EXHIBIT 10.1
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PHOENIX FOOTWEAR GROUP, INC.,
PFG ACQUISITION, INC.
AND
X.X. XXXXX & CO.
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TABLE OF CONTENTS
ARTICLE I - THE TENDER OFFER..................................................................................... 2
1.1 The Offer...................................................................................... 2
1.2 Actions by X.X. Xxxxx.......................................................................... 3
1.3 Directors...................................................................................... 4
ARTICLE II - THE MERGER.......................................................................................... 4
2.1 The Merger..................................................................................... 4
2.2 The Closing.................................................................................... 4
2.3 Conversion of X.X. Xxxxx Preferred Shares and Filing of Articles of Merger..................... 4
2.4 Effect of Merger............................................................................... 5
2.5 Dissenter's Rights............................................................................. 8
2.6 Deposit of Certificates With Exchange Agent and Escrow Agent................................... 8
2.7 Exchange Procedures............................................................................ 9
2.8 Limitations on Resale of Parent Shares......................................................... 9
2.9 Distributions with Respect to Unexchanged X.X. Xxxxx Share Certificates........................ 10
2.10 Termination of Fund Liability.................................................................. 10
2.11 No Liability................................................................................... 11
2.12 Lost X.X. Xxxxx Share Certificates............................................................. 11
2.13 Withholding Rights............................................................................. 11
2.14 Further Assurances............................................................................. 11
2.15 Closing of Transfer Records.................................................................... 11
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF X.X. XXXXX....................................................... 12
3.1 Organization, Qualification and Corporate Power................................................ 12
3.2 No Subsidiaries................................................................................ 12
3.3 Capitalization................................................................................. 12
3.4 Noncontravention............................................................................... 13
3.5 Authorization of Transaction................................................................... 14
3.6 Title to Assets................................................................................ 14
3.7 Financial Information.......................................................................... 14
3.8 Events Subsequent to Most Recent Fiscal Year End............................................... 14
3.9 Undisclosed Liabilities........................................................................ 16
3.10 Legal Compliance............................................................................... 16
3.11 Tax Matters.................................................................................... 17
3.12 Real Property.................................................................................. 19
3.13 Intellectual Property.......................................................................... 21
3.14 Tangible Assets................................................................................ 23
3.15 Inventory...................................................................................... 23
3.16 Customers; Accounts Payable.................................................................... 24
3.17 Contracts...................................................................................... 24
3.18 Notes and Accounts Receivable.................................................................. 25
3.19 Bank Accounts; Powers of Attorney.............................................................. 26
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3.20 Insurance...................................................................................... 26
3.21 Litigation..................................................................................... 27
3.22 Product Warranty............................................................................... 27
3.23 Product Liability.............................................................................. 27
3.24 Employees...................................................................................... 27
3.25 Employee Benefits.............................................................................. 28
3.26 Guaranties..................................................................................... 30
3.27 Environmental, Health, and Safety Matters...................................................... 30
3.28 X.X. Xxxxx Disclosure Information.............................................................. 31
3.29 Certain Business Relationships with X.X. Xxxxx ................................................ 31
3.30 No Tariffs or Duties........................................................................... 31
3.31 Charter Provisions............................................................................. 31
3.32 Brokers' Fees.................................................................................. 32
3.33 Disclosure..................................................................................... 32
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER.............................................. 32
4.1 Organization................................................................................... 32
4.2 Parent Capitalization.......................................................................... 32
4.3 Authorization of Transaction................................................................... 33
4.4 Noncontravention............................................................................... 33
4.5 SEC Filings................................................................................... 34
4.6 Parent Financial Statements.................................................................... 34
4.7 Brokers' Fees.................................................................................. 34
4.8 Disclosure..................................................................................... 34
4.9 Parent/Purchaser Disclosure Information........................................................ 34
4.10 Tax Matters.................................................................................... 35
ARTICLE V - COVENANTS............................................................................................ 35
5.1 General........................................................................................ 35
5.2 Notices and Consents........................................................................... 35
5.3 Regulatory Matters and Approvals............................................................... 35
5.4 X.X. Xxxxx Special Stockholders' Meeting....................................................... 36
5.5 Offering Memorandum/Proxy Statement............................................................ 36
5.6 Operation of Business.......................................................................... 37
5.7 Full Access.................................................................................... 40
5.8 Notice of Developments......................................................................... 40
5.9 Exclusivity.................................................................................... 40
5.10 Insurance and Indemnification.................................................................. 41
5.10 Xxxxxxxx Xxxxx Employment and Consulting Agreement and Non-Compete Agreement................... 41
5.12 Payment and Discharge of Borrowed Money........................................................ 41
5.13 Takeover Laws.................................................................................. 41
5.14 Limited Continuation of Employee Benefit Plans and Benefit Arrangements........................ 41
5.15 Public Announcements........................................................................... 41
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5.16 Post-Closing Parent Registration Statement..................................................... 42
5.17 Listing on AMX................................................................................. 43
5.18 Confidentiality................................................................................ 43
5.19 Tax Matters.................................................................................... 44
5.20 Severance Payments............................................................................. 44
ARTICLE VI - CONDITIONS TO CONSUMMATION OF MERGER................................................................ 44
6.1 Conditions to all the Obligation of all Parties to Effect the Merger........................... 44
6.2 Conditions to Obligation of Parent and Purchaser............................................... 44
6.3 Conditions to Obligation of X.X. Xxxxx......................................................... 47
ARTICLE VII - TERMINATION........................................................................................ 48
7.1 Termination of Agreement....................................................................... 48
7.2 Effect of Termination.......................................................................... 49
ARTICLE VIII - INDEMNIFICATION................................................................................... 50
8.1 Survival of Representations and Warranties..................................................... 50
8.2 Indemnification................................................................................ 50
8.3 Notice and Determination of Claims............................................................. 53
8.4 Resolution of Conflicts........................................................................ 54
8.5 Termination and Release of Escrow Fund......................................................... 54
8.6 Stockholder Representative..................................................................... 55
8.7 Actions of the Stockholder Representative...................................................... 56
ARTICLE IX - MISCELLANEOUS....................................................................................... 56
9.1 No Third-Party Beneficiaries................................................................... 56
9.2 Entire Agreement............................................................................... 56
9.3 Succession and Assignment...................................................................... 56
9.4 Counterparts................................................................................... 56
9.5 Headings....................................................................................... 56
9.6 Notices........................................................................................ 57
9.7 Governing Law.................................................................................. 58
9.8 Amendments and Waivers......................................................................... 58
9.9 Severability................................................................................... 58
9.10 Expenses....................................................................................... 58
9.11 Construction................................................................................... 58
9.12 Incorporation of Exhibits and Schedules........................................................ 58
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is entered into as of June 16, 2003
by and among PHOENIX FOOTWEAR GROUP, INC., a Delaware corporation (the
"PARENT"), PFG ACQUISITION, INC., a Montana corporation and a wholly-owned
Subsidiary of Parent (the "PURCHASER"), and X.X. XXXXX & CO., a Montana
corporation ("X.X. XXXXX"). Parent, Purchaser, and X.X. Xxxxx are sometimes each
referred to herein as a "PARTY" and collectively as the "PARTIES." Xxxxx Xxxxxxx
is also joined as a party to this Agreement solely to accept the duties herein
of the "STOCKHOLDER REPRESENTATIVE" defined and set forth in Section 8.6.
Attached hereto as SCHEDULE I are the defined terms which apply to this
Agreement.
R E C I T A L S:
A. The Boards of Directors of each of Parent, Purchaser and X.X.
Xxxxx believe it is in the best interests of Parent, Purchaser and X.X. Xxxxx
and their respective stockholders that Parent acquire X.X. Xxxxx through the
transactions contemplated hereby.
B. The Boards of Directors of each of Parent, Purchaser and X.X.
Xxxxx have approved the transactions contemplated hereby.
C. Pursuant to this Agreement and subject to its terms and
conditions, Parent shall make a cash tender offer for all of the issued and
outstanding shares of X.X. Xxxxx Series A Preferred Stock (the "X.X. XXXXX
SERIES A PREFERRED SHARES"), Series B Preferred Stock (the "X.X. XXXXX SERIES B
PREFERRED SHARES") and Series C Preferred Stock (the "X.X. XXXXX SERIES C
PREFERRED SHARES" and, together with the X.X. Xxxxx Series A Preferred Shares
and X.X. Xxxxx Series B Preferred Shares, the "X.X. XXXXX PREFERRED Shares") and
following the closing of the tender offer, X.X. Xxxxx shall merge with and into
Purchaser, with all of the issued and outstanding shares of X.X. Xxxxx common
stock (the "X.X. XXXXX COMMON SHARES") (other than the Dissenting Shares and
those shares held by X.X. Xxxxx in treasury or by Parent or Purchaser) being
converted as a result thereof into the right to receive shares of Parent common
stock, all as specified herein.
D. Concurrently with the execution of this Agreement, and as a
condition and inducement to the willingness of Parent and Purchaser to enter
into this Agreement, Xxxxxxxx Xxxxx, Xxxxx Xxxxx and Xxx Xxxxxxx (who
collectively own approximately 46% of X.X. Xxxxx'x outstanding voting
securities) have concurrently herewith entered into a Stockholder Support
Agreement with Parent and Purchaser in substantially the form attached hereto as
EXHIBIT A (the "SUPPORT AGREEMENT"), pursuant to which they have agreed, among
other things, (i) to vote the X.X. Xxxxx Preferred Shares and the X.X. Xxxxx
Common Shares owned by them in favor of approving the Merger and all related
agreements and transactions and an amendment to X.X. Xxxxx'x Articles of
Incorporation, (ii) not to transfer, sell or otherwise dispose of such
securities except pursuant to this Agreement, (iii) not to exercise any
dissenter's rights in connection with the Merger and (iv) to sell their X.X.
Xxxxx Common Shares to Purchaser if the Merger fails to close in accordance with
the terms hereof by the third business day after the consummation of the tender
offer.
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E. Parent has announced a 2-for-1 split of its outstanding common
stock to holders of record as of May 22, 2003, which became effective on June
12, 2003 (the "2003 STOCK SPLIT") and, unless otherwise indicated, all of the
figures for Parent Shares (including the stock trading price) herein reflect the
2003 Stock Split.
F. H.S. Xxxxx, Parent and Purchaser desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
P R O V I S I O N S:
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
ARTICLE I
THE TENDER OFFER
1.1 THE OFFER.
(a) Subject to the Parties' respective termination rights
contained herein and provided that none of the events set forth in Sections
6.2(a), (b), (e), (f) and (n) shall have occurred and be continuing, as promptly
as practicable following the date of this Agreement, Purchaser shall, and Parent
shall cause Purchaser to, commence a tender offer (the "OFFER") for the purchase
of all the issued and outstanding X.X. Xxxxx Preferred Shares at an offer price
(the "OFFER PRICE") of $1.25 per a X.X. Xxxxx Series A Preferred Share, $1.50
per a X.X. Xxxxx Series B Preferred Share and $1.75 per a X.X. Xxxxx Series C
Preferred Share. The maximum aggregate Offer Price is $2,750,000 less the Excess
Cash Consideration.
(b) The obligations of Purchaser to consummate the Offer
and to accept for payment and pay for any of the X.X. Xxxxx Preferred Shares
validly tendered and not properly withdrawn shall be subject only to the
satisfaction or waiver of the conditions set forth in Sections 6.1(a) and 6.2
(except that all references to the Effective Time in such conditions shall be to
the Expiration Time) and a further condition that a majority of the outstanding
shares of each series of X.X. Xxxxx Preferred Shares shall have been tendered
and not withdrawn (the "MINIMUM CONDITION") and, together with the other Offer
conditions, the "OFFER CONDITIONS").
(c) The amount of the Offer Price shall be paid net to
the holders of X.X. Xxxxx Preferred Shares who have validly tendered and not
properly withdrawn their X.X. Xxxxx Preferred Shares in cash, upon the terms and
subject to the conditions of the Offer and subject to reduction for any
applicable federal back-up or other applicable withholding or stock transfer
taxes. Subject to Section 1.1(d), the Offer shall remain open until 5:00 p.m.,
Bozeman, Montana time, on the 20th business days after commencement of the Offer
or such later as is mutually agreed upon by the parties hereto. (the "EXPIRATION
TIME", unless Purchaser extends the Offer as permitted, in which case the
"EXPIRATION TIME" means the latest time and date to which the Offer is
extended).
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(d) Each of Parent and Purchaser expressly reserves the
right to waive any of the Offer Conditions and to make any other changes to the
terms of the Offer, provided, that, without the prior written consent of X.X.
Xxxxx, neither Parent nor Purchaser shall amend or waive the Minimum Condition,
change the form of consideration to be paid in the Offer, decrease the Offer
Price or the number of X.X. Xxxxx Preferred Shares sought in the Offer, impose
additional conditions to the Offer beyond the Offer Conditions or extend the
Offer beyond the tenth (10th) day after which all conditions to the Closing of
the Merger set forth in Sections 6.1(a) and (b) and 6.2 have been satisfied or
waived by Parent.
(e) The Offer, containing the terms set forth in this
Agreement, shall be made by means of an offer to purchase (the "OFFER TO
PURCHASE") and a related letter of transmittal (which Offer to Purchase and such
other documents, together with any supplements or amendments thereto, are
referred to herein collectively as the "OFFER DOCUMENTS"). X.X. Xxxxx will
promptly supply to Parent and Purchaser any information with respect to itself
and its officers, directors and affiliates which Purchaser may reasonably
require for inclusion in the Offer Documents.
(f) Subject to the terms of the Offer and this Agreement
and as of the Expiration Time the satisfaction of the Minimum Condition and all
of the conditions set forth in Article VI (except for Section 6.1(c)) or the
waiver of any such conditions by the Party entitled to do so and the completion
of all of the Merger Closing Actions, Parent shall provide funds, or cause funds
to be provided, to Purchaser and Purchaser will accept for payment and will pay
for all X.X. Xxxxx Preferred Shares validly tendered and not properly withdrawn,
as promptly as practicable after the Expiration Time, but prior to the Effective
Time of the Merger.
