EXHBIT 10.1
ASSET PURCHASE AGREEMENT DATED AS OF OCTOBER 15, 2001 BY AND BETWEEN XXXXXX
HOLDING CORPORATION, AXIS CLOTHING
CORPORATION AND XXXXXXX XXXXXXX
ASSET PURCHASE AGREEMENT
Dated as of October 15, 2001
among
Xxxxxx Holding Corporation,
Axis Clothing Corporation
and
Xxxxxxx Xxxxxxx
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") made and entered into
as of the 15th day of October, 2001, by and among Xxxxxx Holding Corporation, a
Delaware corporation ("Purchaser"), Axis Clothing Corporation, a California
corporation ("Seller") and Xxxxxxx Xxxxxxx, an individual residing at 0000
Xxxxxx Xxx, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000 ("Solomon").
W I T N E S S E T H
WHEREAS, Seller is in the business of designing, manufacturing,
marketing, selling and distributing better menswear (the "Business");
WHEREAS, Purchaser wishes to acquire from the Seller and the Seller
desires to sell to the Purchaser, the Acquired Assets, Inventory and Returns
(each as defined below), on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the aforesaid and the respective
warranties, representations, covenants and agreements hereinafter set forth, the
parties, intending to be legally bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Defined Terms. For purposes of this Agreement, the following
terms shall have the meanings specified with respect thereto below.
"Acquired Assets" shall mean all of the assets and properties of the
Seller (other than the Excluded Assets), Inventory and Returns with such
additions thereto or deletions therefrom as may be permitted by the terms of
this Agreement, including the Seller's goodwill and all of its concepts, plans
and materials relating to the operation of the business and also including,
without limitation:
(a) Certain tangible and fixed assets, including, but not limited to,
machinery, equipment (including computer hardware and software), furniture and
fixtures listed on Schedule 1.1(a);
(b) The Assumed Contracts;
(c) All of the Seller's rights, to the extent assignable, in and to all
intangible assets and intellectual property throughout the world (including,
without limitation, registered and unregistered trademarks, service marks and
trade names, trade dress and other names, marks and slogans, including, without
limitation, "Axis", "AKT", "Axis LA", "Island Fever", "Six A", "a(x)IST",
"Vittanova" and all variations and permutations thereof), all completed and
developing processes, ideas for new processes, designs, computer programs and
processes, all distribution rights, and all associated goodwill; all statutory,
common law and registered copyrights; know-how, trade secrets, confidential and
proprietary information, procedures, all licenses and other similar agreements,
and all assignments and applications relating to such intellectual property,
including, without limitation, all the intangible assets and intellectual
property listed on Schedule 4.12, unless specifically excluded or otherwise is
an Excluded Asset (collectively, "Intellectual Property Rights");
(d) All customer purchase orders for (i) Spring and Summer 2002 and (ii)
customer purchase orders for prior to Spring 2002 that are for 90% or greater of
Seller's list price, which are not shipped until after the Closing Date; and all
Inventory required to fulfill purchase orders described in (i) above may be
purchased by Purchaser for landed duty paid and all Inventory required to
fulfill purchase orders described in (ii) above may be purchased by Purchaser
for landed duty paid plus ten percent (10%);
(e) All lists and records pertaining to customers, suppliers, distributors,
personnel and agents and all other books, ledgers, files, documents,
correspondence, drawings and specifications, computer software, computer data,
business records, advertising matter, catalogues, correspondence, mailing lists,
customer lists, prospect lists, photographs, sales materials and records,
purchasing materials and records, personnel records and other records for the
Transferred Employees relating to the assets being acquired;
(f) All creative materials advertising and promotional materials and all
other printed or written materials;
(g) All goodwill of Seller with respect to the Business;
(h) All governmental approvals, authorizations, certifications, consents,
variances, permissions, licenses, and permits to or from, or filings, notices,
or recordings to or with, federal, state, and local governmental authorities
listed on Schedule 1.1(h) (the "Authorizations");
(i) The private label business operated by Seller and existing on the
Closing Date; and
(j) All other assets and properties of any nature whatsoever used or held
for use in connection with the Business (other than the Excluded Assets) and all
assets included in Inventory and Returns including, without limitation,
accounting and other records (other than records necessary for the Seller's tax,
corporate and legal purposes, copies of which, except Tax Returns and related
work papers, will be provided to the Purchaser) or acquired by the Seller after
the date hereof, except in each case for such property which has been sold or
otherwise disposed of in the ordinary course of business and in a manner
consistent with the Past Practices of Seller.
"Acquisition" shall mean the purchase and sale of the Acquired Assets,
Inventory and Returns in accordance with the terms and conditions of this
Agreement.
"Affiliate" of any particular Person shall mean any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Assumed Contracts" shall mean all contract rights, including, but not
limited to, office and equipment leases and license agreements which are listed
on Schedule 4.11 and which Purchaser has agreed to assume.
"Assumed Liabilities" shall mean (i) all obligations and liabilities of
Seller with respect to the Acquired Assets from and after the Closing Date and
(ii) certain specified liabilities which are set forth on Schedule 1.2.
"Axis Division" shall mean that portion of Seller's business which
utilizes the Acquired Assets, Inventory and Returns after the Closing Date, and
for which Purchaser maintains separate books and records sufficient to effect
the intent of the parties hereto as reflected by this Agreement.
"Budget" shall mean that certain budget, as agreed to by the parties
and as attached hereto as Exhibit G, setting forth the budgeted expenses of
Seller related to (i) the inventory for the Spring and Summer 2002 seasons and
(ii) the Fall 2002 Pre-Closing Expenses (as defined in Section 6.2(a)) to be
spent by Seller from the date hereof through the Closing Date.
"Cash Payment" shall have the meaning set forth in Section 2.2 hereof.
"Closing Date" shall have the meaning set forth in Section 2.9 hereof.
"Consents" shall mean the consents of any third parties necessary to
transfer the Acquired Assets, including the Assumed Contracts and the
Authorizations, to Purchaser or otherwise to consummate the transactions
contemplated hereby, all of which Consents are listed on Schedule 4.7.
"Xxxxxx City Lease" shall mean that certain three year triple net
lease, in the form attached as Exhibit L hereto, between Solomon and the
Purchaser for 10,000 square feet at $1.10 per square feet located at 0000
Xxxxxxx Xxxxxx, Xxxxxx Xxxx, XX 00000, and such other terms as agreed to by the
parties prior to Closing, including, but not limited to, two renewal options of
three years each (each renewal option period hereinafter referred to as an
"Option Period"), with a rental increase of 7% for each Option Period.
"Earn-Out Payments" shall have the meaning set forth in Section 2.3
hereof.
"Environmental Claims" shall refer to any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter or other communication from any
governmental agency, department, bureau, office or other authority, or any third
party involving violations of Environmental Laws or releases of hazardous
materials from (i) any assets, properties or businesses of the Seller or any
predecessor in interest or assets, properties or businesses of Solomon which
relate to the Acquired Assets, Inventory or Returns; (ii) from adjoining
properties or businesses; or (iii) from or onto any facilities which received
hazardous materials generated by the Seller.
"Environmental Laws" shall include the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq., as
amended; the Resource Conservation and Recovery Act ("RCRA), 42 U.S.C. 6901 et
seq., as amended; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et seq., as amended;
the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq., as amended; the
Occupational Safety and Health Act ("OSHA"), 29 U.S.C. 655 et seq., and any
other federal, state, local or municipal laws, statutes, regulations, rules or
ordinances imposing liability or establishing standards of conduct for
protection of the environment.
"Environmental Liabilities" shall mean any monetary obligations,
losses, liabilities (including strict liability), damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable out-of-pocket fees, disbursements and expenses of counsel,
out-of-pocket expert and consulting fees and out-of-pocket costs for
environmental site assessments, remedial investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any
Environmental Claim filed by any governmental authority or any third party which
relate to any violations of Environmental Laws, remedial actions, any personal
injury (including wrongful death) or property damage (real or personal) arising
out of exposure to hazardous materials used, handled, generated, transported or
disposed of by Solomon or the Seller at the property leased by Seller, any
releases or threatened releases of hazardous materials from or onto (i) any
property presently or formerly owned by the Seller or a predecessor in interest
or Solomon if such property was used in connection with the Business, or (ii)
any facility which received hazardous materials generated by the Seller.
"Employment Agreement" shall mean the employment agreement to be
entered into between Purchaser and Xxxxxxx Xxxxxxx at Closing in substantially
the form attached as Exhibit C hereto.
"ERISA" shall mean the Employment Retirement Income Security Act of
1974, as amended.
"Escrow Agent" shall mean Wilshire Escrow Company, a California
corporation, having its principal place of business at 0000 Xxxxxxxx Xxxxxxxxx,
Xxx Xxxxxxx, Xxxxxxxxxx, 00000.
"Escrow Agreement for Earn-Out" shall mean the Escrow Agreement for
Earn-Out to be entered into between Purchaser, Seller and the Escrow Agent as
provided for in Section 2.3, and as attached as Exhibit A hereto.
"Escrow Deposit Agreement for Termination" shall mean the Escrow
Deposit Agreement for Termination to be entered into between Purchaser, Seller
and the Escrow Agent as provided in Section 8.2, and attached as Exhibit B
hereto.
"Escrow Deposit for Termination" shall mean the sum of $1,700,000
deposited by Purchaser with the Escrow Agent on the date hereof, pursuant to the
terms of the Escrow Deposit Agreement for Termination, and shall not include any
interest earned on said sum.
"Excluded Assets" shall mean Seller's (i) accounts receivable and all
other receivables and/or sums due to Seller from any Person, including, but not
limited to any refunds or rights to refunds relating to Taxes attributable to or
imposed upon Seller's conduct of the Business for all periods (provided,
however, any cash refunds relating to prepayments or Prepaid Deposits for which
Purchaser has reimbursed Seller shall not be Excluded Assets), (ii) books and
records pertaining to corporate organization and Tax Returns, including but not
limited to the organizational documents, seals, minute books, taxpayer
identification numbers, tax information and tax records and all books and
records related exclusively to the Excluded Assets or the Excluded Liabilities,
(iii) items which are the personal property of Solomon and listed on Schedule
1.3, (iv) cash and cash equivalents, (v) amounts due to Seller from its
lender/factor against invoices through the date of the Closing, (vi) inventory
not purchased pursuant to Section 2.6, (vii) any and all intellectual property
rights of Seller or Solomon that are not expressly listed on Schedule 4.12;
(viii) all assets in funds held in trust, or otherwise associated with, or used
in connection with, Seller's employee benefit plans, programs or arrangements
other than the existing Group Agreement health plan of Axis with Xxxxxx
Permanente (the "Health Plan") and (ix) all other assets specifically listed on
Schedule 1.3.
"Excluded Liabilities" shall mean all liabilities of the Seller not
expressly assumed by Purchaser as Assumed Liabilities or otherwise in this
Agreement including, without limitation, any Indebtedness of Seller, Seller's
Hong Kong office, except as set forth in Section 6.2, all matters listed on
Schedule 4.14, and any liabilities related to Seller's employees, including,
without limitation, liabilities that may arise as a result of employee
agreements, whether written or oral, not listed on Schedule 1.4, employee
benefit plans, programs and arrangements other than the Health Plan and other
commitments of Seller relating to Seller's employees, whether written or oral,
express or implied or as a result of the termination of any employees of Seller
or of any employment agreements with Seller's officers or employees, except for
the severance/obligations related to the Transferred Employees of Seller as
described in Section 6.7 and the obligations related to those employee
agreements, whether written or oral, listed on Schedule 1.4.
"Good Reason" shall mean "Good Reason" as defined in the Employment
Agreement.
"Incentive Bonus" shall have the meaning set forth in Section 2.4
hereof.
"Indebtedness" shall mean at a particular time, without duplication,
(i) any indebtedness for borrowed money or issued in substitution for or
exchange of indebtedness for borrowed money, (ii) any indebtedness evidenced by
any note, bond, debenture or other debt security, (iii) any indebtedness for the
deferred purchase price of property or services with respect to which a Person
is liable, contingent or otherwise, as obligor or otherwise (other than trade
payables and other current liabilities incurred in the ordinary course of
business), (iv) any commitment by which a Person assures a creditor against loss
(including, without limitation, contingent reimbursement obligations with
respect to letters of credit, except as set forth in Section 3.3(c)(v)), (v) any
indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingent or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets and (viii) any unsatisfied
obligation for "withdrawal liability" to a "multiemployer plan" as such terms
are defined under ERISA.
"Intellectual Property Rights" shall have the meaning set for in
Section 1.1(c).
"Interest Payment" shall have the meaning set forth in Section 2.3
hereof.
"Inventory" shall mean (i) Seller's inventory, consisting of current
inventory and basic in-stock inventory, including work-in-progress and inventory
in transit to Seller from its suppliers as shall be as set forth in Schedule
2.6(a) and (ii) other items of Seller's inventory, to be set forth on Schedule
2.6(b), which Seller desires to sell to Purchaser and Purchaser agrees to buy
from Seller at a mutually agreed to price; Schedule 2.6(a) and Schedule 2.6(b)
will be delivered by Purchaser to Seller at least two (2) days prior to Closing.
"Inventory Purchase Price " shall have the meaning as set forth in
Section 2.6.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" shall mean the United States Internal Revenue Service.
"Knowledge" (including the terms "to the Knowledge" and "to the best
Knowledge") shall mean, with respect to any individual, the actual knowledge of
such individual; except that (i) the Knowledge of Seller (including the terms
"to the Knowledge of Seller" and "to the best Knowledge of Seller") shall mean
the actual knowledge of the executive officers of the Seller, Solomon (as an
individual and in his capacity as an executive officer of Seller) and Xxxxxxx
Xxxxxx and (ii) the Knowledge of Purchaser (including the term "to the Knowledge
of Purchaser" and "to the best Knowledge of Purchaser") shall mean the actual
knowledge of the following officers of Purchaser: Xxxxxxx X. Xxxxxx, Xxxxxxxx
Xxxxx and Xxxxx XxXxxxxxx. References to "Knowledge (without any investigation)"
in this Agreement shall not be a basis for any party to assert that actual
knowledge does or does not require investigation.
"Liens" shall mean any claims, mortgages, pledges, liens, security or
other third party interests, conditional sales agreements, options, encumbrances
or charges of any kind affecting real or personal property.
"Major Customer" shall mean any of the following customers of Seller:
Nordstrom, et al, XX Xxxxx Company, Inc., TMW Purchasing, LLC, Federated
Department Stores and the Maramaxx Group.
