Exhibit 2.1
STOCK PURCHASE AGREEMENT
AMONG
THE NORTH FACE, INC.,
LA SPORTIVA USA,
AND THE SHAREHOLDERS OF LA SPORTIVA USA
July 1, 1998
TABLE OF CONTENTS
PAGE
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ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. Purchase and Sale of Company Shares . . . . . . . . . . . . . . 5
(a) Basic Transaction . . . . . . . . . . . . . . . . . . . . 5
(b) Purchase Price. . . . . . . . . . . . . . . . . . . . . . 5
(c) The Closing . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Deliveries at the Closing . . . . . . . . . . . . . . . . 6
(e) Escrow Deposit. . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Representations and Warranties Concerning the Transaction . . . 8
(a) Representations and Warranties of the Sellers . . . . . . 8
(b) Representations and Warranties of the Buyer . . . . . . . 9
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. Representations and Warranties Concerning the Company . . . . . 10
(a) Organization, Qualification, and Corporate Power. . . . . 10
(b) Capitalization. . . . . . . . . . . . . . . . . . . . . . 10
(c) Noncontravention. . . . . . . . . . . . . . . . . . . . . 11
(d) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . 11
(e) Title to Assets . . . . . . . . . . . . . . . . . . . . . 11
(f) Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 11
(g) Financial Statements. . . . . . . . . . . . . . . . . . . 11
(h) Events Subsequent to Most Recent Fiscal Year End. . . . . 12
(i) Undisclosed Liabilities . . . . . . . . . . . . . . . . . 14
(j) Legal Compliance. . . . . . . . . . . . . . . . . . . . . 14
(k) Tax Matters . . . . . . . . . . . . . . . . . . . . . . . 14
(l) Real Property . . . . . . . . . . . . . . . . . . . . . . 15
(m) Intellectual Property . . . . . . . . . . . . . . . . . . 16
(n) Tangible Assets . . . . . . . . . . . . . . . . . . . . . 18
(o) Inventory . . . . . . . . . . . . . . . . . . . . . . . . 18
(p) Contracts . . . . . . . . . . . . . . . . . . . . . . . . 19
(q) Notes and Accounts Receivable . . . . . . . . . . . . . . 20
(r) Powers of Attorney . . . . . . . . . . . . . . . . . . . 20
(s) Insurance . . . . . . . . . . . . . . . . . . . . . . . . 20
(t) Litigation . . . . . . . . . . . . . . . . . . . . . . . 21
(u) Product Warranty . . . . . . . . . . . . . . . . . . . . 21
(v) Product Liability . . . . . . . . . . . . . . . . . . . . 21
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TABLE OF CONTENTS
(Continued)
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(w) Employees . . . . . . . . . . . . . . . . . . . . . . . . 21
(x) Employee Benefits . . . . . . . . . . . . . . . . . . . . 21
(y) Guaranties . . . . . . . . . . . . . . . . . . . . . . . 22
(z) Environmental, Health, and Safety Matters . . . . . . . . 22
(aa) Certain Business Relationships with the Company . . . . . 23
(bb) Disclosure . . . . . . . . . . . . . . . . . . . . . . . 23
(cc) Bank Accounts . . . . . . . . . . . . . . . . . . . . . . 23
(dd) Materiality . . . . . . . . . . . . . . . . . . . . . . . 23
(ee) Solvency . . . . . . . . . . . . . . . . . . . . . . . . 23
(ff) Predecessor Status . . . . . . . . . . . . . . . . . . . 23
(gg) Minute Books . . . . . . . . . . . . . . . . . . . . . . 23
(hh) Disclosure Schedule . . . . . . . . . . . . . . . . . . . 23
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5. Pre-Closing Covenants . . . . . . . . . . . . . . . . . . . . . 24
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) Notices and Consents . . . . . . . . . . . . . . . . . . 24
(c) Operation of Business . . . . . . . . . . . . . . . . . . 24
(d) Preservation of Business. . . . . . . . . . . . . . . . . 24
(e) Full Access . . . . . . . . . . . . . . . . . . . . . . . 24
(f) Notice of Developments . . . . . . . . . . . . . . . . . 24
(g) Exclusivity . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6. Post-Closing Covenants . . . . . . . . . . . . . . . . . . . . 25
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Litigation Support . . . . . . . . . . . . . . . . . . . 25
(c) Transition . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Confidentiality . . . . . . . . . . . . . . . . . . . . . 26
(e) Release from Preferred Stock Agreement . . . . . . . . . 26
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7. Conditions to Obligation to Close . . . . . . . . . . . . . . . 26
(a) Conditions to Obligation of the Buyer . . . . . . . . . . 26
(b) Conditions to Obligation of the Sellers . . . . . . . . . 28
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8. Remedies for Breaches of This Agreement . . . . . . . . . . . . 28
(a) Survival of Representations and Warranties. . . . . . . . 29
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TABLE OF CONTENTS
(Continued)
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(b) Other Indemnification Provisions . . . . . . . . . . . . 29
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Termination of Agreement . . . . . . . . . . . . . . . . 32
(b) Effect of Termination . . . . . . . . . . . . . . . . . . 32
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Press Releases and Public Announcements . . . . . . . . . 33
(b) Entire Agreement . . . . . . . . . . . . . . . . . . . . 33
(c) Succession and Assignment's Parties in Interest . . . . . 33
(d) Counterparts. . . . . . . . . . . . . . . . . . . . . . . 33
(e) Headings. . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) Notices . . . . . . . . . . . . . . . . . . . . . . . . . 33
(g) Governing Law . . . . . . . . . . . . . . . . . . . . . . 35
(h) Amendments and Waivers . . . . . . . . . . . . . . . . . 35
(i) Severability . . . . . . . . . . . . . . . . . . . . . . 35
(j) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 35
(k) Construction . . . . . . . . . . . . . . . . . . . . . . 35
(l) Incorporation of Exhibits and Schedules . . . . . . . . . 35
(m) Submission to Jurisdiction . . . . . . . . . . . . . . . 35
Exhibit A--Financial Statements
Exhibit B1--Form of Registration Rights Agreement
Exhibit B2--Form of Investor Representation Certificate
Exhibit B3--Form of General Release
Exhibit C--Form of Opinion of Counsel to the Sellers
Exhibit D--Form of Opinion of Counsel to the Buyer
Disclosure Schedule--Exceptions to Representations and Warranties of Sellers
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PURCHASE AGREEMENT
This Agreement is entered into as of July 1, 1998, by and among The
North Face, Inc. ("TNF"), a Delaware corporation (the "BUYER"), La Sportiva
USA, Inc. ("LUSA"), a Colorado corporation (the "COMPANY"), Xx. Xxxxx Xxxxx,
Mr. C. Xxxxxx Xxxxxxx and Xx. Xxxxx Xxxxxxxxx, each a shareholder of the
Company (each a "SELLER" and collectively, the "SELLERS"). The Buyer, the
Company and the Sellers are referred to collectively herein as the "PARTIES."
RECITALS
A. The Sellers in the aggregate own one hundred percent (100%) of
the outstanding common stock, no par value, of the Company.
B. This Agreement contemplates a transaction in which the Buyer will
purchase (the "PURCHASE") from the Sellers, and the Sellers will sell to the
Buyer, all of the common stock of the Company held by Sellers (the "PURCHASED
SHARES") in exchange for the Purchase Price (as set forth herein).
C. The Parties agree that a specified fraction of the Earn Out
Amount portion of the Purchase Price paid by the Buyer shall be subject to
set-off, contingent on certain events and conditions, as security for the
performance of Sellers' obligations and the accuracy of the Sellers'
representations and warranties.
D. The Buyer and the Sellers desire to make certain representations
and warranties and other agreements in connection with the Purchase.
E. In connection with and as a condition of the execution and
delivery of this Agreement the Parties are entering into a Registration
Rights Agreement and certain other Collateral Documents.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
ARTICLE I
1. DEFINITIONS.
"AFFILIATE" shall mean with respect to any Person, (a) any other Person
at the time directly or indirectly controlling, controlled by or under direct
or indirect common control with such Person, (b) any Person of which such
person at the time owns or has the right to acquire, directly or indirectly,
twenty percent (20%) or more of any class of the capital stock or beneficial
interest, (c) any other Person which at the time owns, or has the right to
acquire, directly or indirectly, twenty percent (20%) or more of any class of
capital stock or beneficial interest of such Person, (d) any executive
officer or director of such
person, (e) with respect to any partnership, joint venture or similar entity,
any general partner thereof and (f) any individual's immediate family or
family trust.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"BUYER" has the meaning set forth in the preface above.
