Exhibit 2.1
EXECUTION COPY
--------------
PORTIONS OF THIS EXHIBIT MARKED BY *** HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
STOCK PURCHASE AGREEMENT
BY AND AMONG
WARNACO INC.,
XXXXX XXXXXXX APPAREL CORP.
AND
XXXXX & BOISSIERE FUND I, LLC,
ANDERS BRAG,
XXX XXXXXXX
AND
XXXXXXX XXXXX
DATED AS OF AUGUST 3, 2004
TABLE OF CONTENTS
PAGE
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ARTICLE I DEFINITIONS ............................................................................................1
Section 1.1 Definitions.................................................................................1
ARTICLE II PURCHASE AND SALE OF SHARES; EARNOUT..................................................................10
Section 2.1 Purchase and Sale..........................................................................10
Section 2.2 Earnout....................................................................................11
Section 2.3 Timing of Additional Payments..............................................................13
ARTICLE III CLOSING .............................................................................................14
Section 3.1 Closing....................................................................................14
Section 3.2 Closing Deliveries.........................................................................15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS.........................................................17
Section 4.1 Organization and Standing..................................................................17
Section 4.2 Authorization..............................................................................17
Section 4.3 Noncontravention...........................................................................18
Section 4.4 Capital Stock of the Company and the Subsidiaries..........................................19
Section 4.5 Financial Statements; Liabilities..........................................................19
Section 4.6 Absence of Certain Changes.................................................................20
Section 4.7 Litigation.................................................................................20
Section 4.8 Compliance with Applicable Laws............................................................21
Section 4.9 Material Contracts.........................................................................21
Section 4.10 Intellectual Property......................................................................23
Section 4.11 Affiliate Transactions.....................................................................25
Section 4.12 Employee Benefit Plans; ERISA..............................................................25
Section 4.13 Taxes......................................................................................27
Section 4.14 Environmental Matters......................................................................29
Section 4.15 Real and Personal Properties...............................................................29
Section 4.16 Insurance..................................................................................30
Section 4.17 Labor Matters..............................................................................31
Section 4.18 Permits....................................................................................31
Section 4.19 Inventory..................................................................................32
Section 4.20 Accounts Receivable........................................................................32
Section 4.21 Books and Records..........................................................................32
Section 4.22 Brokers....................................................................................32
Section 4.23 Investigation and Sophistication...........................................................32
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER...........................................................33
Section 5.1 Organization and Existence.................................................................33
Section 5.2 Authorization..............................................................................33
Section 5.3 Consents...................................................................................33
Section 5.4 Non Contravention..........................................................................33
Section 5.5 Brokers....................................................................................34
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Section 5.6 Investment Representation..................................................................34
Section 5.7 Financing..................................................................................34
Section 5.8 Investigation and Sophistication...........................................................34
ARTICLE VI COVENANTS ............................................................................................34
Section 6.1 Conduct of the Business....................................................................34
Section 6.2 Access to Information......................................................................37
Section 6.3 Commercially Reasonable Efforts............................................................38
Section 6.4 Post-Closing Books and Records.............................................................39
Section 6.5 Expenses...................................................................................39
Section 6.6 Termination of Certain Agreements..........................................................39
Section 6.7 Taxes......................................................................................39
Section 6.8 Non-Solicitation of Employees; Non-Competition.............................................40
ARTICLE VII CONDITIONS TO CLOSING................................................................................41
Section 7.1 Conditions of the Parties' Obligations to Effect the Closing...............................41
Section 7.2 Additional Conditions to Obligation of the Sellers to Effect the Closing...................41
Section 7.3 Additional Conditions to Obligation of Purchaser to Effect the Closing.....................42
ARTICLE VIII INDEMNIFICATION, THE SELLER REPRESENTATIVE, AND MUTUAL RELEASE......................................43
Section 8.1 Survival of Representations and Warranties.................................................43
Section 8.2 Indemnification of Purchaser...............................................................43
Section 8.3 Indemnification of the Sellers.............................................................44
Section 8.4 Indemnification Procedure for Third Party Claims...........................................44
Section 8.5 Indemnification Procedure for Other Claims.................................................45
Section 8.6 Certain Tax Matters........................................................................46
Section 8.7 Limitations on Indemnification.............................................................47
Section 8.8 Exclusive Remedy...........................................................................49
Section 8.9 Seller Representative......................................................................49
Section 8.10 Mutual Release.............................................................................50
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.....................................................................51
Section 9.1 Termination................................................................................51
Section 9.2 Effect of Termination......................................................................52
Section 9.3 Amendments and Waivers.....................................................................52
ARTICLE X MISCELLANEOUS..........................................................................................52
Section 10.1 Notices....................................................................................52
Section 10.2 Interpretation.............................................................................54
Section 10.3 Severability...............................................................................55
Section 10.4 Counterparts...............................................................................55
Section 10.5 Entire Agreement; No Third Party Beneficiaries.............................................55
Section 10.6 Publicity..................................................................................55
Section 10.7 Assignment.................................................................................55
Section 10.8 Arbitration................................................................................56
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TABLE OF SCHEDULES
Schedule A Knowledge
Schedule B Operating Profit
Schedule C Company Stockholders
Schedule 2.2(a)(i) License
Schedule 4.1(a) Organization and Standing
Schedule 4.1(b) Subsidiaries
Schedule 4.3 Noncontravention
Schedule 4.4(a) Capital Stock
Schedule 4.4(b) Options, Rights and Warrants
Schedule 4.4(d) Ownership of the Shares
Schedule 4.5(b) Financial Statements
Schedule 4.5(c) Liabilities
Schedule 4.6 Absence of Certain Changes
Schedule 4.7 Litigation
Schedule 4.8 Compliance with Applicable Laws
Schedule 4.9(a)(i) Material Contracts
Schedule 4.9(a)(ii) Description of Oral Material Contracts
Schedule 4.9(c) Violations, Breaches and Defaults of Material Contracts
Schedule 4.10(a) Intellectual Property
Schedule 4.10(b) Right to Use Intellectual Property
Schedule 4.10(c) Intellectual Property Actions
Schedule 4.10(d) Infringement of Intellectual Property Rights
Schedule 4.10(g) Intellectual Property Agreements
Schedule 4.11 Affiliate Transactions
Schedule 4.12(a) Employment Benefit Plans
Schedule 4.12(f) Employment Benefit Plans - Compliance With Laws
Schedule 4.13 Taxes
Schedule 4.14 Environmental Matters
Schedule 4.15(a) Real and Personal Property Encumbrances
Schedule 4.15(b) Leased Real Property
Schedule 4.15(c) Leases
Schedule 4.15(d) Personal Property
Schedule 4.15(e) Proceedings with Respect to the Leased Real Property
Schedule 4.15(f) Condition of the Leased Real Property
Schedule 4.16 Insurance
Schedule 4.17 Labor Matters
Schedule 4.18 Permits
Schedule 4.19 Inventory
Schedule 4.20 Accounts Receivable
Schedule 4.21 Books and Records
Schedule 4.22 Brokers
Schedule 6.1 Conduct of the Business
Schedule 6.6 Affiliate Agreements
Schedule 6.8 Non-Solicitation of Employees; Non-Competition
iii
Schedule 7.3(e) Required Consents
Schedule 8.3(c) Actions by Certain Persons
TABLE OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Release of Xxxxxxx Xxxxx
iv
CONFIDENTIAL TREATMENT
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, dated as of August 3, 2004 (this
"Agreement"), by and among WARNACO INC., a Delaware corporation ("Purchaser"),
XXXXX XXXXXXX APPAREL CORP., a Delaware corporation (the "Company"), and XXXXX &
XXXXXXXXX FUND I, LLC, a Delaware limited liability company ("D&B"), ANDERS BRAG
("Brag"), XXX XXXXXXX ("Xxxxxxx") and XXXXXXX X. XXXXX ("Xxxxx") (each
individually a "Seller" and collectively, the "Sellers"), and D&B in its
capacity as the Sellers' Representative.
WHEREAS, the Sellers collectively own, beneficially and of record, all
of the issued and outstanding shares of common stock, par value $0.01 per share,
of the Company (the "Shares") and all of the outstanding options and warrants to
acquire shares of common stock of the Company;
WHEREAS, Purchaser desires to purchase from the Sellers, and the
Sellers desire to sell to Purchaser, all of the issued and outstanding Shares on
the terms and conditions set forth herein (the "Acquisition");
WHEREAS, at the Closing, the Sellers and Purchaser shall enter into an
Escrow Agreement (as defined below) pursuant to which, among other things,
Purchaser shall deposit the Escrow Amount (as defined below) into an escrow
account in accordance with Section 2.1(a)(ii) hereof.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, obligations and agreements set forth
below, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided herein, the following terms shall have the meanings
set forth below.
"Acquisition" shall have the meaning set forth in the recitals.
"Action" means any action, notice, claim, complaint, charge, dispute,
proceeding, suit, hearing, litigation, arbitration, audit or investigation
(whether civil, criminal, administrative, judicial or investigative), or any
appeal therefrom.
"Additional Payment Period" means each of *** and the Sales Earnout
Period.
"Additional Payments" means, collectively, *** and Sales Earnout
Payment.
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is
1
under common control with, such specified Person. For purposes of this
definition, "control" (including the terms "controlled by" and "under common
control with") with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as a trustee or
executor, of the power to direct or cause the direction of the management and
policies of a Person whether through the ownership of voting securities, as
trustee or executor, by Contract or otherwise, including the ownership, directly
or indirectly, of securities having the power to elect a majority of the board
of directors or similar body governing the management and policies of such
Person.
"Agreement" shall have the meaning set forth in the preamble.
"Assets" means all of the Company's or any of its Subsidiaries' right,
title and interest in and to the properties, assets and rights of any kind,
whether tangible or intangible, real or personal (or mixed), and used or held
for use in connection with, or related to, the business of the Company or its
Subsidiaries.
"Xxxxx" shall have the meaning set forth in the preamble.
"Brag" shall have the meaning set forth in the preamble.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banks are required or authorized by Law to be closed in the State
of New York.
"Closing" shall have the meaning set forth in Section 3.1.
"Closing Certificate" shall have the meaning set forth in Section
2.1(d).
"Closing Date" shall have the meaning set forth in Section 3.1.
"Closing Purchase Price" shall have the meaning set forth in Section
2.1(a)(i).
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, including the rules and regulations promulgated thereunder.
"Company " shall have the meaning set forth in the preamble.
"Company Benefit Plans" shall have the meaning set forth in Section
4.12(a).
"Company Financial Statements" shall have the meaning set forth in
Section 4.5(a).
"Confidentiality Agreement" means the Confidentiality Agreement, dated
as of January 26, 2004, by and between Purchaser and the Company.
"Consent" shall have the meaning set forth in Section 4.3.
"Contract" means any agreement, contract, understanding, license,
obligation, promise, commitment or undertaking that is legally binding.
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"Copyrights" means all copyrights and copyrightable subject matter and
materials, including but not limited to moral rights and rights of attribution
and integrity, rights of privacy and publicity, copyrights in Software (if any)
and the right to use all Software, and in the content contained on any website,
lists, copyrights in and the right to use all designs and fabrications,
copyrights in all written and graphic text (including but not limited to
hangtags, labels, advertising, catalogs and promotional materials, in any and
all mediums) and registrations and applications for any of the foregoing, and
rights to xxx for past Infringement thereof, throughout the world.
"D&B" shall have the meaning set forth in the preamble.
"D&B Note" shall mean the senior secured promissory note, originally
issued on April 30, 1993, as reissued on September 25, 1998 and March 13, 2003,
from the Company to D&B in the principal amount of $5,000,000.
"Dispute" shall have the meaning set forth in Section 10.8.
"Domain Names" shall have the meaning set forth in 15 U.S.C. ss. 1127.
"Earnout Accountants" shall have the meaning set forth in Section
2.3(b).
"Earnout Statement" shall have the meaning set forth in Section 2.3(a).
"Earnout Statement Amounts" shall have the meaning set forth in Section
2.3(a).
"Encumbrance" means any security interest, pledge, mortgage, option,
lien (including environmental and Tax liens), assessment, lease, charge,
encumbrance, adverse claim, preferential arrangement, condition, equitable
interest, right of first refusal or restriction of any kind, including any
restriction on the use, voting, transfer, disposition, receipt of income or
other exercise of any attributes of ownership.
"Environmental Law" means any Law or Order relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment (including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes. As used in this Agreement,
Environmental Law shall mean any of such Laws applicable to the Company or the
Subsidiaries prior to the Closing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
3
CONFIDENTIAL TREATMENT
"ERISA Affiliate" shall have the meaning set forth in Section 4.12(a).
"Escrow Agent" shall have the meaning set forth in Section 7.2(e).
"Escrow Agreement" means the escrow agreement substantially in the form
of Exhibit A hereto, by and among Purchaser, each of the Sellers and the Escrow
Agent pursuant to which, among other things, Purchaser shall deposit the Escrow
Amount into an escrow account to secure Purchaser's rights to indemnification
set forth in Article VIII hereof.
"Escrow Amount" shall have the meaning set forth in Section 2.1(a)(ii).
"Filing" shall have the meaning set forth in Section 4.3.
"FIRPTA" shall mean Foreign Investment Real Property Tax Act, as
amended from time to time, including the rules and regulations promulgated
thereunder.
***
"Foreign Benefit Plan" shall have the meaning set forth in Section
4.12(m).
"GAAP" means United States generally accepted accounting principles and
practices as in effect from time to time and applied consistently throughout the
periods involved.
"Governmental Entity" means any (a) nation, principality, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature, (b) governmental or quasi-governmental entity of any
nature, including any governmental division, subdivision, department, board,
agency, bureau, branch, office, commission, council, board, instrumentality,
officer, official, representative, organization, taxing authority or unit and
any court or other tribunal (foreign, federal, state or local), (c) Person, or
body exercising, or entitled to exercise, any executive, legislative, judicial,
administrative, regulatory, police, military or taxing authority or power of any
nature or (d) arbitration tribunal.
"Hazardous Material" means (a) any petroleum or petroleum products,
flammable explosives, radioactive materials, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation and transformers or
other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls (PCBs); (b) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import under any Environmental Law; and
(c) any other chemical or other material or substance, exposure to which is now
or hereafter prohibited, limited or regulated by any Governmental Entity under
any Environmental Law.
4
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended from time to time, including the rules and regulations
promulgated thereunder.
"Indebtedness" means, for any Person, any Liability (contingent or
otherwise) and relating to: (i) indebtedness, including interest and any
prepayment penalties, expenses, or fees thereon created, issued or incurred by
such Person for borrowed money (whether by loan or the issuance and sale of debt
securities or the sale of property to another Person subject to an understanding
or agreement, contingent or otherwise, to repurchase such property from such
Person); (ii) obligations of such Person to pay the deferred purchase or
acquisition price of property or services, other than trade accounts payable
arising, and accrued expenses incurred, in the ordinary course of business and
consistent with such Person's customary trade practices; (iii) indebtedness
secured by a lien on the property of such Person, whether or not the respective
indebtedness so secured is a primary obligation of or has been assumed by such
Person; (iv) capital lease obligations of such Person; (v) indebtedness of
others guaranteed by such Person (including guarantees in the form of an
agreement to repurchase or reimburse, letters of credit and guarantees by a
company of performance obligations of another); and (vi) negative cash balances.
"Indemnified Party" means any Person claiming indemnification under any
provision of Article VIII.
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of Article VIII.
"Infringement" means an assertion that a given item infringes,
misappropriates, dilutes, unfairly competes with, constitutes unauthorized Use
of or otherwise violates the Intellectual Property rights of any Person.
"Intellectual Property" means all Copyrights, Patents, Rights of
Publicity, Trademarks, Domain Names, Trade Secrets, all other intangible assets,
and all goodwill associated therewith.
"IP Agreements" means all Contracts, outstanding decrees, orders,
judgments, settlement agreements, and stipulations to which the Company or its
Subsidiaries is a party or otherwise bound (whether oral or written) that
contain provisions: (a) granting to any Person any rights in the Intellectual
Property; (b) granting to the Company or any of its Subsidiaries any rights in
Intellectual Property; (c) consenting to another Person's Use of the Company's
or any of its Subsidiaries' Intellectual Property; or (d) transferring ownership
of any Intellectual Property rights to or from the Company or any of its
Subsidiaries; and (e) imposing any restrictions or limitations on the use of any
Intellectual Property.
"Xxxxxxx" shall have the meaning set forth in the preamble.
"JAMS" shall have the meaning set forth in Section 10.8(a).
5
CONFIDENTIAL TREATMENT
"June 2004 Financial Statements" shall have the meaning set forth in
Section 4.5(b).
"knowledge" of Person (or similar terms or phrases used herein) means
all facts and information which are within the actual knowledge of such Person;
provided that the knowledge of the Company or the Sellers shall include the
actual knowledge of those individuals set forth on Schedule A.
"Laws" means all laws, statutes, rules, regulations, ordinances,
decisions and other pronouncements having the effect of law of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision or of any Governmental Entity.
"Lease" shall have the meaning set forth in Section 4.15(b).
"Leased Real Property" means all leasehold or subleasehold estates and
other rights to use or occupy any land, buildings, structures, improvements,
fixtures or other interest in real property held by the Company.