"Material Adverse Effect" means a material adverse effect on any
Person, taken as a whole, including the Business, the Acquired Assets, financial
condition, and results of operations.
"Operating Income" shall mean gross sales less (i) sales discounts,
returns and markdown allowances, specifically excluding allowances or
chargebacks on account of late or non-conforming shipments which non-conforming
shipments resulted from warehouse errors if the warehouse was not controlled by
the Axis Division, (ii) the costs of goods sold, (iii) all design and
development costs, (iv) selling, marketing and advertisement costs, including
salary and benefits of those employees associated with such functions of the
Axis Division, including, but not limited to, Solomon, (v) merchandising and
production related costs and (vi) all amortized expenses (over a five-year
period) incurred by Purchaser for construction costs for the showroom and the
show booth displays for the Axis Division. The cost incurred by Purchaser in
transferring the inventory from Los Angeles, California to South Carolina will
not be included as a deduction from gross sales in determining Operating Income.
A pro forma schedule of gross sales and deductions from gross sales that will
constitute the manner in which Operating Income will be calculated hereunder
will be prepared based upon Schedule 1.5 attached hereto, with such changes to
Schedule 1.5 as agreed to by Seller and Purchaser, at least thirty (30) days
prior to Closing and attached hereto as Schedule 1.5.
"Past Practice of Seller" (or "Past Practices of Seller") shall mean
Seller's operational practices and methods as relates to the conduct of the
Business during the three (3) years prior to Closing.
"Person" shall mean an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Prepaid Deposits" shall mean advances to vendors, pre-paid advertising
and tradeshow deposits which are scheduled to appear after the Closing Date,
rent deposits, utility deposits and Fall 2002 Pre-Closing Expenses as defined in
Section 6.2(a) and premiums under the Health Plan for the month of January 2002;
provided if the Closing occurs prior to January 5, 2002 Purchaser shall
reimburse Seller for the full premium paid for January 2002 for the Health Plan.
"Returns" shall mean non-damaged basic item returns from merchandise of
Seller, not purchased as part of the Inventory, returned by customers on account
of sales made to customers by Seller prior to the date of Closing and returned
after Closing, provided said Returns are resaleable without any reduction in
price.
"Special Cause" shall mean: (i) a felony conviction concerning conduct
directly related to Purchaser's business (including, but not limited to, theft
or embezzlement) or (ii) Solomon's failure to perform his Special Duties, if
Solomon does not cure such failure within the later of (x) 30 days of receipt of
notice thereof, containing details of such failure ("Failure Notice"), or (y)
the time frames otherwise delineated hereinafter. If Solomon receives a Failure
Notice, and Solomon contends that his services are not in violation of his
Special Duties, Solomon may dispute the Failure Notice under the arbitration
procedures provided in Section 12 of Solomon's Employment Agreement. If Solomon
gives notice of demand for arbitration within twenty (20) days of receiving the
Failure Notice, Solomon shall remain employed pending the final arbitration
decision; provided, that if the Board of Directors of Purchaser reasonably
determines that Solomon's continued employment could cause irreparable harm, it
may place Solomon on a fully paid leave of absence, pending the final
arbitration decision. The arbitrator's findings shall include specific
directions for how to cure and how to not violate or breach the Special Duties
delineated in the Failure Notice and Solomon may cure the specific appropriate
items within thirty (30) days after receiving notice of that final
determination. If Solomon does not timely cure in accordance with the
arbitrator's final determination, Purchaser may terminate Solomon's employment
for Special Cause, without further notice only for a 60-day period thereafter.
If Purchaser terminates Solomon's employment for Cause (and not Special Cause)
as defined in Solomon's Employment Agreement, such termination shall not trigger
a termination for Special Cause for Solomon's failure to fulfill his Special
Duties.
"Special Duties" shall mean the rendering of services by Solomon to
Purchaser in the Business that are substantially similar to and substantially
consistent with the manner, places, effort and services performed by Solomon for
Seller during two years prior to the Closing.
"Subsidiary" shall mean, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
Seller, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability Seller, partnership, association or other business entity.
"Taxes" shall mean all federal, state, county, local, foreign and other
taxes of any kind whatsoever (including, without limitation, income, profits,
premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad
valorem, severance, capital levy, production, transfer, license, stamp,
environmental, withholding, employment, unemployment compensation, payroll
related and property taxes, import duties and other governmental charges and
assessments), whether or not measured in whole or in part by net income, and
including deficiencies, interest, additions to tax or interest, and penalties
with respect thereto, and including expenses associated with contesting any
proposed adjustment related to any of the foregoing.
"Tax Return" shall mean any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
"Transferred Employees" shall have the meaning set forth in Section
6.7.
"Treasury Regulations" shall mean the United States Treasury
Regulations promulgated under the IRC, and any reference to any particular
Treasury Regulation section shall be interpreted to include any final or
temporary revision of or successor to that section regardless of how numbered or
classified.
ARTICLE II.
THE ACQUISITION
2.1 Purchase and Sale of the Acquired Assets. (a) Upon the terms and
subject to the conditions contained in this Agreement, the Seller hereby agrees
to sell, transfer, convey, assign and deliver to the Purchaser, and Purchaser
hereby agrees to purchase, acquire and accept from the Seller, the Acquired
Assets at the Closing on the Closing Date.
(b) Purchaser hereby agrees to assume and undertake at the
Closing, and on the Closing Date to pay, satisfy or discharge only, the Assumed
Contracts and Assumed Liabilities and no other liabilities of the Seller,
including, but not limited to, the Excluded Liabilities. Purchaser will not
assume any obligations under any contracts or agreements executed between the
date hereof and the Closing, unless (i) such contracts or agreements are entered
into in the ordinary course of business and involve aggregate payments over the
term of such contract not in excess of $25,000 or (ii) Purchaser previously
consents in writing to such contracts or agreements prior to the execution
thereof by the Seller; provided, however, that if such contracts or agreements
are contemplated by the Budget and the aggregate payments over such contracts or
agreements do not exceed the total sum (not line item) as set forth on the
Budget, Seller may execute said contracts or agreements without Purchaser's
written consent.
2.2 Purchase Price. The aggregate purchase price (the "Purchase Price")
for the Acquired Assets shall be (a) Eleven Million Five Hundred Thousand
Dollars ($11,500,000) in cash consideration, which amount shall be payable as
follows: (i) $8,000,000 shall be paid as of the Closing Date by the Purchaser to
the Seller in cash by wire transfer of immediately available funds to such bank
account or bank accounts as shall be designated by the Seller in writing prior
to the Closing Date (the "Cash Payment"), (ii) the Escrow Deposit for
Termination, consisting of $1,700,000 which shall be deposited by Purchaser with
the Escrow Agent on the execution of this Agreement and shall be transferred by
the Escrow Agent by wire transfer pursuant to the terms of the Escrow Deposit
Agreement for Termination and credited toward the Purchase Price (with the
interest on the Escrow Deposit for Termination being paid to Purchaser), (iii)
the Earn-Out Payments initially consisting of $1,800,000 paid in accordance with
Section 2.3 hereof, (b) the assumption or payment of (i) Assumed Liabilities and
Assumed Contracts as of the Closing Date, and (ii) payment of the Inventory
Purchase Price, Prepaid Deposits and Fall 2002 Pre-Closing Expenses (as defined
in Section 6.2(a)) as of the Closing.
2.3 Earn-Out Payments. Purchaser shall pay Seller, or its assignee, an
earn-out of up to a maximum of $1,800,000, by making a payment to the Escrow
Agent of $1,800,000 at Closing in accordance with the Escrow Agreement for
Earn-Out, as follows:
(a) $900,000 plus all interest earned on $1,800,000, shall be
paid to Seller on the first anniversary of the Closing Date, and $900,000 plus
all remaining interest, shall be paid to Seller on the second anniversary of the
Closing Date (the "Earn-Out Payments").
(b) Notwithstanding anything contained in this Section 2.3(a),
if Solomon is terminated for Special Cause or terminates his employment without
Good Reason, Seller shall only be entitled to the Earn-Out Payments prorated
through the date of such termination and for the six (6) months following such
event (which amounts shall be paid to Seller promptly). For example, assuming a
Closing Date of January 4, 2002, if Solomon is terminated for Special Cause or
terminates his employment without Good Reason on April 4, 2003, Seller would be
entitled to $675,000 of the $900,000 Earn-Out Payment plus interest, payable on
the second anniversary of the Closing Date. The foregoing notwithstanding, if
Solomon dies or becomes Disabled (as defined in his Employment Agreement) or
ceases employment for any reason other than termination for Special Cause or
without Good Reason, Seller would be entitled to the balance of the Earn-Out
Payment, plus interest. For example, if Solomon dies on April 4, 2003, Seller
would be entitled to the $900,000 Earn-Out Payment plus interest payable on the
second anniversary of the Closing Date.
2.4 Incentive Bonus.
(a) Subject to the provisions set forth below in this Section
2.4, Seller or its assignee shall be entitled to receive an incentive bonus for
each of the fiscal years 2002, 2003 and 2004 (the "Incentive Bonus") equal to
twenty-five percent (25%) of the income generated from the Axis Division in
excess of 90% of the greater of (i) Seller's year 2000 Operating Income or (ii)
Seller's year 2001 Operating Income (the "Income Target"). Any incentive bonus
for the fiscal year 2005 and beyond will be based on Purchaser's customary bonus
plan, which plan currently bases bonuses on 50% of salary upon achievement of
budget goals which will be mutually agreed to by Purchaser and Seller. All
calculations with regard to the Operating Income for any fiscal year, for
purposes of determining the annual Incentive Bonus, shall be calculated
consistently with the calculations set forth in Schedule 1.5 attached hereto.
(b) Notwithstanding anything herein to the contrary, if (i)
Solomon's Employment Agreement is terminated for Cause (as defined in the
Employment Agreement) or Special Cause, (ii) Solomon terminates the Employment
Agreement without Good Reason or (iii) Solomon dies or becomes Disabled (as
defined in the Employment Agreement), Seller or its assignee, shall only be
entitled to the Incentive Bonus earned as of the date of such termination and
for the six (6) months following such date (which amounts shall be paid within
ninety (90) days of the close of the books for the year in which the Incentive
Bonus is earned to Seller or, its assignee).
(c) Except as otherwise provided herein, Purchaser shall
determine the annual Incentive Bonus to be paid pursuant to this Section 2.4 by
March 31 of the year following the year in which the amounts are earned, and a
copy of such determination, setting forth, in reasonable detail, the Operating
Income and Incentive Bonus shall be delivered to Seller (the "Payment Notice").
Payment of such amounts will be made to Seller or its assignee on March 31 of
each year. If Seller or its assignee disagrees with the determination made by
Purchaser, Seller shall give prompt written notice thereof, but in no event
later than twenty (20) days after receipt of the Payment Notice, specifying in
reasonable detail the nature and extent of such disagreement, and Purchaser and
Seller shall have a period of ten (10) days in which to resolve such
disagreement. If the parties are unable to resolve such disagreement within such
10 day period, the matter shall be submitted within ten (10) days thereafter to
a nationally recognized independent certified public accounting firm that is
mutually agreed upon by the parties and with which neither party has previously
engaged to represent them, which accounting firm shall be directed to submit a
final resolution within thirty (30) days. Such accounting firm's determination
shall be binding on Purchaser, Seller and Solomon. In the event that the parties
are unable to mutually agree upon an accounting firm within said ten (10) days
the parties shall each choose an accounting firm, which two firms shall mutually
choose a third accounting firm within ten (10) days, who shall prepare and
submit the final resolution required herein within the said thirty (30) days.
Each party shall bear the fees and expenses of its own representatives,
including its independent accountants, if any, and shall share equally the fees
and expenses of any firm selected to resolve any disagreement between the
parties. If Purchaser is required to pay any additional amounts to Seller or its
assignee, Purchaser shall pay such amount to him within fifteen (15) business
days following a final determination hereunder.
(d) If (i) Solomon terminates his Employment Agreement for
Good Reason or (ii) if Purchaser terminates Solomon's Employment Agreement
without Cause or Special Cause, Seller or its assignee, as the case may be,
shall be entitled to any Incentive Bonus he would otherwise be entitled to
receive under his Employment Agreement and this Section 2.4 through December 31,
2004 as if Solomon's Employment Agreement was not terminated.
(e) Purchaser shall allow Seller, or its assignee, reasonable
access to Purchaser's personnel and access to and the right to review, copy and
make extracts from, all properties, equipment, books, records, workpapers,
contracts and documents relating to or in any way connected with the calculation
by Purchaser of the Incentive Bonus hereunder, including but not limited to all
documents, ledgers, data and other supporting documentation or information
supporting Purchaser's definition of Operating Income. Purchaser shall maintain
all books and records concerning and/or pertaining to Operating Income through
December 31, 2005.
2.5 Acceleration of Payments.
(a) Any breach by Purchaser of its obligations to make
payments as set forth in Section 2.3 and in Section 2.4 of this Agreement shall
entitle Seller or Solomon, as the case may be, to accelerate and obtain the
release of all funds in escrow relating to the Earn-Out Payments held by the
Escrow Agent, provided that Seller or Solomon has given written notice of such
breach (including details describing the breach) and Purchaser has not cured
such breach within ten (10) days of receipt of such notice.
(b) Any non-monetary breaches by Purchaser of its obligations
set forth in Section 2.3 and Section 2.4 shall entitle, Seller or Solomon, as
the case may be in addition to any other rights or remedies of Seller or Solomon
to accelerate and obtain the release of the payments of all the funds in escrow
relating to the Earn-Out Payments, provided that Seller or Solomon has given
written notice of such breach (including details describing such breach) and
Purchaser has not cured such breach within twenty (20) days of said notice.