"BUYER COMMON STOCK" shall mean the common stock, par value $0.0025, of
Buyer.
"CLAIMS PERIOD" shall mean one year or eighteen months from the Closing
Date, as the case may be, as designated in Article 8(a). As set forth in
Article 8(a) Buyer may only recover for Losses or for an action or event that
later causes Losses that arises during the relevant Claims Period.
"CLOSING" has the meaning set forth in Article 2(c) below.
"CLOSING DATE" has the meaning set forth in Article 2(c) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL DOCUMENTS" shall mean Exhibit B-1 to B-3.
"COMPANY" shall mean La Sportiva USA, Inc., a Colorado corporation.
"COMPANY SHARES" shall mean the common stock, no par value, of the
Company.
"CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of the Buyer and the Company that is not already
generally available to the public.
"DISCLOSURE SCHEDULE" has the meaning set forth in Article 4 below.
"EARN OUT AMOUNT" shall have the meaning set forth in Article 2(b).
"EMPLOYEE BENEFIT PLAN" means any (a) deferred compensation or
retirement plan or arrangement, (b) defined contribution retirement plan or
arrangement, (c) defined benefit retirement plan or arrangement, or (d)
material fringe benefit or other retirement, bonus, or incentive plan or
program, either formally adopted by the Company or consistently implemented
in the Ordinary Course of Business (including the Variable Pay System, Profit
Sharing Plan and annual bonuses, each as fully described in the Disclosure
Schedule).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean all
national, provincial, regional, federal, state, local and foreign statutes,
regulations, ordinances and other provisions having
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the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning
public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those
relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or
cleanup of any hazardous materials, substances or wastes, chemical substances
or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls, noise or
radiation, each as amended and as now or hereafter in effect.
"FINANCIAL STATEMENT" has the meaning set forth in Article 4(g) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"XXXX-XXXXX-XXXXXX ACT" means the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing
plans and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"KNOWLEDGE" means actual knowledge, or such knowledge as would be
imputed to a reasonably prudent business person considering the underlying
facts and circumstances.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MATERIAL ADVERSE CHANGE" means any change(s), event(s) or condition(s)
that, individually or in the aggregate result(s) in a Loss (as defined in
Article VIII) in excess of $10,000.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
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"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Article
4(g) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Article 4(g)
below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Article 4(g)
below.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"PARTIES" has the meaning set forth in the preface above.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, limited
liability company, an unincorporated organization, or a governmental entity
(or any department, agency, or political subdivision thereof).
"PURCHASE PRICE" has the meaning set forth in Article 2(b) below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"SELLER(S)" has the meaning set forth in the preface above.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has
the power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
"TAX" means any national, provincial, regional, federal, state, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental,
customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
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"TERMINATION DATE" means July 31, 1998.
"THIRD PARTY CLAIM" has the meaning set forth in Article VIII below.
ARTICLE II
2. PURCHASE AND SALE OF COMPANY SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from each of the
Sellers, and each of the Sellers agrees to sell to the Buyer, all Company
Shares owned by him, in the amount set forth in SCHEDULE 1 hereto, for the
consideration specified below in this Article II, which Company Shares shall
in the aggregate comprise the Purchased Shares.
(b) PURCHASE PRICE.
(i) The Buyer agrees to deliver to the Sellers at the
Closing an aggregate of 133,335 shares of Buyer Common Stock (the
"PURCHASE PRICE") allocated among the Sellers as set forth in SCHEDULE I
hereto. The Parties hereto have entered into a Registration Rights
Agreement attached hereto as EXHIBIT B-1 which sets forth their
respective rights and obligations in connection with the shares of Buyer
Common Stock that comprise the Purchase Price. In the event that the SEC
has not declared a Registration Statement (as defined in the
Registration Rights Agreement) with respect to the Registerable
Securities (as defined in the Registration Rights Agreement) effective
prior to ten days following the Closing Date (the "First Delay") the
Buyer shall pay each Seller a pro rata share of $9,000, payable in cash
within (10) days of such First Delay (a "Delay Payment"). Further at the
end of each (30) day period subsequent to the First Delay, and until the
one year anniversary of the Closing Date (after which no further Delay
Payments shall accrue), if a Registration Statement with respect to the
Registerable Securities has not been declared effective by the SEC Buyer
shall make a Delay Payment; PROVIDED, HOWEVER, that each Delay Payment
made after the 70th calendar day following the Closing Date shall be in
an aggregate amount of $18,000 (paid pro-rata among the Sellers).
(ii) EARN OUT AMOUNT. In addition to the Purchase Price, in
consideration of the Purchased Shares, Buyer will deliver to each
Seller, $50,000 per year for a five year period beginning on the first
anniversary of the Closing Date (the "EARN OUT AMOUNT"). In no event
shall the aggregate Earn Out Amount exceed $250,000 for any Seller, or
$750,000 for all Sellers. Each annual payment comprising a portion of
the Earn Out Amount will be paid in the form of unrestricted, publicly
tradable shares of the common stock of the Buyer (valued at the closing
bid price on NASDAQ as of the third trading day prior to the date such
shares become due pursuant to this Article II(b)(ii)). The Earn Out
Amount shall be subject to a right of set-off as set forth in Article
VIII.
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(c) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of LUSA, 0000
Xxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx 00000 or such other place as Buyer and
Sellers mutually determine, upon the satisfaction or waiver of all conditions
to the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) or such other date as the Buyer and the
Sellers may mutually determine (the "CLOSING DATE"); PROVIDED, HOWEVER, that
the Closing Date must occur no later than the Termination Date.
(d) DELIVERIES AT THE CLOSING. At the Closing, (i) the Sellers
will deliver to the Buyer the various certificates, instruments, and
documents referred to in Article 7(a) below, (ii) the Buyer will deliver to
the Sellers the various certificates, instruments, and documents referred to
in Article 7(b) below, (iii) each of the Sellers will deliver to the Buyer
stock certificates representing the number of his Company Shares set forth in
SCHEDULE I hereto, endorsed in blank or accompanied by duly executed
assignment documents, and (iv) the Buyer will deliver to the Sellers the
number of shares of Buyer Common Stock as set forth in Article 2(b) above.
The Buyer will file a Registration Statement (as defined in the Registration
Rights Agreement) within three (3) SEC working days following the Closing
Date.
(e) PURCHASE PRICE ADJUSTMENT. The Purchase Price will be
subject to adjustment as follows:
(i) CLOSING BALANCE SHEET. As soon as practicable (but in
no event later than 30 days) following the Closing, the Company will, at
the expense of the Buyer, prepare and cause to be audited by Deloitte &
Touche LLP, independent accountants, and the Company will deliver to
Buyer and the Sellers' Agent (as defined in Article VIII), a balance
sheet of the Company as of the Closing Date (the "CLOSING BALANCE
SHEET"). The Closing Balance Sheet will be prepared in accordance with
GAAP or consistent with the basis of accounting and procedures and
methods employed by the Company in its Financial Statements, as defined
in Article 4(g) below, delivered on the Closing Date pursuant to Article
4(g). During the conduct of the audit, the Company will cooperate in all
respects with the independent auditors for the purposes of completing
the Closing Balance Sheet. In addition, the Company and the independent
auditors shall be available for periodic inquiry by Buyer, the Sellers'
Agent and the Company, and the independent auditors will answer such
questions as Buyer or the Sellers' Agent may have and provide such
additional schedules and materials as Buyer or the Sellers' Agent may
reasonably request in order to permit a meaningful review of the Closing
Balance Sheet.
