EXHIBIT 2.1
EXECUTION COPY
PURCHASE AGREEMENT
by and among
M ACQUISITION CORP.,
HARTMARX CORPORATION,
MONARCHY, LLC,
XXXX XXX
and
HYUNG XXX XXX
dated as of August 14, 2007
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF ASSETS........................................1
Section 1.1 Purchase and Sale of Assets.......................1
Section 1.2 Assumption of Liabilities.........................3
Section 1.3 Excluded Liabilities..............................4
Section 1.4 Purchase Price; Allocation........................4
Section 1.5 Closing...........................................5
Section 1.6 Deliveries by Seller..............................5
Section 1.7 Deliveries by Buyer...............................6
Section 1.8 Earnout Payment...................................6
Section 1.9 Covenants During Earnout Payment Periods..........8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES............10
Section 2.1 Corporate Organization; Subsidiaries.............10
Section 2.2 Authorization....................................11
Section 2.3 Consents and Approvals; No Violation.............11
Section 2.4 Financial Statements...............................
Section 2.5 No Undisclosed Liabilities.......................12
Section 2.6 Absence of Certain Changes.......................12
Section 2.7 Real Property....................................13
Section 2.8 Intellectual Property............................14
Section 2.9 Certain Contracts................................14
Section 2.10 Permits and Other Authorizations.................15
Section 2.11 Assets...........................................15
Section 2.12 Insurance........................................16
Section 2.13 Labor Relations..................................16
Section 2.14 Benefit Plans; ERISA.............................16
Section 2.15 Taxes............................................17
Section 2.16 Environmental Matters..............................
Section 2.17 Litigation.......................................18
Section 2.18 Compliance with Law..............................18
Section 2.19 Personnel........................................19
Section 2.20 Related Party Transactions.........................
Section 2.21 Inventory........................................19
Section 2.22 Accounts Receivable..............................19
Section 2.23 Customers and Suppliers..........................20
Section 2.24 Orders and Commitments...........................20
Section 2.25 Product Warranties...............................20
Section 2.26 Brokers and Finders..............................20
Section 2.27 Disclosure.......................................20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER.........................20
Section 3.1 Corporate Organization...........................20
Section 3.2 Authorization....................................21
Section 3.3 No Violation; Consents...........................21
Section 3.4 Newly Formed Company.............................21
Section 3.5 Brokers and Finders..............................21
ARTICLE IV COVENANTS........................................................22
Section 4.1 Taxes; Post-Closing Access.......................22
Section 4.2 Employee Benefits................................23
Section 4.3 Publicity........................................23
Section 4.4 Confidentiality..................................23
Section 4.5 Non-Competition..................................24
Section 4.6 Further Assurances...............................24
Section 4.7 Change of Name...................................24
Section 4.8 Discharge of Business's Liabilities; Post
Closing Operations of Seller...................25
Section 4.9 Divestment of Securityholders' Other Interests...25
ARTICLE V SURVIVAL AND INDEMNIFICATION......................................26
Section 5.1 Survival of Representations, Warranties
and Covenants....................................26
Section 5.2 Indemnification..................................26
Section 5.3 Claims for Indemnification.......................27
Section 5.4 Limitations on Indemnification...................27
Section 5.5 Allocation of Indemnification Payments...........28
Section 5.6 Exclusive Remedy.................................28
ARTICLE VI MISCELLANEOUS....................................................28
Section 6.1 Amendment, Extension and Waiver..................28
Section 6.2 Expenses.........................................28
Section 6.3 Entire Agreement; No Third-Party Beneficiaries...28
Section 6.4 Headings.........................................29
Section 6.5 Notices..........................................29
Section 6.6 Assignment.......................................30
Section 6.7 Severability.....................................30
Section 6.8 Applicable Law...................................30
Section 6.9 Interpretation...................................31
Section 6.10 Jurisdiction.....................................31
Section 6.11 Service of Process...............................31
Section 6.12 WAIVER OF JURY TRIAL.............................32
Section 6.13 Specific Performance.............................32
Section 6.14 Counterparts.....................................32
Section 6.15 Guarantee........................................32
ARTICLE VII CERTAIN DEFINITIONS.............................................33
PURCHASE AGREEMENT
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PURCHASE AGREEMENT, dated as of August 14, 2007 (this "Agreement"), by
and among M Acquisition Corp., a Delaware corporation ("Buyer"), Hartmarx
Corporation, a Delaware corporation ("Hartmarx") (solely for purposes of
Article III and 6.15 hereof), Monarchy, LLC, a California limited liability
company (as successor in interest to Monarchy ("Monarchy") a California general
partnership, "Monarchy" or "Seller"), Xxxx Xxx ("EKim"), and Hyung Xxx Xxx
("HKim" and together with EKim the "Securityholders," and together with the
Seller, the "Selling Parties").
WHEREAS, Seller is engaged in the business of designing, sourcing,
marketing and selling premium casual sportswear and casual wear apparel
products for men and women (the "Business");
WHEREAS, EKim and HKim (indirectly through JHIL Corporation, a company
owned 100% by HKim) own all of the outstanding membership interests of Seller;
WHEREAS, Buyer is a wholly-owned subsidiary of Hartmarx; and
WHEREAS, Buyer desires to purchase from Seller, and Seller desires to
sell, assign, transfer, convey and deliver to Buyer, substantially all the
assets, business and operations of Seller, together with certain obligations
and liabilities relating thereto, all in the manner and subject to the terms
and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the covenants,
agreements, representations and warranties contained herein, intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
Section 1.1 Purchase and Sale of Assets.
(a) Acquired Assets. Subject to the terms of this Agreement, at the
Closing, Seller agrees to sell, assign, transfer, convey and deliver to Buyer,
and Buyer agrees to purchase and acquire from Seller, free and clear of all
Liens (other than Permitted Liens), all of Seller's right, title and interest
in and to all of Seller's, properties and assets of every kind, nature,
character and description (whether real, personal or mixed, whether tangible or
intangible, and wherever located), except for those assets which are
specifically excluded as provided in Section 1.3 hereof, and whether or not
required to be reflected on a balance sheet prepared in accordance with GAAP
(collectively, the "Assets"), including without limitation, the following:
(i) all goodwill of the Business as a going concern;
(ii) all contracts, agreements, leases, instruments,
obligations, joint ventures, partnerships, arrangements or other
understandings (whether written or oral) (including amendments and
supplements, modifications, and side letters or agreements) (the
"Business Contracts"), including those identified in Section
1.1(a)(ii) of the written statement delivered to Buyer by Seller
herewith and dated as of the date hereof (the "Seller Disclosure
Schedule");
(iii) all trade accounts receivable and all notes, bonds and
other evidences of indebtedness and rights to receive payments arising
out of sales ("Accounts Receivable"), including those identified in
Section 1.1(a)(iii) of the Seller Disclosure Schedule;
(iv) all marketing, sales and promotional literature, books,
records, files, documents, financial records, bills, accounting,
internal and audit records, operating manuals, personnel records,
customer and supplier lists and files, preprinted materials and
similar materials;
(v) all rights, title and interests in and to all real
property leases, including improvements, fixtures, fittings thereon
and appurtenances thereto, including those identified in Section
1.1(a)(v) of the Seller Disclosure Schedule;
(vi) all rights to all telephone numbers related to the
Business and the rights to the names "Monarchy" and "Manchester;"
(vii) all intangible assets, including Intellectual Property,
including the Intellectual Property listed on Section 1.1(a)(vii) of
the Seller Disclosure Schedule;
(viii) all payments, deposits (including security deposits)
and prepaid expenses and all rights to insurance proceeds related to
Assets, if any;
(ix) all raw materials, components, work-in-process, finished
products, inventory, office and other supplies, spare parts, packaging
materials, samples and other accessories related thereto, wherever
located, including any of the foregoing purchased subject to any
conditional sales or title retention agreement in favor of any other
Person, together with all rights against suppliers of such
inventories;
(x) all furnishings, furniture, fixtures, equipment, tools,
machinery, vehicles, art work and other tangible personal property,
including the tangible personal property listed on Section 1.1(a)(x)
of the Seller Disclosure Schedule;
(xi) all rights under warranties, representations and
guarantees made by suppliers, manufacturers or contractors;
(xii) all Permits, including the Permits listed on Section
1.1(a)(xii) of the Seller Disclosure Schedule to the extent such
Permits are transferable by Seller;
(xiii) all cash and cash equivalents such as bank deposits,
certificates of deposit and marketable securities; and
(xiv) all claims and causes of action against other Persons
(regardless of whether or not such claims and causes of action have
been asserted), and all rights of indemnity, warranty rights, rights
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of contribution, rights to refunds, rights of reimbursement and other
rights of recovery (regardless of whether such rights are currently
exercisable).
(b) Excluded Assets. Notwithstanding anything contained herein to the
contrary, Seller shall not sell, assign, transfer, convey or deliver to Buyer,
and Buyer shall not purchase from Seller the following assets, properties,
interests and rights of Seller (the "Excluded Assets"):
(i) the organizational documents, seals, minute books, and
other documents relating exclusively to the organization, maintenance
and existence of Seller as a legal entity, including taxpayer and
other identification numbers, Tax Returns, Tax information and Tax
records, and books and records related exclusively to the Excluded
Assets or the Excluded Liabilities;
(ii) the rights of Seller under this Agreement;
(iii) any refunds (or rights thereto) relating to income
Taxes attributable to Seller for all periods ending on or prior to the
Closing Date;
(iv) any and all receivables due from Securityholders or any
Related Party (as defined in Section 2.20);
(v) automobiles owned by or leased by or for any of the
Securityholders;
(vi) except as provided in Section 1.1(a)(viii), all
insurance policies and rights thereunder; and
(vii) any right, property or asset which is listed in Section
1.1(b)(vii) of the Seller Disclosure Schedule.
Section 1.2 Assumption of Liabilities. Subject to the terms of this
Agreement and excluding the Excluded Liabilities, as of the Closing, Buyer
hereby agrees to assume, pay, discharge and perform the following liabilities
and obligations (collectively, the "Assumed Liabilities"):
(a) the accounts payable and accrued expenses of Seller (including
trade payable obligations of Seller financed by or through X. Xxxxxx) listed in
Section 1.2(a) of the Seller Disclosure Schedule; and
(b) the liabilities and obligations of Seller under the Business
Contracts listed in Section 1.2(b) of the Seller Disclosure Schedule but only
to the extent such obligations (i) arise after the date hereof, (ii) do not
arise from or relate to any breach by Seller of any such Business Contracts and
(iii) do not arise from any event, circumstance or condition occurring or
existing on or prior to the Closing that, with notice or lapse of time, would
constitute or result in a breach of any of such Business Contracts.