1.2 ACTIONS BY X.X. XXXXX.
(a) X.X. Xxxxx hereby approves and consents to the Offer
and the Merger and represents and warrants that the Board of Directors of X.X.
Xxxxx, at a meeting duly called and held prior to the date of this Agreement,
has unanimously (i) determined that this Agreement and the transactions
contemplated hereby, including the Offer and the Merger, and the consideration
to be received by the holders of X.X. Xxxxx Preferred Shares and X.X. Xxxxx
Common Shares thereby, are fair to and in the best interests of such holders,
(ii) authorized, approved and adopted this Agreement and approved the Offer, the
Merger and the transactions contemplated by this Agreement, and (iii) resolved
to recommend that the holders of X.X. Xxxxx Preferred Shares accept the Offer
and tender their X.X. Xxxxx Preferred Shares pursuant thereto, and that the
holders of the X.X. Xxxxx Preferred Shares and the X.X. Xxxxx Common Shares
approve and adopt this Agreement and approve the Merger and the transactions
contemplated hereby; provided, however, that such recommendation may be
withdrawn, modified or amended to the extent consistent with any Board action
permitted under Section 5.9 hereof. X.X. Xxxxx consents to the inclusion in the
Offer Documents of such recommendation and approval.
(b) Promptly as practicable following the date of this
Agreement, X.X. Xxxxx shall furnish Purchaser with the names and addresses of
all record holders of X.X. Xxxxx Preferred Shares and the kind and number of
X.X. Xxxxx Preferred Shares held by each of them, each as of the most recent
practicable date, and shall promptly furnish Purchaser with such additional
information,
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including updated lists of stockholders, and such other assistance as Parent and
Purchaser may request in connection with communicating the Offer, the Offer
Documents and any amendments or supplements thereto to the holders of X.X. Xxxxx
Preferred Shares.
1.3 DIRECTORS. At any time following the purchase by Purchaser of
the X.X. Xxxxx Preferred Shares pursuant to the Offer, upon Parent's and
Purchaser's request to X.X. Xxxxx, Parent and Purchaser shall be entitled to
designate such number of directors as will give Purchaser majority
representation on the Board of Directors of X.X. Xxxxx. If, and at such times as
requested by Purchaser, X.X. Xxxxx will use its best efforts to cause each
committee of the Board of Directors of X.X. Xxxxx to include persons designated
by Purchaser constituting a majority of each such committee as Purchaser's
designees are of the Board of Directors of X.X. Xxxxx. X.X. Xxxxx shall, upon
request by Purchaser, solicit the resignations of directors on the X.X. Xxxxx
Board of Directors and promptly increase the size of the Board of Directors of
X.X. Xxxxx as is necessary to enable Purchaser's designees to be elected to the
Board of Directors of X.X. Xxxxx in accordance with the terms of this Section
1.3 and shall cause Purchaser's designees to be so elected.
ARTICLE II
THE MERGER
2.1 THE MERGER. On and subject to the terms and conditions of this
Agreement, at the Effective Time, X.X. Xxxxx shall merge with and into Purchaser
(the "MERGER"), with Purchaser being the corporation surviving the Merger (the
"SURVIVING CORPORATION").
2.2 THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of X.X. Xxxxx,
Bozeman, Montana. Upon consummation of the Offer, all of the conditions set
forth in Article VI shall be deemed satisfied except for Section 6.1(b) with
respect solely to the conversion of the X.X. Xxxxx Preferred Shares. All of the
actions necessary to close the Merger (except for the filing of the Articles of
Merger) shall take place on the date of the consummation of the Offer (the
"CLOSING DATE"), but immediately prior to the consummation of the Offer. These
actions shall include (a) X.X. Xxxxx'x delivery to Parent and Purchaser of the
various certificates, instruments, and documents referred to in Section 6.3
below the minute books, stock ledger and other corporate records of X.X. Xxxxx
and a certificate executed by X.X. Xxxxx'x President and Chief Executive Officer
and Chief Financial Officer certifying to Parent and Purchaser X.X. Xxxxx'x Debt
Level as of immediately prior to the Effective Time, (b) Parent's and
Purchaser's delivery to X.X. Xxxxx of the various certificates, instruments, and
documents referred to in Section 6.2 below and (c) the execution by X.X. Xxxxx
and Purchaser of the Articles of Merger (but not the filing thereof) (the
"MERGER CLOSING ACTIONS").
2.3 CONVERSION OF X.X. XXXXX PREFERRED SHARES AND FILING OF
ARTICLES OF MERGER.
(a) Following the consummation of the Offer and the
completion of all the Merger Closing Actions, Purchaser will exercise its right
to approve the conversion of all X.X. Xxxxx Preferred Shares not then held by
Purchaser so that all such shares shall be thereafter deemed to represent the
number of X.X. Xxxxx Common Shares as are issuable upon the conversion thereof
as provided in X.X. Xxxxx'x Articles of Incorporation. The Purchase Price
offered by Purchaser for the X.X. Xxxxx Preferred Shares converted pursuant to
this Section 2.3(a) is referred to herein as the
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"EXCESS CASH CONSIDERATION."
(b) Immediately following the conversion of the X.X.
Xxxxx Preferred Shares in accordance with Section 2.3(a), Purchaser and X.X.
Xxxxx will file with the Secretary of State of the State of Montana the Articles
of Merger in the form attached hereto as EXHIBIT B. The Merger shall become
effective at the time (the "EFFECTIVE TIME") the Articles of Merger are filed
with the Secretary of the State of Montana.
2.4 EFFECT OF MERGER.
(a) General. The Merger shall have the effect set forth
in the MBCA.
(b) Articles of Incorporation. The Articles of
Incorporation of Purchaser as in effect immediately prior to the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation after the
Effective Time, as the same may thereafter be amended in accordance with its
terms and as provided under the MBCA.
(c) By-Laws. The By-Laws of Purchaser as in effect
immediately prior to the Effective Time shall be the By-Laws of the Surviving
Corporation after the Effective Time, as the same may thereafter be amended in
accordance with their terms and as provided by the Articles of Incorporation of
the Surviving Corporation and as provided under the MBCA.
(d) Directors and Officers. The directors and officers of
Purchaser shall become the directors and officers of the Surviving Corporation
at and as of the Effective Time (retaining their respective positions and terms
of office) and they shall continue in such positions until their successors have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's Article of
Incorporation and By-Laws.
(e) X.X. Xxxxx Stock Options and X.X. Xxxxx Warrants.
Neither Parent nor the Surviving Corporation shall assume or otherwise become
responsible for any obligations with respect to any X.X. Xxxxx Stock Options,
X.X. Xxxxx Warrants or commitments of X.X. Xxxxx to issue stock options,
warrants or similar instruments. X.X. Xxxxx will exercise all reasonable best
efforts to cause, immediately prior to the Effective Time, each holder of a X.X.
Xxxxx Stock Option and a X.X. Xxxxx Warrant that is in effect, but unexercised,
to either exercise such option or irrevocably waive his or her rights to do so.
To be considered exercised on or before the Effective Time, the holder of a X.X.
Xxxxx Stock Option or X.X. Xxxxx Warrant must execute and deliver all required
notices of exercise and other instruments required by X.X. Xxxxx for net
exercises and deliver the same with immediately available funds to X.X. Xxxxx in
the amount of the aggregate exercise price unless a net exercise is being
effected. For purposes of receiving Merger Consideration pursuant to Section
2.4(f)(i), each holder of X.X. Xxxxx Stock Options and X.X. Xxxxx Warrants who
exercises prior to the Effective Time and elects a net exercise shall be deemed
to have been issued the number of X.X. Xxxxx Common Shares as is required by the
terms of such options or warrants less a number of shares to be retained by X.X.
Xxxxx in lieu of payment by such holder of the exercise price of such options or
warrants. The number of X.X. Xxxxx Common Shares to be retained by X.X. Xxxxx in
lieu of receipt of cash for the exercise price will be equal in value to such
exercise price where the value
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of each X.X. Xxxxx Common Share shall be determined by dividing 700,000 by the
sum of outstanding X.X Xxxxx Common Shares, Options, and Warrants (immediately
prior to exercise) and multiplying such quotient by the Parent Stock Price
during the five (5) trading days immediately prior to the date hereof. In
connection with the exercise of X.X. Xxxxx Stock Options and X.X. Xxxxx
Warrants, the Surviving Corporation shall deduct therefrom X.X. Xxxxx'x
withholding and similar obligations (including state and federal income, FICA
and Medicare) by withholding X.X. Xxxxx Common Shares equal in value to such
obligation where such value is determined in the same manner the value of shares
retained for the exercise price.
(f) Conversion of X.X. Xxxxx Common Shares. At and as of
the Effective Time by virtue of the Merger and without any action on the part of
Parent, Purchaser, X.X. Xxxxx or its stockholders:
(i) Subject to and in accordance with the terms
hereof, the maximum aggregate consideration issuable by Parent in connection
with the Merger is 700,000 Parent Shares (the "MERGER SHARES"), plus the Excess
Cash Consideration, if any. The Merger Shares, Excess Cash Consideration, and
any cash paid pursuant to Section 2.4(i) are referred to collectively as the
"MERGER CONSIDERATION". Subject to Section 2.4(i), each X.X. Xxxxx Common Share
outstanding immediately prior to the Effective Time, other than Dissenting
Shares and X.X. Xxxxx Common Shares to be cancelled in accordance with this
Section 2.4, shall be converted into the right to receive (A) as of the
Effective Time, the number of Parent Shares as equals 700,000 Parent Shares,
divided by the total number of X.X. Xxxxx Common Shares outstanding immediately
prior to the Effective Time (excluding those owned by Parent and Purchaser) (the
"CLOSING EXCHANGE RATIO"); and (B) as of the Effective Time, a cash payment
equal to the Excess Cash Consideration, if any, divided by the total number of
X.X. Xxxxx Common Shares outstanding immediately prior to the Effective Time
(excluding those owned by Parent and Purchaser). All references in this
Agreement to X.X. Xxxxx Common Shares outstanding immediately prior to the
Effective Time (or similar references) shall include those X.X. Xxxxx Common
Shares issued upon conversion of the X.X. Xxxxx Preferred Shares (other than
those held by Parent or Purchaser) and the exercise of outstanding X.X. Xxxxx
Stock Options and X.X. Xxxxx Warrants.
(ii) Each Dissenting Share shall be converted
into the right to receive payment from the Surviving Corporation with respect
thereto in accordance with the provisions of Section 2.5 of this Agreement.
(iii) Each X.X. Xxxxx Common Share held in
treasury by X.X. Xxxxx and any X.X. Xxxxx Common Shares held by Parent or
Purchaser shall be cancelled and retired and shall cease to exist and no Merger
Consideration shall be delivered in exchange therefor.
(iv) Each share of Purchaser's common stock
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into and exchangeable for one fully paid and non-assessable share of
common stock of the Surviving Corporation and shall constitute the only
outstanding capital stock of the Surviving Corporation.
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At the Effective Time, all outstanding X.X. Xxxxx Common
Shares shall be automatically cancelled and retired and shall cease to exist,
and each holder of a certificate representing any such shares shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration upon the surrender of the certificate representing such shares or
an affidavit of lost certificate in accordance with Section 2.7 or, in the case
of Dissenting Shares, the right to receive payment from the Surviving
Corporation in accordance with Section 2.5 of this Agreement.
(g) Maximum Number of Shares of Parent Shares.
Notwithstanding anything herein to the contrary, in no event shall the aggregate
number of Parent Shares issuable hereunder at the Closing exceed the (i) Merger
Shares less (ii) the sum of (A) the number of Dissenting Shares multiplied by
the Closing Exchange Ratio and (B) any fractional shares for which cash is paid
in lieu thereof in accordance with Section 2.4(i) below
(h) Stock Splits, Recapitalizations and Similar
Transactions. In the event that after the date of this Agreement and prior to
the Effective Time, Parent shall split or combine the outstanding Parent Shares,
or pay a stock dividend or other stock distribution in Parent Shares and the
effective date therefor shall be prior to the Effective Time, then the number of
Parent Shares constituting the Merger Shares shall be proportionately adjusted
to reflect such transaction; provided, however, no such adjustment shall be made
for the Pending Stock Split unless it fails to be effective prior to the
Closing, in which case, the Merger Shares shall be reduced by 50% and all
figures for Parent Shares herein shall be appropriately adjusted.
(i) Fractional Shares. No fractional Parent Shares shall
be issued pursuant to the Merger. In lieu of the issuance of any such fractional
Parent Share, cash adjustments will be paid to holders in respect of any
fractional share of Parent Share that would otherwise be issuable. The amount of
such adjustment shall be the product of such fraction of a Parent Share
multiplied by the Parent Stock Price based on the ten (10) trading days prior to
the Effective Time. No fractional cent shall be payable to any holder of X.X.
Xxxxx Common Shares, and the cash payable to any such holder shall be rounded
down to the nearest cent.
(j) Tax-Free Reorganization. The parties intend that this
Agreement be a plan of reorganization, such that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code. The Parent
Shares to be issued in the Merger pursuant to Section 2.4(f) and any cash paid
in lieu of fractional shares pursuant to Section 2.4(i), will be issued or paid
solely for the issued and outstanding X.X. Xxxxx Common Shares pursuant to this
Agreement. To the extent that (based on advise received from its tax advisors)
Parent can do so in compliance with the Code and other applicable laws, Parent
will report applicable items in its federal and any state income tax returns in
a manner that is consistent with the treatment of the Merger as a reorganization
within the meaning of Section 368(a) of the Code. Notwithstanding anything
herein, neither Parent nor Purchaser makes any representations or warranties to
X.X. Xxxxx or to any stockholder of X.X. Xxxxx regarding the tax treatment of
the Merger or whether the Merger will qualify as a reorganization
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2.5 DISSENTER'S RIGHTS. Notwithstanding anything herein to the
contrary, Dissenting Shares shall not be converted into the right to receive
Merger Consideration in accordance with Section 2.4(f)(i) unless and until such
holder fails to perfect or withdraws or otherwise loses his right to appraisal
and payment under the MBCA. If after the Effective Time such holder fails to
perfect or withdraws or loses his right to appraisal and payment under the MBCA,
the X.X. Xxxxx Common Shares held by him immediately prior to the Effective Time
shall be treated as if they had been converted as of the Effective Time into the
proportion of the Merger Consideration to which the holder of such shares is
entitled under Section 2.4(f)(i) without interest or dividends thereon. X.X.