(ii) DEFINITION. "TANGIBLE NET WORTH" will mean the
aggregate of all tangible assets (net of all reserves and excluding all
intangible assets, including without limitation, all goodwill and
capitalized software), less all liabilities of any kind (including
without limitation accounts payable, royalties payable, warranty
reserves, deferred revenue, litigation reserves, and debt and other
liabilities, but excluding, write-downs for inventory deemed to be
slow-moving or obsolete, and properly accrued bonuses (including the
bonus to Xxxxxx Xxxxx of $10,500), accrued vacation, ordinary course
employee expense obligations, the $10,000 paid to La Sportiva S.r.l.
to repurchase Company Common Stock, and legal and professional fees
incurred in relation
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to the transactions contemplated by this Agreement) determined in
accordance with GAAP or consistent with the basis of accounting and
procedures and methods employed by the Company in its Financial
Statements and the considerations specified in Section 4(g) of the
Disclosure Schedule.
(iii) DISPUTES. At any time within 30 days following the
delivery of the Closing Balance Sheet to Buyer and the Sellers' Agent
(the "REVIEW PERIOD"), Buyer or the Sellers' Agent may dispute any
amounts reflected or not reflected on the Closing Balance Sheet to the
extent the net effect of all such disputed amounts in the aggregate
would affect the Tangible Net Worth amount, but only on the basis that
such amounts were not arrived at in accordance with GAAP or consistent
with the basis of accounting and procedures and methods employed by the
Company in its Financial Statements; each of Buyer and the Sellers'
Agent will notify the other in writing of each such disputed item, and
will specify the amount thereof in dispute, not later than the
expiration of the Review Period. If Buyer and the Sellers' Agent are
able to resolve all the disputed items, then the Closing Balance Sheet
agreed upon by Buyer and the Sellers' Agent will be final, binding and
conclusive on the parties hereto. If Buyer and the Sellers' Agent are
unable to resolve any disputed item and are therefore unable to agree as
to the Closing Balance Sheet and the resultant Tangible Net Worth amount
within 20 days following the expiration of the Review Period, then
within 10 days thereafter either Buyer or the Sellers' Agent may elect
that the items remaining in dispute be submitted for resolution to a
nationally recognized accounting firm (the member of which who will be
primarily responsible for resolving such disputes will have had
substantial auditing experience and substantial experience in
arbitration or other dispute resolution proceedings concerning
accounting issues) selected by mutual agreement of Buyer and the
Sellers' Agent (or failing such agreement between Buyer and the Sellers'
Agent, as selected by mutual agreement between Buyer's independent
accountants and the Company's independent accountants, or failing such
agreement, appointed by the American Arbitration Association) (the
"ACCOUNTANTS"). The Accountants will, within 30 days after submission,
determine, based solely on presentations by Buyer and the Sellers' Agent
(and their representatives) and not by independent review, and render a
written report to the parties upon, such remaining disputed items and
the resultant calculation of the Closing Balance Sheet and the Tangible
Net Worth amount in accordance with the provisions hereof, and such
report and the resultant Closing Balance Sheet will be final, binding
and conclusive on the parties hereto. In resolving any disputed item,
the Accountants may not assign a value to such item greater than the
greatest value for such item claimed by either party or less than the
smallest value for such item claimed by either party. The fees and
disbursements of the Accountants (and of the American Arbitration
Association, if any) (a) will be paid with a set-off of the Earn Out
Amount pursuant to Article VIII if the Tangible Net Worth amount finally
determined pursuant to this Article II shall be more than $25,000 below
the Tangible Net Worth amount reflected on the Closing Balance Sheet
originally submitted pursuant to Article 2(f)(i) hereof, or (b) will be
borne by Buyer if the Tangible Net Worth amount finally determined
pursuant to this Article 2(f)(i) is less than $25,000 below the Tangible
Net Worth amount reflected on the Closing Balance Sheet originally
submitted pursuant to Article 2(f)(i) hereof. Buyer and the
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Sellers hereby agree to cooperate and work in good faith and as
expeditiously as reasonably possible to resolve any and all Closing
Balance Sheet disputes.
(iv) ADJUSTMENT. In the event that the Tangible Net Worth
of the Company as of the Closing Date as reported in the Closing Balance
Sheet is less than $1,230,000, then the Earn Out Amount shall be
reduced, and the amounts payable to the Sellers shall be reduced, to the
extent of such deficiency. Buyer shall provide written notice of such
deficiency to the Sellers' Agent pursuant to the provisions of Article
VIII, and the deficiency shall be payable to the Buyer as a set-off
claim thereunder (pursuant to the procedure set forth in such Article
VIII, except that no objection may be made by Sellers' Agent to a claim
submitted following the resolution of a dispute pursuant to Article
2(e)(iii)). In the event that the Tangible Net Worth of the Company as
of the Closing Date as reported in the Closing Balance Sheet is greater
than $1,230,000 then Buyer will within 30 days deliver to each Seller
cash (without interest) equal to a pro rata portion of amount the
Tangible Net Worth exceeds $1,230,000.
ARTICLE III
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Except as set
forth in the Disclosure Schedule attached hereto, each of the Sellers
severally (but not jointly) represents and warrants to the Buyer that the
statements contained in this Article 3(a) are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Article 3 (a)) with respect to
himself.)
(i) AUTHORIZATION OF TRANSACTION. Each Seller has full
power and authority to execute and deliver this Agreement and to perform
his obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of each Seller, enforceable in accordance
with its terms and conditions. To the best of Sellers' Knowledge none of
the Sellers need give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(ii) NONCONTRAVENTION. Except as set forth in Section
3(a)(ii) of the Disclosure Schedule, neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to
which any Seller is subject or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which any Seller is a party or by which he is bound
or to which any of his assets is subject.
-8-
(iii) BROKERS' FEES. None of the Sellers has any Liability
or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement or
the Collateral Documents for which the Buyer could become liable or
obligated.
(iv) COMPANY SHARES. Each Seller holds of record and owns
beneficially the number of Company Shares set forth next to his name in
Section 4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities,
claims, and demands. None of the Sellers is a party to any option,
warrant, purchase right, or other contract or commitment that could
require any Seller to sell, transfer, or otherwise dispose of any
capital stock of the Company (other than this Agreement). None of the
Sellers is a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the
Company. Each Seller is solvent.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to each of the Sellers that the statements contained
in this Article 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article 3(b)).
(i) ORGANIZATION AND CAPITALIZATION OF THE BUYER. The
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. The
entire authorized capital stock of the Buyer consists of 50,000,000
shares, par value .0025 per share, of Common Stock, of which as of June
12, 1998 12,355,920 were issued and outstanding; and 4,000,000 shares of
Series A Preferred Stock, par value $1.00 per share, of which as of June
12, 1998 none were issued and outstanding.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full
power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. The person signing this Agreement on behalf of the Buyer has
full corporate authority to do so. No further approval of the Buyer's
Board of Directors is required in order for this Agreement and the
Collateral Documents to constitute and they do constitute the valid and
legally binding obligation of the Buyer, enforceable in accordance with
their terms and conditions. The Buyer need not give any notice to, make
any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(iii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
the Buyer is subject or any provision of its charter or bylaws.
-9-
(iv) BROKERS' FEES. The Buyer has no Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement or
the Collateral Documents for which any Seller could become liable or
obligated.