"Liabilities" means all commitments, obligations, Indebtedness and
other liabilities of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due), including those arising under any
Law, action, investigation, inquiry or order and those arising under any
Contract.
"License" shall have the meaning set forth in Section 2.2(a)(i).
"License Business" shall have the meaning set forth in Section
2.2(a)(i).
***
"Losses" means on a dollar for dollar basis the amount of any cost,
loss, Liability, claim, damage, expense (including costs of investigation,
defense thereof and accountants' and attorneys' fees), whether or not involving
a Third Party Claim, provided, however, that "Loss" shall not include any amount
that is received by such specified person under an insurance policy.
"Material Adverse Effect" means any circumstance, development, change
in, or effect on the Company that, individually or in the aggregate with any
other circumstances, developments, changes in, or effects on, the Company is, or
is reasonably expected to be, directly or indirectly, materially adverse to (a)
the business or condition (financial or otherwise), results of operations,
assets, liabilities or prospects of the Company and (b) the ability of the
Company or the Sellers to perform its obligations under this Agreement or to
consummate the transactions contemplated by this Agreement.
"Material Contracts" shall have the meaning set forth in Section
4.9(a).
"Net Tax Benefit" shall have the meaning set forth in Section 8.7(h).
6
"Note Purchase Price" shall have the meaning set forth in Section
2.1(c).
"OP Brands" means all Trademarks owned by the Company at the Closing or
variants, extensions or modifications thereof developed by Purchaser.
"Operating Profit" means operating profit of the License Business as
calculated in accordance with Schedule B.
"Options" mean all options to purchase capital stock of the Company
held by any Person, whether or not vested and exercisable, which are outstanding
immediately prior to the Closing.
"Order" means any writ, judgment, decree, injunction, stipulation,
award or similar order of any Governmental Entity (in each such case whether
preliminary or final).
"Organizational Documents" means (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person, including any trust;
and (e) any amendment to any of the foregoing.
"Patents" means all patents and patentable subject matter, including
but not limited to business methods, processes and industrial designs, including
any continuations, divisionals, continuations-in-part, renewals, reissues and
applications for any of the foregoing, and rights to xxx for past Infringement
thereof, and any rights and Contracts to use any patents and patentable assets,
anywhere in the world.
"Permits" mean any licenses, permits, certificates, authorizations,
consents or orders of, or filings with, or any waiver of the foregoing, issued
by any Governmental Entity necessary for the conduct of, or relating to the
operation of the Company's business.
"Person" means an individual, corporation, partnership, limited
liability company, joint stock company, joint venture, association, trust or
other entity or organization, including a Governmental Entity.
"Policies" shall have the meaning set forth in Section 4.16.
"Prime Rate" means the rate of interest per annum published in The Wall
Street Journal as the prime rate in effect on the date that the Earnout
Statement is delivered to the Sellers' Representative pursuant to Section
2.3(a).
"Purchase Price" shall have the meaning set forth in Section 2.1(a)(i).
"Purchaser" shall have the meaning set forth in the preamble.
7
CONFIDENTIAL TREATMENT
"Purchaser Indemnified Parties" shall have the meaning set forth in
Section 8.2.
"Representatives" means with respect to any Person, its employees,
officers, directors, investment bankers, attorneys, accountants, agents,
representatives or Affiliates.
"Release" means the release of Xxxxxxx Xxxxx substantially in the form
of Exhibit B hereto.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for, redeem or acquire, or any options, warrants, calls, puts
or commitments relating to, or any stock appreciation right or other instrument
the value of which is determined in whole or in part by reference to the market
price or value of, shares of capital stock of such Person.
"Rights of Publicity" means all rights of publicity and privacy, as
defined under applicable Law, including the Use of the names, likenesses,
voices, signatures, biographical information, persona and other recognizable
aspects of real Persons, and rights to xxx for past Infringement thereof.
"Rules" shall have the meaning set forth in Section 10.8(a).
"Sales Earnout Period " shall have the meaning set forth in Section
2.2(a)(ii).
"Sales Earnout Payment" shall have the meaning set forth in Section
2.2(a)(ii).
***
"Securities Act" means the Securities Act of 1933, as amended from time
to time, including the rules and regulations promulgated thereunder.
"Seller Expenses" means the fees and expenses incurred by or on behalf
of the Company, the Sellers or their respective Affiliates in connection with
(i) the negotiation, execution and performance of this Agreement and any other
agreements entered into in connection with this Agreement or (ii) the process
and activities undertaken by or on behalf of the Company or the Sellers in
connection with the sale of the Company or any alternatives thereto, including
fees and expenses of attorneys (including Xxxxx & Xxxxxx LLP), investment
bankers (including The Sage Group, LLC) and accountants.
"Seller(s)" shall have the meaning set forth in the preamble.
"Sellers' Representative" shall have the meaning set forth in Section
8.9.
"Shares" shall have the meaning set forth in the recitals.
8
"Software" means all computer programs (whether in source code or
object code form), databases, compilations and data, and all documentation
related to any of the foregoing and all rights and licenses to use all Software.
"Subsidiaries' Shares" shall have the meaning set forth in Section
4.4(c).
"Subsidiary" means any Person in which the Company, directly or
indirectly through Subsidiaries or otherwise, beneficially owns more than fifty
percent (50%) of either the equity interests in, or the voting control of, such
Person.
"Tax Contest" shall have the meaning set forth in Section 8.6(b).
"Tax Returns" shall mean any report, return, document, declaration or
other information or filing (including any amendments) with respect to Taxes
required by Law to be supplied to any taxing authority or jurisdiction (foreign
or domestic), the Company or any of its Subsidiaries, or any clients, customers,
employees or others of the Company or any of its Subsidiaries, including
information returns, where permitted or required, combined or consolidated
returns for any group of entities that includes the Company and any of its
Subsidiaries, any documents with respect to or accompanying payments of
estimated Taxes, or with respect to or accompanying requests for the extension
of time in which to file any such report, return, document, declaration or other
information.
"Taxes" shall mean any and all taxes, fees, levies or other
assessments, including, without limitation, federal, state, local, or foreign
income, gross receipts, excise, real or personal property, sales, withholding,
social security, occupation, use, service, service use, value added, license,
net worth, payroll, franchise or similar taxes or social charges, imposed by any
Governmental Entity, together with any interest, penalties, fines or additions
to tax and additional amounts imposed with respect thereto.
"Third Party Claim" shall have the meaning set forth in Section 8.4(a).
"Trade Secrets" means all trade secrets (as defined under applicable
Law), if any, including trade secrets of the following nature: financing and
marketing information; technology; know-how; inventions; proprietary processes;
formulae; algorithms; models and methodologies; customer lists, vendor lists and
contacts; and rights to xxx for past Infringement thereof, throughout the world.
"Trademarks" means all trademarks, service marks, trade names, internet
domain names and addresses, designs, logos, emblems, signs or insignia, slogans,
other similar designations of source or origin and general intangibles of like
nature, together with the goodwill of the business symbolized by any of the
foregoing, registrations and applications relating to all of the foregoing, all
rights to Use any such indicia owned by any third party, and rights to xxx for
past Infringement thereof, throughout the world.
9
"Transfer Taxes" shall mean all excise, sales, use, transfer (including
real property transfer or gains), stamp, documentary, filing, recordation and
other similar taxes, together with any interest, additions or penalties with
respect thereto and any interest in respect of such additions or penalties,
resulting from the transactions contemplated by this Agreement.
"Use" means to copy, display, perform, transmit, disclose to third
Persons, create derivative works from and otherwise modify, make, use, sell (or
offer to make, use or sell), import, export, and otherwise exploit, and grant to
others the right or license to do the same.
"Warrant" means each warrant to purchase capital stock of the Company.
"Working Capital" shall mean current assets minus current liabilities
(excluding the D&B Note).
ARTICLE II
PURCHASE AND SALE OF SHARES; EARNOUT
Section 2.1 Purchase and Sale.
(a) (i) Upon the terms and subject to the conditions of this Agreement,
at the Closing, each of the Sellers shall sell, convey, assign, transfer and
deliver to Purchaser, and Purchaser shall purchase, acquire and accept from each
of the Sellers, the Shares held by the Sellers (as set forth on Schedule C
hereto), free and clear of all Encumbrances, for an aggregate purchase price
equal to $40,000,000 (the "Purchase Price"), minus (i) the Escrow Amount and
minus (ii) the amount of the Seller Expenses, if any, identified in the Closing
Certificate (the "Closing Purchase Price"). The Purchase Price shall be
allocated among the Sellers as set forth on Schedule C hereto and any reduction
of the Purchase Price to determine the amount of the Closing Purchase Price
payable to each Seller pursuant to this Section 2.1(a)(i) shall be allocated
among each of the Sellers pro rata based on the amount of the Purchase Price
that would have been payable to such Seller prior to such reductions, subject to
any Tax withholding as to any such Seller.
(ii) At the Closing, Purchaser shall deposit $2,000,000 (the "Escrow
Amount") with the Escrow Agent in accordance with the Escrow Agreement as
security for the indemnification obligations of the Sellers under Article VIII.
The Escrow Agent shall hold, invest, reinvest and disburse the Escrow Amount in
accordance with the Escrow Agreement and the Escrow Amount shall not be used for
any other purpose, it being understood that any interest on the funds so
deposited shall accrue to Purchaser.
10
CONFIDENTIAL TREATMENT
(b) Prior to the Closing the Sellers shall exercise, or cause to be
exercised, all Options and Warrants, and, as a result, there shall be no
outstanding Options, Rights or Warrants outstanding at the Closing. The parties
acknowledge that prior to the Closing, in accordance with Schedule 4.4(d), Xxxxx
will issue a promissory note to the Company in an amount equal to the aggregate
exercise price of the Options held by him, which note shall be repaid in full by
Xxxxx out of the proceeds payable to him by Purchaser at the Closing.
(c) At the Closing, D&B shall sell, convey, assign, transfer and
deliver to Purchaser, and Purchaser shall purchase, acquire and accept from D&B,
all right, title and interest in and to the D&B Note, at a price equal to
$1,000,000 (the "Note Purchase Price"). After such time, the Company shall have
no further obligations to D&B with respect to the D&B Note.
(d) Not later than three Business Days prior to the Closing Date, the
Sellers shall deliver to Purchaser a good faith estimate of the Seller Expenses
other than those Seller Expenses that have been paid prior to the date thereof
by the Sellers (and not by the Company or its Subsidiaries), together with a
certificate (the "Closing Certificate") signed by each of the Sellers setting
forth a list and the amount of the Seller Expenses and certifying that such list
and amount is such Sellers' best good faith estimate of the Seller Expenses. If
Purchaser disputes any of the Seller Expenses, Purchaser and the Sellers'
Representative shall work together in good faith to resolve by mutual agreement
all matters in dispute prior to the Closing. For the purposes of this Agreement,
the Closing Certificate, as ultimately agreed to by Purchaser, shall be binding
on Purchaser and the Sellers.
(e) All payments made pursuant to this Section 2.1 shall be subject to
all applicable Taxes required to be withheld in respect of such payment.
Section 2.2 Earnout.
(a) Additional Payments. In addition to the Purchase Price provided for
under Section 2.1 hereof, the Sellers shall be entitled to receive such
additional consideration in respect of the sale of the Shares as shall be
payable by Purchaser in accordance with this Section 2.2.
(i) ***
(ii) In addition, if the Company's worldwide brand net sales
at wholesale, calculated in accordance with GAAP, exceed *** for the
fiscal year ended January 5, 2008 (the "Sales Earnout Period"), then
Purchaser will pay the Sellers in cash, by wire transfer of immediately
available funds, an amount equal to *** of such excess (the "Sales
Earnout Payment") no later than April 30, 2008 (or, if later, the date
any disagreement is resolved pursuant to Section 2.3).
(iii) In the event there is a pretax loss for any fiscal year
prior to *** or the Sales Earnout Period, such pre tax loss may not be
used as an
11
CONFIDENTIAL TREATMENT
offset in whole or in part against any amount calculated to determine
whether a *** or Sales Earnout Payment is owing.
(iv) It is the parties' intent that the calculation of
Operating Profit be made solely with reference to the Company as it is
operated in the ordinary course and not with reference to or including
other businesses now owned by Purchaser or which after the Closing may
be acquired by or combined with the Company or Purchaser.
(b) Post-Closing Conduct of Business by Purchaser. Following the
Closing and until expiration of the applicable Additional Payment Period,
Purchaser shall:
(i) provide the Company with adequate working capital and
letters of credit as is reasonably necessary to operate the Company
reasonably consistent with the manner in which the business of the
Company has been conducted prior to the date of this Agreement;
(ii) provide the Company with adequate funding, personnel and
support as is reasonably necessary to operate the Company reasonably
consistent with the manner in which the business of the Company has
been conducted prior to the date of this Agreement;
(iii) operate the Company as a business unit for operational
and financial accounting purposes;
(iv) act in good faith in determining whether to retain,
release or hire personnel from the Company or whether to acquire or
dispose of assets of the Company;
(v) act in good faith in determining whether to terminate or
discontinue any of the businesses which the Company is presently
engaged in;
(vi) maintain separate books of account for the Company;
(vii) operate the Company in good faith in the ordinary course
of business and use commercially reasonable efforts to sell,
distribute, advertise, market and promote all of the OP Brand products;
(viii) provide Sellers, at the end of each calendar year, a
report showing:
(A) brand sales at wholesale, by OP Brand and by
category;
(B) advertising expenditures for the OP Brands;
12
CONFIDENTIAL TREATMENT
(C) staffing levels, with names, in order to track
adequate personnel commitments of this agreement;
(D) notice of termination or substantial amendment or
modification of any licenses;
(E) following ***, the operating profit calculations
of ***. Such information is to be provided from *** through
the end of 2006.
(c) Right of Setoff. Purchaser shall have the right to set off all or
any portion of the Additional Payments against any claims that Purchaser
Indemnified Parties may have against the Sellers under Article VIII that have
resulted in an arbitration award in favor of Purchaser that is not subject to
appeal.
Section 2.3 Timing of Additional Payments.
(a) On or prior to the 90th calendar day after the end of the
applicable Earnout Payment Period, Purchaser will deliver to the Sellers'
Representative a statement (the "Earnout Statement") setting forth in reasonable
detail its calculation of the amount of any applicable *** and Sales Earnout
Payment (the "Earnout Statement Amounts") to be paid to Seller pursuant to this
Section 2.3, which Earnout Statement shall be accompanied by payment of the
applicable Earnout Statement Amounts, if any. During the 60-day period following
Seller's Representative's receipt of the Earnout Statement, Purchaser shall
provide Sellers' Representative such access, upon reasonable prior notice and
during normal business hours, to the financial books and records of the Company
and Purchaser (to the extent related to the calculation of ***) with respect to
the Additional Payment Periods as is reasonably necessary to determine the
amount of *** and Sales Earnout Payment for the Company. Unless Sellers'
Representative, within 60 days after receipt of the Earnout Statement, notifies
Purchaser of any disagreement with the Earnout Statement or the calculation of
*** and Sales Earnout Payment included therewith, the Earnout Statement shall be
final and shall be accepted by and be binding upon both Purchaser and Sellers.
(b) If Sellers' Representative so notifies Purchaser in writing of any
such disagreement within such 60-day period, which notice shall set forth the
items of disagreement in reasonable detail, and such disagreement cannot be
amicably resolved in writing within a period of 30 days commencing on the day on
which such notice is delivered, the disagreement as to the Earnout Statement
shall be submitted for final determination to Ernst & Young LLP, or such other
accounting firm as Purchaser and Seller may mutually agree (the "Earnout
Accountants"), whose review of the Earnout Statement shall be limited to those
items in Sellers' Representative's notice to Purchaser that are still in
dispute. Any such dispute resolution shall be held in Orange County, California.
The Earnout Statement (as revised in accordance with this sentence) shall become
final, binding and nonappealable upon Sellers and Purchaser on the earlier of
(A) the date Sellers' Representative and Purchaser amicably resolve in writing
any differences they have with respect to the matters specified in the Sellers'
Representative's notice to
13
CONFIDENTIAL TREATMENT
Purchaser or (B) the date any disputed matters are finally resolved in writing
by the Earnout Accountants. Any Earnout Accountants selected pursuant to this
Section 2.3 shall be instructed to resolve all disputes within 60 days after
such disputes are submitted. The Earnout Accountants shall render their final
determination with respect to the resolution of such disputes and shall deliver
copies thereof to Purchaser and Sellers' Representative. The fees and expenses
of the Earnout Accountants pursuant to this Section 2.3 shall be split evenly by
Purchaser, on the one hand, and Sellers, on the other hand. In addition, the
Earnout Accountants shall determine whether Purchaser's or Sellers'
Representatives calculation of the Earnout Statement Amounts is, in the
aggregate, closer to the final calculation of the aggregate Earnout Statement
Amounts, as finally determined by the Earnout Accountants. As promptly as
practicable after such determination, the Earnout Accountants shall provide
written notice of such determination to each of Purchaser and Sellers'
Representative and the party whose calculation of the Earnout Statement Amounts
is closer to the final calculation of the aggregate Earnout Statement Amounts,
as finally determined by the Earnout Accountants shall be reimbursed the
reasonable attorneys' fees which it has incurred in connection with any such
action by the other party.