2.6 Inventory. Seller hereby agrees to sell, transfer, convey, assign
and deliver to the Purchaser, and Purchaser hereby agrees to purchase, acquire
and accept from Seller certain Inventory set forth in Schedule 2.6, which
schedule will be updated prior to Closing as provided below, free and clear of
all Liens. In addition, the parties may negotiate the purchase of additional
inventory prior to the Closing Date (the "Additional Inventory"). The purchase
price for the Inventory set forth on Schedule 2.6 shall be the landed cost duty
paid in accordance with the import register of Seller plus costs of logos, as
evidenced by actual invoices delivered to Purchaser and the purchase price for
the Additional Inventory, if applicable, shall be a discounted price mutually
agreed to by the parties prior to the Closing Date. The aggregate purchase price
for the Inventory set forth on Schedule 2.6 and the Additional Inventory shall
be the "Inventory Purchase Price", as updated, and will be paid by Purchaser at
Closing. No earlier than ten (10) days prior to the Closing Date Seller shall
take a physical inventory of the Acquired Assets, at which inventory Purchaser
(and/or its representatives) will be present (the Closing Inventory"). Based
upon the Closing Inventory, Schedule 2.6 shall be updated prior to Closing by
Purchaser and Seller after Purchaser conducts such physical inventory so as to
(a) eliminate from such Schedule all Inventory listed on the original Schedule
2.6 not identified in the physical inventory or which is defective and (b)
include therein all non-damaged inventory that has arrived since the date of
this Agreement (with the price thereof). Inventory not purchased by Purchaser
pursuant to this Section 2.6 may be sold by Seller for its own account until
April 30, 2002, to any account to which Seller has previously sold Inventory
consistent with the Past Practices of Seller, and Seller may utilize Xxxxxx'x
warehouse and systems and the Tradenames in such sales to such accounts;
provided, Seller pays to Purchaser for the use of the warehouse, on a monthly
basis, the following fees: (i) .50(cent) per unit for Inventory for specialty
stores and (ii) .25(cent) per unit for Inventory for department or other major
stores.
2.7 Returns. Seller hereby agrees to sell, transfer, convey, assign and
deliver to the Purchaser, and Purchaser hereby agrees to purchase, acquire and
accept from Seller, the Returns of undamaged, basic items, free and clear of all
Liens. The purchase price for the Returns shall be the lower of actual costs or
market costs (the "Returns Purchase Price"), and will be paid by Purchaser
within 30 days of accepting to purchase said Returns. Seller shall have the
right to sell any returns not acquired by Purchaser pursuant to this Section 2.7
to any account to which Seller has previously sold Returns consistent with the
Past Practices of Seller, until the later of April 30, 2002 or 120 days
following receipt of such returns, and Seller may utilize Xxxxxx'x warehouse and
systems and the Tradenames in such sales; provided, Seller pays to Purchaser for
the use of the warehouse, on a monthly basis, a fee of .20(cent) per unit for
the handling and receipt of Returns. In addition, Seller shall pay Purchaser a
shipping fee of .25(cent) per unit for all undamaged Returns; no shipping
charges shall be charged for damaged Returns.
2.8 Noncompetition. As additional consideration for Purchaser's
agreement to purchase the Acquired Assets, Inventory and Returns and pay the
Purchase Price, Solomon has agreed to the noncompetition provisions contained in
Section 9 of the Employment Agreement which is attached hereto as Exhibit C (the
"Restrictive Covenant"). Solomon represents and acknowledges that the
Restrictive Covenant is being entered into in connection with Seller's sale of
the Acquired Assets, Inventory and Returns to Purchaser , and in the absence of
these covenants Seller understands that the sale would not be consummated by
Purchaser.
2.9 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at 10:00 a.m. at the offices of
Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 on
January 4, 2002, or at such other time, date or place as the parties may
mutually agree. The actual date of the Closing is sometimes referred to herein
as the "Closing Date".
2.10 Allocation The $11,500,000 portion of the Purchase Price shall be
allocated for tax purposes to the Acquired Assets as set forth on Schedule 2.10
which will be in a manner which complies with Section 1060 of the IRC with
respect to the allocation of the Purchase Price (as well as any Assumed
Liabilities) among the Assets. The allocation shall be consistently reported by
Purchaser and Seller on Form 8594 in compliance with Section 1060 of the IRC
based upon an asset valuation mutually agreed to by Purchaser and Seller.
ARTICLE III.
CONDITIONS TO CLOSING
3.1 Conditions to Purchaser's Obligations to Close. The obligations of
Purchaser to consummate the Acquisition is subject to the satisfaction at the
time of the Closing of the following conditions (any or all of which may be
waived by Purchaser in Purchaser's sole discretion):
(a) The representations and warranties of the Seller made in this Agreement and
in each of the other agreements to be delivered in connection with the
Acquisition shall be true and correct in all material respects as of the date of
this Agreement and as of the time of Closing as though made as of such time, and
the Seller shall have performed in all material respects each and every covenant
contained in this Agreement required to be performed by them by the time of the
Closing.
(b) The Acquisition as provided in this Agreement and each of the other
agreements shall not violate any applicable law or governmental regulation and,
except as otherwise provided in this Agreement, shall not subject Purchaser to
any tax, penalty or liability under or pursuant to any applicable law or
governmental regulation or order.
(c) There shall be no action, suit, investigation, or proceeding pending, or to
the knowledge of the Seller, threatened against the Seller, or rights,
including, without limitation, the Acquired Assets, Inventory, Returns or any of
the Seller's officers or directors, before any court, arbitrator or
administrative or governmental body which (i) seeks to restrain, enjoin, prevent
the consummation of the transactions contemplated by this Agreement or (ii)
questions the validity or legality of any such transactions or seeks to recover
damages or to obtain other relief in connection with any such transactions.
(d) Seller shall have delivered to Purchaser the Consents and
any other approvals, authorizations, exemptions or waivers (including regulatory
or governmental approvals) that are necessary for the consummation of the
transactions contemplated hereby or that are required to prevent a breach of or
default under, a termination or modification of, or acceleration of the terms
of, any Assumed Contract, in each case pursuant to instruments in form and
substance reasonably satisfactory to Purchaser; provided, however, Seller shall
not be required as a closing condition to deliver the consent for (i) any
Assumed Contract (other than those relating to computer software, hardware and
computer equipment) if the monthly payments by Seller thereunder do not exceed
$500, or (ii) the Health Plan.
(e) Purchaser shall have received an opinion from Silver &
Xxxxxxxx, counsel to Seller, dated the Closing Date substantially in the form
attached as Exhibit I hereto.
(f) Purchaser shall have received from the Seller all of the
items to be delivered in accordance with Section 3.2 below.
(g) Purchaser shall have received from Xxxx &Varon unaudited
financial statements for the Seller for the year ended December 31, 2000 and
audited financial statements for the nine month period ending September 30,
2001.
3.2. Deliveries by the Seller. The Seller agrees to deliver (or cause to be
delivered) to the Purchaser at the Closing on the Closing Date the following
agreements and documents, all reasonably satisfactory in form and substance to
Purchaser and their legal counsel (all Exhibits attached to this Agreement shall
be deemed reasonably satisfactory to Purchaser and its legal counsel):
(a) duly executed Escrow Agreement for Earn-Out, substantially in the form
as set forth on Exhibit A.
(b) a duly executed Xxxx of Sale for all Acquired Assets, Inventory and
Returns, substantially in the form as set forth on Exhibit D (the "Xxxx of
Sale").
(c) a duly executed Assignment and Assumption Agreement for all Assumed
Liabilities and Assumed Contracts, substantially in the form as set forth on
Exhibit E (the "Assignment and Assumption Agreement").
(d) duly executed Employment Agreement of Solomon.
(e) all documents of title, if any, necessary to transfer to Purchaser any
of the Acquired Assets, Inventory or Returns.
(f) subject to Purchaser satisfying the condition set forth in Section
3.3(c)(v), evidence that the Acquired Assets are free and clear of all Liens,
including, without limitation, UCC-3s and payoff letters from Seller's lenders.
(g) all assignments necessary to transfer to Purchaser complete rights in
all Intellectual Property Rights in each case included within the Acquired
Assets, and other intangible personal property owned by the Seller,
substantially in the form as set forth on Exhibit J.
(h) all documents, if any, containing or related to proprietary information
being purchased by Purchaser pursuant hereto.
(i) a certificate dated the Closing Date and signed by an executive officer
of the Seller confirming the matters set forth in Section 3.1(a) and Section
3.1(d) above, in the form of Exhibit F attached hereto.
(j) (I) a certificate of the Seller's corporate secretary or assistant
secretary as to the Seller's Certificate of Incorporation and By-laws and all
amendments to date as being in full force and effect, with true, correct and
complete copies of such resolutions, Certificates of Incorporation and By-laws
attached thereto, (II) a certificate of subsistence and/or good standing of the
Seller dated as of a recent date prior to the Closing, issued by the Secretary
of State of California and of each other state in which the Seller is qualified
to do business and (III) certified copies of resolutions duly adopted by the
board of directors of the Seller and the consent of the stockholders of Seller,
in each case authorizing the execution, delivery and performance of this
Agreement and of each of the other agreements contemplated hereby to which the
Seller is a party.
(k) a duly executed interim lease for space located at 0000 Xxxxxxx Xxxxxx,
Xxxxxx Xxxx, Xxxxxxxxxx 00000 in the form of Exhibit H attached hereto (the
"Interim Lease").
(l) a duly executed Xxxxxx City Lease.
(m) original copies of all Consents.
(n) duly executed copies of all other deeds, endorsements, assignments,
consents of third parties and other instruments as, in the opinion of counsel to
the Purchaser, are necessary to transfer title of the Acquired Assets.
3.3. Conditions to the Seller's Obligations. The obligation of the Seller
to consummate the Acquisition is subject to the satisfaction at the time of the
Closing of the following conditions (any or all of which may be waived by Seller
in its sole discretion):
(a) Upon Seller's satisfaction of the closing conditions set forth in
Section 3.2 (or express waiver therefrom by Purchaser), Purchaser shall pay to
the Seller or Escrow Agent, as the case may be (i) the Cash Payment due on the
Closing Date in accordance with Section 2.2 above, (ii) the Escrow Deposit for
Termination (to be released to Seller in accordance with the terms of the Escrow
Deposit Agreement for Termination), (iii) the Inventory Purchase Price, (iv) the
Pre-Paid Deposits, and (v) the Earn-Out Payments.
(b) The representations and warranties of Purchaser made in this Agreement
and in each other agreement to be delivered in connection with the Acquisition
shall be true and correct in all material respects as of the date of this
Agreement and as of the time of Closing as though made as of such time and
Purchaser shall have performed in all material respects each and every covenant
contained in this Agreement required to be performed by Purchaser by the time of
the Closing.
(c) Purchaser shall have delivered to the Seller the following:
(i) a duly executed Assignment and Assumption Agreement;
(ii) a duly executed Employment Agreement of Solomon;
(iii) a certificate dated the Closing Date and signed by an executive
officer of the Purchaser confirming the matters set forth in Section 3.3(b)
above, in the form of Exhibit F attached hereto;
(iv) (A) a certificate of the Purchaser's corporate secretary or assistant
secretary as to the Purchaser's Certificate of Incorporation and By-laws and all
amendments to date as being in full force and effect, with true, correct and
complete copies of such resolutions, Certificates of Incorporation and By-laws
attached thereto, (B) a certificate of subsistence and/or good standing of the
Purchaser dated as of a recent date prior to the Closing, issued by the
Secretary of State of the State of Delaware, and (C) certified copies of
resolutions duly adopted by the board of directors of the Purchaser authorizing
the execution, delivery and performance of this Agreement and of each of the
other agreements contemplated hereby to which the Purchaser is a party;
(v) a duly executed indemnity letter issued by Purchaser's lender, in favor
of GMAC Commercial Credit LLC ("GMAC") substantially in the form of Exhibit M
attached hereto, securing only those letters of credit relating to Spring,
Summer and Fall 2002 seasons Inventory, including work in process; and
(vi) a duly executed Interim Lease and Xxxxxx City Lease.
(e) Purchaser shall have delivered to the Seller duly executed copy of all
other deeds, endorsements, assignments, consents of third parties and other
instruments as, in the opinion of counsel to the Seller, are necessary to
evidence the assumption by Purchaser of the Assumed Liabilities.
(f) Purchaser shall assume the obligations under the existing employment
arrangements between (i) the Seller and Xxxxxxx Xxxxxx and (ii) between Axis
Hong Kong Limited and Xxxxxxxx Xxxxxx as set forth on Schedule 3.3(f) with
respect to Xxxxxxxx Xxxxxx.
(g) Purchaser shall (x) have offered a severance package consistent with
Purchaser's customary severance package and (y) assume the employment
arrangements existing prior to Closing between Seller and the following
employees: Xxxxxxx Xxxxxxx, Xxxxx Xxxxxxxx, Xxxxxxx Xxxxx and Xxxxxxxxxxx
Xxxxxxxx.
(h) Seller shall have received an opinion from Xxxxx Xxxxxxx Xxxxxxx &
Xxxxx LLP, counsel to Purchaser, dated the Closing Date substantially in the
form attached as Exhibit K hereto.
3.4 Frustration of Conditions. No party may rely upon the failure of
any condition set forth in this Article III to be satisfied if such failure was
caused by such party's failure to act in good faith or to use its best efforts
to cause the Closing to occur.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIESOF THE SELLER AND SOLOMON
The Seller and Solomon, jointly and severally, hereby represent and
warrant to the Purchaser as follows:
4.1 Organization; Corporate Power and Licenses. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the state of California and to the Knowledge of Seller is qualified to do
business in every jurisdiction in which its ownership of property or conduct of
business requires it to so qualify, except as otherwise provided on Schedule
4.1. Except as otherwise provided on Schedule 4.1, the Seller possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own and operate its properties, to carry on the
Business as now conducted and to carry out the transactions contemplated by this
Agreement. No shares of any corporation or any ownership or other investment
interest, either of record, beneficially or equitably, in any Person are
included in the Acquired Assets.
4.2 Authorization; No Breach. The execution, delivery and performance
of this Agreement and all other agreements contemplated hereby to which the
Seller is a party have been duly authorized by the Seller. This Agreement and
all other agreements contemplated hereby to which the Seller or Solomon is a
party each constitutes a valid and binding obligation of the Seller or Solomon,
as the case may be, enforceable against each in accordance with its terms,
except as limited by those specific qualifications contained in Section 7 of the
Opinion Letter of Silver & Xxxxxxxx, APLC attached hereto as Exhibit I and
except that (a) such enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent conveyance or
similar laws now or hereafter in effect relating to or limiting creditors'
rights generally and (b) the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
The execution and delivery by the Seller or Solomon of this Agreement and all
other agreements contemplated hereby to which the Seller or Solomon is a party,
the purchase and sale of the Acquired Assets, Inventory and Returns, and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Seller or Solomon, as the case may be, do not and shall not (i) conflict
with any provision of the Articles of Incorporation or by-laws of Seller; (ii)
conflict with, result in a breach of, or constitute a default under any
applicable law, judgment, order, ordinance, decree, rule, regulation or ruling
of any court or governmental instrumentality; (iii) subject to Seller obtaining
the Consents, result in a breach of, conflicts with, constitute a default under
or permit any party to terminate, modify, accelerate the performance of or
cancel the terms of, any agreement, lease, license, indenture, instrument of
indebtedness or other obligations to which Seller or Solomon is a party or by
which Seller or Solomon may be bound; or (iv) create any liability, mortgage,
lien, pledge, condition or encumbrance of any nature whatsoever upon any of the
Acquired Assets, Inventory or Returns, except as contemplated by this Agreement.
