STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of the 24th day of
September, 1998, is made by and among Licensing Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Candie's, Inc. ("Buyer"); Candie's
Inc., a Delaware corporation ("Candie's"), Xxxxxxx Xxxxxx & Co., Inc., a
California corporation (the "Company"); and each of Xxxxxxx Xxxxxx, as Trustee
of the Claudio Trust, dated February 2, 1990 ("Xxxxxx"), and Xxxx Xxxxxxxxx
(said individuals being hereinafter collectively called the "Selling
Shareholders" and severally, a "Selling Shareholder").
W I T N E S S E T H :
WHEREAS, the Selling Shareholders are the owners of all of the
issued and outstanding shares of common stock of the Company (the "Company
Shares"); and
WHEREAS, the Company is engaged in the manufacture, distribution
and design of apparel and certain licensing activities (the "Business"); and
WHEREAS, Buyer wishes to purchase all of the Company Shares from
the Selling Shareholders and thereby acquire the Business upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of and in reliance upon the
covenants, conditions, representations and warranties herein contained, the
parties hereto hereby agree as follows:
1. PURCHASE AND SALE OF COMPANY SHARES.
Subject to the terms and conditions set forth in this Agreement
and in reliance upon the representations, warranties, covenants and conditions
herein contained, on the Closing Date (as defined in section 3.1 hereof), the
Selling Shareholders, hereby sell, convey, assign, transfer and deliver to
Buyer, the Company Shares, free and clear of any and all liens or encumbrances
of any nature whatsoever.
2. PURCHASE PRICE.
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2.1. PURCHASE PRICE. The purchase price (the "Purchase Price")
for the Company Shares shall be payable by Buyer in the form of (i) 1,967,742
shares of common stock, par value of $.001 per share, (the "Candie's Common
Stock") of Candie's (the "Initial Candie's Shares"), (ii) $100,000 in cash or
immediately available funds, and (iii) the additional amount, if any, required
to be paid pursuant to section 2.2 below (the "Additional Candie's Shares").
The Initial Candie's Shares and the Additional Candie's Shares are sometimes
collectively referred to herein as the "Candie's Shares."
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2.2. ADDITIONAL PURCHASE PRICE.
(a) In the event that the closing sale price of a share
of Candie's Common Stock, as reported on The Nasdaq Stock Market, is less than
$7.75 on the Closing Date, or does not reach $7.75 at any time within the six
(6) month period immediately following the Closing Date (the "Valuation
Period"), then Buyer shall, within five (5) business days following termination
of the Valuation Period, pay issue and deliver to the Selling Shareholders an
additional number of shares of Candie's Common Stock in an amount equal to (i)
$15,250,000 minus the value of 1,967,742 shares of Candie's Common Stock
calculated at a price per share equal to the Post Closing Valuation Price Per
Share (as defined below); divided by (ii) the Post Closing Valuation Price Per
Share. The term "Post Closing Valuation Price Per Share" shall mean the greater
of (a) the highest closing sale price of a share of Candie's Common Stock, as
reported on the Nasdaq Stock Market, during the Valuation Period, and (b)
$6.0625.
(b) In the event that the closing sale price of a share
of Candie's Common Stock, as reported on The Nasdaq Stock Market, equals or
exceeds $7.75 at any time during the Valuation Period, the Valuation Period
shall immediately terminate and no
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Additional Candie's Shares shall be issued to the Selling Shareholders.
(c) Anything contained herein to the contrary
notwithstanding, in lieu of issuing the Additional Candie's Shares, Candie's
shall have the option, exercisable in its sole discretion, to pay cash to the
Selling Shareholders in an amount equal to (i) the number of Additional Candie's
Shares determined in accordance with section 2.2. multiplied by (ii) the Post
Closing Valuation Price Per Share ( the "Additional Cash"). The Additional
Candie's Shares, or if Candie's exercises its option, the Additional Cash shall
be allocated among the Selling Shareholders pro rata in accordance with their
relative ownership percentages of the Company Shares on the Closing Date.
2.3. PLEDGED CANDIE'S SHARES.
(a) As collateral security for the payment of the
indemnification obligations of the Selling Shareholders pursuant to Paragraph 8
hereof, the Selling Shareholders shall, and by execution hereof, do hereby grant
a security interest in and pledge for the benefit of Candie's, the number of
Candie's Shares equal to $2,000,000 divided by the greater of (i) the closing
sale price of
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a share of Candie's Common Stock on the trading day immediately preceding the
Closing Date, or (ii) $6.0625 (collectively, the "Pledged Candie's Shares").
The Pledged Candie's Shares shall be pledged by the Selling Shareholders pro
rata in accordance with their relative ownership percentages of the Company
Shares on the Closing Date.
(b) The Pledged Candie's Shares shall be issued to
and held of record by the appropriate Selling Shareholder but shall be
delivered directly by Candie's transfer agent to Xxxxxx, Xxxxxxxxxx LLP as
escrow holder (the "Escrow Holder") promptly after the Closing Date. At the
Closing, each Selling Shareholder shall deliver to the Escrow Holder a stock
assignment separate from certificate executed in blank in a customary form
for each certificate representing the Pledged Candie's Shares owned by him.
(c) The Selling Shareholders shall be entitled to vote
the Pledged Candie's Shares and receive any dividends and distributions made
with respect to such Pledged Candie's Shares for so long as they are the
registered holders thereof.
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(d) The Pledged Candie's Shares shall be held by Escrow
Holder as security for the indemnification obligations of the Selling
Shareholders as set forth in Paragraph 8 of this Agreement in accordance with
the Escrow Agreement attached hereto as Exhibit A. The Escrow Agreement shall
indicate that (i) promptly after the date which is one (1) year from the Closing
Date, Escrow Holder shall release to the Selling Shareholders one half of the
originally Pledged Candie's Shares less the number of Pledged Candie's Shares
having an aggregate value equal to the amount of any outstanding indemnification
obligations which have been claimed by Candie's or Buyer in accordance with
Paragraph 8 of this Agreement (the "Indemnification Shares"), and (ii) promptly
after the date which is two (2) years from the Closing Date, Escrow Holder shall
release to the Selling Shareholders the remaining Pledged Candie's Shares, less
the number of Indemnification Shares, if any, necessary, at such date, to
satisfy outstanding indemnification obligations claimed by Candie's. For
purposes of determining the number of Pledged Candie's Shares under the previous
two sentences, the value of each share of Candie's Common Stock shall be deemed
to be the greater of (i) the closing sale price of a share of Candie's Common
Stock on the Closing Date, or (ii) the closing sale price of a share of Candie's
Common Stock on the date on which the Pledged Candie's
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Shares are released by the Escrow Holder or applied in payment of the
indemnification obligations in question.
2.4. ALLOCATION OF THE PURCHASE PRICE. The Purchase Price shall
be allocated as set forth in Schedule 2.4 attached hereto. In this regard, the
parties hereto agree that (i) the Initial Candie's Shares shall be valued at a
price per share equal to the closing price of a share of Candie's Common Stock
on the Closing Date, and (ii) the Additional Candie's Shares, if any, shall be
valued at the Post Closing Valuation Price Per Share. Neither Candie's nor the
Selling Shareholders shall take any position inconsistent with such allocation
and in the event any Additional Candie's Shares are issued, the allocation of
the Purchase Price shall be adjusted on a pro rata basis in accordance with the
allocation set forth on Schedule 2.4. Candie's and the Selling Shareholders
shall take all steps necessary to make a timely election under Sections 338(g)
and 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code") and
any comparable election under state, local or foreign tax law, except California
(collectively, the "Section 338(h)(10) Election") with respect to the
transaction contemplated in this Agreement. The Selling Shareholders shall pay
all taxes attributable to the making of the Section 338(h)(10) Election. In
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particular and not by way of limitation, in order to effect the Section
338(h)(10) Election, Candie's and the Selling Shareholders shall jointly execute
all necessary copies of Internal Revenue Service Form 8023 and all attachments
required to be filed therewith pursuant to applicable Treasury Regulations.
