringe-benefit or welfare plan, and any other employee

compensation or benefit plan, agreement, policy, practice, commitment, contract

or understanding (whether qualified or nonqualified, currently effective or

terminated, written or unwritten) and any trust, escrow or other agreement

related thereto that is maintained or contributed to by Seller which employees

of Seller are eligible to participate (collectively the “Employee Plans”).  No Employee Plan is (x) a “Multiemployer

Plan” (as defined in Section 3(37) of ERISA); or (y) subject to

Title IV of ERISA.  All Employee Plans

are in written form, and descriptions thereof have been provided to the Buyer.

 

3.17.       Compliance With Legal Requirements;

Governmental Authorizations.

 

(a)           Except as set forth on

Schedule 3.17(a):

 

(i)            Seller is, and at

all times since January 1, 1999, has been, in substantial compliance with

each Legal Requirement that is or was applicable to it or to the conduct or

operation of its business or the ownership or use of any of its assets;

 

(ii)           no event has

occurred or circumstance exists that (with or without notice or lapse of time)

(A) constitutes or results in a material violation by Seller of, or a

material failure on the part of Seller to comply with, any Legal Requirement

(including, but not limited to, the WARN Act) or (B) gives rise to any

significant obligation on the part of Seller to undertake, or to bear all or

any portion of the cost of, any remedial action of any nature; and

 

29

 

(iii)          Seller has not

received, at any time since January 1, 1999, any notice or other

communication (whether oral or written) from any Governmental Body or any other

Person regarding (A) any actual, alleged, possible or potential violation

of, or failure to comply with, any Legal Requirement or (B) any actual,

alleged, possible or potential obligation on the part of Seller to undertake,

or to bear all or any portion of the cost of, any remedial action of any

nature.

 

(b)           Schedule 3.17(b)

contains a complete and accurate list of each Governmental Authorization that

is held by Seller or that otherwise relates to Seller’s business or the

Assets.  Each Governmental Authorization

listed or required to be listed on Schedule 3.17(b) is valid and in full

force and effect.  Except as set forth

on Schedule 3.17(b):

 

(i)            Seller is, and at

all times since January 1, 1999, has been, in substantial compliance with

all of the terms and requirements of each Governmental Authorization identified

or required to be identified on Schedule 3.17(b);

 

(ii)           no event has

occurred or circumstance exists that (with or without notice or lapse of time)

(A) constitutes or results directly or indirectly in a material violation

of or a failure to comply in any material respect with any term or requirement

of any Governmental Authorization listed or required to be listed on Schedule 3.17(b)

or (B) will result directly or indirectly in the revocation, withdrawal,

suspension, cancellation or termination of, or any modification to, any

Governmental Authorization listed or required to be listed on

Schedule 3.17(b);

 

(iii)          Seller has not

received, at any time since January 1, 1999, any notice or other

communication (whether oral or written) from any Governmental Body or any other

Person regarding (A) any actual, alleged, possible or potential violation

of or failure to comply with any term or requirement of any Governmental

Authorization or (B) any actual, proposed, possible or potential

revocation, withdrawal, suspension, cancellation, termination of or

modification to any Governmental Authorization; and

 

(iv)          all applications

required to have been filed for the renewal of the Governmental Authorizations

listed or required to be listed on Schedule 3.17(b) have been duly filed

on a timely basis with the appropriate Governmental Bodies, and all other

filings required to have been made with respect to such Governmental

Authorizations have been duly made with the appropriate Governmental Bodies.

 

The

Governmental Authorizations listed on Schedule 3.17(b) collectively

constitute all of the Governmental Authorizations necessary to permit Seller to

lawfully conduct and operate its business in the manner in which it currently

conducts and operates such business and to permit Seller to own and use its

assets in the manner in which it currently owns and uses such assets, except

where the absence of such Governmental Authorizations would not have a material

 

30

 

adverse effect on the business,

operations, assets, results of operations or condition (financial or other) of

Seller.

 

3.18.       Legal Proceedings; Orders.

 

(a)           Except as set forth on

Schedule 3.18(a), there is no pending or, to Seller’s Knowledge,

threatened Proceeding:

 

(i)            by or against

Seller or that otherwise relates to or may materially affect the business of,

or any of the assets owned or used by, Seller; or

 

(ii)           that challenges, or

that may have the effect of preventing, delaying, making illegal or otherwise

interfering with, any of the Contemplated Transactions.

 

To the

Knowledge of Seller, no event has occurred or circumstance exists that is

reasonably likely to give rise to or serve as a basis for the commencement of

any such Proceeding.  Seller has

delivered to Buyer copies of all pleadings, correspondence and other documents

relating to each Proceeding listed on Schedule 3.18(a).  There are no Proceedings listed or required

to be listed on Schedule 3.18(a) that could have a material adverse effect

on the business, operations, assets or condition of Seller or upon the Assets.

 

(b)           Except as set forth on

Schedule 3.18(b):  (i) there

is no Order to which Seller, its business or any of the Assets is subject; and

(ii) to the Knowledge of Seller, no officer, director, agent or employee

of Seller is subject to any Order that prohibits such officer, director, agent

or employee from engaging in or continuing any conduct, activity or practice

relating to the business of Seller.

 

(c)           Except as set forth on

Schedule 3.18(c):  (i) Seller

is, and, at all times has been in compliance with all of the terms and

requirements of each Order to which it or any of the Assets is or has been

subject; (ii) to Seller’s Knowledge, no event has occurred or circumstance

exists that is reasonably likely to constitute or result in (with or without

notice or lapse of time) a violation of or failure to comply with any term or requirement

of any Order to which Seller or any of the Assets is subject; and

(iii) Seller has not received, at any time, any notice or other

communication (whether oral or written) from any Governmental Body or any other

Person regarding any actual, alleged, possible or potential violation of, or

failure to comply with, any term or requirement of any Order to which Seller or

any of the Assets is or has been subject.

 

3.19.       Absence

of Certain Changes and Events. 

Except as set forth on Schedule 3.19, since the date of the Balance

Sheet, Seller has conducted its business only in the ordinary course of

business consistent with past practice and there has not been any:

 

(a)           amendment to the Governing Documents

of Seller;

 

(b)           payment (except in the ordinary

course of business consistent with past practice) or increase by Seller of any

bonuses, salaries or other compensation to any Shareholder, director, officer

or employee or entry into any employment, severance or similar Contract with

any director, officer or employee;

 

31

 

(c)           adoption of, amendment to or increase

in the payments to or benefits under, any Employee Plan;

 

(d)           damage to or destruction or loss of

any Asset with a book value in excess of $25,000, whether or not covered by

insurance;

 

(e)           entry into, termination of or receipt

of notice of termination of (i) any license, distributorship, dealer,

sales representative, joint venture, credit or similar Contract to which Seller

is a party, or (ii) any purchase orders to vendors or customers of an

amount or value in excess of $50,000, or any other Contract or transaction

involving a total remaining commitment by Seller of at least $20,000;

 

(f)            sale (other than sales of

Inventories in the ordinary course of business consistent with past practice),

lease, abandonment, lapse or other disposition of any Asset or property of

Seller (including the Intellectual Property Assets) or the creation of any

Encumbrance on any Asset with a fair market value in excess of $10,000;

 

(g)           cancellation or waiver of any claims

or rights with a value to Seller in excess of $25,000;

 

(h)           written or oral notification by any

significant customer or supplier of an intention to discontinue or materially

change the terms of its relationship with Seller;

 

(i)            material change in the accounting

methods used by Seller; or

 

(j)            Contract by Seller to do any of the

foregoing.

 

3.20.       Contracts; No Defaults.

 

(a)           Schedule 3.20(a) contains an

accurate and complete list, and Seller has delivered to Buyer accurate and

complete copies, of:

 

(i)            each Seller

Contract that involves performance of services or delivery of goods or

materials by Seller of an amount or value in excess of $25,000;

 

(ii)           each Seller

Contract that involves performance of services or delivery of goods or

materials to Seller of an amount or value in excess of $25,000;

 

(iii)          each Seller

Contract that was not entered into in the ordinary course of business,

consistent with past practice and that involves expenditures or receipts of

Seller in excess of $10,000;

 

(iv)          each Seller Contract

affecting the ownership of, leasing of, title to, use of or any leasehold or

other interest in any real or personal property (except personal property

leases and installment and conditional sales agreements having

 

32

 

a value per

item or aggregate payments of less than $20,000 and with a term of less than

one year);

 

(v)           each Seller Contract

with any labor union or other employee representative of a group of employees

relating to wages, hours and other conditions of employment;

 

(vi)          each Seller Contract

(however named) involving a sharing of profits, losses, costs or liabilities by

Seller with any other Person;

 

(vii)         each Seller Contract

containing covenants that in any way purport to restrict Seller’s business

activity or limit the freedom of Seller to engage in any line of business or to

compete with any Person;

 

(viii)        each Seller Contract

providing for payments to or by any Person based on sales, purchases or

profits, other than direct payments for goods;

 

(ix)           each power of

attorney of Seller that is currently effective and outstanding;

 

(x)            each Seller

Contract entered into other than in the ordinary course of business, consistent

with past practice, that contains or provides for an express undertaking by

Seller to be responsible for consequential damages;

 

(xi)           each Seller

Contract for capital expenditures in excess of $25,000;

 

(xii)          each Seller

Contract not denominated in U.S. dollars;

 

(xiii)         each Seller

Contract with a written warranty, guaranty and/or other similar undertaking

with respect to contractual performance extended by Seller other than in the

ordinary course of business, consistent with past practice; and

 

(xiv)        each amendment,

supplement and modification (whether oral or written) in respect of any of the

foregoing.

 

The parties hereto agree that

Seller need not deliver purchase or sale orders or supplier’s purchase orders

entered into by Seller in the ordinary course of business, consistent with past

practice in an amount less than $25,000.

 

(b)           Except as set forth on

Schedule 3.20(b), no Shareholder or any Related Person of a Shareholder

has or may acquire any rights under, and no Shareholder has or may become

subject to any obligation or liability under, any Contract that relates to the

business of Seller or any of the Assets.

 

(c)           Except as set forth on

Schedule 3.20(c):

 

(i)            each Seller

Contract identified or required to be identified on Schedule 3.20(a) and

which is to be assigned to or assumed by Buyer under this

 

33

 

Agreement is

in full force and effect and is valid and enforceable in accordance with its

terms, except to the extent that enforceability is limited by the laws of

bankruptcy, insolvency or similar laws affecting creditors’ rights and

remedies, or by equitable principles;

 

(ii)           each Seller

Contract identified or required to be identified on Schedule 3.20(a) and

which is being assigned to or assumed by Buyer is assignable by Seller to Buyer

without the consent of any other Person; and

 

(iii)          to the Knowledge of

Seller, no Contract identified or required to be identified on

Schedule 3.20(a) and which is to be assigned to or assumed by Buyer under

this Agreement will upon completion or performance thereof have a material

adverse affect on the business, assets or condition of Seller or the business

to be conducted by Buyer with the Assets.

 

(d)           Except as set forth on

Schedule 3.20(d):

 

(i)            Seller is in

material and substantial compliance with all applicable terms and requirements

of each Seller Contract which is being assumed by Buyer;

 

(ii)           to the Knowledge of

Seller, each other Person that has any obligation or liability under any Seller

Contract which is being assigned to Buyer is, and at all times since January 1,

2000, has been, in full compliance with all applicable terms and requirements

of such Contract;

 

(iii)          no event has

occurred or circumstance exists that (with or without notice or lapse of time)

may contravene, conflict with or result in a breach of, or give any other

Person, or to the Knowledge of Seller or the Shareholders, Seller,  the right to declare a default or exercise

any remedy under, or to accelerate the maturity or performance of, or payment

under, or to cancel, terminate or modify, any Seller Contract that is being

assigned to or assumed by Buyer;

 

(iv)          no event has

occurred or circumstance exists under or by virtue of any Contract that (with

or without notice or lapse of time) would cause the creation of any Encumbrance

affecting any of the Assets; and

 

(v)           Seller has not given

to or received from any other Person any notice or other communication (whether

oral or written) regarding any actual, alleged, possible or potential violation

or breach of, or default under, any Contract which is being assigned to or

assumed by Buyer.

 

(e)           Except as set forth on Schedule

3.20(e), there are no renegotiations of, attempts to renegotiate or outstanding

rights to renegotiate any material amounts paid or payable to Seller under

current or completed Contracts with any Person having the contractual or

statutory right to demand or require such renegotiation and no such Person has

made written demand for such renegotiation.

 

34

 

(f)            Each Contract relating to the sale,

design, manufacture or provision of products or services by Seller has been

entered into in the ordinary course of business of Seller, consistent with past

practice, and has been entered into without the commission of any act alone or

in concert with any other Person, or any consideration having been paid or

promised, that is or would be in violation of any Legal Requirement.

 

(g)           Except as set forth on

Schedule 3.20(g), Seller has not previously refused to distribute a New

Non-Core Product (as that term is defined in the Mam Agreement)

 

3.21.       Insurance.

 

(a)           Seller has delivered to Buyer:

 

(i)            accurate and

complete copies of all policies of insurance (and correspondence relating to

coverage thereunder) to which Seller is a party or under which Seller is or has

been covered at any time since January 1, 1999, a list of which is

included on Schedule 3.21(a);

 

(ii)           accurate and

complete copies of all pending applications by Seller for policies of

insurance; and

 

(iii)          any written

statement by the auditor of Seller’s financial statements or any consultant or

risk management advisor with regard to the adequacy of Seller’s coverage or of

the reserves for claims.

 

(b)           Schedule 3.21(b) describes:

 

(i)            any self–insurance

arrangement by or affecting Seller, including any reserves established

thereunder;

 

(ii)           any Contract or

arrangement, other than a policy of insurance, for the transfer or sharing of

any risk to which Seller is a party or which involves the business of Seller;

and

 

(iii)          all obligations of

Seller to provide insurance coverage to Third Parties (for example, under

Leases or service agreements) and identifies the policy under which such

coverage is provided.

 

(c)           Schedule 3.21(c) sets forth, by

year, for the current policy year and each of the three preceding policy

years:  (i) a summary of the loss

experience under each policy of insurance; (ii) a statement describing

each claim under a policy of insurance for an amount in excess of $10,000,

which sets forth:  (A) the name of

the claimant; (B)  a description of the policy by insurer, type of

insurance and period of coverage; and (C) the amount and a brief

description of the claim; and (iii) a statement describing the loss

experience for all claims that were self–insured, including the number

and aggregate cost of such claims.

 

(d)           Except as set forth on

Schedule 3.21(d):  (i) all

policies of insurance to which Seller is a party or that provide coverage to

Seller:  (A) are valid, outstanding

and

 

35

 

enforceable; (B) are

issued by an insurer that is financially sound and reputable; (C) to

Seller’s Knowledge, when taken together, provide adequate insurance coverage

for the Assets and the operations of Seller for all risks normally insured

against by a Person carrying on the same business or businesses as Seller in

the same location; and (D) are sufficient for compliance with all Seller

Contracts, and to the Knowledge of the Seller and Shareholders, all Legal

Requirements; (ii) Seller has not received (A) any refusal of

coverage or any notice that a defense will be afforded with reservation of

rights or (B) any notice of cancellation or any other notice that any

policy of insurance is no longer in full force or effect or that the issuer of

any policy of insurance is not willing or able to perform its obligations

thereunder; and (iii) Seller has paid all premiums due, and has otherwise

performed all of its obligations, under each policy of insurance to which it is

a party or that provides coverage to Seller.

 

3.22.       Environmental Matters.  This Section contains the sole and

exclusive representations and warranties of Seller and Shareholders relating to

Environmental Law.  Except as disclosed

on Schedule 3.22:

 

(a)           Seller is in material compliance

with, and is not in material violation of any Environmental Law.  Neither Seller nor any Shareholder has any

Knowledge of, nor has any of them received, any actual or threatened order,

notice or other communication from (i) any Governmental Body or private

citizen acting in the public interest or (ii) the current or prior owner

or operator of any Facility, of any actual or potential violation or failure to

materially comply with any Environmental Law, or of any actual or impending

material obligation to undertake or bear the cost of any Environmental, Health

and Safety Liabilities with respect to any Facility or other property or asset

(whether real, personal or mixed) in which Seller has or had an interest, or

with respect to any property or Facility at or to which Hazardous Materials

were generated, manufactured, refined, transferred, imported, used or processed

by Seller or any other Person for whose conduct it is or may be held

responsible, or from which Hazardous Materials have been transported, treated,

stored, handled, transferred, disposed, recycled or received.

 

(b)           There are no pending or, to the

Knowledge of Seller, threatened claims, Encumbrances, or other restrictions of

any nature against Seller resulting from any Environmental, Health and Safety

Liabilities or arising under or pursuant to any Environmental Law with respect

to or affecting any Facility or any other property or asset (whether real,

personal or mixed) in which Seller has or had an interest.

 

(c)           Neither Seller nor any Shareholder

has any Knowledge of, nor has any of them received, any citation, directive,

inquiry, notice, Order, summons, warning or other communication directed to

Seller or any Shareholder that relates to Hazardous Activity, Hazardous

Materials, or any alleged, actual, or potential material violation or failure

to comply with any Environmental Law, in each instance attributable to Seller,

or of any alleged, actual, or potential obligation of Seller or any Shareholder

to undertake or bear the cost of any Environmental, Health and Safety

Liabilities with respect to any Facility or property or asset (whether real,

personal or mixed) in which Seller has or had an interest, or with respect to

any property or facility to which Hazardous Materials generated, manufactured,

refined, transferred, imported, used or processed by Seller or any other Person

for whose conduct it is or may be held

 

36

 

responsible, have been

transported, treated, stored, handled, transferred, disposed, recycled or

received.

 

(d)           Neither Seller, nor to the Knowledge

of Seller, any other Person for whose conduct it is or may be held responsible

has any material Environmental, Health and Safety Liabilities with respect to

any Facility or, to the Knowledge of Seller, with respect to any other property

or asset (whether real, personal or mixed) in which Seller (or any predecessor)

has or had an interest or at any property geologically or hydrologically

adjoining any Facility or any such other property or asset.