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Section 1.3 Excluded Liabilities. Except as expressly provided in
Section 1.2, Buyer shall not assume or be liable for any other Liabilities of
Seller or any other Person, whether or not relating to the Business (the
"Excluded Liabilities"), including the following:
(a) all Liabilities relating to income Taxes attributable to or
imposed upon Seller or any of its affiliates (or for which Seller or any of its
affiliates may otherwise be liable) for any period (or portion thereof) ending
on or prior to the date hereof (including, without limitation, all Liabilities
of Seller and its affiliates for Taxes related to the transactions contemplated
by this Agreement);
(b) any Liability of Seller arising out of or relating to the
execution, delivery or performance of this Agreement;
(c) any Liability of Seller for any fees, costs or expenses of the
type referred to in Section 6.2;
(d) any Liability relating to any Excluded Asset;
(e) indebtedness, including amounts loaned or advanced by any lender,
or loaned or advanced to Seller by the Securityholders or any Related Party,
except trade payable obligations of Seller financed by or through X. Xxxxxx, as
listed in Section 1.2(a) of the Seller Disclosure Schedule;
(f) except as expressly as set forth in Section 1.2 above, any
Liability that relates to, or arises out of, directly or indirectly, the
operation of the Business or Seller's ownership, control or use of the Assets
prior to the date hereof;
(g) any Liability under or otherwise attributable to the Benefit Plans
(as defined in Section 2.14(a)), including any Liability for benefits payable
thereunder;
(h) any Liability in any way attributable to the performance of
services for Seller prior to the date hereof by any employee, independent
contractor or agent of Seller or any other individuals rendering services to
Seller; and
(i) any Liability for payment of bonus compensation based upon the
earnings of Seller or the payment of any bonus contingent upon the sale of the
Assets or calculated with respect to the Purchase Price.
Section 1.4 Purchase Price; Allocation.
(a) Upon the terms and subject to the conditions set forth herein, in
consideration for the aforesaid sale, assignment, transfer and conveyance of
the Assets, Buyer shall (i) deliver or cause to be delivered to Seller at the
Closing $12,000,000 (the "Closing Payment"), (ii) deliver or cause to be
delivered to Seller the payments, if any, required by Section 1.8 at such time
as any such payments are required and (iii) pay at the Closing the amounts
identified in Section 1.4(a) of the Seller Disclosure Schedule as owing to the
creditors of Seller identified on such schedule. For purposes of this
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Agreement, "Purchase Price" means the sum of the Closing Payment and any
payments made pursuant to Section 1.8 (Earnout Payment).
(b) The Purchase Price (plus the Assumed Liabilities assumed pursuant
to Section 1.2(a) and the amounts referred to in Section 1.4(a)(iii)) will be
allocated among the Assets and the restrictive covenant contained in Section
4.5 in the manner required by Section 1060 of the Internal Revenue Code of
1986, as amended (the "Code"). Within 90 days following the date hereof, Buyer
shall prepare and deliver to Seller IRS Form 8594 and any required exhibits
thereto, setting forth the allocation of the Purchase Price (plus the Assumed
Liabilities and the amounts referred to in Section 1.4(a)(iii)) among the
Assets and the restrictive covenant contained in Section 4.5 in the manner
required by Section 1060 of the Code. At Buyer's option, Buyer may engage, at
Buyer's expense, an independent appraisal firm selected by Buyer to determine
the fair market value of the Assets to facilitate such allocation. If any
addition to the Purchase Price is made pursuant to Section 1.8(f), the amount
of such addition will be allocated by the Buyer among the Assets in accordance
with Section 1060 of the Code. Buyer and Sellers agree to file any additional
Tax Return required to be filed pursuant to Section 1060 of the Code or other
applicable local law.
(c) Seller and Buyer shall (i) be bound by the allocation for all Tax
purposes; (ii) prepare and file all Tax Returns in a manner consistent with the
allocation; and (iii) take no position inconsistent with the allocation in any
Tax Return, any proceeding before any taxing authority or otherwise. In the
event that the allocation is disputed by any taxing authority, the party
receiving notice of such dispute shall promptly notify and consult with the
other party and keep the other party apprised of material developments
concerning resolution of such dispute.
Section 1.5 Closing. The purchase and sale of the Assets (the
"Closing") shall take place at the offices of Skadden, Arps, Slate, Xxxxxxx &
Xxxx LLP, 000 X. Xxxxxx Xxxxx, Xxxxxxx, XX 00000, at 10:00 a.m. Chicago time on
the date hereof or such other time and place as the parties may agree.
Section 1.6 Deliveries by Seller. At the Closing, Seller shall
deliver, or cause to be delivered, to Buyer the following:
(a) one or more assignments and bills of sale for the Assets, in a
form reasonably satisfactory to Buyer;
(b) instruments of assignment with respect to the Intellectual
Property and real property leases included in the Assets;
(c) a certification of non-foreign status of Seller in the form which
complies with the requirements of Section 1445 of the Code and the regulations
promulgated thereunder;
(d) employment agreements with each of EKim and HKim, duly executed by
EKim and HKim, as applicable (the "Employment Agreements"),
(e) an opinion of XxXxxxxxx Will & Xxxxx LLP, counsel to the Selling
Parties, dated as of the date hereof, substantially in the form of Exhibit A
attached hereto;
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(f) a collateral access letter from the lessor under each Real
Property Lease, substantially in the form of Exhibit B attached hereto;
(g) an estimated statement of the Assets and the Assumed Liabilities
as of the close of business on August 13, 2007, which shall be prepared in good
faith in conformity with GAAP (which statement shall be for Buyer's convenience
only and shall not subject any Selling Party to any additional liability);
(h) payoff letters, substantially in the form provided by Buyer, from
PBC; and
(i) all other previously undelivered documents, instruments or
writings required to be delivered by any of the Selling Parties to Buyer at or
prior to the Closing, pursuant to this Agreement or otherwise required in
connection herewith.
Section 1.7 Deliveries by Buyer. At the Closing, Buyer shall deliver,
or cause to be delivered, to Seller the following:
(a) the Closing Payment, by wire transfer of immediately available
funds to an account or accounts designated in writing by Seller;
(b) an assumption agreement with respect to the Assumed Liabilities,
in a form reasonably satisfactory to Seller;
(c) the Employment Agreements;
(d) an opinion of Xxxxx X. Xxxxxxx, General Counsel of Hartmarx and
counsel to Buyer, dated as of the date hereof, substantially in the form of
Exhibit C attached hereto; and
(e) all other previously undelivered documents, instruments or
writings required to be delivered by Buyer to Seller at or prior to the
Closing, pursuant to this Agreement or otherwise required in connection
herewith.
Section 1.8 Earnout Payment.
(a) As soon as practicable, but in no event later than 90 days
following the end of each Earnout Payment Period, Buyer shall deliver to
Seller, a written computation statement prepared by Buyer setting forth in
reasonable detail the calculation of EBIT and the Earnout Payment, if any, for
such Earnout Payment Period (the "Earnout Payment Statement"). The Earnout
Payment Statement shall be prepared in good faith and in conformity with GAAP.
(b) After receipt of the Earnout Payment Statement, Seller shall have
30 days to review it. Seller and its representatives shall have reasonable
access during normal business hours to all relevant books and records and
employees of Buyer in connection with Seller's review of the Earnout Payment
Statement. Unless Seller delivers written notice to Buyer on or prior to the
30th day after receipt of the Earnout Payment Statement of its disagreement as
to any amount or calculation included in or omitted from the Earnout Payment
Statement specifying in reasonable detail the basis for its disagreement (an
"Objection"), (i) Seller shall be deemed to have accepted and agreed to the
Earnout Payment Statement and (ii) Buyer shall pay to Seller the full amount of
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the Earnout Payment set forth therein within five (5) business days after the
earlier of (x) the expiration of such 30-day period and (y) the date Seller
informs Buyer that it has no Objection. If Seller so notifies Buyer of such an
Objection to an Earnout Payment Statement, Seller and Buyer shall, within 30
days following the date of such notice (the "Earnout Resolution Period"),
attempt to resolve their differences. Any resolution by them as to any disputed
amount shall be final, binding, conclusive and nonappealable. Any amounts set
forth in the Earnout Payment Statement which are not in dispute ("Undisputed
Amounts") shall be paid by Buyer in immediately available funds by wire
transfer to the account(s) designated by Seller within five (5) business days
after the date on which Seller notifies Buyer that such amounts are not in
dispute.
(c) If at the conclusion of an Earnout Resolution Period there are
amounts still remaining in dispute, then all amounts remaining in dispute shall
be submitted to a firm of nationally recognized independent public accountants
reasonably acceptable to Buyer and Seller (the "Neutral Auditor"). If the Buyer
and the Seller are unable to agree on the choice of an accounting firm, they
shall select a nationally recognized accounting firm by lot (after excluding
their respective regular outside accounting firms). Buyer and Seller agree to
execute, if requested by the Neutral Auditor, a reasonable engagement letter.
The Neutral Auditor shall act as an arbitrator to determine, based solely on
presentations by Buyer and Seller, and not by independent review, only those
amounts still in dispute. The Neutral Auditor's determination shall be made
within 30 days of its engagement, shall be set forth in a written statement
(which shall include specific modifications or adjustments to those amounts or
calculations in the Earnout Payment Statement that are in dispute) delivered to
Buyer and Seller and shall be final, binding, conclusive and non-appealable.
The fees and expenses of the Neutral Auditor shall be allocated between Buyer
and Seller so that Seller's share of such fees and expenses shall be equal to
the product of (i) and (ii), where (i) is the aggregate amount of such fees and
expenses, and where (ii) is a fraction, the numerator of which is the amount in
dispute that is ultimately unsuccessfully disputed by Seller (as determined by
the Neutral Auditor) and the denominator of which is the total amount in
dispute submitted to arbitration. The term "Final Earnout Payment Statement,"
means a definitive Earnout Payment Statement accepted by Seller or agreed to by
Buyer and Seller in accordance with Section 1.8(b) or a definitive Earnout
Payment Statement resulting from the determinations made by the Neutral Auditor
in accordance with this Section 1.8(c) (in addition to those items theretofore
accepted by Seller or agreed to by Buyer and Seller).
(d) The Earnout Payments, if any, as reflected on a Final Earnout
Payment Statement, shall be paid in immediately available funds by wire
transfer to the account(s) designated by Seller in accordance with Section
1.8(b) in the case there is no Objection or Undisputed Amounts, and within five
(5) business days after the date that the applicable Final Earnout Payment
Statement is agreed to by Seller and Buyer or is determined by the Neutral
Auditor as to Disputed Amounts.
(e) For purposes of this Section 1.8:
(i) "Earnout Payment" shall be calculated for each Earnout
Payment Period as follows (with EBIT for each such Period computed
separately and without regard to any other period, and with each such
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Payment determined without any cap or limitation as to amount as to
each such Period or in the aggregate):
(A) if EBIT is less than $3.0 million, there shall
be no Earnout Payment;
(B) if EBIT is $3.0 million or greater but less than
$7.0 million, the Earnout Payment shall be an amount equal to
25% of EBIT; and
(C) if EBIT is $7.0 million or greater the Earnout
Payment shall be calculated as the sum of the following
amounts, as applicable:
(2) for the entire amount of such EBIT up to and including
$10 million, an amount equal to 30% of such amount; plus
(3) for any portion of such EBIT greater than $10 million, an
amount equal to 35% of such portion.
(ii) "Earnout Payment Period" means each of the 12-month
periods beginning December 1 and ending November 30 during the
seven-year period beginning December 1, 2007 and ending November 30,
2014.