3. CLOSING.
3.1. CLOSING DATE. The closing of the purchase and sale
provided for herein (the "Closing") shall take place at 12:00 P.M., New York
time, on September 24, 1998 at the offices of Xxxxxx Xxxxxxxxxx LLP, or at such
other place, time and date as may hereafter be mutually agreed upon by the
parties (such time and date of Closing being hereinafter called the "Closing
Date").
3.2. ACTION BY BUYER. Subject to the terms and conditions
herein contained, on the Closing Date, Buyer and Candie's shall deliver to
the Selling Shareholders (in addition to the documents and instruments to be
delivered by it pursuant to paragraph 4 hereof), in payment of the Purchase
Price for the Company Shares (subject to delivery of the Pledged Candie's
Shares to the Escrow Holder as provided in section 2.3), stock certificates,
representing
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in the aggregate the Initial Candie's Shares, registered in the name of each
of the Selling Shareholders, which certificates shall be issued to each
Selling Shareholder pro rata in accordance with their respective share
ownership of the Company as of the Closing Date.
3.3. ACTION BY THE COMPANY AND SELLING SHAREHOLDERS. Subject to
the terms and conditions herein contained, on the Closing Date, the Company
and/or the Selling Shareholders, as the case may be, shall deliver to Buyer (in
addition to the documents and instruments to be delivered by it or them pursuant
to paragraphs 2 and 4 hereof) (i) stock certificates, representing all the
Company Shares issued and outstanding, which certificates shall be endorsed in
blank or accompanied by stock powers endorsed in blank and accompanied by the
requisite stock transfer stamps; and (ii) the third party consents and
governmental and administrative approvals set forth on Schedule 5.5.
4. COVENANTS OF THE PARTIES.
4.1. FURTHER ASSURANCES. Subject to the terms and conditions
provided herein, each of the parties agrees to use its best efforts to take, or
cause to be taken, all actions and to do,
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or cause to be done, all things necessary, proper or advisable under
applicable law or regulation to consummate and make effective the
transactions contemplated under this Agreement in accordance with the terms
hereof. Each party shall execute and deliver both before and after the
Closing such further certificates, agreements and other documents and take
such other actions as may be necessary or appropriate to consummate or
implement the transactions contemplated hereby or to evidence such events or
matters.
4.2. FINANCIAL AUDIT. Promptly after execution of this
Agreement, the Company shall retain Stonefield Xxxxxxxxx, Inc. an accounting
corporation ("Stonefield") to conduct an audit of the Company's financial
statements for each of the three years ended December 31, 1995, 1996 and 1997
(the "Audit") and a review of the Company's financial statements for the six
month periods ended June 30, 1998 and June 30, 1997 (the "Review"). The audited
financial statements shall be accompanied by an unqualified audit report of
Stonefield and the reviewed financial statements shall be accompanied by a
review report of Stonefield. The Audit and the Review shall be completed within
seventy (70) days of the Closing Date, and the results thereof shall be
delivered to Buyer and Candie's in a format suitable for Candie's to incorporate
such
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financial statements in its required securities filings under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Buyer, Candie's,
the Company and the Selling Shareholders shall each use their best efforts to
cooperate with Stonefield in completing such Audit and Review.
Failure by the Selling Shareholders to deliver an unqualified
opinion of Stonefield on the audited and reviewed financial statements,
respectively, within seventy (70) days following the Closing Date, shall
constitute a material breach of this Agreement, for which the exclusive
remedy shall be as set forth in this paragraph. In the event of such a
breach, the Selling Shareholders shall pay to the Buyer and Candie's an
amount equal to the total cost incurred by Candie's (including reasonable
legal fees and expenses) in connection with one (1) long form registration
statement filed by Candie's with the Securities and Exchange Commission (the
"SEC") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), which Candie's is required to file as a result of its failure to
satisfy its Form 8-K financial statement filing requirements under the
Exchange Act.
The cost of the Audit and the Review shall be shared equally
between the Selling Shareholders, on the one hand, and Candie's and the
Buyer, on the other hand. Payment to Stonefield
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for the Audit and Review shall the responsibility of the Selling
Shareholders. Upon request by the Selling Shareholders, the Buyer and
Candie's shall promptly pay the Selling Shareholders their portion of the
costs of the Audit and Review in cash or if the parties hereto mutually agree
as an offset to amounts due hereunder.
4.3. CONSUMMATION OF TRANSACTION. Each of the parties hereto
shall use commercially reasonable efforts to cause all conditions precedent
to his or its obligations and to the obligations of the other parties hereto
to consummate the transactions contemplated hereby to be satisfied,
including, but not limited to, using commercially reasonable efforts to
obtain all required consents, waivers, amendments, modifications, approvals,
authorizations, novations and licenses; PROVIDED, HOWEVER, that nothing
herein contained shall be deemed to modify any of the obligations imposed
upon any of the parties hereto under this Agreement or any agreement executed
and delivered pursuant hereto.
4.4. COOPERATION. Each of the parties hereto shall fully
cooperate with the other parties hereto in preparing and filing any notices,
applications, reports and other instruments and documents which are required
by, or which are desirable in the opinion of any
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of the parties hereto in respect of, any statute, rule, regulation or order
of any governmental or administrative body in connection with the
transactions contemplated hereby.
4.5. ACCURACY OF REPRESENTATIONS. Prior to the Closing Date,
neither party hereto shall enter into any transaction or take any action, and
shall use commercial reasonable efforts to prevent the occurrence of any
event, which would result in any of his or its representations, warranties or
covenants contained in this Agreement or in any other agreement, document or
instrument delivered pursuant hereto not to be true and correct, or not to be
performed as contemplated, at and as of the time immediately after the
occurrence of such transaction or event.
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4.6. NOTICE OF MATERIAL CHANGE.
(a) The Company or one of the Selling Shareholders
shall give Candie's and Buyer, prompt notice of (i) any material change in
any of the information contained in the representations and warranties of the
Company contained in paragraph 5 or in the schedules or exhibits thereto,
which occurs prior to the Closing and (ii) any governmental or other
complaints, investigations or hearings relating to the Company's business
operations or assets prior to the Closing (or communications indicating that
the same may be contemplated) or the receipt of any notice with respect to
any requirement or obligation arising out of any applicable laws relating to
its business operations prior to the Closing, or the institution of any
litigation, action, claim, proceeding or threats relating to such business
operations prior to the Closing, as well as keep Candie's and Buyer fully
informed of material developments concerning such events.
(b) Buyer and Candie's shall give the Selling
Shareholders and the Company prompt notice of (i) any material change in any
of the information contained in the representations and warranties of Buyer
and Candie's contained in paragraph 6 or in
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the schedules or exhibits thereto, which occurs prior to the Closing and (ii)
any governmental or other complaints, investigations or hearings relating to
their respective business operations or assets prior to the Closing (or
communications indicating that the same may be contemplated) or the receipt
of any notice with respect to any requirement or obligation arising out of
any applicable laws relating to its business operations prior to the Closing,
or the institution of any litigation, action, claim, proceeding or threats
relating to such business operations prior to the Closing, as well as keep
the Selling Shareholders and the Company fully informed of material
developments concerning such events.