ARTICLE IV
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. Except as
set forth in the disclosure schedule delivered by the Sellers to the Buyer on
the date hereof and initialed by the Parties (the "DISCLOSURE SCHEDULE"), the
Company and Sellers jointly and severally represent and warrant to the Buyer
that the statements contained in this Article 4 are correct and complete as
of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 4). The
mere listing (unless a copy is included and incorporated) of a document or
other item shall not be deemed adequate to disclose an exception to a
representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Article IV.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The
Company is a corporation duly organized, validly existing, and in good
standing under the laws of Colorado. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except to the extent such failure to be
in good standing would not have a Material Adverse Effect. The Company has
full corporate power and authority and all licenses, permits and
authorizations necessary to carry on the businesses in which it is engaged
and in which it presently proposes to engage and to own and use the
properties owned and used by it. Section 4(a) of the Disclosure Schedule
lists the directors and officers of the Company. The Sellers have made
available to the Buyer correct and complete copies of the charter and bylaws
of the Company (as amended to date). To the best of Sellers Knowledge, prior
to December 31, 1994, and since December 31, 1994 (without any Knowledge
qualifier) the minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Company are correct and complete. The Company is not in default under or in
violation of any provision of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of the
Company consists of 50,000 Company Shares, of which 15,000 Company
Shares are issued and outstanding; 100,000 shares of Class A Preferred
Stock, of which 63,271 shares are issued and outstanding; 20,000 shares
of Class B Preferred Stock of which none are issued and outstanding; no
Company Shares or Preferred Stock of any Class are held in treasury. All
of the issued and outstanding Company Shares have been duly authorized,
are validly issued, fully paid, and nonassessable. The Purchased Shares
are held of record by the respective Sellers as set forth in Section
4(b) of the Disclosure Schedule. As of the Closing there are no
outstanding or authorized options, warrants, purchase rights, rights of
first refusal, subscription rights, conversion rights, exchange rights,
or other contracts or commitments that could require the Company to
issue, sell, or otherwise cause to become outstanding any of its capital
stock; and there are
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no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
any of the voting of the capital stock of the Company.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement and the Collateral Documents, nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency,
or court to which the Company is subject or any provision of the charter or
bylaws of the Company or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). Except as set forth in Section
4(c) of the Disclosure Schedule, the Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(d) BROKERS' FEES. The Company has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement or the Collateral
Documents.
(e) TITLE TO ASSETS. The Company has good and marketable title
to, or a valid leasehold interest in, the properties and assets used by it,
located on its premises, or shown on the Most Recent Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests,
except for properties and assets disposed of in the Ordinary Course of
Business since the date of the Most Recent Balance Sheet.
(f) SUBSIDIARIES. The Company does not have and has never had
any subsidiaries. The Company does not control directly or indirectly or have
any direct or indirect equity participation in any corporation, partnership,
trust, or other business association which is not a subsidiary of the Company.
(g) FINANCIAL STATEMENTS. The Sellers have provided and made
available to Buyer Company Financial Statements that fairly and accurately
represent the financial condition of the Company. Attached hereto as EXHIBIT
A are the following financial statements (collectively the "FINANCIAL
STATEMENTS"): (i) unaudited Balance Sheets and Statements of Income, changes
in stockholders' equity, and cash flow as of and for the fiscal years ended
September, 1995, 1996, and 1997, (the "MOST RECENT FISCAL YEAR END"); and
(ii) unaudited Balance Sheets and Statements of Income (the "MOST RECENT
FINANCIAL STATEMENTS") as of and for the eight months ended May, 1998 (the
"MOST RECENT FISCAL MONTH END") for the Company. Except as set forth in
Section 4(g) of the Disclosure Schedule, the Financial Statements (including
the notes thereto) have been prepared in accordance with GAAP or consistent
with the basis of accounting and procedures and methods employed by the
Company in its Financial Statements applied on a consistent basis throughout
the periods covered
-11-
thereby, present fairly the financial condition of the Company as of such
dates and the results of operations of the Company for such periods, are
correct and complete and are consistent with the books and records of the
Company (which books and records are correct and complete).
(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Except as
set forth in Section 4(h) of the Disclosure Schedule, since the Most Recent
Fiscal Year End, there has not been any Material Adverse Change in the
business, financial condition, operations, results of operations, of the
Company. Without limiting the generality of the foregoing, except as set
forth in the Disclosure Schedule, since that date:
(i) the Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts,
leases, and licenses) either involving more than $10,000 or outside the
Ordinary Course of Business;
(iii) no party (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and
licenses) involving more than $10,000 to which the Company is a party or
by which it is bound;
(iv) the Company has not imposed or has had imposed upon
it any Security Interest upon any of its assets, tangible or intangible
except in the Ordinary Course of Business and consistent with prior
practice;
(v) the Company has not made any capital expenditure (or
series of related capital expenditures) either involving more than
$10,000 or outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any
other Person (or series of related capital investments, loans, and
acquisitions) either involving more than $10,000 or outside the Ordinary
Course of Business;
(vii) the Company has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation either
involving more than $10,000 singly or $25,000 in the aggregate;
(viii) the Company has not delayed or postponed the payment
of accounts payable and other Liabilities outside the Ordinary Course of
Business;
-12-
(ix) the Company has not canceled, compromised, waived,
or released any right or claim (or series of related rights and claims)
either involving more than $10,000 in any single instance or $25,000 in
the aggregate or outside the Ordinary Course of Business;
(x) the Company has granted any license or sublicense of
any rights under or with respect to any Intellectual Property;
(xi) there have been no changes authorized or made in the
charter or bylaws of the Company since May 30, 1998;
(xii) the Company has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants,
or other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
(xiii) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(xiv) the Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property in excess of $10,000 in the aggregate;
(xv) the Company has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside
the Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xix) the Company has not made any other change in
employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xx) the Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
-13-
(xxi) there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving the Company; and
(xxii) the Company has not committed to any of the
foregoing.
(i) UNDISCLOSED LIABILITIES. The Company has no Liability (and
to the best of Sellers' Knowledge there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand against any of them giving rise to any Liability), except for (i)
Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Month End in the Ordinary Course of Business (none of
which results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law), and (iii) except for Liabilities contained in the
Disclosure Schedule.
(j) LEGAL COMPLIANCE. To the best of Sellers' Knowledge prior
to December 31, 1994, and since December 31, 1994 (without any Knowledge
qualifier) the Company and its predecessors have complied with all applicable
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of national, provincial,
federal, state, regional, local, and foreign governments (and all agencies
thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any
of them alleging any failure so to comply. Section 4(j) of the Disclosure
Schedule accurately lists each consent, license, permit, grant or other
authorization issued to the Company by a Governmental Entity (i) pursuant to
which the Company currently operates or holds any interest in any of its or
their properties or (ii) which is required for the operation of its or their
business or the holding of any such interest (herein collectively called
"COMPANY AUTHORIZATIONS"), which Company Authorizations are in full force and
effect and constitute all Company Authorizations required to permit the
Company to operate or conduct its business or hold any interest in their
properties or assets.
(k) TAX MATTERS.
(i) To the best of Sellers' Knowledge prior to December
31, 1994, and since December 31, 1994 (without any Knowledge qualifier)
the Company has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all material respects.
All Taxes owed by the Company (whether or not shown on any Tax Return)
have been paid. The Company currently is not the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of
the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.
(ii) To the best of Sellers' Knowledge prior to December
31, 1994, and since December 31, 1994 (without any Knowledge qualifier)
the Company has withheld and paid all
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Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(iii) No Seller or director or officer of the Company
expects any authority to assess any additional Taxes for any period for
which Tax Returns have been filed. There is no dispute or claim
concerning any Tax Liability of the Company either (A) claimed or raised
by any authority in writing or (B) as to which any of the Sellers and
the directors and officers (and employees responsible for Tax matters)
of the Company has Knowledge based upon personal contact with any agent
of such authority. Section 4(k) of the Disclosure Schedule lists all
national, provincial, federal, state, regional, local, and foreign
income Tax Returns filed with respect to the Company for taxable periods
ended on or after September 30, 1996 and September 30, 1997 indicates
those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Sellers have
provided Buyer access to correct and complete copies of all Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by the Company since September 30, 1996.
(iv) To the best of Sellers' Knowledge prior to December
31, 1994, and since December 31, 1994 (without any Knowledge qualifier)
the Company has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The unpaid Taxes of the Company (A) did not, as of
the Most Recent Fiscal Month End, exceed the reserve for Tax Liability
in accordance with the past custom and practice of the Company and (B)
do not exceed that reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the
Company in filing their Tax Returns.
(l) REAL PROPERTY.
(i) The Company does not own nor has agreed or is
otherwise committed to purchase any real property.