(iii) "EBIT" means for each Earnout Payment Period, the
earnings of the Business as conducted by Buyer before interest and
income Taxes for such period calculated in accordance with GAAP
utilized by Buyer and excluding (a) all interest expense and other
financing costs of Buyer related to the financing of the Closing
Payment, any Earnout Payments or the assets employed in the Business,
(b) amortization of goodwill, if any, related to the Business or
Assets; provided, that the calculation of EBIT shall exclude the
impact of purchase accounting adjustments arising from applying the
provisions of Financial Accounting Standards Nos. 141 and 142 from
time to time for the potential impact, if any, of goodwill impairment
and goodwill amortization and amortization of intangibles arising from
the allocation of the Purchase Price and shall also exclude
non-specific or general allocations of Hartmarx corporate
administrative expenses (as set forth in 1.9(a) below), (c) any fees
or expenses incurred by Buyer or Hartmarx relating to the transactions
contemplated by this Agreement, and (d) any Losses (as defined in
Section 5.2 below) of Buyer which gives rise to an indemnity payment
which is actually received by Buyer pursuant to the indemnification
provisions of Section 5.2(a).
(f) Buyer and Seller agree that payments made pursuant to this Section
1.8 will be treated for Tax purposes as adjustments to the Purchase Price and
shall be allocated to goodwill; provided, however, that a portion of the
payments made pursuant to this Section 1.8 shall be treated as imputed interest
for tax purposes to the extent required by applicable law.
Section 1.9 Covenants During Earnout Payment Periods. From the Closing
and continuing until November 30, 2014:
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(a) EKim shall serve as the President of Buyer pursuant to the terms
and conditions of his Employment Agreement with the Buyer (it being understood
that nothing herein shall limit any of Buyer's rights to terminate EKim's
employment in accordance with the terms of his Employment Agreement).
(b) No general corporate overhead expenses of Hartmarx shall be
allocated to the Business in determining EBIT for any Earnout Payment Period;
provided that, the Business shall be charged for services, employees and other
costs of Hartmarx or any of its Affiliates to the extent such costs are
attributable to the operation of the Business or employees of the Business
(such as for, but not limited to, audit, legal, insurance and treasury) at the
same rate generally charged to Hartmarx other businesses for similar services
consistent with Hartmarx applicable accounting practices.
(c) At Closing, Buyer shall initially adopt the various operating
practices followed by Seller including, but not limited to, sales practices,
price increases or decreases, inventory procurement, customer relations,
employee base salary and bonus opportunities (other than the salary and bonus
opportunities for the EKim and HKim, which shall be governed by their
respective Employment Agreements with Buyer) and the accounting thereof. The
day-to-day operational decisions and decision-making authority with respect to
the operations of the Business shall be made by EKim (for so long as he serves
as President of Buyer), consistent with the provisions of this Section 1.9(b)
and the authority of similar Hartmarx operating unit executives and subject to
Hartmarx' general policies and procedures, including such policies and
procedures relating to GAAP, financial reporting and compliance with financing
arrangements. Seller, Securityholders, and Buyer acknowledge that changes in
the general economic conditions of the retail and apparel industries or to
other factors could result in changes to Buyer's business practices in the
future; provided, however, that during the Earnout Payment Period, Buyer will
consult with EKim (for so long as EKim serves as President of Buyer) with
respect to any such proposed changes in business practices to the extent that
they relate to the Business. Annual budgets, capital expenditure plans and
long-term plans shall be prepared by EKim (for so long as EKim serves as
President of Buyer) and reviewed and approved by Hartmarx in a manner
substantially consistent with other Hartmarx operating units. However, Hartmarx
may require such changes and may make such operational decisions regarding the
Business as it deems appropriate in its sole discretion if the Business is not
operated in accordance with such approved annual budgets, capital expenditure
plans and long-term plans, or if general economic conditions or other factors
make it necessary, appropriate or advisable for Buyer to change its operating
practices, consistent with Hartmarx' over-all responsibilities for the
corporate enterprise as a whole and its rights as the sole stockholder of
Buyer; provided, however, that during the Earnout Payment Period, Buyer will
consult with EKim (for so long as EKim serves as President of Buyer) with
respect to any such proposed changes.
(d) Buyer will be operated as a separate entity or separate division
sufficient to permit the calculation of EBIT and the Earnout Payment provided
in Section 1.8.
(e) The headquarters of the Business and the principal place of
business of the Buyer shall be in the Los Angeles, California metropolitan
area.
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(f) In the event that during the Earnout Payment Period, Buyer or the
Business is sold or transferred to any Person that is not a direct or indirect
wholly-owned subsidiary of Hartmarx as an entirety whether by stock sale, sale
of all or substantially all of its assets, merger or otherwise (a "Sale
Transaction"), then, within five (5) days after the closing of such Sale
Transaction, Buyer shall deliver to the Selling Parties written notice of such
Sale Transaction (which notice shall include the identity of such Person and
all financial and strategic information in Buyer's or Hartmarx's possession
regarding such Person). Upon written notice from the Selling Parties delivered
to Buyer not later than thirty (30) days following receipt of the aforesaid
notice from Buyer, the Selling Parties shall have the right to elect to be paid
a lump sum payment (the "Lump Sum Payment") equal to the product of (i) (y) the
sum of all Earnout Payments paid or payable with respect to Earnout Payment
Periods completed prior to the consummation of the Sale Transaction divided by
(x) the number of Earnout Payments included in clause (y) above in lieu of the
Earnout Payments and (ii) the number of complete Earnout Payment Periods
remaining after the consummation of the Sale Transaction; provided, however,
that if a Sale Transaction is consummated during the first Earnout Payment
Period and the Selling Parties elect the Lump Sum Payment, the Lump Sum Payment
shall be $12,500,000. If elected by the Selling Parties, the Lump Sum Payment
shall be paid to Seller by wire transfer of immediately available funds within
sixty (60) days after Buyer's or Hartmarx's receipt of the Selling Parties'
election pursuant to this Section 1.9(f). If the Selling Parties do not elect
to be paid the Lump Sum Payments, then the provisions of Sections 1.8 and 1.9
shall remain in full force and effect, and, in the case of a Sale Transaction
in the form of a sale of all or substantially all of the assets of Buyer, Buyer
will deliver a written instrument executed by the purchaser of the Business
assuming the obligations of Buyer under this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLING PARTIES
The Selling Parties jointly and severally represent and warrant to
Buyer that:
Section 2.1 Corporate Organization; Subsidiaries.
(a) Seller (i) is duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation or organization; (ii)
has full power and authority to carry on its businesses as it is now being
conducted by it and to own the properties and assets it now owns; and (iii)
except as disclosed in Section 2.3 of the Seller Disclosure Schedule, is duly
qualified or licensed to do business as a foreign Person in good standing in
all the jurisdictions in which such qualification or licensing is required.
Each jurisdiction in which Seller is qualified or licensed is listed in Section
2.1(a) of the Seller Disclosure Schedule. True and complete copies of the
Articles of Organization and Limited Liability Company Operating Agreement of
Seller, as amended to date, have been delivered to Buyer.
(b) Seller does not, directly or indirectly, own, of record or
beneficially, any equity interests in any Person.
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Section 2.2 Authorization. Each Securityholder is competent and has
full power, and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. Seller has the full power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
Seller of this Agreement and the consummation of the transactions contemplated
hereby, have been duly authorized and no other limited liability company or
securityholder actions on the part of Seller are necessary to authorize the
execution and delivery by Seller of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Selling Parties, and (assuming due and valid authorization,
execution and delivery hereof by Buyer) is a valid and binding obligation of
the Selling Parties enforceable against the Selling Parties in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
by the availability of equitable remedies.
Section 2.3 Consents and Approvals; No Violation. Except as disclosed
in Section 2.3 of the Seller Disclosure Schedule, neither the execution,
delivery or performance of this Agreement by any of the Selling Parties nor the
consummation by any of the Selling Parties of the transactions contemplated
hereby will (i) conflict with or violate any provision of the organizational
documents of Seller; (ii) conflict with or 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 notice, modification, payment, termination,
cancellation or acceleration) under, or result in the creation of any Lien upon
any of the assets or properties of any of the Selling Parties under, any of the
terms, conditions or provisions of any material note, bond, mortgage,
indenture, lease, license, permit, contract, agreement or other instrument,
obligation, arrangement or understanding to which any of the Selling Parties is
a party or by which any of them or any of their properties or assets may be
bound; (iii) violate any order, writ, judgment, injunction, decree, material
law, material statute, material rule or material regulation or other similar
authoritative matter ("Law") applicable to any of the Selling Parties or any of
their properties or assets or (iv) require on the part of any of the Selling
Parties any material filing or registration with, notification to, or
authorization, consent or approval of, any court, legislative, executive or
regulatory authority or agency (a "Governmental Authority") or any other
Person.
Section 2.4 Financial Statements. Seller has heretofore delivered to
Buyer (i) the unaudited balance sheet of Seller (including its predecessors)
and the related statements of income, cash flows and changes in partners'
capital as of, and for the fiscal year ended, December 31, 2006, (ii) the
unaudited balance sheet of Seller and the related statements of income, cash
flows and changes in partners' capital as of, and for the six month period
ended, June 30, 2007 ((i) and (ii) collectively, the "Financial Statements").
Except as disclosed in Section 2.4 of the Seller Disclosure Schedule, the
Financial Statements are true, complete and accurate in all material respects
and fairly present in all material respects the financial position of Seller as
of the respective dates thereof, and the results of operations of Seller for
the periods then ended. The Financial Statements have been derived from the
books and records of Seller and are consistent with the books and records of
Seller. Except as disclosed in Section 2.4 of the Seller Disclosure Schedule,
the Financial Statements have been prepared in accordance with GAAP
consistently applied throughout the periods involved (subject to the normal
year end adjustments, none of which are, individually or in the aggregate,
material). As used herein, the term "Balance Sheet" shall refer to the
unaudited balance sheet of Seller as of June 30, 2007.
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Section 2.5 No Undisclosed Liabilities. Seller has no Liabilities of
any kind whatsoever, and none of the Selling Parties know of any valid basis
for the assertion of any such Liabilities, and, to Seller's knowledge, no
existing condition, situation or set of circumstances exists which could be
expected to result in a Liability, other than:
(a) Liabilities which are adequately and expressly reflected and
reserved for in the Balance Sheet;
(b) Liabilities incurred in the ordinary course of business consistent
with past practice since June 30, 2007; and
(c) Liabilities and obligations that are set forth in Section 2.5(c)
of the Seller Disclosure Schedule.