4.7. LIABILITIES, INVENTORY AND OUTSTANDING RECEIVABLES.
(a) As of September 23, 1998, the Company has
distributed to the Selling Shareholders, who in turn have contributed to Xxxxxxx
Xxxxxx & Co. Partnership (the "Assignee"), the assets of the Company (other than
those being retained by the Company as set forth on Schedule 4.7), subject to
any and all liabilities of the Company as of September 23, 1998 other than those
liabilities specified on Schedule 4.7. The liabilities transferred to Assignee
shall be paid in full or assumed by Assignee. Candie's
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and Buyer hereby expressly acknowledge and consent to the transfers.
(b) After the Closing Date, neither the Buyer,
Candie's nor the Company shall be responsible for the collection of any
outstanding account receivables and for the ultimate disposition of the
transferred inventory subject to the mutual agreement of the parties hereto.
4.8. UNEARNED ADVANCES OF COMPANY'S LICENSE AGREEMENTS. As
of the Closing Date, the Company shall have available in immediately
available funds the sum of $337,500 representing all unearned advances and
other payments received under its existing license agreements with Xxxxx
Xxxx, Inc. and M. Fine & Sons Manufacturing Company.
4.9. PAYMENT OF TAXES UPON TRANSFER OF COMPANY SHARES. The
Selling Shareholders shall be responsible for, and shall pay, any and all
income, sales, use, purchase, transfer and similar taxes, and any and all
filing, recording, and similar fees, arising out of the transactions
contemplated by this Agreement.
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4.10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by or on behalf of each of the parties
hereto in this Agreement or in any document or instrument delivered pursuant
hereto shall, unless expressly provided otherwise herein, survive the Closing
Date and the consummation of the transactions contemplated hereby for a
period of two (2) years, except that those representations and warranties
made by the Company and the Selling Shareholders in Sections 5.12, 5.14 and
5.18 with respect to taxes, ERISA and environmental matters, respectively,
shall survive until the expiration of their respective statute of limitations
under applicable law.
4.11. DISCHARGE OF LIENS. The Company shall cause all liens
or encumbrances of any nature whatsoever upon any of the Company Shares and
the Company's assets (the "Company Assets") to be terminated or otherwise
discharged at or prior to the Closing other than those liens or encumbrances
identified in Schedule 4.11 attached hereto.
4.12. REGISTRATION RIGHTS. Each of the Selling Shareholders
and Candie's shall enter into a Registration Rights Agreement in
substantially the form of Exhibit B attached hereto
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(the "Registration Rights Agreement") pursuant to which the Selling
Shareholders, after the first anniversary of the Closing Date, but subject to
the delivery of the financial statements and the provisions regarding payment
of offering expenses required by Section 4.2, shall be entitled to make one
written request for registration under the Securities Act of all of the
Candie's Shares subject to applicable Nasdaq, SEC and other regulatory
restrictions (the "Demand Registration"); PROVIDED, HOWEVER, that Candie's
shall have the right, in its sole and absolute discretion, to register the
Candie's Shares prior to the first anniversary of the Closing Date. In
addition, the Registration Rights Agreement shall provide that if at any time
after the first anniversary of the date hereof, the Selling Shareholders are
obligated to pay for a Candie's long form registration statement pursuant to
Section 4.2 hereof, the Selling Shareholders shall be given "piggy back"
registration rights with respect to such registration statement, subject to
the limitation and approval of any underwriter of such registration statement.
4.13. LOCK-UP; RIGHT OF FIRST REFUSAL. Candie's and the Selling
Shareholders shall enter into a Lock-Up Agreement in substantially the form of
Exhibit C attached hereto (the "Lock-Up Agreement") pursuant to which the
Selling Shareholders shall not for
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a period of one (1) year after the Closing Date, transfer, assign, sell or
otherwise dispose of the Candie's Shares. At any time following the
expiration of the Lock-Up Agreement, Candie's shall have the right to
purchase back from the Selling Shareholders any or all of the Candie's Shares
prior to any public or private sale proposed by the Selling Shareholders of
any of such Candie's Shares to a third party. The purchase price for the
such buyback shall equal the closing sales price of the Candie's Common Stock
as reported on the Nasdaq Stock Market on the date of such proposed sale or
if sold pursuant to Rule 144 on the date the Form 144 is filed with the SEC.
The Selling Shareholders shall give Candie's twenty-four (24) hours prior
written notice of their intent to sell the Candie's Shares to any third
party, and Candie's shall have an additional twenty-four (24) hour period
from receipt of such notice to deliver written notice of its election to
purchase any or all of such Candie's Shares from the Selling Shareholders.
In the event that the Selling Shareholders (i) elect to sell any of the
Candie's Shares pursuant to Rule 144, and (ii) have filed the required
notification of such proposed sale on Form 144 with the SEC and provided
Candie's with notice and a copy thereof, then the Selling Shareholders shall
be deemed to have given Candie's the requisite notice provided for in this
Section 4.13 with respect to all such
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Candie's Shares covered by the applicable Form 144. In the event that
Candie's decides to purchase any of such Candie's Shares, it shall have a
period of three (3) business days from receipt by the Selling Shareholders of
Candie's election to tender payment for such purchase. Notwithstanding
anything to the contrary contained herein, Candie's shall not have the right
to exercise its buyback right in the event that applicable corporate or
securities law or any loan covenants made by Candie's to any of its lenders
would prohibit such buyback.
5. REPRESENTATIONS AND WARRANTIES AS TO THE COMPANY. The Selling
Shareholders hereby jointly and severally represent and warrant to Buyer as
follows:
5.1. ORGANIZATION, STANDING AND POWER. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California, with full corporate power and authority to
own, lease and operate its properties and to carry on its business as
presently conducted by it and has qualified to do business as a foreign
corporation in the State of New York. There are no other states or
jurisdictions in which the character and location of any of the properties
owned or leased by the Company, or
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the conduct of its business, makes it necessary for it to qualify to do
business as a foreign corporation. Copies of the Articles of Incorporation
of the Company and all amendments thereto, and of the By-laws of the Company,
as amended to date, have been furnished to Buyer and are complete and
correct. The Company's minute books heretofore exhibited to Buyer contain in
all material respects complete and accurate records of all meetings and other
corporate actions of the Company's shareholders and Board of Directors
(including committees of its Board of Directors).
5.2. CAPITALIZATION. The authorized capital stock of the
Company consists of 1,000 shares of Common Stock, no par value per share (the
"Company Stock"), of which 400 shares are issued and outstanding, no shares
are issued but not outstanding, and 600 shares are authorized and unissued.
All issued shares of the Company Stock have been duly and validly issued and
are fully paid and nonassessable. There are no outstanding options,
warrants, rights, puts, calls, commitments, conversion rights, plans or other
agreements of any character to which the Company is a party or otherwise
bound which provide for the acquisition, disposition or issuance of any
issued but not outstanding, outstanding, or authorized and unissued shares of
Company Stock. There is no
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personal liability, and there are no preemptive or similar rights, attached
to the Company Stock. Set forth on Schedule 5.2, is a complete and correct
list of the names, addresses and record and beneficial stock ownership of all
of the shareholders of the Company. No holder of any of the Company's
securities has any rights, "demand," "piggy-back" or otherwise, to have such
securities registered under the Act.