(ii) Section 4(l)(ii) of the Disclosure Schedule lists
and describes briefly all real property leased or subleased to the
Company. The Sellers have delivered to the Buyer correct and complete
copies of the leases and subleases (as amended to date) listed in
Section 4(l)(ii) of the Disclosure Schedule. With respect to each lease
and sublease listed in Section 4(l)(ii) of the Disclosure Schedule:
(A) the lease or sublease is in full force and
effect and to the best of Sellers' Knowledge legal, valid, binding,
enforceable, and
(B) the lease or sublease will continue to be
legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions
contemplated hereby;
-15-
(C) no party to the lease or sublease is in breach
or default, and no event has occurred which, with notice or lapse
of time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(F) the Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in
the leasehold or subleasehold;
(G) all facilities leased or subleased thereunder
have received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance with
applicable laws, rules, and regulations;
(H) all facilities leased or subleased thereunder
are supplied with utilities and other services necessary for the
operation of said facilities; and
(I) to the best of Sellers' Knowledge the owner of
the facility leased or subleased has good and marketable title to
the parcel of real property, free and clear of any Security
Interest, easement, covenant, or other restriction, except for
installments of special easements not yet delinquent and recorded
easements, covenants, and other restrictions which do not impair
the current use, occupancy, or value, or the marketability of
title, of the property subject thereto.
(m) INTELLECTUAL PROPERTY.
(i) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Company as
presently conducted and as presently proposed to be conducted. Each item
of Intellectual Property owned or used by the Company immediately prior
to the Closing hereunder will be owned or available for use by the
Company on identical terms and conditions immediately subsequent to the
Closing hereunder. The Company has taken all action reasonably necessary
to maintain and protect each item of Intellectual Property that it owns
or uses.
(ii) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Sellers and the
directors and officers of the Company has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
the Company must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of any of the
-16-
Sellers and the directors and officers of the Company, no third party
has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the Company.
(iii) Section 4(m)(iii) of the Disclosure Schedule
identifies each patent or trademark registration which has been issued
to the Company with respect to any of its Intellectual Property,
identifies each pending patent application or application for trademark
registration which the Company has made with respect to any of its
Intellectual Property, and identifies each license, agreement, or other
permission which the Company has granted to any third party with respect
to any of its Intellectual Property (together with any exceptions). The
Sellers have made available to the Buyer correct and complete copies of
all such patents, trademark registrations, applications, licenses,
agreements, and permissions (as amended to date) and have made available
to the Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of
each such item. Section 4(m)(iii) of the Disclosure Schedule also
identifies each trade name or unregistered trademark used by the Company
in connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in Section 4(m)(iii) of
the Disclosure Schedule:
(A) the Company possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is
threatened which challenges the legality, validity, enforceability, use,
or ownership of the item; and
(D) the Company has never agreed to indemnify any
Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(m)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that the
Company uses pursuant to license, sublicense, agreement, or permission.
The Sellers have made available to the Buyer correct and complete copies
of all such licenses, sublicenses, agreements, and permissions (as
amended to date). With respect to each item of Intellectual Property
required to be identified in Section 4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission coverning the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable,
and in full force and effect on identical terms
-17-
following the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2
above);
(C) to the best of Sellers' Knowledge no party to
the license, sublicense, agreement, or permission is in breach or
default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) to the best of Sellers' Knowledge no party to
the license, sublicense, agreement, or permission has repudiated
any provision thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A) through
(D) above are true and correct with respect to the underlying
license;
(F) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or to
the best of Sellers' Knowledge is threatened which challenges the
legality, validity, or enforceability of the underlying item of
Intellectual Property; and
(H) the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement,
or permission.
(v) To the Knowledge of any of the Sellers and the
directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company, the Company will not
interfere with, infringe upon, misappropriate, or otherwise come into
conflict with, any Intellectual Property rights of third parties as a
result of the continued operation of its businesses as presently
conducted.
(n) TANIGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets, other than inventory,
necessary for the conduct of its businesses as presently conducted. Each such
tangible asset is free from material defects (patent and latent), has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is suitable for
the purposes for which it presently is used.
(o) INVENTORY. The inventory of the Company consists of
purchased goods and finished goods, all of which to the best of Sellers'
Knowledge are merchantable and fit for the purpose for which they were
procured and none of which is damaged, or defective, except for defective
goods received from La Sportiva S.r.l.
-18-
(p) CONTRACTS. Section 4(p) of the Disclosure Schedule lists
the following contracts and other agreements to which the Company is
currently a party:
(i) any agreement (or group of related agreements) for
the lease of personal property to or fromany Person providing for lease
payments in excess of $10,000 per annum;
(ii) any agreement (or group of related agreements) for
the purchase or sale of raw materials, commodities, supplies, products,
or other personal property, or for the furnishing or receipt of services,
the performance of which will extend over a period of more than one
year, result in a material loss to the Company, or involve consideration
in excess of $10,000;
(iii) any agreement concerning a partnership or joint
venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of
$10,000 or under which it has imposed a Security Interest on any of its
assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement with any of the Sellers and their
Affiliates (other than the Company);
(vii) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other material
plan or arrangement for the benefit of its current or former directors,
officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual
on a full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 (U.S.) or providing severance benefits;
(x) any agreement under which it has advanced or loaned
any amount to any of its directors, officers, and employees outside the
Ordinary Course of Business; or
(xi) any agreement under which the consequences of a
default or termination could have a Material Adverse Change on the
business, financial condition, operations, results of operations, or
future prospects of the Company.
The Sellers have made available and prior to the Closing will deliver to the
Buyer a correct and complete copy of each written agreement listed in Section
4(p) of the Disclosure Schedule (as amended to date) and a written summary
setting forth the terms and conditions of each oral agreement referred to in
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Section 4(p) of the Disclosure Schedule. With respect to each such agreement:
(A) the agreement is legal, valid, binding, enforceable, and in full force
and effect; (B) the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) no party is in
breach or default, and except as otherwise set forth in the Disclosure
Schedule no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) no party has repudiated any
provision of the agreement.
(q) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Company are reflected properly on their books and records,
are valid receivables subject to no setoffs or counterclaims, are current
and collectible, and to the best of Sellers' Knowledge will be collected in
accordance with their terms at their recorded amounts, subject only to the
item for bad debts set forth in the Company Financial Statements, Income
Statement and Annual Budget adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company.
(r) POWERS OF ATTORNEY. To the best of Sellers' Knowledge,
prior to December 31, 1994, and since December 31, 1994 (without any
Knowledge qualifier) there have been no powers of attorney executed or
outstanding on behalf of the Company.
(s) INSURANCE. Section 4(s) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the Company
has been a party, a named insured, or otherwise the beneficiary of coverage
at any time within the past three (3) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
With respect to each such insurance policy to the best of Sellers' Knowledge:
(A) the policy is legal, valid, binding, enforceable, and in full force and
effect; (B) the policy will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) neither the Company
nor any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification, or acceleration,
under the policy; and (D) no party to the policy has repudiated any provision
thereof. The Company has been covered during the past three (3) years by
insurance in scope and amount customary and reasonable for the business in
which it has engaged during the aforementioned period. Section 4(s) of the
Disclosure Schedule describes any self-insurance arrangements affecting the
Company.
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(t) LITIGATION. Section 4(t) of the Disclosure Schedule sets
forth each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or
is threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the Sellers of the Company has any Basis to believe that
any such action, suit, proceeding, hearing, or investigation may be brought
or threatened against the Company.
(u) PRODUCT WARRANTY. Each product sold, leased, or delivered
the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
material Liability (and to the best of Sellers' Knowledge there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to any
material Liability) for replacement or repair thereof or other damages in
connection therewith, except as stated in the Company Income Statement and
Annual Budget as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company. No product
manufactured, sold, leased, or delivered by the Company is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms
and conditions of sale or lease. Section 4(u) of the Disclosure Schedule
includes copies of the standard terms and conditions of sale or lease for the
Company (containing applicable guaranty, warranty, and indemnity provisions).
(v) PRODUCT LIABILITY. The Company has no material Liability
(and to the best of Sellers' Knowledge there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any material Liability)
arising out of any injury to individuals or property as a result of the
ownership, possession, or use of any product manufactured, sold, leased, or
delivered by the Company.
(w) EMPLOYEES. The Company is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. The Company has not committed any unfair labor practice. None of
the Sellers and the directors and officers (and employees with responsibility
for employment matters) of the Company has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of
any labor union with respect to employees of the Company.
(x) EMPLOYEE BENEFITS. Section 4(x) of the Disclosure Schedule
lists each Employee Benefit Plan that the Company maintains or to which the
Company contributes or has any obligation to contribute.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements of all
applicable laws.