 

(e)           There are no Hazardous Materials

present on or in the Environment at any current Facility or, to the Knowledge

of Seller, at any former Facility, or at any geologically or hydrologically

adjoining property, including any Hazardous Materials contained in barrels,

aboveground or underground storage tanks, landfills, land deposits, dumps,

equipment (whether movable or fixed) or other containers, either temporary or

permanent, and deposited or located in land, water, sumps, or any other part of

the Facility or such adjoining property, or incorporated into any structure

therein or thereon in material violation of all applicable Environmental Laws.

 

(f)            There has been no Release or, to the

Knowledge of Seller, Threat of Release, in material violation of Environmental

Law of any Hazardous Materials at or from any Facility or, to the Knowledge of

Seller, from any former Facility, or at any other location where any Hazardous

Materials were generated, manufactured, refined, transferred, produced, imported,

used, or processed from or by any Facility.

 

(g)           Seller has delivered to Buyer true

and complete copies and results of any reports, studies, analyses, tests, or

monitoring possessed or initiated by Seller pertaining to Hazardous Materials

or Hazardous Activities in, on, or under the Facilities, or concerning

compliance, by Seller with Environmental Laws.

 

3.23.       Employees.

 

(a)           Schedule 3.23(a) contains a

complete and accurate list of the following information for each employee and

director of Seller, including each employee on leave of absence or layoff

status:  employee’s name; job title;

bargaining unit status; date of hire; current compensation paid for those

earning $50,000 a year or more; sick and vacation leave that is accrued but

unused; and service credited for purposes of vesting and eligibility to

participate under any Employee Plan, or any other employee or director benefit

plan.

 

(b)           Schedule 3.23(b) contains a

complete and accurate list of the following information for each employee of

Seller who has been terminated or laid off, or whose hours of work have been

reduced by more than fifty percent (50%) by Seller, in the six (6) months prior

to the date of this Agreement: 

(i) the date of such termination, layoff or reduction in hours;

(ii) the reason for such termination, layoff or reduction in hours; and

(iii) the location to which the employee was assigned.

 

(c)           To the Knowledge of Seller, no

officer, director, agent, employee, consultant, or contractor of Seller is

bound by any Contract that purports to limit the ability of

 

37

 

such officer, director, agent,

employee, consultant, or contractor (i) to engage in or continue or

perform any conduct, activity, duties or practice relating to the business of

Seller or (ii) to assign to Seller or to any other Person any rights to

any invention, improvement, or discovery. 

To the Knowledge of Seller, no former or current employee of Seller is a

party to, or is otherwise bound by, any Contract that in any way adversely

affected, affects, or will affect the ability of Seller or Buyer to conduct the

business as heretofore carried on by Seller.

 

3.24.       Labor Disputes; Compliance.

 

(a)           Seller has complied in all material

respects with all applicable Legal Requirements relating to employment

practices, terms and conditions of employment, equal employment opportunity,

nondiscrimination, immigration, wages, hours, benefits, collective bargaining,

the payment of social security and similar Taxes and occupational safety and

health, including, but not limited to, the WARN Act.  Seller is not liable for the payment of any Taxes, fines,

penalties, or other amounts, however designated, in excess of $5,000, for

failure to comply with any of the foregoing Legal Requirements.

 

(b)           Except as disclosed on

Schedule 3.24(b), (i) Seller has not been, and is not now, a party to

any collective bargaining agreement or other labor contract; (ii) since

January 1, 2000, there has not been, there is not presently pending

or existing, and to Seller’s Knowledge there is not threatened, any strike,

slowdown, picketing, work stoppage or employee grievance process involving

Seller; (iii) to Seller’s Knowledge no event has occurred or circumstance

exists that could provide the basis for any work stoppage or other labor

dispute; (iv) there is not pending or, to Seller’s Knowledge, threatened

against or affecting Seller any Proceeding relating to the alleged violation of

any Legal Requirement pertaining to labor relations or employment matters, including

any charge or complaint filed with the National Labor Relations Board or any

comparable Governmental Body, and there is no organizational activity or other

labor dispute against or affecting Seller or the Facilities; (v) no

application or petition for an election of or for certification of a collective

bargaining agent is pending; (vi) no grievance or arbitration Proceeding

(a) has been instituted since January 1, 2000 or (b) exists,

that might have an adverse effect upon Seller or the conduct of its business;

(vii) there is no lockout of any employees by Seller, and no such action

is contemplated by Seller; and (viii) to Seller’s Knowledge there has been

no charge of discrimination filed against or threatened against Seller with the

Equal Employment Opportunity Commission or similar Governmental Body.

 

3.25.       Intellectual Property

Assets.

 

(a)           The term “Intellectual Property

Assets” means all intellectual property owned or licensed (as licensor or

licensee) by Seller in which Seller has a proprietary interest, anywhere in the

world, including:

 

(i)            all trademarks,

service marks, trade names, corporate names, company names, business names,

assumed or fictional business names, trade dress, trade styles, logos, or other

indicia of origin or source identification, trademark and service mark

registrations, and applications for trademark or service mark registrations and

any renewals thereof, together in each case with the

 

38

 

goodwill of

the business connected with the use of, and symbolized by, each of the above

(collectively, the “Marks”);

 

(ii)           (1) all

patents, patent applications and patentable inventions or discoveries,

(2) all inventions and improvements whether or not described and claimed

therein, and (3) all reissues, divisions, continuations,

continuations-in-part, substitutes, renewals, and extensions thereof, and all

improvements thereon (collectively, the “Patents”);

 

(iii)          (1) all

registered and unregistered copyrights in both published and unpublished works,

and all works of authorship, including, but not limited to all copyrights of

works based on or derived from works covered by such copyrights, all right,

title and interest to make and exploit all derivative works based on or adopted

from works covered by such copyrights, all moral rights, and all copyright

registrations and copyright applications, and any renewals or extensions

thereof, and (2) the rights to print, publish and distribute any of the

foregoing (collectively, the “Copyrights”);

 

(iv)          all trade secrets,

confidential and proprietary information, including know-how, manufacturing and

production processes and techniques, inventions, research and development

information, technical data, financial, marketing and business data, pricing

and cost information, business and marketing plans, process technology, plans,

drawings, and blue prints, and customer and supplier lists and information

(collectively, the “Trade Secrets”);

 

(v)           all rights in,

including but not limited to, all registrations for, Internet web sites and

Internet domain names presently used or owned by Seller (collectively, the “Net

Names”);

 

(vi)          all written licenses

or agreements providing for the grant by or to Seller of:  (A) any right to use any Mark or Trade

Secret, (B) any right under any Patent, (C) any right under any

Copyright, and (D) any right under any Net Name (collectively, the “Intellectual

Property Licenses”);

 

(vii)         the right to sue or

otherwise recover for any and all past, present and future infringements and misappropriations

of any of the assets described in this Section 3.25(a); and

 

(viii)        all income,

royalties, damages and other payments now and hereafter due and/or payable with

respect thereto (including, without limitation, payments under all licenses entered

into in connection therewith, and damages and payments for past, present or

future infringements thereof).

 

(b)           (i)            Schedule 3.25(b) contains a

complete and accurate list and summary description, including any royalties

paid or received by Seller in the last five years, and Seller has delivered to

Buyer accurate and complete copies, of all Seller Contracts expressly relating

to the Intellectual Property Assets, including Intellectual Property Licenses,

except for any license implied by the sale of a product and perpetual, paid-up

licenses for commonly

 

39

 

available software programs

with a value of less than $1,000 under which Seller is the licensee. There are

no outstanding and, to Seller’s Knowledge, no threatened disputes or

disagreements with respect to any such Contract.

 

(ii)           All Seller

Contracts are, by their express terms or by written agreement assignable by

Seller to Buyer for the purposes intended by this Agreement.

 

(c)           (i)            Except as set forth on

Schedule 3.25(c), the Intellectual Property Assets are all those necessary

for the operation of Seller’s business as it is currently conducted.  Seller is the owner or licensee of all

right, title and interest in and to each of the Intellectual Property Assets,

other than with respect to the licenses listed on Schedule 3.25(b), free

and clear of all Encumbrances, and has the right to use without payment to a

Third Party all of the Intellectual Property Assets, other than in respect of

licenses listed on Schedule 3.25(c). 

Seller is the owner of, or holds valid licenses to use, with respect to

each of its computers, all software used by the Seller in the conduct of its

business.

 

(ii)           Except as set forth

on Schedule 3.25(c), all former and current employees, independent

contractors, consultants and agents of Seller have executed written Contracts

with Seller that assign to Seller all rights to any inventions, improvements,

discoveries, Intellectual Property Assets or information relating to the

business of Seller.

 

(d)           (i)            Schedule 3.25(d) contains a

complete and accurate list and summary description of all Patents.

 

(ii)           All of the issued

Patents are currently in force and are not subject to any maintenance fees or

taxes falling due within ninety (90) days after the Closing Date or actions

falling due within 30 days after the Closing Date.

 

(iii)          No Patent has been

or is now involved in any interference, reissue, reexamination, or opposition

Proceeding.  To Seller’s Knowledge,

there is no potentially interfering prior art, patent or patent application of

any Third Party.

 

(iv)          Except as set forth

on Schedule 3.25 (d), (A) to Seller’s Knowledge, no Patent is

infringed or has been challenged or threatened in any way and (B) none of

the products manufactured or sold, nor any process or know-how used, by Seller

infringes or is alleged to infringe any patent or other proprietary right of

any other Person.

 

(v)           Except as set forth

on Schedule 3.25(d), all products made, used, offered for sale or sold

under the Patents have been marked with the proper patent notice.

 

(e)           (i)

Schedule 3.25(e)(i) contains a complete and accurate list and summary

description of all Marks; (ii) all registered Marks or applications for

registration of Marks are currently in force and are not subject to actions

falling due within ninety (90) days after the Closing Date; (iii) except

as set forth on Schedule 3.25(e)(iii), no Mark has been or is now

 

40

 

involved in any opposition,

invalidation, concurrent use or cancellation Proceeding and, to Seller’s

Knowledge, no such action is threatened with respect to any of the Marks;

(iv) except as set forth on Schedule 3.25(e)(iv) and to Seller’s

Knowledge, no Mark is infringed or has been challenged or threatened in any

way; (v) except as set forth in Schedule 3.25(e)(v) and to Seller’s

Knowledge, none of the Marks used by Seller infringes or is alleged to infringe

any trade name, trademark or service mark of any other Person; and (vi) within

Seller’s reasonable business judgment, all products and materials containing a

Mark bear the trade dress and notices as shown in the samples provided, such

provided samples are listed on Schedule 3.25(e)(vi).

 

(f)            (i) Schedule 3.25(f) contains a

complete and accurate list and summary description of all registered

Copyrights; (ii) all of the registered Copyrights are currently in force;

(iii) except as set forth on Schedule 3.25(f) and to Seller’s

Knowledge, no Copyright is infringed or has been challenged or threatened in

any way; (iv) to Seller’s Knowledge, none of the subject matter of any of

the Copyrights infringes or is alleged to infringe any copyright of any Third

Party or is a derivative work based upon the work of any other Person; and

(v) all works encompassed by the Copyrights have been marked to the extent

shown in the samples provided, such provided samples are listed on Schedule

3.25(f)(v).

 

(g)           (i) Schedule 3.25(g) contains a

complete and accurate list and summary description (without disclosing the Trade

Secret) of all itemizable Trade Secrets. 

To the best of Seller’s Knowledge, the Trade Secrets are not part of the

public knowledge or literature and, to Seller’s Knowledge, have not been used,

divulged or appropriated either for the benefit of any Person (other than

Seller) or to the detriment of Seller and (ii) to Seller’s Knowledge, no

Trade Secret is subject to any adverse claim or has been challenged or

threatened in any way or infringes any intellectual property right of any other

Person.

 

(h)           (i) Schedule 3.25(h) contains a

complete and accurate list and summary description of all Net Names;

(ii) all Net Names have been registered in the name of Seller;

(iii) no Net Name has been or is now involved in any dispute, opposition,

invalidation, infringement, dilution or cancellation Proceeding and, to

Seller’s Knowledge, no such action is threatened with respect to any Net Name;

(iv) to Seller’s Knowledge, there is no domain name application in

existence or pending of any other person which would or would potentially

interfere with or infringe any Net Name; (v) to Seller’s Knowledge, no Net

Name is infringed or has been challenged, interfered with or threatened in any

way; and (vi) no Net Name infringes, interferes with or is alleged to

interfere with or infringe the Mark or domain name of any other Person.

 

3.26.       Compliance With the Foreign Corrupt Practices

Act and Export Control and Anti–boycott Laws.

 

(a)           Neither Seller nor any Shareholder

has, nor has Seller or any Shareholder permitted or authorized any

Representative, to obtain or retain business, directly or indirectly offered,

paid or promised to pay, or authorized the payment of, any money or other thing

of value (including any fee, gift, sample, travel expense or entertainment with

a value in excess of one hundred dollars ($100.00) in the aggregate to any one

individual in any year) or any commission payment in excess of levels

consistent with industry norms, to: 

(i) any person who is an official, officer, agent, employee or

representative of any Governmental Body or of any

 

41

 

existing or prospective

customer (whether government owned or nongovernment owned); (ii) any

political party or official thereof; (iii) any candidate for political or

political party office; or (iv) any other individual or entity; while

knowing or having reason to believe that all or any portion of such money or

thing of value would be offered, given, or promised, directly or indirectly, to

any such official, officer, agent, employee, representative, political party,

political party official, candidate, individual, or any entity affiliated with

such customer, political party or official or political office.

 

(b)           Except as set forth on

Schedule 3.26(b), Seller has made all payments to Third Parties by check

mailed to such Third Parties’ principal place of business or by wire transfer

to a bank located in the same jurisdiction as such party’s principal place of

business.

 

(c)           Each transaction is properly and

accurately recorded on the books and records of Seller, and each document upon

which entries in Seller’s books and records are based is complete and accurate

in all material respects.  Seller

maintains a system of internal accounting controls adequate to insure that

Seller maintains no off-the-books accounts and that Seller’s assets are used

only in accordance with Seller’s management directives.

 

(d)           Seller has at all times been in

substantial compliance with all Legal Requirements relating to export control

and trade embargoes.

 

(e)           Except as set forth on

Schedule 3.26(e), Seller has not violated the antiboycott prohibitions

contained in 50 U.S.C. sect. 2401 et seq. or taken any action that can be

penalized under Section 999 of the Code. 

Except as set forth on Schedule 3.26(e), during the last

five (5) years, Seller has not been a party to, is not a beneficiary under

and has not performed any service or sold any product under any Seller Contract

under which a product has been sold to customers in countries to which any such

sale or service is prohibited by any domestic Legal Requirement, and to the

Knowledge of Seller and Shareholders, any foreign Legal Requirement.

 

3.27.       Euro-Affected Products and Services.  To

the extent that Seller’s software, hardware, systems, products and services

receive, recognize, use or process financial information from any European

Union member that has changed its currency to the Euro (collectively, the “Euro-Affected

Products and Services”), all of Seller’s Euro–Affected Products and

Services will (a) substantially operate without errors, problems, delays

or the need for any further modifications as a result of the introduction of

the Euro in whole or in part as a European currency or currency unit and

(b) continue to receive, recognize, use and process both national currency

units and Euro units (and permit conversions from national currency units to

Euro units and vice–versa) without material errors, problems, delays or

the need for any further modifications.

 

3.28.       Relationships

With Related Persons.  Except as disclosed on

Schedule 3.28, no Seller nor any Shareholder nor any Related Person of any

of them has, or since January 1, 1999, has had, any interest in any

property (whether real, personal or mixed and whether tangible or intangible) used

in or pertaining to Seller’s business. 

Neither Seller nor any Shareholder nor any Related Person of any of them

owns, has owned, of record or as a beneficial owner, an equity interest or any

other financial or profit interest in any Person that has (a) had business

dealings or a material financial interest in any transaction with Seller other

than business dealings or

 

42

 

transactions disclosed on

Schedule 3.28, each of which has been conducted in the ordinary course of

business with Seller, consistent with past practice at substantially prevailing

market prices and on substantially prevailing market terms or (b) engaged

in competition with Seller with respect to any line of the products or services

of Seller (a “Current Competing Business”) in any market presently

served by Seller, except for ownership of less than one percent (1%) of the

outstanding capital stock of any Current Competing Business that is publicly

traded on any recognized exchange or in the over–the–counter

market.  Except as set forth on

Schedule 3.28, neither Seller nor any Shareholder nor any Related Person

of any of them is a party to any Contract with, or has any claim or right

against, Seller.

 

3.29.       Brokers or Finders.  Other

than Duff & Phelps, LLC, neither Seller, any Shareholder nor any of its

Representatives have incurred any obligation or liability, contingent or

otherwise, for brokerage or finders’ fees or agents’ commissions or other

similar payments in connection with the sale of Seller’s business or the Assets

or the Contemplated Transactions. 

Seller shall pay all fees and expenses of Duff & Phelps.

 

3.30.       Solvency.

 

(a)           Seller is not now insolvent and will

not be rendered insolvent by any of the Contemplated Transactions.  As used in this section, “insolvent” means

that the sum of the debts and other probable Liabilities of Seller exceeds the

present fair saleable value of Seller’s assets.

 

(b)           Immediately after giving effect to

the consummation of the Contemplated Transactions:  (i) Seller will be able to pay its Liabilities as they

become due in the usual course of its business; (ii) Seller will not have

unreasonably small capital with which to conduct its present or proposed business;

(iii) Seller will have assets (calculated at fair market value) that

exceed its Liabilities; and (iv) taking into account all pending and

threatened Proceedings, final judgments against Seller in actions for money

damages are not reasonably anticipated to be rendered at a time when, or in amounts

such that, Seller will be unable to satisfy any such judgments promptly in

accordance with their terms (taking into account the maximum probable amount of

such judgments in any such actions and the earliest reasonable time at which

such judgments might be rendered) as well as all other obligations of

Seller.  The cash available to Seller,

after taking into account all other anticipated uses of the cash, will be

sufficient to pay all such debts and judgments promptly in accordance with

their terms.

 

3.31.       Disclosure.

 

(a)           No representation or warranty or

other statement made by Seller or any Shareholder in this Agreement, the

schedules hereto, any supplement to the schedules hereto, the certificates

delivered pursuant to Section 2.7(a) or otherwise in connection with the

Contemplated Transactions contains any untrue statement or omits to state a

material fact necessary to make any of them, in light of the circumstances in

which it was made, not misleading.