5.3. INTERESTS IN OTHER ENTITIES. Except as set forth on
Schedule 5.3, the Company does not (A) own, directly or indirectly, of record
or beneficially, any shares of voting stock or other equity securities of any
other corporation, (B) have any ownership interest, direct or indirect, of
record or beneficially, in any unincorporated entity, or (C) have any
obligation, direct or indirect, present or contingent, (1) to purchase or
subscribe for any interest in, advance or loan monies to, or in any way make
investments in, any person or entity, or (2) to share any profits or capital
investments or both with any person or entity.
5.4. AUTHORITY. The execution and delivery by the Company of
this Agreement and of all of the agreements to be executed and delivered by
it pursuant hereto, the performance by it of its
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obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of the Company
(including, but not limited to, the unanimous consent of its shareholders and
Board of Directors), and the Company has all necessary power with respect
thereto. This Agreement is, and when executed and delivered by the Company
and the Selling Shareholders each of the other agreements to be delivered by
any or all of them pursuant hereto will be, the valid and binding obligation
of the Company in accordance with its terms; except as the same may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity.
5.5. NONCONTRAVENTION. Except as set forth on Schedule 5.5,
neither the execution and delivery by the Company of this Agreement or of any
agreement to be executed and delivered by it pursuant hereto, nor the
consummation of any of the transactions contemplated hereby or thereby, nor
the performance by the Company of any of its obligations hereunder or
thereunder, shall (nor with
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the giving of notice or the lapse of time or both would) (A) conflict with or
result in a breach of any provision of the Certificate of Incorporation or
By-laws of the Company, or (B) give rise to a default, or any right of
termination, cancellation or acceleration, or otherwise be in conflict with
or result in a loss of material contractual benefits to the Company, under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, or material license, agreement or other instrument or obligation
to which it is a party or by which the Company or any of the assets of the
Company (the "Company Assets") may be bound, or require any consent, approval
or notice under the terms of any such document or instrument, or (C) violate
any order, writ, injunction, decree, law, statute, rule or regulation of any
court or governmental or administrative authority which is applicable to the
Company or any of the Company Assets, or (D) result in the creation or
imposition of any lien, security interest, pledge, mortgage, easement,
leasehold, assessment, covenant restriction, reservation, conditional sales,
prior assignment, or other encumbrance of any nature whatsoever upon any of
the Company Assets, or (E) interfere with or otherwise have an adverse effect
on the Business after the Closing Date.
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5.6. FINANCIAL STATEMENTS. The Company has delivered to the
Buyer and Candie's its unaudited balance sheets for the years ended, December
31, 1995, December 31, 1996 and December 31, 1997 (the "Unaudited Balance
Sheets"), together with the related statements of income, changes in
financial position and changes in stockholders' equity for the years ended on
such dates, (the "Unaudited Financial Statements"). To the best knowledge of
the Selling Shareholders, the Unaudited Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied, and in all material respects fairly present the
financial position of the Company as at the dates thereof and its results of
operations for the periods indicated, except that they are subject to normal
recurring adjustments which might be required as a result of a year-end audit.
The books and records of the Company are in all material
respects complete and correct, have been maintained in accordance with good
business practices, and accurately reflect the basis for the financial
condition of the Company as set forth in the aforementioned Unaudited
Financial Statements. The Unaudited Financial Statements do not account for
adjustments in connection with the transfer of certain of the Company's
Assets set forth in Sections 4.7 and 5.16 hereof.
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5.7. ABSENCE OF LIABILITIES. Except as set forth on Schedule
5.7, the Company has no liabilities or obligations of any nature whatsoever,
whether accrued, absolute, contingent or otherwise.
5.8. PROPERTIES. The Company has good, valid and marketable
fee title to all of the real property and fixtures, and good and marketable
title to all of the other properties and assets, reflected on the Unaudited
Balance Sheets, or thereafter acquired, except properties or assets sold or
otherwise disposed of in the ordinary course of business, and pursuant to
Section 4.7 hereof, free and clear of any and all liens, liens for current
taxes not yet due and payable or being contested in good faith by appropriate
proceedings. All plants, structures and equipment which are utilized in the
Business, or are material to the operations or condition (financial or
otherwise) of the Company are owned or leased by the Company and are in good
operating condition and repair (ordinary wear and tear excepted), and are
adequate and suitable for purposes for which they are used. Schedule 5.8
sets forth all (A) real property which is owned, leased (whether as lessor or
lessee) or subject to contract or commitment of purchase or sale or lease
(whether as lessor or lessee) by the Company or which is subject to
27
a title retention or conditional sales agreement or other security device,
and (B) tangible personal property which is owned, leased (whether as lessor
or lessee) or subject to contract or commitment of purchase or sale or lease
(whether as lessor or lessee) by the Company.
5.9. LITIGATION. Except as set forth on Schedule 5.9, there
are no claims, suits, actions, arbitration, investigations, inquiry or other
proceeding before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending or, to the best
of the knowledge of the Selling Shareholders, threatened, against or relating
to the Company, the Business or any of the Company Assets; nor, is there any
basis for any such claim, suit, action, arbitration, investigation, inquiry
or other proceeding. There are no judgments, orders, stipulations,
injunctions, decrees or awards in effect which relate to the Company, the
Business or any of the Company Assets, the effect of which is to limit,
restrict, regulate, enjoin or prohibit any business practice in any area, or
the acquisition of any properties, assets or businesses.
28
5.10. NO VIOLATION OF LAW. The Company is not engaging in any
activity or omitting to take any action as a result of which it is in
violation of any law, rule, regulation, zoning or other ordinance, statute,
order, injunction or decree, or any other requirement of any court or
governmental or administrative body or agency, applicable to the Company, the
Business or any of the Company Assets, including, but not limited to, those
relating to: occupational safety and health; environmental and ecological
protection (e.g., the use, storage, handling, transport or disposal of
pollutants, contaminants or hazardous or toxic materials or wastes, and the
exposure of persons thereto); business practices and operations; labor
practices; employee benefits; and zoning and other land use.
5.11. INTELLECTUAL PROPERTY.
(a) Schedule 5.11 contains a complete and accurate list
of:
(1) United States and foreign trademarks, service
marks, marks, brand names, applications, and
registrations therefor used or owned by the
Company (hereinafter MARKS);
29
(2) U.S. copyright applications, and
registrations (hereinafter COPYRIGHTS) used
or owned by the Company; and
(3) Licenses and other agreements to which the
Company is a party or otherwise bound which
relate to the MARKS and/or COPYRIGHTS.
(b) The Company owns all right, title and interest in
the applications and the registrations for the MARKS
and the COPYRIGHTS.
(c) To the best of the Selling Shareholders' knowledge,
except as set forth in Schedules 5.9 and 5.11:
(1) no proceedings have been instituted, are
pending, or are threatened which challenge
the rights of the Company in the MARKS and/or
COPYRIGHTS;
30
(2) the Company's use of the MARKS and/or
COPYRIGHTS does not violate any laws,
statutes, ordinances, or regulations, or
presently infringes upon or violates any
rights of others;
(3) the Company's MARKS and/or COPYRIGHTS are not
presently being infringed by others; and
(4) the Company's use of its MARKS and/or
COPYRIGHTS are not the subject of any
outstanding order, decree, judgment,
stipulation, or agreement which limit or
restrict their use.