(c) Purchaser shall make any further payment of the unpaid portion of
*** and Sales Earnout Payment required to be paid hereunder, together with
interest thereon at a rate per annum equal to the Prime Rate from the date of
Purchaser's delivery of the Earnout Statement pursuant to paragraph (a) above to
the date of payment, in cash, within five days after such amount is finally
determined pursuant to paragraph (b) above.
(d) Any payments of *** and the Sales Earnout Payment shall be made to,
and allocated among, the Sellers as directed by the Sellers' Representative.
ARTICLE III
CLOSING
Section 3.1 Closing. The closing of the transactions pursuant hereto
(hereinafter called the "Closing") shall take place at the offices of Skadden,
Arps, Slate, Xxxxxxx & Xxxx LLP, Four Times Square, New York, New York at 10:00
a.m., local time, on the second Business Day following the satisfaction or
waiver of the conditions set forth in Article VIII (other than those conditions
that by their nature are to be satisfied at the Closing), or at such other time,
date and place as the Sellers' Representative and Purchaser may agree upon (the
date on which the Closing actually occurs being hereinafter referred to as the
"Closing Date").
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Section 3.2 Closing Deliveries.
(a) At the Closing, the Sellers shall deliver or cause to be delivered
to Purchaser:
(i) certificates representing the Shares, duly endorsed or
accompanied by stock powers duly executed in blank and otherwise in a
form reasonably satisfactory to Purchaser for transfer on the books of
the Company (with any requisite transfer Tax stamps attached by
Seller);
(ii) an executed receipt for the Closing Purchase Price;
(iii) an executed receipt for the Note Purchase Price;
(iv) the minute books, stock transfer records and corporate
seal (if in existence) of the Company and its Subsidiaries and all
other materials related to their corporate administration;
(v) a duly executed certificate of each of the Sellers
pursuant to Section 7.3(c);
(vi) duly executed copies of the consents required to be
obtained by the Sellers pursuant to Section 7.3(e);
(vii) duly executed resignations, effective as of the Closing
Date, from such directors, officers and employees of the Company as
Purchaser shall have requested in writing not less than two Business
Days prior to the Closing Date;
(viii) a duly executed counterpart of the Escrow Agreement;
(ix) certificates in form and substance reasonably
satisfactory to Purchaser certifying all facts necessary to exempt the
transactions contemplated hereby from withholding pursuant to FIRPTA;
(x) a copy, certified by the secretary of the Company, of (A)
the resolutions of the Company's board of directors authorizing the
execution and delivery of this Agreement and consummation of the
transactions contemplated by this Agreement, which such resolutions
shall be in full force and effect and not revoked and (B) the
Organizational Documents of the Company and its Subsidiaries;
(xi) a good standing certificate (or its equivalent) for the
Company and each of its Subsidiaries issued by the applicable
jurisdictions where such companies are qualified or licensed to do
business or own, lease or operate property making such qualification or
licensing necessary, dated as of a date within three Business Days
prior to the Closing Date;
15
(xii) a bring down good standing certificate, dated as of the
Closing Date, of each of the certificates delivered pursuant to Section
3.2(a)(xi), or a verbal confirmation from the Secretary of State of the
applicable jurisdiction on the Closing Date with respect to such good
standing;
(xiii) if applicable, a duly executed spousal consent to the
transfer of the Shares pursuant to the terms of this Agreement;
(xiv) all files maintained by the Sellers relating to the
Company, including but not limited to copies of all Contracts and
related correspondence;
(xv) the Release; and
(xvi) all other previously undelivered documents, agreements,
instruments, writings and certificates, and such other documents,
agreements, instruments, writings and certificates as Purchaser may
reasonably request to effect the transactions contemplated by this
Agreement, in form and substance reasonably satisfactory to Purchaser.
(b) At the Closing, Purchaser shall deliver or cause to be delivered to
the Sellers:
(i) an executed receipt for delivery of the Shares;
(ii) a duly executed counterpart of the Escrow Agreement;
(iii) a duly executed officer's certificate of Purchaser
pursuant to Section 7.2(c);
(iv) a copy, certified by the secretary of Purchaser, of the
resolutions of Purchaser's board of directors authorizing the execution
and delivery of this Agreement and consummation of the transactions
contemplated by this Agreement, which such resolutions shall be in full
force and effect and not revoked;
(v) a good standing certificate (or its equivalent) for
Purchaser issued by the State of Delaware, dated as of a date within
three Business Days prior to the Closing Date;
(vi) a bring down good standing certificate, dated as of the
Closing Date, of the certificate delivered pursuant to Section
3.2(b)(v), or a verbal confirmation from the Secretary of State of the
State of Delaware on the Closing Date with respect to such good
standing; and
(vii) all other previously undelivered documents, agreements,
instruments, writings and certificates, and such other documents,
agreements, instruments, writings and certificates as the Sellers may
16
reasonably request to effect the transactions contemplated by this
Agreement, in form and substance reasonably satisfactory to the
Sellers.
(c) At the Closing, Purchaser shall pay, by wire transfer of
immediately available funds:
(i) to such account or accounts as the Sellers' Representative
shall specify, the Closing Purchase Price to each of the Sellers in the
amounts set forth on Schedule C and determined in accordance with
Section 2.1(a)(i); and
(ii) to such account or accounts as D&B shall specify, an
amount equal to the Note Purchase Price.
(d) Each party required to provide account information to Purchaser
pursuant to this Section 3.2 shall notify Purchaser in writing of such account
information not less than five (5) Business Days before the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers, jointly and severally, hereby represents and
warrants to Purchaser as follows except as to Sections 4.2, 4.3, and 4.4(d)
which Sellers represent and warrant severally only as to the specific
representation made by each Seller:
Section 4.1 Organization and Standing.
(a) Except as set forth in Schedule 4.1(a), each of the Company and its
Subsidiaries (a) is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, has the corporate power and authority and possesses all
governmental franchises, licenses, permits, authorizations and approvals
necessary to enable it to own, lease or otherwise hold its properties and assets
and to carry on its business as presently conducted, and (b) where applicable,
is duly qualified and in good standing to do business as a foreign corporation
in each jurisdiction in which the conduct or nature of its business or the
ownership, leasing or holding of its properties makes such qualification or good
standing necessary, except such jurisdictions where the failure to be so
qualified or in good standing would not reasonably be expected to have a
Material Adverse Effect. All such jurisdictions where the Company and each of
its Subsidiaries is qualified to do business as a foreign corporation are listed
in Schedule 4.1(a).
(b) Schedule 4.1(b) sets forth a complete list of all Persons in which
the Company (i) owns, directly or indirectly, any capital stock or other
securities or (ii) has any direct or indirect ownership interest in any
business.
Section 4.2 Authorization.
17
(a) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby are within the Company's corporate powers and authority and have been
duly authorized by all necessary action on the part of the Company and no other
corporate proceeding is necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement constitutes (assuming the
due execution and delivery by each of the other parties hereto) a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that enforcement may be limited
by or subject to (a) the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and (b) general equitable principles
(whether considered in a proceeding in equity or at law).
(b) In the case of D&B, the execution, delivery and performance by such
Seller of this Agreement and the Escrow Agreement and the consummation by such
Seller of the transactions contemplated hereby and thereby are within such
Seller's power and authority and have been duly and validly authorized by all
necessary action on the part of such Seller and no other proceedings on the part
of such Seller is necessary to authorize this Agreement or the Escrow Agreement
or to consummate the transactions contemplated hereby or thereby. In the case of
each Seller that is a natural person, the execution, delivery and performance by
such Seller of this Agreement and the Escrow Agreement and the consummation by
such Seller of the transactions contemplated hereby and thereby are within such
Seller's full power and legal rights and no other action on the part of such
Seller is necessary to authorize this Agreement or the Escrow Agreement or to
consummate the transactions contemplated hereby or thereby. This Agreement
constitutes, and the Escrow Agreement will constitute (assuming the due
execution and delivery by each of the other parties hereto and thereto), a
legal, valid and binding obligation of such Seller, enforceable against such
Seller in accordance with its terms, except to the extent that enforcement may
be limited by or subject to (a) the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and (b) general equitable
principles (whether considered in a proceeding in equity or at law).
Section 4.3 Noncontravention. Except as set forth in Schedule 4.3, the
execution, delivery and performance of this Agreement by the Company and the
Sellers does not, and the execution, delivery and performance by the Sellers of
the Escrow Agreement and the consummation by the Company and the Sellers of the
transactions contemplated hereby will not, (a) conflict with or violate any
provision of the Organizational Documents of the Company, its Subsidiaries or
any Seller, (b) require any consent, approval, license, permit, order or
authorization (each, a "Consent") of, or registration, declaration or filing
(each, a "Filing") with, or notice to, any Governmental Entity or any other
Consent of any other Person, (c) conflict with or violate any applicable Law,
(d) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation, modification or acceleration) under any note, bond,
indenture, deed of trust, mortgage, lease, franchise, license, permit,
instrument, law, Order or Contract to which the Company, its Subsidiaries or any
Seller is a party or by which the Company, its
18
Subsidiaries or any Seller is bound or (e) result in the imposition or creation
of any Encumbrances on any of the property held by the Company or its
Subsidiaries or the Shares.
Section 4.4 Capital Stock of the Company and the Subsidiaries.
(a) The authorized capital stock of the Company consists of 100,000
shares of common stock, par value $0.01 per share, of which (i) as of the date
hereof, 3,573 shares are issued and outstanding and (ii) as of the Closing Date,
5,589 shares will be issued and outstanding. The Shares are held as of the date
hereof, and will be held as of the Closing Date, by the Persons and in the
amounts set forth in Schedule C hereto. All outstanding Shares are duly
authorized, validly issued, fully paid and nonassessable and have been issued in
compliance with applicable federal, state and foreign securities Laws. Except as
set forth in Schedule 4.4(a), neither the Shares nor the Subsidiaries' Shares
have been issued in violation of any purchase option, call, right of first
refusal, preemptive, subscription or similar rights under any provision of
applicable Law, the Organizational Documents of the Company, or any Contract or
instrument to which the Company or its Subsidiaries are subject or by which they
are bound.
(b) The Company and its Subsidiaries have not granted any Options,
Rights or Warrants other than as set forth in Schedule 4.4(b). Schedule 4.4(b)
hereto also sets forth for each outstanding Option, Right or Warrant, (A) the
name of the holder of such Option, Right or Warrant, (B) the number of Shares
issuable upon the exercise of such Option, Right or Warrant and (C) the exercise
price of such Option, Right or Warrant. True, correct and complete copies of the
plans and agreements pursuant to which such Options, Rights or Warrants have
been issued have been provided to Purchaser.
(c) All the outstanding shares of capital stock of the Subsidiaries
(the "Subsidiaries' Shares") are duly authorized, validly issued, fully paid and
nonassessable and have been issued in compliance with applicable federal, state
and foreign securities Laws and all such shares are owned by the Company, free
and clear of any Encumbrances.
(d) Except as set forth in Schedule 4.4(d), each Seller is the record
and beneficial owner of the Shares set forth next to such Seller's name on
Schedule C hereto, free and clear of any Encumbrances other than applicable
transfer restrictions pursuant to federal, state or foreign securities Laws.
Upon transfer and delivery of such Shares to Purchaser on the Closing Date in
accordance with Article II, Purchaser will receive good and valid title to such
Shares, free and clear of any Encumbrances. Except as set forth in Schedule
4.4(d), the transactions contemplated by the terms of this Agreement shall not
give rise to any Rights of any Seller and each such Seller does not otherwise
have any Rights with respect to the capital stock of the Company.
Section 4.5 Financial Statements; Liabilities.
(a) The Company has delivered to Purchaser true and complete copies of
the audited consolidated balance sheets of the Company for the fiscal years
ended December
19
31, 2001, 2002 and 2003 and the related audited consolidated statements of
income and cash flows for the fiscal years then ended (collectively, the
"Company Financial Statements"). Except as otherwise indicated in the notes to
the Company Financial Statements, the balance sheets and statements of income
included in the Company Financial Statements have been prepared in accordance
with GAAP consistently applied during the periods involved and fairly present,
in all material respects, the consolidated financial position and the results of
operations of the Company and its Subsidiaries as of the date and for the period
presented therein.
(b) The Company has delivered to Purchaser true and complete copies of
the unaudited consolidated balance sheet of the Company as of June 30, 2004 and
the related unaudited consolidated statements of income and cash flows of the
Company for the six month period then ended (the "June 2004 Financial
Statements"). Except as set forth in Schedule 4.5(b), the balance sheet and
statements of income and cash flows included in the June 2004 Financial
Statements have been prepared in accordance with GAAP consistently applied
during the periods involved, and fairly present, in all material respects, the
financial position and the results of operations of the Company and its
Subsidiaries as of the date and for the period presented therein subject to
changes resulting from normal year end adjustments and subject to the absence of
footnote disclosure and other presentation items.
(c) The Company does not have any Liabilities (whether direct,
indirect, accrued or contingent) of a nature required by GAAP to be disclosed on
a balance sheet except for Liabilities, commitments or obligations (i) for Taxes
incurred in the ordinary course of business subsequent to June 30, 2004, (ii)
incurred in the ordinary course of business subsequent to June 30, 2004 and
which are immaterial, (iii) reflected on, accrued or reserved against in the
Company Financial Statements or the June 2004 Financial Statements or (iv)
disclosed in Schedule 4.5(c) hereto. Neither the Company nor its Subsidiaries
have nor will they have as of the Closing any obligation or liability for
earnouts or other contingent payments payable to former owners of assets, stock
or other interests acquired by the Company or its Subsidiaries or otherwise
arising out of previous acquisitions by the Company or its Subsidiaries.
Section 4.6 Absence of Certain Changes. Since June 30, 2004, (a) except
as set forth in Schedule 4.6 and except to the extent contemplated by or in
connection with this Agreement, the Company (through itself or any Subsidiary)
has conducted its business in the ordinary course consistent with past practice
and (b) there has not been any event, occurrence or development which, (i)
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect or (ii) if taken after the date of this Agreement, would
constitute a breach of the covenants set forth in Section 6.1.
Section 4.7 Litigation. Except as set forth in Schedule 4.7, there are
(i) no outstanding judgments, decrees, injunctions or orders of any Governmental
Entity by which the Company, its Subsidiaries or any of their respective assets
or properties are bound and (ii) no Actions by or before any Governmental Entity
pending, or to the knowledge of the Company or the Sellers, threatened against
the Company or its Assets, directors or officers.
20
Section 4.8 Compliance with Applicable Laws.
(a) Except as set forth in Schedule 4.8 the Company and each Subsidiary
has been, and is presently, in material compliance with all applicable Laws.
Neither the Company, its Subsidiaries nor any of the Sellers has received
notification of any asserted present or past failure to comply, or to the
knowledge of the Company or the Sellers, is aware of any threatened action to do
so, except where the failure to have been in compliance or comply would not
reasonably be expected to have a Material Adverse Effect.
(b) To the knowledge of the Company or the Sellers, the licensees of
the Company and its Subsidiaries are in material compliance with all applicable
Laws. To the knowledge of the Company or the Sellers, no complaint, claim,
lawsuit or charge has been made against any such licensees that could result in
liability to the Company or its Subsidiaries.
Section 4.9 Material Contracts.
(a) The Company has provided or made available to Purchaser, (i) true
and complete copies of all Contracts of the type described in Section 4.9(b)
below, with all amendments and supplements thereto ("Material Contracts"),
relating to the business of the Company and its Subsidiaries, each of which is
included on Schedule 4.9(a)(i), or (ii) with respect to such Material Contracts
that have not been reduced to writing, a written description thereof, each of
which is listed on Schedule 4.9(a)(ii).