Section 2.6 Absence of Certain Changes. Except (x) for the transaction
contemplated by or entered into by Seller in connection with the transactions
contemplated by this Agreement (including the Reorganization) and (y) as and to
the extent set forth in Section 2.6 of the Seller Disclosure Schedule, since
December 31, 2006, (A) the Seller has conducted the Business only in the
ordinary course of business consistent with past practice, including but not
limited to, (i) fabric and production commitments, (ii) inventory, (iii)
scheduling and delivery, (iv) customer pricing and shipping arrangements and
(v) employment practices, and (B) Seller has not:
(a) suffered any adverse change in its business, customers, prospects
(to Seller's knowledge), operations, properties, working capital, condition
(financial or otherwise), assets, properties or Liabilities which resulted in
or could reasonably be expected to, in each case, result, individually or in
the aggregate, in a Material Adverse Effect, and there has not been any damage,
destruction, loss or other event which resulted in or could reasonably be
expected to, in each case, result, individually or in the aggregate, in a
Material Adverse Effect;
(b) incurred any Liabilities except current Liabilities for trade or
business obligations in connection with the purchase of goods or services in
the ordinary course of business consistent with past practice;
(c) paid, discharged or satisfied any Liabilities other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of current Liabilities incurred in the ordinary
course of business consistent with past practice;
(d) permitted or allowed any of its properties or assets (real,
personal or mixed, tangible or intangible) to be subjected to any Liens, except
for Permitted Liens;
(e) written down the value of any inventories or written off as
uncollectible any accounts receivable, in either case, other than in the
ordinary course of business consistent with past practice, and in amounts which
are not, individually or in the aggregate, material;
(f) cancelled any debts or waived any claims or rights;
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(g) sold, transferred, or otherwise disposed of any of its properties
or assets (real, personal or mixed, tangible or intangible), except in the
ordinary course of business consistent with past practice;
(h) disposed of or permitted to lapse any Intellectual Property
rights, or disposed of or disclosed to any Person, other than representatives
of Buyer, any Intellectual Property rights not theretofore a matter of public
knowledge;
(i) made any change in the rate of compensation (except for routine
annual merit or cost of living salary increases), commission, bonus or other
direct or indirect remuneration payable, or paid or agreed or orally promised
to pay, conditionally or otherwise, any bonus, incentive, retention or other
compensation, or made any addition to or other change in any retirement,
welfare, fringe or severance benefit or vacation plan, to or in respect of any
shareholder, director, officer, employee, broker, salesman, distributor or
agent;
(j) made any material change in its selling, purchasing, pricing,
advertising or personnel practices;
(k) instituted, settled or agreed to settle any litigation, action or
proceeding by or before any Governmental Authority;
(l) made any single capital expenditure or commitment in excess of
$25,000 for additions to property, plant, equipment or intangible capital
assets or made aggregate capital expenditures and commitments in excess of
$50,000 for additions to property, plant, equipment or intangible capital
assets;
(m) made any change in any method of financial or Tax accounting or
reporting or financial or Tax accounting or reporting practice; or
(n) agreed, whether in writing or otherwise, to take any action
described in this Section 2.6.
Section 2.7 Real Property.
(a) Seller does not own any real property.
(b) Section 1.1(a)(v) of the Seller Disclosure Schedule contains a
complete list of all real property leased by Seller, together with all leases
related to such properties (the "Real Property Leases"). Seller has heretofore
made available to Buyer true and complete copies of the Real Property Leases
(including any amendments, modifications or supplements thereto). Each Real
Property Lease is legal, valid, binding, enforceable, and in full force and
effect, except as enforcement may be limited by bankruptcy, insolvency,
reorganization and similar laws affecting creditors generally and by the
availability of equitable remedies. Neither Seller, nor to Selling Parties'
knowledge any other party, is in default, violation or breach in any material
respect under any Real Property Lease, and no event has occurred and is
continuing that constitutes or, with notice or the passage of time or both,
would constitute a default, violation or breach either by Seller, or, to the
Selling Parties' knowledge, any other party, in any material respect under any
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Real Property Lease. The Seller has good and valid title to the leasehold
estate under each Real Property Lease to which it is a party, free and clear of
all Liens, other than Permitted Liens.
Section 2.8 Intellectual Property. Except for any fabric prints,
fabric patterns, line sheets and similar sketches and designs ("Designs"),
Section 1.1(a)(vii) of the Seller Disclosure Schedule sets forth a true and
complete list of all Intellectual Property used or held for use in connection
with the operation of the Business or the design or manufacture of any products
sold by the Business or owned or licensed by Seller, together with all licenses
related to the foregoing, whether Seller is the licensee or licensor thereunder
(such Intellectual Property, together with the Designs, the "Business
Intellectual Property"). Seller either owns, or is licensed to use all of the
Business Intellectual Property in connection with the Business as currently
conducted or proposed to be conducted, and the consummation of the transactions
contemplated by this Agreement will not alter or impair such ability in any
respect. There are no oppositions, cancellations, invalidity proceedings,
interferences, re-examination or other proceedings presently pending with
respect to the Business Intellectual Property. To the knowledge of Seller, the
conduct of the Business and the Business Intellectual Property has not
infringed and does not infringe on any Intellectual Property or other
proprietary rights of any Person. No Selling Party has received any notice from
any other Person pertaining to or challenging the right of Seller to use any
Business Intellectual Property, other than the office actions issued by
trademark office examiners, as described in Section 2.8 of the Seller
Disclosure Schedule. Seller has not made any claim of a violation or
infringement by others of its rights to or in connection with Business
Intellectual Property, other as described in Section 2.8 of the Seller
Disclosure Schedule
Section 2.9 Certain Contracts.
(a) Section 2.9(a) of the Seller Disclosure Schedule lists, by
reference to the applicable subsection of this Section 2.9(a), all material
contracts, agreements, leases, instruments, obligations, joint ventures,
partnerships, arrangements or other understandings (whether written or oral),
to which Seller is a party or by which it or any of the Assets may be bound or
affected (the "Listed Business Contracts"), including (i) employment or other
contracts (including non-competition, confidentiality, loans to employees,
directors or officers, severance or indemnification agreements) with or in
respect of any employee or current or former officer or director or
securityholder of Seller; (ii) consulting contracts; (iii) instruments for
borrowed money (including any indentures, guarantees, loan agreements, sale and
leaseback agreements, mortgages, pledges, hypothecations, deeds of trust,
conditional sale or title retention agreements, security agreements or
equipment financing obligations); (iv) agreements for acquisitions or
dispositions (by merger, purchase or sale of assets or stock or otherwise) of
material assets, as to which Seller has continuing obligations or rights; (v)
joint venture or partnership agreements, licensing arrangements, contracts for
sharing of profits or proprietary information; (vi) purchase contracts or
agreements giving rise to Liabilities of Seller; (vii) guarantees, suretyships,
indemnification, contribution agreements or other sources of contingent
liability in respect of any indebtedness or obligations of any other Person;
(viii) leases of personal property; (ix) all contracts providing for payments
by or to Seller or any of Securityholders in excess of $25,000 per year; (x)
contracts obligating Seller to provide or obtain products or services for a
period of one year or more; (xi) contracts containing covenants purporting to
limit Seller's freedom to compete with any Person or in any geographic area;
(xii) contracts for construction or the purchase of real estate, improvements,
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equipment, machinery and other items which under GAAP constitute capital
expenditures or which involve or are reasonably expected to involve capital
expenditures; (xiii) contracts relating to Business Intellectual Property (not
otherwise identified in Section 1.1(a)(vii) of the Seller Disclosure Schedule);
(xiv) any agreement or contract not terminable or cancelable by Seller upon
notice of not longer than 60 days and without liability, penalty or premium;
and (xv) any agreement or contract which was not made in the ordinary course of
business consistent with past practice.
(b) Seller has heretofore provided to Buyer a true and complete copy
(or a written description in the case of an oral Listed Business Contract) of
each Listed Business Contract (together with all amendments thereto). Each
Listed Business Contract is a legal, valid and binding obligation of Seller
and, to the knowledge of Selling Parties, the other parties thereto enforceable
against Seller, to the knowledge of Seller, such other parties in accordance
with its terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization and similar laws affecting creditors generally and
by the availability of equitable remedies. Neither Seller nor, to Seller's
knowledge, any other party is in default, violation or breach in any material
respect under any Listed Business Contract, and to the knowledge of Selling
Parties, no event has occurred and is continuing that constitutes or with
notice or the passage of time would constitute, a material default, violation
or breach in any respect under any Listed Business Contract.
Section 2.10 Permits and Other Authorizations. Except for any
manufacturing licenses required in connection with the Business and other items
specified therein, Section 2.10 of the Seller Disclosure Schedule lists all
licenses, permits, franchises and other authorizations of any Governmental
Authority (the "Permits") necessary or for the conduct of the Business as
currently conducted or proposed to be conducted except where the failure to
have such Permits would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Except for any manufacturing
licenses required in connection with the Business and as otherwise set forth in
Section 2.10 of the Seller Disclosure Schedule, all such Permits are in full
force and effect, and no proceeding is pending or, to the knowledge of the
Selling Parties, threatened seeking the revocation or limitation of any such
Permit.
Section 2.11 Assets. Except as set forth on Section 2.11 of the Seller
Disclosure Schedule, Seller owns all of the Assets, and shall transfer to Buyer
at the Closing, good, valid and marketable title (in the case of the Real
Property Leases, valid leasehold interests therein) to the Assets, free and
clear of all Liens, except Permitted Liens. The Assets include all rights,
properties and other assets (tangible or intangible) used to conduct the
Business or necessary to permit Buyer to conduct the Business after the Closing
in the same manner as the Business has been conducted by Seller prior to the
date hereof. The equipment included in the Assets is in all material respects
(i) structurally sound with no known defects, (ii) in good operating condition
and repair and (iii) adequate for the uses to which it is being put. None of
such equipment is in need of material maintenance or repairs except for
ordinary, routine maintenance and repairs which are not material in nature or
cost. Neither the whole nor any portion of any Asset is subject to any
governmental decree or order to be sold or is being condemned, expropriated or
otherwise taken by any public authority with or without payment of compensation
therefor, nor, to the knowledge of Selling Parties, has any such condemnation,
expropriation or taking been proposed.
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Section 2.12 Insurance. Section 2.12 of the Seller Disclosure Schedule
contains an accurate and complete list of all policies of property, fire,
liability, worker's compensation and other forms of insurance owned or held by
Seller. Seller has heretofore delivered copies of such insurance policies to
Buyer. All such policies are in full force and effect, and all premiums with
respect thereto covering all periods up to the date hereof have been paid, and
no notice of cancellation or termination has been received with respect to any
such policy. Such policies: (a) are sufficient for compliance with all
requirements of Law and of all contracts to which Seller is a party; (b) are
valid, outstanding and enforceable; and (c) to Selling Parties knowledge,
provide adequate insurance coverage for Seller's assets and operations.
Section 2.13 Labor Relations. Except to the extent set forth in
Section 2.13 of the Seller Disclosure Schedule: (a) Seller is not a party to
any collective bargaining agreements, other contracts, agreements, arrangements
or understandings, written work rules or practices agreed to with any labor
organization, employee association or works council; (b) Seller is and at all
times has been in compliance in all material respects with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment, occupational safety and health and wages and hours, and is not
engaged in any unfair labor practice as defined in the National Labor Relations
Act or other applicable Law; (c) there is no labor strike, dispute, slowdown,
lockout or stoppage pending or, to the knowledge of Selling Parties, threatened
against or affecting Seller or the Business and during the past five (5) years
there has not been any such action; (d) none of the employees employed by
Seller is represented by a labor organization, employee association or works
council and to Selling Parties' knowledge, there are no current union
organizing activities among such employees, nor does any question concerning
representation exist concerning such employees; and (e) there are no written
personnel policies, rules or procedures applicable to employed by Seller, other
than those set forth in Section 2.13 of the Seller Disclosure Schedule, true
and correct copies of which have heretofore been delivered to Buyer.
Section 2.14 Benefit Plans; ERISA.
(a) Section 2.14(a) of the Seller Disclosure Schedule contains a true
and complete list of each deferred compensation plan, each incentive
compensation or equity compensation plan, "welfare" plan, fund or program
(within the meaning of Section 3(1) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")); "pension" plan, fund or program (within the
meaning of Section 3(2) of ERISA); each employment, retention, 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 Seller or by any trade or
business, whether or not incorporated (an "ERISA Affiliate"), that together
with Seller would be deemed a "single employer" within the meaning of Section
414(b), (c), (m) or (o) of the Code, or to which Seller or an ERISA Affiliate
is party, whether written or oral, for the benefit of any employee or former
employee of Seller or any affiliate or subsidiary of Seller (the "Benefit
Plans").