4.3 Regulatory Approval. No permit, consent, approval or authorization
of, or declaration to or filing with, any governmental authority is required in
connection with the execution, delivery and performance by the Seller or Solomon
of this Agreement or the other agreements contemplated hereby, or the
consummation by the Seller or Solomon of the transactions contemplated hereby or
thereby.
4.4 Financial Statements.
(a) Attached hereto as Schedule 4.4 are the financial
statements of the Seller, which financial statements contain balance sheets,
profit and loss statements and cash flow statements, for the year ended on
December 31, 2000 ("Financial Statements"). Said Financial Statements have been
reviewed in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants, by
Xxxx and Xxxxx, independent public accountants.
(b) Such Financial Statements (including in all cases the
notes thereto) have been prepared in accordance with accounting principles
generally accepted in the United States of America ("US GAAP") applied
consistently during the periods covered thereby, are complete and correct in all
material respects and present fairly in all material respects the financial
condition of the Seller at the dates of said statements and the results of its
operations for the periods covered thereby.
4.5 Affiliated Transactions. Except as set forth on Schedule 4.5
hereto, no officer, director, employee, stockholder, or Affiliate of the Seller
or any individual related by blood, marriage, or adoption to any such individual
or any entity in which such person or individual owns any beneficial interest,
is a party to any agreement, contract, commitment, or transaction with the
Seller or has any interest in the Acquired Assets, Inventory or Returns.
4.6 No Material Adverse Change. Since December 31, 2000, Seller has
conducted the Business only in the ordinary course of business consistent with
Past Practices of Seller, and there has been no material adverse change in the
Business, Acquired Assets, condition (financial or otherwise), results of
operations, or properties of the Seller.
4.7 Consents. Schedule 4.7 sets forth (i) those Assumed Contracts which
require consent for assignment to Purchaser and (ii) all other consents from
third parties or otherwise, required to consummate the Acquisition. Except as
provided in Schedule 4.7 hereto, no consent, authorization, approval, order,
license, certificate or permit of or from, or declaration or filing with, any
federal, state, local or other governmental authority or any court or other
tribunal, and no consent or waiver of any party to any contract to which Seller
or Solomon is a party is required or declaration to or filing with any
governmental or regulatory authority, or any other third party is required to
(a) execute this Agreement, (b) consummate this Agreement and the transactions
contemplated hereby, (c) permit Seller to assign or transfer the Acquired
Assets, Inventory or Returns to Purchaser or (d) enable Purchaser to conduct the
Business in the same manner as such Business is presently conducted.
4.8 Assets. Except as set forth on Schedule 4.8 hereto, the Seller has
good title to the Acquired Assets, Inventory and Returns, free and clear of all
Liens, except for Liens for current taxes not yet due and payable. The Acquired
Assets are in good operating condition in all respects (ordinary wear and tear
excepted) as required for their use in the ordinary course of the Business as
presently conducted. Except as set forth on Schedule 4.8 hereto, the Seller
owns, together with the Acquired Assets, all rights, properties, Intellectual
Property Rights, proprietary information and other assets necessary for the
conduct of its businesses as presently conducted.
4.9 Real Property. The Acquired Assets do not include any owned real
estate. Attached hereto as Exhibit H is the Interim Lease. The Interim Lease, at
the Closing, will be in full force and effect, and there will be no parties in
possession of all or any portion of the premises covered by the Interim Lease
(other than public rights of way) other than Purchaser, whether as lessees,
tenants at will, trespassers or otherwise. To Seller's and Solomon's knowledge,
no zoning, building or other federal, state or municipal law, ordinance,
regulation or restriction is violated by the continued maintenance, operation or
use of the premises covered by the Interim Lease or any tract or portion thereof
or interest therein in its present manner. At Closing all necessary licenses,
permits and authorizations required by any governmental authority with respect
to the premises leased pursuant to the Interim Lease will have been obtained,
will be validly issued and will be in full force and effect. Seller is not, and
to Seller's knowledge, no other party is in default under its existing lease.
4.10 Tax Matters. Except as set forth on Schedule 4.10, Seller has
filed or caused to be filed all federal, state, county, local or city tax
returns affecting the Business or the Acquired Assets, Inventory and Returns
which are required to be filed by Seller, and all taxes assessments and other
governmental charges which are due and payable have been timely paid or
extensions thereto have been timely filed. There are no tax liens of record upon
the Business or the Acquired Assets, Inventory or Returns, except taxes accrued
but not yet assessed. Seller has received no notice of any tax deficiency or
delinquency. No Internal Revenue Service audit of Seller is pending or to the
knowledge of the Seller, threatened and, for the periods of the Financial
Statements, the results of any completed audits are properly reflected in the
Financial Statements. All monies required to be withheld by Seller from
employees or collected from customers for income taxes, social security and
unemployment insurance taxes and sales, excise and use taxes, and the portion of
any such taxes to be paid by Seller to governmental agencies or set aside in
accounts for such purposes have been so paid or set aside, or such monies have
been approved, reserved against and, for the periods of the Financial
Statements, entered upon the books and Financial Statements.
4.11 Contracts. Schedule 4.11 lists all Assumed Contracts (copies of
which have heretofore been delivered to Purchaser) and describes all currently
effective oral agreements and commitments, if any, to which the Seller and, as
may affect the Business, Solomon are a party. Except as set forth in Schedule
4.11 hereto, (i) all such contracts (other than customer and supplier purchase
orders) constitute valid and binding agreements of each of the parties thereto,
enforceable in accordance with their terms, (ii) except as provided in Schedule
4.11, with respect to such contracts there are no existing defaults by the
Seller, nor does the Seller have Knowledge (without any investigation) of any
existing defaults by any of the other parties thereto, and to the Knowledge of
the Seller (without any investigation) there is no event which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default under such contracts by the Seller, nor does the
Seller have Knowledge (without any investigation) of any existing event relating
to any of the other parties thereto which would constitute a default and (iii)
there are no negotiations pending or in progress to revise, modify, terminate or
extend any contract.
4.12 Intellectual Property Rights. Schedule 4.12 hereto sets forth a
list of the Intellectual Property Rights of the Seller and all applications for
any Intellectual Property Rights running to the Seller or Solomon are material
to the Business. Except as set forth on Schedule 4.12, (i) the Seller or Solomon
owns, or is licensed or otherwise has the right, to use all registered
Intellectual Property Rights set forth on Schedule 4.12, and (ii) the
Intellectual Property Rights set forth on such list are free and clear of any
Lien (other than Liens held by GMAC which will be released at Closing) and
neither the Seller nor Solomon has received written notice of any adversely-held
Intellectual Property Right of any other Person, or notice of any charge or
claim of any Person relating to such Intellectual Property Rights or any process
or confidential information of the Seller and, to Seller's and Solomon's
Knowledge, there is no basis for any such charge or claim, and (iii) neither the
Seller, Solomon nor their respective predecessors, if any, have conducted the
Business at any time during the period beginning five years prior to the date
hereof under any corporate or partnership, trade or fictitious names other than
as set forth on Schedule 4.12.
4.13 Inventory. All of the Inventory consists of quality and quantity
usable and salable in the ordinary course of business. All Inventory and Returns
are free of any material defect or other material deficiency in material and
workmanship and is usable and suitable for its intended purpose, except for non
first quality work in process, inventory in transit and finished goods inventory
arising in the ordinary course of business, or certain Inventory that fails to
meet such standards where the cumulative effect of such failure would not have a
Material Adverse Effect.
4.14 Litigation.
(a) Except as set forth on Schedule 4.14, there are no
actions, suits, proceedings, orders, investigations or claims pending or, to the
Seller's Knowledge, threatened against the Seller, or, as it relates to the
Business, Solomon (or to the Seller's Knowledge, pending or threatened against
Solomon or any of the officers, directors or key employees of the Seller with
respect to the Business), or pending or threatened by the Seller against any
third party, at law or in equity, or before or by any governmental department,
commission, board, bureau, agency or instrumentality (including, without
limitation, any actions, suit, proceedings or investigations with respect to the
transactions contemplated by this Agreement).
(b) The Seller is not subject to any arbitration proceedings
under collective bargaining agreements or otherwise or, to the Seller's
Knowledge, any governmental investigations or inquiries (including, without
limitation, inquiries as to the qualification to hold or receive any license or
permit), and, to the Seller's Knowledge, there is no basis for any of the
foregoing.
(c) Neither the Seller nor Solomon is subject to any judgment,
order or decree of any court or other governmental agency, or received any
written opinion or memorandum from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability which may be material to the
Business.
4.15 Brokerage. Except as set forth in Section 9.1, there are no claims
for brokerage commissions, finders' fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement or
agreement binding upon the Seller. Except as set forth in Section 9.1, the
Seller shall pay, and hold Purchaser harmless against, any liability, loss or
expense (including, without limitation, reasonable attorneys' fees and
out-of-pocket expenses) arising in connection with any such claim.
4.16 List of Employees. Schedule 4.16 contains a complete and correct
list of all managers, employees, consultants and independent contractors,
including, without limitation, sales agents or sales representatives of the
Seller relating to the Business, showing the name, hire date, department, base
salary or wage rate (if applicable) and estimated annual salary.
4.17 Employees; Labor Matters. The Seller employs approximately 70
full-time employees and 3 part-time employees at the date of this Agreement. The
Seller is not delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed for it to the date hereof or amounts required to be reimbursed to such
employees. Except as described in Schedule 4.17, upon termination of the
employment of any of said employees, no employee is entitled to severance or
other payments, other than regular and overtime wages earned through the date of
termination and accrued vacation. Except as described in Schedule 4.17, the
Seller has no formal policy of paying any employee for vacation or sick leave
accrued at the time of termination. Except as described in Schedule 4.17, the
Seller has no policy, practice, plan or program of paying severance pay or any
form of severance compensation in connection with the termination of employment
or services. Except as described in Schedule 4.17, Seller has not entered into
any employment agreements or understandings, either written or oral, with any of
its employees. The Seller is in compliance in all material respects with all
applicable laws and regulations respecting labor, employment, fair employment
practices, terms and conditions of employment, and wages and hours. There are no
formal charges of employment discrimination or unfair labor practices, nor are
there any strikes, slowdowns, stoppages of work, or any other concerted
interference with normal operations existing, pending or to the Knowledge
(without any investigation) of the Seller threatened against the Seller. None of
the employees of the Seller are represented by a union or subject to a
collective bargaining agreement, and no question concerning representation
exists or, to the Seller's Knowledge (without any investigation), is threatened
or asserted respecting the employees of the Seller. To the Knowledge of the
Seller (without any investigation), there are no grievances, complaints or
charges that are pending under any dispute resolution procedure. No arbitration
or similar proceeding is pending and no claim therefor has been asserted. The
Seller is, and at all times has been, in compliance in all material respects
with the requirements of the Immigration Reform Control Act of 1986, as amended.
To the Knowledge of Seller (without any investigation), there are no pending or
threatened changes in status with respect to (including, without limitation,
resignation of) the senior management or key supervisory personnel of the Seller
nor has the Seller received any notice or information concerning any prospective
change in status with respect to such senior management or key supervisory
personnel.
4.18 ERISA.
(a) Seller has delivered to Purchaser each employment,
consulting, bonus, deferred compensation, incentive compensation, severance,
termination or post-employment pay, disability, hospitalization or other
medical, dental, vision, life or other insurance, stock purchase, stock option,
stock appreciation, stock award, pension, profit sharing, 401(k) or retirement
plan, agreement or arrangement, and each other employee benefit plan or
arrangement arising out of the employment or the termination of employment of an
employee, former employee, retiree or sales personnel by the Seller, whether
written or oral, tax-qualified under the IRC or non-qualified, whether covered
by ERISA, or not, maintained or contributed to by the Seller covering its
employees, former employees, retirees or sales personnel (collectively,
"Plans"). Any Plan maintained by the Seller that has subsequently been
terminated was terminated in compliance with the requirements of the IRC and
ERISA and all liabilities under any such Plan were fully satisfied. To the
Knowledge of the Seller, the Seller has no oral or written formal or informal
plan or commitment, whether covered by ERISA or not, to create any additional
plan, agreement or arrangement or to modify or change any existing Plan in any
manner that would affect any of its employees, former employees, retirees or
sales personnel. The Seller has delivered to Purchaser annual expenses for
wages, sales commissions, bonuses, group health plan, 401(k) plan, and any other
plan for the last three fiscal years.
(b) Any plan, including but not limited to any plan that was
an "employee pension benefit plan" covered by Section 3(2) of ERISA, that the
Seller ever sponsored or maintained, or in which the Seller ever participated or
contributed, on behalf of its employees, former employees, retirees or sales
personnel which was subsequently terminated, was terminated in compliance with
the requirements of the IRC and ERISA and the Seller has not incurred any
liability with respect to such plan or the termination of such plan that is due
and owing and has not yet been satisfied under the terms of the plan, the IRC,
ERISA or any other law or regulation pursuant to which the Purchaser may incur
liability or have liability attributed to them under any federal, state or local
law as a result of the consummation of the transactions contemplated by this
Agreement. The Seller does not maintain, nor has it ever maintained or
contributed to: (i) a "multiemployer plan", as that term is defined in Section
3(37) of ERISA. No amount is due or owing from the Seller on account of a
"multiemployer plan" or on account of any withdrawal therefrom or (ii) a
"defined benefit plan" as defined in Section 3(35) of ERISA. The Seller does not
have any liability under (or with respect to) any "defined benefit plan".
(c) Except for the Health Plan and the Pacific Care Dental
Plan provided to Purchaser by Seller and any obligations of Seller for workers
compensation and unemployment insurance required by law, the Seller does not
maintain or have any obligation to contribute to (or any other liability with
respect to) any plan or arrangement whether or not terminated, which provides
medical, health, life insurance or other welfare-type benefits for current or
future retired or terminated employees (except for limited continued medical
benefit coverage required to be provided under Section 4980B of the IRC or as
required under applicable state law).