Xxxxx shall give Parent and Purchaser prompt notice of any demands received by
X.X. Xxxxx for appraisal of X.X. Xxxxx Common Shares, any withdrawals of demands
and developments with respect to any such demands. Parent and Purchaser shall
have the sole and exclusive right to conduct all negotiations and proceedings
with respect to such demands. X.X. Xxxxx shall not, except with the prior
written consent of Parent and Purchaser, make any payment with respect to, or
settle or offer to settle, any such demands.
2.6 DEPOSIT OF CERTIFICATES WITH EXCHANGE AGENT AND ESCROW AGENT.
(a) Prior to the Effective Time, Parent shall appoint
EquiServe Trust Company, N.A., or another bank or trust company designated by
Parent, to act as exchange agent (the "EXCHANGE AGENT") hereunder for the
purpose of exchanging X.X. Xxxxx Share Certificates for certificates
representing the Merger Shares and cash, if any, pursuant to Section 2.4(i). At
or prior to the Effective Time, Parent shall deposit with the Exchange Agent
certificates representing 650,000 shares of Parent Shares to be held in trust
for the benefit of the Former X.X. Xxxxx Stockholders.
(b) Prior to the Effective Time, Phoenix Footwear shall
appoint an escrow agent (the "ESCROW AGENT") hereunder for the purpose of
holding the Escrow Fund. At the Closing, Parent, Purchaser and the Stockholder
Representative shall enter into an Escrow Agreement in the form of EXHIBIT C
attached hereto. Notwithstanding anything herein to the contrary, 50,000 Parent
Shares of the Merger Shares (the "ESCROW SHARES") shall be issued in the name of
the Escrow Agent as nominee for the Former X.X. Xxxxx Stockholders. The Escrow
Shares shall be beneficially owned by such holders based on each such holder's
Pro-Rata Share thereof. After the Effective Time, Parent shall deposit with the
Escrow Agent all dividends and other distributions required under Section 2.9
and upon the payment of any monies with respect to any Dissenters Shares, seven
percent (7%) of such funds (such monies with the Escrow Shares being
collectively referred to as the "ESCROW FUND"). The Escrow Fund shall be
governed by the terms set forth herein and in the Escrow Agreement. All
dividends and distributions in respect of the Escrow Shares, whether in cash,
additional Phoenix Footwear securities or other property, shall be received,
held and distributed by the Escrow Agent to Former X.X. Xxxxx Stockholders in
accordance with the Escrow Agreement. The Escrow Fund shall be available to
indemnify, hold harmless and reimburse Phoenix Footwear from any Loss or
indemnifiable under Article VIII and as provided in the Escrow Agreement. To the
extent not used for such purposes, the Escrow Fund shall be released, all as
provided in Article VIII hereof.
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2.7 EXCHANGE PROCEDURES.
(a) As soon as reasonably practicable after the Effective
Time, Parent shall cause the Exchange Agent to mail to each holder of a X.X.
Xxxxx Share Certificate (i) a letter of transmittal (the "LETTER OF
TRANSMITTAL") which shall specify that delivery shall be effected, and risk of
loss and title to the X.X. Xxxxx Share Certificates shall pass, only upon
delivery of the X.X. Xxxxx Share Certificates or an Affidavit of Lost
Certificate to the Exchange Agent, and which letter shall be in customary form
and have such other provisions as Parent may reasonably specify and (ii)
instructions for effecting the surrender of such X.X. Xxxxx Share Certificates,
or an Affidavit of Lost Certificate, as the case may be, in exchange for the
certificates representing the portion of Merger Shares and cash, if any, to
which the holder thereof is entitled.
(b) Upon surrender to the Exchange Agent of a X.X. Xxxxx
Share Certificate, or an Affidavit of Lost Certificate and compliance with
Section 2.12, as the case may be, and such Letter of Transmittal, duly executed
and completed in accordance with the instructions thereto, and such other
documents as may reasonably be required by the Exchange Agent, the holder of
such X.X. Xxxxx Share Certificate shall be entitled to receive in exchange
therefor (i) certificates representing 93% of the Merger Shares into which such
holder's X.X. Xxxxx Common Shares have been converted pursuant to Section
2.4(f)(i), (ii) 93% of any other Merger Consideration such holder is entitled to
in respect of such Share Certificate is entitled per Section 2.4(f)(i), and
(iii) a check in the amount of 93% of any dividends and other distributions
pursuant to Section 2.9 into which such holders of X.X. Xxxxx Common Shares have
been converted. No interest will be paid or will accrue on any cash payable
pursuant to Section 2.4(i) or Section 2.9.
(c) In the event of a transfer of ownership of X.X. Xxxxx
Common Shares prior to the Effective Time which is not registered in the
transfer records of X.X. Xxxxx, certificates representing, in the aggregate, the
proper number of Parent Shares and a check in the proper amount of any cash to
which the registered holder is entitled pursuant to Section 2.4(f) and Section
2.9, may be issued to such transferee with respect to such transferred shares if
the X.X. Xxxxx Share Certificate which formerly represented such shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(d) Until surrendered as contemplated by this Section
2.7, the X.X. Xxxxx Share Certificates shall, subject to dissenters rights under
the MBCA and Section 2.5, be deemed at any time after the Effective Time to
represent only the right to receive upon surrender the applicable Parent Shares
and cash in lieu of any fractional shares pursuant to Section 2.4(i).
2.8 LIMITATIONS ON RESALE OF PARENT SHARES.
(a) The Parent Shares to be issued in the Merger have not
been registered for sale under state or federal securities laws and will be
"restricted securities." The issuance of such Parent Shares is intended to be
exempt from registration under the Securities Act by virtue of Section 4(2) of
the Securities Act and the provisions of Rule 506 of Regulation D promulgated
thereunder. Accordingly, Section 6.2(i) below provides that it is a condition to
the consummation of the Merger,
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that Investment Representation Letters be delivered to Parent by the holders of
X.X. Xxxxx Common Shares immediately prior to the Effective Time.
(b) Prior to the Effective Time, X.X. Xxxxx shall not
take any action, including the granting of any options or warrants, that would
cause the number of X.X. Xxxxx stockholders who are to receive Merger
Consideration and who are not "accredited investors" pursuant to Regulation D
promulgated under the 1933 Act to increase to more than 35.
(c) The Parent Shares to be issued in the Merger will be
subject to restrictions on transferability and resale and may not be sold or
otherwise transferred without registration under the Securities Act and
applicable state securities laws or without an exemption therefrom. All
certificates representing such Parent Shares shall bear a legend restricting the
transfer thereof consistent with the foregoing. Parent may issue appropriate
"stop transfer" instructions to its transfer agent. Parent shall not be required
(i) to transfer or have transferred its Parent Shares issued pursuant to this
Agreement that have been sold or otherwise transferred in violation of any of
the provisions of (A) the applicable Investment Representation Letter or Letter
of Transmittal, (B) any other provisions of this Agreement, or (C) any
applicable law or (ii) to treat as owner of such shares or to accord the right
to vote or pay dividends to any purchaser or other transferee to whom such
shares shall have been so transferred in violation of any law or of any
provision of this Agreement, the applicable Investment Representation Letter or
the Letter of Transmittal.
2.9 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED X.X. XXXXX SHARE
CERTIFICATES. No dividends or other distributions declared or made with respect
to Parent Shares constituting the Merger Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered X.X. Xxxxx Share
Certificate with respect to the certificate representing Parent Shares that such
holder would be entitled to receive upon surrender of such X.X. Xxxxx Share
Certificate until such holder shall surrender such X.X. Xxxxx Share Certificate
or an Affidavit of Lost Certificate and any required bond in accordance with
Section 2.12 and take such other actions as are required by Section 2.7. Subject
to the effect of applicable laws, following surrender of any such X.X. Xxxxx
Share Certificate or Affidavit of Lost Certificate and any required bond, and
taking the other action required by Section 2.7, there shall be paid to such
holder of Parent Shares issuable in exchange therefor, without interest, (a)
promptly thereafter, 93% of any dividends or other distributions with a record
date after (i) the Effective Time and theretofore paid with respect to such
whole Parent Shares which constitute the Merger Shares and (b) at the
appropriate payment date, the 93% of the amount of dividends or other
distributions with a record date (i) after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such Parent Shares which constitute such holder's portion of the Merger
Shares. The remaining 7% shall be distributed as provided in the Escrow
Agreement.
2.10 TERMINATION OF FUND LIABILITY. Any Merger Consideration which
remains undistributed to the holders of X.X. Xxxxx Share Certificates for
eighteen (18) months after the Effective Time shall be delivered to Parent or
otherwise on the instruction of Parent. Any holders of the X.X. Xxxxx Share
Certificates who have not theretofore complied with this Article II shall
thereafter look only to Parent for the certificates and cash, if any,
representing the Merger Consideration with respect to the X.X. Xxxxx Common
Shares formerly represented thereby to which such holders are entitled pursuant
to Section 2.4(f), and any dividends or distributions with respect to
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such Merger Consideration. Any such portion of the Merger Consideration
remaining unclaimed by holders of X.X. Xxxxx Share Certificates which, prior to
the Effective Time, represented X.X. Xxxxx Common Shares five (5) years after
the Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any Governmental
Entity) shall, to the extent permitted by law, become the property of Parent
free and clear of any claims or interest of any Person previously entitled
thereto.
2.11 NO LIABILITY. None of Parent, the Surviving Corporation or the
Exchange Agent shall be liable to any Person in respect of any Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.12 LOST X.X. XXXXX SHARE CERTIFICATES. If any X.X. Xxxxx Share
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact ("AFFIDAVIT OF LOST CERTIFICATE") by the Person claiming
such X.X. Xxxxx Share Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such Person of a bond in such reasonable
amount as Parent may direct as indemnity against any claim that may be made
against it with respect to such X.X. Xxxxx Share Certificate, the Exchange Agent
will deliver in exchange for such lost, stolen or destroyed X.X. Xxxxx Share
Certificate a certificate and/or cash representing the applicable Merger
Consideration with respect to X.X. Xxxxx Common Shares and unpaid dividends and
distributions on Parent Shares issued in respect thereof, pursuant to this
Agreement.
2.13 WITHHOLDING RIGHTS. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of X.X. Xxxxx Share
Certificates which, prior to the Effective Time, represented X.X. Xxxxx Common
Shares, such amounts as it is required to deduct and withhold with respect to
the making of such payment under the Code and the rules and regulations
promulgated thereunder, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by the Surviving Corporation or Parent,
as the case may be, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the X.X. Xxxxx Common Shares
in respect of which such deduction and withholding was made by the Surviving
Corporation or Parent, as the case may be.
2.14 FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of X.X. Xxxxx or Purchaser, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of X.X. Xxxxx or Purchaser, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger.
2.15 CLOSING OF TRANSFER RECORDS. After the close of business on
the Closing Date, transfers of X.X. Xxxxx Common Shares outstanding prior to the
Effective Time shall not be made on the stock transfer books of the Surviving
Corporation. If, after the Effective Time, X.X. Xxxxx Share Certificates are
presented to the Surviving Corporation for any reason, they shall be cancelled
and exchanged a provided in this Article II.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF X.X. XXXXX
X.X. Xxxxx represents and warrants to Parent and Purchaser that the
statements contained in this Article III are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article III), except as set forth in the
disclosure schedule delivered by X.X. Xxxxx to Parent and the Purchaser on the
date hereof and initialed by the Parties (the "X.X. XXXXX DISCLOSURE SCHEDULE").
The X.X. Xxxxx Disclosure Schedule shall identify the exception with
particularity and describe the relevant facts in detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless such exception is readily
apparent or the representation or warranty has to do with the existence of the
document or other item itself). The X.X. Xxxxx Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Article III.
3.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. X.X. Xxxxx is
a corporation duly organized, validly existing, and in good standing under the
laws of the State of Montana. X.X. Xxxxx is duly authorized to conduct business
and is in good standing under the laws of each jurisdiction where such
qualification is required, except such jurisdictions where the failure to be so
qualified would not have a Material Adverse Effect on X.X. Xxxxx. All of the
jurisdictions in which X.X. Xxxxx is qualified to do business as a foreign
corporation are listed in Section 3.1 of the Disclosure Schedule. X.X. Xxxxx has
full corporate power and authority and all licenses, permits, and authorizations
necessary to carry on the businesses in which it is engaged, and to own and use
the properties owned and used by it. Section 3.1 of the Disclosure Schedule
lists the directors and officers of X.X. Xxxxx. X.X. Xxxxx has delivered to
Parent correct and complete copies of the charter and bylaws of X.X. Xxxxx (as
amended to date). The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of X.X.
Xxxxx are correct and complete. X.X. Xxxxx is not in default under or in
violation of any provision of its charter or bylaws.
3.2 NO SUBSIDIARIES. X.X. Xxxxx does not own, beneficially,
directly or indirectly, any equity securities or similar interests of any
corporation, bank, business trust, association or similar organization, and is
not, directly or indirectly, a partner in any partnership or party to any joint
venture.