 

(b)           Seller does not have Knowledge of any

fact that has specific application to Seller (other than general economic or

industry conditions) that, in the opinion of Seller, is likely

 

43

 

to materially adversely affect

the assets, business, prospects, financial condition or results of operations

of Seller that has not been set forth in this Agreement or the schedules

attached hereto.

 

3.32.       Collective Bargaining Agreement.  Seller

represents and warrants that it has duly complied with all relevant provisions

of the Collective Bargaining Agreement in respect of the Contemplated

Transactions, including giving timely notice under such agreement to

effectively assign such agreement to Buyer.

 

3.33.       Addition.  The

addition to the Kentwood facility completed in 2002 was constructed

substantially in accordance with the plans provided to the Buyer.

 

3.34.       Procter & Gamble.  Seller

represents and warrants that it no longer sells the products that are the

subject of the accusation of infringement by Procter & Gamble described in

Schedule 3.25(d).

 

3.35.       I-9 Forms.  Seller

represents and warrants that it has I-9 forms for all Active Employees.

 

4.             REPRESENTATIONS

AND WARRANTIES OF BUYER.

 

Buyer

represents and warrants to Seller and Shareholders as follows:

 

4.1.

Organization and Good Standing.  Buyer

is a corporation duly organized, validly existing and in good standing under

the laws of the State of Delaware, with full corporate power and authority to

conduct its business as it is now conducted.

 

4.2.

Authority; No Conflict.

 

(a)           This Agreement constitutes the legal,

valid and binding obligation of Buyer (and of Russ Berrie and Company, Inc. (“RB”)

only with respect to the guarantee (the “Guarantee”) set forth herein),

enforceable against Buyer (and RB with respect to the Guarantee) in accordance

with its terms, in each case except to the extent that enforceability is

limited by the laws of bankruptcy, insolvency or similar laws affecting

creditors’ rights and remedies, or by equitable principles.  Upon the execution and delivery by Buyer of

the Assignment and Assumption Agreement, the Employment Agreements and each

other agreement to be executed or delivered by Buyer at Closing (collectively,

the “Buyer’s Closing Documents”), each of the Buyer’s Closing Documents

will constitute the legal, valid and binding obligation of Buyer, enforceable

against Buyer in accordance with its respective terms, except to the extent

that enforceability is limited by the laws of bankruptcy, insolvency or similar

laws affecting creditors’ rights and remedies, or by equitable principles.  Buyer has the absolute and unrestricted

right, power and authority to execute and deliver this Agreement and the

Buyer’s Closing Documents to which it is a party and to perform its obligations

under this Agreement and the Buyer’s Closing Documents, and on the Closing

Date, such action will have been duly authorized by all necessary corporate

action.  RB has the absolute and

unrestricted right, power and authority to execute and deliver the Guarantee

and to perform its obligations under the

 

44

 

Guarantee, and on the Closing

Date, such action will have been duly authorized by all necessary corporate

action.

 

(b)           Neither the execution and delivery of

this Agreement by Buyer nor the consummation or performance of any of the

Contemplated Transactions by Buyer will give any Person the right to prevent,

delay or otherwise interfere with any of the Contemplated Transactions pursuant

to:  (i) any provision of Buyer’s

Governing Documents; (ii) any resolution adopted by the board of directors

or the shareholders of Buyer; (iii) any Legal Requirement or Order to

which Buyer may be subject; or (iv) any material Contract to which Buyer

is a party or by which Buyer may be bound.

 

4.3. Certain

Proceedings.  There is no pending Proceeding

that has been commenced against Buyer and that challenges, or may have the

effect of preventing, delaying, making illegal or otherwise interfering with,

any of the Contemplated Transactions. 

To Buyer’s Knowledge, no such Proceeding has been threatened.

 

4.4. Operation

of Buyer.  Buyer is a direct or indirect

wholly-owned subsidiary of RB, and was formed solely for the purpose of

consummating the Contemplated Transactions.

 

4.5.

Sufficient Resources.  Buyer,

at the Closing, will have sufficient resources to consummate the Contemplated

Transactions.  RB has sufficient

resources to perform the Guarantee.

 

4.6. Brokers

or Finders.  Neither Buyer nor any of its

Representatives have incurred any obligation or liability, contingent or

otherwise, for brokerage or finders’ fees or agents’ commissions or other

similar payment in connection with the Contemplated Transactions.

 

5.             COVENANTS

OF SELLER PRIOR TO CLOSING.

 

5.1. Access

and Investigation.  Between

the date of this Agreement and the Closing Date, and upon reasonable advance

notice received from Buyer, Seller shall (and Shareholders shall cause Seller

to) (a) afford Buyer and its Representatives and prospective lenders and

their Representatives (collectively, “Buyer Group”) full and free

access, during regular business hours, to Seller’s personnel, properties

(including subsurface testing), Contracts, Governmental Authorizations, books

and records and other documents and data, such rights of access to be exercised

in a manner that does not unreasonably interfere with the operations of Seller;

(b) furnish Buyer Group with copies of all such Contracts, Governmental

Authorizations, books and records and other existing documents and data as

Buyer may reasonably request; (c) furnish Buyer Group with such additional

financial, operating and other relevant data and information as Buyer may

reasonably request; and (d) otherwise cooperate and assist, to the extent

reasonably requested by Buyer, with Buyer’s investigation of the properties,

assets and financial condition related to Seller.  In addition, Buyer shall have the right to have the Real Property

and Tangible Personal Property inspected by Buyer Group, at Buyer’s sole cost and

expense, for purposes of determining the physical condition and legal

characteristics of the Real Property and Tangible Personal Property.  In the event subsurface or other destructive

testing is recommended by any of Buyer Group, Buyer shall be permitted to have

the same performed.

 

45

 

5.2.

Operation of the Business of Seller.  Between

the date of this Agreement and the Closing, Seller shall (and Shareholders

shall cause Seller to):

 

(a)           conduct its business only in the

ordinary course of business consistent with past practice;

 

(b)           except as otherwise directed by Buyer

in writing, and without making any commitment on Buyer’s behalf, use its Best

Efforts to preserve intact its current business organization, keep available

the services of its officers, employees and agents and maintain its relations

and good will with suppliers, customers, landlords, creditors, employees,

agents and others having business relationships with it;

 

(c)           confer with Buyer prior to

implementing operational decisions of a material nature;

 

(d)           make no material changes in

management personnel without prior consultation with Buyer;

 

(e)           maintain the Assets in a state of

repair and condition that complies with Legal Requirements and is consistent

with the requirements and normal conduct of Seller’s business and in accordance

with past practice;

 

(f)            keep in full force and effect,

without amendment, all material rights relating to Seller’s business;

 

(g)           comply with all Legal Requirements

and contractual obligations applicable to the operations of Seller’s business;

 

(h)           continue in full force and effect the

insurance coverage under the policies set forth on Schedule 3.21 or

substantially equivalent policies;

 

(i)            except as required to comply with

ERISA or to maintain qualification under Section 401(a) of the Code, not

amend, modify or terminate any Employee Plan without the express written

consent of Buyer;

 

(j)            cooperate with Buyer and assist

Buyer in identifying the Governmental Authorizations required by Buyer to

operate the business from and after the Closing Date and either transferring

existing Governmental Authorizations of Seller to Buyer, where permissible, or

obtaining new Governmental Authorizations for Buyer;

 

(k)           upon request from time to time,

execute and deliver all documents, make all truthful oaths, testify in any

Proceedings and do all other acts that may be reasonably necessary or desirable

in the reasonable opinion of Buyer to consummate the Contemplated Transactions,

all without further consideration; and

 

(l)            maintain all books and records of

Seller relating to Seller’s business in the ordinary course of business,

consistent with past practice.

 

46

 

5.3. Negative

Covenant.  Except as otherwise expressly

permitted herein, between the date of this Agreement and the Closing Date,

Seller shall not, and Shareholders shall not permit Seller to, without the

prior written Consent of Buyer, (a) take any affirmative action, or fail

to take any reasonable action within its control, as a result of which any of

the changes or events listed in Sections 3.15 or 3.19 would be likely to

occur; (b) make any modification to any material Contract or Governmental

Authorization; (c) allow the levels of raw materials, supplies or other

materials included in the Inventories to vary materially from the levels

customarily maintained; or (d) enter into any compromise or settlement of

any litigation, Proceeding or investigation of any Governmental Body relating

to the Assets, the business of Seller or the Assumed Liabilities.

 

5.4. Required

Approvals.  As promptly as practicable after

the date of this Agreement, Seller shall make all filings required by Legal

Requirements to be made by it in order to consummate the Contemplated

Transactions (including all filings under the HSR Act). Seller and Shareholders

also shall cooperate with Buyer and its Representatives with respect to all

filings that Buyer elects to make or, pursuant to Legal Requirements, shall be

required to make in connection with the Contemplated Transactions.  Seller and Shareholders also shall cooperate

with Buyer and its Representatives in obtaining all Material Consents.

 

5.5. Notification.  Between

the date of this Agreement and the Closing, Seller and Shareholders shall promptly

notify Buyer in writing if any of them obtains Knowledge of (a) any fact

or condition that causes or constitutes a breach of any of Seller’s

representations and warranties made as of the date of this Agreement or

(b) the occurrence after the date of this Agreement of any fact or

condition that would or be reasonably likely to (except as expressly

contemplated by this Agreement) cause or constitute a breach of any such

representation or warranty had that representation or warranty been made as of

the time of the occurrence of, or Seller’s or either Shareholders’ discovery

of, such fact or condition.  Should any

such fact or condition require any change to the schedules hereto, Seller shall

promptly deliver to Buyer a supplement to the schedules hereto specifying such

change.  Such delivery shall not affect

any rights of Buyer under Section 9.2 and Article 11.  During the same period, Seller and

Shareholders also shall promptly notify Buyer of the occurrence of any breach

of any covenant of Seller or Shareholders in this Article 5 or of the

occurrence of any event that may make the satisfaction of the conditions in

Article 7 impossible or unlikely.

 

47

 

5.6. No Negotiation.  Until

such time as this Agreement shall be terminated pursuant to Section 9.1,

neither Seller nor any Shareholder shall directly or indirectly solicit,

initiate, encourage or entertain any inquiries or proposals from, discuss or

negotiate with, provide any nonpublic information to or consider the merits of

any inquiries or proposals from any Person (other than Buyer) relating to any

business combination transaction involving Seller, including the sale by

Shareholders of Seller’s stock, the merger or consolidation of Seller or the

sale of Seller’s business or any of the Assets (other than in the ordinary

course of business, consistent with past practice).  Seller and Shareholders shall notify Buyer of any such inquiry or

proposal within twenty–four (24) hours of receipt of Knowledge of the same

by Seller or any Shareholder.

 

5.7. Best Efforts.  Seller

and Shareholders shall use their Best Efforts to cause the conditions in

Article 7 (other than those set forth in Sections 7.8, 7.9 and 7.11) to be

satisfied and the Contemplated Transactions to be consummated.

 

5.8. Payment

of Liabilities.  Seller

shall pay or otherwise satisfy when due all of its Liabilities and obligations

consistent with past practice.  Buyer

and Seller hereby waive compliance with the bulk–transfer provisions of

the Uniform Commercial Code (or any similar law) (“Bulk Sales Laws”) in

connection with the Contemplated Transactions.

 

5.9. Change of Name.  On

the Closing Date, Seller shall (a) amend its Governing Documents and take

all other actions necessary to change its name to one sufficiently dissimilar

to Seller’s present name, in Buyer’s judgment, to avoid confusion and

(b) take all actions requested by Buyer to enable Buyer to change its name

to Seller’s present name.

 

5.10.       Current Evidence of Title.

 

(a)           As soon as is reasonably possible,

and in no event later than five Business Days after the date of this Agreement,

Seller shall furnish to Buyer, at Seller’s expense, for each parcel, tract or

subdivided land lot of Real Property:

 

(i)            from the First

American Title Insurance Company (the “Title Insurer”):

 

(A)          title commitments

issued by the Title Insurer to insure title to all Land, Improvements,

insurable Appurtenances, if any, and Ground Lease Property in the amount of

$2,561,306, covering such Real Property, naming Buyer as the proposed insured

and having an effective date after the date of this Agreement, wherein the

Title Insurer shall agree to issue an ALTA 1992 form owner’s policy of title

insurance (each a “Title Commitment”); and

 

(B)           complete and legible

copies of all recorded documents listed as Schedule B–1 matters to

be terminated or satisfied in order to issue the policy described in the Title

Commitment or as special Schedule B–2 exceptions thereunder (the “Recorded

Documents”); and

 

48

 

(ii)           a survey of the

Real Property made after the date of this Agreement by a land surveyor licensed

by the state in which the Facility is located and bearing a certificate, signed

and sealed by the surveyor, certifying to Buyer and the Title Insurer that:

 

(A)          such survey was made

(1) in accordance with “Minimum Standard Detail Requirements for ALTA/ACSM

Land Title Surveys,” jointly established and adopted by ALTA and ACSM in 1999,

and includes Items 1-4, 6, 7(a), 7(b)(1), 7(c), 10 and 11(a) of Table A

thereof, and (2) pursuant to the Accuracy Standards (as adopted by ALTA

and ACSM and in effect on the date of said certificate) of an “Urban” survey;

and

 

(B)           such survey reflects

the locations of all building lines, easements and areas affected by any

Recorded Documents affecting such Real Property as disclosed in the Title

Commitment (identified by issuer, commitment number, and an effective date

after the date hereof) as well as any encroachments onto the Real Property or

by the Improvements onto any easement area or adjoining property (each a “Survey”);

and

 

(iii)          complete and

current searches in the name of Seller and other appropriate parties of all

Uniform Commercial Code Financing Statements records maintained by the

Secretary of State of the state in which Seller is incorporated, the state in

which Seller maintains its principal place of business, each state in which a

Facility is located, each jurisdiction in which a filing would be required in

order to perfect a security interest in the Assets, the clerk or recorder of

deeds (or other governmental office where real property documents are filed for

recording) of each county in which any Facility is located and wherever else

Seller or Buyer, based upon its investigation, is aware that a Uniform

Commercial Code Financing Statement has been filed, together with such

releases, termination statements and other documents as may be necessary to

provide reasonable evidence that all items of intangible personal property,

Tangible Personal Property and fixtures to be sold under this Agreement are

free and clear of Encumbrances, other than as permitted under this Agreement.

 

(b)           Each Title Commitment shall include

the Title Insurer’s requirements for issuing its title policy, which requirements

shall be met by Seller on or before the Closing Date (including those

requirements that must be met by releasing or satisfying monetary Encumbrances,

but excluding Encumbrances that will remain after Closing and those

requirements that are to be met solely by Buyer).

 

(c)           If any of the following shall occur

(collectively, a “Title Objection”):

 

(i)            any Title

Commitment or other evidence of title or search of the appropriate real estate

records discloses that any party other than Seller has title to the insured

estate covered by the Title Commitment;

 

49

 

(ii)           any title exception

is disclosed in Schedule B to any Title Commitment that is not one of the

Permitted Real Estate Encumbrances or one that Seller specifies when delivering

the Title Commitment to Buyer as one that Seller will cause to be deleted from

the Title Commitment concurrently with the Closing, including (A) any

exceptions that pertain to Encumbrances securing any loans that do not constitute

an Assumed Liability and (B) any exceptions that Buyer reasonably believes

could materially and adversely affect Buyer’s use and enjoyment of the Real

Property described therein; or

 

(iii)          any Survey

discloses any matter that Buyer reasonably believes could materially and

adversely affect Buyer’s use and enjoyment of the Real Property described

therein;

 

then Buyer shall notify Seller

in writing (“Buyer’s Notice”) of such matters within ten (10) Business

Days after receiving all of the Title Commitment, Survey and copies of Recorded

Documents for the Facility covered thereby.

 

(d)           Seller shall use its Best Efforts to

cure each Title Objection and take all steps required by the Title Insurer to

eliminate each Title Objection as an exception to the Title Commitment.  Any Title Objection that the Title Insurer

is willing to insure over on terms acceptable to Seller and Buyer is herein

referred to as an “Insured Exception.” 

The Insured Exceptions, together with any title exception or matters

disclosed by the Survey not objected to by Buyer in the manner aforesaid shall

be deemed to be acceptable to Buyer.

 

(e)           Nothing herein waives Buyer’s right

to claim a breach of Section 3.9(a) or to claim a right to

indemnification as provided in Section 11.2 if Buyer suffers Damages as a

result of a misrepresentation with respect to the condition of title to the

Real Property.

 

(f)            The parties hereto agree that the

purchase price for the Real Property used in compliance with this Section shall

in no way be binding on the parties in determining the allocation of the

Purchase Price with respect thereto under Section 2.5 hereof.

 

6.             COVENANTS

OF BUYER PRIOR TO CLOSING.

 

6.1. Required

Approvals.  As promptly as practicable after

the date of this Agreement, Buyer shall make, or cause to be made, all filings

required by Legal Requirements (including all filings under the HSR Act) to be

made by it to consummate the Contemplated Transactions.  Buyer also shall cooperate, and cause its

Related Persons to cooperate, with Seller (a) with respect to all filings

Seller shall be required by Legal Requirements to make and (b) in

obtaining all Consents identified on Schedule 3.2(c), provided, however,

that Buyer shall not be required to dispose of or make any change to its

business, expend any material funds or incur any other burden in order to

comply with this Section 6.1.

 

6.2. Notification.  Between

the date of this Agreement and the Closing, Buyer shall promptly notify Seller

in writing if it obtains Knowledge of (a) any fact or condition that

causes or constitutes a breach of any of Buyer’s representations and warranties

made as of the date of this Agreement or (b) the occurrence after the date

of this Agreement of any fact or condition

 

50

 

that would or be reasonably

likely to (except as expressly contemplated by this Agreement) cause or

constitute a breach of any such representation or warranty had that

representation or warranty been made as of the time of the occurrence of, or

Buyer’s discovery of, such fact or condition. 

Should any such fact or condition require any change to the schedules

hereto, Buyer shall promptly deliver to Seller a supplement to the schedules

hereto specifying such change. Such delivery shall not affect any rights of

Seller under Section 9.2 and Article 11.  During the same period, Buyer shall promptly notify Seller of the

occurrence of any breach of any covenant of Buyer in this Article 6 or of

the occurrence of any event that may make the satisfaction of the conditions in

Article 8 impossible or unlikely.

 

6.3. Best Efforts.  Buyer

shall use its Best Efforts to cause the conditions in Section 7.8 and

Article 8 to be satisfied, and to cause the consummation of the

Contemplated Transactions.