(d) Each Plan and all related trusts, insurance contracts, and
funds have been maintained, funded and administered in compliance in all
material respects with all applicable laws and regulations, including but not
limited to ERISA and the IRC, and all required governmental filings and material
participant disclosures have been made on a timely basis. None of the Seller,
any trustee or administrator of any Plan, or any other person has engaged in any
transaction with respect to any Plan which could subject the Seller, or any
trustee or administrator of any Plan, or any party dealing with any Plan, or the
Purchaser to any tax or penalty imposed by ERISA or the IRC including, without
limitation, under Title I of ERISA of under Sections 4971 through 4980B
(inclusive) of the IRC. No actions, suits, claims, complaints, charges,
proceedings, hearings, investigations, or demands with respect to the Plans
(other than routine claims for benefits) are pending or threatened and the
Seller has no Knowledge of any acts which could give rise to or be expected to
give rise to any actions, suits, claims, complaints charges, proceedings,
hearings, investigations or demands. No Plan that is subject to the funding
requirements of Section 412 of the IRC or Section 302 of ERISA has incurred any
"accumulated funding deficiency" as such term is defined in such Sections of the
IRC and ERISA, whether or not waived. There is no judgment, decree, injunction,
ruling or order of any court, governmental body, commission, agency or
arbitrator outstanding against or in favor of any Plan or any fiduciary thereof
in that capacity.
(e) Each Plan that is intended to be qualified under Section
401(a) of the IRC, and each trust forming a part thereof, has received a post
Tax Reform Act of 1986 favorable determination letter from the IRS as to the
qualifications under the IRC of such Plan and the tax-exempt status of such
related trust and to Seller's Knowledge nothing has occurred since the date of
such determination letter that could adversely affect the qualification of such
Plan or the tax-exempt status of such related trust.
(f) No underfunded "defined benefit plan" has been, during the
five years preceding the Closing Date, transferred out of the controlled group
of companies (as defined in Section 414 of the IRC) of which the Seller is a
member or was a member during such five-year period.
(g) As of the Closing Date and as to each Plan, all required
or recommended payments, premiums, contributions, reimbursements or accruals for
all periods ending prior to or as of the Closing Date shall have been made or
properly accrued in accordance with generally accepted accounting principals. No
Plan has any material unfunded liabilities. All Plans providing "welfare type"
benefits are fully insured.
(h) With respect to each Plan, the Seller has provided the
Purchaser with true, complete and correct copies, to the extent applicable, of
(A) all documents pursuant to which the Plans are maintained, funded and
administered, including, without limitation, true and complete copies of the
Plans, the trusts and other contracts (including any amendments to any of the
foregoing) relating to the Plans and all other relevant documents governing or
relating to the Plans in effect on the date hereof (including, without
limitation, the latest summary plan description, (B) the three most recent
annual reports (Form 5500 series) filed with the IRS (with attachments), (C) the
three most recent actuarial reports, (D) the three most recent financial
statements, (E) all governmental rulings, determinations, and opinions (and
pending request for governmental rulings, determinations and opinions)
including, without limitation, the latest favorable determination letter issued
by the IRS for each of the Plans as applicable and (F) the most recent valuation
(but in any case at least one that has been completed within the last calendar
year) of the present and future obligations under each Plan that provides
post-retirement or post-employment health, life insurance, accident or other
"welfare-type" benefits.
(i) For purposes of this Section 4.18, the term "Seller"
includes all organizations under common control with the Seller pursuant to
Section 4l4(b) or (c) of the IRC.
(j) Each Plan that is an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA may be terminated after the Closing
Date upon no more than sixty (60) days notice in accordance with the terms of
any underlying contract, including the termination provisions thereof, without
liability to the Seller other than liabilities relating to claims incurred prior
to the effective date of the termination of such Plan.
(k) There are no agreements or arrangements between the Seller
and an individual consultant, former consultant, employee or former employee,
director or former director obligating the Seller to make any payment to or
accelerate the timing of or vesting in any payment or stock based compensation
for any such individual as a result of the transactions contemplated by this
Agreement.
4.19 Compliance with Laws. In operating the Business, except as set
forth on Schedule 4.19, Seller has complied in all material respects with all
applicable federal, state and local laws, rules, regulations, ordinances, codes,
statutes, judgments, orders and decrees. Neither the ownership or use of the
properties of Seller relating to the Business nor the conduct of the Business
conflicts with the rights of any other person, firm or corporation and the
Seller has not received notice of any such violation.
4.20 Environmental and Safety Matters.
(a) The operations of the Seller and the premises leased
pursuant to Seller's existing lease and the Interim Lease are, and will be in
material compliance with all applicable Environmental Laws.
(b) Neither the Seller nor Solomon has received notice of any
pending or threatened claim of any violation of any applicable Environmental
Law with respect to the Business or the premises leased pursuant to Seller's
existing lease and the Interim Lease.
(c) The Seller has obtained and is in compliance with all
necessary permits or authorizations that are required under Environmental Laws
to operate the facilities, assets and Business of the Seller;
(d) No Environmental Claims have been asserted against the
Seller or, to the Knowledge of the Seller, any predecessor in interest nor does
the Seller have Knowledge or notice of any threatened or pending Environmental
Claim against the Seller, Solomon or any predecessor in interest which is
reasonably likely to result in Environmental Liabilities;
(e) To the Knowledge of the Seller, no Environmental Claims
have been asserted against any facilities that may have received hazardous
materials generated by the Seller or any predecessor in interest which is
reasonably likely to result in Environmental Liabilities;
(f) The Seller and Solomon further represent that they have
delivered to Purchaser true and complete copies of all environmental reports,
studies, investigations or correspondence regarding any Environmental
Liabilities of the Seller, or any environmental conditions at any of the
property covered under the Interim Lease and the Xxxxxx City Lease.
4.21 Customers, Distributors and Suppliers. Schedule 4.21(a) includes a
list of the top ten (10) customers of the Seller as of August 31, 2001. Schedule
4.21(b) includes a list of the top ten (10) suppliers of the Seller as of August
31, 2001. No customer responsible for in excess of 5% of the Seller's gross
sales during the last twelve months has canceled or otherwise terminated its
relationship with the Seller, nor has any customer, distributor or supplier
during the last twelve months decreased materially its services, supplies or
materials to the Seller or its usage or purchases of the services or products of
the Seller. Except as provided in Schedule 4.21(c), no customer or supplier
which individually accounts for at least $200,000 in sales to or from Seller
has, to the Knowledge of the Seller (without any investigation by Seller), any
plan or intention to terminate, to cancel or otherwise materially and adversely
modify its relationship with the Seller to decrease materially or limit its
services, supplies or materials to the Seller or its usage, purchase or
distribution of the services or products of the Seller; provided, however, if
Seller provides prompt notice to Purchaser under Section 6.1(c) or (f) hereunder
of such a plan or intention by a customer or supplier that Seller obtains
Knowledge of after the date hereof and prior to the Closing Date, Purchaser may
not rely on such disclosure or fact as a basis to assert a breach of this
Section 4.21 by Seller. No customer or supplier has, or currently is, requiring
the payment of any fees or other amounts, the return of any portion of amounts
due to the Seller, or any other arrangement whereby the Seller must compensate
the customer or supplier for displaying the products of the Seller.
4.22 Assets Conveyed. Except for the Excluded Assets, the Acquired
Assets, Inventory and Returns comprise substantially all of the assets, owned,
used or held for use in connection with, or that are otherwise related to the
conduct of, the Business as presently conducted by the Seller on the date of
this Agreement.
4.23 Orders, Commitments and Returns. Schedule 4.23(a) will
substantially set forth the aggregate amounts of all unfulfilled orders for the
sale of merchandise for Spring and Summer 2002 will be delivered to Purchaser no
later than November 15, 2001. Schedule 4.23(b) will substantially set forth the
aggregate amounts of all unfulfilled orders for the sale of merchandise for
orders for prior to Spring 2002 that are 90% or greater of Seller's list price
that will be shipped after Closing and will be delivered to Purchaser no later
than December 15, 2001.
4.24 Disclosure. Neither this Agreement nor any of the exhibits,
schedules or attachments, written statements, documents, certificates or other
items prepared or supplied (pursuant to the express terms of this Agreement) to
the Purchaser by or on behalf of the Seller with respect to the transactions
contemplated hereby contain any untrue statement of a material fact or omit a
material fact necessary to make each statement contained herein or therein not
misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Seller as follows:
5.1 Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of Delaware, its
jurisdiction of incorporation and has the corporate power and authority to enter
into this Agreement and all other agreements contemplated hereby to which
Purchaser, is a party, and to carry out the transactions contemplated hereby and
thereby.
5.2 Authorization. The Board of Directors of Purchaser has duly
authorized the execution and delivery of this Agreement and all other agreements
contemplated hereby to which Purchaser, is a party, and the consummation by
Purchaser of the transactions contemplated hereby and thereby. No other
corporate or other proceedings on the part of Purchaser are necessary to
authorize this Agreement or any other agreements contemplated hereby to which
Purchaser is a party or the transactions contemplated hereby or thereby.
5.3 Valid and Binding Agreement. This Agreement and all other
agreements contemplated hereby to which Purchaser is a party, constitutes a
valid and binding agreement of Purchaser enforceable against Purchaser in
accordance with its terms, except that (a) such enforcement may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to or limiting creditors' rights
generally and (b) the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
5.4 No Violation. Subject to Seller obtaining the Consents and Purchaser
obtaining the Consent of The CIT Group/Commercial Services, Inc. ("CIT") no
consent, authorization, approval, order, license, certificate or permit of or
from, or declaration or filing with any federal, state, local or other
governmental authority or any court or other tribunal, and no consent or waiver
of any party to any material contract to which Purchaser is a party is required
for the execution, delivery and performance of this Agreement or any of the
agreements or instruments contemplated hereby. Subject to Seller obtaining the
Consents and Purchaser obtaining the consent of CIT, neither the execution,
delivery and performance of this Agreement and such other agreements and
instruments (with or without the giving of notice, the lapse of time, or both)
nor the consummation of the transactions contemplated hereby (i) conflicts with
the Certificate of Incorporation or bylaws of Purchaser; (ii) conflicts with,
results in a breach of, or constitutes a default under any applicable law,
judgment, order, injunction, decree, rule, regulation or ruling of any court or
governmental instrumentality or (iii) conflicts with, results in a breach of,
constitutes a default under, permits any party to terminate, modify, accelerate
the performance of or cancel the terms of, any agreement, lease, instrument of
indebtedness, license or other obligations to which Purchaser is a party, or by
which Purchaser may be bound, such that Purchaser could not acquire or operate
the Assets.
5.5 Regulatory Approval. No permit, consent, approval or authorization
of, or declaration to or filing with, any governmental authority is required in
connection with the execution, delivery and performance by the Purchaser of this
Agreement or the other agreements contemplated hereby, or the consummation by
the Purchaser of the transactions contemplated hereby or thereby.
5.6 Brokerage. Except as set forth in Section 9.1, there are no claims
for brokerage commissions, finders' fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement or
agreement binding upon the Purchaser. Except as set forth in Section 9.1, the
Purchaser shall pay, and hold Seller and Solomon harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys'
fees and out-of-pocket expenses) arising in connection with any such claim.
5.7 Disclosure. Neither this Agreement nor any of the exhibits,
schedules or attachments, written statements, documents, certificates or other
items prepared or supplied (pursuant to the express terms of this Agreement) to
the Seller by or on behalf of the Purchaser with respect to the transactions
contemplated hereby contain any untrue statement of a material fact or omit a
material fact necessary to make each statement contained herein or therein not
misleading.
ARTICLE VI.
COVENANTS OF THE PARTIES
6.1 Covenants of the Seller. The Seller hereby covenants and agrees with
Purchaser as follows:
(a) Ordinary Conduct. Except as expressly permitted by the
terms of this Agreement or as set forth on Schedule 6.1(a) hereto, from the date
hereof until the Closing, the Seller will conduct the Business in the ordinary
course in substantially the same manner as presently conducted and consistent
with the Past Practices of Seller and the Budget. In addition, except as
expressly permitted by the terms of this Agreement or as set forth in the
Budget, the Seller will not do any of the following prior to the Closing without
the prior written consent of Purchaser, which shall not be unreasonably withheld
or delayed:
(i) amend Certificate of Incorporation or By-laws or other comparable
governing instruments of the Seller;
(ii) enter into any employment agreement (other than employees with annual
salaries less than $25,000) or collective bargaining agreement, change any
compensation or benefits or grant any material new compensation or benefits
payable to or in respect to any officer or employee of Seller except annual
increases to salaries or wages that are consistent with Past Practice of Seller
and which do not exceed 5% for each individual;
(iii) amend any material term of any of its outstanding securities;
(iv) make any change in any method of accounting or accounting practice or
policy other than those required by generally accepted accounting principles;
(v) acquire by merging or consolidating with, by purchasing a substantial
portion of the assets of, or in any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof or otherwise acquire any assets, except in the ordinary course of
business consistent with Past Practice of Seller;
(vi) sell, lease or otherwise dispose of any of the Acquired Assets other
than the sale of Inventory in the ordinary course of business or the disposition
of other assets with an aggregate value of $10,000 or less;
(vii) amend, modify, terminate, extend, renew or restate any contract
including, without limitation, any benefit, plan or program, other than in the
ordinary course of business consistent with Past Practice of Seller;
(viii) pay or agree to pay any pension, retirement allowance or other
employee benefit not required or permitted by any Plan, whether past or present,
except for severance payments;
(ix) permit any of its insurance policies to be canceled or terminated
(prior to Closing) or any of the coverage thereunder to lapse (prior to
Closing), unless simultaneously with such termination, cancellation or lapse,
replacement policies are in full force and effect providing coverage, in form,
substance and amount equal to or greater than the coverage under those canceled,
terminated or lapsed;
(x) change or modify in any material respect existing inventory management
or credit and collection policies, procedures and practices with respect to
accounts receivable;
(xi) change or modify in any material respect existing payment policy,
procedures and practices with respect to accounts payable; or
(xii) agree, whether in writing or otherwise, to do any of the foregoing.
Except as specifically permitted hereby, the Seller shall not
take any action prior to the Closing that would, or that would reasonably be
expected to, result in any of the representations and warranties of the Seller
set forth in this Agreement becoming untrue in any material respect or the
representations and warranties of Seller set forth in this Agreement which are
qualified as to materiality or Material Adverse Effect becoming untrue.