3.3 CAPITALIZATION.
(a) The entire authorized capital stock of X.X. Xxxxx
consists of 5,000,000 shares of common stock, no par value per share, and
2,500,000 shares of Preferred Shares, of which 500,000 shares have been
authorized as X.X. Xxxxx Series A Preferred Shares, 833,194 shares have been
authorized as X.X. Xxxxx Series B Preferred Shares and 500,000 shares have been
authorized as X.X. Xxxxx Series C Preferred Shares. X.X. Xxxxx has issued and
outstanding (x) 2,085,336 X.X. Xxxxx Common Shares, (y) 500,000 X.X. Xxxxx
Series A Preferred Shares, 833,194 X.X. Xxxxx Series
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B Preferred Shares, and 500,000 X.X. Xxxxx Series C Preferred Shares. All of the
issued and outstanding shares of X.X. Xxxxx capital stock have been duly
authorized, are fully paid and non-assessable and have been issued in compliance
with applicable federal and state securities laws and regulations.
(b) In addition, X.X. Xxxxx has outstanding warrants to
purchase 75,000 X.X. Xxxxx Common Shares (the "X.X. XXXXX WARRANTS") and
outstanding and unexercised options awarded pursuant to its 1994 Stock Plan to
purchase 263,500 X.X. Xxxxx Common Shares (the "X.X. XXXXX STOCK OPTIONS"). Upon
conversion in accordance with the terms of the Articles of Incorporation of X.X.
Xxxxx, the holders of X.X. Xxxxx Preferred Shares shall not be entitled to any
other rights, dividends, interest in respect of such preferred stock, except the
right to receive one X.X. Xxxxx Common Share for each converted X.X. Xxxxx
Preferred Share and voting rights and rights to the Merger Consideration
hereunder (except that Parent and Purchaser shall not be entitled to any Merger
Consideration).
(c) Other than the X.X. Xxxxx Warrants, the X.X. Xxxxx
Stock Options and the conversion rights of the holders of the issued and
outstanding X.X. Xxxxx Preferred Shares, there are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other instruments, contracts or commitments that could
require X.X. Xxxxx to issue, sell, or otherwise cause to become outstanding any
capital stock of X.X. Xxxxx of any kind. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to X.X. Xxxxx or its capital stock. There are no voting trusts, proxies,
or other agreements or understandings with respect to the capital stock of X.X.
Xxxxx except as contemplated by this Agreement.
(d) X.X. Xxxxx has made available or provided Parent with
true and complete copies of all agreements and instruments executed by it in
connection with the issuance and sale of the X.X. Xxxxx Common Shares and the
X.X. Xxxxx Preferred Shares.
3.4 NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (a) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
Governmental Entity to which X.X. Xxxxx is subject or any provision of the
Articles of Incorporation or By-laws of X.X. Xxxxx or (b) except as provided in
Section 3.12(b) below, conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or consent under
any agreement, contract, lease, license, instrument, or other arrangement to
which X.X. Xxxxx is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon any
of its assets). Other than filing the Articles of Merger, X.X. Xxxxx is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Governmental Entity in order for the
Parties to consummate the transactions contemplated by this Agreement.
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3.5 AUTHORIZATION OF TRANSACTION.
(a) The Board of Directors X.X. Xxxxx (at a meeting duly
called and held in accordance with X.X. Xxxxx'x Articles of Incorporation and
By-Laws and the MBCA) has unanimously (i) determined that the Merger is
advisable and in the best interests of X.X. Xxxxx and its stockholders, (ii)
approved the Merger and this Agreement, (iii) recommended the Offer and the
Merger and that the Merger be submitted for a vote of the X.X. Xxxxx
stockholders at the X.X. Xxxxx Special Stockholders Meeting.
(b) The affirmative vote by the holders of a majority of
the issued and outstanding shares of X.X. Xxxxx Common Shares and the H.S.
Preferred Shares, all voting as one class, is required to approve the Merger. In
addition, pursuant to X.X. Xxxxx'x Articles of Incorporation, the affirmative
vote of a majority of the issued and outstanding X.X. Xxxxx Series B Preferred
Shares and the X.X. Xxxxx Series C Preferred Shares, voting as separate classes
is required to approve the Merger.
(c) X.X. Xxxxx has full power and authority (including
full corporate power and authority) to execute and deliver this Agreement and to
perform its obligations hereunder; provided, however, that X.X. Xxxxx cannot
consummate the Merger unless and until it receives the approval of its
stockholders. This Agreement constitutes the valid and legally binding
obligation of X.X. Xxxxx enforceable in accordance with its terms and
conditions.
3.6 TITLE TO ASSETS. X.X. Xxxxx has valid title or other rights
to, or a valid leasehold interest in, the properties and assets used by it,
located on its premises, or shown on its balance sheet as of December 31, 2002
or acquired after the date thereof, free and clear of all Security Interests,
except for properties and assets disposed of in the Ordinary Course of Business
since December 31, 2002.
3.7 FINANCIAL INFORMATION. X.X. Xxxxx has provided to Parent (i)
audited balance sheets and statements of operations, stockholders' equity, and
cash flow for X.X. Xxxxx as of and for the fiscal years ended December 31, 2000,
December 31, 2001 and December 31, 2002; and (ii) unaudited balance sheet and
statement of income for X.X. Xxxxx as of and for the three months ended March
31, 2003 (collectively, the "FINANCIAL STATEMENTS"). The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby, present fairly the
financial condition of X.X. Xxxxx as of such dates and the results of operations
of X.X. Xxxxx for such periods, are correct and complete, and are consistent
with the books and records of X.X. Xxxxx (which books and records are correct
and complete); provided, that, the Financial Statements as of and for the three
months ended March 31, 2003 are unaudited, omit footnotes and are subject to
normally recurring annual adjustments.
3.8 EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since
December 31, 2002, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of X.X. Xxxxx. Without limiting the generality of the foregoing,
except for the transactions contemplated by or taken in connection with this
Agreement, since December 31, 2002:
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(a) X.X. Xxxxx has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(b) X.X. Xxxxx has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) (i) involving more than $25,000, (ii) which cannot be terminated
on thirty (30) days notice from X.X. Xxxxx without penalty or any termination
payment of any kind or (iii) is outside the Ordinary Course of Business;
(c) no party has accelerated, terminated, modified,
cancelled or failed to renew any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) involving more
than $25,000 to which X.X. Xxxxx is a party or by which any of them is bound;
(d) X.X. Xxxxx has not had imposed any Security Interest
upon any of its assets, tangible or intangible;
(e) X.X. Xxxxx has not made any capital expenditure (or
series of related capital expenditures) either involving more than $25,000 or
outside the Ordinary Course of Business;
(f) X.X. Xxxxx has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either involving
more than $25,000 or outside the Ordinary Course of Business;
(g) X.X. Xxxxx has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$10,000 singly or $25,000 in the aggregate;
(h) X.X. Xxxxx has not delayed or postponed the payment
of accounts payable and other Liabilities outside the Ordinary Course of
Business;
(i) X.X. Xxxxx has not cancelled, compromised, waived, or
released any right or claim (or series of related rights and claims) either
involving more than $25,000 or outside the Ordinary Course of Business;
(j) X.X. Xxxxx has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(k) there has been no change made or authorized in the
Articles of Incorporation or By-laws of X.X. Xxxxx;
(l) X.X. Xxxxx has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or exercise)
any X.X. Xxxxx capital stock;
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(m) X.X. Xxxxx has not declared, set aside, or paid any
dividend or made any distribution with respect to the X.X. Xxxxx capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired any
X.X. Xxxxx capital stock;
(n) X.X. Xxxxx has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property;
(o) X.X. Xxxxx has not made any loan to, or entered into
any other transaction with, any of its directors, officers, employees, sales
representatives, suppliers or customers outside the Ordinary Course of Business;
(p) X.X. Xxxxx has not entered into any employment
contract or collective bargaining agreement, written or oral, or modified the
terms of any existing contract or agreement;
(q) X.X. Xxxxx has not granted any increase in the
compensation of any of its directors, officers, employees or sales
representatives;
(r) X.X. Xxxxx has not adopted, amended, modified, or
terminated any bonus, profit sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers,
employees or sales representatives (or taken any such action with respect to any
other Employee Benefit Plan);
(s) X.X. Xxxxx has not made any other change in
employment terms for any of its directors, officers, employees or the terms of
engagement for its sales representatives;
(t) X.X. Xxxxx has not made or pledged to make any
charitable or other capital contribution other than as reflected in the
Financial Statements; and
(u) X.X. Xxxxx has not committed to any of the foregoing.
3.9 UNDISCLOSED LIABILITIES. X.X. Xxxxx has no Liability (and, to
the Knowledge of X.X. Xxxxx, there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against X.X. Xxxxx giving rise to any Liability), except for (a) Liabilities set
forth on X.X. Xxxxx'x March 31, 2003 balance sheet and (b) Liabilities which
have arisen after March 31, 2003 in the Ordinary Course of Business (none of
which results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law or which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on X.X. Xxxxx) and in connection with
this Agreement and the transactions contemplated hereby.
3.10 LEGAL COMPLIANCE. To its Knowledge, X.X. Xxxxx has complied
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof). To
its Knowledge, no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand,
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or notice has been filed or commenced against X.X. Xxxxx alleging any failure so
to comply. To its Knowledge, X.X. Xxxxx has in effect all material approvals,
authorizations, certificates, filings, franchises, licenses, notices and permits
of or with all Governmental Entities, promulgated under any laws (collectively
("PERMITS"), necessary for it to own, lease or operate its properties and other
assets and to carry on its business and operations as presently conducted and as
currently proposed by its management to be conducted, except where the failure
to so have in effect, individually or in the aggregate, has not had and would
not reasonably be expected to have a Material Adverse Effect on X.X. Xxxxx. X.X.
Xxxxx has not received any notice that there has occurred, and to its Knowledge,
there has not occurred any default under, or violation of, any such Permit,
except individually or in the aggregate as has not had and would not reasonably
be expected to have a Material Adverse Effect on X.X. Xxxxx The consummation of
the transactions contemplated by this Agreement, in and of themselves, would not
cause the revocation or cancellation of any such Permit that individually or in
the aggregate would reasonably be expected to have a Material Adverse Effect on
X.X. Xxxxx. Nothing in this Section 3.10 applies to requirements of or liability
under Environmental, Health and Safety Requirements, which are addressed in
Section 3.27.
3.11 TAX MATTERS.
(a) X.X. Xxxxx has timely filed all Tax Returns that it
was required to file. All such Tax Returns are correct and complete in all
material respects. All Taxes due and payable by X.X. Xxxxx (whether or not shown
on any Tax Return) have been paid or where payment is not required to have been
made, X.X. Xxxxx has set up an adequate reserve or accrual for the payment of,
all Taxes required to have been paid in respect of the periods covered by such
returns and, as of the Effective Time, will have paid, or where payment is not
required to have been made, will have set up an adequate reserve or accrual for
the payment of, all Taxes for any subsequent periods prior to the Effective
Time. X.X. Xxxxx currently is not the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an authority
in a jurisdiction where X.X. Xxxxx does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Security Interests on
any of the assets of X.X. Xxxxx that arose in connection with any failure (or
alleged failure) to pay any Tax. There is no pending examination, administrative
or judicial proceeding, or deficiency or refund litigation, with respect to any
Taxes of X.X. Xxxxx.
(b) X.X. Xxxxx is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable information reporting and tax
withholding requirements under federal, state, and local tax laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Code. X.X. Xxxxx has withheld and paid all material
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party, including without limitation any payroll taxes other than
withholding Taxes with respect to the exercise of the X.X. Xxxxx Stock Options
and X.X. Xxxxx Warrants under Section 2.4(e).
(c) To the Knowledge of X.X. Xxxxx, no authority intends
to assess any additional Taxes for any period for which Tax Returns have been
filed. There is no material dispute or claim concerning any Tax Liability of
X.X. Xxxxx either (i) claimed or raised by any authority in writing or
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(ii) to the Knowledge of X.X. Xxxxx Section 3.11 of the X.X. Xxxxx Disclosure
Schedule lists all federal, state, local, and foreign income Tax Returns filed
with respect to X.X. Xxxxx for taxable periods ended on or after December 31,
1998, indicates those Tax Returns that has been audited, and indicates those Tax
Returns that currently are the subject of audit. X.X. Xxxxx has made available
to Parent correct and complete copies of all federal, state and local income Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by X.X. Xxxxx for taxable periods ended on or after December 31, 1996.
(d) X.X. Xxxxx has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) X.X. Xxxxx has not filed a consent under Code Section
341(f) concerning collapsible corporations. X.X. Xxxxx has not made any material
payments and is not obligated with respect to the transactions contemplated
hereunder to make any material payments that will not be deductible under Code
Section 280G. X.X. Xxxxx has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii). X.X. Xxxxx is not a party to
any Tax allocation or sharing agreement. X.X. Xxxxx (i) has not been a member of
an Affiliated Group filing a consolidated federal income Tax Return and (ii) has
no Liability for the Taxes of any Person (other than itself) under Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(f) The Financial Statements fully and properly reflect,
as of their dates, the liabilities of X.X. Xxxxx for all Taxes for all periods
ending on or before such dates. The unpaid Taxes of X.X. Xxxxx (i) did not, as
of the December 31, 2002 balance sheet, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the December
31, 2002 balance sheet (rather than in any notes thereto) and (B) do not exceed
that reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of X.X. Xxxxx in filing their Tax
Returns.
(g) X.X. Xxxxx will not be required to include any
material item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of any: (i) change in method of accounting for a taxable period
ending on or prior to the Closing Date under Code Section 481(c) (or any
corresponding or similar provision of state, local or foreign income Tax law);
(ii) "closing agreement" as described in Code Section 7121 (or any corresponding
or similar provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date; (C) installment sale or open transaction disposition
made on or prior to the Closing Date; or (D) prepaid amount received on or prior
to the Closing Date.
(h) X.X. Xxxxx has not taken or agreed to take any
action, and X.X. Xxxxx does not have any Knowledge of any fact or circumstance
involving X.X. Xxxxx or any of its stockholders, that would prevent the Merger
and the other transactions contemplated by this Agreement from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code and the
Treasury
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Regulations promulgated thereunder. The Letter of Transmittal shall contain a
similar representation and warranty by each Former X.X. Xxxxx Stockholder.