(B) All required reports and descriptions have been
timely filed and distributed appropriately with respect to each
such Employee Benefit Plan.
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(C) All contributions (including all employer
contributions and employee salary reduction contributions) which
are due have been paid to each such Employee Benefit Plan and all
contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Employee Benefit
Plan or accrued in accordance with the past custom and practice of
the Company. All premiums or other payments for all periods ending
on or before the Closing Date have been paid with respect to each
such Employee Benefit Plan.
(D) There have been no prohibited transactions with
respect to any such Employee Benefit Plan. No fiduciary has any
Liability for breach of fiduciary duty or any other failure to act
or comply in connection with the administration or investment of
the assets of any such Employee Benefit Plan. No action, suit,
proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee
Benefit Plan (other than routine claims for benefits) is pending or
to the best of Sellers' Knowledge is threatened. None of the
Sellers has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(y) GUARANTIES. Except as set forth in Section 4(y) of the
Disclosure Schedule, the Company is not a guarantor nor otherwise liable for
any Liability or obligation (including indebtedness) of any other Person.
(z) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) To the best of Sellers' Knowledge each of the Company
and its predecessors and Affiliates has complied and is in compliance
with all Environmental, Health, and Safety Requirements.
(ii) Since December 31, 1994, the Company has not received
any written or oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to it or its
facilities arising under Environmental, Health, and Safety Requirements.
(iii) To the best of Sellers' Knowledge no facts, events or
conditions relating to the past or present facilities, properties or
operations of the Company or any of its predecessors or Affiliates will
prevent, hinder or limit continued compliance with Environmental,
Health, and Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to Environmental, Health,
and Safety Requirements, or give rise to any other liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise) pursuant to
Environmental, Health, and Safety Requirements, including without
limitation any relating to onsite or offsite releases or threatened
releases of hazardous materials, substances or wastes, personal injury,
property damage or natural resources damage.
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(aa) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPAMY. Except as
set forth in Section 4(aa) of the Disclosure Schedule, none of the Sellers
and their Affiliates has been involved in any business arrangement or
relationship with the Company since December 31, 1994, and none of the
Sellers and their Affiliates owns any asset, tangible or intangible, which is
used in the business of the Company.
(bb) DISCLOSURE. To the best of Sellers' Knowledge the
representations and warranties contained in this Article 4 and the Disclosure
Schedule do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 4 not misleading.
(cc) BANK ACCOUNTS. Section 4(cc) of the Disclosure Schedule
contains a true, correct and complete list as of the date hereof of all
banks, trust companies, savings and loan associations and brokerage firms in
which the Company has an account or safe deposit box and the names of all
persons authorized to draw thereon or with access thereto.
(dd) MATERIALITY. The matters and items excluded from the
representations and warranties set forth in this Article by operations of the
materiality exceptions and materiality qualifications contained in such
representations and warranties, in the aggregate for all such excluded
matters and items, do not constitute a Material Adverse Change to the Company.
(ee) SOLVENCY. As of the execution and delivery of this
Agreement, the Company is, and, as of the Closing Date, will be solvent.
(ff) PREDECESSOR STATUS. Set forth in Section 4(ff) of the
Disclosure Schedule is a listing of all predecessor companies of the Company
and the names of any Entities from which, since December 31, 1994, the
Company previously acquired material properties or assets. The Company has
never been a subsidiary or division of another entity, nor part of an
acquisition that was later rescinded.
(gg) MINUTE BOOKS. To the best of Sellers' Knowledge the minute
books of the Company made available to counsel for Buyer are the only minute
books of the Company and reference all material transactions approved by the
directors (or committees thereof) and stockholders since the time of
incorporation of the Company.
(hh) DISCLOSURE SCHEDULE. The Disclosure Schedule has been
prepared and executed by the Sellers and dated and delivered on the date of
this Agreement. The Sellers shall endeavor to disclose in the Disclosure
Schedule each item of information in each separate section in which such
item may reasonably be required to be disclosed.
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ARTICLE V
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect
to the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best good
faith efforts to take all action and to do all things necessary in order to
consummate and make effective the transactions contemplated by this Agreement
and the Collateral Documents.
(b) NOTICES AND CONSENTS. The Sellers will cause the Company to
give any notices to third parties, and will cause the Company to use its
reasonable best efforts to obtain any third party consents, that the Buyer
may reasonably request in connection with the matters referred to in Article
4(c) above. Each of the Parties will (and the Sellers will cause the Company
to) give any notices to, make any filings with, and use its reasonable best
efforts to obtain any authorizations, consents, and approvals of governments
and governmental agencies in connection with the matters referred to in
Article 3(a)(ii), Article 3(b)(ii), and Article 4(c) above.
(c) QPERATION OF BUSINESS. After the execution and delivery of
this Agreement and until and including the Closing Date, the Sellers will not
cause or permit the Company to engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, the Sellers will not cause or
permit the Company to (i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or
otherwise acquire any of its capital stock, or (ii) otherwise engage in any
practice, take any action, or enter into any transaction of the sort
described in Article 4(h) above.
(d) PRESERVATION OF BUSINESS. The Sellers will use their
reasonable best efforts to cause each of the Company to keep its business and
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, customers, and employees.
(e) FULL ACCESS. Each of the Sellers will permit, and the
Sellers will cause the Company to permit, representatives of the Buyer to
have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Company, to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to each of the Company.
(f) NOTICE OF DEVELOPMENTS. The Sellers will give prompt
written notice to the Buyer of any adverse development causing a breach of
any of the representations and warranties in Article 4 above. Each Party will
give prompt written notice to the others of any adverse development causing a
breach of any of his or its own representations and warranties in Article 3
above. Such disclosure will be deemed to amend the Disclosure Schedule. No
disclosure by any Party pursuant to this Article 5(f), however, shall be
deemed to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
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(g) EXCLUSIVITY. Except as otherwise contained in the Letter of
Intent, dated May 27, 1998 between the Buyer and the Sellers, upon the
execution and delivery of this Agreement none of the Sellers will (and the
Sellers will not cause or permit the Company to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of the Company (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. None of
the Sellers will vote their Company Shares in favor of any such acquisition
structured as a merger, consolidation, or share exchange. The Sellers will
notify the Buyer immediately if any Person makes any proposal, offer,
inquiry, or contact with respect to any of the foregoing.
ARTICLE VI
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to vest the Buyer with full right, title and
possession to the Purchased Shares or otherwise carry out the purposes of
this Agreement and the Collateral Documents, each of the Parties will take
such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at
the sole cost and expense of the requesting Party. Further, the officers and
directors of the Company are fully authorized in the name of the Company or
otherwise to take, and will take, all such lawful and necessary and/or
desirable action so long as such action is consistent with this Agreement.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act, or transaction on
or prior to the Closing Date involving the Company, each of the other Parties
will cooperate with him or it and his or its counsel in the contest or
defense, make available their personnel, and provide such testimony and
access to their books and records as shall be necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party.
(c) TRANSITION. None of the Sellers will take any action that
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Company from
maintaining the same business relationships with the Company after the
Closing as it maintained with the Company prior to the Closing, PROVIDED,
HOWEVER, the foregoing is not intended to impose any noncompetition
restriction upon any of the Sellers. The Buyer shall pay Company employees
all accrued but unpaid profit sharing and bonus benefits that are due
consistent with prior practice of the Company. The Buyer shall also pay
reasonable severance packages to those Company Employees who are terminated
by the Buyer within six months following the Closing Date.
-25-
(d) CONFIDENTIALITY. Each of the Sellers will treat and hold as
such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement and the
Collateral Documents, and deliver promptly to the other Party or destroy, at
the request and option of the other Party, all tangible embodiments (and all
copies) of the Confidential Information which are in his or its possession.
In the event that any of the Parties is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, then the party receiving such request
will notify the other Party promptly of the request or requirement so that
the other Party may seek an appropriate protective order or waive compliance
with the provisions of this Article 6(d). If, in the absence of a protective
order or the receipt of a waiver hereunder, any of the Parties is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, that Party may disclose the
Confidential Information to the tribunal; PROVIDED, HOWEVER, that the
disclosing Party shall use his or its reasonable best efforts to obtain, at
the reasonable request of the Buyer (and at Buyer's sole expense), an order
or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to
the time of disclosure.