 

7.             CONDITIONS

PRECEDENT TO BUYER’S OBLIGATION TO CLOSE.

 

Buyer’s

obligation to purchase the Assets and to take the other actions required to be

taken by Buyer at the Closing is subject to the satisfaction, at or prior to

the Closing, of each of the following conditions (any of which may be waived by

Buyer, in whole or in part):

 

7.1. Accuracy of Representations.

 

(a)           All of Seller’s and Shareholders’

representations and warranties in this Agreement (considered collectively), and

each of these representations and warranties (considered individually), shall

have been accurate in all material respects as of the date of this Agreement,

and shall be accurate in all material respects as of the time of the Closing as

if then made, without giving effect to any supplement to the schedules.

 

(b)           Each of the representations and

warranties in Sections 3.2(a) and 3.4, and each of the representations and

warranties in this Agreement that contains an express materiality

qualification, shall have been accurate in all respects as of the date of this

Agreement, and shall be accurate in all respects as of the time of the Closing

as if then made, without giving effect to any supplement to the schedules.

 

7.2. Seller’s

Performance.  All of the covenants and

obligations that Seller and Shareholders are required to perform or to comply

with pursuant to this Agreement at or prior to the Closing (considered

collectively), and each of these covenants and obligations (considered

individually), shall have been duly performed and complied with in all material

respects.

 

7.3. Consents.  Each

of the Consents (the “Material Consents”) required to consummate the

Contemplated Transactions with respect to the Seller Contracts, other than the

Non Material Consents identified in Exhibit 7.3, shall have been

obtained and shall be in full force and effect, including, but not limited to,

a Consent to the assignment to the Buyer of the MAM Agreement on terms

satisfactory to Buyer.

 

7.4.

Additional Documents.  Seller

and Shareholders shall have caused the documents and instruments required by

Section 2.7(a) and the following documents to be delivered (or tendered

subject only to Closing) to Buyer:

 

51

 

(a)           an opinion of (i) Vedder, Price,

Kaufman & Kammholz, dated the Closing Date, in the form of Exhibit 7.4(a)(i),

and (ii) an opinion of Dick & Harris, dated the Closing Date, in the

form of Exhibit 7.4(a)(ii) with respect to intellectual property

matters;

 

(b)           a letter of credit (the “Letter of

Credit”) from Cole Taylor Bank and each Shareholder, in form and amount

satisfactory to Buyer, must be in full force and effect on and as of the

Closing Date;

 

(c)           a valid certificate of insurance with

Buyer as the named insured for each insurance policy set forth on Schedule

7.4(c), in form satisfactory to Buyer;

 

(d)           The articles of incorporation and all

amendments thereto of Seller, duly certified as of a recent date by the

Secretary of State of the jurisdiction of Seller’s incorporation;

 

(e)           If requested by Buyer, any Consents

or other instruments that may be required to permit Buyer’s qualification in

each jurisdiction in which Seller is licensed or qualified to do business as a

foreign corporation under the name “Sassy, Inc.” or any derivative thereof;

 

(f)            Releases of all Encumbrances on the

Assets, other than Permitted Encumbrances and the release of the mortgage under

the Kentwood facility, including releases of each mortgage of record and

reconveyances of each deed of trust with respect to each parcel of real

property included in the Assets;

 

(g)           Certificates dated as of a date not

earlier than the fifth Business Day prior to the Closing as to the good

standing of Seller and, to the extent consistent with routine practice of each

relevant state, payment of all applicable state Taxes by Seller, executed by

the appropriate officials of the State of Illinois and each jurisdiction in

which Seller is licensed or qualified to do business as a foreign corporation

as specified on Schedule 3.1(a); and

 

(h)           Such other documents as Buyer may

reasonably request for the purpose of: 

(i) evidencing the accuracy of any of Seller’s representations and

warranties; (ii) evidencing the performance by Seller or any Shareholder

of, or the compliance by Seller or any Shareholder with, any covenant or

obligation required to be performed or complied with by Seller or such

Shareholder; (iii) evidencing the satisfaction of any condition referred

to in this Article 7; or (iv) otherwise facilitating the consummation

or performance of any of the Contemplated Transactions.

 

7.5. No Proceedings.  Since

the date of this Agreement, there shall not have been commenced or threatened

against Buyer, or against any Related Person of Buyer, any Proceeding

(a) involving any challenge to, or seeking Damages or other relief in connection

with, any of the Contemplated Transactions or (b) that may have the effect

of preventing, delaying, making illegal, imposing limitations or conditions on

or otherwise interfering with any of the Contemplated Transactions.

 

7.6. No Conflict.  Neither

the consummation nor the performance of any of the Contemplated Transactions

will, directly or indirectly (with or without notice or lapse of time),

 

52

 

contravene or conflict with or

result in a violation of or cause Buyer or any Related Person of Buyer to

suffer any adverse consequence under (a) any applicable Legal Requirement

or Order or (b) any Legal Requirement or Order that has been published,

introduced or otherwise proposed by or before any Governmental Body, excluding

Bulk Sales Laws.

 

7.7. Title Insurance.  Buyer

shall have received unconditional and binding commitments to issue policies of

title insurance consistent with Section 5.10, dated the Closing Date, in

an aggregate amount equal to the amount of the Purchase Price allocated to the

Real Property, deleting all requirements listed in ALTA Schedule B–1,

amending the effective date to the date and time of recordation of the deed

transferring title to the Real Property to Buyer with no exception for the gap

between closing and recordation, deleting or insuring over Title Objections as

required pursuant to Section 5.10, attaching all endorsements required by

Buyer in order to ensure provision of all coverage required pursuant to Section 5.10

and otherwise in form satisfactory to Buyer insuring Buyer’s interest in each

parcel of Real Property or interest therein to the extent required by

Section 5.10.

 

53

 

7.8.

Governmental Authorizations.  Buyer

shall have received such Governmental Authorizations as are necessary or

desirable to allow Buyer to operate the Assets from and after the Closing.

 

7.9.

Environmental Report.  Buyer

shall have received an environmental Phase I report with respect to

Seller’s Facilities, which report shall be acceptable in form and substance to

Buyer in its sole discretion.

 

7.10.       Employees.

 

(a)           Those key employees of Seller

identified on Exhibit 7.10, or substitutes therefor who shall be

acceptable to Buyer, in its sole discretion, shall have accepted employment

with Buyer with such employment to commence on and as of the Closing Date.

 

(b)           All other Active Employees of Seller

(as defined in Section 10.1(b) hereof) shall be available for hiring by Buyer

on and as of the Closing Date.

 

7.11.       Due Diligence Review.  Buyer

shall have completed its business, accounting and legal due diligence review of

the business of the Seller and shall be satisfied with the results thereof in

its sole discretion.

 

7.12.       Required Approvals.  Seller shall have obtained the approval of

its board of directors and its shareholders, if required, to execute, deliver

and perform this Agreement and the Contemplated Transactions.

 

7.13.       Resignation.  Hirsch,

Rotblatt and Douglas shall have terminated their employment with and/or

ownership of RBK Management Company.

 

7.14.       Notice.

 

  Buyer shall not have received notice from MAM under paragraph 15

of the Agreement Regarding Assignment of Distribution Agreement among MAM, RB

and Buyer, other than notice provided on July 17, 2002.

 

7.15.       MAM Agreement.

 

Seller shall not have agreed to

any method of calculation of any amounts under the MAM Agreement without the

prior written consent of Buyer.

 

54

 

7.16.       Intellectual Property Forms.

 

All employees of Sassy involved

in product development who have not signed the Invention, Patents and

Confidential Information Agreement, including those identified in the

attachment to Schedule 3.25(c), shall have executed such agreement, in form and

with language satisfactory to Buyer.

 

8.             CONDITIONS

PRECEDENT TO SELLER’S OBLIGATION TO CLOSE.

 

Seller’s

obligation to sell the Assets and to take the other actions required to be

taken by Seller at the Closing is subject to the satisfaction, at or prior to

the Closing, of each of the following conditions (any of which may be waived by

Seller in whole or in part):

 

8.1.

Accuracy of Representations.  All

of Buyer’s representations and warranties in this Agreement (considered

collectively), and each of these representations and warranties (considered

individually), shall have been accurate in all material respects as of the date

of this Agreement and shall be accurate in all material respects as of the time

of the Closing as if then made.

 

8.2. Buyer’s

Performance.  All of the covenants and

obligations that Buyer is required to perform or to comply with pursuant to

this Agreement at or prior to the Closing (considered collectively), and each

of these covenants and obligations (considered individually), shall have been

duly performed and complied with in all material respects.

 

8.3.

Additional Documents.  Buyer

shall have caused the documents and instruments required by Section 2.7(b)

and the following documents to be delivered (or tendered subject only to

Closing) to Seller and Shareholders:

 

(a)           an opinion of Kaye, Scholer LLP,

dated the Closing Date, in the form of Exhibit 8.3(a);

 

(b)           Buyer will adopt a management

retention plan and an EBITDA earnout in the form set forth in Exhibits

8.3(b)(i) and (ii); and

 

(c)           such other documents as Seller may

reasonably request for the purpose of 

(i) evidencing the accuracy of any representation or warranty of

Buyer, (ii) evidencing the performance by Buyer of, or the compliance by

Buyer with, any covenant or obligation required to be performed or complied

with by Buyer or (iii) evidencing the satisfaction of any condition

referred to in this Article 8.

 

8.4. No Injunction.  There

shall not be in effect any Legal Requirement or any injunction or other Order

that (a) prohibits the consummation of the Contemplated Transactions and

(b) has been adopted or issued, or has otherwise become effective, since

the date of this Agreement.

 

55

 

9.             TERMINATION.

 

9.1. Termination

Events. 

By notice given prior to or at the Closing, subject to Section 9.2,

this Agreement may be terminated as follows:

 

(a)           by Buyer if a material breach of any

provision of this Agreement has been committed by Seller or Shareholders and

such breach has not been waived by Buyer;

 

(b)           by Seller if a material breach of any

provision of this Agreement has been committed by Buyer and such breach has not

been waived by Seller;

 

(c)           by Buyer if any condition in

Article 7 has not been satisfied as of the date specified for Closing in

the first sentence of Section 2.6 or if satisfaction of such a condition

by such date is or becomes impossible (other than through the failure of Buyer

to comply with its obligations under this Agreement), and Buyer has not waived

such condition on or before such date;

 

(d)           by Seller if any condition in

Article 8 has not been satisfied as of the date specified for Closing in

the first sentence of Section 2.6 or if satisfaction of such a condition

by such date is or becomes impossible (other than through the failure of Seller

or the Shareholders to comply with their obligations under this Agreement), and

Seller has not waived such condition on or before such date;

 

(e)           by mutual consent of Buyer and

Seller;

 

(f)            by Buyer if the Closing has not

occurred on or before July 26, 2002 or such later date as the parties may agree

upon, unless the Buyer is in material breach of this Agreement; or

 

(g)           by Seller if the Closing has not

occurred on or before July 26, 2002 or such later date as the parties may agree

upon, unless the Seller or Shareholders are in material breach of this

Agreement.

 

9.2. Effect of

Termination.  Each party’s right of termination

under Section 9.1 is in addition to any other rights it may have under

this Agreement or otherwise, and the exercise of such right of termination will

not be an election of remedies.  If this

Agreement is terminated pursuant to Section 9.1, all obligations of the

parties under this Agreement will terminate, except that the obligations of the

parties in this Section 9.2 and Articles 12 and 13 (except for those in

Section 13.5) will survive, provided, however, that, if this

Agreement is terminated because of a breach of this Agreement by the

nonterminating party or because one or more of the conditions to the

terminating party’s obligations under this Agreement is not satisfied as a

result of the other party’s failure to comply with its obligations under this

Agreement, the terminating party’s right to pursue all legal remedies will

survive such termination unimpaired.

 

56

 

10.          ADDITIONAL COVENANTS.

 

10.1.       Employees and Employee Benefits.

 

(a)           Information on Active Employees.  For the purpose of this Agreement, the term

“Active Employees” shall mean all employees employed on the Closing Date

by Seller for its business who are: 

(i) Bargaining Unit employees currently covered by the Collective

Bargaining Agreement or (ii) employed in Seller’s business as currently

conducted, including employees on layoff with recall rights granted by law or

the Collective Bargaining Agreement or on temporary leave of absence, including

family medical leave, military leave, temporary disability or sick leave, but

excluding employees on long–term disability leave.

 

(b)           Employment of Active Employees by

Buyer.

 

(i)            Buyer will offer

employment to all Active Employees as of the Closing Date on terms

substantially similar to those under which they were employed by Seller prior

to the Closing Date.  Buyer agrees to

credit Active Employees with all service such Employees have been credited with

pursuant to corresponding plans maintained by Seller as of the Closing Date

prior to the Closing Date for purposes of vesting and eligibility under any

employee benefit plan maintained by Buyer or any of its Related Persons in

which the Active Employees participate after the Closing.  Buyer will permit Active Employees to carry

over and take paid vacation or other paid time-off benefits which were accrued

but unused as of the Closing Date in accordance with applicable policies of

Seller as of the Closing Date.  Buyer

waives any limitations regarding preexisting conditions, and will give full

credit for any co-payments made and deductibles fully or partially satisfied

prior to the Closing Date with respect to any welfare benefit plans maintained

by Buyer or any of its Related Persons in which Active Employees participate

after the Closing Date.  From and after

the Closing Date, Buyer shall be solely responsible for all termination and severance

benefits, costs, charges and liabilities of any nature incurred with respect to

the termination of an Active Employee by Buyer or any of its Related Persons on

or after the Closing Date.  Seller will

provide access to the Facilities and personnel records of Seller upon

reasonable prior notice during normal business hours.  Effective immediately before the Closing, Seller will terminate

the employment of all of its Active Employees.

 

(ii)           Except upon the

consent of Buyer, neither Seller nor any Shareholder nor their Related Persons

shall solicit the continued employment of any Active Employee or the employment

of any Active Employee for a period of five years after the Closing.

 

(iii)          It is understood

and agreed that employment offered by Buyer is “at will” and may be terminated

by Buyer or by an employee at any time for any reason (subject to the

Collective Bargaining Agreement, any written commitments to the contrary made

by Buyer or an employee and Legal Requirements).  Subject only to the provisions of this Section 10.1, nothing in

this Agreement shall be deemed to prevent or restrict in any way the right of

Buyer to terminate, reassign, promote or demote any of the Active Employees

after the Closing or to change adversely or favorably the title, powers,

duties, responsibilities, functions,

 

57

 

locations,

salaries, other compensation or terms or conditions of employment of such

employees.

 

(c)           Salaries and Benefits.

 

(i)            To the extent not

accrued as a current liability on the Closing Balance Sheet or set forth on

Schedule 2.4(b)(vii), Seller shall be responsible for (A) the payment of

all wages and other remuneration due to Active Employees with respect to their

services as employees of Seller through the close of business on the Closing

Date, including pro rata bonus payments and all vacation pay earned prior to

the Closing Date; (B) the payment of any termination or severance payments

and the provision of health plan continuation coverage in accordance with the

requirements of COBRA; and (C) any and all payments to employees required

under the Worker Adjustment and Retraining Notification Act (the “WARN Act”)

for the period prior to the Closing Date. 

Notwithstanding the foregoing, Buyer shall pay all cash bonuses

reflected on the Closing Balance Sheet accrued to any Active Employees in

accordance with their terms, when due, and Buyer shall be responsible for any

and all obligations arising under the continuation coverage requirements of

COBRA for any Active Employees and their qualified beneficiaries who experience

a qualifying event on or following the Closing Date.

 

(ii)           Seller shall be

liable for any claims made or incurred by Active Employees and their

beneficiaries through the Closing Date under the Employee Plans.  For purposes of the immediately preceding

sentence, a charge will be deemed incurred, in the case of hospital, medical or

dental benefits, when the services that are the subject of the charge are

performed and, in the case of other benefits (such as disability or life

insurance), when an event has occurred or when a condition has been diagnosed

that entitles the employee to the benefit.

 

(d)           Seller’s Retirement and Savings

Plans.  All Active Employees who are

participants in Seller’s Employee Plans that are “employee pension benefit

plans” under Section 3(1) of ERISA shall become fully vested in their

accrued benefits under such plans as of the Closing Date, and such plans (and

Seller, in the case of non-qualified plans) shall retain sole liability for the

payment of such benefits as and when such Active Employees become eligible

therefor under such plans.

 

(e)           No Transfer of Assets.  Neither Seller nor Shareholders nor their

respective Related Persons will make any transfer of pension or other employee

benefit plan assets to Buyer.

 

(f)            Collective Bargaining Matters.  Certain of Seller’s employees (the “Bargaining

Unit Employees”) are represented by General Teamsters Union, Local No. 406

(the “Union”) under the terms of a collective bargaining agreement (the

“Collective Bargaining Agreement”), effective from February 1, 2000

through January 31, 2004.  Buyer

agrees to assume the Collective Bargaining Agreement and offer employment to

all Bargaining Unit Employees on the Closing Date on the terms they were

employed prior to the Closing Date.  Any

 

58

 

bargaining obligations of Buyer

with the Union with respect to Bargaining Unit Employees subsequent to the

Closing, whether such obligations arise before or after the Closing, shall be

the sole responsibility of Buyer.

 

(g)           General Employee

Provisions.

 

(i)            Seller and Buyer

shall reasonably cooperate as to the giving of any notices required by Legal

Requirements and take whatever other actions with respect to the plans,

programs and policies described in this Section 10.1 as may be necessary

to carry out the arrangements described in this Section 10.1.

 

(ii)           Seller and Buyer

shall provide each other with such plan documents and summary plan descriptions,

employee data or other information as may be reasonably required to carry out

the arrangements described in this Section 10.1.

 

(iii)          If any of the

arrangements described in this Section 10.1 are determined by the IRS or

other Governmental Body to be prohibited by law, Seller and Buyer shall modify

such arrangements to as closely as possible reflect their expressed intent and

retain the allocation of economic benefits and burdens to the parties

contemplated herein in a manner that is not prohibited by law.

 

(iv)          At Closing, Seller

shall provide Buyer with completed I–9 forms and attachments with respect

to all Active Employees, except for such employees as Seller certifies in

writing to Buyer are exempt from such requirement.