3.12 REAL PROPERTY.
(a) X.X. Xxxxx does not own any real property. X.X. Xxxxx
is not a party to any agreement or option to purchase any real property or
interest therein.
(b) Section 3.12(b) of the X.X. Xxxxx Disclosure Schedule
sets forth the address of each parcel of Leased Real Property, and a true and
complete list of all Leases for each such Leased Real Property (including the
date and name of the parties to such Lease document). X.X. Xxxxx has delivered
to Parent a true and complete copy of each such Lease document, and in the case
of any oral Lease, a written summary of the material terms of such Lease. With
respect to each of the Leases:
(i) .such Lease is legal, valid, binding,
enforceable and in full force and effect;
(ii) the transaction contemplated by this
Agreement requires the consent of the lessor identified in each Lease in order
to provide that the transactions contemplated hereby will not result in a breach
of or default under such Lease and will not otherwise cause such Lease to cease
to be legal, valid, binding, enforceable and in full force and effect on
identical terms following the Closing;
(iii) X.X. Xxxxx'x possession and quiet enjoyment
of the Leased Real Property under such Lease has not been disturbed and there
are no disputes with respect to such Lease;
(iv) neither X.X. Xxxxx or any other party to the
Lease is in breach or default under such Lease, and no event has occurred or
circumstance exists which, with the delivery of notice, the passage of time or
both, would constitute such a breach or default, or permit the termination,
modification or acceleration of rent under such Lease;
(v) .no security deposit or portion thereof
deposited with respect to such Lease has been applied in respect of a breach or
default under such Lease which has not been redeposited in full;
(vi) X.X. Xxxxx does not owe, or will not owe in
the future, any brokerage commissions or finder's fees with respect to such
Lease;
(vii) the other party to such Lease is not an
affiliate of, and otherwise does not have any economic interest in X.X. Xxxxx;
(viii) X.X. Xxxxx has not subleased, licensed or
otherwise granted any Person the right to use or occupy such Leased Real
Property or any portion thereof;
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(ix) X.X. Xxxxx has not collaterally assigned or
granted any other security interest in such Lease or any interest therein; and
(x) there are no liens or encumbrances on the
estate or interest created by such Lease.
(c) To the Knowledge of X.X. Xxxxx, all buildings,
structures, fixtures, building systems and equipment, and all components
thereof, including the roof, foundation, load-bearing walls and other structural
elements thereof, heating, ventilation, air conditioning, mechanical,
electrical, plumbing and other building systems, parking facilities, fire
protection, security and surveillance systems, and telecommunications, computer,
wiring and cable installations, included in the Leased Real Property (the
"IMPROVEMENTS") are in good condition and repair and sufficient for the
operation of X.X. Xxxxx'x business, and there are no structural deficiencies or
latent defects affecting any of the Improvements.
(d) To the Knowledge of X.X. Xxxxx, there is no
condemnation, expropriation or other proceeding in eminent domain, pending or
threatened, affecting any parcel of Leased Real Property or any portion thereof
or interest therein. There is no injunction, decree, order, writ or judgment
outstanding, nor any claims, litigation, administrative actions or similar
proceedings, pending or threatened, relating to the lease, use or occupancy of
the Leased Real Property or any portion thereof by X.X. Xxxxx, or the operation
of X.X. Xxxxx'x business as currently conducted thereon.
(e) To the Knowledge of X.X. Xxxxx, (i) the Leased Real
Property is in compliance with all applicable building, zoning, subdivision,
health and safety and other land use laws, including The Americans with
Disabilities Act of 1990, as amended, and all insurance requirements affecting
the Leased Real Property (collectively, the "REAL PROPERTY LAWS"), and (ii) the
current use and occupancy of the Leased Real Property and operation of X.X.
Xxxxx'x business thereon does not violate any Real Property Laws.
(f) To the Knowledge of X.X. Xxxxx, all water, oil, gas,
electrical, steam, compressed air, telecommunications, sewer, storm and waste
water systems and other utility services or systems for the Leased Real Property
are operational and sufficient for the operation of X.X. Xxxxx'x business as
currently conducted thereon.
(g) To the Knowledge of X.X. Xxxxx, all certificates of
occupancy, permits, licenses, franchises, approvals and authorizations
(collectively, the "REAL PROPERTY PERMITS") of all Governmental Entities, board
of fire underwriters, association or any other entity having jurisdiction over
the Real Property, which are required or appropriate to use or occupy the Real
Property and operate X.X. Xxxxx'x business as currently conducted thereon, have
been issued and are in full force and effect. Section 3.12(g) of the X.X. Xxxxx
Disclosure Schedule lists all material Real Property Permits held by X.X. Xxxxx
with respect to each parcel of Leased Real Property. X.X. Xxxxx has delivered to
Parent a true and complete copy of all Real Property Permits. The Real Property
Permits will continue in effect after the consummation of the transaction
contemplated hereby without the
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consent or approval of the issuing Governmental Entity, no disclosure, filing or
other action by X.X. Xxxxx is required in connection with the transactions
contemplated hereby, and Phoenix Footwear shall not be required to assume any
additional liabilities or obligations under the Real Property Permits as a
result of the consummation of the transaction contemplated hereby. Nothing in
this Section 3.12 applies to requirements of or liability under Environmental,
Health and Safety Requirements, which are addressed in Section 3.27.
(h) None of the Leased Real Property or any portion
thereof is located in a flood hazard area (as defined by the Federal Emergency
Management Agency).
3.13 INTELLECTUAL PROPERTY.
(a) X.X. Xxxxx owns and possesses or has the right to use
pursuant to a valid and enforceable, written license, sublicense, agreement, or
permission all Intellectual Property necessary or desirable for the operation of
the business of X.X. Xxxxx as presently conducted, including, but not limited
to, it's web site located at xxx.xxxxxxx.xxx. Each item of Intellectual Property
owned or used by X.X. Xxxxx immediately prior to the Closing hereunder will be
owned or available for use by the Surviving Corporation on identical terms and
conditions immediately subsequent to the Effective Time.
(b) To the Knowledge of X.X. Xxxxx, X.X. Xxxxx has not
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties (including as a
result of the continued operation of its business as presently conducted), and
none of the directors and officers (and employees with responsibility for
Intellectual Property matters) of X.X. Xxxxx has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that X.X.
Xxxxx must license or refrain from using any Intellectual Property rights of any
third party). To the Knowledge of X.X. Xxxxx, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of X.X. Xxxxx.
(c) X.X. Xxxxx holds no registered patents or copyrights
or pending applications therefor. Section 3.13(c) of the X.X. Xxxxx Disclosure
Schedule identifies each trademark registration that has been issued to X.X.
Xxxxx, identifies each pending trademark application that X.X. Xxxxx has filed,
and identifies each license, sublicense, agreement, or other permission that
X.X. Xxxxx has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). X.X. Xxxxx has delivered
to Parent correct and complete copies of all such registrations and,
applications, licenses, sublicenses, agreements, and permissions (as amended to
date) and has made available to Parent correct and complete copies of all other
written documentation evidencing ownership of each such item. Section 3.13(c) of
the X.X. Xxxxx Disclosure Schedule also identifies each unregistered trademark,
service xxxx, trade name, corporate name or Internet domain name, computer
software item developed by or for X.X. Xxxxx and each material unregistered
copyright used by X.X. Xxxxx in connection with its business. With respect to
each item of Intellectual Property required to be identified in Section 3.13(c)
of the X.X. Xxxxx Disclosure Schedule:
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(i) X.X. Xxxxx owns and possesses valid right,
title, and interest in and to such items, in each case free and clear of any
Security Interest or other restriction regarding their use except as
specifically set forth in the license with respect thereto;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge that would impair its
right to continued use of the item;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
Knowledge of X.X. Xxxxx, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item, and there are no grounds for the
same;
(iv) X.X. Xxxxx has never agreed to indemnify any
Person for or against any interference, infringement, misappropriation, or other
conflict with respect to any item other than possibly in connection with
customer purchase orders; and
(v) no loss or expiration of any item is
threatened, pending, or reasonably foreseeable (and not as a result of any act
or omission by X.X. Xxxxx, including, without limitation, a failure by X.X.
Xxxxx, to pay any required maintenance fees).
(d) Section 3.13(d) of the X.X. Xxxxx Disclosure Schedule
identifies each item of Intellectual Property that any third party owns and that
X.X. Xxxxx uses pursuant to license, sublicense, agreement, or permission. X.X.
Xxxxx has delivered to Parent correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With respect to
each item of Intellectual Property required to be identified in Section 3.13(d)
of the X.X. Xxxxx Disclosure Schedule:
(i) to the Knowledge of X.X. Xxxxx, the license,
sublicense, agreement, or permission covering the applicable item is legal,
valid, binding, enforceable, and in full force and effect;
(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby;
(iii) to the Knowledge of X.X. Xxxxx, no party to
the license, sublicense, agreement, or permission is in breach or default, and
no event has occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or acceleration
thereunder;
(iv) no party to the license, sublicense,
agreement, or permission has repudiated any provision thereof;
(v) to the Knowledge of X.X. Xxxxx, the
underlying item of Intellectual Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
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(vi) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
Knowledge of X.X. Xxxxx, is threatened which challenges the legality, validity,
or enforceability of the underlying item of Intellectual Property, and there are
no grounds for the same; and
(vii) X.X. Xxxxx has not granted any sublicense or
similar right with respect to the license, sublicense, agreement, or permission.
(e) X.X. Xxxxx has never granted any license, permission
to use or similar right with respect to any of X.X. Xxxxx'x trademarks. X.X.
Xxxxx is the registrant and sole legal and beneficial owner of the Internet
domain names included in the Intellectual Property, free and clear of all liens
(other than permitted liens). X.X. Xxxxx is the registered owner of the
trademarks underlying each of the domain names included in the Intellectual
Property.
(f) X.X. Xxxxx has complied with and is presently in
compliance with all federal, state, local, governmental (including, but not
limited to, the Federal Trade Commission and State Attorneys General),
administrative or regulatory laws, regulations, guidelines and rules applicable
to any Intellectual Property and X.X. Xxxxx shall take all steps necessary to
ensure such compliance until the Effective Time.
(g) To its Knowledge, X.X. Xxxxx has complied with and is
presently in compliance with all foreign administrative or regulatory laws,
regulations, guidelines and rules applicable to any Intellectual Property, and
X.X. Xxxxx shall take all steps necessary to ensure such compliance until the
Effective Time.
3.14 TANGIBLE ASSETS. X.X. Xxxxx owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Schedule 3.14 of the X.X. Xxxxx Disclosure
Schedule lists all assets owned by X.X. Xxxxx that are in the possession of a
third party and provides the name, address and contact persons thereat.
3.15 INVENTORY.
(a) X.X. Xxxxx'x inventories consist, and on the Closing
Date will consist of X.X. Xxxxx'x items of quantity and quality historically
useable or saleable in the Ordinary Course of Business. X.X. Xxxxx'x inventories
in its balance sheet as of December 31, 2002 and in its books and records are in
accordance with GAAP, with inventory recorded on a FIFO basis.
(b) Schedule 3.15 of the X.X. Xxxxx Disclosure Schedule lists
the names of all purchasing agents and third party manufacturers from or through
whom X.X. Xxxxx has purchased more than $50,0000 in footwear and related
products or belts on an annual basis during the past two (2) fiscal years and
the current fiscal year and the volume of purchases made therefrom by X.X.
Xxxxx.
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(c) Section 3.15 of the X.X. Xxxxx Disclosure Schedule
sets forth a complete list of all third parties from whom X.X. Xxxxx has
purchased raw materials during the past two fiscal years and the current fiscal
year and the nature and volume of raw materials purchased from such supplier.
(d) X.X. Xxxxx has provided Parent with a true and
complete list of all pending purchase orders placed by it with factories that
manufacture its products or supply it with raw materials. X.X. Xxxxx has no
Basis for believing that any of its relationships with third party manufacturers
or suppliers of raw materials will not be continued by such parties after the
Effective Time.
3.16 CUSTOMERS; ACCOUNTS PAYABLE.
(a) X.X. Xxxxx has provided Parent with a list of all
pending customer orders, its current sales forecast and vendor orders production
schedules for each of its products. The sales forecast was prepared in good
faith on the basis of assumptions, methods and tests stated therein that are
believed by X.X. Xxxxx to be reasonable and information believed by X.X. Xxxxx
to have been accurate based upon the information available to X.X. Xxxxx as of
April 30, 2003.
(b) Section 3.16 of the X.X. Xxxxx Disclosure Schedule:
(i) .provides an accurate and complete breakdown
and aging of X.X. Xxxxx'x accounts payable as of April 30, 2003;
(ii) provides an accurate and complete breakdown
of all customer deposits and other deposits held as of April 30, 2003; and
(iii) A description of each arrangement in place
by X.X. Xxxxx with any of its customers with respect to products returns or
dating on the payment due for purchased product.
3.17 CONTRACTS. Section 3.17 of the X.X. Xxxxx Disclosure Schedule
lists the following contracts and other agreements to which X.X. Xxxxx is a
party:
(a) any agreement (or group of related agreements) for
the lease of personal property to or from any Person providing for lease
payments in excess of $20,000, or which cannot be terminated on thirty (30) days
notice to the other party without any penalty or termination payment of any
kind;
(b) any agreement (or group of related agreements) for
the purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, including, but
not limited to, all purchasing agent agreements, in each case involving more
than $20,000, or which cannot be terminated on thirty (30) days notice to the
other party without any penalty or termination payment of any kind;
(c) any agreement concerning a partnership or joint
venture;
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(d) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness for
Borrowed Money, or any capitalized lease obligation, or under which it has
imposed a Security Interest on any of its assets, tangible or intangible;
(e) any agreement concerning confidentiality or
non-competition;
(f) any agreement with any Affiliates;
(g) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on
a full-time, part-time, consulting, independent contracting or other Basis;
(j) any agreement under which it has advanced or loaned
any amount to any of its directors, officers, and employees;
(k) any agreement under which the consequences of a
default or termination could have an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of X.X. Xxxxx;
or
(l) any other agreement (or group of related agreements)
the performance of which involves consideration in excess of $20,000 or cannot
be terminated by X.X. Xxxxx on thirty (30) days or less notice to the other
party without any penalty or termination payment of any kind.