(b) Each Material Contract is set forth on Schedule 4.9(a)(i) that
corresponds to the subsection ((i) through (xxi)) below that describes such
Material Contract:
(i) leases (whether of real or personal property) providing
for annual rentals of $1,000 or more;
(ii) Contracts for the purchase of materials, supplies, goods,
services, equipment or other assets providing for either (A) annual
payments by the Company or any of its Subsidiaries of $5,000 or more or
(B) aggregate payments by the Company or any of its Subsidiaries of
$20,000 or more;
(iii) sales, distribution or other similar Contracts providing
for the sale by the Company or any of its Subsidiaries of materials,
supplies, goods, services, equipment or other assets;
(iv) partnership, joint venture, profit-sharing or
shareholders' Contracts with any Person;
(v) Contracts relating to the acquisition or disposition of
any Assets individually or in the aggregate material to the business;
21
(vi) Contracts relating to Indebtedness of the Company or any
of its Subsidiaries, including any agreement or commitment for future
loans, credit or financing entered into by the Company or any of its
Subsidiaries;
(vii) any option, license, franchise or similar Contract;
(viii) Contracts with any customer where such customer paid
more than $10,000 during the fiscal year ended December 31, 2003, or is
expected to pay more than $10,000 during the fiscal year ended December
31, 2004, to the Company or any of its Subsidiaries;
(ix) Contracts or subcontracts pursuant to which the Company
or any of its Subsidiaries outsources to, or subcontracts with, another
business or Person for goods or services in excess of $10,000;
(x) Contracts with representatives, sales agencies or
franchisees which in any case involve the payment or potential payment,
pursuant to the terms of any such Contract, by or to the Company or any
of its Subsidiaries of either (A) $1,000 or more annually or (B)
aggregate payments of $10,000 or more;
(xi) Contracts with any Person containing any provision or
covenant prohibiting or limiting the ability of the Company or any of
its Affiliates to engage in any business activity or compete with any
Person or prohibiting or limiting the ability of any Person to compete
with the Company or any of its Affiliates;
(xii) Contracts between the Company, on the one hand, and any
of its Subsidiaries, Affiliates or any Seller, director or officer or
former director or former officer of the Company or any of its
Subsidiaries or any of their Affiliates, on the other hand;
(xiii) Confidentiality or similar Contracts (A) covering the
business, (B) with employees, consultants and independent contractors
or (C) for the benefit of the customers of the Company or any of its
Subsidiaries;
(xiv) Contracts under which the Company or any of its
Subsidiaries has, directly or indirectly, made any advance, loan,
extension of credit or capital contribution to, or other investment in,
any Person (other than extensions of trade credit in the ordinary
course of business);
(xv) Contracts that commit capital expenditures after the date
hereof;
(xvi) collective bargaining or similar labor Contracts;
22
(xvii) Contracts or arrangements that contain any severance
pay or post-employment liabilities or obligations or provide for
payments to be made as a result of the transactions contemplated by
this Agreement;
(xviii) Contracts that are not currently terminable by the
Company or any of its Subsidiaries without liability, penalty or
premium upon 90 days' notice;
(xix) sponsor agreements and any Contracts relating to
sponsored athletes;
(xx) any potential Contracts which the Company is currently
negotiating or pursuing; and
(xxi) any other Contract, commitment, arrangement or plan not
made in the ordinary course of business that is material to the
business of the Company or any of its Subsidiaries.
(c) Each Material Contract is in full force and effect and constitutes
a legal, valid and binding agreement, enforceable in accordance with its terms,
of the Company or its Subsidiaries except to the extent that enforcement may be
limited by or subject to (i) the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and (ii) general equitable principles
(where considered in a proceeding in equity or at law) and, to the knowledge of
the Company or the Sellers, of each other party thereto other than Contracts
that have expired or terminated in the ordinary course of business; and except
as set forth in Schedule 4.9(c), neither the Company, its Subsidiaries nor, to
the knowledge of the Company or the Sellers, any other party to such Material
Contract is in violation or breach of or default under any such Material
Contract (or with notice or lapse of time or both, would be in violation or
breach of or default under any such Material Contract). To the knowledge of the
Company or the Sellers, no notice of default, termination or non-renewal under
any such Material Contract has been received by the Company or any of its
Subsidiaries and no action has been taken or omitted to be taken by the Company
or any of its Subsidiaries, or to knowledge of the Company or the Sellers, by
other parties thereto which, with the giving of notice or the lapse of time or
both, would result in or become a breach of, or give the Company, any of its
Subsidiaries or any other Person the right to declare a default under, or to
accelerate the maturity or performance of, or to cancel terminate or modify, any
Material Contract.
Section 4.10 Intellectual Property.
(a) Schedule 4.10(a) sets forth, for the Intellectual Property, a
complete and accurate list as of the date hereof of all of the Company's or its
Subsidiaries' U.S. and foreign (i) Patents and patent applications; (ii)
Trademarks, including trademark registrations (including Internet domain name
registrations), trademark applications and material unregistered Trademarks;
(iii) Copyrights, including copyright registrations,
23
copyright applications and material unregistered Copyrights; and (iv) all Rights
of Publicity.
(b) Except for the licenses granted pursuant to the IP Agreements and
except as set forth in Schedule 4.10(b), the Company or its Subsidiaries own or
otherwise have the exclusive and perpetual right to Use all Intellectual
Property rights free and clear of all Encumbrances of any type, in each case
necessary or incidental to the business of the Company or its Subsidiaries as
presently conducted.
(c) Except as set forth in Schedule 4.10(c), no Actions that would
reasonably be expected to have a Material Adverse Effect have been asserted
orally or in writing by any third party (x) alleging that the conduct of the
business of the Company or its Subsidiaries or the manufacture, use, or sale of
any product, or the use of any process, or of any Trademark, Copyright, Patent
or Rights of Publicity, now Used by the Company or its Subsidiaries infringes,
misappropriates or otherwise violates or dilutes or otherwise makes any claim on
or against any Intellectual Property rights of any such third party, or (y)
challenging or questioning the validity or effectiveness of any Intellectual
Property rights of the Company or its Subsidiaries or Intellectual Property Used
by the Company or its Subsidiaries.
(d) Except as set forth in Schedule 4.10(d), to the knowledge of the
Company or the Sellers, no third party is misappropriating, infringing, diluting
or violating in any material respect any Intellectual Property rights owned or
Used by the Company or its Subsidiaries, and no claims have been brought,
asserted or threatened by or against any third party with regard to the
foregoing.
(e) All Intellectual Property rights owned by the Company or its
Subsidiaries that are registered or filed with a Governmental Entity are
currently in compliance with all formal legal requirements, have not been
abandoned, are valid, subsisting and enforceable; and the Company or its
Subsidiaries have properly and fully recorded all Contracts which are required
to be recorded or registered with any Governmental Agency anywhere in the world.
(f) All material Intellectual Property, including, all Patents,
Trademarks and Copyrights, owned, Used and licensed to or by the Company or any
of its Subsidiaries are valid, in full force and effect, enforceable, do not
infringe any other rights belonging to any other party, and may continue to be
Used in the conduct of the business of the Company or its Subsidiaries, as
currently conducted.
(g) Schedule 4.10(g) sets forth a complete list of all IP Agreements of
the Company or its Subsidiaries. All IP Agreements set forth on Schedule 4.10(g)
are valid, subsisting and in full force and effect, and except as specifically
disclosed herein, are not subject to any outstanding notices of breach or other
violation by any party thereto.
(h) All Patents, Trademarks, Copyrights, Domain Names and Rights of
Publicity, and all registrations therefore, shall have proper title ownership in
the name of the Company or its Subsidiaries.
24
Section 4.11 Affiliate Transactions. Except as set forth in Schedule
4.11, (a) there is no ongoing agreement or arrangement between the Company, on
the one hand, and its Subsidiaries, any Seller or any Affiliate of any Seller,
on the other hand, (b) no director, officer or employee of the Company or its
Subsidiaries or member of his or her immediate family is indebted to the Company
or its Subsidiaries, (c) to the knowledge of the Company or the Sellers, no
director, officer or employee of the Company or its Subsidiaries has any direct
or indirect ownership interest in any supplier, customer or competitor of the
Company or its Subsidiaries and (d) no director, officer or employee of the
Company or its Subsidiaries and no member of the immediate family of any
director, officer or employee of the Company or its Subsidiaries has a direct or
indirect interest in any Material Contract or has a claim to have an interest in
the Intellectual Property rights of the Company or its Subsidiaries.
Section 4.12 Employee Benefit Plans; ERISA.
(a) Schedule 4.12(a) contains a true and complete list of each deferred
compensation and each bonus or other incentive compensation, stock purchase,
stock option and other equity compensation plan, program, agreement or
arrangement; each severance or termination pay, medical, surgical,
hospitalization, life insurance and other "welfare" plan, fund or program
(within the meaning of section 3(1) of ERISA, whether or not covered by ERISA);
each profit-sharing, stock bonus or other "pension" plan, fund or program
(within the meaning of section 3(2) of ERISA, whether or not covered by ERISA)
other than pension funds required by governmental mandate; each employment,
termination or severance agreement; and each other employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to by the Company or by any
trade or business, whether or not incorporated (an "ERISA Affiliate"), that
together with the Company would be deemed a "single employer" within the meaning
of section 4001(b) of ERISA, or to which the Company or an ERISA Affiliate is
party, whether written or oral, for the benefit of any employee or former
employee of the Company (the "Company Benefit Plans"). None of the Company nor
any ERISA Affiliate has any commitment or plan to create any additional employee
benefit plan or modify or change any existing Company Benefit Plan that would
affect any employee or former employee of the Company.
(b) With respect to each Company Benefit Plan, the Company has
heretofore delivered or made available to Purchaser true and complete copies of
each of the following documents, as applicable:
(i) a copy of the Company Benefit Plan and any amendments
thereto (or if the Company Benefit Plan is not a written plan, a
description thereof);
(ii) a copy of the two most recent annual reports and
actuarial reports, if required under ERISA or similar non-U.S. Laws,
and the most recent report prepared with respect thereto in accordance
with Statement of Financial Accounting Standards No. 87 or similar
non-U.S. Laws;
25
(iii) a copy of the most recent Summary Plan Description
required under ERISA or similar non-U.S. Laws with respect thereto;
(iv) if the Company Benefit Plan is funded through a trust or
any third party funding vehicle, a copy of the trust or other funding
agreement and the latest financial statements thereof; and
(v) the most recent notification letter received from the
Internal Revenue Service with respect to each Company Benefit Plan
intended to qualify under section 401 of the Code.
(c) No liability under Title IV or section 302 of ERISA has been
incurred by the Company or any ERISA Affiliate that has not been satisfied in
full, and no condition exists that presents a material risk to the Company or
any ERISA Affiliate of incurring any such liability, other than liability for
premiums due the Pension Benefit Guaranty Corporation (which premiums have been
paid when due).
(d) All contributions required to be made with respect to any Company
Benefit Plan on or prior to the Closing Date have been timely made. There has
been no amendment to, written interpretation of or announcement (whether or not
written) by the Company or any Affiliate of the Company relating to, or change
in employee participation or coverage under, any Company Benefit Plan that would
increase materially the expense of maintaining such Company Benefit Plan above
the level or expense incurred in respect thereof for the most recent fiscal year
ended prior to the date hereof.
(e) None of the Company, any Company Benefit Plan, any trust created
thereunder, nor any trustee or administrator thereof has engaged in a
transaction in connection with which the Company, any Company Benefit Plan, any
such trust, or any trustee or administrator thereof, or any party dealing with
any Company Benefit Plan or any such trust could be subject to either a civil
penalty assessed pursuant to section 409 or 502(i) of ERISA or a Tax imposed
pursuant to section 4975 or 4976 of the Code.
(f) Except as set forth on Schedule 4.12(f), each Company Benefit Plan
has been operated and administered in all material respects in accordance with
its terms and applicable Laws, including but not limited to ERISA and the Code.
(g) Each Company Benefit Plan intended to be "qualified" within the
meaning of section 401(a) of the Code is so qualified and the trusts maintained
thereunder are exempt from taxation under section 501(a) of the Code. Each
Company Benefit Plan intended to satisfy the requirements of Section 501(c)(9)
of the Code has satisfied such requirements.
(h) No Company Benefit Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
employees or former employees of the Company for periods extending beyond their
retirement or other termination of service, other than (i) coverage mandated by
applicable Law, (ii) death benefits under any "pension plan," or (iii) benefits
the full cost of which is borne by the current or former employee (or his
beneficiary). No condition exists that would prevent the Company from
26
amending or terminating any Company Benefit Plan providing health or medical
benefits in respect of any active employee of the Company other than limitations
imposed under the terms of a collective bargaining agreement.
(i) No amounts payable under the Company Benefit Plans will fail to be
deductible for federal income tax purposes by virtue of section 280G of the
Code.
(j) The consummation of the transactions contemplated by this Agreement
will not, either alone or in combination with another event, (i) entitle any
current or former employee or officer of the Company or any ERISA Affiliate to
severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement, or (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee or
officer.
(k) There has been no material failure of a Company Benefit Plan that
is a group health plan (as defined in section 5000(b)(1) of the Code) to meet
the requirements of section 4980B(f) of the Code with respect to a qualified
beneficiary (as defined in section 4980B(g) of the Code). The Company has not
contributed to a nonconforming group health plan (as defined in section 5000(c)
of the Code) and no ERISA Affiliate of the Company has incurred a tax under
section 5000(e) of the Code which is or could become a Liability of the Company.
(l) There are no pending, threatened or anticipated claims by or on
behalf of any Company Benefit Plan, by any employee or beneficiary covered under
any such Company Benefit Plan, or otherwise involving any such Company Benefit
Plan (other than routine claims for benefits).
(m) With respect to each Company Benefit Plan that is not subject to
United States Law (a "Foreign Benefit Plan"): (i) the fair market value of the
assets of each funded Foreign Benefit Plan, the liability of each insurer for
any Foreign Benefit Plan funded through insurance or the book reserve
established for any Foreign Benefit Plan, together with any accrued
contributions, is sufficient to procure or provide for the accrued benefit
obligations, as of the Closing Date, with respect to all current and former
participants in such plan according to the actuarial assumptions and valuations
most recently used to determine employer contributions to such Foreign Benefit
Plan and no transaction contemplated by this Agreement shall cause such assets
or insurance obligations to be less than such benefit obligations; and (ii) each
Foreign Benefit Plan required to be registered has been registered and has been
maintained in good standing with applicable regulatory authorities.
Section 4.13 Taxes. Except as set forth on Schedule 4.13, (i) All Tax
Returns, statements, reports and forms (including estimated tax and information
returns and reports) required to be filed by or on behalf of the Company and its
Subsidiaries have, to the extent required to be filed on or before the date
hereof, been filed when due, or on valid extension, in accordance with all
applicable Laws; (ii) as of the time of filing, the Tax Returns were true,
correct and complete in all material respects; (iii) all Taxes shown as due and
payable on the Tax Returns that have been filed or that were otherwise due
27
and payable on or before the date hereof have been timely paid, or withheld and
remitted to the appropriate Governmental Entity; (iv) the charges, accruals and
reserves for Taxes shown on the financial books and records of the Company and
its Subsidiaries are adequate to cover such Taxes as of the date hereof; (v) all
Taxes that the Company and its Subsidiaries are, or were, required by law to
withhold or collect have been duly withheld or collected and, to the extent
required, have been timely paid to the appropriate Governmental Entity; (vi)
other than for 2003, neither the Company nor any of its Subsidiaries has
requested any extension of time within which to file any Tax Return for any Tax
Return that has not since been filed; (vii) neither the Company nor any of its
Subsidiaries has granted any extension or waiver of the statute of limitations
period applicable to any Tax Return, which period (after giving effect to such
extension or waiver) has not yet expired and no power of attorney is currently
in force with respect to any matter relating to Taxes of the Company or any of
its Subsidiaries; (viii) there is no Action now pending against or with respect
to the Company or any of its Subsidiaries in respect of any Tax and no
Governmental Entity has provided to the Sellers, the Company or any of its
Subsidiaries any notice of an intention to open an Action, any request for
information relating to Tax matters or notice of assessment, deficiency or
adjustment for any amount of Tax; (ix) none of the Sellers, the Company, its
Subsidiaries or any other Person on behalf of the Company or its Subsidiaries
have entered into any agreement or consent pursuant to Section 341(f) of the
Code; (x) there are no Encumbrances for Taxes upon the Assets of the Company or
any of its Subsidiaries, except Encumbrances for current Taxes not yet due; (xi)
neither the Company nor any of its Subsidiaries is required to include any
adjustment in taxable income pursuant to Section 481 of the Code (or any similar
provision of the Tax laws of any jurisdiction) nor has any Governmental Entity
proposed any such adjustment or change of accounting method; (xii) neither the
Company nor any of its Subsidiaries is required to include in income any
adjustments pursuant to Section 482 of the Code (or any similar provision of the
Tax Laws of any jurisdiction) nor has any Governmental Entity proposed any such
adjustment; (xiii) neither the Company nor any of its Subsidiaries is currently
a party to a tax sharing agreement or under any contractual or other obligation
to pay any amounts of the type described in the definition of "Taxes"; (xiv)
neither the Company nor any of its Subsidiaries has received any written notice
of a claim from a Governmental Entity in a jurisdiction in which the Company or
its Subsidiaries do not file Tax Returns that any of the Company or its
Subsidiaries is or may be subject to taxation by that jurisdiction; (xv) neither
the Company nor any of its Subsidiaries has been a member of an affiliated group
as defined under Section 1504(a) of the Code (other than a group the common
parent of which was the Company) and does not have any Liability for Taxes of
any Person or group of Persons (other than the Company or XxXxx.xxx, Inc.) under
Treas. Reg. Section 1.1502-6 (or any similar provision of the Tax laws of any
jurisdiction); (xvi) all federal income Tax Returns filed in respect of the
Company and its Subsidiaries have disclosed all positions taken therein that
could give rise to a substantial understatement of Tax within the meaning of
Section 6662 of the Code; (xvii) none of the Subsidiaries that are not United
States persons within the meaning of Code Section 7701 have (or will acquire
before the Closing Date) an "investment in United States property" within the
meaning of Code Section 956; and (xviii) the Company and each of the
Subsidiaries have
28
receipts for all foreign Taxes paid or accrued beginning with the date of
organization of the relevant entity.
Section 4.14 Environmental Matters.
Except as set forth in Schedule 4.14, (i) to the knowledge of the
Company or the Sellers, neither the conduct nor operation of the business of the
Company or its Subsidiaries, nor any condition of any of the Leased Real
Property, violates any Environmental Laws, (ii) neither the Sellers, the Company
nor any of its Subsidiaries has received or been subject to any notice, Action,
Order or written information request from any Person stating or alleging, or in
the case of a written information request, raising the possibility, that the
Company or any of its Subsidiaries is in violation of any applicable
Environmental Law or is otherwise liable pursuant to any applicable
Environmental Law and (iii) to the knowledge of the Sellers or the Company,
there have been no spills, disposals or releases of Hazardous Materials on, at,
under, or from any real property currently or previously owned, leased or
operated by the Company or its Subsidiaries.