 

(v)           Buyer shall not have

any responsibility, liability or obligation, whether to Active Employees,

former employees, their beneficiaries or to any other Person, with respect to

any employee benefit plans, practices, programs or arrangements (including the

establishment, administration, operation or termination thereof or any other

reason and the notification and provision of COBRA coverage extension) or the

trusts related to such plans maintained by Seller.

 

(vi)          Except as set forth

herein, Buyer will set its own initial terms and conditions of employment for

the Active Employees and others it may hire, including work rules, benefits and

salary and wage structure, all as permitted by law.

 

10.2.       Payment of All Taxes Resulting From Sale

of Assets by Seller.  Subject

to the portion of any Taxes contested by Seller in good faith, Seller shall pay

in a timely manner all Taxes resulting from or payable in connection with the

sale of the Assets pursuant to this Agreement imposed by Legal Requirements on

Seller.

 

10.3.       Payment of Other Retained Liabilities.  In

addition to payment of Taxes pursuant to Section 10.2, Seller shall pay,

or make adequate provision for the payment, in full all of the Retained

Liabilities and other Liabilities of Seller under this Agreement.

 

59

 

10.4.       Restrictions on Seller Dissolution and

Distributions.  Seller

shall not dissolve, or make any distribution of the proceeds received pursuant

to this Agreement, until Seller has made adequate provision for the payment of

all of its obligations pursuant to Sections 2.9, 10.2 and 10.3.

 

10.5.       Removing Excluded Assets.   On

or before the Closing Date, Seller shall remove all Excluded Assets from all

Facilities and other Real Property to be occupied by Buyer.  Such removal shall be done in such manner as

to avoid any damage to the Facilities and other properties to be occupied by

Buyer and any disruption of the business operations to be conducted by Buyer

after the Closing.  Any damage to the

Assets or to the Facilities resulting from such removal shall be paid by Seller

at the Closing.

 

10.6.       Reports and Returns.  Seller

shall promptly after the Closing prepare and file all reports and returns

required by Legal Requirements relating to the business of Seller as conducted

using the Assets, to and including the Closing Date.

 

10.7.       Assistance in Proceedings.  Seller

will cooperate with Buyer and its counsel in the contest or defense of, and

make available its personnel and provide any testimony and access to its books

and Records in connection with, any Proceeding involving or relating to

(a) any Contemplated Transaction or (b) any action, activity,

circumstance, condition, conduct, event, fact, failure to act, incident,

occurrence, plan, practice, situation, status or transaction on or before the

Closing Date involving Seller or its business or any Shareholder.

 

10.8.       Noncompetition, Nonsolicitation and

Nondisparagement.

 

(a)           Noncompetition.  For a period of five years after the Closing

Date, Seller shall not, anywhere in the United States or in any other

jurisdiction in which Buyer offers products for sale, directly or indirectly

invest in, own, manage, operate, finance, control, advise, render services to

or guarantee the obligations of any Person engaged in or planning to become engaged

in the gift or juvenile products (including, but not limited to, baby products)

business (“Competing Business”), provided, however, that Seller may

purchase or otherwise acquire up to (but not more than) two percent of any

class of the securities of any Person (but may not otherwise participate in the

activities of such Person) if such securities are listed on any national or

regional securities exchange or have been registered under Section 12(g)

of the Securities Exchange Act of 1934, as amended.

 

(b)           Nonsolicitation.  For a period of five years after the Closing

Date, Seller shall not, directly or indirectly:  (i) solicit the business of any Person who is a customer of

Buyer; (ii) cause, induce or attempt to cause or induce any customer,

supplier, licensee, licensor, franchisee, employee, consultant or other

business relation of Buyer to cease doing business with Buyer, to deal with any

competitor of Buyer or in any way interfere with its relationship with Buyer;

(iii) cause, induce or attempt to cause or induce any customer, supplier,

licensee, licensor, franchisee, employee, consultant or other business relation

of Seller on the Closing Date or within the year preceding the Closing Date to

cease doing business with Buyer, to deal with any competitor of Buyer or in any

way interfere with its relationship with Buyer; or (iv) hire, retain or

attempt to hire or retain any employee or independent contractor of Buyer or in

any way

 

60

 

interfere with the relationship

between Buyer and any of its employees or independent contractors.

 

(c)           Nondisparagement.  After the Closing Date, Seller will not

disparage Buyer or any of Buyer’s shareholders, directors, officers, employees

or agents.

 

(d)           Modification of Covenant.  If a final judgment of a court or tribunal

of competent jurisdiction determines that any term or provision contained in

Section 10.8(a) through (c) is invalid or unenforceable, then the

parties agree that the court or tribunal will have the power to reduce the

scope, duration or geographic area of the term or provision, to delete specific

words or phrases or to replace any invalid or unenforceable term or provision

with a term or provision that is valid and enforceable and that comes closest

to expressing the intention of the invalid or unenforceable term or

provision.  This Section 10.8 will

be enforceable as so modified after the expiration of the time within which the

judgment may be appealed.  This

Section 10.8 is reasonable and necessary to protect and preserve Buyer’s

legitimate business interests and the value of the Assets and to prevent any

unfair advantage conferred on Seller.

 

10.9.       Customer and Other Business Relationships.  After

the Closing, Seller and Shareholders will cooperate (in the case of Kaplan,

such cooperation shall not exceed 40 hours per year, require him to travel, or

extend beyond the second anniversary of the Closing Date) with Buyer in its

efforts to continue and maintain for the benefit of Buyer those business

relationships of Seller existing prior to the Closing and relating to the

business of Seller to be operated by Buyer after the Closing, including

relationships with lessors, employees, regulatory authorities, licensors,

licensees, customers, suppliers and others, and Seller will satisfy all

Retained Liabilities as and when due, unless a good faith dispute exists with

respect thereto (Seller will give Buyer written notice of any such dispute if

so requested by Buyer).  Seller will

refer to Buyer all inquiries relating to such business.  Neither Seller nor any of its officers,

employees, agents or Shareholders shall take any action that would tend to

diminish the value of the Assets after the Closing or that would interfere with

the business of Buyer to be engaged in after the Closing, including disparaging

the name or business of Buyer.

 

10.10.     Retention of and Access to Records.  After

the Closing Date, Buyer shall retain those records of Seller delivered to Buyer

until the seventh anniversary of the Closing Date.  Buyer also shall provide Seller and Shareholders and their

Representatives reasonable access thereto, during normal business hours and on

at least three days’ prior written notice, for any reasonable business purpose

(as mutually agreed by the Buyer and Seller) specified by Seller or

Shareholders in such notice.  After the

Closing Date, Seller shall provide Buyer and its Representatives reasonable

access to records that are Excluded Assets, during normal business hours and on

at least three days’ prior written notice, for any reasonable business purpose

specified by Buyer in such notice.

 

10.11.     Kentwood Operations.  Buyer

agrees not to move the Kentwood Operations out of the Kentwood facility after

the Closing Date until the third anniversary of the Closing Date without the

consent of Hirsch, if he is employed on a full-time basis with Buyer at the

time of determination (if Hirsch is not so employed, the consent of either

Rotblatt or Douglas shall be required, if they are employed on a full-time

basis with Buyer at the time of determination).

 

61

 

Buyer agrees to consult with

Hirsch prior to the termination by Buyer of any non-Union Active Employee of

the Kentwood Operations.

 

10.12.     Insurance.  As

of the Closing Date, and for a period of six years thereafter, Buyer shall

maintain all insurance policies listed on Schedule 10.12 or policies providing

substantially similar coverage (“Product Liability Insurance Policies”),

naming the Seller as a co-insured on each such Product Liability Insurance

Policy.  As of the Closing Date, and for

a period of three years thereafter, Buyer shall maintain all insurance policies

listed on Schedule 7.4(c) or policies providing substantially similar coverage,

naming the Seller as an additional insured on each such policy

 

10.13.     Further Assurances.  Subject

to the proviso in Section 6.1, the parties shall cooperate reasonably with

each other and with their respective Representatives in connection with any

steps required to be taken as part of their respective obligations under this

Agreement, and shall (a) furnish upon request to each other such further

information; (b) execute and deliver to each other such other documents;

and (c) do such other acts and things, all as the other party may

reasonably request for the purpose of carrying out the intent of this Agreement

and the Contemplated Transactions, including, but not limited to, execution of

forms of assignment and related documents suitable for recordation in foreign

jurisdictions to effect the transfer of the Intellectual Property Assets.

 

10.14.     Post-Closing Payments.  In

the event that Seller or any Shareholder should, following the Closing, receive

any payments or other property with respect to accounts receivable or other

assets constituting Assets hereunder, Seller or Shareholders, as the case may

be, shall promptly remit and transfer such funds or other property to Buyer.

 

10.15.     MAM Agreement.

 

Seller shall not agree to any

method of calculation of any amounts under the MAM Agreement without the prior

written consent of Buyer.

 

10.16.     Escrow.

 

To the extent any claim for

Damages is pending under the Letter of Credit 45 days prior to the expiration

thereof, Seller and each Shareholder agree to apply for a new letter of credit,

with the same terms as the Letter of Credit, for an additional one-year

period.  If no renewed letter of credit

can be obtained prior to the expiration of the Letter of Credit (or any renewal

thereof) while a claim thereunder is still pending, Seller and each Shareholder

agree to execute an escrow agreement, in the form of Exhibit 10.16, for

the amount in dispute, such escrow agreement to remain in effect until such

claim is finally resolved thereunder. 

Seller, Shareholders and Buyer shall draw down an amount under the

Letter of Credit (or any renewal thereof) an amount equal to the amount in

dispute, and deposit such amount with the escrow agent under the escrow

agreement.

 

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10.17.     Straub Assignments.

 

Seller and Shareholders agree

to use reasonable efforts, as soon as practicable after the Closing, to obtain

a confirmatory patent assignment from Mark Greenwood to Mariann Straub with

respect to the following patents: 

D369,934, D369,054, 5,341,531, D385,143 and D408,676.

 

10.18.     K-Mart.Buyer agrees to (i) pay for legal expenses

incurred by Buyer or Seller in connection with the defense of any preference

claim allegations with respect to the K-Mart bankruptcy and (ii) remit to

Seller one-third of the net amount recovered with respect to accounts

receivable which were written off as a direct result of the K-Mart

bankruptcy.  Seller agrees that Buyer

shall control any such defense, including the settlement thereof.

 

10.19.     Escrow Trust Instructions.With

respect to the Real Property identified on Schedule 3.7, Buyer and Seller will

jointly execute Escrow Trust Instructions (the “Instructions”), in form

attached hereto as Exhibit 10.19.

 

10.20.     Letter of Credit.

 

With respect to the Letter of

Credit, Seller agrees that (i) the terms and remedies available under the

Letter of Credit in no way limit the Buyer’s ability to seek out or enforce any

other remedies it may have available under the terms of this Agreement or under

law or equity, including, without limitation, the pursuit of, under Article 11

or otherwise, amounts in excess of the amount of Damages claimed thereunder

with respect to any state of facts underlying any Damages claimed thereunder,

(ii) Buyer may make more than one claim with respect to any underlying state of

facts giving rise to a request for funds under the Letter of Credit, and (iii)

if the Seller has not provided an objection notice to Buyer to any claim made

by Buyer under the Letter of Credit within 75 days of receipt of notice from

Buyer, Seller and each Shareholder shall be deemed to acknowledge the validity

of such claim.

 

11.          INDEMNIFICATION; REMEDIES.

 

11.1.       Survival.  All

representations, warranties, covenants and obligations in this Agreement, the

schedules hereto, the supplements to the schedules hereto, the certificates

delivered pursuant to Section 2.7 and any other certificate or document

delivered pursuant to this Agreement shall survive the Closing and the

consummation of the Contemplated Transactions, subject to Section 11.7.  The right to indemnification, reimbursement

or other remedy based upon such representations, warranties, covenants and

obligations shall not be affected by any investigation (including any

environmental investigation or assessment) conducted with respect to, or any

Knowledge acquired (or capable of being acquired) at any time, whether before

or after the execution and delivery of this Agreement or the Closing Date, with

respect to the accuracy or inaccuracy of or compliance with any such

representation, warranty, covenant or obligation.  The waiver of any condition based upon the accuracy of any

representation or warranty, or on the performance of or compliance with any

covenant or obligation, will not affect the right to indemnification,

reimbursement or other remedy based upon such representations, warranties,

covenants and obligations.

 

11.2.       Indemnification and Reimbursement by

Seller and Shareholders.  Seller and each Shareholder, jointly and

severally with respect to Seller and severally with respect to each

 

63

 

Shareholder, will indemnify and

hold harmless Buyer, and its Representatives, shareholders, subsidiaries and

Related Persons (collectively, the “Buyer Indemnified Persons”), and

will reimburse the Buyer Indemnified Persons for any loss, liability, claim,

damage, expense (including costs of investigation and defense and reasonable

attorneys’ fees and expenses) or diminution of value, whether or not involving

a Third-Party Claim (collectively, “Damages”), arising from or in

connection with:

 

(a)           any breach of any representation or

warranty made by Seller or any Shareholder in (i) this Agreement (without

giving effect to any supplement to the schedules hereto), (ii) the

schedules hereto, (iii) the supplements to the schedules hereto,

(iv) the certificates delivered pursuant to Section 2.7 (for this

purpose, each such certificate will be deemed to have stated that Seller’s and

Shareholders’ representations and warranties in this Agreement fulfill the

requirements of Section 7.1 as of the Closing Date as if made on the

Closing Date without giving effect to any supplement to the schedules hereto,

unless the certificate expressly states that the matters disclosed in a

supplement have caused a condition specified in Section 7.1 not to be

satisfied), (v) any transfer instrument or (vi) any other

certificate, document, writing or instrument delivered by Seller or any

Shareholder pursuant to this Agreement;

 

(b)           any breach of any covenant or

obligation of Seller or any Shareholder in this Agreement or in any other

certificate, document, writing or instrument delivered by Seller or any

Shareholder pursuant to this Agreement provided, however, that with respect to

any Shareholder breach of his own Employment Agreement or Non Competition

Agreement, such Shareholder shall be solely responsible for such breach and any

related Damages;

 

(c)           any Liability arising out of the

ownership or operation of the Assets prior to the Closing Date other than the

Assumed Liabilities;

 

(d)           any brokerage or finder’s fees or

commissions or similar payments based upon any agreement or understanding made,

or alleged to have been made, by any Person with Seller or any Shareholder (or

any Person acting on their behalf) in connection with any of the Contemplated

Transactions;

 

(e)           subject to Section 11.4(g), any

product or component thereof manufactured by or shipped, or any services

provided by, Seller, in whole or in part, prior to the Closing Date, or any

Inventories purchased by Buyer hereunder, to the extent not covered under the

Product Liability Insurance Policies;

 

(f)            any matter disclosed on Schedule

3.25(d) hereto;

 

(g)           any noncompliance with any Bulk Sales

Laws or fraudulent transfer law in respect of the Contemplated Transactions;

 

(h)           any liability under the WARN Act or

any similar state or local Legal Requirement that may result from an

“Employment Loss”, as defined by 29 U.S.C. sect. 2101(a)(6), caused by any

action of Seller prior to or as a result of the Closing;

 

(i)            any Employee Plan established or

maintained by Seller;

 

64

 

(j)            any Liability arising with respect

to the ownership of or right to any Intellectual Property Assets from former

and current employees, independent contractors, consultants and agents of

seller;

 

(k)           any Retained Liabilities; and

 

(l)            any Liability arising out of the

failure to obtain a Consent at the Closing to the assignment to Buyer of any

Real Property Leases.

 

11.3.       Indemnification and Reimbursement by Seller

and Shareholders — Environmental Matters.  In addition to the other indemnification

provisions in this Article 11, Seller jointly and severally, and each

Shareholder, severally, will indemnify and hold harmless Buyer and the other

Buyer Indemnified Persons, and will reimburse Buyer and the other Buyer

Indemnified Persons, for any Damages (including costs of cleanup, containment

or other remediation) arising from or in connection with:

 

(a)           any Environmental, Health and Safety

Liabilities arising out of or relating to: 

(i) the ownership or operation by any Person at any time on or

prior to the Closing Date of any of the Facilities, Assets or the business of

Seller, or (ii) any Hazardous Materials or other contaminants that were

present on the Facilities or Assets at any time on or prior to the Closing

Date; or

 

(b)           any bodily injury (including illness,

disability and death, regardless of when any such bodily injury occurred, was

incurred or manifested itself), personal injury, property damage (including trespass,

nuisance, wrongful eviction and deprivation of the use of real property) or

other damage of or to any Person or any Assets in any way arising from or

allegedly arising from any Hazardous Activity conducted by any Person with

respect to the business of Seller or the Assets prior to the Closing Date or

from any Hazardous Material that was (i) present on or before the Closing

Date on or at the Facilities (or present or suspected to be present on any

other property, if such Hazardous Material emanated or allegedly emanated from

any Facility and was present or suspected to be present on any Facility, on or

prior to the Closing Date) or (ii) Released or allegedly Released by any

Person on or at any Facilities or Assets at any time on or prior to the Closing

Date.

 

Buyer will be

entitled to control any Remedial Action and any Proceeding relating to an

Environmental Claim for any Facility occupied by Buyer at the time of the

Remedial Action or Proceeding.  Seller

will be entitled, but not required, to control any other Remedial Action or

Proceeding with respect to which indemnity may be sought under this

Section 11.3 with respect to an environmental claim.

 

11.4.       Indemnification and Reimbursement by

Buyer. 

Buyer will indemnify and hold harmless Seller and each Shareholder, and

their respective Representatives, stockholders, subsidiaries and Related

Persons (collectively, the “Seller Indemnified Persons”), and will reimburse

Seller and Seller Indemnified Persons, for any Damages arising from or in

connection with:

 

65

 

(a)           any breach of any representation or

warranty made by Buyer in this Agreement or in any certificate, document,

writing or instrument delivered by Buyer pursuant to this Agreement;

 

(b)           any breach of any covenant or

obligation of Buyer in this Agreement or in any other certificate, document,

writing or instrument delivered by Buyer pursuant to this Agreement;

 

(c)           any claim by any Person for brokerage

or finder’s fees or commissions or similar payments based upon any agreement or

understanding alleged to have been made by such Person with Buyer (or any

Person acting on Buyer’s behalf) in connection with any of the Contemplated

Transactions;

 

(d)           any obligations of Buyer with respect

to bargaining with the collective bargaining representatives of Active

Employees subsequent to the Closing;

 

(e)           any Assumed Liabilities;

 

(f)            any Liability arising out of the

ownership or operation of the Assets by Buyer after the Closing Date other than

the Retained Liabilities; or

 

(g)           any product or component thereof

manufactured by or shipped or any services provided by Seller, in whole or in

part, prior to the Closing Date, or any Inventories purchased by Buyer

hereunder, but only to the extent of the deductible under the Product Liability

Insurance Policies.