(b) No Benefit Plan is or ever has been subject to Title IV or Section
302 of ERISA. No liability under Title IV or Section 302 of ERISA has been
incurred by Seller or any ERISA Affiliate that has not been satisfied in full,
and no condition exists that presents a material risk to Seller or any ERISA
Affiliate of incurring any such liability.
16
(c) Each Benefit Plan has been operated and administered in accordance
with its terms and applicable law, including but not limited to ERISA and the
Code.
(d) Each 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.
(e) Except as set forth in Section 2.14(e) of the Seller Disclosure
Schedule, 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 Seller or any ERISA Affiliate (or any
other Person in respect of whom Seller or any ERISA Affiliate could have any
Liability) to severance pay, unemployment compensation or any other payment or
benefit or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee, officer or other person.
(f) No representations or communications, oral or written, with
respect to the participation, eligibility for benefits, vesting, benefit
accrual or coverage under any Benefit Plan have been made to employees,
directors, agents or leased employees (or any of their representatives or
beneficiaries) of Seller which are not in all material respects in accordance
with the terms and conditions of the Benefit Plans.
(g) Neither Seller nor any ERISA Affiliate has used the services or
workers provided by third party contract labor suppliers, temporary employees,
leased employees, or individuals who have provided services as independent
contractors who may be eligible to participate in the Benefit Plans or used the
services of individuals to an extent that could result in the disqualification
of any of the Benefit Plans or the imposition of penalties or excise Taxes with
respect to the Benefit Plans by the Internal Revenue Service, the Department of
Labor or any other Governmental Authority.
(h) There are no pending or, to the knowledge of Sellers, threatened,
claims by, or on behalf of, any of the benefit Plans, by any employee or
beneficiary covered under any Benefit Plan or otherwise involving any Benefit
Plan (other than routine claims for benefits).
Section 2.15 Taxes.
(a) (i) Except as set forth in Section 2.15(a) of the Seller
Disclosure Letter, Seller has duly and timely filed, or will so file when due,
with the appropriate Governmental Authorities (or there have been or will be
duly and timely filed on their behalf) all Tax Returns required to be filed by
it or with respect to the Business (including Tax Returns relating to the
payment of the Purchase Price), and all such Tax Returns were or will be true,
correct and complete when filed, (ii) all Taxes of Seller, which have become,
will become or are due, and any assessments received by Seller, regarding any
period through or ended prior to the date hereof (including any Taxes due as a
result of its receipt of the Purchase Price) have been timely paid (or will be
duly and timely paid and adequate reserves have been made therefor) except for
Taxes that are being contested by Seller in good faith by appropriate
proceedings and for which adequate reserves have been made, and (iii) no notice
of a claim, audit or pending investigation has been received by Seller, or to
17
knowledge of Selling Parties, has been threatened, by any federal, state,
local, foreign or other jurisdiction with respect to Taxes.
(b) No waivers or comparable consents regarding the application of the
statute of limitations with respect to any Taxes or Tax Return have been
executed by Seller.
(c) Section 2.15(c) of the Seller Disclosure Schedule sets forth a
list of each jurisdiction with respect to which Seller has filed a Tax Return
during the last three years, the type of Tax or Taxes to which such Tax Return
relates (e.g., sales Tax, income Tax, etc.), the latest year for which such Tax
Return was filed and a description of the transaction(s), if applicable, to
which such Tax Return relates.
(d) No claim has ever been made by an authority in a jurisdiction
where Seller has not filed Tax Returns that Seller is or may be subject to
taxation by that jurisdiction.
(e) Seller is not a "Foreign Person" within the meaning of Section
1445(a) of the Code.
(f) There are no Liens for Taxes upon any of the Assets, other than
Liens for Taxes not yet due and payable.
(g) Seller has duly and timely withheld, and paid to the proper
Governmental Authority when due, all Taxes required to be withheld and paid.
Section 2.16 Environmental Matters. To Selling Parties' knowledge,
Seller (a) is and has been in compliance in all material respects with all Laws
relating to pollution or protection of human health or the environment
("Environmental Laws"), and (b) has not received any written communication,
notice or claim alleging that it is not in such compliance or otherwise has any
Liability or potential Liability under Environmental Laws. To Selling Parties'
knowledge, there are no facts or circumstances, including the release of any
hazardous substance at any property currently or formerly owned or operated by
Seller, that could result in any Liability under Environmental Laws, except for
any such Liability which would not reasonably be expected to have a Material
Adverse Effect.
Section 2.17 Litigation. Except as set forth in Section 2.17 of the
Seller Disclosure Schedule, there is no action, claim, suit, inquiry, judicial
or administrative proceeding, audit or investigation by or before any
Governmental Authority or arbitral body pending or to Selling Parties'
knowledge, threatened against or involving Seller, the Business or the Assets.
Seller is not subject to any judgment, order, injunction, rule or decree of any
Governmental Authority or arbitral body.
Section 2.18 Compliance with Law. The Business has been conducted in
all material respects in accordance with all applicable Laws and other
requirements of all Governmental Authorities, including all Laws and other
requirements relating to customs, customs reporting, the payment of applicable
duties or the import or export of goods or services. Seller has not received
any notification of any asserted present or past failure by Seller to comply
with such Laws or other requirements.
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Section 2.19 Personnel. (a) Section 2.19 of the Seller Disclosure
Schedule sets forth a list of all employees of Seller as of the date hereof.
Such list indicates as to each such individual: (i) date of commencement of
service; (ii) job title or brief job description and place of work; (iii)
annualized salary and bonus, if applicable, or other rate of pay for the fiscal
year ended December 31, 2007; (iv) with respect to salaried individuals, the
date of the last salary increase; and (v) any commitments or arrangements with
such individuals as to salary or bonus, if applicable, or other rate of pay. To
the knowledge of the Seller, no such individual has any plans to terminate his
or her employment with or service to the Business as a result of the
transactions contemplated by this Agreement or otherwise.
(b) To Selling Parties' knowledge and based on documents and
identification furnished by such employees reviewed by Seller and maintained or
retained in Seller's files, each such employee has such citizenship, residence
or resident alien status as permits the hiring of such employee under the
Immigration and Nationality Act.
Section 2.20 Related Party Transactions. Except as disclosed in
Section 2.20 of the Seller Disclosure Schedule, no officer, director, interest
holder, relative, affiliate or associate of any Selling Party or any affiliate
or associate of the foregoing (collectively "Related Parties") provides or
causes to be provided any assets, services or facilities to Seller or the
Business or has any other business relationship with Seller. Except as
contemplated in Section 4.9 hereof, no Related Party conducts a business
similar to the Business.
Section 2.21 Inventory. Except as disclosed in Section 2.21 of the
Seller Disclosure Schedule, all of the inventory of Seller consists of a
quality and quantity usable and salable in the ordinary course of business,
except for items of obsolete materials, materials of below-standard quality, or
excess quantities, all of which items have been written off or written down to
fair market value on the Balance Sheet or for which adequate reserves have been
provided therein. All inventory not written off has been priced at the lower of
cost or market. The quantities of each type of inventory are not excessive, but
are reasonable in Seller's present circumstances. All inventory held by Seller
is free of any defect or other deficiency, meet Seller's specifications and
industry standards, and do not infringe on any third-party Intellectual
Property. Seller has conducted a physical inventory within seven (7) days prior
to the date hereof. A true and correct copy of the inventory as of said date is
set forth in Section 2.21 of the Seller Disclosure Schedule.
Section 2.22 Accounts Receivable. Section 1.1(a)(iii) of the Seller
Disclosure Schedule accurately lists as of August 13, 2007, all Accounts
Receivable of Seller. Except as disclosed in Section 2.22 of the Seller
Disclosure Schedule, all Accounts Receivable, whether reflected on the
Financial Statements or arising thereafter, (i) arose in the ordinary course of
business from bona fide arm's-length transactions for the sale of goods or
performance of services; (ii) are valid; and (iii) are collectible in the
ordinary course of the business in accordance with their terms (subject to
reserves reflected on the Balance Sheet), and are not subject to counterclaims
or setoffs. There are no claims, allowances or other price adjustments (other
than the discount arrangements referenced in Section 2.9 of the Seller
Disclosure Schedule).
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Section 2.23 Customers and Suppliers. Section 2.23 of the Seller
Disclosure Schedule sets forth the name of any customer who accounted for more
than 5% of Seller's sales for the year ended December 31, 2006 and during the
period from January 1, 2007 through the date hereof, and the name of any
supplier or contractor from whom Seller purchased more than 5% of the goods or
services which it purchased during the same period. Since January 1, 2007, no
customer, supplier or contractor listed in Section 2.23 of the Seller
Disclosure Schedule has cancelled or otherwise materially adversely modified
its relationship and, to the knowledge of Selling Parties, (a) no such
customer, supplier or contractor has any intention to do so and (b) the
consummation of the transactions contemplated by this Agreement will not
adversely affect any of such relationships.
Section 2.24 Orders and Commitments. The aggregate of all accepted and
unfulfilled orders for the sale of products entered into by Seller do not
exceed amounts which would be outstanding in the ordinary course of the
Business, and the aggregate of all commitments for the purchase of inventory by
Seller do not exceed amounts which would be outstanding in the ordinary course
of the Business. All such commitments and orders were made in the ordinary
course of business consistent with past practice.
Section 2.25 Product Warranties. All products sold or delivered by
Seller, have been in conformity in all material respects with all applicable
contractual commitments and all express and implied warranties, and Seller has
no material Liability, and, to the knowledge of Selling Parties, there is no
basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand giving rise to any such
Liability or replacement or repair thereof or other damages in connection
therewith. No products sold or delivered by Seller are subject to any
guarantee, express warranty or other indemnity other than the representation
that the product is a reproduction of a sample theretofore shown to the
customer.
Section 2.26 Brokers and Finders. Except for Strategic Initiatives
Group, LLC, whose fees and expenses will be paid by Seller in accordance with
Seller's agreement with such firm, none of the Selling Parties or any of their
respective officers, directors or employees has employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated by this Agreement.
Section 2.27 Disclosure. No representation or warranty of the Selling
Parties contained in this Agreement, as qualified by the Seller Disclosure
Schedule, contains any untrue statement of a material fact or, to the Seller's
knowledge, omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER AND HARTMARX
Buyer and Hartmarx hereby represent and warrant to the Selling Parties
that:
Section 3.1 Corporate Organization. Each of Buyer and Hartmarx is a
corporation duly organized, validly existing and in good standing under the
laws of Delaware.
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Section 3.2 Authorization. Each of Buyer and Hartmarx has the full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance by each of Buyer and Hartmarx of this Agreement and the
consummation of the transactions contemplated hereby, have been duly authorized
and no other corporate or shareholder actions on the part of either Buyer or
Hartmarx are necessary to authorize the execution and delivery by each of Buyer
and Hartmarx of this Agreement and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
each of Buyer and Hartmarx and (assuming due and valid authorization, execution
and delivery hereof by the Selling Parties) is a valid and binding obligation
of each of Buyer and Hartmarx enforceable against each of Buyer and Hartmarx in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally and by the availability of equitable remedies.