Section 4.15 Real and Personal Properties.
(a) The Company or its Subsidiaries have good and marketable title to,
or a valid and binding leasehold interest in the real property, personal
property and Assets used by the Company or its Subsidiaries in their respective
businesses, free and clear of all Encumbrances, except (i) as set forth in
Schedule 4.15(a); (ii) as disclosed in the Company Financial Statements; (iii)
liens for Taxes, assessments and other governmental charges not yet due and
payable or, if due, (A) not delinquent or (B) being contested in good faith by
appropriate proceedings and adequate reserves therefor are reflected in the
Company Financial Statements; (iv) mechanics', workmen's, repairmen's,
warehousemen's, carriers' or other like liens arising or incurred in the
ordinary course of business if the underlying obligations are not more than 30
days past due or are being contested in good faith; and (v) liens or title
retention arrangements arising under original purchase price conditional sales
contracts and equipment leases with third parties entered into in the ordinary
course of business.
(b) Neither the Company nor any of its Subsidiaries own any real
property. Schedule 4.15(b) hereto sets forth as of the date of this Agreement a
complete and correct schedule of all Leased Real Property, listing the address
of each Leased Real Property, the lessor and lessee (or sublessor and sublessee,
as the case may be) under the applicable lease (each, a "Lease" and
collectively, the "Leases") and in each case, the street address and the current
use of such Leased Real Property.
(c) Except as set forth in Schedule 4.15(c), (i) each Lease is a legal,
valid, binding and enforceable obligation of the Company or its Subsidiaries
subject to bankruptcy, moratorium, and/or other equitable defenses; (ii) neither
the Company nor its Subsidiaries have, nor, to the knowledge of the Company or
the Sellers, has any other party thereto (including the lessor or sublessor
thereunder) violated or waived any material terms or conditions of any Lease;
(iii) to the knowledge of the Sellers the current use of the Leased Real
Property by the Company or the Subsidiaries does not violate the certificates of
29
occupancy thereof, the local zoning or similar land use or other Laws or the
applicable lease agreement; and (iv) the consummation of the transactions
contemplated by this Agreement will not constitute a default or give rise to a
right of termination or cancellation of any right or loss of benefit under, any
of the Leases. The Company has delivered or made available to Purchaser a true
and complete copy of each of the Lease documents listed on Schedule 4.15(b). To
the extent that any Person, other than the Company or its Subsidiaries, has a
right to use or occupy any portion of any of the premises demised under any
Lease, such right(s) would not reasonably be expected to have a Material Adverse
Effect. There are no outstanding options or rights of first refusal to which the
Company or any of the Subsidiaries is a party to purchase, use or occupy the
Leased Real Property.
(d) Except as set forth in Schedule 4.15(d) hereto, the personal
property and Assets include or will include as of the Closing Date, without
limitation, all personal property, both tangible and intangible (including all
Intellectual Property rights used by the Company or its Subsidiaries, including
those used pursuant to license agreements), necessary to conduct the business of
the Company or its Subsidiaries as conducted on or immediately prior to the date
hereof. The tangible Assets are free from material defects, have been maintained
in all material respects in accordance with normal industry practice, are in
good operating condition and repair (subject to normal wear and tear) and are
suitable for the purpose for which they are presently used.
(e) Except as set forth in Schedule 4.15(e), neither the Company nor
any of its Subsidiaries has received written notice of any condemnation,
expropriation or other proceedings in eminent domain pending or threatened (to
the knowledge of the Company or the Sellers) with respect to any of Leased Real
Property by any Person which has had or could reasonably be expected to have
Material Adverse Effect. To the knowledge of the Sellers, there is no Order
outstanding, nor any Action pending or, to the knowledge of the Company or the
Sellers, threatened, relating to the ownership, lease, use, occupancy or
operation by any Person of any of the Leased Real Property.
(f) Except as set forth in Schedule 4.15(f), to the knowledge of the
Sellers, each Leased Real Property (i) is adequate and suitable for its present
and intended uses and (ii) has water supply, storm and sanitary sewer
facilities, telephone, gas and electrical connections, fire protections,
drainage and other public utilities, as is necessary for the present and
intended conduct of the business of the Company or its Subsidiaries.
Section 4.16 Insurance. Schedule 4.16 sets forth a complete, accurate
and current description of all policies of property and casualty insurance,
including physical damage, general liability, workers compensation and all other
forms of insurance and similar arrangements (collectively, the "Policies")
presently in effect with respect to the Assets and operations of the Company and
its Subsidiaries. Except as set forth in Schedule 4.16, all Policies are in full
force and effect, all premiums with respect thereto covering all periods up to
and including the Closing Date have been paid, and no notice of cancellation or
termination has been received with respect to any Policies, except for such
cancellations or terminations which would not reasonably be expected to have a
Material Adverse Effect; and no insurance or proceeds relating to such Policies
have been
30
assigned by the Company or its Subsidiaries to any Person. The Policies are
sufficient for compliance in all material respects with all Contracts to which
the Company or any of its Subsidiaries is a party or bound, (y) are valid,
outstanding and enforceable and (z) provide sufficient insurance coverage for
the Assets and operations of the Company and its Subsidiaries.
Section 4.17 Labor Matters. Except as set forth in Schedule 4.17:
(a) Neither the Company nor any of its Subsidiaries is a party to, nor
bound by, any labor agreement, collective bargaining agreement, work rules or
practices, or any other labor-related agreements or arrangements with any labor
union, labor organization or works council; to the knowledge of the Company or
the Sellers, there are no labor union organizing activities with respect to any
of the employees of the Company or its Subsidiaries; and from January 1, 2001 to
the date of this Agreement, there has been no actual or, to the knowledge of the
Company or the Sellers, threatened labor disputes, strikes, lockouts, slowdowns
or work stoppages against or affecting the Company or its Subsidiaries.
(b) The Company and its Subsidiaries are, and have been since January
1, 2001, in material compliance with all applicable Laws respecting employment
and employment practices, including, without limitation, all Laws with respect
to terms and conditions of employment, health and safety, wages and hours,
immigration, child labor, employment discrimination, disability rights or
benefits, equal opportunity, plant closures and layoffs, affirmative action,
workers compensation, labor relations, employee leave issues and unemployment
insurance. No notice of violation of any of the foregoing has been received
since January 1, 2001.
(c) Neither the Company nor any of its Subsidiaries is delinquent in
payments to any of the Company's employees for any services or amounts required
to be reimbursed or otherwise paid in amounts in excess of $25,000.
(d) To the knowledge of the Company or the Sellers, no employee of the
Company or any of its Subsidiaries is in any material respect in violation of
any term of any employment agreement, nondisclosure agreement, common law
nondisclosure obligation, fiduciary duty, noncompetition agreement, restrictive
covenant or other obligation to a former employer of any such employee relating
(i) to the right of any such employee to be employed by the Company or any of
its Subsidiaries or (ii) to the knowledge or use of trade secrets or proprietary
information.
Section 4.18 Permits. Schedule 4.18 sets forth a complete list of all
Permits used in, or otherwise held in connection with, the business of the
Company or its Subsidiaries, all of which are in full force and effect, unless
otherwise noted. Except as set forth in Schedule 4.18, (i) neither the Company
nor any of its Subsidiaries is in default, nor has the Company or any of its
Subsidiaries received any notice of any claim of material default, with respect
to any such Permit, (ii) such Permits constitute all of the material licenses,
franchises and other permits necessary for the Company or its Subsidiaries to
own, operate, use and maintain its business in the manner in which it is
31
now operated and maintained and to conduct its business as currently conducted
and (iii) all such Permits are, and after given effect to the transactions
contemplated hereby, will be, valid and in full force and effect.
Section 4.19 Inventory. Except as set forth in Schedule 4.19 hereto,
neither the Company nor any of its Subsidiaries has any inventory.
Section 4.20 Accounts Receivable. Except as set forth in Schedule 4.20,
all accounts receivable of the Company or its Subsidiaries, whether reflected on
the Company's consolidated balance sheet as of June 30, 2004 or otherwise, (a)
represent actual amounts incurred by the applicable account debtors, (b) arose
from bona fide transactions in the ordinary course of business consistent with
past practice, (c) are not subject to valid counterclaims or set offs and (d)
are fully collectible except to the extent of the applicable reserves set forth
in Schedule 4.20. Since December 31, 2003, there have not been any write-offs as
uncollectible of any customer accounts receivable of the Company or its
Subsidiaries, except for non-material write-offs in the ordinary course of
business consistent with past practice.
Section 4.21 Books and Records. Other than as disclosed in Schedule
4.21, the books of account, minute books, stock record books, and other records
of the Company and its Subsidiaries, all of which have been made available to
Purchaser, are complete and correct and have been maintained in accordance with
sound business practices, including the maintenance of an adequate system of
internal controls. The minute books of the Company and its Subsidiaries contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the boards of directors, and committees of such
boards of the Company and its Subsidiaries.
Section 4.22 Brokers. Except as otherwise disclosed in Schedule 4.22,
other than The Sage Group, LLC, neither the Company, any of its Subsidiaries nor
the Sellers have employed any investment banker, broker or finder or incurred
any liability for any investment banking fees, brokerage fees, commissions or
finders' fees or any other similar fees or commissions in connection with the
transactions contemplated by this Agreement for which the Sellers, the Company
or any of its Subsidiaries have or could have any liability.
Section 4.23 Investigation and Sophistication. Each Seller has such
knowledge, experience, and skill in financial matters with respect to
investments and securities so as to enable it to understand and evaluate the
merits and risks of the disposition of the Shares. Sellers have been provided
with all documentation which they have requested from Purchaser. Except as set
forth in Article V of this Agreement, Purchaser has not made any representations
and warranties to the Sellers. Except as set forth in this Agreement, Purchaser
has not made any covenants to the Sellers. The foregoing language in this
Section 4.23 is not intended to diminish or eliminate the reliance by the
Sellers on the representations and warranties contained in Article V of this
Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Purchaser hereby represents and warrants to the Sellers as follows:
Section 5.1 Organization and Existence. Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Purchaser has all power (corporate or otherwise) and authority
required to enter into this Agreement and consummate the transactions
contemplated hereby.
Section 5.2 Authorization. The execution, delivery and performance by
Purchaser of this Agreement and the Escrow Agreement and the consummation by
Purchaser of the transactions contemplated hereby and thereby are within the
powers (corporate or otherwise) and authority of Purchaser and have been duly
authorized by all necessary action on the part of Purchaser and no other
proceeding (corporate or otherwise) is necessary to authorize this Agreement or
the Escrow Agreement or to consummate the transactions contemplated hereby or
thereby. This Agreement constitutes, and the Escrow Agreement at the Closing
will constitute (assuming the due execution and delivery by each of the other
parties hereto and thereto) a legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with their terms, except to the
extent that enforcement may be limited by or subject to (a) the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally and (b)
general equitable principles (whether considered in a proceeding in equity or at
law).
Section 5.3 Consents. Except for the filing of notification reports
under the HSR Act, no Consent of, or Filing with, any Governmental Entity or
other Person is required for or in connection with the execution and delivery of
this Agreement by Purchaser, and the consummation by Purchaser of the
transactions contemplated hereby, other than such Consents and Filings the
failure of which to obtain or make would not impair in any material respect the
ability of Purchaser to perform its obligations hereunder or under the Escrow
Agreement.
Section 5.4 Non Contravention. The execution, delivery and performance
of this Agreement or the Escrow Agreement by Purchaser does not, and the
consummation by Purchaser of the transactions contemplated hereby will not, (i)
conflict with or violate any provision of the Organizational Documents of
Purchaser, (ii) subject to obtaining or making the Consents and/or Filings, as
the case may be, referred to in Section 5.3, conflict with or violate any
applicable Law, (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, modification or acceleration) under any
note, bond, indenture, deed of trust, mortgage, lease, franchise, license,
permit, instrument, law, Order or Contract to which Purchaser is a party or by
which Purchaser is bound or (iv) result in the imposition or creation of any
Encumbrances on any of the property held by Purchaser, or give rise to the loss
of any benefit Purchaser is entitled to.
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Section 5.5 Brokers. Neither Purchaser nor any of their respective
directors, officers, employees or Affiliates has employed any investment banker,
broker or finder or incurred any liability for any investment banking fees,
brokerage fees, commissions or finders' fees or any other similar fees or
commissions in connection with the transactions contemplated by this Agreement
for which any Seller or any Affiliate thereof, or, in the event the Closing does
not occur, any Seller, the Company or any of their respective Affiliates, has or
could have any Liability.
Section 5.6 Investment Representation. Purchaser understands that the
Shares may not be sold, transferred or otherwise disposed of, without
registration under the Securities Act or a valid exemption from registration
under the Securities Act and that in the absence of an effective registration
statement covering the Shares or a valid exemption from registration under the
Securities Act, the Shares must be held indefinitely. Purchaser is acquiring the
Shares for its own account solely for the purpose of investment and not with a
view to, or for offer or sale in connection with, any distribution thereof.
Section 5.7 Financing. Purchaser will have, at or prior to the Closing
Date and at or prior to the payment of the Additional Payments, as the case may
be, sufficient funds available to pay the Purchase Price and the Additional
Payments.
Section 5.8 Investigation and Sophistication. Purchaser has such
knowledge, experience, and skill in financial matters with respect to
investments and securities so as to enable it to understand and evaluate the
merits and risks of the acquisition of the Shares and to form an investment
decision with respect to such investments. Purchaser understands that an
investment in and ownership of the Company involves a degree of risk with no
guarantee of profit or return, and the possibility of loss of the Purchaser's
investment. Purchaser has been provided with all documentation which it has
requested from Sellers and the Company. Except as set forth in Article IV of
this Agreement, neither the Company nor the Seller have made any representations
and warranties to the Purchaser as to the Company and the Shares. Except as set
forth in this Agreement, the Sellers have not made any covenants to Purchaser.
The foregoing language in this Section 5.8 is not intended to diminish or
eliminate the reliance by the Purchaser of the representations and warranties
contained in Article IV of this Agreement.
ARTICLE VI
COVENANTS
Section 6.1 Conduct of the Business.
(a) Until the Closing, the Sellers shall cause the Company and its
Subsidiaries to, and the Company and its Subsidiaries shall, conduct business
only in the ordinary course consistent with past practice. Without limiting the
generality of the foregoing, the Sellers shall cause the Company and its
Subsidiaries to, and the Company and its Subsidiaries shall, use their best
efforts to preserve intact their present business organization, and retain the
services of the key officers and employees and preserve their relationships with
34
customers, suppliers and others having business dealings with the Company or any
of its Subsidiaries, all with the intent of preserving unimpaired their goodwill
and ongoing businesses at the Closing Date. In addition, the Sellers will cause
the Company and its Subsidiaries to refrain from, and the Company and its
Subsidiaries shall refrain from, except as set forth in Schedule 6.1:
(i) amending their Organizational Documents or taking any
action with respect to any such amendment;
(ii) authorizing, issuing, selling or otherwise disposing of,
or committing to sell or deliver any shares of capital stock of or any
Option, Right or Warrant with respect to the Company or its
Subsidiaries (except upon exercise of the Options and Warrants pursuant
to the terms of this Agreement), or modifying or amending any right of
any holder of outstanding shares of capital stock of or Option, Right
or Warrant with respect to the Company or its Subsidiaries;
(iii) splitting, combining or reclassifying any shares of the
Company's or any of its Subsidiaries' capital stock, declaring, setting
aside or paying any dividend or other distribution (whether in cash,
shares or property or any combination thereof) in respect of the
capital stock of the Company or its Subsidiaries or the D&B Note (other
than payments of interest on the D&B Note when due in accordance with
its terms), or directly or indirectly redeeming, purchasing or
otherwise acquiring any capital stock of or any Option, Right or
Warrant with respect to the Company or its Subsidiaries;
(iv) increasing or otherwise changing the rate or nature of
employee compensation (including wages, salaries and bonuses);
(v) entering into any employment agreement with any employee
or prospective employee of the Company or its Subsidiaries or adopting
any new employee benefit plan, policy, program or arrangement, or
amending any benefit plan in a way that would serve to increase the
benefits payable thereunder;
(vi) adopting a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or its Subsidiaries;
(vii) except as may be required as a result of a change in Law
or in GAAP, changing any of the accounting principles or practices
(whether for financial accounting or tax purposes) used by it;
(viii) revaluing any of its assets, including, without
limitation, writing-off notes or accounts receivable other than in the
ordinary course of business or as required by GAAP;
35
(ix) making or revoking any material Tax election, changing an
accounting period or adopting or changing an accounting method, filing
any amended Tax Return, entering into any closing agreement or settling
or compromising any Tax liability;
(x) (A) incurring, assuming or compromising any Indebtedness
or issuing any debt securities; (B) assuming, guaranteeing, endorsing
or otherwise becoming liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person; (C)
making any loans, advances or capital contributions to any other
Person; (D) pledging or otherwise encumbering shares of capital stock
of the Company or its Subsidiaries; or (E) mortgaging or pledging any
of the Assets of the Company or its Subsidiaries, or creating or
suffering to exist any Encumbrance thereupon;
(xi) selling, licensing, leasing or otherwise disposing of any
Assets except pursuant to Contracts existing as of the date hereof;
(xii) entering into, amending, extending or terminating any
Contract, license, lease or other agreement;
(xiii) acquiring (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof or any equity interest therein, or any
assets;
(xiv) authorizing or making any capital expenditures
individually in excess of $10,000 or in the aggregate in excess of
$20,000, except for those capital expenditures made pursuant to
Contracts of the Company or its Subsidiaries existing as of the date
hereof;
(xv) taking or failing to take any action whereby any
Intellectual Property rights owned or used by the Company or its
Subsidiaries may lapse, become abandoned, or unenforceable;
(xvi) entering into any transaction or Contract which
restricts the Company, its Subsidiaries or any of their respective
Affiliates from engaging in any business or activity anywhere in the
world;
(xvii) instituting any Action or settling or compromising any
pending or threatened Actions (A) which relate to the transactions
contemplated hereby or (B) that are material;
(xviii) requesting or requiring any Person to accelerate the
payment of the accounts receivable of the Company or its Subsidiaries
except in the ordinary course of business, or factoring any accounts
receivable of the Company or its Subsidiaries;
36
(xix) deferring the payment of the accounts payable of the
Company or its Subsidiaries beyond the Company's or its Subsidiaries'
payment practices in the ordinary course of business;
(xx) taking any other action not in the ordinary course of
business resulting in a decrease in Working Capital or an increase in
cash of the Company or its Subsidiaries; or
(xxi) taking or agreeing in writing or otherwise to take any
of the actions described in Sections 6.1(a)(i) through 6.1(a)(xx) or
any action which would make any of the representations or warranties of
the Sellers contained in this Agreement untrue or incorrect.