5.12. TAX MATTERS. The Company has filed with the appropriate
governmental agencies all tax returns and reports required to be filed by it
for the past five (5) taxable years, and has paid in full all taxes,
interest, penalties, assessments and deficiencies shown to be due or claimed
to be due on such tax returns and reports. The Company has currently and
upon the Closing
31
will have in effect a valid election qualifying the Company as an S
Corporation for United States Federal Income Tax purposes and similar
elections under corresponding state, local and foreign income tax laws. The
provision for income and other taxes which is set forth on the Unaudited
Balance Sheets is adequate for all accrued and unpaid taxes of the Company as
of such respective dates of such Balance Sheets, whether (A) incurred in
respect of or measured by income of the Company for any periods prior to the
close of business on that date, or (B) arising out of transactions entered
into, or any state of facts existing, on or prior to that date. The
provision for income and other taxes which is set forth on the books of
account of the Company is adequate for all income and other taxes which
accrued after January 1, 1998 and prior to the Closing. The Company has not
executed or filed with any taxing authority any agreement extending the
period for the assessment or collection of any income or other taxes, and is
not a party to any pending or, to the best of the knowledge of the Company,
threatened, action or proceeding by any governmental authority for the
assessment or collection of income or other taxes. The United States federal
income tax returns of the Company have not been examined by the Internal
Revenue Service ("the IRS") within the last ten (10) years.
32
5.13. EMPLOYEE ARRANGEMENTS. As of the Closing Date, the
Company will have no employees and will not be subject to any union,
collective bargaining, employment, management, termination or consulting
agreements or any compensation plans and arrangements; bonus and incentive
plans and arrangements; deferred compensation plans and arrangements; pension
and retirement plans and arrangements; profit-sharing and thrift plans and
arrangements; stock purchase and stock option plans and arrangements;
hospitalization and other life, health or disability insurance or
reimbursement programs; holiday, sick leave, severance, vacation, tuition
reimbursement, personal loan and product purchase discount policies and
arrangements; and other plans or arrangements providing for benefits for
employees.
5.14. ERISA.
The Company has no "employee pension benefit plan", as
such term is defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and no "employee welfare benefit
plan" as such term is defined in Section 3(1) of ERISA, which is maintained
by the Company or to which it contributes or is obligated or required to
contribute.
33
5.15. CERTAIN BUSINESS MATTERS. There are no pending, or to
the best of the knowledge of the Company threatened, labor disputes or other
labor related claims and, to the best of the knowledge of the Company, no
union representation questions exist, and there are no organizing activities,
in respect of any of the former employees of the Company, (A) the product and
service warranties given by the Company or by which it is bound entail no
greater obligations than are customary in the business of the Company and (B)
the Company is not a party to or bound by any agreement which limits its
freedom to compete in any line of business or with any person, or which is
otherwise materially burdensome to it.
5.16. ASSUMED CONTRACTS. In accordance with Section 4.7, the
Assignee has assumed all of the Company's contracts other than those set
forth on Schedule 5.16 of this Agreement or in any other agreement of the
parties with respect hereto. Schedule 5.16 is a complete and correct list of
all contracts, commitments, indentures, mortgages, obligations, agreements
and undertaking to which the Company is currently a party or otherwise bound
and which the Buyer has assumed. Complete and correct copies of all such
assumed contracts, commitments, indentures, mortgages, obligations,
34
agreements and undertakings set forth on Schedule 5.16 delivered pursuant to
this Agreement have been furnished by the Selling Shareholders to Buyer, and
except as expressly stated on such Schedule, to the best of the knowledge of
the Selling Shareholders (A) each of them is in full force and effect, no
person or entity which is a party thereto or otherwise bound thereby is in
default thereunder, and, to the best of the knowledge of the Selling
Shareholders, no event, occurrence, condition or act exists which does (or
which with the giving of notice or the lapse of time or both would) give rise
to a default or right of cancellation, acceleration or loss of contractual
benefits thereunder; (B) there has been no threatened cancellations thereof,
and there are no outstanding disputes thereunder; and (C) none of them is
materially burdensome to the Company. None of the provisions of such
contracts, instruments or agreements violates any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency or
court having jurisdiction over the Company, the Business or the Company's
Assets.
5.17. APPROVALS. Schedule 5.17 is a complete and correct list
of all governmental and administrative consents, permits, appointments,
approvals, licenses, certificates, franchises
35
and other authorizations which are necessary for the operation of the
Business or to own or operate the Company's Assets, all of which have been
obtained by the Company and are in full force and effect. There are no
proceedings pending or threatened, or any basis therefor, seeking to cancel,
terminate or limit such consents, permits, appointments, approvals, licenses,
certificates, franchises or other authorizations.
5.18 ENVIRONMENTAL MATTERS. Except as set forth on Schedule
5.18, (i) the properties and facilities of the Company are not being and for
the past five years, have not been used to make, store, handle, treat,
dispose, generate, or transport hazardous substances in violation of any
Environmental Law (as defined herein); (ii) for the past five years,
hazardous substances have not been made, stored, handled, treated, disposed
of, generated, or transported on or from the properties and facilities of the
Company, except in accordance with applicable Environmental Law then in
effect; (iii) the properties, facilities and operations of the Company comply
in all material respects with all applicable Environmental Laws; (iv) none of
the properties, facilities or operations of the Company is subject to any
currently pending judicial or administrative proceedings alleging the
violation of any
36
Environmental Law; (v) to the best of the Selling Shareholders' knowledge,
none of the properties, facilities or operations of the Company is the
subject of Federal, state or local investigation evaluating whether any
remedial action is needed to respond to a release of any hazardous or toxic
waste, substance or constituent, any petroleum or petroleum product, or any
other hazardous, illegal or unlawful substance into the environment; (vi) for
the past five years, the Company has not filed nor is presently required to
file any notice under any Federal, state, or local law indicating past or
present treatment or disposal of a hazardous waste, hazardous substance or
any petroleum or petroleum product, or reporting a spill or release of a
hazardous or toxic waste, substance or constituent, any petroleum or
petroleum product, or any other substance into the environment; and (vii)
during the past five years, the Company has not received notice nor is aware
of any contingent liability in connection with any release of any hazardous
or toxic waste, substance or constituent, any petroleum or petroleum product,
or any other substance into the environment.
For purposes hereof, "Environmental Laws" means all Federal,
state and local laws, rules, regulations, permits, orders, judgments,
injunctions and decrees relating to hazardous substances and environmental
matters applicable to the Business and the
37
facilities of the Company (whether or not owned by it). Such laws and
regulations include, without limitation, the Resource Conservation and
Recovery Act of 1976 ("RCRA"); the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"); the Toxic Substance
Control Act; the Clean Water Act; and the Clean Air Act, all as amended from
time to time; state and Federal superlien and environmental cleanup programs;
and U.S. Department of Transportation hazardous materials transportation
regulations. The terms "hazardous substance" and "release" shall have the
meanings specified in CERCLA and the terms "solid waste" and "disposed," the
meaning specified in RCRA as of the Closing Date; provided, further, however,
that to the extent a parcel of real property is situated in a state or other
jurisdiction in which as of the Closing Date, the applicable Environmental
Laws may establish a meaning for "hazardous substance," "release," "solid
waste," or "disposal" which is broader than that specified in either CERCLA
or RCRA, such broader meaning shall apply.
5.19. INFORMATION AS TO THE COMPANY. None of the
representations or warranties made by the Company or any of the Selling
Shareholders in this Agreement or in any agreement executed and delivered by
or on behalf of any of them pursuant hereto are
38
false or misleading in any material respect with respect to any fact, or omit
to state any material fact necessary in order to make the statements therein
contained not misleading.