X.X. Xxxxx has delivered to Parent a correct and complete copy of each written
agreement (as amended to date) listed in Section 3.17 of the X.X. Xxxxx
Disclosure Schedule and a written summary setting forth the terms and conditions
of each oral agreement referred to in Section 3.17 of the X.X. Xxxxx Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the consummation
of the transactions contemplated hereby will not result in a default under or a
breach or termination of the agreement (or give rise to a right of termination
to the other party thereto) or otherwise affect its continued enforceability on
identical terms; (C) no party is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or default, or
permit termination, modification, or acceleration, under the agreement; and (D)
no party has repudiated any provision of the agreement.
3.18 NOTES AND ACCOUNTS RECEIVABLE. The accounts and notes
receivable reflected on X.X. Xxxxx'x balance sheet as of March 31, 2003 and
those reflected on its books and records arose from bona fide transactions in
the ordinary course of business. Section 3.18 of the X.X. Xxxxx Disclosure
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Schedule provides a breakdown and aging of X.X. Xxxxx'x accounts receivable
existing on April 30, 2003. All of X.X. Xxxxx'x accounts and notes receivable
(a) arose from the sale of X.X. Xxxxx Products which have been provided to the
account or note obligor, (b) constitute valid and enforceable claims free of any
right of offset, and (c) are collectible in accordance with their terms and
their recorded amounts, subject only to the reserve for bad debts and markdown
and return allowances set forth on X.X. Xxxxx'x balance sheet as of March 31,
2003, as adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of X.X. Xxxxx. The reserves for
uncollectibility set forth on X.X. Xxxxx'x balance sheet as of March 31, 2003
and in its books and records are computed in accordance with GAAP. To the
Knowledge of X.X. Xxxxx, there are no disputes regarding the collectibility of
any such accounts and notes receivable beyond those reflected in the reserves.
3.19 BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 3.19 of the X.X.
Xxxxx Disclosure Schedules sets forth (i) the names of all financial
institutions, investment banking and brokerage houses, and other similar
institutions at which X.X. Xxxxx maintains accounts, deposits, safe deposit
boxes of any nature, and the names of all persons authorized to draw thereon or
make withdrawals therefrom and a description of such accounts and (ii) all
outstanding powers of attorney executed on behalf of X.X. Xxxxx.
3.20 INSURANCE. Section 3.20 of the X.X. Xxxxx Disclosure Schedule
sets forth the following information with respect to each insurance policy
(including policies providing directors and officers, property, casualty,
liability, and workers' compensation coverage and bond and surety arrangements)
to which X.X. Xxxxx or any predecessor-in-interest has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past
five (5) years:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(c) the policy number and the period of coverage; and
(d) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other Basis) and amount (including
a description of how deductibles and ceilings are calculated and operate) of
coverage.
With respect to each insurance policy currently in effect: (A) the policy is
legal, valid, binding, enforceable, and in full force and effect; (B) the
consummation of the transactions contemplated hereby will not breach such policy
or affect its continued enforceability on identical terms; (C) neither X.X.
Xxxxx nor, to the Knowledge of X.X. Xxxxx, any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy and the consummation of the
transactions hereunder shall not give rise to any such termination, modification
or acceleration; and (D) no party to the policy has repudiated any provision
thereof. X.X. Xxxxx has been covered during
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the past five (5) years by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period. X.X. Xxxxx does not have in place any self-insurance arrangements.
3.21 LITIGATION. X.X. Xxxxx is not (a) subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (b) a party or, to the
Knowledge of X.X. Xxxxx, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator.
3.22 PRODUCT WARRANTY. Each product sold or delivered by X.X. Xxxxx
prior to Closing has been in conformity with all applicable contractual
commitments and all express and implied warranties, and X.X. Xxxxx has no
Liability (and to its Knowledge there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability) for replacement or
repair thereof or other damages in connection therewith, subject only to the
reserve for product warranty claims set forth on X.X. Xxxxx'x balance sheet as
of December 31, 2002 as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of X.X. Xxxxx. There are no
unresolved claims or threatened claims by any customer or other Person against
X.X. Xxxxx (a) under or based upon any warranty provided by or on behalf of X.X.
Xxxxx, or (b) under or based upon any other warranty relating to any product
sold by X.X. Xxxxx. No event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) directly or
indirectly give rise to or serve as a Basis for the assertion of any such claim.
No product sold or delivered by X.X. Xxxxx is subject to any guaranty, warranty,
or other indemnity beyond the applicable standard terms and conditions of sale.
Section 3.22 of the X.X. Xxxxx Disclosure Schedule includes copies of the
standard terms and conditions of sale for each X.X. Xxxxx product (containing
applicable warranty provisions).
3.23 PRODUCT LIABILITY. X.X. Xxxxx has no Liability (and to its
Knowledge there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product sold or
delivered by X.X. Xxxxx.
3.24 EMPLOYEES.
(a) Section 3.24 of the X.X. Xxxxx Disclosure Schedule
sets forth a list of the current employees, officers and directors of X.X.
Xxxxx. X.X. Xxxxx has previously delivered to Parent a complete and accurate
list of all current employees, officers and directors of X.X. Xxxxx that
includes their base salaries and bonus. Subject to the requirements of
applicable law and the Employment and Consulting Agreement to be entered into
with Xxxxxxxx Xxxxx, X.X. Xxxxx has no employment agreements or contractual
obligations to continue any employee's employment after the Effective Time.
Section 3.24 of the X.X. Xxxxx Disclosure Schedule identifies all employees who
are currently on leave for any reason or receiving disability or workers'
compensation or any other similar type of benefit from X.X. Xxxxx.
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(b) X.X. Xxxxx is not a party to or bound by any
collective bargaining agreement, and has not experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. X.X. Xxxxx has been in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including without limitation any
such applicable laws respecting employment discrimination and occupational
safety and health requirements, and has not committed any unfair labor practice.
None of the directors and officers (and employees with responsibility for
employment matters) of X.X. Xxxxx have any Knowledge of any organizational
effort presently being made or threatened by or on behalf of any labor union
with respect to employees of X.X. Xxxxx.
3.25 EMPLOYEE BENEFITS.
(a) Section 3.25 of the X.X. Xxxxx Disclosure Schedule
lists each Employee Benefit Plan and Benefit Arrangement that X.X. Xxxxx
maintains, to which X.X. Xxxxx contributes or has any obligation to contribute,
or with respect to which X.X. Xxxxx has any Liability or potential Liability.
(b) Each such Employee Benefit Plan and Benefit
Arrangement (and each related trust, insurance contract, or fund) has been
maintained, funded and administered in accordance with the terms thereof, and
the terms of any applicable collective bargaining agreement and complies in form
and in operation in all respects with the applicable requirements of ERISA, the
Code, and other applicable laws.
(c) All required forms, notices, reports and descriptions
(including annual reports (IRS Form 5500), summary annual reports, and summary
plan descriptions) have been timely filed and/or distributed in accordance with
the applicable requirements of ERISA and the Code with respect to each such
Employee Benefit Plan and Benefit Arrangement. The requirements of COBRA have
been met with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan subject to COBRA.
(d) All contributions (including all employer
contributions and employee salary reduction and employee after-tax
contributions) which are due have been made within the time periods prescribed
by ERISA and the Code to each such Employee Benefit Plan and all contributions
for any period ending on or before the Closing Date which are not yet due have
been made to each such Employee Benefit Plan or accrued in accordance with the
past custom and practice of X.X. Xxxxx. All insurance premiums or other payments
for all periods ending on or before the Closing Date have been paid with respect
to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(e) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and is intended to be a "qualified plan" under Code Section
401(a) has received a determination from the Internal Revenue Service that such
Employee Benefit Plan is so qualified, and nothing has occurred since the date
of such determination that could adversely affect the qualified status of any
such Employee Pension Benefit Plan.
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(f) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan equals or exceeds the
present value of all vested and nonvested Liabilities thereunder.
(g) X.X. Xxxxx has delivered to Phoenix Footwear correct
and complete copies of the plan documents and summary plan descriptions, the
most recent determination letter received from the Internal Revenue Service, the
most recent annual report (IRS Form 5500, with all applicable attachments), and
all related trust agreements, insurance contracts, and other funding
arrangements which implement each such Employee Benefit Plan and Benefit
Arrangement.
(h) No provision of any such Employee Benefit Plan or
Benefit Arrangement or any amendment thereto, in any way limits the sponsoring
employer's right to terminate such Employee Benefit Plan or Benefit Arrangement,
except to the extent necessary to comply with the requirements of Code Section
411(d) and related regulations.
(i) There has been no amendment to any such Employee
Benefit Plan or Benefit Arrangement which could materially increase the expense
of maintaining such Employee Benefit Plan or Benefit Arrangement above the level
of the expense incurred in respect thereof for the year ended December 31, 2002,
and to the Knowledge of X.X. Xxxxx there is no other event or condition which
could result in such an increase in expense.
(j) X.X. Xxxxx does not maintain, contribute to or have
an obligation to contribute to, or have any Liability or potential Liability
with respect to, any Employee Welfare Benefit Plan providing medical, health or
life insurance or other welfare-type benefits for current or future retired or
terminated directors, officers or employees of X.X. Xxxxx and its Subsidiaries
(or any spouse or other dependent thereof) other than in accordance with COBRA.
(k) No such Employee Benefit Plan which is an Employee
Benefit Pension Plan has been completely or partially terminated or been the
subject of a Reportable Event.
(l) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such Employee Benefit
Plan. There is no outstanding judgment, decree, injunction or order of any
court, Governmental Entity or arbitrator against or affecting any such Employee
Benefit Plan or Benefit Arrangement, any fiduciary thereof or assets of related
any trust, insurance or annuity contract thereunder. There is no action, suit,
proceeding, hearing or investigation pending, threatened against or relating to
any such Employee Benefit Plan or Benefit Arrangement, any fiduciary thereof, or
the assets of any related trust, insurance or annuity contract. To the Knowledge
of X.X. Xxxxx, there is no Basis for any such action, suit, proceeding, hearing,
or investigation.
(m) Neither X.X. Xxxxx nor any of its ERISA Affiliates
contributes to, has any obligation to contribute to, or has any Liability or
potential Liability with respect to, any Defined Benefit Pension Plan.
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(n) Neither X.X. Xxxxx nor any of it ERISA Affiliates has
incurred, and none of the directors and officers (and employees with
responsibility for employee benefit matters) of X.X. Xxxxx or any of its ERISA
Affiliates has any reason to believe that X.X. Xxxxx or any of its Subsidiaries
or ERISA Affiliates will or could incur, any Liability under Title IV of ERISA
(including any withdrawal liability as defined in ERISA Section 4201).
3.26 GUARANTIES. X.X. Xxxxx is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any other
Person.
3.27 ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(a) X.X. Xxxxx has complied and is in compliance with all
Environmental, Health, and Safety Requirements, except where the failure to
comply will not have a Material Adverse Effect with respect to X.X. Xxxxx.
(b) Without limiting the generality of the foregoing, and
to its Knowledge, X.X. Xxxxx has obtained and complied with, and is in
compliance with, all permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business; a list of all
such permits, licenses and other authorizations is set forth on the attached
"ENVIRONMENTAL AND SAFETY PERMITS SCHEDULE."
(c) X.X. Xxxxx has not received any written notice,
report or other information alleging X.X. Xxxxx'x violation of Environmental,
Health, and Safety Requirements, or any liabilities or potential liabilities of
X.X. Xxxxx (whether accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations, relating to any
of its facilities arising under Environmental, Health, and Safety Requirements.
(d) To the Knowledge of X.X. Xxxxx, none of the following
exists at any property or facility operated by X.X. Xxxxx: (i) underground
storage tanks, (ii) asbestos-containing material in any form or condition, (iii)
materials or equipment containing polychlorinated biphenyls, or (iv) landfills,
surface impoundments, or disposal areas.
(e) X.X. Xxxxx has not treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled, or released any
substance, regulated by Environmental, Health and Safety Requirements,
including, without limitation, any hazardous substance, or owned or operated any
property or facility (and no such property or facility is, to the Knowledge of
X.X. Xxxxx, contaminated by any such substance) in a manner that, to the
Knowledge of X.X. Xxxxx, has given rise to liabilities, including any liability
for response costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA") or any other
Environmental, Health, and Safety Requirements.
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(f) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in any obligations
for site investigation or cleanup, or notification to or consent of Governmental
Entities or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental, Health
and Safety Requirements.
(g) Neither X.X. Xxxxx, nor any of its respective
predecessors or Affiliates has, either expressly or by operation of law assumed
or undertaken any liability, including, without limitation, any obligation for
corrective or remedial action, of any other Person arising under Environmental,
Health and Safety Requirements.
(h) No facts, events or conditions relating to the past
or present facilities, properties or operations of X.X. Xxxxx violate any
Environmental, Health and Safety Requirements, or give rise to any
investigatory, remedial or corrective obligations pursuant to Environmental,
Health, and Safety Requirements, or give rise to any other liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise) pursuant to
Environmental, Health, and Safety Requirements, including without limitation any
relating to onsite or offsite releases or threatened releases of hazardous
materials, substances or wastes, personal injury, property damage or natural
resources damage.