(e) RELEASE FROM PREFERRED STOCK AGREEMENT. The Buyer agrees to
use its reasonable best efforts to promptly cause the release each of the
Sellers from their respective obligations contained in the Preferred Stock
Agreement dated October 29, 1998 by and among the shareholders of the Company.
ARTICLE VII
7. CONDITIONS TO OBLIGATION TO CLOSE AND DELIVERIES.
(a) CONDITIONS TO OBLIGATION OF THE BUYER AND DELIVERIES. The
obligation of the Buyer to consummate the transactions to be performed by it
in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Article 3(a) and Article 4 above shall be true and correct in all
material respects at and as of the Closing Date;
(ii) the Sellers shall have performed and complied with
all of their covenants hereunder in all material respects through the
Closing;
(iii) Buyer shall be satisfied with the results of its
ongoing business, financial and legal due diligence of the Company;
(iv) the Company shall have procured all of the third
party consents requested by the Buyer and specified in Article 5(c)
above;
-26-
(v) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any national, provincial, federal, regional, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, (C) affect adversely the right of the
Buyer to own the Company Shares and to control the Company, or (D)
affect adversely the right of the Company to own its assets and to
operate its businesses (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
(vi) the Sellers shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified above in
Article 7(a)(i), (ii), (iv) and (v) is satisfied in all respects;
(vii) the relevant parties shall have executed and
delivered the Collateral Documents in form and substance as set forth in
EXHIBIT X-x through EXHIBIT B-3 attached hereto and the same shall be in
full force and effect;
(viii) the Buyer shall have received from counsel to the
Company an opinion in form and substance as set forth in EXHIBIT C
attached hereto, addressed to the Buyer, and dated as of the Closing
Date;
(ix) all actions to be taken by the Sellers in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer; and
(x) this Agreement, the Collateral Documents and all the
transactions contemplated hereby and thereby shall be duly approved and
authorized by the Board of Directors of the Buyer.
(xi) The Shareholders Agreement by and among the
shareholders of the Company dated December 28, 1994, as amended to date
shall have been terminated by the mutual written consent of each of the
parties thereto.
(xii) The Employment Agreements dated December 31, 1994
between the Company and each of the Sellers, respectively, shall be
terminated by mutual written agreement of the Company and each Seller,
unless the Buyer desires any Seller to continue working for the Company,
in which case the Employment Agreement as amended and currently in
effect pertaining to such Seller shall remain in effect.
(xiii) The Buyer shall have received the written
resignation of each Officer and Director of the Company.
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(xiv) The Buyer shall have received documentation
satisfactory in form and substance that the Company has purchased all
Common Stock owned by La Sportiva S.r.l.
The Buyer may waive any condition specified in this Article 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SELLERS. The obligation of
the Sellers to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Article 3(b) above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any national, provincial, federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement;
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect); or (C) prevent the
Buyer from registering and Sellers from subsequently trading the shares
of Buyer Common Stock comprising the Purchase Price on the NASDAQ
national market.
(iv) the Buyer shall have delivered to the Sellers a
certificate to the effect that each of the conditions specified above in
Article 7(b)(i)-(iii) is satisfied in all respects;
(v) the relevant parties shall have entered into the
Collateral Documents in form and substance as set forth in EXHIBITS B-1
through B-3 and each of the same shall be in full force and effect;
(vi) the Sellers shall have received from counsel to the
Buyer an opinion in form and substance as set forth in EXHIBIT D
attached hereto, addressed to the Sellers, and dated as of the Closing
Date;
The Requisite Sellers may waive any condition specified in this Article 7(b)
if they execute a writing so stating at or prior to the Closing.
ARTICLE VIII
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
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(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
covenants, representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder (unless a Party had actual
knowledge of any misrepresentation or breach of warranty or covenant at the
time of Closing) and continue in full force and effect for one year
thereafter, except for those representations, warranties and covenants
contained in Articles 3(a)(i), 3(a)(ii), 3(a)(iv), 4(a), (b), (c), (i), (k),
(m), (r), (t) and (y) which shall survive for eighteen months thereafter
(subject to the earlier expiration of any applicable statutes of limitations).
(b) SET-OFF ARRANGEMENTS.
(i) SET-OFF AGAINST EARN OUT AMOUNT. The right to
set-off against the Earn Out Amount shall be available to compensate
Buyer and its Subsidiaries for any claim, loss, expense, liability or
other damage, including fees and disbursements (but excluding attorneys'
fees) in connection with any action, suit or proceeding, to the extent
of the amount of such claim, loss, expense, liability or other damage
arising (though not necessarily resolved or actual incurred), net of any
insurance recovery (and Buyer hereby waives any right of subrogation in
connection with such recovery), during the relevant Claims Period
("LOSS" or collectively "LOSSES") that Buyer and its Subsidiaries or any
of their affiliates suffers by reason of the breach by the Sellers of
any representation, warranty, covenant or agreement of the Sellers or
the Company contained herein. Buyer shall not be entitled to receive any
disbursement with respect to any Loss under this Article VIII arising in
respect of any Losses that (1) do not amount to $10,000 in any single
instance or $15,000 in the aggregate (Losses below these amounts shall
be borne by Buyer), (2) Losses arising from slow-moving or obsolete
inventory, or (3) any Losses that occur subsequent to the expiration of
the relevant Claims Period. Notwithstanding anything herein contained,
absent fraud, Buyer shall not be entitled to a right to set-off against
the Earn Out Amount, or any other recovery or recourse, for any amount
that Losses exceeds $175,000 in the aggregate in satisfaction of any and
all Losses (the "SET-OFF AMOUNT"). In the event of fraud committed by
any Seller there shall be no limitation to the Set-Off Amount, or other
recovery or recourse available to the Buyer, nor shall expiration of the
relevant Claims Period apply to bar any such claim of fraud by the
Buyer. The Buyer will only make a set-off against the portion of the
Earn Out Amount paid on the second and third anniversary of the Closing
Date, and to the extent practicable will make such set-off ratably from
the Earn Out Amount paid on such Second and Third Anniversary.
(ii) OBJECTIONS TO CLAIMS. Buyer shall be obligated to
deliver to Sellers' Agent a notice of any claim of Losses forty-five (45)
days prior to making any set-off against the Earn Out Amount. At the
time of delivery of any Officer's Certificate giving notice of a claim
to set-off against the Earn Out Amount to the Sellers' Agent, Seller's
Agent shall have forty-five (45) days to object in a written statement to
the claim made in the Officer's Certificate. The Sellers' Agent will only
submit an objection in good faith. If, upon the expiration of such
forty-five (45) day period no objection is received by the Buyer then
the Sellers waive any and all right to object,
-29-
contest, challenge, or impede the Buyer's right to make a set-off
against the Earn Out Amount as provided in Article 8(b)(i).
(iii) RESOLUTION OF CONFLICTS; ARBITRATION.
(A) In case the Sellers' Agent shall so object in
writing to any claim or claims made in any Officer's Certificate,
the Sellers' Agent and Buyer shall attempt in good faith to agree
upon the rights of the respective parties with respect to each of
such claims.
(B) If no such agreement can be reached after good
faith negotiation, either Buyer or the Sellers' Agent may demand
arbitration of the matter unless the amount of the damage or loss
is at issue in pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration; and in either
such event the matter shall be settled by arbitration conducted by
three arbitrators. Buyer and the Sellers' Agent shall each select
one arbitrator, and the two arbitrators so selected shall select a
third arbitrator (who shall be affiliated with a Big Six accounting
firm or any successor thereto). The arbitrators shall, within ten
(10) business days after the last day of any hearings on any motion,
issue a definitive written ruling on such motion. The arbitrator
shall also, within twenty (20) business days from the last day of
any hearings regarding the issuance of any awards, issue a
definitive written ruling on the issuance of any such award in such
arbitration. The arbitrators shall also establish procedures
designed to reduce the cost and time for discovery while allowing
the parties an opportunity, adequate in the sole judgement of the
arbitrators, to discover relevant information from the opposing
parties about the subject matter of the dispute. The arbitrators
shall rule upon motions to compel or limit discovery and shall have
the authority to impose sanctions, including attorneys fees and
costs, to the extent as a court of competent law or equity, should
the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected
to without substantial justification. The decision of a majority of
the three arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement, and notwithstanding anything in Article
VIII hereof, the Buyer shall be entitled to act in accordance with
such decision and make or withhold payments out of the Earn Out
Amount in accordance therewith. Such decision shall be written and
shall be supported by written findings of fact and conclusions
which shall set forth the award, judgment, decree or order awarded
by the arbitrators.