(b) Sellers shall cause the Company and its Subsidiaries to comply, as
of the Closing Date, with the representations contained in clauses (i) through
(v) of Section 4.13 above for all periods through and including the Closing
Date.
(c) From the date hereof through the Closing, Sellers shall not sell,
transfer, assign, pledge or take any other action that would result in any
Encumbrance on the Shares.
Section 6.2 Access to Information.
(a) From the date of this Agreement until the earlier of the
termination of this Agreement or the Closing, the Company shall and shall cause
its Representatives to, give Purchaser and its authorized Representatives
reasonable access to the business, operations, properties, personal property,
books and records, Contracts and commitments of the Company and its Subsidiaries
during normal business hours and upon prior notice, provided that such access
shall not unreasonably interfere with normal operations of the Company or its
Subsidiaries, and shall furnish to Purchaser and its authorized Representatives
such financial and operating data including, without limitation, financial
reports prepared for the directors and officers of the Company, its Subsidiaries
or the Sellers, and other information as Purchaser may reasonably request and
instruct the employees and Representatives of the Company to assist Purchaser in
its investigation of the Company and its Subsidiaries.
(b) For a period of two years following the date hereof, or in the case
of information obtained after the date hereof, for a period of two years
following the date on which such information was obtained, the Sellers and
Purchaser shall, and shall cause their respective Affiliates and Representatives
to, keep confidential and not disclose or transfer any information regarding the
Company, its Subsidiaries or Purchaser (in the case of the Sellers) or the
Sellers (in the case of Purchaser) obtained in connection with the transactions
contemplated by this Agreement or otherwise unless such information (i) is or
becomes publicly available (other than a result of breach of this Section
6.2(b)), (ii) is disclosed after written approval for such disclosure has been
given by Purchaser or the Sellers' Representative, as appropriate, (iii) is
requested pursuant to, or required by applicable Law, to be disclosed, provided
that the party receiving such request shall
37
promptly notify Purchaser, in the case of any of the Sellers, or Sellers'
Representative, in the case of Purchaser, so that such other party may seek a
protective order or other appropriate remedy, or (iv) is reasonably required for
a valid business purpose by any member of D&B in which case such member shall be
governed by the confidentiality terms of this Agreement.
Section 6.3 Commercially Reasonable Efforts.
(a) Subject to the terms and conditions of this Agreement and
applicable Law, the Sellers, Sellers' Representative and Purchaser shall use
their reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement as soon as
practicable. Without limiting the foregoing, the parties shall use their
commercially reasonable efforts to (to the extent not already obtained or
completed) (i) obtain all Consents, Permits, Orders or other permissions or
actions by, and give all necessary notices to, and make all Filings with and
applications and submissions to, any Governmental Entity or other Person,
including, without limitation, under the HSR Act, necessary in connection with
the consummation of the transactions contemplated by this Agreement as soon as
reasonably practicable; and (ii) provide all such information concerning such
party as may be necessary or reasonably requested in connection with any of the
foregoing.
(b) The Sellers, Sellers' Representative and Purchaser shall keep the
other reasonably apprised of the status of matters relating to the completion of
the transactions contemplated hereby and shall reasonably cooperate in
connection with obtaining all required Consents of any Governmental Entity. In
that regard, each party shall without limitation and in each case, subject to
applicable Law: (i) promptly notify the other of, and if in writing, furnish the
other with copies of (or, in the case of oral communications, advise the other
orally of) any communications from or with any Governmental Entity with respect
to the Acquisition or any of the other transactions contemplated by this
Agreement, (ii) permit the other to review and discuss in advance, and consider
in good faith the views of the other in connection with, any proposed written
(or any material proposed oral) communication with any such Governmental Entity,
(iii) not participate in any meeting, teleconference or videoconference with any
such Governmental Entity unless it first consults with the other and to the
extent permitted by such Governmental Entity gives the other the opportunity to
attend and participate thereat, (iv) furnish the other with copies of all
correspondence, filings and communications between it and any such Governmental
Entity with respect to this Agreement or the Acquisition and (v) furnish the
other with such necessary information and reasonable assistance as the Sellers
or Purchaser may reasonably request in connection with its preparation of
necessary filings or submissions of information to any such Governmental Entity.
The Sellers' Representative and Purchaser, as each deems advisable and
necessary, may reasonably designate any competitively sensitive material
provided to the other under this Section 6.3(b) as "counsel only." Such
materials and the information contained therein shall be given only to the
outside legal counsel of the recipient and will not be disclosed by such outside
counsel to employees, officers, or directors of the recipient unless express
38
permission is obtained in advance from the source of the materials (Purchaser or
Sellers, as the case may be) or its legal counsel.
Section 6.4 Post-Closing Books and Records. Purchaser and Sellers'
Representative shall use reasonable best efforts to cooperate with each other,
and shall cause their respective Representatives to cooperate with each other,
for a period of not less than 180 days after the Closing Date to ensure the
orderly transition of the Company from the Sellers to Purchaser and to minimize
any disruption that might result from the transition contemplated hereby. Upon
reasonable written notice and during normal business hours, Purchaser and
Sellers' Representative, shall provide the other party with such information and
records and make such of its Representatives as may reasonably be requested by
such other party in connection with financial reporting and accounting matters
that relate to the Company or the preparation of any Tax Return, Tax audit or
Action with respect to Taxes that relates to the Company. The party requesting
such assistance shall reimburse the other party for reasonable out-of-pocket
costs and expenses incurred in providing such assistance pursuant to this
Section 6.4. The Company shall not be required by this Section 6.4 to take any
action that would unreasonably interfere with the conduct of its business or
unreasonably disrupt its normal operations. The access rights provided pursuant
to this Section 6.4 shall be in addition to those rights described in Section
2.3(a) herein.
Section 6.5 Expenses. Except as otherwise expressly provided in this
Agreement, whether or not the Closing takes place, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses. The Sellers
shall pay or cause to be paid in full on or before the Closing all Seller
Expenses; provided that any Seller Expenses set forth in the Closing Certificate
shall be deducted from the Purchase Price pursuant to Section 2.1 hereof and
paid, or caused to be paid, by Purchaser at the Closing.
Section 6.6 Termination of Certain Agreements. All agreements set forth
in Schedule 6.6 between any Subsidiary of the Company, Seller or any Affiliate
of any Seller (other than the Company), on the one hand, and the Company, on the
other hand, shall be terminated on or prior to the Closing Date, and all
Liabilities thereunder shall be satisfied on or prior to the Closing Date.
Section 6.7 Taxes.
(a) The Sellers shall cause the Company and its Subsidiaries to prepare
and file or shall prepare and file on behalf of the Company and its
Subsidiaries, in a manner consistent with prior practice except as required by
applicable Law, all Tax Returns that are required to be filed by or with respect
to the Company and each of its Subsidiaries that are due on or prior to the
Closing Date, and shall remit or cause to be remitted any Taxes arising in
respect of such Tax Returns. Purchaser shall file, or cause to be filed all
other Tax Returns with respect to the Company and its Subsidiaries and shall
remit or cause to be remitted any Taxes arising in respect of such Tax Returns.
Any Tax Returns prepared by Purchaser shall contain reporting provisions
consistent with prior historical practice to the extent consistent with
applicable Law. With respect to any Tax Return (i)
39
to be prepared by Purchaser in accordance with this Section 6.7, and (ii)
relating to any tax period beginning prior to the Closing Date, Purchaser shall
provide the Sellers with a draft of any such Tax Return no later than 10
Business Days prior to the time that such Tax Return is filed and shall allow
the Sellers to review, comment upon and reasonably approve without undue delay
any such Tax Return. Notwithstanding the foregoing, the Sellers shall cause the
Company and its Subsidiaries to file all Tax Returns relating to Transfer Taxes
and shall remit any Transfer Taxes in respect of such Tax Returns.
(b) The Sellers and Purchaser will, unless prohibited by applicable
Law, close the taxable period of the Company and its Subsidiaries as of the
close of business on the Closing Date. Sellers, Purchaser, the Company and its
Subsidiaries shall not take any position inconsistent with the preceding
sentence on any Tax Return. Any Taxes attributable to a taxable period that ends
on or before the Closing Date shall be allocated to Sellers. Any Taxes
attributable to a taxable period that begins after the Closing Date shall be
allocated to Purchaser. If applicable Law does not permit the Company or any of
its Subsidiaries to close its taxable year as of the close of business on the
Closing Date, or where Taxes are assessed with respect to a taxable period which
includes the Closing Date (but does not end on that day), then Taxes, if any,
attributable to the taxable period of the Company or any of its Subsidiaries
beginning before and ending after the Closing Date shall be allocated (i) to
Sellers for the period up to and including the Closing Date, and (ii) to
Purchaser for the period subsequent to the Closing Date. Any allocation of
income or deductions required to determine any Taxes attributable to any period
beginning before and ending after the Closing Date shall be made by means of a
closing of the books and records of the Company and its Subsidiaries as of the
close of the Closing Date; in the case of a Tax that is not based on net income,
the amount of Tax allocable to the portion of the taxable period either
beginning before and ending on the Closing Date or beginning on the day
following the Closing Date shall be determined by multiplying the total amount
of Tax for the taxable period by a fraction, the numerator of which is the
number of days of such portion of the taxable period, and the denominator of
which is the total number of days in such taxable period.
Section 6.8 Non-Solicitation of Employees; Non-Competition. Until two
years from the date of this Agreement, (i) neither the Sellers nor any of their
Affiliates or Representatives will, directly or indirectly, solicit for purposes
of employment, offer to hire, entice away, or enter into any contract with any
employee or consultant of Purchaser or the Company or their Subsidiaries, or
otherwise solicit, induce or otherwise encourage any such person to discontinue,
cancel or refrain from entering into any relationship (contractual or otherwise)
with Purchaser or the Company or their Subsidiaries (other than through general
advertising or other general solicitation not targeted to Purchaser's or the
Company's employees or contractors) without Purchaser's prior written consent
and (ii) without the express prior written consent of Purchaser, Sellers will
not, except as set forth in Schedule 6.8, directly or indirectly, own, manage,
control or participate in the ownership, management or control of, or be related
or otherwise affiliated in any manner with, any swimwear, sportswear, activewear
or surf-related business similar to the business of the Company or its
Subsidiaries or which competes with the business of the Company or its
Subsidiaries anywhere the Company or its Subsidiaries currently conducts
business; provided, that the foregoing shall not prohibit the Sellers from
40
owning, as a passive investment, five percent (5%) or less of the outstanding
equity of any publicly-traded entity; provided, further, that if, on or prior to
the Closing, Xxxxxxx Xxxxx enters into an employment agreement with Purchaser
that includes a covenant not to compete, such covenant will govern and subclause
(ii) of this Section 6.8 shall no longer be of any force and effect with respect
to Xx. Xxxxx. In the event of a determination by arbitration pursuant to this
Agreement that breach of any of the provisions of Section 2.2 of this Agreement
has occurred, the provisions of this Section 6.8 shall no longer be of any force
and effect.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions of the Parties' Obligations to Effect the
Closing. The respective obligations of the parties to this Agreement to effect
the Closing shall be subject to the satisfaction or waiver by each of the
parties prior to the Closing of the following conditions:
(a) no Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any Order or Law that is in effect and that has the effect
of making the Closing illegal or otherwise prohibiting consummation of the
transactions contemplated by this Agreement and the Closing; and
(b) all Consents of Governmental Entities required to consummate the
transactions contemplated hereby shall have been obtained, all such approvals
shall remain in full force and effect, all statutory waiting periods in respect
thereof (including under the HSR Act) shall have expired and no such approval or
expiration shall contain any material conditions, limitations or restrictions.
Section 7.2 Additional Conditions to Obligation of the Sellers to
Effect the Closing. The obligations of the Sellers to effect the Closing shall
be subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Purchaser shall have performed in all material respects its
obligations under this Agreement required to be performed by Purchaser on or
prior to the Closing Date;
(b) the representations and warranties of Purchaser contained in this
Agreement that are qualified by materiality shall be true and correct and any
such representations and warranties that are not qualified by materiality shall
be true and correct in all material respects, in each case, as of the date of
this Agreement and as of the Closing Date, with the same force and effect as if
made as of the Closing Date, other than such representations and warranties as
are made as of another date, which shall be true and correct as of such date, if
earlier than the Closing Date;
(c) the Sellers shall have received from Purchaser a certificate, dated
the Closing Date, duly executed by an executive officer of Purchaser,
satisfactory in form to the Sellers, to the effect of paragraphs (a) and (b)
above; and
41
(d) the Sellers shall have received from Purchaser the documents
referred to in Section 3.2(b)(iv); and
(e) Purchaser and Xxxxx Fargo Bank, N.A., or such other agent as the
parties may agree upon prior to the Closing Date (the "Escrow Agent"), shall
have delivered a signed counterpart to the Escrow Agreement.
Section 7.3 Additional Conditions to Obligation of Purchaser to Effect
the Closing. The obligations of Purchaser to effect the Closing shall be subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) the Sellers shall have performed in all material respects their
obligations under this Agreement required to be performed by the Sellers on or
prior to the Closing Date;
(b) the representations and warranties of the Sellers contained in this
Agreement that are qualified by materiality or Material Adverse Effect shall be
true and correct and any such representations and warranties that are not
qualified by materiality or Material Adverse Effect shall be true and correct in
all material respects, in each case, as of the date of this Agreement and as of
the Closing Date, with the same force and effect as if made as of the Closing
Date, other than such representations and warranties as are made as of another
date, which shall be true and correct as of such date, if earlier than the
Closing Date;
(c) Purchaser shall have received from each of the Sellers a
certificate, dated the Closing Date, duly executed by each Seller, satisfactory
in form to Purchaser, to the effect of paragraphs (a) and (b) above;
(d) each of the Sellers shall have delivered or caused to be delivered
to Purchaser certificates representing the Shares, duly endorsed or accompanied
by stock powers duly executed in blank and otherwise in a form reasonably
satisfactory to Purchaser for transfer on the books of the Company (with any
requisite transfer Tax stamps attached by Seller);
(e) the Company shall have obtained all of the Consents and provided
all notices set forth in Schedule 7.3(e);
(f) each of the Sellers and the Escrow Agent shall have delivered a
signed counterpart to the Escrow Agreement;
(g) Purchaser shall have received the written resignations, effective
as of the Closing Date, of such directors of the Company as are requested in
writing by Purchaser not fewer than seven days prior to the date of satisfaction
or waiver of the other conditions set forth in this Article VII;
(h) all agreements set forth on Schedule 6.6 shall have been terminated
on or prior to the Closing Date and all Liabilities thereunder shall be
satisfied prior to the Closing Date;
42
(i) all Patents, Trademarks, Copyrights, Domain Names and Rights of
Publicity, and all registrations therefore, shall have proper title ownership in
the name of the Company;
(j) since June 30, 2004, there has not been any event, occurrence or
development which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect;
(k) Purchaser shall have received from the Sellers the documents
referred to in Section 3.2(a)(x) and (xiii); and
(l) the Company and the Sellers shall deliver all such other
certificates, documents and instruments as Purchaser shall reasonably request in
connection with the consummation of the transactions contemplated by this
Agreement.