Section 3.3 No Violation; Consents. Neither the execution, delivery or
performance of this Agreement by Buyer or Hartmarx nor the consummation by
Buyer or Hartmarx of the transactions contemplated hereby will (i) conflict
with or violate any provision of the certificate of incorporation or by-laws of
Buyer or Hartmarx; (ii) conflict with or 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 notice, modification, payment, termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any material note, bond, mortgage, indenture, lease, license, permit,
contract, agreement or other instrument, obligation, arrangement or
understanding to which either Buyer or Hartmarx is a party or by which it or
any of its respective properties or assets may be bound; (iii) violate any Law
applicable to Buyer or Hartmarx or any of its respective properties or assets
or (iv) require on the part of Buyer or Hartmarx any material filing or
registration with, notification to, or authorization, consent or approval of,
any Governmental Authority, except in the case of clause (ii) or (iv) for such
violations, breaches or defaults which, or filings, registrations,
notifications, authorizations, consents or approvals the failure of which to
obtain would prevent Buyer or Hartmarx from consummating the transactions
contemplated by this Agreement.
Section 3.4 Newly Formed Company. Buyer is a newly incorporated
corporation formed for the purpose of acquiring the Business. All of the issued
and outstanding stock of Buyer is owned by Hartmarx.
Section 3.5 Brokers and Finders. Neither Buyer nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
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ARTICLE IV
COVENANTS
Section 4.1 Taxes; Post-Closing Access.
(a) All sales, use, documentary and/or transfer Taxes, and other
similar Taxes, if any, imposed in connection with the transactions contemplated
by this Agreement shall be borne equally by Buyer, on the one hand, and
Sellers, on the other hand. Within ten (10) days after the Closing, Seller
shall provide Buyer with a tax clearance certificate to reflect the payment of
the applicable business and occupation tax.
(b) All real estate Taxes, personal property Taxes and similar ad
valorem obligations levied with respect to the Assets for a taxable period that
includes (but does not end on) the date hereof shall be apportioned between
Seller, on the one hand, and Buyer, on the other hand, as of the date hereof
based on the number of days of such taxable period included in the period
ending with and including the date hereof (with respect to any such taxable
period, the "Pre-Closing Tax Period"), and the number of days of such taxable
period beginning after the date hereof (with respect to any such taxable
period, the "Post-Closing Tax Period"). Seller shall be liable for the
proportionate amount of such Taxes that is attributable to the Pre-Closing Tax
Period, and Buyer shall be liable for the proportionate amount of such Taxes
that is attributable to the Post-Closing Tax Period.
(c) After the Closing, upon reasonable notice, Buyer, on the one hand,
and Seller, on the other hand, agree to furnish or cause to be furnished to
each other and their representatives, employees, counsel and accountants
access, during normal business hours, to such information (including access to
books and records) and assistance relating to the Assets as are reasonably
necessary for financial reporting and accounting matters relating to the
Assets, the preparation and filing of any Tax Returns, reports or forms
relating to the Assets, the making of any election relating to Taxes, the
preparation for any audit by any taxing authority, the defense of any Tax or
other claim or assessment relating to the Assets or, in the case of Seller, for
any lawful purpose relating to the conduct of the Business prior to the
Closing, provided, however, that such access and assistance do not unreasonably
disrupt the normal operations of Buyer, in the case of access and assistance
given to Seller, or Seller, in the case of access and assistance given to
Buyer.
(d) Without duplication of Section 4.3(c), Buyer, on the one hand, and
Seller, on the other hand, agree to furnish or cause to be furnished to each
other, upon request, as promptly as practicable, such information and
assistance relating to any of the Assets (including access to books and
records) as is reasonably necessary for the filing of all Tax Returns, the
making of any election relating to Taxes, the preparation for any audit by any
taxing authority, and the prosecution or defense of any claim, suit or
proceeding relating to any Tax.
(e) Each party hereto hereby waives compliance by Seller and Buyer
with the provisions of the "bulk sales," "bulk transfer" or similar laws of any
state or political subdivision. The Selling Parties agree to jointly and
severally indemnify and hold Buyer harmless against any and all claims, losses,
damages, Liabilities (including Tax Liabilities), reasonable costs and expenses
incurred by Buyer or any of its affiliates as a result of any failure to comply
22
with any such "bulk sales," "bulk transfer" or similar laws in connection with
this Agreement or the transactions contemplated hereto.
(f) Buyer and Seller shall, to the extent possible, (i) treat Buyer as
a "successor employer" and Seller as a "predecessor," within the meaning of
Sections 3121(a)(1) and 3306(b)(1) of the Code, with respect to employees of
Seller to be employed by Buyer for purposes of Taxes imposed under the United
States Federal Unemployment Tax Act or the United States Federal Insurance
Contributions Act and (ii) cooperate with each other to avoid the filing of
more than one IRS Form W-2 with respect to each such employee for the calendar
year in which the Closing occurs.
Section 4.2 Employee Benefits. At the Closing, Buyer shall offer, or
cause to be offered, employment to each employee of Seller who is listed on
Section 2.19 of the Seller Disclosure Schedule (each, a "Designated Employee"),
such employment to be effective as of the date hereof. Such offer of employment
shall be on terms and conditions relating to salary and position that are
comparable (but not necessarily identical) to those terms and conditions of
employment applicable to such Designated Employees immediately prior to the
Closing.
Section 4.3 Publicity. Except as required by law or applicable listing
agreements with a national securities exchange, none of the Selling Parties,
Buyer or any of their respective affiliates, shall issue any press release with
respect to the transactions contemplated by this Agreement without the prior
approval of Buyer, in the case of a press release by the Selling Parties, or
the Selling Parties, in the case of a press release by Buyer or its affiliates.
To the extent reasonably feasible, the initial press release regarding the
transactions contemplated by this Agreement shall be made jointly by the
parties.
Section 4.4 Confidentiality.
(a) The Selling Parties represent and warrant that at or prior to the
Closing they will have delivered to Buyer all Confidential Information,
including all copies thereof, which are in their possession, or under their
control, including such Confidential Information as may be held by their agents
or representatives, without making or retaining any copies or extracts thereof.
The Selling Parties agree that, from and after the date hereof, except as
otherwise consented to in writing by Buyer or, solely with respect to HKim or
EKim, to the extent necessary to operate the Business in accordance with the
terms of this Agreement or comply with this Agreement or applicable Laws, (i)
they will not directly or indirectly disclose or use in a manner adverse to
Buyer or the Business, any Confidential Information, and (ii) if any of the
Selling Parties receive a request to disclose all or any part of the
Confidential Information in connection with a legal proceeding, such party will
(A) immediately notify Buyer of the existence, terms and circumstances
surrounding such request, (B) seek a protective order or other appropriate
remedy, and (C) in the event no such protective order or other remedy is
obtained and disclosure of such information is required, exercise their best
efforts to obtain an order or other reliable assurance that confidential
treatment will be accorded to the Confidential Information required to be
disclosed.
(b) "Confidential Information" means any and all information relating
to the management, operations, finances, products, trade secrets, technology or
services related to the Business, including but not limited to any and all
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financial data, employee information, computer programs and systems, computer
based information, plans, projections, existing and proposed and contemplated
projects or investments, formulae, processes, methods, products, manuals,
drawings, supplier lists, customer lists, purchase and sales records, marketing
information, commitments, correspondence and other information relating to the
Business, whether written, oral or computer generated, other than such
information as may at any time be or become lawfully available to the general
public through no fault of the disclosing party or its representatives.
Section 4.5 Non-Competition.
(a) Except as set forth in this Section 4.5 or contemplated by Section
4.8 and 4.9, Securityholders agree that, to assure that Buyer will retain the
value of the Business as a "going concern," for the period beginning on the
date hereof and continuing through the end of the last Earnout Payment Period,
no Securityholder shall, directly or indirectly, through one or more
affiliates, engage or have an interest, anywhere in the United States, alone or
in association with others, as partner or stockholder or through the investment
of capital, lending of money or property, or otherwise, in any business that
competes with the products and services provided by the Business as of the date
hereof. During the period beginning on the date hereof and continuing through
the end of the last Earnout Payment Period, no Securityholder shall, directly
or indirectly, through one or more affiliates, on behalf of itself or any other
Person, (i) recruit or otherwise solicit or induce any person who is an
employee of Buyer or the Business or any successor to Buyer or the Business to
terminate his or her employment or other relationship with Buyer or the
Business or (ii) offer employment to or employ a person who is at that time an
employee (other than secretarial or clerical employees) of Buyer or the
Business or who was such an employee within two years of the time of such offer
or employment.
(b) Notwithstanding anything to the contrary contained in this
Agreement, Section 4.5(a) shall not apply to EKim and HKim, whose obligations
related to matters contained in Section 4.5(a) shall be governed exclusively by
the terms of their respective Employment Agreements.
(c) Notwithstanding the provisions of Section 1.4, the parties agree
to allocate, for all Tax purposes, $25,000 of the consideration paid by Buyer
pursuant to Section 1.4 for the rights, interests and obligations of the
parties pursuant to Section 4.5(a).
Section 4.6 Further Assurances. After the Closing, the Selling Parties
shall, from time to time, at the request of Buyer, and without further expense
to Buyer, (i) execute and deliver such other instruments of conveyance and
transfer (including powers of attorney) as Buyer may reasonably request, in
order to more effectively consummate the transactions contemplated hereby and
to vest in Buyer good and marketable title to the Assets (or in the case of
real property leases, valid leasehold interests), including assistance in the
collection or reduction to possession of any such Assets and (ii) use their
reasonable best efforts to cause Buyer to be admitted as a member in UNIF, LLC
and DEVILLE, LLC.
Section 4.7 Change of Name. On the date hereof, the Securityholders
shall cause Seller to amend its organizational documents so as to delete
therefrom the words "Monarchy" and "Manchester" and will file, as promptly as
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practicable, such documents as are necessary to reflect such name change in its
state of formation or organization and the other jurisdictions where it is
qualified to do business as a foreign Person. Seller further agrees that, from
and after the date hereof, Seller will not adopt any name that is confusingly
similar to, or a derivation of, "Monarchy" and "Manchester."
Section 4.8 Discharge of Business's Liabilities; Post Closing
Operations of Seller. From and after the Closing, the Securityholders shall
cause Seller to pay and discharge, and shall hold Buyer harmless from, the
Excluded Liabilities. Not later than 120 days after the Closing, Seller shall
sell, transfer, dispose or otherwise divest all interest which it has,
financial or otherwise, in the business arrangements, joint ventures,
partnerships and other arrangements commonly known as Cohesive ("Cohesive") and
Chef Yossi ("Chef Yossi"), and from and after said date shall have no further
interest therein and neither EKim or HKim shall devote any of their executive
time thereto. Except with respect to Chef Yossi and Cohesive, from and after
the Closing, Seller shall cease its operations and shall not engage in any
business whatsoever other than activities related solely to the collection and
distribution to the Securityholders of any payments pursuant to this Agreement
and the liquidation of Seller.