3.28 X.X. XXXXX DISCLOSURE INFORMATION None of the information
regarding X.X. Xxxxx supplied or to be supplied by X.X. Xxxxx for inclusion in
(a) the Offer Documents and, (b) any information relating to X.X. Xxxxx in the
Offering Memorandum/Proxy Statement to be mailed by X.X. Xxxxx to its
stockholders in connection with the X.X. Xxxxx Special Stockholders Meeting
will, at the at the time of distribution to X.X. Xxxxx stockholders or in the
case of the Offering Memorandum/Proxy Statement at the time of the X.X. Xxxxx
Special Stockholders Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for such meeting; provided, however, that, X.X. Xxxxx makes no
representation or warranty with respect to any information that Parent will
supply specifically for use in the Offer Documents and Offering Memorandum/Proxy
Statement.
3.29 CERTAIN BUSINESS RELATIONSHIPS WITH X.X. XXXXX. No X.X. Xxxxx
Affiliate has been involved in any business arrangement or relationship with
X.X. Xxxxx within the past twelve (12) months, and none of such Affiliates own
any asset, tangible or intangible, which is used in the business of X.X. Xxxxx.
3.30 NO TARIFFS OR DUTIES. X.X. Xxxxx'x payment of all tariffs and
duties is current in all jurisdictions, and X.X. Xxxxx does not owe any tariffs
or duties other than those incurred in the Ordinary Course of Business (i) under
any trade agreements; and (ii) to the U.S. Customs Service.
3.31 CHARTER PROVISIONS. The entering into of this Agreement and
the consummation of the Merger and the other transactions contemplated by this
Agreement do not and will not result in the grant of any rights to any Person
under the Articles of Incorporation or By-Laws of X.X. Xxxxx or restrict or
impair the ability of Parent to vote, or otherwise to exercise the rights of a
stockholder
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with respect to, shares of X.X. Xxxxx capital stock that may be acquired or
controlled by it pursuant to the Offer.
3.32 BROKERS' FEES. X.X. Xxxxx has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
3.33 DISCLOSURE. Neither the representations and warranties
contained in this Article III and the X.X. Xxxxx Disclosure Schedules nor any of
the certificates to be delivered by X.X. Xxxxx to Parent and/or Purchaser
hereunder at Closing, taken together contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements and information contained herein and therein, in light of the
circumstances under which such statements were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF PARENT AND PURCHASER
Each of Parent and Purchaser represents and warrants to X.X. Xxxxx that
the statements contained in this Article IV are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article IV), except as specifically set
forth in the Parent SEC Documents.
4.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
Purchaser is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Montana. Each of Parent and Purchaser is
duly authorized to conduct business and is in good standing under the laws of
each jurisdiction where such qualification is required, except such
jurisdictions where the failure to be so qualified would not have a Material
Adverse Effect on such Party. Each of Parent and Purchaser has full corporate
power and authority and all licenses, permits, and authorizations necessary to
carry on the businesses in which it is engaged, and to own and use the
properties owned and used by it.
4.2 PARENT CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock
of Parent consists of (i) 500,000 shares of preferred stock, $.01 par value per
share, of which no shares are outstanding; and (ii) 50,000,000 shares of common
stock, $.01 par value per share, of which 4,286,442 shares are issued and
outstanding, including 829,249 shares of common stock held by the co-trustees of
the Phoenix Footwear 401(k) Plan. In addition, as of the date hereof, Parent has
1,082,500 shares of common stock authorized for issuance pursuant to its stock
option plan, of which 483,656 shares will be reserved for options that are
outstanding as of May 31, 2003. As of the date hereof, Parent also has another
400,000 shares of common stock reserved for issuance pursuant to out-of-plan
options to acquire shares of Parent's common stock outstanding. All of the
outstanding shares of capital stock of Parent have been duly and validly
authorized and issued and are fully paid and non-assessable.
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(b) The Parent Shares to be issued by virtue of the
Merger, when issued and delivered in accordance with the terms of this
Agreement, will be duly authorized, validly issued, fully paid, and
nonassessable, in compliance with the AMEX listing requirements and (subject to
X.X. Xxxxx'x compliance with Section 5.5 and the truth and accuracy of all
statements made in Investment Representation Letters received from all holders
of X.X. Xxxxx Common Shares receiving Parent Shares hereunder) with all
Securities Laws, free and clear of all liens, claims and encumbrances, including
rights of first refusal, pre-emptive rights and other similar claims. When
registered under the Securities Act pursuant to Section 5.16 hereof, the Parent
Shares will be freely tradable without limitations by the Former X.X. Xxxxx
Stockholders in the public markets, other than any limitation that may apply to
the Affiliates of X.X. Xxxxx pursuant to Rule 145 under the Securities Act and
during Blackout Periods. Neither Parent nor Purchaser makes any representation
as to the market price which the holders of X.X. Xxxxx capital stock will
realize upon the ultimate disposition of the Parent Shares, it being
acknowledged that the market price of publicly traded securities will be
affected by many factors which are outside the control of Parent and as to which
it can offer no assurance.
4.3 AUTHORIZATION OF TRANSACTION. Each of Parent and Purchaser has
full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder.
Each of this Agreement and the other agreements contemplated hereby to which
Parent and/or Purchaser is a party constitutes the valid and legally binding
obligation of each of Parent and Purchaser, as the case may be, enforceable in
accordance with its terms and conditions.
4.4 NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (a) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
Governmental Entity, or court to which either Parent or Purchaser is subject or
any provision of the charter or bylaws of either Parent or Purchaser or (b)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which either Parent or Purchaser is a party
or by which it is bound or to which any of its assets is subject which have not
already been obtained, or except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
would not have a Material Adverse Effect on the ability of Parent or Purchaser
to consummate the transactions contemplated by this Agreement and the consent
and approval of Parent's lender. Other than in connection with the provisions of
the MBCA, the Securities Laws, the state securities laws and the AMEX
requirements, neither Parent nor Purchaser needs to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any Government
Entity in order for the Parties to consummate the transactions contemplated by
this Agreement.
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4.5 SEC FILINGS. As used herein the term "PARENT SEC DOCUMENTS"
means collectively the all reports, proxy statements or registration statements
filed by Parent with the SEC under the Securities Act and the Securities
Exchange Act (collectively, the "SECURITIES LAWS") subsequent to December 31,
2002. As of their respective dates, or if amended, as of the date of the last
such amendment, the Parent SEC Documents complied in all material respects, with
the requirements of the Securities Act or the Securities Exchange Act, as the
case may be, and none of the Parent SEC Documents contained when filed any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made not misleading and did not
at the time they were filed omit any documents required to be filed as exhibits
thereto, in all cases except to the extent corrected by a document subsequently
filed with the SEC. The Parent SEC Documents constitute all the reports and
documents that Parent was required to file with the SEC during the period
between December 31, 2002 and ending on the date hereof. All documents required
to be filed by Parent with the SEC after the date hereof and prior to the
Effective Time (the "SUBSEQUENT PHOENIX FOOTWEAR SEC DOCUMENTS") will comply in
all material respects with the applicable requirements of the Securities Laws,
and the Subsequent Phoenix Footwear SEC Documents (including any and all
financial statements included therein) will not contain, when filed, any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, in all cases except to
the extent corrected by a document subsequently filed with the SEC.
4.6 PARENT FINANCIAL STATEMENTS. The consolidated financial
statements of Parent included in the Parent SEC Documents (the "PARENT FINANCIAL
STATEMENTS") fairly presented the consolidated financial position of Parent and
its consolidated subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the respective periods then ended and have been prepared in conformity with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto). Since December 31, 2002, Parent has
not made any change in the accounting practices or policies applied in the
preparation of its financial statements, except as have been required by GAAP.
4.7 BROKERS' FEES. Neither Parent nor Purchaser has any liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which X.X.
Xxxxx could become liable or obligated.
4.8 DISCLOSURE. Neither the representations and warranties
contained in this Article IV and the Phoenix Footwear Disclosure Schedules nor
any of the certificates to be delivered by Parent or Purchaser to X.X. Xxxxx
hereunder at Closing, taken together contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements and information contained herein and therein, in light of the
circumstances under which such statements were made, not misleading.
4.9 PARENT/PURCHASER DISCLOSURE INFORMATION. None of the
information regarding Parent or Purchaser supplied or to be supplied by Parent
or Purchaser for inclusion in (a) the Offer
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Documents and (b) any information relating to Parent or Purchaser in the
Offering Memorandum/Proxy Statement to be mailed by X.X. Xxxxx to its
stockholders in connection with the X.X. Xxxxx Special Stockholders Meeting
will, at the time of distribution to X.X. Xxxxx stockholders or at the time of
the X.X. Xxxxx Special Stockholders Meeting, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
any proxy for such meeting; provided, however, that Parent or Purchaser makes no
representation or warranty with respect to any information that X.X. Xxxxx will
supply specifically for use in the Offer Documents and Offering Memorandum/Proxy
Statement.
4.10 TAX MATTERS. Neither Parent nor Purchaser have taken or agreed
to take any action, nor does the Parent have any Knowledge of any fact or
circumstance involving Parent and Purchaser, that would prevent the Merger and
the other transactions contemplated by this Agreement from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code and the
Treasury Regulations promulgated thereunder; provided, however, that Parent does
from time to time repurchase shares of its common stock in the open market
pursuant to stock repurchase programs.
ARTICLE V
COVENANTS
The Parties agree as follows with respect to the period from and after
the execution of this Agreement.
5.1 GENERAL. Each of the Parties will use all reasonable efforts
to take all action and to do all things necessary in order to consummate and
make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of their respective closing conditions set forth
in Article VI below).
5.2 NOTICES AND CONSENTS. X.X. Xxxxx will give any notices to
third parties, and will use all reasonable efforts to obtain any consents,
waivers, permits, approvals or authorizations from third parties that are
necessary to consummate the transactions hereby or which are necessary to avoid
the breach, default under or termination of any agreement to which X.X. Xxxxx is
a party that would result from the consummation of the transactions hereunder.
5.3 REGULATORY MATTERS AND APPROVALS. Each of the Parties will
give any notices to, make any filings with, and use all reasonable efforts to
obtain any authorizations, consents, and approvals of governments and
Governmental Entities in connection with the matters referred to in Section 3.5
and Section 4.4 above.
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5.4 X.X. XXXXX SPECIAL STOCKHOLDERS' MEETING.
(a) As soon as reasonably practicable after the date
hereof, X.X. Xxxxx shall take all the actions necessary to call, give notice of,
convene and duly hold a X.X. Xxxxx Special Stockholders Meeting of its
stockholders in compliance with X.X. Xxxxx'x Articles of Incorporation and
By-Laws and the MBCA (the "X.X. XXXXX SPECIAL STOCKHOLDERS MEETING"), in order
that the X.X. Xxxxx stockholders may (i) consider the Offer and the Merger and
vote upon the adoption and approval of the Merger and this Agreement and (ii)
consider and vote upon the adoption of an amendment to Article III, paragraph 4
of H.S in a manner satisfactory to Parent and Purchaser (the "ARTICLES
AMENDMENT"). The X.X. Xxxxx Special Stockholders Meeting will be held as
promptly as practicable after the date hereof.
(b) The Parties hereto acknowledge that the Parent Shares
issued to the holders of the X.X. Xxxxx Common Shares pursuant to this Agreement
are intended to be issued pursuant to the "private placement" exemption from
registration under Rule 506 of the Securities Act, and agree to reasonably
cooperate with Parent in its efforts to ensure that the Parent Shares may be
issued pursuant to such private placement exemption.
(c) Notwithstanding the foregoing and anything to the
contrary herein, in the event that prior to the solicitation of votes or
consents from X.X. Xxxxx'x stockholders to approve the Merger, Parent, based on
advice of its counsel, has determined that the Parent Shares to be issued
pursuant to this Agreement cannot be issued under the "private placement"
exemption from registration under the Securities Act, then at Parent's election
(i) the parties hereto shall take all action necessary to promptly prepare and
file a registration statement on Form S-4 with the SEC which registers the
issuance of the Parent Shares to the holders of X.X. Xxxxx Common Shares
pursuant to this Agreement and (ii) the dates in Sections 7.1(b)(iii) and
(c)(ii) hereof shall be appropriately adjusted, but in no event be later than
December 31, 2003 without the written consent of the Stockholder Representative.
Parent and the Company shall use, and shall cause their officers, employees,
agents, advisors or other representatives to use, their respective reasonable
efforts to effectuate the foregoing (and fully cooperate with the other
parties), including, without limitation, preparing and filing all necessary
applications, documents and forms to register the Parent Shares on an effective
registration statement on Form S-4.
5.5 OFFERING MEMORANDUM/PROXY STATEMENT.
(a) As promptly as reasonably practicable following the
execution of this Agreement, Parent and X.X. Xxxxx shall jointly prepare
appropriate materials for the purpose of making disclosure of the Merger to and
soliciting proxies from the stockholders of Parent in favor of the adoption of
this Agreement and approval of the Merger. Such materials shall be in the form
of a joint confidential offering memorandum and proxy statement (the "OFFERING
MEMORANDUM/PROXY STATEMENT") which shall contain the information concerning
Parent, Purchaser and X.X. Xxxxx required under Regulation D (including, without
limitation, Rule 502(b)(2) thereof) and a form of proxy to be solicited from the
stockholders of X.X. Xxxxx in favor of the approval of the Merger and adoption
of this Agreement.
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(b) Promptly following preparation of the Offering
Memorandum/Proxy Statement and prior to the X.X. Xxxxx Special Stockholders
Meeting, X.X. Xxxxx will distribute to each X.X. Xxxxx stockholder the Offering
Memorandum/Proxy Statement (which may include by reference, the Parent SEC
Reports and other materials filed by Parent under the Securities Exchange Act if
also sent to the X.X. Xxxxx stockholders) and shall solicit from the X.X. Xxxxx
stockholders such instruments and documents (including, without limitation,
investment representations) as shall be required for the offering and sale of
the Parent Shares to be exempt from the registration requirements of the
Securities Act pursuant to Rule 506 of Regulation D.