(b) Other Transactions. The Seller agrees that prior to the Closing, it
will not, and will cause the Seller's directors, officers, representatives and
agents not to, directly or indirectly, take any action to solicit, encourage,
initiate or facilitate (including by way of making available or furnishing
information) any inquiries, proposals or offers with respect to any merger or
consolidation involving the Seller, the acquisition of any shares of common
stock or warrants to purchase common stock or the acquisition of all or
substantially all the assets of the Seller or the Acquired Assets, Inventory or
Returns by any person other than Purchaser or its permitted assignees. The
Seller agrees to notify (and to provide all material details) promptly if the
Seller shall be approached, directly or indirectly, by any person with respect
to any such inquiries, proposals or offers.
(c) Notices of Certain Events. The Seller shall promptly provide Purchaser,
with a notice, if between the date hereof and the Closing Date, Seller becomes
aware of:
(i) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the transactions
contemplated by this Agreement;
(ii) any notice or other communication from any governmental entity in
connection with the transactions contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to its Knowledge, threatened, relating to or involving or otherwise
affecting the Seller that, if pending on the date of this Agreement, would have
been required to have been disclosed in the Schedules hereto or that relate to
the consummation of the transactions contemplated by this Agreement;
(iv) the occurrence, or failure to occur, of any condition, event or
development that (A) causes a breach of any representation or warranty of the
Seller contained in this Agreement at any time from the date hereof to the
Closing Date becoming untrue in any material respect or the representations and
warranties of Seller set forth in this Agreement which are qualified as to
materiality or Material Adverse Effect becoming untrue or (B) would have been
required to be set forth or described in the Schedules hereto if existing or
known at the date of this Agreement; and
(v) any failure on the part of the Seller to comply with or perform in any
material respect any agreement or covenant to be complied with or performed by
it hereunder;
provided that the delivery of a notice pursuant to this Section 6.1(c) shall not
limit or otherwise affect the remedies available hereunder to Purchaser, except
as otherwise expressly provided in this Agreement. The notice will specify the
facts and conditions giving rise to its issuance. Such notice shall not affect
the obligations of Seller under this Agreement as constituted prior to the
delivery of such notice.
(d) Availability of Records. After the Closing, the Seller shall make
available to the Purchaser as reasonably requested and at its expense or any
taxing authority any and all information, records or documents relating to the
Business conducted prior to the Closing Date and related personnel retained by
it, in respect of periods prior to Closing Date and shall preserve all such
information, records and documents until the later of three (3) years after the
Closing or the expiration of all statutes of limitations or extensions thereof.
The Seller agrees to hold all information relating to the Business in strict
confidence from and after the Closing Date. Notwithstanding the terms of this
Agreement or this Section to the contrary, Seller shall not make available to
Purchaser any Tax Returns (and related work papers), which are and shall remain
confidential.
(e) Taxes. The Seller will pay all Taxes due and payable on or after the
Closing and will file all returns and reports required to be filed on or after
the Closing with respect to the Seller (including any predecessor entities)
including, without limitation, Taxes imposed with respect to the Seller, the
Business or the Acquired Assets, the Inventory and Returns for all taxable
periods (or portions thereof) ending on or prior to the Closing, for which the
Purchaser could be held liable or a claim made against the Business or any of
the Acquired Assets, except as otherwise provided in Section 9.1 hereof. All
personal property taxes and similar ad valorem obligations levied with respect
to the Acquired Assets for a taxable period that includes (but does not end on)
the Closing Date shall be apportioned between Seller and Purchaser as of the
Closing Date based upon 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 Purchaser shall be liable for the proportionate amount of such Taxes
that is attributable to the Post-Closing Tax Period.
(f) Update of Schedules. At Closing, subject to Section 6.1(a) and (c)
hereof, Seller will provide to Purchaser updated Schedules to this Agreement,
updating the Schedules for the period from the date hereof until the Closing
Date.
(g) Key Man Insurance. Seller shall cooperate with Purchaser in order for
Purchaser to acquire Key Man Insurance for Solomon. Solomon agrees and covenants
that he will take all reasonable, necessary steps required for Purchaser to
acquire Key Man Insurance.
(h) Budget Update. Seller shall provide Purchaser with a report on each of
October 31, November 30 and two (2) business days prior to the Closing Date
detailing by line-item all amounts actually expended as set forth on the Budget.
(i) RN Number. Seller authorizes and shall permit (to the
extent permitted by law) Purchaser to utilize Seller's existing RN Number for up
to 12 months after the Closing without any cost to Purchaser.
6.2 Covenants of the Purchaser. The Purchaser hereby covenants and agrees with
Seller as follows:
(a) Pre-Closing Expenses. At Closing, Purchaser shall
reimburse Seller for all reasonable expenses paid by Seller prior to Closing
relating to the Fall 2002 season, including but not limited to, all sample
expenses for the Fall 2002 season identified by Seller to Purchaser in writing
for which Seller provides documentation supporting the expense provided such
expenses do not exceed the total sum (not line items) set forth on the Budget.
Such reimbursement shall include, but not be limited to, the expenses incurred
by Seller for samples for overseas travel, artwork, pattern development,
screens, design concepts, sample fabric (including freight charges), sample
finished goods (including freight charges), trim, labels, hangtags, salesmen
samples (including freight charges) design concept samples and swatch books (the
"Fall 2002 Pre-Closing Expenses").
(b) Royalty Payments. Purchaser shall remit to Seller any
royalty payments it receives from licensees of Seller after the Closing and
which Seller earned prior to the Closing Date.
(c) Hong Kong. On or before May 31, 2002, Purchaser shall
relocate certain of Seller's personnel located at Seller's Hong Kong office to
Purchaser's Hong Kong office, Manhattan Industries, H.K., including but not
limited to Xxxxxxxxx Xxxxxx ("Xxxxxx"). Xxxxxx shall be given the position and
title of Deputy Managing Director of Manhattan Industries. In addition,
Purchaser shall pay the following reasonable operating expenses: payroll for
those Hong Kong employees of Seller retained by Purchaser, rent, travel and
day-to-day office expenses, of Seller's Hong Kong office expenses until May 31,
2002, and will assist in any lease negotiations with respect to termination of
Seller's Hong Kong office lease. Seller shall be liable and shall indemnify
Purchaser for all severance payments, if any, to any employees of Seller's Hong
Kong office who are not retained by Purchaser as of the Closing. Notwithstanding
the second sentence of this Section 6.2(c), Purchaser shall not be liable for
any amounts due under Seller's Hong Kong lease except for the monthly rental
expenses through May 31, 2002 or earlier if said lease is terminated prior to
May 31, 2002.
(d) Shipping Department. Purchaser shall not transfer its
shipping department for the Axis Division from Los Angeles, California to South
Carolina prior to June 30, 2002. All inventory for the Fall 2002 season be
received at Purchaser's warehouse in South Carolina.
(e) Axis Division. For as long as the Employment Agreement
remains in effect, Purchaser shall maintain the Business as a separate Axis
Division, and shall maintain an office in Culver City, California for the term
of the Employment Agreement for Solomon.
(f) Audit. Axis will cooperate with its accountants, Xxxx
&Varon, and provide Purchaser all necessary documentation to complete an audit,
prior to the Closing Date, of Axis for the nine month period ending September
30, 2001.
(g) Commissions. Purchaser promptly shall remit to Seller,
after the Closing, any deductions Purchaser makes on Seller's behalf from
salesperson commissions on account of payments made to such salesperson by
Seller.
6.3 Mutual Covenants. Each of the parties hereto hereby covenants and
agrees as follows:
(a) Publicity. From the date hereof through the Closing Date, no public
release or announcement concerning the transactions contemplated hereby shall be
issued by any party without the prior consent of the other parties, except as
such release or announcement shall be required by law, in which case the party
required to make the release or announcement shall allow the other parties
reasonable time to comment on such release or announcement in advance of such
issuance.
(b) Reasonable Commercial Efforts. Subject to the terms and conditions of
this Agreement, each party will use reasonable commercial efforts to cause the
conditions set forth in Article III of this Agreement to be satisfied and the
Closing to occur.
6.4 Bulk Sales Laws. The parties hereto waive compliance with the "bulk
sales" or similar laws of any state or other jurisdiction that may be applicable
to the transactions contemplated hereby. The Seller covenants and agrees to
indemnify and hold harmless (as set forth in Article VII) Purchaser and each of
its Affiliates and The CIT Group/Commercial Services, Inc. ("CIT") from and
against any and all claims made by creditors of the Seller relating to
provisions of the "bulk sales" or similar laws of any state or other
jurisdiction that may be applicable to the transactions contemplated hereby and
from all out-of-pocket costs (including reasonable attorneys' fees with respect
to Purchaser and excluding reasonable attorneys' fees with respect to CIT)
incurred in the defense of any claims made under such laws.
6.5 Confidentiality.
(a) The Seller acknowledges that they have had access to
certain commercial and marketing information, data and material regarding the
Business (including, without limitation the Acquired Assets, trade secrets and
other proprietary information) (the "Confidential Information"). The Seller
agrees that the Confidential Information is confidential and proprietary and
that a portion of the Purchase Price is being paid for such Confidential
Information and that it represents a substantial investment having great
economic and commercial value to the Purchaser, and constitutes a part of the
value to Purchaser of the Business and the Acquired Assets. The Seller hereby
acknowledges that Purchaser would be irreparably damaged if any of the
Confidential Information was disclosed to, or used or exploited on behalf of,
any Person other than Purchaser, or its Affiliates. Accordingly, the Seller
covenants and agrees that it shall not, without the prior written consent of
Purchaser, disclose, use or exploit any such Confidential Information, for the
benefit of any third party, except that Solomon may use or exploit a particular
item of Confidential Information if such Confidential Information is required to
be disclosed to or by order of a governmental agency or a court of law or
otherwise as required by law; provided that prior to any such disclosure notice
of such requirement of disclosure is provided to the Purchaser and the Purchaser
is afforded the reasonable opportunity to object to such disclosure, or is
required to be disclosed to the parties' attorneys, accountants or other agents
or employees working on this transaction.
(b) The Seller hereby expressly acknowledges that money
damages will be impossible to calculate and may not adequately compensate
Purchaser in connection with an actual or threatened breach of the provisions of
this Section 6.5. Accordingly, the Seller hereby expressly waives all rights to
raise the adequacy of Purchaser's remedies at law as a defense if Purchaser
seeks to enforce by injunction or other equitable relief the due and proper
performance and observance of the provisions of this Section 6.5. In addition,
Purchaser shall be entitled to pursue any other available remedies at law or
equity, including the recovery of money damages, in respect of the actual or
threatened breach of the provisions of this Section 6.5.
(c) The Seller hereby expressly waives any right to assert
inadequacy of consideration as a defense to enforcement of the confidentiality
covenants in this Section 6.5 should such enforcement ever become necessary.
(d) Purchaser covenants and agrees that Seller's supplier
lists and customer order files will only be utilized by the Axis Division of
Purchaser until such time as the Earn-Out Payments and Incentive Bonus payments
are no longer due under Section 2.5 and Section 2.6, respectively.
6.6 Investigation. The Seller hereby agrees to cooperate fully with
Purchaser and give to Purchaser, its officers, employees, auditors, legal
counsel, representatives and agents reasonable access during normal business
hours to all such information, documents, premises and employees as Purchaser
considers necessary or advisable for purposes of their investigation of the
Seller, the Business and the Assumed Liabilities, provided, however, that the
consent of Solomon shall be obtained prior to Purchaser contacting any employee
directly, which consent shall not be unreasonably withheld or delayed. The
Seller shall make available to Purchaser Xxxxxxx Xxxxxx. Pending the Closing,
Purchaser will preserve the confidentiality of any information provided to
Purchaser by the Seller relating to the Seller, the Business or the Assumed
Liabilities, which is confidential in nature. In the event of termination of
this Agreement, Purchaser agrees that that certain Non-Disclosure Agreement
("NDA") dated May 2, 2001 shall survive.
6.7 Employees. Purchaser shall be under no obligation to employ any of
Seller's employees; provided, however, at least fifteen (15) days prior to the
Closing, Purchaser shall determine which employees of Seller Purchaser shall
offer employment and shall provide Seller with a list (the "Employee Offer
List") setting forth the names of such employees and categorizing such employees
into the following groups: (i) employees who will work in the warehouse (the
"Warehouse Employees"), (ii) employees who will provide transitional services
(the "Transitional Employees") and (iii) employees who Purchaser intends to
retain ("Retained Employees", together with the Warehouse Employee and
Transitional Employee, the "Transferred Employees"). Purchaser agrees that as to
each Employee who accepts employment with Purchaser, Purchaser shall give such
Transferred Employee credit for such employee's period of employment with Seller
prior to the Closing for purposes of determining the amount of severance, if
any, that may become payable to such Transferred Employee. With respect to each
Warehouse Employee and Transitional Employee who accepts Purchaser's employment
offer and whose employment with Purchaser is subsequently terminated for any
reason, whether by Purchaser, by such Warehouse Employee or Transitional
Employee or due to death or disability of such Warehouse Employee or
Transitional Employee, Seller shall be liable for and shall pay all severance
payments, if any, payable to such Warehouse Employee or Transitional Employee as
determined by Seller for such Warehouse Employee's or Transitional Employee's
employment period with Seller prior to the Closing and Purchaser will pay all
severance to such employees for periods employed by Purchaser after the Closing
Date. Other than the obligations to pay for the cost of providing past service
credit for severance purposes to those Retained Employees who accept Purchaser's
employment offer, Purchaser shall not be liable for any liabilities or
obligations related to the Transferred Employees, incurred or accrued prior to
Closing except as set forth above. Nothing herein shall require that Seller pay
severance or establish a severance policy which Seller states does not currently
exist for its employees. Other than with respect to the obligations to pay for
the cost of providing past service credit for severance purposes to the Retained
Employees which shall be Purchaser's responsibility, Seller shall be responsible
for and indemnify Purchaser under Article VII for all liabilities and
obligations (i) incurred or accrued prior to Closing, with respect to Seller's
employees including all Warehouse Employees and Transitional Employees
(including, but not limited to, any unused vacation pay); (ii) incurred or
accrued, after the Closing with respect to Seller's employees who are not
Transferred Employees and (iii) related to any applicable severance payable to
Warehouse Employee or Transitional Employee, if any, following the Closing for
pre-Closing periods including, severance payable on account of such Warehouse
Employee's or Transitional Employee's employment with Purchaser.