(C) In no event may punitive or exemplary damages
be awarded in any arbitration, and arbitration between the parties
shall be final and binding. Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any
such arbitration shall be held in Boulder or Denver, Colorado, USA.
Each party to any arbitration pursuant to this Article VIII shall
pay its own expenses; the fees of each
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arbitrator and any administrative fee of the sponsoring arbitration
entity, if any, shall be borne equally by Buyer, on the one hand,
and the Sellers' Agent, on the other.
(iv) SELLERS' AGENT; POWER OF ATTORNEY.
(A) Effective upon the Closing, and without
further act of any Seller, Xxxxx Xxxxx shall be appointed as agent
and attorney-in-fact (the "SELLERS' AGENT") for each Seller, for and
on behalf of such Sellers, to give and receive notices and
communications, to authorize a set-off by the Buyer of the Earn Out
Amount in satisfaction of claims by Buyer, to object to such
deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and
to take all actions necessary or appropriate in the judgment of the
Sellers' Agent for the accomplishment of the foregoing. Such agency
may be changed by the Sellers (and their heirs, legal
representatives and permitted assigns) from time to time upon not
less than thirty (30) days prior written notice to Buyer or in the
event of the death or permanent disability of the Sellers' Agent.
No bond shall be required of the Sellers' Agent, and the Sellers'
Agent shall not receive compensation for his or her services.
Notices or communications to or from the Sellers' Agent shall
constitute notice to or from each of the Sellers of the Company.
(B) The Sellers' Agent shall not be liable for any
act done or omitted hereunder as Sellers' Agent while acting in
good faith and in the exercise of reasonable judgment. The Sellers
shall severally indemnify the Sellers' Agent and hold the Sellers'
Agent harmless against any loss, liability or expense incurred
without negligence or bad faith on the part of the Sellers' Agent
and arising out of or in connection with the acceptance or
administration of the Sellers' Agent's duties hereunder, including
the reasonable fees and expenses of any legal counsel retained by
the Sellers' Agent.
(v) ACTIONS OF THE SELLERS' AGENT. A decision, act,
consent or instruction of the Sellers' Agent shall constitute a decision
of all the Sellers and shall be final, binding and conclusive upon each
of the Sellers, and the Buyer may rely upon any such decision, act,
consent or instruction of the Sellers' Agent as being the decision, act,
consent or instruction of each every such Seller. The Buyer is hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the
Sellers' Agent.
(vi) THIRD-PARTY CLAIMS. In the event Buyer becomes aware
of a third-party claim which Buyer believes may result in a set-off
against the Earn Out Amount, Buyer shall promptly notify the Sellers'
Agent of such claim, and the Sellers' Agent shall be entitled, at their
expense, to participate in any defense of such claim. Buyer shall
consult with the Sellers' Agent prior to the settlement of any such
claim and discuss with the Sellers' Agent in good faith any input
regarding the claim and potential settlement the Sellers' Agent may have
prior to any settlement. After such consultation, Buyer shall have the
right in its sole discretion to settle any such claim.
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ARTICLE IX
9. TERMINATION.
(a) TERMINATION OF AGREEMENT. Certain of the Parties may
terminate this Agreement as provided below:
(i) the Buyer and the Sellers may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving
written notice to the Sellers on or before the Closing Date if the Buyer
is not reasonably satisfied with the results of its continuing business,
legal, environmental, and accounting due diligence regarding the Company;
(iii) the Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing (A) in
the event any of the Sellers has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Buyer has notified the Sellers of the breach, and the
breach has continued without cure for a period of ten (10) days after
the notice of breach or (B) if the Closing shall not have occurred on or
before the Termination Date by reason of the failure of any condition
precedent under Article 7(a) hereof (unless the failure results
primarily from the Buyer itself breaching any representation, warranty,
or covenant contained in this Agreement); and
(iv) the Sellers may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A) in the
event the Buyer has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, any of the
Sellers has notified the Buyer of the breach, and the breach has
continued without cure for a period of ten (10) days after the notice of
breach or (B) if the Closing shall not have occurred on or before the
Termination Date by reason of the failure of any condition precedent
under Article 7(b) hereof (unless the failure results primarily from any
of the Sellers themselves breaching any representation, warranty, or
covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Article 8(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party (except for any Liability of any Party then in breach). If any
Party terminates this Agreement for any reason other than those set forth in
Article 8(a) above (a "WITHDRAWING PARTY") such Withdrawing Party shall,
within thirty (30) days after such termination, pay the other non-Withdrawing
Party the sum of $10,000.
ARTICLE X
10. MISCELLANEOUS.
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(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the
subject matter of this Agreement prior to the Closing without the prior
written approval of the Buyer and the Sellers; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good faith is required
by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
(b) ENTIRE AGREEMEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements (including, but not limited
to the Letter of Intent dated May 27, 1998), or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(c) SUCCESSION AND ASSIGNMENT; PARTIES IN INTEREST. This
Agreement shall be binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the Buyer and the
Sellers; PROVIDED, HOWEVER, that the Buyer may (i) assign any or all of its
rights and interests hereunder to one or more of its Affiliates and (ii)
designate one or more of its Affiliates to perform its obligations hereunder
(in any or all of which cases the Buyer nonetheless shall remain responsible
for the performance of and shall unconditionally guarantee all of Buyer's
obligations hereunder). Nothing in this Agreement, express or implied, is
intended to or shall confer upon any Person any right, benefit or remedy of
any nature whatsoever under or by reason of this Agreement.
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to the Sellers:
Xxxxx Xxxxx
00000 Xxxxx Xx. Xxxxx
Xxxxx, XX 00000
000-000-0000
With a Copy to:
The Law Offices of Xxxxxxxxxxx X. Xxxxxx, P.C.
0000 Xxxx Xxxxxx
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Telephone: 000-000-0000
Telecopier: 000-000-0000
If to the Company:
La Sportiva USA, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxx
Telephone: 000-000-0000
Telecopier: 000-000-0000
With a Copy to:
The Law Offices of Xxxxxxxxxxx X. Xxxxxx, P.C.
(Address listed above)
If to the Buyer:
The North Face, Inc.
0000 Xxxxxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
With a Copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but
no such notice, request, demand, claim, or other communication shall be
deemed to have been duly given unless and until it actually is received by
the intended recipient. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
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(g) GOVERNING LAW. This Agreement is entered into in Boulder
Colorado with respect to assets, property and activities located in or
occurring in Boulder Colorado. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Colorado
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Colorado or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Colorado.
(h) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed
by the Buyer and each of the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(i) SEVERABILITY. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
(j) EXPENSES. The Company and the Buyer shall bear their own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Buyer
agrees that the Company has borne and will bear all of the Sellers' costs and
expenses (including all of their legal fees and expenses) in connection with
this Agreement and any of the transactions contemplated hereby.
(k) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
national, provincial, federal, regional, state, local, or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The Parties intend that each
representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(l) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits, and
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
(m) SUBMISSION TO JURISDICTION. Each of the Parties submits to
the jurisdiction of any state or federal court sitting in Boulder or Denver,
Colorado, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding
may be
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heard and determined in any such court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding
so brought and waives any bond, surety, or other security that might be
required of any other Party with respect thereto.
*****
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.
THE NORTH FACE
a Delaware corporation
By:___________________________________
Marsden X. Xxxxx, Chairman
LA SPORTIVA USA
a Colorado Corporation
By:___________________________________
Its:__________________________________
SELLERS
______________________________________
Xxxxx Xxxxx
______________________________________
C. Xxxxxx Xxxxxxx
______________________________________
Xxxxx Xxxxxxxxx
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