 

11.5.       Limitations on Amount — Seller and

Shareholders.  (a)                            Seller and

Shareholders shall have no liability (for indemnification or otherwise) with

respect to claims under Section 11.2(a) until the total of all Damages

with respect to such matters exceeds $250,000 (the “Basket”), in which case

Seller shall be liable for the amount of all Damages from or the first dollar

thereof, up to a maximum liability of $30,000,000 (the “Cap”).  Notwithstanding the foregoing, the Basket

shall not apply to matters arising in respect of Sections 3.14, 3.28, 3.29, or

11.2(b)-(j) or 11.2(l), but the Cap shall apply, and neither the Basket nor the

Cap will apply to any breach of any of Seller’s and Shareholders’

representations and warranties of which the Seller had Knowledge at any time

prior to the date on which such representation and warranty is made or any

intentional breach by Seller or any Shareholder of any covenant or obligation,

and Seller will be jointly and severally liable and the Shareholders will be

severally liable for all Damages with respect to such breaches.  Notwithstanding the foregoing, with respect

to claims under Section 11.2(k), (i) for direct claims against the Seller,

neither the Basket nor the Cap shall apply and (ii) for direct claims against

the Shareholders, the Basket shall not apply, but the Cap shall apply except

for claims under which the plaintiff can establish personal liability on the

part of any Shareholder.  The Basket

shall apply to claims arising under Section 11.3.

 

(b)           All indemnification payments from

Shareholders as a group to Buyer pursuant to this Article 11 shall be in the

proportions set forth on Schedule 11.5.

 

66

 

(c)           Notwithstanding anything herein to

the contrary, with respect to the claims described on Schedule 3.25(d), except

for the accusation of infringement by Procter & Gamble (for which Buyer

Indemnified Parties will be indemnified without qualification), the Basket

shall not apply, provided that Buyer shall pay up to the first $50,000 of the

aggregate costs associated with the defense of such matters.  In connection therewith, the parties agree

that the provisions of Section 11.8 shall govern  with respect to such matters.

 

11.6.       Limitations on Amount — Buyer.  Buyer will have no liability (for

indemnification or otherwise) with respect to claims  under Section 11.4(a) until the total of all Damages with

respect to such matters exceeds the Basket, in which case Buyer shall be liable

for the amount of all Damages from the first dollar thereof up to a maximum

equal to the Cap.  However, this

Section 11.6 will not apply to claims under Section 11.4(b) through

(f) or matters arising in respect of Section 4.4 or to any breach of any of

Buyer’s representations and warranties of which Buyer had Knowledge at any time

prior to the date on which such representation and warranty is made or any

intentional breach by Buyer of any covenant or obligation, and Buyer will be

liable for all Damages with respect to such breaches.  The Basket will not apply to claims under Section 11.4(g).

 

11.7.       Time

Limitations.

 

(a)           If the Closing occurs, Seller and

Shareholders will have liability (for indemnification or otherwise) with

respect to any breach of (i) a covenant or obligation to be performed or

complied with prior to the Closing Date (other than those in Sections 2.1 and

2.4(b) and Articles 10 and 12, as to which a claim may be made at any

time) or (ii) a representation or warranty (other than those in

Sections 3.9, 3.14, 3.16, 3.22, 3.29 or 3.30, as to which a claim may be

made at any time), only if on or before the second anniversary of the Closing

Date, Buyer notifies Seller or Shareholders of a claim specifying the factual

basis of the claim in reasonable detail to the extent then known by Buyer.  Notwithstanding anything herein to the

contrary, a claim under Section 11.2(f) or 11.2(j) may be made at any time.

 

(b)           If the Closing occurs, Buyer will

have liability (for indemnification or otherwise) with respect to any breach of

(i) a covenant or obligation to be performed or complied with prior to the

Closing Date (other than those in Article 12, as to which a claim may be

made at any time) or (ii) a representation or warranty (other than that

set forth in Section 4.4, as to which a claim may be made at any time),

only if on or before the second anniversary of the Closing Date, Seller or

Shareholders notify Buyer of a claim specifying the factual basis of the claim

in reasonable detail to the extent then known by Seller or Shareholders.

 

11.8.       Third-Party Claims.

 

(a)           Promptly after receipt by a Person

entitled to indemnity under Section 11.2, 11.3 (to the extent provided in

the last sentence of Section 11.3) or 11.4 (an “Indemnified Person”)

of notice of the assertion of a Third-Party Claim against it, such Indemnified

Person shall give notice to the Person obligated to indemnify under such

Section (an “Indemnifying Person”) of the assertion of such

Third-Party Claim, provided that the failure to notify the Indemnifying Person

will not relieve the Indemnifying Person of any liability that it may have to

any Indemnified Person, except to the extent that the Indemnifying Person

 

67

 

demonstrates that the defense

of such Third–Party Claim is prejudiced by the Indemnified Person’s

failure to give such notice.

 

(b)           If an Indemnified Person gives notice

to the Indemnifying Person pursuant to Section 11.9(a) of the assertion of

a Third-Party Claim, the Indemnifying Person shall be entitled to participate

in the defense and settlement of such Third-Party Claim and, to the extent that

it wishes (unless (i) the Indemnifying Person is also a Person against

whom the Third-Party Claim is made and the Indemnified Person determines in

good faith that joint representation would be inappropriate or (ii) the

Indemnifying Person fails to provide reasonable assurance to the Indemnified

Person of its financial capacity to defend such Third-Party Claim and provide

indemnification with respect to such Third-Party Claim), to assume the defense,

including settlement, of such Third-Party Claim with counsel satisfactory to

the Indemnified Person.  After notice

from the Indemnifying Person to the Indemnified Person of its election to assume

the defense of such Third-Party Claim, the Indemnifying Person shall not, so

long as it diligently conducts such defense, be liable to the Indemnified

Person under this Article 11 for any fees of other counsel or any other

expenses with respect to the defense of such Third-Party Claim, in each case

subsequently incurred by the Indemnified Person in connection with the defense

of such Third-Party Claim, other than reasonable costs of investigation.  If the Indemnifying Person assumes the

defense of a Third-Party Claim, (i) such assumption will conclusively

establish for purposes of this Agreement that the claims made in that

Third-Party Claim are within the scope of and subject to indemnification,

(ii) no compromise or settlement of such Third-Party Claims may be

effected by the Indemnifying Person without the Indemnified Person’s Consent

unless (A) there is no finding or admission of any violation of Legal

Requirement or any violation of the rights of any Person; (B) the sole

relief provided is monetary damages that are paid in full by the Indemnifying

Person; and (iii) the Indemnifying Person shall have no liability with

respect to any compromise or settlement of such Third-Party Claims effected

without its Consent.  If notice is given

to an Indemnifying Person of the assertion of any Third-Party Claim and the

Indemnifying Person does not, within thirty days after the Indemnified Person’s

notice is given, give notice to the Indemnified Person of its election to

assume the defense of such Third-Party Claim, the Indemnifying Person will be

bound by any determination made in such Third-Party Claim or any compromise or

settlement effected by the Indemnified Person.

 

(c)           Notwithstanding the foregoing, if an

Indemnified Person determines in good faith that there is a reasonable

probability that a Third-Party Claim may adversely affect it or its Related

Persons other than as a result of monetary damages for which it would be

entitled to indemnification under this Agreement, the Indemnified Person may,

by notice to the Indemnifying Person, assume the exclusive right to defend,

compromise or settle such Third-Party Claim, but the Indemnifying Person will

not be bound by any determination of any Third-Party Claim so defended for the

purposes of this Agreement or any compromise or settlement effected without its

Consent (which may not be unreasonably withheld).

 

(d)           Notwithstanding the provisions of

Section 13.4, Seller and each Shareholder hereby consent to the

nonexclusive jurisdiction of any court in which a Proceeding in respect of a

Third-Party Claim is brought against any Buyer Indemnified Person for purposes

of any claim that a Buyer Indemnified Person may have under this Agreement with

respect to such Proceeding or the matters alleged therein and agree that process

may be served on Seller and Shareholders with respect to such a claim anywhere

in the world.

 

68

 

(e)           With respect to any Third-Party Claim

subject to indemnification under this Article 11:  (i) both the Indemnified Person and the

Indemnifying Person, as the case may be, shall keep the other Person fully

informed of the status of such Third-Party Claim and any related Proceedings at

all stages thereof where such Person is not represented by its own counsel, and

(ii) the parties agree to render to each other such assistance as they may

reasonably require of each other and to cooperate in good faith with each other

in order to ensure the proper and adequate defense of any Third-Party Claim.  The party requesting assistance hereunder

shall be responsible for the out-of-pocket expenses of the other party.

 

(f)            With respect to any Third-Party

Claim subject to indemnification under this Article 11, the parties agree

to cooperate in such a manner as to preserve in full (to the extent possible)

the confidentiality of all Confidential Information and the attorney-client and

work-product privileges.  In connection

therewith, each party agrees that: 

(i) it will use its Best Efforts, in respect of any Third-Party

Claim in which it has assumed or participated in the defense, to avoid

production of Confidential Information (consistent with applicable law and

rules of procedure), and (ii) all communications between any party hereto

and counsel responsible for or participating in the defense of any Third-Party

Claim shall, to the extent possible, be made so as to preserve any applicable

attorney-client or work–product privilege.

 

11.9.       Other

Claims. 

A claim for indemnification for any matter not involving a Third-Party

Claim may be asserted by notice to the party from whom indemnification is

sought and shall be paid promptly after such notice.

 

12.          CONFIDENTIALITY.

 

12.1.       Definition of Confidential Information.

 

(a)           As used in this

Article 12, the term “Confidential Information” includes any and

all of the following information of Seller, Buyer or Shareholders that has been

or may hereafter be disclosed in any form, whether in writing, orally,

electronically or otherwise, or otherwise made available by observation,

inspection or otherwise by either party (Buyer on the one hand or Seller and

Shareholders, collectively, on the other hand) or its Representatives

(collectively, a “Disclosing Party”) to the other party or its

Representatives (collectively, a “Receiving Party”):

 

(i)            all information

that is a trade secret under applicable trade secret or other law;

 

(ii)           all information

concerning product specifications, data, know–how, formulae,

compositions, processes, designs, sketches, photographs, graphs, drawings,

samples, inventions and ideas, past, current and planned research and

development, current and planned manufacturing or distribution methods and

processes, customer lists, current and anticipated customer requirements, price

lists, market studies, business plans, computer hardware, software and computer

software and database technologies, systems, structures and architectures;

 

69

 

(iii)          all information

concerning the business and affairs of the Disclosing Party (which includes

historical and current financial statements, financial projections and budgets,

tax returns and accountants’ materials, historical, current and projected

sales, capital spending budgets and plans, business plans, strategic plans,

marketing and advertising plans, publications, client and customer lists and

files, contracts, the names and backgrounds of key personnel and personnel

training techniques and materials, however documented), and all information

obtained from review of the Disclosing Party’s documents or property or

discussions with the Disclosing Party regardless of the form of the

communication; and

 

(iv)          all notes, analyses,

compilations, studies, summaries and other material prepared by the Receiving

Party to the extent containing or based, in whole or in part, upon any

information included in the foregoing.

 

(b)           Any trade secrets of a Disclosing

Party shall also be entitled to all of the protections and benefits under

applicable trade secret law and any other applicable law.  If any information that a Disclosing Party

deems to be a trade secret is found by a court of competent jurisdiction not to

be a trade secret for purposes of this Article 12, such information shall

still be considered Confidential Information of that Disclosing Party for purposes

of this Article 12 to the extent included within the definition.  In the case of trade secrets, each of Buyer,

Seller and Shareholders hereby waives any requirement that the other party

submit proof of the economic value of any trade secret or post a bond or other

security.

 

12.2.       Restricted

Use of Confidential Information.

 

(a)           Each Receiving Party acknowledges the

confidential and proprietary nature of the Confidential Information of the

Disclosing Party and agrees that such Confidential Information (i) shall

be kept confidential by the Receiving Party; (ii) shall not be used for

any reason or purpose other than to evaluate and consummate the Contemplated

Transactions; and (iii) without limiting the foregoing, shall not be

disclosed by the Receiving Party to any Person, except in each case as

otherwise expressly permitted by the terms of this Agreement or with the prior

written consent of an authorized representative of Seller with respect to

Confidential Information of Seller or Shareholders (each, a “Seller Contact”)

or an authorized representative of Buyer with respect to Confidential

Information of Buyer (each, a “Buyer Contact”).  Each of Buyer and Seller and Shareholders

shall disclose the Confidential Information of the other party only to its

Representatives who require such material for the purpose of evaluating the

Contemplated Transactions and are informed by Buyer, Seller or Shareholders, as

the case may be, of the obligations of this Article 12 with respect to

such information.  Each of Buyer, Seller

and Shareholders shall (iv) enforce the terms of this Article 12 as

to its respective Representatives; (v) take such action to the extent

necessary to cause its Representatives to comply with the terms and conditions

of this Article 12; and (vi) be responsible and liable for any breach

of the provisions of this Article 12 by it or its Representatives.

 

(b)           Unless and until this Agreement is

terminated, Seller and each Shareholder shall maintain as confidential any

Confidential Information (including for this purpose any information of Seller

or Shareholders of the type referred to in Sections 12.1(a)(i),

 

70

 

(ii) and (iii), whether or

not disclosed to Buyer) of the Seller or Shareholders relating to any of the

Assets or the Assumed Liabilities. 

Notwithstanding the preceding sentence, Seller may use any Confidential

Information of Seller before the Closing in the ordinary course of business in

connection with the transactions permitted by Section 5.2.

 

(c)           From and after the Closing, the

provisions of Section 12.2(a) above shall not apply to or restrict in any

manner Buyer’s use of any Confidential Information of the Seller or

Shareholders relating to any of the Assets or the Assumed Liabilities.

 

12.3.       Exceptions.  Sections 12.2(a) and (b) do not apply to

that part of the Confidential Information of a Disclosing Party that a

Receiving Party demonstrates (a) was, is or becomes generally available to

the public other than as a result of a breach of this Article 12 or any

other agreements that pertain to confidentiality executed by the Buyer, Seller,

the Shareholders or any of the Related Parties of each, by the Receiving Party

or its Representatives; (b) was or is developed by the Receiving Party independently

of and without reference to any Confidential Information of the Disclosing

Party; or (c) was, is or becomes available to the Receiving Party on a

nonconfidential basis from a Third Party not bound by a confidentiality

agreement or any legal, fiduciary or other obligation restricting

disclosure.  Neither Seller nor either

Shareholder shall disclose any Confidential Information of Seller or

Shareholders relating to any of the Assets or the Assumed Liabilities in

reliance on the exceptions in clauses (b) or (c) above.

 

12.4.       Legal Proceedings.  If a Receiving Party becomes compelled in

any Proceeding or is requested by a Governmental Body having regulatory

jurisdiction over the Contemplated Transactions to make any disclosure that is

prohibited or otherwise constrained by this Article 12, that Receiving

Party shall provide the Disclosing Party with prompt notice of such compulsion

or request so that it may seek an appropriate protective order or other

appropriate remedy or waive compliance with the provisions of this

Article 12.  In the absence of a

protective order or other remedy, the Receiving Party may disclose that portion

(and only that portion) of the Confidential Information of the Disclosing

Party that, based upon advice of the Receiving Party’s counsel, the Receiving

Party is legally compelled to disclose or that has been requested by such

Governmental Body, provided, however, that the Receiving Party shall use

reasonable efforts to obtain reliable assurance that confidential treatment

will be accorded by any Person to whom any Confidential Information is so

disclosed.  The provisions of this

Section 12.4 do not apply to any Proceedings between the parties to this

Agreement.

 

12.5.       Return or Destruction of Confidential

Information. 

If this Agreement is terminated, each Receiving Party shall

(a) destroy all Confidential Information of the Disclosing Party prepared

or generated by the Receiving Party without retaining a copy of any such

material; (b) promptly deliver to the Disclosing Party all other

Confidential Information of the Disclosing Party, together with all copies

thereof, in the possession, custody or control of the Receiving Party or,

alternatively, with the written consent of a Seller Contact or a Buyer Contact

(whichever represents the Disclosing Party) destroy all such Confidential

Information; and (c) certify all such destruction in writing to the

Disclosing Party, provided, however, that the Receiving Party may retain a list

that contains general descriptions of the information it has returned or

destroyed to facilitate the resolution of any controversies after the

Disclosing Party’s Confidential Information is returned.

 

71

 

12.6.       Attorney-Client Privilege.  The Disclosing Party is not waiving, and

will not be deemed to have waived or diminished, any of its attorney work

product protections, attorney-client privileges or similar protections and

privileges as a result of disclosing its Confidential Information (including

Confidential Information related to pending or threatened litigation) to the

Receiving Party, regardless of whether the Disclosing Party has asserted, or is

or may be entitled to assert, such privileges and protections.  The parties (a) share a common legal

and commercial interest in all of the Disclosing Party’s Confidential

Information that is subject to such privileges and protections; (b) are or

may become joint defendants in Proceedings to which the Disclosing Party’s

Confidential Information covered by such protections and privileges relates;

(c) intend that such privileges and protections remain intact should

either party become subject to any actual or threatened Proceeding to which the

Disclosing Party’s Confidential Information covered by such protections and privileges

relates; and (d) intend that after the Closing the Receiving Party shall

have the right to assert such protections and privileges.  No Receiving Party shall admit, claim or

contend, in Proceedings involving either party or otherwise, that any Disclosing

Party waived any of its attorney work-product protections, attorney-client

privileges or similar protections and privileges with respect to any

information, documents or other material not disclosed to a Receiving Party due

to the Disclosing Party disclosing its Confidential Information (including

Confidential Information related to pending or threatened litigation) to the

Receiving Party.

 

13.          GENERAL PROVISIONS.

 

13.1.       Expenses.  Except as otherwise provided in this

Agreement, each party to this Agreement will bear its respective fees and

expenses incurred in connection with the preparation, negotiation, execution

and performance of this Agreement and the Contemplated Transactions, including

all fees and expense of its Representatives. 