5.20. TAX ELECTION. The Selling Shareholders and the Company
are eligible to make an election under Sections 338(g) and 338(h)(10) of the
Code, and any corresponding election available under state or local tax law
provisions of each state in which the Selling Shareholders file an income or
franchise tax return, with respect to the sale and purchase of the Company
Shares.
6. REPRESENTATIONS AND WARRANTIES AS TO THE SELLING SHAREHOLDERS.
The Selling Shareholders hereby jointly and severally represent and warrant
to Buyer as follows:
6.1. STANDING AND AUTHORITY. Each Selling Shareholder has the
right, power, legal capacity and authority to enter into this Agreement and
to carry out its respective obligations hereunder, including without
limitation the execution and delivery of the Lock Up Agreement. This
Agreement constitutes, and each agreement to be executed and delivered by any
Selling Shareholder pursuant hereto will be the valid and binding obligation
of the Selling Shareholder
39
enforceable against each of them in accordance with their respective terms ;
except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity.
6.2. OWNERSHIP OF THE COMPANY SHARES. Each of the Selling
Shareholders is the record and beneficial owner of that number of Company
Shares set forth opposite such Selling Shareholders' name in the chart
annexed hereto as Schedule 6.2. Each Selling Shareholder has good and
marketable title to such Company Shares, free and clear of any liens or other
claims, security interests, pledges, or encumbrances of any nature
whatsoever. All such Company Shares are duly authorized, validly issued,
fully paid and nonassessable and each Selling Shareholder has complete and
unrestricted power and the unqualified right to sell, assign, transfer and
deliver its Company Shares to Buyer, and upon delivery to Buyer of the
certificates representing such Company Shares, either endorsed in blank for
transfer or together with appropriately executed stock powers with respect
thereto, Buyer shall acquire good and marketable title to
40
such Company Shares, free and clear of any liens or encumbrances of any
nature whatsoever.
6.3. NONCONTRAVENTION. Neither the execution and delivery by
the Selling Shareholders of this Agreement or of any agreement to be executed
and delivered pursuant hereto, nor the consummation of any of the
transactions contemplated hereby or thereby, nor the performance by the
Selling Shareholders of any of their respective obligations hereunder or
thereunder, will (nor with the giving of notice or the lapse of time or both
would) (A) conflict with or result in a breach of any provision of the
Certificate of Incorporation or Bylaws of the Company, or (B) give rise to a
material default, or any right of termination, cancellation or acceleration,
or otherwise be in conflict with or result in a loss of material contractual
benefits to the Company under the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which the Company is a party or by which it may be bound, or
require any consent, approval or notice under the terms of any such document
or instrument, or (C) violate any order, writ, injunction, decree, law,
statute, rule or regulation of any court or governmental authority which is
applicable to the Company or any of them, or (D) result in
41
the creation or imposition of any Liens upon any of the Company Shares or the
Company Assets.
6.4. NON-REGISTRATION OF SECURITIES. Each Selling
Shareholder understands that the Candie's Shares received by him pursuant to
this Agreement are not registered under the Act, or under applicable state
securities laws, in reliance upon exemption contained in the Act and such
laws and any applicable regulations promulgated thereunder or interpretations
thereof, and cannot be offered for sale, sold or otherwise transferred unless
the Candie's Shares are subsequently so registered pursuant to the terms of
this Agreement or qualify for exemption from registration under the Act and
such applicable state securities laws; and the certificates of such Candie's
Shares shall bear an appropriate legend to that effect.
6.5. INFORMATION AS TO THE SELLING SHAREHOLDERS. None of the
representations or warranties made by any Selling Shareholder in this
Agreement or in any agreement executed and delivered by or on behalf of any
of them pursuant hereto are false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein contained, in
42
light of the circumstances, under which they were made, not misleading.
7. REPRESENTATIONS AND WARRANTIES AS TO BUYER AND CANDIE'S.
Candie's and Buyer hereby jointly and severally represents and warrants to
the Company and the Selling Stockholders as follows:
7.1. ORGANIZATION, STANDING AND POWER. Each of Candie's and
Buyer is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, with full corporate power and
authority to own, lease and operate its properties and to carry on its
business as presently conducted by it.
7.2. AUTHORITY. The execution and delivery by Candie's and
Buyer of this Agreement and of each agreement to be executed and delivered by
each of them pursuant hereto, the compliance by Candie's and Buyer with the
provisions hereof and thereof, and the consummation of the transactions
contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate action on the part of each of them and Candie's and Buyer
have all necessary corporate power with respect thereto. This Agreement is,
43
and when executed and delivered by Candie's and Buyer, each other agreement
to be executed and delivered by each of them pursuant hereto will be, the
valid and binding obligation of each of them in accordance with its terms.
Neither the execution and delivery by Candie's and Buyer of this Agreement or
of any of the aforementioned other agreements, nor the consummation of the
transactions contemplated hereby or thereby, nor the compliance by Candie's
and Buyer with the provisions hereof and thereof, will (nor with the giving
of notice or the lapse of time or both, would) conflict with or result in a
violation of any provision of the Certificate of Incorporation or By-laws of
either of them, or in the breach of any material agreement to which either of
them is a party or otherwise bound or violates any order, writ, injunction,
decree, law statute, rule or regulation of any court or governmental or
administrative authority which is applicable to Candie's and the Buyer.
7.3. CANDIE'S SHARES. The Candie's Shares, when issued to
the Selling Shareholders, will be duly authorized and validly issued, fully
paid and non-assessable, will be delivered hereunder free and clear of any
lien, claim, security interest, pledge or other encumbrance of any nature
whatsoever, except (i) that the Candie's Shares will be "restricted
securities" as such term is
44
defined in the rules and regulations of the SEC and will be subject to
restrictions on transfers pursuant to such rules and regulations and State
laws, (ii) Candie's Shares shall be subject to the Lock-Up Agreement and
(iii) the Pledged Candie's Shares shall be subject to the provisions of
Section 2.3 hereof.
7.4 CANDIE'S SEC FILINGS; FINANCIAL STATEMENTS.
As of the date hereof, Candie's has filed all forms,
reports and documents required to be filed by Candie's with the SEC
(collectively, the "Candie's SEC Reports"). The Candie's SEC Reports (i) at
the time filed, complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be,
and (ii) did not at the time they were filed (or if amended or superseded by
a subsequent filing, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in such Candie's SEC Reports or necessary in order to make the
statements in such Candie's SEC Reports, in the light of the circumstances
under which they were made, not misleading. To the best of the knowledge of
Candie's, there is no material adverse information with respect to Candie's
which a reasonable investor
45
would consider material in making an investment decision in a similar
situation.
(b) Each of the consolidated financial statements
(including, in each case, any related notes) contained in the Candie's SEC
Reports, (the "Candie's Financial Statements"), complied as to form in all
material respects with the applicable published rules and regulations of the
SEC with respect thereto, was or will be prepared in accordance with U.S.
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to
such financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q or 8-K promulgated by the SEC), and fairly presented
or will fairly present the consolidated financial position of Candie's as at
the respective dates and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
7.5 NONCONTRAVENTION. Neither the execution and delivery by
the Buyer and Candie's of this Agreement or of any agreement to
46
be executed and delivered by either of them pursuant hereto, nor the
consummation of any of the transactions contemplated hereby or thereby, nor
the performance by the Buyer and Candie's of any of their respective
obligations hereunder or thereunder, shall (nor with the giving of notice or
the lapse of time or both would) give rise to a default, or any right of
termination, cancellation or acceleration, or otherwise be in conflict with
or result in a loss of material contractual benefits to the Buyer and
Candie's, under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, or material license, agreement or other instrument or
obligation to which it is a party or by which the Buyer and Candie's or any
of the assets of the Buyer and Candie's may be bound, or require any consent,
approval or notice under the terms of any such document or instrument.
8. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE SELLING SHAREHOLDERS. The
Selling Shareholders hereby jointly and severally agree to indemnify and hold
Buyer and Candie's harmless from and against any and all losses, obligations,
deficiencies, liabilities, claims, damages, costs and expenses (including,
without limitation, the amount of any
47
settlement entered into pursuant hereto, and all reasonable legal and other
expenses incurred in connection with the investigation, prosecution or
defense of any matter indemnified pursuant hereto) which Buyer or Candie's
may sustain, suffer or incur (including reasonable legal fees) and which
arise out of, are caused by, relate to, or result or occur from or in
connection with (i) the breach by the Company or any of the Selling
Shareholders of any representation, warranty or covenant made by him or it in
this Agreement or in any agreement or instrument executed and delivered
pursuant hereto and (ii) the operation of the business of the Company prior
to the Closing Date.
The aggregate amount of the Selling Shareholders' liability
under this Paragraph 8 shall not exceed the Purchase Price. The Selling
Shareholders shall not have any immediate indemnification obligation under
this Paragraph 8 for any losses suffered by the Buyer and/or Candie's which
aggregate less than Twenty-Five Thousand ($25,000) Dollars. Candie's, the
Buyer and the Selling Shareholders shall in good faith negotiate a resolution
as to which party shall be responsible for satisfaction of those losses
aggregating less than Twenty-Five Thousand Dollars ($25,000). All losses and
liabilities which are, individually or in the aggregate,
48
in excess of Twenty-Five Thousand Dollars ($25,000) shall be the immediate
obligation of the Selling Shareholders. This indemnification obligation
shall also apply to claims directly by Buyer or Candie's against any Selling
Shareholder as well as to third party claims. Subject to compliance with
provisions of the Escrow Agreement, all indemnification obligations due to
the Buyer and/or Candie's under this Agreement, shall first be satisfied from
the Pledged Candie's Shares, and to the extent unsatisfied from the Pledged
Candie's Shares, shall be promptly paid to Buyer and/or Candie's.
8.2. INDEMNIFICATION BY BUYER AND CANDIE'S. Buyer and
Candie's hereby jointly and severally agree to indemnify and hold the Selling
Shareholders harmless from and against any and all losses, obligations,
deficiencies, liabilities, claims, damages, costs and expenses (including,
without limitation, the amount of any settlement entered into pursuant
hereto, and all reasonable legal and other expenses incurred in connection
with the investigation, prosecution or defense of any matter indemnified
pursuant hereto), which either of them may sustain, suffer or incur and which
arise out of, are caused by, relate to, or result or occur from or in
connection with (i) the breach by Buyer or Candie's of any
49
representation, warranty or covenant made by it in this Agreement or in any
agreement or instrument executed and delivered pursuant hereto; (ii) the
maintenance of the Trademarks and License Agreements; (iii) the Bongo's Cuban
Cafe and Skechers litigation; (iv) the improper use by third parties as it
relates solely to the unauthorized use and/or distribution of certain
labels, from an intellectual property perspective, listed on Schedule 8.2 in
connection with these goods which have been previously manufactured by such
third parties without any commitment to do so by the Company, and for which
no obligation exists as of the date hereof for the Company or the Selling
Shareholders to purchase such goods, and for which the Buyer shall have no
obligation to purchase such goods and (v) the operation of the business of
the Company subsequent to the Closing Date.
The aggregate amount of Buyer's and/or Candie's liability under
this paragraph 8 shall not exceed the Purchase Price. The Buyer and Candie's
shall not have any immediate indemnification obligation under this Paragraph
8 for any losses suffered by the Selling Shareholders which aggregate less
than Twenty-Five Thousand ($25,000) Dollars. The Selling Shareholders and
the Buyer and/or Candie's shall in good faith negotiate a resolution as to
which
50
party shall be responsible for satisfaction of those losses aggregating less
than Twenty-Five Thousand Dollars ($25,000). All losses and liabilities
which are, individually or in the aggregate, in excess of Twenty-Five
Thousand Dollars ($25,000) shall be the immediate obligation of Buyer and/or
Candie's. This indemnification obligation shall also apply to claims
directly by the Selling Stockholders against Buyer and Candie's as well as to
third party claims.
8.3. THIRD PARTY CLAIMS. If a claim by a third party is made
against any party or parties hereto and the party or parties against whom
said claim is made intends to seek indemnification with respect thereto under
this paragraph 8, the party or parties seeking such indemnification shall
promptly notify the indemnifying party or parties, in writing, of such claim;
PROVIDED, HOWEVER, that the failure to give such notice shall not affect the
rights of the indemnified party or parties hereunder unless such failure
materially and adversely affects the indemnifying party or parties. The
indemnifying party or parties shall have ten (10) days after said notice is
given to elect, by written notice given to the indemnified party or parties,
to undertake, conduct and control, through counsel of their own choosing
(subject to the consent of the
51
indemnified party or parties, such consent not to be unreasonably withheld)
and at their sole risk and expense, the good faith settlement or defense of
such claim, and the indemnified party or parties shall cooperate with the
indemnifying parties in connection therewith; provided: (i) in the case of
the Selling Shareholders as the indemnifying party or parties, they shall not
thereby permit to exist any lien, encumbrance or other adverse change upon
any of the Company's assets, properties or the Business, and (ii) the
indemnified party or parties shall be entitled to participate in such
settlement or defense through counsel chosen by the indemnified party or
parties, provided that the fees and expenses of such counsel shall be borne
by the indemnified party or parties. So long as the indemnifying party or
parties are contesting any such claim in good faith, the indemnified party or
parties shall not pay or settle any such claim; provided, however, that
notwithstanding the foregoing, the indemnified party or parties shall have
the right to pay or settle any such claim at any time, provided that in such
event they shall waive any right of indemnification therefor by the
indemnifying party or parties. If the indemnifying parties do not make a
timely election to undertake the good faith defense or settlement of the
claim as aforesaid, or if the indemnifying parties fail to proceed with the
good faith defense or settlement of the
52
matter after making such election, then, in either such event, the
indemnified party or parties shall have the right to contest, settle or
compromise the claim at their exclusive discretion, at the risk and expense
of the indemnifying parties to the full extent set forth in subparagraph 8.1
or 8.2 hereof, as the case may be. The provisions of this Section 8.3 shall
also apply to claims made directly by any of the parties hereto against each
other.
8.4. EXCLUSIVE REMEDY. Except as specifically provided in
Section 4.2 of this Agreement, the provisions of this paragraph 8 shall be
the sole and exclusive remedy of the parties hereto with respect to any and
all claims relating to or arising out of a breach of any representation,
warranty, covenant or agreement made by any other party hereto in this
Agreement; PROVIDED, HOWEVER, nothing shall be deemed to prohibit or limit
the right of any of the parties hereto to at any time seek injunctive or
other equitable relief based upon the failure of any of the other parties
hereto to perform any covenant or agreement contained herein or any other
agreement executed by the parties hereto with respect to the subject matter
hereof. Each of the parties hereto shall make any indemnification claims
pursuant to this paragraph 8 on or prior to the date which the relevant
representation or warranty shall expire. The failure
53
to make a claim within the time period prescribed herein shall constitute a
bar against any party making such claim.