Section 4.9 Divestment of Securityholders' Other Interests. The
Selling Parties represent, warrant and covenant that:
(a) HKim shall sell, transfer, dispose or otherwise divest all
interest which he has, financial or otherwise, in the business arrangements,
joint ventures, partnerships and other arrangements as set forth below:
(i) G Squared, to be divested not later than 360 days after
Closing;
(ii) K Xxxxxx, to be divested not later than 90 days after
Closing;
(iii) Xxxx Del Xxxxxxx and Baby Tears, to be divested not
later than 120 days after Closing
and from and after said date shall have no further interests therein and shall
devote none of his executive time thereto. Notwithstanding the foregoing, HKim
may retain all of his present interests in 71 EH, Inc. so long as 71 EH, Inc.
does not compete with the Business.
(b) Not later than 14 days after the Closing, EKim and HKim shall
sell, transfer, dispose or otherwise divest all interest which they have,
financial or otherwise, in the business arrangements, joint ventures,
partnerships and other arrangements commonly known as Kentucky, and from and
after said date shall have no further interests therein and shall devote none
of their executive time thereto. Buyer and Hartmarx hereby acknowledge that
EKim may retain all of his present financial interest in Green Apple Cafe
provided that EKIM shall spend no more than a de minimis amount of time in its
management.
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ARTICLE V
SURVIVAL AND INDEMNIFICATION
Section 5.1 Survival of Representations, Warranties and Covenants. All
representations and warranties of each party contained in this Agreement shall
survive the Closing, for a period ending two (2) years from the date hereof,
except that: (a) the representations and warranties set forth in Sections 2.1,
2.2, 2.11, 2.26, 3.1 and 3.2 shall survive without limitation; (b) the
representations and warranties set forth in Sections 2.8, 2.14, 2.15 and 2.16
shall survive until the applicable statute of limitations has run plus 90 days;
and (c) all representations or warranties shall survive beyond such period with
respect to any inaccuracy therein or breach thereof, notice of which shall have
been duly given within such applicable period in accordance with Section 5.3(a)
hereof. The covenants and agreements contained herein shall survive the Closing
without limitation as to time unless the covenant or agreement specifies a
term, in which case such covenant or agreement shall survive for such specified
term. The right to indemnification or any other remedy based on
representations, warranties, covenants and obligations in this Agreement shall
not be affected by any investigation conducted with respect to, or any
knowledge acquired (or capable of being acquired) at any time, whether before
or after the execution and delivery of this Agreement, with respect to the
accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant or obligation.
Section 5.2 Indemnification.
(a) Subject to the limits set forth in this Article V, the Selling
Parties agree to jointly and severally indemnify, defend and hold Buyer, its
officers, directors, employees, agents, representatives and affiliates,
harmless from and in respect of any and all losses, damages, costs and expenses
(including, demands, suits, claims, actions, assessments, Liabilities, Taxes,
judgments, expenses of investigation and reasonable fees and disbursements of
counsel and other professionals) (collectively, "Losses"), that they may incur
arising out of or due to (i) the inaccuracy or breach of any representation or
warranty of any of the Selling Parties contained in this Agreement (without
giving effect to any "materiality" or "Material Adverse Effect" or other
similar qualifier contained therein), (ii) the breach by any of the Selling
Parties of any covenant, undertaking or other agreement of any of the Selling
Parties contained in this Agreement, (iii) the Excluded Liabilities and (iv)
enforcing the indemnification rights of Buyer pursuant to this Article V.
(b) Subject to the limits set forth in this Article V, Buyer agrees to
indemnify, defend and hold the Selling Parties and their respective officers,
directors, employees, agents, representatives and affiliates, harmless from and
in respect of any and all Losses that they may incur arising out of or due to
(i) the inaccuracy or breach of any representation or warranty of Buyer or
Hartmarx contained in this Agreement (without giving effect to any
"materiality" or other similar qualifier contained therein), (ii) the breach by
Buyer or Hartmarx of any covenant, undertaking or other agreement of Buyer
contained in this Agreement, (iii) the Assumed Liabilities, and (iv) enforcing
the indemnification rights of the Selling Parties pursuant to this Article V.
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Section 5.3 Claims for Indemnification.
(a) The parties intend that all indemnification claims be made as
promptly as practicable by the party seeking indemnification (the "Indemnified
Party"). Whenever any claim shall arise for indemnification, the Indemnified
Party shall promptly notify the party from whom indemnification is sought
("Indemnifying Party") of the claim, and the facts constituting the basis for
such claim. The failure to so notify the Indemnifying Party shall not relieve
the Indemnifying Party of any liability that it may have to the Indemnified
Party, except to the extent the Indemnifying Party demonstrates that the
defense of such action is materially prejudiced thereby.
(b) With respect to claims made by third parties, the Indemnifying
Party, upon acknowledgment of its obligations under the terms of the indemnity
hereunder in connection with such third party claim, shall be entitled to
assume the defense of such action or claim with counsel reasonably satisfactory
to the Indemnified Party. No Indemnifying Party shall consent to the entry of
any judgment or enter into any settlement without the consent of the
Indemnified Party (A) if such judgment or settlement does not include as an
unconditional term thereof the giving by each claimant or plaintiff to each
Indemnified Party of a release from all liability in respect to such claim, (B)
if such judgment or settlement would result in the finding or admission of any
violation of Law, or (C) if as a result of such consent or settlement
injunctive or other equitable relief would be imposed against the Indemnified
Party or such judgment or settlement would interfere with or adversely affect
the business, operations or assets of the Indemnified Party. The Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in the
defense against any such asserted liability. The Indemnified Party shall have
the right to participate at its own expense in the defense of such asserted
liability, but shall not be entitled to settle or compromise such asserted
liability without the prior written consent of the Indemnifying Party, such
consent not to be unreasonably withheld. Notwithstanding the foregoing, if (i)
the claim for indemnification is with respect to a criminal proceeding, action,
indictment, allegation or investigation against the Indemnified Party, (ii) the
Indemnified Party has been advised by counsel that a reasonable likelihood
exists of a conflict of interest between the Indemnifying Party and the
Indemnified Party, (iii) the Indemnifying Party has failed or is failing to
vigorously prosecute or defend such claim or shall have failed to have engaged
counsel reasonably satisfactory to the Indemnified Party within a reasonable
period of time or (iv) the claim seeks an injunction or other equitable relief
against the Indemnified Party, then (A) the Indemnifying Party shall not be
entitled to assume the defense of any such claim or action, (B) the Indemnified
Party shall have the right to conduct and control the defense of such action or
claim with counsel of its choosing and the legal and other expenses incurred by
the Indemnified Party shall be borne by the Indemnifying Party and (C) the
Indemnifying Party shall be bound by any defense or settlement that the
Indemnified Party shall make in respect to such action or claim.
Section 5.4 Limitations on Indemnification. (a) Notwithstanding
anything to the contrary contained herein, neither the Selling Parties on the
one hand, nor Buyer on the other hand (or, in each case, such party's officers,
directors, employees, agents, representatives and affiliates), shall be
entitled to recover from the other under Section 5.2(a)(i) or 5.2(b)(i) unless
and until the total of all such party's Losses (including the Losses such
party's officers, directors, employees, agents, representatives and affiliates)
under Section 5.2(a)(i) or 5.2(b)(i), as applicable, exceeds $50,000, in which
case, such party and such party's officers, directors, employees, agents,
27
representatives, and affiliates shall be entitled to recover the full amount of
all such Losses in excess of $50,000; provided, however, that no claim for
indemnification by Buyer hereunder with respect to Losses resulting from a
breach of Sections 2.1, 2.2, 2.11, 2.14, 2.15 and 2.26 hereof or any Losses by
any party hereto resulting from fraud or misrepresentation shall be subject to
the limitations contained in this Section 5.4(a).
(b) For purposes of Section 5.2(a)(i) or 5.2(b)(i), the maximum
aggregate amount the Selling Parties on the one hand, or Buyer on the other
hand (or, in each case, such party's officers, directors, employees, agents,
representatives and affiliates) shall be entitled to recover shall be
$12,000,000; provided, however, that no claim for indemnification by Buyer
hereunder with respect to Losses resulting from a breach of Sections 2.1, 2.2,
2.11, 2.14, 2.15 and 2.26 hereof or any Losses by any party hereto resulting
from fraud or intentional misrepresentation shall be subject to the limitations
contained in this Section 5.4(b).
Section 5.5 Allocation of Indemnification Payments. The parties hereto
agree that any indemnification payment pursuant to this Agreement shall be
treated as an adjustment to the Purchase Price and shall be allocated as set
forth in Section 4.
Section 5.6 Exclusive Remedy. From and after the Date hereof, the
parties hereto acknowledge and agree that the indemnification provisions of
this Article V shall be the sole and exclusive remedy for any breach of or
inaccuracy in any representation or warranty contained in this Agreement,
except for claims based upon fraud or intentional misrepresentation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Amendment, Extension and Waiver. Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by each party to this
Agreement, or in the case of a waiver, by the party against whom the waiver is
to be effective. No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
Section 6.2 Expenses. Each party shall pay its own legal, accounting
and other miscellaneous expenses incident to the negotiation, preparation and
execution of this Agreement.
Section 6.3 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, the Confidentiality Agreement (which shall terminate at the Closing)
and the Seller Disclosure Schedule (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and thereof, including
that certain letter agreement dated and June 22, 2007, and (b) except as
provided in Article V, as are not intended to confer upon any Person other than
the parties hereto any rights or remedies hereunder.
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Section 6.4 Headings. The Article and Section headings contained
herein are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 6.5 Notices. All notices, requests, demands and other
communications made under or by reason of the provisions of this Agreement
shall be in writing and shall be given by hand delivery, telecopier or air
courier to the parties at the addresses set forth below.
If to any of the Selling Parties:
Monarchy LLC
0000 Xxxxxx Xxxxxx, #X
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx Xxx and Xxxxx Xxx
Fax: 000 000-0000
With a copy (which shall not constitute notice) given in the manner
prescribed above, to:
XxXxxxxxx Will & Xxxxx LLP
0000 Xxxxxxx Xxxx Xxxx
00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx X. Xxxxx, Esq.
Fax: 000 000-0000
and
Strategic Initiatives Group, LLC
00 Xxxxx Xxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attn: Xxxxxxx Xxxxxx
Fax: 000 000-0000
If to Buyer or Hartmarx:
c/o Hartmarx Corporation
000 Xxxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Chief Financial Officer
Fax: 000 000-0000
With a copy (which shall not constitute notice) given in the manner
prescribed above, to:
Hartmarx Corporation
000 Xxxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: General Counsel
Fax: 000 000-0000
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and
Xxxxxxx Xxxx Slate Xxxxxxx & Xxxx LLP
000 Xxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxx, Esq.
Fax: 000 000-0000
Any such notice, request, demand or other communication shall be deemed to have
been received (i) when delivered, if delivered by hand or sent by telecopier,
or (ii) on the second (2nd) business day after dispatch, if sent by overnight
air courier.
Section 6.6 Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, legal
representatives and assigns, but this Agreement may not be assigned by any
party without the written consent of the other parties; provided, that Buyer
may assign all or any portion of its rights hereunder without the prior written
consent of either any of the Selling Parties to an affiliate of Buyer or to any
of its financing sources and Seller may assign all or any portion of its rights
hereunder without the prior written consent of Buyer to HKim or EKim, or to any
100% owned affiliate of HKim or EKim; provided, further that, following any
such assignment to an affiliate, any direct or indirect transfer, voluntary,
involuntary, by operation or law or otherwise, of all or any portion of the
ownership interest in such affiliate shall be deemed an assignment under this
Agreement which requires the consent of Buyer. Notwithstanding anything to the
contrary contained herein, no assignment permitted by this Section 6.6 shall
relieve any party of any of its obligations hereunder.