Seller will pay all amounts payable to the Title Insurer in respect of

the Title Commitments, copies of exceptions and the Title Policy, including

premiums (including premiums for endorsements) and search fees.  Buyer will pay the HSR Act filing fee.  Buyer will pay the fees and expenses of

conducting the Phase I environmental assessment described in

Section 7.9 hereof.  Buyer will pay

one-half and Seller will pay one-half of any fees and expenses incurred in

connection with any further environmental review, assessment or report deemed

necessary, appropriate or desirable in the sole discretion of Buyer.  If this Agreement is terminated, the

obligation of each party to pay its own fees and expenses will be subject to

any rights of such party arising from a breach of this Agreement by another

party.

 

13.2.       Public Announcements.  Except as required by law, Buyer will not

make any public announcement, press release or similar publicity with respect

to this Agreement or the Contemplated Transactions prior to Closing, and Buyer

agrees to show any such announcement to Seller prior to its publication.  Except with the prior consent of Buyer or as

permitted by this Agreement, neither Seller, Shareholders nor any of their

Representatives shall disclose to any Person (a) the fact that any

Confidential Information of Seller or Shareholders has been disclosed to Buyer

or its Representatives, that Buyer or its Representatives have inspected any

portion of the Confidential Information of Seller or Shareholders, that any

Confidential Information of Buyer has been disclosed to Seller, Shareholders or

their Representatives or that Seller, Shareholders or their Representatives

have inspected any portion of the Confidential Information

 

72

 

of Buyer or (b) any

information about the Contemplated Transactions, including the status of such

discussions or negotiations, the execution of any documents (including this

Agreement) or any of the terms of the Contemplated Transactions or the related documents

(including this Agreement).  Seller and

Buyer will consult with each other concerning the means by which Seller’s

employees, customers, suppliers and others having dealings with Seller will be

informed of the Contemplated Transactions, and Buyer will have the right to be

present for any such communication.

 

13.3.       Notices.  All notices, Consents, waivers and other

communications required or permitted by this Agreement may be given by counsel,

shall be in writing and shall be deemed given to a party when (a) delivered

to the appropriate address by hand or by nationally recognized overnight

courier service (costs prepaid); (b) sent by facsimile with confirmation

of transmission by the transmitting equipment; or (c) received or rejected

by the addressee, if sent by certified mail, return receipt requested, in each

case to the following addresses or facsimile numbers and marked to the

attention of the person (by name or title) designated below (or to such other

address or facsimile number or person as a party may designate by notice to the

other parties):

 

	

  Seller/Shareholders

  (before the Closing):

  
	

   

  
	

  Sassy, Inc.

  
	

  2101

  Waukegan Rd., Suite 203

  
	

  Bannockburn,

  Illinois  60015

  
	

  Attention:  Fritz Hirsch

  
	

  Fax

  no.:  (847)267-0210

  
	

   

  
	

  with a

  mandatory copy to:

  
	

   

  
	

  Vedder, Price,

  Kaufman & Kammholz

  
	

  222 N.

  LaSalle Street, Suite 2400

  
	

  Chicago,

  Illinois  60601

  
	

  Attention:  Guy E. Snyder

  
	

  Fax

  no.:  (312) 609-5005

  
	

   

  
	

  Seller

  (after the Closing):

  
	

  c/o Vedder,

  Price, Kaufman & Kammholz

  
	

  222 N.

  LaSalle Street, Suite 2400

  
	

  Chicago, Illinois  60601

  
	

  Attention:  Guy E. Snyder

  
	

  Fax

  no.:  (312) 609-5005

  
	

   

  
	

  Shareholders

  (after Closing):

  
	

  Robert B,

  Kaplan

  
	

  357 County

  Road 58

  
	

  Ten Sleep,

  Wyoming  82442

  
	

  Fax

  no.:  (307) 366-2341

  

 

73

 

	

  Fritz Hirsch

  
	

  Sassy, Inc.

  
	

  2101

  Waukegan Rd, Suite 203

  
	

  Bannockburn,

  Illinois  60015

  
	

  Fax

  no.:  (847)267-0210

  
	

   

  
	

  Homer

  Douglas

  
	

  2305 Brenton

  Industrial Park Dr., SE

  
	

  Kentwood,

  Michigan  49508

  
	

  Fax:  (616) 243-1042

  

 

74

 

	

  Stephen L.

  Rotblatt

  
	

  Sassy, Inc.

  
	

  2101

  Waukegan Rd, Suite 203

  
	

  Bannockburn,

  Illinois  60015

  
	

  Fax

  no.:  (847)267-0210

  
	

   

  
	

  with a

  mandatory copy to:

  
	

  Vedder,

  Price, Kaufman & Kammholz

  
	

  222 N.

  LaSalle Street, Suite 2400

  
	

  Chicago,

  Illinois  60601

  
	

  Attention:  Guy E. Snyder

  
	

  Fax

  no.:  (312) 609-5005

  
	

   

  
	

  Buyer: c/o

  Russ Berrie and Company, Inc.

  
	

  111 Bauer

  Drive

  
	

  Oakland,

  NJ  07436

  
	

  Attention:  Chief Operating Officer

  
	

  Fax

  no.:  201-405-2579

  
	

   

  
	

  with a

  mandatory copy to: Russ Berrie and Company, Inc.

  
	

  111 Bauer Drive

  
	

  Oakland,

  NJ  07436

  
	

  Attention:  General Counsel

  
	

  Fax

  no.:  201-405-7377

  
	

   

  
	

  and

  
	

   

  
	

  Kaye Scholer

  LLP

  
	

  425 Park

  Avenue

  
	

  New York,

  NY  10022

  
	

  Attention:  Joel Greenberg, Esq.

  
	

  Fax

  no.:  212-836-7149

  

 

13.4.       Jurisdiction; Service of Process.  Any Proceeding arising out of or relating to

this Agreement or any Contemplated Transaction may be brought in the courts of

the State of Delaware, or, if it has or can acquire jurisdiction, in the United

States District Court for the District of Delaware, and each of the parties

irrevocably submits to the exclusive jurisdiction of each such court in any

such Proceeding, waives any objection it may now or hereafter have to venue or

to convenience of forum, agrees that all claims in respect of the Proceeding

shall be heard and determined only in any such court and agrees not to bring

any Proceeding arising out of or relating to this Agreement or any Contemplated

Transaction in any other court.  The

parties agree that either or both of them may file a copy of this paragraph

with any court as written evidence of the knowing, voluntary and bargained

agreement between the parties irrevocably to waive any objections to venue or

to convenience of forum.  Process in any

Proceeding referred to in the first sentence of this Section may be served

on any party anywhere in the world.

 

75

 

13.5.       Enforcement of Agreement.

 

(a)           Seller and Shareholders acknowledge

and agree that Buyer would be irreparably damaged if any of the provisions of this

Agreement are not performed in accordance with their specific terms and that

any breach of this Agreement by Seller or Shareholders could not be adequately

compensated in all cases by monetary damages alone.  Accordingly, in addition to any other right or remedy to which

Buyer may be entitled, at law or in equity, it shall be entitled to enforce any

provision of this Agreement by a decree of specific performance and to

temporary, preliminary and permanent injunctive relief to prevent breaches or

threatened breaches of any of the provisions of this Agreement, without posting

any bond or other undertaking.

 

(b)           Buyer acknowledges and agrees that

Seller and Shareholders would be irreparably damaged if any of the provisions

of this Agreement are not performed in accordance with their specific terms and

that any breach of this Agreement by Buyer could not be adequately compensated

in all cases by monetary damages alone. 

Accordingly, in addition to any other right or remedy to which Seller or

Shareholders may be entitled, at law or in equity, such parties shall be

entitled to enforce any provision of this Agreement by a decree of specific

performance and to temporary, preliminary and permanent injunctive relief to

prevent breaches or threatened breaches of any of the provisions of this

Agreement, without posting any bond or other undertaking

 

13.6.       Waiver; Remedies Cumulative.  The rights and remedies of the parties to

this Agreement are cumulative and not alternative.  Neither any failure nor any delay by any party in exercising any

right, power or privilege under this Agreement or any of the documents referred

to in this Agreement will operate as a waiver of such right, power or

privilege, and no single or partial exercise of any such right, power or

privilege will preclude any other or further exercise of such right, power or

privilege or the exercise of any other right, power or privilege.  To the maximum extent permitted by

applicable law, (a) no claim or right arising out of this Agreement or any of

the documents referred to in this Agreement can be discharged by one party, in

whole or in part, by a waiver or renunciation of the claim or right unless in

writing signed by the other party; (b) no waiver that may be given by a

party will be applicable except in the specific instance for which it is given;

and (c) no notice to or demand on one party will be deemed to be a waiver

of any obligation of that party or of the right of the party giving such notice

or demand to take further action without notice or demand as provided in this

Agreement or the documents referred to in this Agreement.

 

13.7.       Entire Agreement and Modification.  This Agreement supersedes all prior

agreements, whether written or oral, between the parties with respect to its

subject matter (including any letter of intent and any confidentiality

agreement between Buyer and Seller) and constitutes (along with the schedules

hereto, Exhibits and other documents delivered pursuant to this Agreement) a

complete and exclusive statement of the terms of the agreement between the

parties with respect to its subject matter. 

This Agreement may not be amended, supplemented, or otherwise modified

except by a written agreement executed by the party to be charged with the amendment.

 

76

 

13.8.       Schedules.

 

(a)           The information in the schedules

constitutes (i) exceptions to particular representations, warranties,

covenants and obligations of Seller and Shareholders as set forth in this

Agreement or (ii) descriptions or lists of assets and liabilities and

other items referred to in this Agreement. 

If there is any inconsistency between the statements in this Agreement

and those in the schedules (other than an exception expressly set forth as such

in such schedules with respect to a specifically identified representation or

warranty), the statements in this Agreement will control.

 

(b)           The statements in the schedules

hereto, and those in any supplement to such schedules, relate only to the

provisions in the Section of this Agreement to which they expressly relate

(and also to those provisions to which their relevance is manifest on its face)

and not to any other provision in this Agreement.

 

13.9.       Assignments, Successors and No Third-Party Rights.  No party may assign any of its rights or

delegate any of its obligations under this Agreement or the Guarantee without

the prior written consent of the other parties, except that Buyer may assign

any of its rights under this Agreement to any Subsidiary of Buyer without the

consent of any party, provided, however, that no such assignment shall

relieve the Buyer of its obligations hereunder (or RB of its obligations under

the Guarantee).  Subject to the

preceding sentence, this Agreement will apply to, be binding in all respects

upon and inure to the benefit of the successors and permitted assigns of the

parties.  Nothing expressed or referred

to in this Agreement will be construed to give any Person other than the

parties to this Agreement any legal or equitable right, remedy or claim under

or with respect to this Agreement or any provision of this Agreement (including

the Guarantee), except such rights as shall inure to a successor or permitted

assignee pursuant to this Section 13.9.

 

13.10.     Severability.  If any provision of this Agreement is held

invalid or unenforceable by any court of competent jurisdiction, the other

provisions of this Agreement will remain in full force and effect.  Any provision of this Agreement held invalid

or unenforceable only in part or degree will remain in full force and effect to

the extent not held invalid or unenforceable.

 

13.11.     Construction.   The headings of Articles and Sections in this Agreement are

provided for convenience only and will not affect its construction or

interpretation.  All references to

“Articles” and “Sections” refer to the corresponding Articles and Sections of

this Agreement.

 

77

 

13.12.     Governing

Law. 

This Agreement will be governed by and construed under the laws of the

State of Delaware without regard to conflicts-of-laws principles that would

require the application of any other law.

 

13.13.     Execution of Agreement.  This Agreement may be executed in one or

more counterparts, each of which will be deemed to be an original copy of this

Agreement and all of which, when taken together, will be deemed to constitute

one and the same agreement.  The

exchange of copies of this Agreement and of signature pages by facsimile

transmission shall constitute effective execution and delivery of this

Agreement as to the parties and may be used in lieu of the original Agreement

for all purposes.  Signatures of the

parties transmitted by facsimile shall be deemed to be their original

signatures for all purposes.

 

13.14.     Shareholder Obligations.  Where in this Agreement provision is made

for any action to be taken or not taken by Seller, Shareholders each severally

undertake to cause Seller to take or not take such action, as the case may be.

 

78

 

IN WITNESS

WHEREOF, the parties have executed this Agreement as of the date first written

above.

 

	

  RBSACQ, INC.

  	

   

  	

  Shareholders:

  
	

   

  	

   

  	

   

  
	

  By:

  	

  /s/ Thomas

  Bowles

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  ROBERT

  KAPLAN

  
	

   

  	

   

  	

   

  
	

  SASSY, INC.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  FRITZ HIRSCH

  
	

  By:

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  STEVE

  ROTBLATT

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  HOMER DOUGLAS

  

 

GUARANTEE

 

The

undersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of

(i) the Cash Consideration to Seller in accordance with the terms and

provisions hereof, as adjusted pursuant to the terms hereof; (ii) any payments

required under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments required

under the Employment Agreements; (iv) Liabilities described in Section 2.4

(a)(i); (v) amounts required to maintain the insurance policies set forth in

Schedule 7.4(c) until the third anniversary of the Closing Date and fulfill the

covenant set forth in Section 10.12 and (vi) amounts required under Section

11.4(g).  This guarantee is of payment

and not performance.

 

	

  Dated: July

  26, 2002

  	

  RUSS BERRIE

  AND COMPANY, INC.

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ Thomas

  Bowles

  	

   

  
	

   

  	

   

  	

  Name: Thomas

  Bowles

  
	

   

  	

   

  	

  Title: COO

  

 

 

IN WITNESS

WHEREOF, the parties have executed this Agreement as of the date first written

above.

 

	

  RBSACQ, INC.

  	

   

  	

  Shareholders:

  
	

   

  	

   

  	

   

  
	

  By:

  	

   

  	

   

  	

  /s/ Robert

  Kaplan

  	

   

  
	

   

  	

   

  	

  ROBERT

  KAPLAN

  
	

   

  	

   

  	

   

  
	

  SASSY, INC.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  FRITZ HIRSCH

  
	

  By:

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  STEVE

  ROTBLATT

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  HOMER

  DOUGLAS

  

 

GUARANTEE

 

The

undersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of

(i) the Cash Consideration to Seller in accordance with the terms and

provisions hereof, as adjusted pursuant to the terms hereof; (ii) any payments

required under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments required

under the Employment Agreements; (iv) Liabilities described in Section 2.4

(a)(i); (v) amounts required to maintain the insurance policies set forth in

Schedule 7.4(c) until the third anniversary of the Closing Date and fulfill the

covenant set forth in Section 10.12 and (vi) amounts required under Section

11.4(g).  This guarantee is of payment

and not performance.

 

	

  Dated:                  ,

  2002

  	

  RUSS BERRIE

  AND COMPANY, INC.

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

   

  
	

   

  	

   

  	

  Name:

  
	

   

  	

   

  	

  Title:

  

 

 

IN WITNESS

WHEREOF, the parties have executed this Agreement as of the date first written

above.

 

	

  RBSACQ, INC.

  	

   

  	

  Shareholders:

  
	

   

  	

   

  	

   

  
	

  By:

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  ROBERT

  KAPLAN

  
	

   

  	

   

  	

   

  
	

  SASSY, INC.

  	

   

  	

  /s/ Fritz

  Hirsch

  	

   

  
	

   

  	

   

  	

  FRITZ HIRSCH

  
	

  By:

  	

  /s/ Fritz

  Hirsch

  	

   

  	

   

  
	

   

  	

   

  	

  /s/ Steve

  Rotblatt

  	

   

  
	

   

  	

   

  	

  STEVE

  ROTBLATT

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  HOMER

  DOUGLAS

  

 

GUARANTEE

 

The

undersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of

(i) the Cash Consideration to Seller in accordance with the terms and

provisions hereof, as adjusted pursuant to the terms hereof; (ii) any payments

required under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments required

under the Employment Agreements; (iv) Liabilities described in Section 2.4 (a)(i);

(v) amounts required to maintain the insurance policies set forth in Schedule

7.4(c) until the third anniversary of the Closing Date and fulfill the covenant

set forth in Section 10.12 and (vi) amounts required under Section 11.4(g).  This guarantee is of payment and not

performance.

 

	

  Dated:                  ,

  2002

  	

  RUSS BERRIE

  AND COMPANY, INC.

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

   

  
	

   

  	

   

  	

  Name:

  
	

   

  	

   

  	

  Title:

  

 

 

IN WITNESS

WHEREOF, the parties have executed this Agreement as of the date first written

above.

 

	

  RBSACQ, INC.

  	

   

  	

  Shareholders:

  
	

   

  	

   

  	

   

  
	

  By:

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  ROBERT

  KAPLAN

  
	

   

  	

   

  	

   

  
	

  SASSY, INC.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  FRITZ HIRSCH

  
	

  By:

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  STEVE

  ROTBLATT

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  /s/ Homer

  Douglas

  	

   

  
	

   

  	

   

  	

  HOMER

  DOUGLAS

  

 

GUARANTEE

 

The

undersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of

(i) the Cash Consideration to Seller in accordance with the terms and

provisions hereof, as adjusted pursuant to the terms hereof; (ii) any payments

required under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments required

under the Employment Agreements; (iv) Liabilities described in Section 2.4

(a)(i); (v) amounts required to maintain the insurance policies set forth in

Schedule 7.4(c) until the third anniversary of the Closing Date and fulfill the

covenant set forth in Section 10.12 and (vi) amounts required under Section 11.4(g).  This guarantee is of payment and not

performance.

 

	

  Dated:                  ,

  2002

  	

  RUSS BERRIE

  AND COMPANY, INC.

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

   

  
	

   

  	

   

  	

  Name:

  
	

   

  	

   

  	

  Title:Execution Copy

                                                                     EXHIBIT 4.1

                                CO-SALE AGREEMENT

     THIS CO-SALE  AGREEMENT  (this  "Agreement") is dated as of this 6th day of
August,  2002,  by and  among  PrimeSource  Healthcare,  Inc.,  a  Massachusetts
corporation  (the  "Company"),  and the persons  listed as  Stockholders  on the
signature pages hereto  (collectively,  the "Stockholders"  and individually,  a
"Stockholder").