ARTICLE VIII
INDEMNIFICATION, THE SELLER REPRESENTATIVE, AND MUTUAL RELEASE
Section 8.1 Survival of Representations and Warranties. All
representations, and warranties of the parties contained in this Agreement will
survive the Closing until March 31, 2006; provided, that, (i) the
representations and warranties contained in Sections 4.1, 4.2, 4.4, 5.1 and 5.2
shall survive indefinitely and (ii) the representations and warranties contained
in Sections 4.13 and 4.14 shall survive until the expiration of the statute of
limitations for the applicable representation and warranty plus six months. Any
representation or warranty that would otherwise terminate in accordance with
this Section 8.1 will continue to survive if notice of a claim shall have been
given under this Article VIII on or prior to such termination date until the
related claim for indemnification has been satisfied or otherwise resolved as
provided in this Article VIII. Notwithstanding anything in this Agreement to the
contrary, nothing in this Section 8.1 shall limit any covenant, obligation or
agreement of the parties which by its terms contemplates performance after the
Closing.
Section 8.2 Indemnification of Purchaser. Subject to the limitations
contained in this Article VIII, the Sellers each shall jointly and severally
(except with respect to the representations and warranties contained in Sections
4.2, 4.3 and 4.4(d) as to which Sellers' obligations hereunder shall be several
and not joint) indemnify, defend and hold harmless Purchaser, its Affiliates and
their respective officers, members, managers, directors, employees and
shareholders, and their respective successors and assigns (the "Purchaser
Indemnified Parties") from and against any and all Losses which arise out of,
result from or relate to:
(a) any breach of any representation or warranty made by the Sellers in
this Agreement or in any certificate or document delivered at Closing by the
Company or the Sellers pursuant to this Agreement, provided, that to the extent
that any such
43
representation or warranty is qualified by materiality or Material Adverse
Effect, such qualifications shall be ignored for purposes of indemnification
under this Section 8.2(a);
(b) any Seller Expenses that were not set forth in the Closing
Certificate and not paid in full by the Sellers on or prior to the Closing; and
(c) any breach by the Company or the Sellers of any agreement, covenant
or obligation of the Company or the Sellers contained in this Agreement.
Section 8.3 Indemnification of the Sellers. Subject to the limitations
contained in this Article VIII, Purchaser shall indemnify, defend and hold
harmless the Sellers and their Affiliates, and their respective officers,
directors, employees and shareholders, and their respective successors and
assigns from and against any and all Losses which, arise out of, result from or
relate to:
(a) any breach of any representation or warranty made by Purchaser in
this Agreement or in any certificate or document delivered at Closing by
Purchaser pursuant to this Agreement, provided, that, to the extent that any
such representation or warranty is qualified by materiality, such qualifications
shall be ignored for purposes of indemnification under this Section 8.3(a);
(b) any breach by Purchaser of any covenant or obligation of Purchaser
contained in this Agreement; and
(c) any Action brought by the Persons set forth on Schedule 8.3(c)
related to the Acquisition and the transactions contemplated by this Agreement.
Section 8.4 Indemnification Procedure for Third Party Claims.
(a) Promptly after receipt by an Indemnified Party of notice from any
third party of a claim or demand in respect of which indemnity may be sought
under Section 8.2 or 8.3 which is asserted against or sought to be collected
from the Indemnified Party, including the commencement of any Action against it
("Third Party Claim"), the Indemnified Party shall, if a claim is to be made
against an Indemnifying Party under such Section 8.2 or 8.3, as applicable, give
notice to the Indemnifying Party of the Third Party Claim, but the failure to
notify the Indemnifying Party will not relieve the Indemnifying Party of any
Liability that it may have to any Indemnified Party, except to the extent that
the Indemnifying Party demonstrates that the defense of such Third Party Claim
is prejudiced by the Indemnifying Party's failure to receive such notice.
(b) If any Third Party Claim referred to in Section 8.4(a) is brought
against an Indemnified Party and it gives notice to the Indemnifying Party of
such claim, the Indemnifying Party will be entitled to participate in any Action
underlying the claim and, to the extent that it wishes (unless the Indemnifying
Party is also a party to such Action and the Indemnified Party determines in
good faith that joint representation would be inappropriate, in which event such
Indemnified Party shall have the right to retain, at the Indemnifying Party's
expense, one separate counsel, reasonably satisfactory to the Indemnifying
Party, to defend such claim on behalf of such Indemnified Party), assume
44
the defense of such claim with counsel reasonably satisfactory to the
Indemnified Party and, after notice from the Indemnifying Party to the
Indemnified Party of its election to assume the defense of such Action, except
in the circumstances described in the parenthetical above, the Indemnifying
Party will not, as long as it diligently conducts such defense, be liable to the
Indemnified Party under this Section 8.4 for any fees of other counsel or any
other expenses with respect to the defense of such claim, in each case
subsequently incurred by the Indemnified Party in connection with the defense of
such claim, other than reasonable costs of investigation. If the Indemnifying
Party assumes the defense of the Third Party Claim: (i) no compromise or
settlement of such claim may be effected by the Indemnifying Party without the
Indemnified Party's written consent unless (except in respect of any claim for
Taxes, where the Indemnified Party's consent shall be required in all events)
(A) there is no finding or admission of any violation of Law or Order or any
violation of the rights of any Person, (B) such settlement or compromise
releases the Indemnified Party in connection with such Third Party Claim, (C)
the sole relief provided is monetary damages that are paid in full by the
Indemnifying Party and (D) such settlement or compromise does not require any
payment or other action by, or limitation on, the Indemnified Party; (ii) the
Indemnified Party will have no Liability with respect to any compromise or
settlement of such claim effected without its written consent; and (iii) the
Indemnified Party shall have the right to participate in such defense and to
employ counsel, in each case, at its own expense. Subject to Section 8.4(c), if
notice is given to an Indemnifying Party of any Third Party Claim and the
Indemnifying Party does not, within ten (10) days after the Indemnified Party's
notice is given, give notice to the Indemnified Party of its election to assume
the defense of such Action, the Indemnifying Party will be bound by any
determination made in such Action or any compromise or settlement effected by
the Indemnified Party and the Indemnifying Party will be responsible for any
Losses incurred in connection with the defense, compromise, settlement or final
determination of such Action.
(c) Notwithstanding the foregoing, if an Indemnified Party determines
in good faith that there is a reasonable probability that an Action may
adversely affect it or its Affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, except
where nonmonetary relief is merely incidental to a primary claim or claims for
monetary damages, the Indemnified Party may, by notice to the Indemnifying
Party, assume the exclusive right to defend, compromise, or settle such Action,
but the Indemnifying Party will not be bound by any determination of an Action
so defended or any compromise or settlement effected without its consent (which
may not be unreasonably withheld).
(d) The parties shall cooperate in the defense of any Third Party Claim
and shall furnish such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested in connection with the provisions of this Article VIII.
Section 8.5 Indemnification Procedure for Other Claims. In the event
any Indemnified Party should have a claim against any Indemnifying Party under
this Article VIII that does not involve a Third Party Claim, the Indemnified
Party shall notify the Indemnifying Party of a claim promptly following the
Indemnified Party becoming aware
45
of the same. The failure by any Indemnified Party to so notify the Indemnifying
Party shall not relieve the Indemnifying Party from any liability that it may
have to such Indemnified Party under this Article VIII, except to the extent
that the Indemnifying Party has been materially prejudiced by such failure. If
the Indemnifying Party does not deliver written notice of its objection to all
or any part of such claim or demand to the Indemnified Party within 20 days of
its receipt of notice of such claim or demand from the Indemnified Party, then
the Indemnifying Party shall be deemed to have accepted such claim or demand and
shall promptly pay or cause to be paid the amount claimed or demanded by the
Indemnified Party.
Section 8.6 Certain Tax Matters.
(a) Indemnification of Purchaser. Sellers agree to indemnify, defend
and hold harmless Purchaser, the Company and its Subsidiaries against the
following tax matters (the "Tax Matters"): (i) any Tax in excess of amounts
accrued in respect of such Tax on the Company's financial books and records
(which accruals shall be made in accordance with GAAP and the Company's historic
practices and shall not reflect any of the transactions contemplated by this
Agreement) payable by or on behalf of Sellers or any of Sellers' Affiliates, or
the Company, for any taxable period ending on or prior to the Closing Date (or
for the portion ending on the Closing Date of any taxable period that includes
but does not begin or end on the Closing Date), net of any Tax refunds actually
received by Purchaser or its Affiliates in respect of any Taxes paid by or on
behalf of the Company relating to the tax year ended December 31, 2003, (ii) any
deficiencies in any Tax payable by or on behalf of Sellers or any of Sellers'
Affiliates, or the Company arising from any audit by any taxing agency or
authority with respect to any period ending on or prior to the Closing Date (or
for the portion ending on the Closing Date of any taxable period that includes
but does not begin or end on the Closing Date), (iii) any claim or demand for
reimbursement or indemnification resulting from any transfer by Sellers prior to
the Closing of any Tax benefits or credits to any other Person, (iv) any
Transfer Taxes arising from the transactions contemplated by this Agreement and
(v) any Taxes imposed as a result of the matters set forth on Schedule 4.12(f);
provided, however, for purposes of this Section 8.6 (a), except to the extent
required pursuant to a final determination (within the meaning of Section
1313(a) of the Code) or in order to avoid Tax penalties or interest that
otherwise would be imposed pursuant to applicable Law, Tax Matters shall not
include any Tax payable by the Company for any taxable period ending on or prior
to the Closing Date (or for the portion ending on the Closing Date of any
taxable period that includes but does not begin or end on the Closing Date) to
the extent attributable to Purchaser causing the Company, after the Closing
Date, to adopt, make or change a Tax election or Tax accounting method or period
or to file an amended Return for such taxable period ending on or prior to the
Closing Date (or such portion of such a period that includes the Closing Date).
(b) Audit Matters. Sellers shall have the right, at Sellers' expense,
directly or through Sellers' designated representatives, subject to the
execution of a confidentiality agreement by Sellers and each of Sellers'
designated representatives, in form and substance reasonably satisfactory to
Purchaser, for the purpose of protecting the confidentiality and use of
information of Purchaser, its Affiliates and the Company: (i) to
46
participate in the audit, examination, or proceedings relating to Taxes (a "Tax
Contest"), relating to any Tax Return relating to periods ending on or prior to
the Closing Date and to participate in the disposition of any Tax Contest
relating to the periods ending prior to, on or after the Closing Date if such
Tax Contest could give rise to a claim for indemnification hereunder, (ii) to
review in advance and comment upon all submissions made in the course of any Tax
Contest to any Governmental Entity relating to periods on or prior to the
Closing Date and (iii) to approve the disposition of any audit adjustment with
respect to such periods if such disposition will or reasonably might be expected
to result in a claim for indemnification hereunder. Subject to the foregoing
right to participate, Purchaser shall have the right to control (including the
right to settle) all Tax Contests relating to the Company.
(c) Cooperation on Tax Matters. After the Closing Date, Sellers, on the
one hand, and Purchaser and the Company on the other, shall (i) provide, or
cause to be provided, to each other's respective officers, employees,
representatives and Affiliates, such assistance as may reasonably be requested
by any of them in connection with the preparation of any Tax Returns, or any
audit of the Company in respect of which Sellers, on the one hand or Purchaser
or the Company on the other, as the case may be, are responsible, and (ii)
retain, or cause to be retained, for so long as any such taxable years or audits
shall remain open for adjustments, any records or information which may be
relevant to any such Tax Returns or audits. The assistance provided for in this
Section 8.6 (ii) shall include without limitation Sellers, Purchaser and the
Company (x) making their agents and employees and the agents and employees of
their respective Affiliates available to each other on a mutually convenient
basis to provide such assistance as might reasonably be expected to be of use in
connection with any such Tax Returns or audits and (y) providing, or causing to
be provided, such information as might reasonably be expected to be of use in
connection with any such Tax Returns or audits, including without limitation
records, returns, schedules, documents, work papers, opinions, letters or
memoranda, or other relevant materials relating thereto.
Section 8.7 Limitations on Indemnification.
(a) The Sellers will have no liability to indemnify Purchaser for
Losses under Section 8.2(a) until the total of all such Losses that are incurred
by Purchaser exceeds $640,000, and then only for the amount by which such Losses
exceed $640,000. The Sellers' maximum liability for Losses with respect to a
claim for indemnification shall be limited to and shall not exceed $20,500,000
in the aggregate.
(b) Purchaser will have no liability to indemnify Sellers for Losses
under Section 8.3(a) until the total of all such Losses that are incurred by the
Sellers exceeds $640,000, and then only for the amount by which such Losses
exceed $640,000. Parent's and Merger Sub's maximum liability for Losses with
respect to a claim for indemnification shall be limited to and shall not exceed
the $20,500,000 in the aggregate.
(c) The limitations contained in this Section 8.7 shall not apply to
(i) any Losses resulting from any breaches by the Sellers of any representations
and warranties contained in Sections 4.1, 4.2, 4.4 and 4.13, (ii) any Losses
resulting from any breaches
47
by Purchaser of any representations and warranties contained in Sections 5.1 and
5.2, (iii) any breaches by any of the Sellers of any of their agreements or
covenants contained in this Agreement, (iv) Losses relating to or arising from
any intentional breach of this Agreement or fraudulent or knowing
misrepresentations by the parties hereto, (v) Taxes described in Section 8.6,
(vi) Seller Expenses described in Section 8.2(c) and (vii) transaction fees
described in Section 8.3(c).
(d) All Losses payable to any Purchaser Indemnified Party pursuant to
this Article VIII shall be paid first from the funds held in the Escrow Account,
pursuant to the terms of the Escrow Agreement (provided, that, whether there is
any remaining balance in the Escrow Account shall not affect the indemnification
obligations hereunder).
(e) All indemnification payments paid pursuant to this Agreement shall
be treated as adjustments to the Closing Purchase Price for all Tax purposes.
(f) Any Indemnified Party shall be required to use commercially
reasonable efforts to submit and obtain coverage for any claim against any
insurers and any amounts so paid to the Indemnified Party shall reduce the
indemnification obligations of the Indemnifying Party with respect to such
matters.
(g) Notwithstanding anything to the contrary in this Agreement, any
Indemnified Party shall be required to utilize commercially reasonable efforts
to mitigate any damages which may be a Loss, to the extent required by
applicable Law. Mitigation shall not be required if, or to the extent, it would
or reasonably may be expected to cause the Indemnified Party to incur any
liability, Loss, cost or expense including without limitation and Tax, or any
increase in any of the foregoing.
(h) In the event an Indemnified Party receives an indemnification
pursuant to Article VIII of this Agreement, the Indemnified Party shall
reimburse the Indemnifying Party an amount equal to the net reduction in any
year in the liability for Taxes (that are based upon or measured by income) of
the Indemnified Party or any member of a consolidated or combined tax group of
which the Indemnified Party is, or was at any time, part, which reduction is
actually realized with respect to any period after the Closing Date and which
reduction would not have been realized but for the amounts paid (or any audit
adjustment or deficiency with respect thereto, if applicable) in respect of a
Loss, or amounts paid by the Indemnified Party pursuant to this paragraph (a
"Net Tax Benefit"). The amount of any Net Tax Benefit shall be paid not later
than fifteen (15) days after the date on which such Net Tax Benefit shall be
realized. For purposes of this Section 8.7(h), the Net Tax Benefit shall be
deemed to be actually realized on the date on which such Net Tax Benefit is used
to compute an obligation to pay installments of estimated tax or, if earlier,
reported earnings; provided, however, that if the amount of any Net Tax Benefit
is subsequently affected by reason of any event or events, including, without
limitation, any payment of Taxes by such Indemnified Party with respect to the
loss of such Net Tax Benefit upon audit or litigation, appropriate adjustments
and payments to take into account the increase or decrease in such Net Tax
Benefit shall be made between the Indemnified Party and the Indemnifying Party
within fifteen (15) days after such event or events. Any expenses associated
with the realization of a Net Tax
48
Benefit or any contest or proceeding with respect to a Net Tax Benefit shall be
deemed to reduce such Net Tax Benefit.
Section 8.8 Exclusive Remedy. After the Closing, to the extent
permitted by Law, the indemnities set forth in this Article VIII shall be the
exclusive remedies of Purchaser and the Sellers and their respective managers,
trustees, officers, directors, employees, agents and Affiliates for any
misrepresentation, breach of warranty or nonfulfillment or failure to be
performed of any covenant or agreement contained in this Agreement, and the
parties shall not be entitled to a rescission of this Agreement or to any
further indemnification rights or claims of any nature whatsoever in respect
thereof, all of which the parties hereto hereby waive; provided, however, that
the foregoing shall not apply to claims of actual fraud or intentional breach of
this Agreement.
Section 8.9 Seller Representative.
(a) Concurrent with the execution and delivery of this Agreement, each
of the Sellers shall be deemed to appoint D&B as their agent, representative and
attorney-in-fact (the "Sellers' Representative") and D&B hereby agrees to act as
the Sellers' Representative.
(b) The Sellers' Representative has the full power and authority to act
on behalf of each Seller in connection with this Agreement and the Escrow
Agreement, including giving and receiving notices and communications,
authorizing delivery to Purchaser of cash from the Escrow Account in
satisfaction of indemnification claims, objecting to such deliveries, agreeing
to negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of Governmental Entities and awards of arbitrators with
respect to such claims, and take all actions necessary or appropriate in the
judgment of the Sellers' Representative for the accomplishment of the foregoing.
Any notices delivered by the Sellers' Representative pursuant to this Agreement
or the Escrow Agreement shall also be delivered to the addressees in Section
10.1.