6.8 Risk of Loss.
(a) The risk of any loss, damage or impairment, confiscation or
condemnation of any of the Acquired Assets, Inventory or Returns from any cause
whatsoever shall be borne by Seller at all times prior to the Closing. In the
event of any such loss, damage or impairment, confiscation or condemnation,
whether or not covered by insurance, Seller shall promptly notify Purchaser of
such loss, damage, impairment or condemnation and advise Purchaser of the
estimated cost of repair and replacement and advise Purchaser whether Sellers
intend to repair, replace or restore such Acquired Assets, Inventory or Returns
(the "Loss Notice").
(b) If Seller does not or cannot restore or replace the damaged Acquired
Assets, Inventory or Returns at least ten (10) days prior to the Closing, or
informs Purchaser in the Loss Notice that it does not intend to restore or
replace such damaged Acquired Assets, Inventory or Returns, Purchaser may at its
option: (i) if such loss is of the type described in and covered by Section
8.1(d) hereof, Purchaser may terminate this Agreement pursuant to Section 8.1(d)
by notice forthwith without any further obligation hereunder; or (ii) proceed to
the Closing of this Agreement without Seller completing the restoration and
replacement of such damaged Acquired Assets, Inventory or Returns, provided that
(x) Seller shall assign all rights under all applicable insurance policies and
condemnation awards, if any, to Purchaser and (y) Purchaser may reduce the Cash
Payment by the amount of any insurance deductible in connection therewith or if
no insurance policy is applicable by the amount of the damages as determined by
Purchaser and Seller in good faith.
(c) Purchaser will notify Seller of a decision under the options described
in Section 6.8(b)(i) or (ii) above within ten (10) days after Purchaser's
receipt of the Loss Notice; provided however, that if Seller states in the Loss
Notice that it intends to restore the damaged Acquired Assets, Inventory or
Returns and, based upon such statement Purchaser agrees to proceed to the
Closing, then if Seller has not restored such damaged Acquired Assets, Inventory
or Returns ten (10) days prior to the Closing Date, notwithstanding Purchaser's
prior delivery of a notice to proceed pursuant to this Section 6.8(c), Purchaser
shall have the right, in its sole discretion, to postpone the Closing in order
to effectuate such restoration.
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
7.1 Survival of Representations. All representations and warranties
made by any party hereto in this Agreement or in the attached Schedules or in
any Exhibit or certificate delivered pursuant hereto shall survive the Closing
hereunder for the time periods set forth in Section 7.5(a).
7.2 Notice of Damages. A party seeking indemnity hereunder (the
"Indemnified Party") will give the party from whom indemnity is sought hereunder
(the "Indemnitor") prompt notice (hereinafter, the "Indemnification Notice") of
any demands, claims, actions or causes of action (collectively, "Claims")
asserted against the Indemnified Party. Failure to give such notice shall not
relieve the Indemnitor of any obligations which the Indemnitor may have to the
Indemnified Party under this Article VII, except to the extent that such failure
has materially adversely prejudiced the Indemnitor under the provisions for
indemnification contained in this Agreement. For purposes of this Article VII,
Purchaser, on the one hand, and the Seller and/or Solomon, on the other hand,
shall be deemed to be the "Indemnified Party" or the "Indemnitors", as the case
may be. The rights of indemnity under the Article VII shall be in addition to
and not in lieu of any other rights and remedies at law or in equity.
7.3 Agreements to Indemnify.
(a) Subject to the terms and conditions of this Article VII,
and except as otherwise provided in this Agreement, the Seller and Solomon,
jointly and severally, covenant and agree to indemnify, defend and hold harmless
Purchaser, and its Affiliates, including any officer, director, stockholder,
partner, member, employee, agent or representative of any thereof (a "Purchaser
Affiliate"), from and against all assessments, losses, damages, liabilities,
costs and expenses, including, without limitation interest, penalties and
reasonable fees and expenses of legal counsel chosen by Purchaser or Purchaser
Affiliate (collectively, "Damages"), imposed upon or incurred by Purchaser, or
any Purchaser Affiliate arising out of or in connection with or resulting from
(i) any breach of any representation or warranty of, or nonfulfillment of any
covenant or agreement of, the Seller and/or Solomon contained in or made
pursuant to this Agreement or any agreement (other than the Employment Agreement
of Solomon, the Interim Lease, and/or the Lease) to be delivered in connection
with this Agreement, or any Schedule or Exhibit hereto or thereto, or any
certificate or instrument furnished or to be furnished to Purchaser hereunder or
thereunder, (ii) any and all liabilities and obligations of the Seller, or
arising out of or related to their ownership of the Acquired Assets prior to the
Closing Date, (iii) any chargebacks or allowances with respect to merchandise
shipped prior to Closing by Seller for which credit has not been issued prior to
Closing which chargebacks and allowances were applied by customers against
invoices for purchases made after the Closing Date invoiced by Purchaser
relating to pre-Closing periods ("Chargeback Allowances"), (iv) third party
claims arising in breach of contract, breach of warranty, product liability,
unfair competition, personal or other injury, tort or infringement of property
rights of others or other third party claims, in each case which claim is with
respect to any and all activities of the Seller, or any Affiliate thereof in
connection with the conduct of the Business on or before the Closing Date and
(v) any and all actions, suits, demands, claims, costs and expenses, including
legal fees, incident to the foregoing or in enforcing this indemnity.
(b) Subject to the terms and conditions of this Article VII,
and except as otherwise provided for in the Agreement, Purchaser covenants and
agrees to indemnify, defend and hold harmless the Seller and Solomon and their
respective Affiliates (including any successor or assigns, officer, director,
stockholder, partner, member, employee, agent or representative thereof)
("Stockholder Affiliates") from and against all Damages (including reasonable
fees and expenses of the Seller's legal counsel) imposed upon or incurred by the
Seller or Solomon arising out of or in connection with or resulting from (i) any
breach of any representation or warranty of, or nonfulfillment of any covenant
or agreement of, Purchaser contained in or made pursuant to this Agreement or
any agreement to be delivered in connection with this Agreement, or any Schedule
or Exhibit hereto or thereto, or any certificate or instrument furnished or to
be furnished to the Seller hereunder or thereunder, (ii) any and all Assumed
Contracts and Assumed Liabilities and (iii) third party claims arising in breach
of contract, breach of warranty, unfair competition, personal or other injury,
tort or infringement of property rights of others or other third party claims,
in each case which claim is with respect to any and all activities of Purchaser
or any Purchaser Affiliate in connection with the conduct of the Business on or
after the Closing Date.
(c) The Indemnitor shall reimburse an Indemnified Party
promptly after delivery of an Indemnification Notice certifying that the
Indemnified Party has incurred Damages after compliance with the terms of this
Article VIII.
7.4 Conditions of Indemnification of Third Party Claims. The
obligations and liabilities of an Indemnitor under Section 7.3 hereof with
respect to Damages resulting from Claims by persons not party to this Agreement
shall be subject to the following terms and conditions:
(a) Promptly after delivery of an Indemnification Notice in
respect of a Claim and subject to paragraph (c) of this Section 7.4, the
Indemnitor may elect, by written notice to the Indemnified Party, to undertake
the defense thereof with counsel reasonably satisfactory to the Indemnified
Party, at the sole cost and expense of Indemnitor, provided such Indemnitor has
unconditionally acknowledged in writing its obligation to indemnify the
Indemnified Party with respect to such claim. If the Indemnitor chooses to
defend any claim, the Indemnified Party shall cooperate with all reasonable
requests of the Indemnitor and shall make available to the Indemnitor any books,
records or other documents within its control that are necessary or appropriate
for such defense.
(b) In the event that the Indemnitor, within a reasonable time
after receipt of an Indemnification Notice, does not so elect to defend such
Claim, the Indemnified Party will have the right (upon further notice to the
Indemnitor) to undertake the defense, compromise or settlement of such Claim for
the account of the Indemnitor, subject to the right of the Indemnitor to assume
the defense of such Claim pursuant to the terms of paragraph (a) of this Section
7.4 at any time prior to settlement, compromise or final determination thereof,
provided, that the Indemnitor reimburses in full all costs of the Indemnified
Party (including reasonable attorney's fees) incurred by it in connection with
such defense prior to such assumption.
(c) Anything in this Section 7.4 to the contrary
notwithstanding, (i) if the Indemnified Party believes there is a reasonable
probability that a Claim may have Material Adverse Effect upon the Indemnified
Party, the Indemnified Party shall have the right to participate in the defense,
compromise or settlement of such Claim, provided that the Indemnitor shall not
be liable for expenses of separate counsel of the Indemnified Party engaged for
such purpose, and (ii) no person who has undertaken to defend a Claim under
Section 7.4(a) hereof shall, without written consent of all Indemnified Parties,
settle or compromise any Claim or consent to entry of any judgment which does
not include, as an unconditional term thereof, the release by the claimant or
the plaintiff of all Indemnified Parties from all liability arising from events
which allegedly give rise to such Claim.
7.5 Limitations on Indemnification.
(a) Notwithstanding anything to the contrary provided
elsewhere in this Agreement, the obligations of any Indemnitor under this
Agreement to indemnify an Indemnified Party with respect to any Claim pursuant
to Section 7.3, or any obligation for any liability under this Agreement, shall
be of no force and forever barred unless such Indemnified Party has given such
Indemnitor notice of such claim prior to the second anniversary of the Closing;
provided, that claims for breach of Sections 4.1, 4.2, 4.10, 4.17, 4.18 and
4.20, shall survive until the expiration of the applicable statute of
limitations.
(b) No Claim by an Indemnified Party for indemnification
pursuant to this Article VII or for damages for breach of this Agreement, may be
made unless and until the Indemnified Party has incurred, sustained or suffered
Damages in respect of which the Indemnitor would be liable under this Article
VII in excess of $200,000 in the aggregate (the "Basket"), at which time all
amounts of such Damages in excess of the Basket amount may be claimed and
recovered as provided in this Agreement; provided, however, the Basket shall not
apply to Claims by Purchaser for Chargeback Allowances.
(c) The maximum aggregate amount of Damages for which an
Indemnitor may be liable pursuant to this Article VII shall be an amount equal
to $7,900,000 plus Purchaser's set-off rights against any Earn-Out Payments held
in the Escrow Agreement for Earn-Out.
(d) If Purchaser is entitled to indemnity for a Claim, it may
(i) demand payment directly from the Seller or, at its election, (ii) may, in
its discretion and without obligation, offset all or any portion of such Claims
against any obligation of Purchaser (x) to pay Seller any Earn-Out Payments or
(y) to pay Seller or Solomon any Incentive Bonus payments.
(e) Except as otherwise provided herein, the remedies provided
herein shall be cumulative and shall not preclude the assertion by any party
hereto of any other rights or the seeking of any other remedies against any
other party hereto.
ARTICLE VIII.
TERMINATION; AMENDMENT AND WAIVER
8.1 Termination of Agreement. This Agreement may be terminated by written
notice at any time prior to or at the Closing:
(a) by the Purchaser if a material breach of any provision of
this Agreement or the Schedules and Exhibits attached hereto has been committed
by the Seller and such breach has not been: (i) waived by Purchaser; or (ii)
cured by the Seller after it receives notice of such breach and is afforded
twenty (20) days thereafter to rectify or correct such breach, provided that
such breach is susceptible of rectification or correction; or
(b) by Purchaser, if any of the conditions in Section 3.1 has
not been satisfied as of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of Purchaser to comply
with its obligations under this Agreement, in which case Seller shall be
afforded the cure periods set forth in subsection 8.1(a) before Purchaser may
exercise its termination option hereunder), and Purchaser has not waived any of
such conditions on or before the Closing Date; or
(c) by Seller, if any of the conditions in Section 3.3 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Seller to comply with
its obligations under this Agreement, in which case Purchaser should be afforded
the cure periods set forth in subsection 8.1(a) before Seller may exercise its
termination option hereunder), and Seller has not waived any of such conditions
on or before the Closing Date; or
(d) by Purchaser upon written notice delivered to Seller at
any time after the date hereof until Closing, if Purchaser, in its sole
reasonable discretion, has determined that (i) the building to be leased to
Purchaser pursuant to the Interim Lease has been substantially destroyed and
substantially uninhabitable (for purposes of this Section 8.1(d) only,
"substantially" shall mean 50% or greater), or (ii) the design, technology,
computer data and specification information with respect to Seller's samples and
swatch books for open purchase orders for Fall 2002 and development work for
future seasons are materially damaged or destroyed (for purposes of this Section
8.1(d) only, "materially" shall mean 20% or greater); or
(e) at any time by mutual written agreement of the
Purchaser and Seller; or
(f) by Purchaser, on the one hand, or the Seller, on the other
hand, if the Closing shall not have occurred (other than through the failure of
any party seeking to terminate this Agreement to comply fully with its
obligations under this Agreement) on or before January 11, 2002 or any extended
date mutually agreed to by the parties or any extension due to the running of
applicable cure periods under Section 8.1(a), (b) or (c) (the "Final Termination
Date").
8.2 Termination Payment. (a) If the Closing does not occur
because Purchaser terminates the Agreement pursuant to Section 8.1(a) (subject
to subparagraph (c) below), 8.1(b) (subject to subparagraph (c) below) or 8.1(d)
hereof following the expiration of any applicable cure periods (a "Purchaser
Termination") or Seller and Purchaser mutually terminate this Agreement pursuant
to Section 8.1(e) hereof ("Joint Termination") then Escrow Agent shall, ten (10)
business days after written notice by Purchaser to Seller and Escrow Agent of
such termination, deliver to Purchaser (i) the Escrow Deposit for Termination
plus all interest, and interest earned on interest, on the Escrow Deposit for
Termination to the date of such delivery by wire transfer of immediately
available funds to a bank account or bank accounts designated by Purchaser, or,
at Purchaser's option, by a bank check or bank checks payable to the order of a
payee or payees designated by Purchaser; provided, however, that if Escrow Agent
receives a written objection to such release from Seller within ten (10)
business days after Purchaser gives such written notice, then Escrow Agent shall
pay the Escrow Deposit for Termination and any interest, and interest earned on
interest, on the Escrow Deposit for Termination, in accordance with joint
written instructions from Purchaser and Seller, or, in the absence of such joint
written instructions, in accordance with the Escrow Deposit Agreement for
Termination.