9. NONDISCLOSURE.
9.1. "CONFIDENTIAL INFORMATION" DEFINED. As used in this
paragraph 9, the term "Confidential Information" shall mean any and all
information (oral and written) relating to the Business or the Company Assets
of the Company, on the one hand and relating to the business of Candie's, on
the other hand, other than such information which can be shown to be in the
public domain (such information not being deemed to be in the public domain
merely because it is embraced by more general information which is in the
public domain) other than as the result of a breach of the provisions of
subparagraph 9.2 below, including, but not limited to, information relating
to: identity and description of goods and services used; purchasing; costs;
pricing; machinery and equipment; manufacturing processes; technology;
research; test procedures and results; customers and prospects; marketing;
and selling and servicing. Between the date hereof and the Closing Date, each
of the Company and Buyer may, directly and/or through its representatives,
make such investigation of the other party and as such party deems
54
necessary or advisable, but such investigation shall not affect any of the
representations and warranties of either party contained herein or in any
other instrument or document delivered pursuant hereto. Each of the Buyer,
Candie's, the Company and Selling Shareholders shall not disclose or use any
Confidential Information, it obtains in connection with the foregoing, other
than in connection with the transactions contemplated hereby. In the event
that the purchase and sale transaction provided for herein is not consummated
for any reason whatsoever, each of the parties shall return to the other all
documents, workpapers and other written materials which were obtained by it
during the course of such investigation which constitute Confidential
Information.
9.2. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The parties
shall not at any time, directly or indirectly, use, communicate, disclose or
disseminate any Confidential Information in any manner whatsoever.
10. LEGAL OPINIONS.
10.1. OPINION OF COUNSEL FOR THE COMPANY AND THE SELLING
SHAREHOLDERS. Simultaneously with the execution and delivery of
55
this Agreement, the Company and the Selling Shareholders shall cause Jeffer,
Mangels, Xxxxxx & Xxxxxxx LLP to deliver an opinion to the Buyer and
Candie's, dated the Closing Date, in substantially the form of Exhibit D
attached hereto.
10.2. OPINION OF COUNSEL FOR CANDIE'S AND THE BUYER.
Simultaneously with the execution and delivery of this Agreement, Candie's
and the Buyer shall cause Xxxxxx Xxxxxxxxxx LLP to deliver an opinion to the
Selling Shareholders, dated the Closing Date, in substantially the form of
Exhibit E attached hereto.
11. BROKERS.
Each of Candie's, Buyer, the Company and the Selling
Shareholders represents and warrants to the other that other than Xxxxxxx
Xxxxx Barney, Inc. with respect to Candie's and Buyer and The Westheimer
Company with respect to the Selling Shareholders and the Company, it has not
engaged or dealt with any broker or finder in connection with any of the
transactions contemplated by this Agreement, and each of the parties shall
indemnify and hold the other harmless from and against any and all claims or
liabilities
56
asserted by or on behalf of any alleged broker or finder for finder's fees,
commissions, brokerage fees or like payment.
12. MISCELLANEOUS PROVISIONS.
12.1. EXPENSES. Except as otherwise provided in this Agreement,
each of the parties hereto shall pay his or its own costs and expenses in
connection with this Agreement and the transactions contemplated hereby. For
purpose of this Agreement, the expenses of the Company shall be the expenses of
the Selling Shareholders.
12.2. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
12.3. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given or made as of the earlier of the date delivered
57
or mailed if delivered personally by overnight courier or mailed by express,
registered or certified mail, (postage prepaid, return receipt requested), or
by facsimile transmittal, confirmed by express, certified or registered mail,
as follows:
IF TO BUYER, TO: Candie's Inc.
0000 Xxxxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxx Xxxx,
Chairman of the Board
COPY TO: Xxxxxx Xxxxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
IF TO THE COMPANY, TO: Xxxxxxx Xxxxxx & Co., Inc.
0000 Xxxxxxxx Xxxxx Xxxx
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxx Xxxxxx, President
COPY TO: Jeffer, Mangels,
Xxxxxx & Marmaro, LLP
0000 Xxxxxx xx xxx Xxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxx, Esq.
IF TO ANY OR ALL OF THE
SELLING SHAREHOLDERS, TO: Xxxxxxx Xxxxxx
0000 Xxxxxxxx Xxxxx Xxxx
Xxxxxxx, Xxxxxxx 00000
Xxxx Xxxxxxxxx
0000 Xxxxxxxx Xxxxxx Xxxxx
Xxxxxxxxx, XX 00000
COPY TO: Jeffer, Mangels,
58
Xxxxxx & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxx, Esq.
or to such other address as any party shall have designated by like notice to
the other parties hereto (except that a notice of change of address shall only
be effective upon receipt).
12.4. AMENDMENT. This Agreement may only be amended by a written
instrument executed by each of the parties hereto.
12.5. ENTIRE AGREEMENT. This Agreement (together with the other
agreements and documents being delivered pursuant to or in connection with this
Agreement) constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
12.6. HEADINGS. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
59
12.7. ASSIGNMENT AND BENEFITS. Prior to the Closing Date,
neither this Agreement nor any rights, interests or obligations hereunder may be
assigned (by operation of law or otherwise) by any party hereto without the
prior written consent of all of the parties hereto. This Agreement shall inure
to the benefit of and bind the respective parties's successors or permitted
assigns.
12.8. BINDING EFFECT; BENEFITS. This Agreement shall inure to
the benefit of, and shall be binding upon, the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns.
Nothing herein contained, express or implied, is intended to confer upon any
person other than the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns, any rights or remedies under
or by reason of this Agreement.
12.9. WAIVER, ETC. The failure of any of the parties hereto to
at any time enforce any of the provisions of this Agreement shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof or the right of any of the
parties
60
hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach of any of the provisions of this Agreement shall be
effective unless set forth in a written instrument executed by the party or
parties against whom or which enforcement of such waiver is sought; and no
waiver of any such breach shall be construed or deemed to be a waiver of any
other or subsequent breach.
12.10. SEVERABILITY. Any provision of this Agreement which is
held by a court of competent jurisdiction to be prohibited or unenforceable in
any jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
12.11. ANNOUNCEMENTS. No party hereto shall issue any press
release or otherwise divulge the existence of this Agreement or the transactions
contemplated hereby without the prior approval of the other parties hereto,
except as may be required by applicable law or the applicable rules or
regulations of any stock exchange.
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12.12. SCHEDULES. The Schedules delivered pursuant to this
Agreement are an integral part hereof. Each such Schedule shall be in writing,
shall indicate the subparagraph pursuant to which it is being delivered, and
shall be initialled by the delivering party.
12.13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law thereof.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties hereto as of the date first above written.
LICENSING ACQUISITION CORP.
By: /s/ Xxxx Xxxx
----------------------------------
Xxxx Xxxx, President
CANDIE'S, INC.
By: /s/ Xxxx Xxxx
----------------------------------
Xxxx Xxxx, President
XXXXXXX XXXXXX & CO., INC.
By: /s/ Xxxxxxx Xxxxxx
----------------------------------
Xxxxxxx Xxxxxx, President
/s/ Xxxxxxx Xxxxxx
------------------------------------------
Xxxxxxx Xxxxxx, Trustee of the
Claudio Trust dated February 2, 1990
/s/Xxxx Xxxxxxxxx
------------------------------------------
Xxxx Xxxxxxxxx
63