     WHEREAS, pursuant to a Purchase Agreement, dated as of the date hereof (the
"Purchase Agreement"),  by and among the Company and the investors listed on the
signature  pages  thereto,  the Company  will issue shares of Series G Preferred
Stock;

     WHEREAS,  it is a condition  precedent  to the closing of the  transactions
contemplated  by the Purchase  Agreement that the parties hereto enter into this
Agreement; and

     WHEREAS, the parties hereto are willing to execute this Agreement and to be
bound by the provisions hereof.

     NOW, THEREFORE,  in consideration of the premises, the agreements set forth
below, and the parties' desire to further their interests,  the parties agree as
follows:

     1.   Certain Definitions.
          -------------------

     All terms not otherwise defined herein shall have the meanings set forth in
the Second Amended and Restated  Registration Rights Agreement,  dated as of the
date hereof (the "Registration Rights Agreement"),  by and among the Company and
the stockholders signatories thereto.

     "Preferred Stock" shall mean the Series G Preferred Stock of the Company.
     ----------------

     "Preferred Stockholder" shall mean the Stockholders of Preferred Stock.
      ---------------------

     2.   "Tag-Along" Rights for Sales by Brad Walker and Joseph Potenza.
           --------------------------------------------------------------

          (a) If Brad  Walker  ("WALKER")  or Joseph  Potenza  ("Potenza")  (for
purposes of this SECTION 2, each of whom, the "PROPOSED TRANSFEROR") at any time
or from time to time, in one transaction or in a series of related transactions,
desires to sell,  transfer or otherwise  dispose of  (collectively,  "TRANSFER")
(for  purposes of this  SECTION 2, a  "TAG-ALONG  SALE")  shares of Common Stock
and/or Preferred Stock to any Person (including the Company or any Subsidiary of
the Company) (for purposes of this SECTION 2, the "PROPOSED  TRANSFEREE"),  then
each of the Preferred Stockholders shall have the right, but not the obligation,
to elect that the Proposed Transferor be obligated to require, as a condition to
such  Tag-Along  Sale,  that the  Proposed  Transferee  purchase  from each such
electing Preferred Stockholder:

               (i) up to the  number  of  shares  of  Common  Stock  derived  by
     multiplying the total number of shares of Common Stock owned by or issuable
     to such  electing  Preferred  Stockholder  by a fraction,  the numerator of
     which is equal to the  number of shares of Common  Stock  then  owned by or
     issuable  to  the  Proposed  Transferor  that  are to be  purchased  by the

<PAGE>
     Proposed  Transferee (without giving effect to any reduction in such number
     of shares by reason of any Preferred Stockholder's election to exercise the
     "tag-along"  rights  provided  in this  SECTION 2 in  connection  with such
     transaction)  and the denominator of which is the total number of shares of
     Common Stock owned by or issuable to the Proposed  Transferor prior to such
     sale; and

               (ii) up to the number of shares of Preferred Stock having a value
     equal to the amount derived by multiplying  the stated  purchase price upon
     the first sale (the  "STATED  PURCHASE  PRICE") of the shares of  Preferred
     Stock owned by or  issuable to such  electing  Preferred  Stockholder  by a
     fraction, the numerator of which is the aggregate Stated Purchase Prices of
     the shares of  Preferred  Stock then owned by or issuable  to the  Proposed
     Transferor  that are to be purchased by the  Proposed  Transferee  (without
     giving  effect to any  reduction  in such number of shares by reason of any
     Preferred   Stockholder's  election  to  exercise  the  "tag-along"  rights
     provided in this Section 2 in  connection  with such  transaction)  and the
     denominator of which is the aggregate  Stated Purchase Prices of the shares
     of Preferred Stock owned by or issuable to the Proposed Transferor prior to
     such sale;

PROVIDED,  HOWEVER, that if any Preferred Stockholder chooses not to sell any or
all shares which such Preferred  Stockholder  may be entitled to sell under this
SECTION 2(a),  and one or more of the Preferred  Stockholders  is exercising its
right to sell the maximum  number of shares  permissible  (for  purposes of this
SECTION 2, each, a "REOFFER  STOCKHOLDER"),  then each Reoffer  Stockholder  and
each of the Proposed Transferors shall have the option to sell such shares as to
which the option to sell has not been exercised (for purposes of this SECTION 2,
the "REOFFER SHARES"),  subject to allocation among them pro rata based on their
respective  ownership of shares of Common Stock or Preferred  Stock, as the case
may be.

          (b) Any such sales by any Preferred  Stockholder  shall be on the same
terms and conditions as the proposed Tag-Along Sale by the Proposed  Transferor.
Each  Preferred  Stockholder  whose shares are sold in a Tag-Along Sale shall be
required  to bear a  proportionate  share of the  expenses  of the  transaction,
including, without limitation, legal, accounting and investment banking fees and
expenses.

          (c) The Proposed  Transferor  participating  in a Tag-Along Sale shall
promptly  (and in no event  less than  thirty  (30)  business  days prior to the
consummation  thereof)  provide  the Company  with notice (for  purposes of this
SECTION 2, the  "PROPOSED  TRANSFEROR  NOTICE") of the proposed  Tag-Along  Sale
(which the Company shall transmit to each Preferred Stockholder within three (3)
business days of its receipt thereof) containing the following:

               (i) the name and address of the Proposed Transferee of the shares
     in the Tag-Along Sale;

               (ii) the  number of shares of Common  Stock and  Preferred  Stock
     proposed to be  Transferred  by the Proposed  Transferor  in the event that
     none of the Preferred Stockholders elects to participate;

               (iii) the proposed  amount and form of  consideration  to be paid
     for such  shares and the terms and  conditions  of  payment  offered by the
     Proposed Transferee;

                                       2
<PAGE>
               (iv) the aggregate number of shares of Common Stock and Preferred
     Stock  held of record  by such  Proposed  Transferor  as of the date of the
     notice  (for  purposes  of this  SECTION  2, the  "NOTICE  DATE")  from the
     Proposed Transferor to the Company;

               (v) the aggregate  number of shares of Common Stock and Preferred
     Stock held of record as of the Notice Date by all Preferred Stockholders as
     a group;

               (vi) the maximum  number of shares of Common Stock and  Preferred
     Stock  each such  Preferred  Stockholder  is  entitled  to  include  in the
     Tag-Along  Sale (as computed in accordance  with the equations set forth in
     SECTION 2(a)); and

               (vii)  that the  Proposed  Transferee  has been  informed  of the
     "tag-along" rights provided for in Section 2(a).

          (d)  If  a  Preferred  Stockholder  desires  to  participate  in  such
Tag-Along  Sale,  such Preferred  Stockholder  shall provide written notice (for
purposes of this SECTION 2, the "TAG-ALONG  NOTICE") to such Proposed Transferor
not later than ten (10)  business  days after the Notice Date setting  forth the
number of shares of Common Stock and Preferred  Stock,  if any,  such  Preferred
Stockholder  elects to  include  in the  Tag-Along  Sale.  In the event that any
Preferred  Stockholder chooses not to sell any or all which such other Preferred
Stockholder may be entitled to sell under SECTION 2(a), the Proposed  Transferor
participating  in the Tag-Along  Sale shall  promptly (and in no event less than
fifteen (15) business days prior to the  consummation  of such  Tag-Along  Sale)
provide the Company  with notice (for  purposes of this  SECTION 2, the "REOFFER
NOTICE") of such  Reoffer  Shares  available  for sale  pursuant to SECTION 2(a)
(which the Company shall transmit to each Reoffer  Stockholder  within three (3)
business  days of its  receipt  thereof).  If a Reoffer  Stockholder  desires to
participate in the sale of any of the Reoffer Shares,  such Reoffer  Stockholder
shall provide written notice thereof to such Proposed  Transferor not later than
five (5) business  days after  receipt of the Reoffer  Notice  setting forth the
number of additional  shares of Common Stock and Preferred  Stock,  if any, such
Reoffer  Stockholder  elects to  include  in the  Tag-Along  Sale.  A  Preferred
Stockholder  may  elect to  include  shares  in a  Tag-Along  Sale  only if such
Preferred Stockholder elects to include in such Tag-Along Sale a ratio of shares
of Common  Stock to shares of  Preferred  Stock  equal to the ratio of shares of
Common  Stock to shares of Preferred  Stock  proposed to be sold by the Proposed
Transferor in the Tag-Along  Sale;  PROVIDED,  HOWEVER,  that (i) if a Preferred
Stockholder is selling all shares of Common Stock owned by it and its Affiliates
in such  Tag-Along  Sale,  then the number of shares of Preferred  Stock sold by
such  Preferred  Stockholder  in the Tag-Along  Sale shall not be limited by the
provisions of this sentence and (ii) if a Preferred  Stockholder  is selling all
of the  shares  of  Preferred  Stock  owned  by it and  its  Affiliates  in such
Tag-Along Sale, then the number of shares of Common Stock sold by such Preferred
Stockholder in the Tag-Along Sale shall not be limited by the provisions of this
sentence. In the event that the Proposed Transferee does not purchase the shares
of the Proposed  Transferor,  then the proposed  Tag-Along Sale by the Preferred
Stockholders to such Proposed Transferee shall not take place.

          (e)  The  provisions  of  this  SECTION  2  shall  not  apply  to  any
transaction  in which shares of Common  Stock are  proposed to be sold  publicly
pursuant to a registration statement filed under the Act.

                                       3
<PAGE>
          (f)  Notwithstanding  anything herein to the contrary,  the rights and
obligations provided for in this Section 2 shall terminate,  with respect to all
shares held by each Preferred Stockholder,  upon the occurrence of the effective
date of the Company's registration statement in connection with its closing of a
firm  commitment  underwritten  public offering of shares of Common Stock by the
Company and any selling  stockholders  in which (i) the aggregate price paid for
such  shares by the  public  shall be at least  $25,000,000  and (ii)  implies a
pre-equity valuation of the Company of at least $110,000,000.

     3.   Restrictions on Walker's and Potenza's Transfer.
          -----------------------------------------------

     Each of Walker and Potenza hereby agrees that he will not sell, transfer or
pledge any of his respective  shares of the Company capital stock (or any direct
or indirect interest  therein) or any stock  certificate  representing the same,
now or hereafter at any time owned by him,  except as consented to in writing by
the  Stockholders  of a majority  of the shares of the  Preferred  Stock,  which
consent shall not be unreasonably withheld.

     4.   Notices.
          -------

     All notices,  requests,  consents and other communications  provided for or
permitted  hereunder  shall  be  made in  writing  and  shall  be  delivered  by
hand-delivery,   registered  or  certified   first-class  mail,  return  receipt
requested, or sent by telecopier or telex, addressed as follows:

          (a) if to GE Capital Equity  Investments,  Inc. ("GE"), at its address
set forth on the signature pages hereto,  with a copy to Gibson, Dunn & Crutcher
LLP, 333 South Grand  Avenue,  Los Angeles,  California  90071-3197,  Facsimile:
(213) 229-7250, Attention: Linda L. Curtis;

          (b) if to a  Stockholder  who is not GE, at the most  current  address
given by the  Stockholder  to the  Company  in  accordance  with the  provisions
hereof,  which address  initially is the address of the Stockholder set forth on
the signature pates hereto; and

          (c) if to Walker or Potenza, initially at his address set forth on the
signature pages hereto and thereafter at such other address,  notice of which is
given in accordance with the provisions  hereof,  with a copy to Skadden,  Arps,
Slate,  Meagher & Flom LLP,  300 South Grand  Avenue,  Suite 3400,  Los Angeles,
California 90071, Facsimile:  (213) 687-5600, Attn: Gregg Noel. All such notices
and  communications  shall  be  deemed  to have  been  duly  given:  at the time
delivered by hand, if personally  delivered;  five (5) business days after being
deposited in the mail,  postage  prepaid,  if mailed;  when  answered  back,  if
telexed; when receipt acknowledged, if telecopied; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.

     5.   Entire Agreement and Amendments.
          -------------------------------

          (a) This Agreement,  together with the  Registration  Rights Agreement
dated as of even date  herewith,  as the same may be amended  and/or amended and
restated from time to time, constitutes the entire agreement of the parties with
respect to the subject  matter  hereof and  thereof,  and  supersedes  all prior
agreements  relating to the subject matter hereof in their entirety with respect

                                       4
<PAGE>
to each party to such prior agreements. The parties hereto acknowledge and agree
that all such prior  agreements  shall be of no force and effect with respect to
the parties hereto following the effectiveness of this Agreement.

          (b) Neither this  Agreement  nor any  provision  hereof may be waived,
modified,  amended or terminated except by a written agreement signed by Walker,
Potenza  and the  holders  of 60% of the then  outstanding  shares of  Preferred
Stock;  and  provided  further,  that  any  amendment  or  modification  of this
Agreement  that would  adversely  affect any of the expressed  rights  contained
herein of any party hereto may be effected only with the consent of such party.

     6.   Governing Law; Successors and Assigns.
          -------------------------------------

     This  Agreement  shall be governed by the laws of the State of New York and
shall bind and inure to the benefit of and be binding upon the respective heirs,
personal representatives,  executors, administrators,  successors and assigns of
the parties  (including  transferees of any shares of Preferred Stock).  Without
limiting the  generality of the  foregoing,  all covenants and agreements of the
Stockholders  shall bind any and all subsequent holders of their shares, and the
Company  agrees that it shall not transfer on its records any such shares unless
(i) the transferor Stockholder shall have first delivered to the Company and the
other  Stockholders the written  agreement of the transferee to be bound by this
Agreement  to the  same  extent  as if such  transferee  had  originally  been a
Stockholder  hereunder and (ii) the certificate or  certificates  evidencing the
shares so transferred bear the legend required by Section 14 of the Registration
Rights Agreement.

     7.   Expenses.
          --------

     If any action at law or in equity is necessary to enforce or interpret  the
terms of this  Agreement,  the prevailing  party shall be entitled to reasonable
attorneys'  fees,  costs and  necessary  disbursements  in addition to any other
relief to which such party may be entitled.

     8.   Severability.
          ------------

     If any provision of this Agreement,  or the application  thereof,  will for
any reason and to any extent be invalid or unenforceable,  the remainder of this
Agreement and  application of such  provision to other persons or  circumstances
will be interpreted so as reasonably to effect the intent of the parties hereto.
The parties  further  agree to replace such void or  unenforceable  provision of
this Agreement with a valid and enforceable  provision that will achieve, to the
extent  possible,  the  economic,  business  and other  purposes  of the void or
unenforceable provision.

     9.   Aggregation of Stock.
          --------------------

     All shares of Preferred  Stock held or acquired by  affiliated  entities or
any Stockholder shall be aggregated  together for the purpose of determining the
availability of any rights under this Agreement.

                                       5
<PAGE>

     10.  Further Assurances.
          ------------------

     Each party agrees to cooperate  fully with the other parties and to execute
such further  instruments,  documents  and  agreements  and to give such further
written assurances as may be reasonably requested by any other party to evidence
and reflect the transactions  described  herein and  contemplated  hereby and to
carry into effect the intents and purposes of this Agreement.

     11.  Equitable Remedies.
          ------------------

     Each of Walker and Potenza hereto  acknowledges  and agrees that any breach
by either of them of this  Agreement  shall cause the  Stockholders  irreparable
harm which may not be adequately compensable by money damages.  Accordingly,  in
the event of a breach or  threatened  breach by either  Walker or Potenza of any
provision of this Agreement,  the Stockholders  shall each be entitled,  without
posting any bond or other  security,  to the  remedies of specific  performance,
temporary,  preliminary  and  permanent  injunctive  relief and other  equitable
remedies,  including the right to compel either or both of Walker or Potenza, as
the case may be, to comply with the provisions of this Agreement, in addition to
such other rights and remedies as may be available to the  Stockholders  for any
such breach or threatened  breach,  including but not limited to the recovery of
money damages

     12.  Captions.
          --------

     Captions  are for  convenience  only and are not  deemed to be part of this
Agreement.

     13.  Counterparts.
          ------------

     This Agreement may be executed in two or more  counterparts,  each of which
shall be deemed an original,  but all of which together shall constitute one and
the same instrument.

     14.  No Inconsistent Agreements.
          --------------------------

     The Company shall not, on or after the date of this  Agreement,  enter into
any  agreement  with respect to its  securities  that is  inconsistent  with the
rights granted to the Holders of Preferred  Stock in this Agreement or otherwise
conflicts with the provisions hereof.

                                    * * * * *
                         (Signatures on following pages)

                                       6
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Co-Sale Agreement
as of the day and year first above written.

                                            PRIMESOURCE HEALTHCARE, INC.

                                            By:  /s/  Bradford C. Walker
                                                 -------------------------------
                                            Name:  Bradford C. Walker
                                            Title:

                                            /s/  Bradford C. Walker
                                            ------------------------------------
                                            Bradford C. Walker

                                            8207 SE 48th Street
                                            Mercer Island, Washington 98040

                                            /s/  Joseph Potenza
                                            ------------------------------------
                                            Joseph Potenza

<PAGE>

                                           SERIES G HOLDERS:

                                           GE Capital Equity Investments, Inc.

                                           By:  /s/  Michael S. Fisher
                                                -------------------------------
                                           Name:  Michael S. Fisher
                                           Title: Managing Director

                                           120 Long Ridge Road
                                           Stamford, Connecticut 06927

                                           Coleman Swenson Hoffman Booth IV L.P.

                                           By:      Its General Partner
                                           CSHB Ventures IV L.P.

                                           By:  /s/ Larry H. Coleman
                                                -------------------------------
                                           Name:  Larry H. Coleman
                                           Title: General Partner

                                           237 Second Avenue South
                                           Franklin, Tennessee 37064-2649

                                           /s/  William H. Lomicka
                                           ------------------------------------
                                           William H. Lomicka

                                           7406 North Secret Canyon Drive
                                           Tucson, Arizona 85718

                                           Webbmont Holdings, L.P.

                                           By:  /s/  Robert W. Fisher
                                                -------------------------------
                                           Name:  Robert W. Fisher
                                           Title: President of General Partner

                                           1355 Peachtree Street, Suite 1100
                                           Atlanta, Georgia 30309

<PAGE>

                                          Investors Equity, Inc.

                                           /s/  Robert W. Fisher
                                           ------------------------------------
                                           Name:  Robert W. Fisher
                                           Title: President

                                           1355 Peachtree Street, Suite 1100
                                           Atlanta, Georgia 30309

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