(b) If the Closing does not occur on or before the Final
Termination Date (subject to any applicable cure periods under Section 8.1(a) or
(b) and further subject to Section 8.1(c)) as a result of any reason other than
a Purchaser Termination or a Joint Termination, then Escrow Agent shall, ten
(10) business days after written notice by Seller to Purchaser and Escrow Agent,
(A) pay to Seller the Escrow Deposit for Termination by wire transfer of
immediately available funds to a bank account or bank accounts designated by
Seller, or, at Seller's option, by a bank check or bank checks payable to the
order of a payee or payees designated by Seller (such payment to constitute
liquidated damages for Purchaser's failure to consummate the transactions
contemplated by the Purchase Agreement), and (B) pay to Purchaser all interest,
and interest earned on interest, on the Escrow Deposit for Termination to the
date of such payment by wire transfer of immediately available funds to a bank
account or bank accounts designated by Purchaser, or, at Purchaser's option, by
a bank check or bank checks payable to the order of a payee or payees designated
by Purchaser; provided, however, that if Escrow Agent receives a written
objection from Purchaser to such release of the Escrow Deposit for Termination
to Seller within ten (10) business days after Seller gives such written notice,
then Escrow Agent shall pay the Escrow Deposit for Termination and any interest,
and interest earned on interest, on the Escrow Deposit for Termination, in
accordance with joint written instructions from Purchaser and Seller, or, in the
absence of such joint written instructions, in accordance with Section 3 of the
Escrow Deposit Agreement for Termination.
(c) Notwithstanding Section 8.2(a) above, if Purchaser
terminates this Agreement based upon a breach of Section 4.6 hereof and the
material adverse change in the Business, Acquired Assets, condition (financial
or otherwise), results of operations, or properties of Seller which provided the
basis for such breach occurred in the ordinary course of Seller's Business (an
"Ordinary Course Material Change") then Seller shall be entitled to receive the
Escrow Deposit for Termination in accordance with the terms of Section 8.2(b)
above; provided, however, Seller shall only be entitled to $250,000 of the
Escrow Deposit for Termination and Purchaser shall be entitled to $1,450,000 of
the Escrow Deposit for Termination plus all interest thereon if the Ordinary
Course Material Change is due to the Seller having Knowledge of or being
notified by any Major Customer of Seller that it will decrease or intends to
decrease its overall shipments from Seller in 2002 by more than 50% of the
higher of its purchases from Seller in 2000 or 2001 (for example, if a Major
Customer had total purchases of $5MM in 2000 and $4MM in 2001, and notifies
Seller it intends to decrease its 2002 purchase to $2.4MM, Purchaser will be
entitled to receive $1.45MM plus interest for the Escrow Deposit for
Termination).
8.3 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and of no further force and effect, except that the covenants and agreements set
forth in Sections 8.2, 9.1, 9.4 and 9.8 shall survive such termination
indefinitely, and except that nothing in Section 8.1 or this Section 8.3 shall
be deemed to release the non-terminating party from any liability for any breach
by such party of the terms and provisions of this Agreement or to impair the
right of any party to compel specific performance by another party of its
obligations under this Agreement.
8.4 Amendment, Extension and Waiver. The parties may amend this
Agreement at any time by an instrument in writing signed by the parties hereto.
Any agreement on the part of a party hereto to any waiver of compliance with any
of the agreements or conditions contained herein shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE IX.
MISCELLANEOUS
9.1 Expenses; Taxes; Audit. Each party shall be responsible for and pay
the fees and expenses incurred by it in connection with this Agreement and the
transactions contemplated hereby, including the reasonable fees and expenses of
legal counsel, investment bankers, brokers, accountants or other representatives
or consultants. All sales and transfer taxes incurred in connection with this
Agreement and the transactions contemplated hereby shall be equally divided and
paid by the Seller and Purchaser. Purchaser shall pay (i) 50% of broker's fees,
if any, due to MMG, provided that Purchaser shall not be liable for more than
$200,000 of such fee due MMG, and (ii) for the cost of the audit of the Seller
for the nine-month period ended September 30, 2001, prepared by Xxxx and Xxxxx.
9.2 Further Assurances. From time to time, at the request of any party
hereto and without further consideration, the other party or parties will
execute and deliver to such requesting party such documents and take such other
action as such requesting party may reasonably request in order to consummate
more effectively the transactions contemplated hereby.
9.3 Parties in Interest. This Agreement will be binding upon, inure to
the benefit of, and be enforceable by the respective successors and assigns of
the parties hereto. Nothing in this Agreement, express or implied, is intended
to confer upon or give to any person other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights
or remedies under or by reason of this Agreement.
9.4 Entire Agreement. This Agreement and the Schedules and Exhibits
hereto and the other agreements, instruments and writings referred to herein or
delivered pursuant hereto contain the entire understanding of the parties with
respect to its subject matter. This Agreement supersedes all prior agreements
and understandings between the parties with respect to its subject matter,
except that the NDA shall survive in the event there is no Closing.
9.5 Headings; Interpretation. The Article and Section headings
contained in this Agreement are for reference purposes only and will not affect
in any way the meaning or interpretation of this Agreement. Unless the context
of this Agreement clearly requires otherwise: (i) references to the singular
shall be deemed to include the plural, references to the plural shall be deemed
to include the singular; (ii) references to any gender shall include all
genders; (iii) the term "or" shall be interpreted inclusively (and with the same
meaning as "and/or"); (iv) the term "including" shall have the inclusive meaning
frequently identified with the phrase "but not limited to"; and (v) references
to "hereunder" or "herein" relate to this Agreement.
9.6 Notices. All notices, claims, requests, demands and other
communications hereunder will be in writing and will be deemed to have been duly
given if delivered personally or by facsimile or the third (3rd) business day
following mailing (registered or certified mail, postage prepaid, return receipt
requested) or the first (1st) business day following overnight courier delivery
as follows:
(a) If to Purchaser:
c/x Xxxxxx Holding Corporation
1114 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx X. Xxxxx
Facsimile: (000) 000-0000
With a copy to:
Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxx, Esq.
Facsimile: (000) 000-0000
(b) If to the Seller:
Axis Clothing Corp.
c/o 0000 Xxxxxx Xxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxx
Facsimile: (000) 000-0000
With a copy to:
Silver & Xxxxxxxx
0000 Xxxxxxx Xxxx Xxxx, 00xx xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Perry Silver, Esq.
Facsimile: (000) 000-0000
(c) If to Solomon:
Xxxxxxx Xxxxxxx
0000 Xxxxxx Xxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
With a copy to:
Silver & Xxxxxxxx
0000 Xxxxxxx Xxxx Xxxx, 00xx xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Perry Silver, Esq.
Facsimile: (000) 000-0000
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above.
9.7 Severability. If in any jurisdiction any provision of this
Agreement or its application to any party or circumstance is restricted,
prohibited or unenforceable, such provision shall, as to such jurisdiction, be
ineffective only to the extent of the restriction, prohibition or
unenforceability without invalidating the remaining provisions hereof and
without affecting the validity or enforceability of such provision in any other
jurisdiction or its application to other parties or circumstances. In addition,
if any one or more of the provisions contained in this Agreement shall for any
reason in any jurisdiction be held excessively broad as to time, duration,
geographical scope, activity or subject, it shall be construed, by limiting and
reducing it, so as to be enforceable to the extent compatible with the
applicable law of such jurisdiction as it shall then appear.
9.8 Governing Law; Consent to Jurisdiction and Venue. This Agreement
(except as expressly otherwise provided herein) will be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without regard to conflicts of law principles thereof. Each of the parties
hereto hereby (a) irrevocably and unconditionally submits to the non-exclusive
jurisdiction of any New York state or Federal court sitting in New York County,
New York in any action or proceeding arising out of or relating to this
Agreement, and (b) irrevocably and unconditionally consents to the service of
any and all process in any such action or proceeding by the mailing of copies of
such process by certified mail to such party and its counsel at their respective
addresses specified in Section 9.6 above.
9.9 Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
9.10 Exhibits. All exhibits and schedules attached hereto are
hereby incorporated by reference into, and made a part of, this Agreement.
9.11 Consent Not to Be Unreasonably Withheld or Delayed. Unless
otherwise specified to the contrary, where any party is required to provide to
any other party any consent hereunder, such consent shall not be unreasonably
withheld or delayed.
9.12 Reliance. No party may make a Claim for indemnification under
Article VII of this Agreement after the Closing based upon a breach of any
representation or warranty if prior to the Closing the party seeking
indemnification had actual Knowledge (without any investigation) prior to the
Closing that such breach existed and did not promptly disclose such breach to
the breaching party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto as of the date first above written.
XXXXXX HOLDING CORPORATION
By:_________________________
Xxxxxxx Xxxxxx
Chief Executive Officer
AXIS CLOTHING CORP.
By:_________________________
Xxxxxxx Xxxxxxx
President
----------------------------
Xxxxxxx Xxxxxxx, individually
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS............................................................................................1
1.1 Defined Terms............................................................................................1
ARTICLE II. THE ACQUISITION......................................................................................9
2.1 Purchase and Sale of the Acquired Assets..................................................................9
2.2 Purchase Price...........................................................................................9
2.3 Earn-Out Payments.......................................................................................10
2.4 Incentive Bonus.........................................................................................10
2.5 Acceleration of Payments................................................................................12
2.6 Inventory...............................................................................................12
2.7 Returns.................................................................................................13
2.8 Noncompetition..........................................................................................13
2.9 Closing.................................................................................................13
2.10 Allocation..............................................................................................13
ARTICLE III. CONDITIONS TO CLOSING..............................................................................13
3.1 Conditions to Purchaser's Obligations to Close..........................................................13
3.2 Deliveries by the Seller................................................................................14
3.3 Conditions to the Seller's Obligations..................................................................16
3.4 Frustration of Conditions...............................................................................17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND SOLOMON.............................................17
4.1 Organization; Corporate Power and Licenses..............................................................17
4.2 Authorization; No Breach................................................................................18
4.3 Regulatory Approval.....................................................................................18
4.4 Financial Statements....................................................................................18
4.5 Affiliated Transactions.................................................................................19
4.6 No Material Adverse Change..............................................................................19
4.7 Consents................................................................................................19
4.8 Assets..................................................................................................19
4.9 Real Property...........................................................................................19
4.10 Tax Matters.............................................................................................20
4.11 Contracts...............................................................................................20
4.12 Intellectual Property Rights............................................................................20
4.13 Inventory...............................................................................................21
4.14 Litigation..............................................................................................21
4.15 Brokerage...............................................................................................21
4.16 List of Employees.......................................................................................22
4.17 Employees; Labor Matters................................................................................22
4.18 ERISA...................................................................................................22
4.19 Compliance with Laws....................................................................................25
4.20 Environmental and Safety Matters........................................................................25
4.21 Customers, Distributors and Suppliers...................................................................26
4.22 Assets Conveyed.........................................................................................26
4.23 Orders, Commitments and Returns.........................................................................26
4.24 Disclosure..............................................................................................26
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER...........................................................27
5.1 Organization............................................................................................27
5.2 Authorization...........................................................................................27
5.3 Valid and Binding Agreement.............................................................................27
5.4 No Violation............................................................................................27
5.5 Regulatory Approval.....................................................................................28
5.6 Brokerage................................................................................................28
5.7 Disclosure...............................................................................................28
ARTICLE VI. COVENANTS OF THE PARTIES............................................................................28
6.1 Covenants of the Seller.................................................................................28
6.2 Covenants of the Purchaser..............................................................................31
6.3 Mutual Covenants........................................................................................33
6.4 Bulk Sales Laws.........................................................................................33
6.5 Confidentiality.........................................................................................33
6.6 Investigation...........................................................................................34
6.7 Employees...............................................................................................34
ARTICLE VII. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION........................................................36
7.1 Survival of Representations.............................................................................36
7.2 Notice of Damages.......................................................................................36
7.3 Agreements to Indemnify.................................................................................36
7.4 Conditions of Indemnification of Third Party Claims.....................................................37
7.5 Limitations on Indemnification..........................................................................38
ARTICLE VIII. TERMINATION; AMENDMENT AND WAIVER..................................................................39
8.1 Termination of Agreement................................................................................39
8.2 Termination Payment.....................................................................................40
8.2 Effect of Termination...................................................................................41
8.3 Amendment, Extension and Waiver.........................................................................41
ARTICLE IX. MISCELLANEOUS........................................................................................41
9.1 Expenses; Taxes.........................................................................................42
9.2 Further Assurances......................................................................................42
9.3 Parties in Interest.....................................................................................42
9.4 Entire Agreement........................................................................................42
9.5 Headings................................................................................................42
9.6 Notices.................................................................................................42
9.7 Severability............................................................................................44
9.8 Governing Law; Consent to Jurisdiction and Venue........................................................44
9.9 Counterparts............................................................................................44
9.10 Exhibits................................................................................................44
9.11 Consent Not to Be Unreasonably Withheld or Delayed......................................................44
9.12 Reliance................................................................................................44
EXHIBITS
Exhibit A - Escrow Agreement for Earn-Out
Exhibit B - Escrow Deposit Agreement for Termination
Exhibit C - Form of Employment Agreement between Purchaser and Solomon
Exhibit D - Form of Xxxx of Sale
Exhibit E - Form of Assignment and Assumption Agreement
Exhibit F. - Form of Officer's Certificate
Exhibit G - Budget
Exhibit H - Form of Interim Lease
Exhibit I - Form of Opinion of Silver and Xxxxxxxx
Exhibit J - Form of Trademark Assignment
Exhibit K - Form of Opinion of PCSF
Exhibit L - Form of Xxxxxx City Lease
Exhibit M - Form of Letter of Credit
SCHEDULES
Schedule 1.1(a) Certain Assets
Schedule 1.1(h) Authorizations (Governmental Authority) Schedule 1.2 Certain
Assumed Liabilities Schedule 1.3 Excluded Assets Schedule 1.4 Employment
Agreements, Written or Oral Schedule 1.5 Operating Income Calculations Schedule
2.6 Inventory Schedule 2.10 Allocations Schedule 3.3(f) Xxxxxx Agreement
Schedule 4.1 Qualification/Authorization Schedule 4.4 Financial Statements
Schedule 4.5 Affiliated Transactions Schedule 4.7 Consents Schedule 4.8 Title
Exception to Assets Schedule 4.10 Taxes Schedule 4.11 Assumed Contracts Schedule
4.12 Intellectual Property Schedule 4.14 Litigation Schedule 4.16 Employees
Schedule 4.17 Employee Labor Matters Schedule 4.19 Compliance with Laws Schedule
4.21(a) Customers Schedule 4.21(b) Suppliers Schedule 4.21(c) Certain Changes in
Supplier or Customer Relationships Schedule 4.23 Orders Schedule 6.1(a) Outside
Ordinary Conduct