(c) A decision, act, consent, or instruction of the Sellers'
Representative, including an amendment, extension or waiver of this Agreement
pursuant to Section 9.1 and Section 9.3 hereof, shall constitute a decision of
the Sellers immediately prior to the Closing Date and shall be final, binding
and conclusive upon the Sellers immediately prior to the Closing Date; and the
Escrow Agent and Purchaser may rely upon any such decision, act, consent or
instruction of the Sellers' Representative as being the decision, act, consent
or instruction of the Sellers. The Escrow Agent and Purchaser are 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'
Representative.
(d) The Sellers' Representative shall not be liable for any act done or
omitted hereunder as the Sellers' Representative except in the case of its gross
negligence or willful misconduct.
(e) The Sellers' Representative shall have reasonable access to
information about the Company and the reasonable assistance of the Company's
officers and employees for
49
the purpose of performing its duties and exercising its rights hereunder,
provided that the Sellers' Representative shall treat confidentially and not
disclose such nonpublic information from or about the Company to anyone other
than the Sellers immediately prior to the Closing Date (except on a need to know
basis to counsel and experts necessary to perform its duties hereunder who agree
to treat such information confidentially).
Section 8.10 Mutual Release.
(a) Effective upon the Closing, Sellers hereby irrevocably waive,
release and discharge the Company from any and all liabilities and obligations
of the Company to Sellers of any kind, or nature whatsoever, whether in their
capacity as the Sellers hereunder, as a stockholder, officer, or director of the
Company or otherwise, including, without limitation, any rights of contribution
or indemnification, in each case whether absolute or contingent, liquidated or
unliquidated, and whether arising at law or equity, and Sellers hereby covenant
and agree that they will not seek to recover any amounts in connection therewith
or thereunder from the Company; provided, however, that nothing in this Section
8.10 will constitute a waiver of any claims Sellers may have against the Company
pursuant to the terms of this Agreement, and/or any acts or events which occur
after the Closing. With respect to the Sellers, Xxxxxxx Xxxxx, who is also an
employee of the Company, shall further execute and deliver the Release to be
effective as of the Closing Date.
(b) Effective upon the Closing, the Company hereby irrevocably waives,
releases, and discharges Sellers from any and all liabilities and obligations of
Sellers to the Company of any kind or nature whatsoever, including, without
limitation, rights of contribution or indemnification, in each case whether
absolute or contingent, liquidated, or unqualified, and whether arising at law
or equity, and the Company hereby covenants and agrees that it will not seek to
recover any amounts in connection therewith or thereunder from Sellers;
provided, however, that nothing in this Section 8.10 will constitute a waiver of
any claims that the Company may have against Sellers pursuant to the terms of
this Agreement and/or of any acts or events which occur after the Closing.
(c) The Company and the Sellers acknowledge that there is a risk that,
subsequent to the execution of this Agreement or after the Closing, the Company
or Sellers will discover, incur or suffer claims which were unknown or
unanticipated at the time this Agreement was executed and which, if known by the
Company or Sellers on the date of this Agreement, may have materially affected
the Company's or Sellers' decision to enter into this Agreement. The Company and
Sellers acknowledge and agree that, by reason of entering into this Agreement,
the Company or the Sellers, as the case may be, are assuming the risk of unknown
or unanticipated claims released in this Section 8.10 WITH RESPECT TO SUCH
MATTERS, THE COMPANY AND THE SELLERS HEREBY EXPRESSLY WAIVE THE BENEFIT OF
SECTION 1542 OF THE CALIFORNIA CIVIL CODE WHICH PROVIDES AS FOLLOWS:
(d) A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
50
TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM, MIGHT HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
It is the intention of the parties hereto that the foregoing releases
shall be as broad and general as the law permits and that these releases shall
be effective as of the Closing. However, notwithstanding anything to the
contrary herein, nothing in this Section 8.10 shall in any way affect (i) any
rights that the Company may have against the Sellers under this Agreement,
including, without limitation, any right of indemnification pursuant to this
Article VIII; (ii) any rights that Sellers may have against the Company,
including, without limitation, any right of indemnification pursuant to this
Article VIII; or (iii) any rights that the Company may have against any of the
Sellers with respect to fraud.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing by mutual written agreement of
Purchaser and the Sellers;
(b) by Purchaser if there has been a material breach or violation by
any of the Sellers of any of their representations and warranties, covenants or
agreements contained in this Agreement (disregarding materiality or Material
Adverse Effect qualifiers), in either case that cannot be or has not been waived
or cured within ten (10) days after receipt of notice by the Company and
Sellers' Representative from Purchaser of an intention to terminate pursuant to
this Section 9.1(b);
(c) by the Sellers' Representative if there has been a material breach
or violation by Purchaser of any of its representations and warranties,
covenants or agreements contained in this Agreement (disregarding materiality
qualifiers), in either case that cannot be or has not been waived or cured
within ten (10) days after receipt of notice by Purchaser from Sellers'
Representative of an intention to terminate pursuant to this Section 9.1(c);
(d) by Purchaser if any of the conditions to the obligation of
Purchaser set forth in Section 7.3 shall have become incapable of fulfillment
and shall not have been waived by Purchaser in writing; provided, however, that
Purchaser shall not be entitled to terminate this Agreement pursuant to this
Section 9.1(d) if Purchaser is in breach in any material respect of its
representations and warranties or covenants contained in this Agreement; or
(e) by Sellers' Representative if any of the conditions to the
obligation of the Sellers set forth in Section 7.2 shall have become incapable
of fulfillment and shall not have been waived by the Sellers in writing;
provided, however, that the Sellers shall not be entitled to terminate this
Agreement pursuant to this Section 9.1(e) if any of the Sellers is in breach in
any material respect of its representations and warranties or covenants
contained in this Agreement;
51
(f) by the Sellers' Representative, on the one hand, or Purchaser, on
the other hand, if a Governmental Entity shall have issued a nonappealable,
final Order or taken any other nonappealable final action, in each case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Closing and the transactions contemplated by this Agreement; or
(g) by either Purchaser or the Sellers' Representative upon written
notice given to the other party solely in the event that the Closing shall not
have taken place on or before October 15, 2004; provided, that the failure of
the Closing to occur on or before such date is not the result of a breach of any
covenant, agreement, representation or warranty herein by the party seeking such
termination.
Section 9.2 Effect of Termination. If this Agreement is validly
terminated pursuant to Section 9.1, this Agreement will forthwith become null
and void, and there will be no liability or obligation on the part of the
parties (or any of their respective officers, directors, employees, agents or
other Representatives or Affiliates), except that the provisions with respect to
the fees and expenses in Section 4.22, 5.5 and 6.5, notices in Section 10.1,
dispute resolution in Section 10.8, public announcement in Section 10.6,
confidentiality in Section 6.2, governing Law in Section 10.8 and this Section
9.2, will continue to apply following any such termination. Notwithstanding the
previous sentence, no party to this Agreement shall be released from any
liability for any intentional or willful breach of this Agreement or fraudulent
or knowing misrepresentations or action by the parties hereto.
Section 9.3 Amendments and Waivers. This Agreement may not be amended
except by an instrument in writing signed on behalf of Purchaser and Sellers'
Representative. Either Purchaser or Sellers' Representative may, by an
instrument in writing signed on behalf of such party, waive compliance by any
other party with any term or provision of this Agreement that such other party
was or is obligated to comply with or perform.
ARTICLE X
MISCELLANEOUS
Section 10.1 Notices. All notices, requests and other communications
hereunder shall be in writing (including wire, telefax or similar writing) and
shall be sent, delivered or mailed, addressed, or telefaxed:
(a) if to Purchaser, to:
c/o The Warnaco Group, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx X. Xxxxxxxx, Esq.
Fax: (000) 000-0000
52
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
Xxxx Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxx, Esq.
Xxxxxx X. Xxxxxxxxx, Esq.
Fax: (000) 000-0000
and, as to Intellectual Property, with a copy to:
Xxxxxx Xxxxxx Xxxxx Xxxxxxxx
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxx Xxxx Ash, Esq.
Fax: (000) 000-0000
(b) if to the Company, to:
Xxxxx Xxxxxxx Apparel Corp.
3 Studebaker
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxx
Fax: (000) 000-0000
with a copy to each of:
Xxxxx & Boissiere Fund I, LLC
000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxx, Xx.
Fax: (000) 000-0000
and
Xxxxx & Xxxxxx LLP
000 Xxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx Xxxx, Esq.
Fax: (000) 000-0000
53
(c) if to Sellers or the Sellers' Representative, to:
Xxxxx & Boissiere Fund I, LLC
000 Xxxxxxxx Xxxx, 0xx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Xx.
Fax: (000) 000-0000
with a copy to:
Xxxxx & Xxxxxx LLP
000 Xxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx Xxxx, Esq.
Fax: (000) 000-0000
Xxxxxxx X. Xxxxx
3 Studebaker
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxx
Fax: (000) 000-0000
Anders Brag
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Xxx Xxxxxxx
00 Xxxxxxx Xxxxx
Xxx Xxxxxx, Xxxxxxxxxx 00000
Each such notice, request or other communication shall be given (i) by hand
delivery, (ii) by nationally recognized courier service or (iii) by telefax,
receipt confirmed (with a confirmation copy to be sent by one of the other
permitted methods of delivery). Each such notice, request or communication shall
be effective (i) if delivered by hand or by nationally recognized courier
service, when delivered at the address specified in this Section 10.1 (or in
accordance with the latest unrevoked written direction from the receiving party)
and (ii) if given by telefax, when such telefax is transmitted to the telefax
number specified in this Section 10.1 (or in accordance with the latest
unrevoked written direction from the receiving party), and the appropriate
confirmation is received.
Section 10.2 Interpretation. When a reference is made in this Agreement
to a Section or Sections, such reference shall be to a Section or Sections of
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement they shall be
deemed to be followed by the words "without limitation." Words used in the
singular form in this Agreement shall be deemed
54
to import the plural, and vice versa, as the sense may require. The phrases "the
date of this Agreement", "the date hereof," and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to August 3, 2004.
Section 10.3 Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is found to be invalid or unenforceable in any jurisdiction, (a) a
suitable and equitable provision shall be substituted therefor in order to carry
out, so far as may be valid or enforceable, such provision and (b) the remainder
of this Agreement and the application of such provision to other Persons or
circumstances shall not be affected by such invalidity or unenforceability, nor
shall such invalidity or unenforceability affect the validity or enforceability
of such provision, or the application thereof, in any other jurisdiction.
Section 10.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
shall, taken together, be considered one and the same agreement.
Section 10.5 Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, including the Confidentiality Agreement and (b) is not
intended to confer upon any Person other than the parties hereto, any rights or
remedies hereunder.
Section 10.6 Publicity. None of the parties hereto nor their respective
Affiliates or Representatives shall issue or cause the publication of any press
release or other public announcement or communication with respect to the
transactions contemplated by this Agreement without the consent of the Sellers'
Representative and Purchaser, except to the minimum extent necessary to comply
with the requirements of applicable Law or the regulations or policies of any
securities exchange based on the advice of counsel, in which case the party
required to make the release or statement or communication shall allow Sellers'
Representative or Purchaser, as the case may be, reasonable time to comment on
such release or statement or communication in advance of such issuance,
disclosure or filing.
Section 10.7 Assignment. Neither this Agreement nor any of the rights
or obligations hereunder shall be assigned by any of the parties hereto without
the prior written consent of each of the other parties. Subject to the preceding
sentence, this Agreement (including but not limited to any obligations set forth
in Section 2.2 herein) will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and permitted
assigns. In the event of any permitted assignment of this Agreement, Purchaser
shall remain liable for all of Purchaser's obligations and liabilities set forth
in this Agreement, including but not limited to, those set forth in Section 2.2
of this Agreement. Any attempted assignment in violation of the terms of this
Section 10.7 shall be null and void, ab initio.
55
Section 10.8 Arbitration. Except as otherwise provided in this
Agreement, including, without limitation, Section 2.3(b) of this Agreement, any
controversy or claim arising out of or relating to this Agreement or the breach,
termination or validity thereof ("Dispute") shall be settled by arbitration in
Orange County, California.
(a) Judicial Arbitration and Mediation Services. The arbitration shall
be administered by Judicial Arbitration and Mediation Services ("JAMS") in its
Orange County office, or the nearest office it maintains to Orange County and
conducted in accordance with the JAMS Comprehensive Arbitration Rules (the
"Rules").
(b) Arbitrators. The arbitrator shall be a retired superior court judge
of the State of California affiliated with JAMS.
(c) Provisional Remedies. Prior to the appointment of the arbitral
tribunal, each of the parties to this Agreement reserves the right to file with
a court of competent jurisdiction an application for temporary or preliminary
injunctive relief, writ of attachment, writ of possession, temporary protective
order and/or the appointment of a receiver on the grounds that the arbitration
award to which the applicant may be entitled may be rendered ineffectual in the
absence of such relief. Without prejudice to such provisional remedies as may be
available under the jurisdiction of a court, the arbitral tribunal shall have
full authority to grant provisional remedies and to direct the parties to
request that any court modify or vacate any temporary or preliminary relief
issued by such court, and to award damages for the failure of any party to
respect the arbitral tribunal's orders to that effect.
(d) Enforcement of Judgment. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The award of
the arbitrator shall be binding, final and unappealable.
(e) Discovery. The parties may obtain discovery in aid of the
arbitration to the fullest extent permitted under the Rules, including
documentary discovery, up to five depositions per party, and additional
depositions if the arbitrators deem it appropriate. All discovery disputes shall
be resolved by the arbitrators.
(f) Consolidation. Any arbitration hereunder may be consolidated by
JAMS with the arbitration of any other dispute arising out of or relating to the
same subject matter when the arbitrator determines that there is a common issue
of law or fact creating the possibility of conflicting rulings by more than one
arbitrator. Any disputes over which arbitrator shall hear any consolidated
matter shall be resolved by JAMS.
(g) Power and Authority of Arbitrators. The arbitrators shall not have
any power to alter, amend, modify or change any of the terms of this Agreement,
nor to grant any remedy which is either prohibited by the terms of this
Agreement, or not available in a court of law.
(h) Governing Law. All questions in respect of procedure to be followed
in conducting the arbitration shall be resolved according to the law of the
State of California. Any action brought to enforce the provisions of this
Section 10.8 shall be
56
brought in the Orange County Superior Court. All other questions in respect of
this Agreement, including, but not limited to, the interpretation of this
Agreement, and the rights, duties and liabilities of the parties to this
Agreement shall be governed by the laws of the State of Delaware, without
reference to the conflict of laws provisions thereof.
(i) Costs. The costs of the arbitration, including any JAMS
administration fees and any arbitrators' fees, and costs of the use of
facilities during the arbitration hearings, shall be borne equally by the
parties.
(j) Attorneys' Fees. If a party to this Agreement shall bring any
action, suit, counterclaim, for any relief against the other parties,
declaratory or otherwise, to enforce the terms of this Agreement to arbitrate or
to declare rights hereunder, or to enforce any final arbitral award issued by
the arbitral tribunal (referred to herein as an "Action"), the non-prevailing
party in such Action shall pay to the prevailing party in such Action a
reasonable sum for the prevailing party's attorneys' fees and expenses (at the
prevailing party's attorneys' then-current rates, as increased from time to
time) incurred in prosecuting or defending such Action and/or enforcing any
judgment, order, ruling or award (referred to herein as a "Decision"), granted
therein, all of which shall be deemed to have accrued from the commencement of
such Action, and shall be paid whether or not such Action is prosecuted to a
Decision. Any Decision entered into in such Action shall contain a specific
provision providing for the recovery of attorneys' fees and expenses incurred in
enforcing such Decision. The court may fix the amount of reasonable attorneys'
fees and expenses upon the request of any party. For purposes of this Section
10.8(j), attorneys' fees shall include, without limitation, fees incurred in
connection with (1) postjudgment motions and collection actions, (2) contempt
proceedings, (3) garnishment, levy and debtor and third party examination, (4)
discovery and (5) bankruptcy litigation.
57
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
WARNACO INC.
By: /s/ Xxxxxxx X. Xxxxxxxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxxxxxxx
Title: Senior Vice President -
Corporate Development &
Chief Administration Officer
XXXXX XXXXXXX APPAREL CORP.
By: /s/ Xxxxxxx X. Xxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chief Executive Officer
XXXXX & BOISSIERE FUND I, LLC
By: /s/ Xxxxxx X. Xxxxxxxxx, Xx.
-----------------------------------
Name: Xxxxxx X. Xxxxxxxxx, Xx.
Title: Managing Member, Xxxxx &
Boissiere Fund I, LLC
Managing Member, DBF
Management I, LLC
Managing Member, Xxxxx &
Boissiere LLC
/s/ Anders Brag
---------------------------------------
Anders Brag
/s/ Xxx Xxxxxxx
---------------------------------------
Xxx Xxxxxxx
/s/ Xxxxxxx Xxxxx
---------------------------------------
Xxxxxxx Xxxxx
SELLERS' REPRESENTATIVE
Xxxxx & Xxxxxxxxx Fund I, LLC
By: /s/ Xxxxxxx X. Xxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Managing Member, Xxxxx &
Boissiere Fund I, LLC
Managing Member, DBF
Management I, LLC
Managing Member, Xxxxx &
Boissiere LLC