Section 6.7 Severability. Any term or provision of this Agreement that
is held by a court of competent jurisdiction or other authority to be invalid,
void or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction or other authority declares that any term or provision
hereof is invalid, void or unenforceable, the parties agree that the court
making such determination shall have the power to reduce the scope, duration,
area or applicability of the term or provision, to delete specific words or
phrases, or to replace any invalid, void or unenforceable term or provision
with a term or provision that is valid and enforceable and that comes closest
to expressing the intention of the invalid or unenforceable term or provision.
Section 6.8 Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois, without giving effect to the conflict of laws provisions thereof.
30
Section 6.9 Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including"
are used in this Agreement they shall be deemed to be followed by the words
"without limitation." As used in this Agreement, the terms "affiliate" and
"associate" shall have the meanings set forth in Rule 12b-2 of the Exchange
Act. The words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa. The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement. Each exception set forth in the Seller Disclosure Schedule and each
other response to this Agreement set forth in the Seller Disclosure Schedule
shall be identified by reference to, or be grouped under a heading referring
to, a specific individual section, subsection, paragraph or subparagraph of
this Agreement and shall relate only to such section, subsection, paragraph or
subparagraph, as applicable, except to the extent that one portion of the
Seller Disclosure Schedule specifically refers to another portion thereof by
cross reference.
Section 6.10 Jurisdiction. Each of the parties hereto hereby expressly
and irrevocably submits to the non-exclusive personal jurisdiction of the
United States District Court for the Northern District of Illinois, and to the
jurisdiction of any other competent court of the State of Illinois located in
Xxxx County (collectively, the "Illinois Courts"), preserving, however, in each
case, all rights of removal to such federal court under 28 U.S.C. Section 1441,
in connection with all disputes arising out of or in connection with this
Agreement or the transactions contemplated hereby and agrees not to commence
any litigation relating thereto except in the Illinois Courts. If the
aforementioned court does not have subject matter jurisdiction, then the
proceeding shall be brought in any other state or federal court located in the
State of Illinois preserving, however, all rights of removal to such federal
court under 28 U.S.C. Section 1441. Each party hereby waives the right to any
other jurisdiction or venue for any litigation arising out of or in connection
with this Agreement or the transactions contemplated hereby to which any of
them may be entitled by reason of its present or future domicile. Each party
hereby waives, to the fullest extent it may legally and effectively do so (i)
any objection which it may now or hereafter have to the laying of venue of any
action or proceeding arising out of or relating to this Agreement or any
related matter in any Illinois Court, as applicable, and (ii) the defense of an
inconvenient forum to the maintenance of such action or proceeding in any
Illinois Court, as applicable. Notwithstanding the foregoing, each of the
parties hereto agrees that each of the other parties shall have the right to
bring any action or proceeding for enforcement of a judgment entered by the
Illinois Courts, as applicable, in any other court or jurisdiction.
Section 6.11 Service of Process. Each party irrevocably consents to
the service of process outside the territorial jurisdiction of the courts
referred to in Section 6.10 hereof in any such action or proceeding by mailing
copies thereof by registered United States mail, postage prepaid, return
receipt requested, to its address as specified in or pursuant to Section 6.5.
However, the foregoing shall not limit the right of a party to effect service
of process on the other party by any other legally available method.
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Section 6.12 WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP THAT IS BEING
ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY
AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
THE PARTIES ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO
A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THE WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY ON THE
WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION
CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.
Section 6.13 Specific Performance. Each of the parties acknowledges
and agrees that the other party would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the parties
agrees that the other party shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter, in addition to any other remedy
to which it may be entitled, at law or in equity.
Section 6.14 Counterparts. This Agreement may be executed
simultaneously in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
Section 6.15 Guarantee. Hartmarx guarantees all payment obligations of
Buyer under this Agreement, including, without limitation, any Earnout Payments
and any payments required to be made pursuant to Article V hereof. The guaranty
being given by Hartmarx hereunder is a primary obligation of Hartmarx and
Seller and/or the Selling Parties shall not be required to exhaust their
remedies against Buyer before instituting legal proceedings against Hartmarx.
Any change or modification of any of the terms or provisions of this Agreement
or any waiver of any rights hereunder by Buyer shall not discharge or otherwise
affect the guaranty being given by Hartmarx hereunder. For the avoidance of
doubt, Hartmarx shall have and may assert against its obligations hereunder,
and Hartmarx's obligations hereunder shall be subject to, any claim, right,
32
deduction or defense of any kind that Buyer may have or may assert under this
Agreement.
ARTICLE VII
CERTAIN DEFINITIONS
"Code" means the Internal Revenue Code of 1986, as amended.
"GAAP" means generally accepted accounting principles, as in effect in
the United States.
"Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service xxxx rights, service names and service name rights, brand
names, inventions, copyrights and copyright rights, processes, formulae, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, processes, patterns, designs, methodologies, computer programs
(including all source codes) and related documentation, technical information,
manufacturing, engineering and technical drawings, know-how and all pending
applications for and registrations of patents, trademarks, service marks,
copyrights and domain names.
"Liabilities" means any and all debts, losses, expenses, liabilities,
damages, fines, costs, royalties, proceedings, deficiencies or obligations of
any nature (whether known or unknown, asserted or unasserted, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, due or to become
due, and whether or not resulting from third-party claims) and any
out-of-pocket costs and expenses (including attorneys, accountants or other
fees) including any liability for Taxes.
"Liens" means all mortgages, pledges, security interests, deeds of
trust, liens, charges, options, conditional sales contracts, claims,
restrictions, covenants, easements, rights of way, title defects or other
encumbrances or restrictions of any nature whatsoever.
"Material Adverse Effect" means (i) a material adverse change in, or
effect on, the business, customers, prospects (to Seller's knowledge),
operations, properties, working capital, condition (financial or otherwise),
assets, properties or Liabilities of Seller or the Business, or (ii) a change
that would impair the ability of any of the Selling Parties to consummate the
transactions contemplated by this Agreement.
"Permitted Liens" means (a) liens for Taxes, assessments and
governmental charges or levies not yet due and payable; (b) materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other similar liens
arising in the ordinary course of business that are not, individually or in the
aggregate, material; and (c) with respect to real property only, minor survey
exceptions or imperfections of title that do not, individually or in the
aggregate, materially adversely affect the value of such real property or the
use of such real property.
"Person" means any corporation, individual, joint stock company, joint
venture, partnership, limited liability company, unincorporated association,
Governmental Authority, country, state or political subdivision thereof, trust
or other entity.
33
"Reorganization" means the completed transactions whereby (a) Monarchy
has merged with and into Seller and (b) Monarchy Collection, Inc., a California
corporation, has transferred all rights, title and interest in and to all
assets held thereby to Seller.
"Seller's knowledge" or "knowledge of Seller" or "knowledge of Selling
Parties" means the knowledge of EKim and/or HKim after reasonable inquiry of
those employees of Seller whose duties would, in the normal course of Seller's
affairs, result in such employees having knowledge concerning such subject,
area or aspect.
"Tax" or "Taxes" means all taxes, assessments, charges, duties, fees,
levies, imposts or other governmental charges, including all federal, state,
local, foreign and other income, environmental, add-on, minimum, franchise,
profits, capital gains, capital stock, capital structure, transfer, sales,
gross receipt, use, ad valorem, service, service use, lease, recording,
customs, occupation, property, excise, gift, severance, windfall profits,
premium, stamp, license, payroll, social security, employment, unemployment,
disability, value-added, withholding, escheat and other taxes, assessments,
charges, duties, fees, levies, imposts or other governmental charges of any
kind whatsoever (whether payable directly or by withholding and whether or not
requiring the filing of a return) and all estimated taxes, deficiency
assessments, additions to tax, additional amounts imposed by a governmental
authority (domestic or foreign), penalties, fines and interest, and shall
include any liability for such amounts as a result either of being a member of
a combined, consolidated, unitary or affiliated group or of a contractual
obligation to indemnify any person, regardless of whether disputed.
"Tax Return" means any return, report, declaration, information
return, filing or other document (including any amendments thereto or related
or supporting information) filed or required to be filed with respect to Taxes.
[Remainder of page intentionally left blank;
signatures appear on immediately following page]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by the duly authorized officer of each of the
Seller and Buyer and by the Securityholders as of the day and year first above
written.
M ACQUISITION CORP.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
MONARCHY, LLC
By: /s/ Xxxx Xxx
-------------------------------
Name: Xxxx Xxx
Title: President
/s/ Xxxx Xxx
------------------------------------
XXXX XXX
/s/ Hyung Xxx Xxx
------------------------------------
HYUNG XXX XXX
Solely with respect to Article III and 6.15 hereof:
HARTMARX CORPORATION
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Senior Vice President
Index of Exhibits and Schedules*
Exhibit A -- Form of Opinion of XxXxxxxxx Will & Xxxxx LLP
Exhibit B -- Form of Collateral Access Letter
Exhibit C -- Form of Opinion of Xxxxx X. Xxxxxxx
Disclosure Schedule Section 1.1(a)(ii)--Business Contracts
Disclosure Schedule Section 1.1(a)(iii)--Accounts Receivable
Disclosure Schedule Section 1.1(a)(v)--Real Property
Disclosure Schedule Section 1.1(a)(vii)--Intellectual Property
Disclosure Schedule Section 1.1(a)(x)--Tangible Personal Property
Disclosure Schedule Section 1.1(a)(xii)--Permits
Disclosure Schedule Section 1.1(b)(viii)--Excluded Assets
Disclosure Schedule Section 1.2(a)--Accounts Payable and Accrued Expenses
Disclosure Schedule Section 1.2(b)--Assumed Liabilities
Disclosure Schedule Section 1.4(a)--Working Capital Loan Pay-off Amounts
Disclosure Schedule Section 2.1(a)--Qualification to do Business
Disclosure Schedule Section 2.3--Consents and Approvals; No Violation
Disclosure Schedule Section 2.4--Financial Statements
Disclosure Schedule Section 2.5(c)--Undisclosed Liabilities
Disclosure Schedule Section 2.6--Absence of Certain Changes
Disclosure Schedule Section 2.8--Intellectual Property Matters
Disclosure Schedule Section 2.9(a)--Certain Contracts
Disclosure Schedule Section 2.10--Permits and Other Authorizations
Disclosure Schedule Section 2.11--Assets
Disclosure Schedule Section 2.12--Insurance
Disclosure Schedule Section 2.13--Labor Relations
Disclosure Schedule Section 2.14(a)--Benefit Plans; ERISA
Disclosure Schedule Section 2.14(e)-- Severance
Disclosure Schedule Section 2.15(c)--Taxes
Disclosure Schedule Section 2.17--Litigation
Disclosure Schedule Section 2.19--Personnel
Disclosure Schedule Section 2.20--Related Party Transactions
Disclosure Schedule Section 2.21--Inventory
Disclosure Schedule Section 2.22--Accounts Receivable
Disclosure Schedule Section 2.23--Customers and Suppliers
------------
* Exhibit and Schedules to the Purchase Agreement are not being filed herewith.
The Registrant undertakes to furnish supplementally a copy of any omitted
exhibit or schedule to the Commission upon request, pursuant to Item 601(b)(2)
of Regulation S-K.