(c) X.X. Xxxxx shall comply with all applicable
provisions of and rules under the Securities Act and the MBCA in the preparation
and distribution of the Offering Memorandum/Information Statement and the
solicitation of proxies pursuant thereto.
(d) Parent shall comply with all applicable provisions of
and rules under the Securities Act and the MBCA in the preparation and
distribution of the Offering Memorandum/Proxy Statement and the offering and
issuance of the Parent Shares.
(e) X.X. Xxxxx, acting through its Board of Directors,
shall include in the Offering Memorandum/Proxy Statement the recommendation of
its Board of Directors that X.X. Xxxxx stockholders vote in favor of the
adoption of this Agreement and the approval of the Merger, and shall otherwise
use reasonable efforts to obtain the requisite approval of the X.X. Xxxxx
stockholders.
5.6 OPERATION OF BUSINESS. From the date hereof until the
Effective Time:
(a) X.X. Xxxxx shall:
(i) .maintain its existence in good standing;
(ii) maintain the character of its business and
properties and conduct its business in the ordinary and usual manner consistent
with past practices, except as expressly permitted by this Agreement and comply
with all applicable laws, rules and regulations;
(iii) maintain business and accounting records
consistent with past practices; and
(iv) use its reasonable efforts (A) to preserve
its business intact, including, but not limited to, maintaining all equipment
and product molds and preserving all other assets, brands and technology, (B) to
keep available to it the services of its present officers, employees, sales
representatives and distributors and (C) to preserve for it the relationship
with and goodwill of its manufacturers, foreign agents, suppliers, distributors,
sales representatives, licensors, licensees, creditors, lessors, customers and
others having material business relations with it.
(b) X.X. Xxxxx will not engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of Business.
Without limiting the generality of the foregoing, X.X. Xxxxx will not:
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(i) .authorize or effect any change in its
Articles of Incorporation or By-Laws;
(ii) (A) issue, deliver, award, grant or sell, or
authorize or propose the issuance, delivery, award, grant or sale (including the
grant of any Security Interests, liens, claims, pledges, limitations in voting
rights, charges or other encumbrances) of, any shares of any class of its
capital stock (including shares held in treasury), any securities convertible
into or exercisable or exchangeable for any such shares, or any rights, warrants
or options to acquire any such shares or make any changes, modifications or
amendments to any existing on the date hereof; (B) amend or otherwise modify the
terms of any rights, warrants, options or conversion rights to acquire capital
stock, except as contemplated hereby; or (C) take any action to accelerate the
exercisability of stock options or warrants;
(iii) declare, set aside, or pay any dividend or
distribution with respect to X.X. Xxxxx capital stock (whether in cash, stock or
in kind) (except for dividends from a subsidiary to a parent), or reclassify,
combine, split or subdivide any of its capital stock;
(iv) (A) redeem, purchase or otherwise acquire
any shares of its capital stock or any securities or obligations convertible
into or exchangeable for any shares of its capital stock, or any options,
warrants or conversion or other rights to acquire any shares of its or any such
securities or obligations (except in connection with the exercise of outstanding
stock options or warrants in accordance with their terms); (B) effect any
reorganization or recapitalization; or (C) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock;
(v) .issue any note, bond, or other debt
securities or create, incur, assume, guarantee, endorse, become responsible for,
modify or fail to make payments with respect to any indebtedness of any kind,
whether direct or indirect, contingent or otherwise, except that X.X. Xxxxx may
(A) make borrowings under its existing line of credit in the Ordinary Course of
Business, (B) issue Letters of Credit in the Ordinary Course of Business and (C)
create or permit to exist accounts payable in the Ordinary Course of Business;
(vi) impose any Security Interest upon any of its
assets;
(vii) make any capital investment in, make any
loan to any other Person;
(viii) acquire or agree to acquire by purchasing
any equity interest in or a portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets of any other Person (other than pursuant to this Agreement, and the
purchase of assets from suppliers or vendors and the acceptance of returned
products all in the Ordinary Course of Business);
(ix) sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose
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of, or agree to sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, any of its assets or any interest therein (other than the sale of
inventory in the Ordinary Course of Business);
(x) .sell, assign, transfer, license or
sublicense (other than in the Ordinary Course of Business and consistent with
past practice), pledge or otherwise encumber any of the Intellectual Property
rights or permit to expire, lapse or be terminated any license agreement;
(xi) change its fiscal year, revalue any of its
assets or, except as required by GAAP, take any action to change in any respect
its accounting, Tax or financial methods, policies, practices or procedures
(including, without limitation, with respect to customer service, pricing
products, inventory management, product returns or warranties, payment of
accounts payable and the creation and collection of accounts receivables);
(xii) adopt, effect or engage in a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization;
(xiii) increase the compensation payable or to
become payable to its officers or employees, or grant any severance or
termination pay to, or enter into any severance agreement with any director,
officer or other employee of X.X. Xxxxx, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option (including changing the exercise price of any outstanding stock
options), restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other Employee Benefit Plan or Benefit
Arrangement, or any related agreement, trust, fund, policy or arrangement,
except that (A) X.X. Xxxxx and its Subsidiaries may make reasonable salary
increases in connection with the customary officer and employee performance
review process and pay customary bonuses consistent with past practice, and (B)
X.X. Xxxxx may make any amendments to any existing Employee Benefit Plan or
Benefit Arrangement to the extent necessary to maintain its compliance with
applicable laws.
(xiv) make any other change in employment terms
for any of its directors, officers or employees;
(xv) make any changes in or terminate any
license, sales representation or distribution agreements;
(xvi) adopt any shareholder rights plan;
(xvii) create any Subsidiary;
(xviii) settle or compromise any claims or
litigation or modify, amend or terminate any of its material contracts or waive,
release or assign any material rights or claims;
(xix) permit any insurance policy naming it as a
beneficiary or loss-payable payee to be cancelled or terminated except in the
Ordinary Course of Business; or
(xx) authorize, commit or agree to any of the
foregoing.
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5.7 FULL ACCESS. Between the date of this Agreement and the
Effective Time, X.X. Xxxxx will provide Parent and its accountants, counsel and
other authorized representatives full access, during reasonable business hours
and under reasonable circumstances to any and all of X.X. Xxxxx'x premises,
properties, contracts, commitments, books, records and other information
(including tax returns filed and those in preparation) and will cause its
respective officers and employees to furnish to Parent and its authorized
representatives any and all financial, technical and operating data and other
information pertaining to X.X. Xxxxx'x business, as Parent shall from time to
time reasonably request.
5.8 NOTICE OF DEVELOPMENTS. Each Party will give prompt written
notice to the others of any material adverse development causing a breach of any
of its own representations and warranties in Article III and Article IV above.
No disclosure by any Party pursuant to this Section 5.8, however, shall be
deemed to amend or supplement its disclosure schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
5.9 EXCLUSIVITY. X.X. Xxxxx shall not, nor will it permit any of
its officers, directors, employees, financial advisors, brokers, stockholders or
any person acting on its behalf, to solicit, initiate, encourage, discuss,
negotiate or cause to be solicited, initiated, encouraged, discussed or
negotiated on behalf of X.X. Xxxxx or its stockholders, any acquisition of X.X.
Xxxxx or any portion of its business, or all or a material portion of its assets
or any equity interest in X.X. Xxxxx, in all cases whether through purchase,
merger, consolidation, or other business combination (each a "COMPETING
ACQUISITION PROPOSAL") or enter into any understanding, letter of intent or
agreement with respect to any Competing Acquisition Proposal. Notwithstanding
the foregoing, to the extent required by the fiduciary duties of its directors
under the MBCA, X.X. Xxxxx may furnish information to, and negotiate or
otherwise engage in discussions with, any party (a "THIRD PARTY") who (i)
delivers after the date of this Agreement to X.X. Xxxxx a bona fide written
Competing Acquisition Proposal which was not solicited or initiated by X.X.
Xxxxx or its officers, directors, employees, financial advisors, brokers,
stockholders or any person acting on its behalf, directly or indirectly and (ii)
enters into an appropriate confidentiality agreement with it (which shall
specifically provide that X.X. Xxxxx may make disclosures required hereunder to
Parent and Purchaser), if, but only if, its Board of Directors determines in
good faith by a majority vote that such proposal could reasonably be expected to
lead to a transaction that X.X. Xxxxx'x Board of Directors reasonably
determines, in the exercise of its fiduciary duty, is more favorable to it and
its stockholders than the Merger (a "SUPERIOR TRANSACTION"). X.X. Xxxxx shall
promptly (i) notify Parent and the Purchaser immediately if any Person makes a
Competing Acquisition Proposal or inquiry or contact with respect to the
possibility of submitting a Competing Acquisition Proposal and (ii) provide
Parent and Purchaser with all information that is receives concerning the
Competing Acquisition Proposal and the Person submitting it, including copies of
any term sheet, letter of intent or acquisition agreement subject to any
applicable confidentiality obligations.
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5.10 INSURANCE AND INDEMNIFICATION.
(a) Parent will provide each individual who served as a
director or officer of X.X. Xxxxx at any time prior to the Effective Time with
liability insurance for a period of twenty-four (24) months after the Effective
Time no less favorable in coverage and amount than any applicable insurance in
effect immediately prior to the Effective Time. Prior to the Effective time,
X.X. Xxxxx shall not terminate its current directors and officers policy or take
any action that would intentionally prevent Parent and Purchaser from acquiring
tail coverage on such policy.
(b) Parent will not take any action to alter or impair
any exculpatory or indemnification provisions now existing in the Articles of
Incorporation or By-Laws of X.X. Xxxxx for the benefit of any individual who
served as a director or officer of X.X. Xxxxx at any time prior to the Effective
Time.
5.11 XXXXXXXX XXXXX EMPLOYMENT AND CONSULTING AGREEMENT AND
NON-COMPETE AGREEMENT. At the Closing, Parent shall cause the Surviving
Corporation to enter into, and X.X. Xxxxx will cause Xxxxxxxx X. Xxxxx to enter
into, an Employment and Consulting Agreement (the "EMPLOYMENT AGREEMENT") and a
Non-Compete Agreement (the "NON-COMPETE AGREEMENT") in the forms attached hereto
as EXHIBIT D and EXHIBIT E, respectively.
5.12 PAYMENT AND DISCHARGE OF BORROWED MONEY. At or prior to the
time of the Closing, Parent agrees to pay in full (or cause Surviving
Corporation to assume) all outstanding liabilities under X.X. Xxxxx'x $3,000,000
Business Loan Agreement (Asset Based) with American Bank of Montana dated April
30, 2003 and cause the Bank to release and discharge all personal guaranties
related thereto.
5.13 TAKEOVER LAWS. If any state, federal or other takeover statute
becomes or is deemed to become applicable to the Agreement (each a "TAKEOVER
LAW"), the acquisition of X.X. Xxxxx Shares pursuant to the Merger or the other
transactions contemplated hereunder, then X.X. Xxxxx shall use commercially
reasonable efforts necessary to render such statute inapplicable to all of the
foregoing.
5.14 LIMITED CONTINUATION OF EMPLOYEE BENEFIT PLANS AND BENEFIT
ARRANGEMENTS. The Surviving Corporation shall maintain all X.X. Xxxxx Employee
Benefit Plans and Benefit Arrangements through December 31, 2003 with respect to
all employees of the Surviving Corporation who continue to be employed by the
Surviving Corporation.
5.15 PUBLIC ANNOUNCEMENTS. None of the parties shall issue any
press release or any public announcements with respect to the transactions
contemplated hereby unless the press release or public announcement is mutually
agreed upon by the Parties, unless, however, Parent determines that it is
otherwise required by applicable law or obligations pursuant to any rules of
AMEX to issue a press release or make a public filing concerning the
transactions contemplated hereby in which case it will provide X.X. Xxxxx with a
reasonable opportunity to review and comment on such disclosure prior to its
dissemination.
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5.16 POST-CLOSING PARENT REGISTRATION STATEMENT.
(a) On or before the forty-fifth (45th) date after the
Effective Time (subject to such extensions as may be necessary in order to
obtain any consent required from X.X. Xxxxx'x auditors for inclusion in the
Registration Statement and to resolve any other issues concerning X.X. Xxxxx'x
financial statements to be included in the Registration Statement as determined
in good faith by Phoenix Footwear's independent public auditors), Parent shall
file, and shall use its reasonable efforts to have declared effective as
promptly as practicable thereafter, a "shelf" registration statement (the
"REGISTRATION STATEMENT") (or such successor or other appropriate form) pursuant
to Rule 415 (or similar rule that may be adopted by the SEC under the Securities
Act) for the resale of the Registrable Shares. Except as set forth below, Parent
agrees to use its commercially reasonable efforts to keep the Registration
Statement effective for a period of one year after the Effective Time, plus the
amount of any Blackout Periods that are in effect during such one year period,
or, if shorter, when (i) all the Registrable Shares have been sold pursuant to
the Registration Statement or (ii) the first date on which each Holder may sell
all of the Registrable Shares held by such Holder without registration pursuant
to Rule 144 of the SEC within a three (3) month period.
(b) Parent shall use its reasonable efforts to qualify
all Registrable Shares under any applicable state securities laws; provided,
however, that Parent shall not be required to qualify as a foreign corporation
or execute a general consent to service of process in any jurisdiction.
(c) From time to time, Parent will amend or supplement
the Registration Statement and any prospectus contained therein to the extent
necessary to comply with the Securities Act and any applicable state securities
statute or regulations. Parent will also promptly provide the Holders with as
many copies of the prospectus contained in the Registration Statement as the
Holders may reasonably request.
(d) On two (2) occasions commencing on the thirty-first
(31st) day after the effectiveness of the Registration Statement, Parent shall
be entitled to (i) postpone the effectiveness of the Registration Statement or
(ii) if effective, elect that the Registration Statement not be usable and
require each holder of Registerable Shares (each a "HOLDER") seeking to sell
Registrable Shares pursuant to the Registration Statement to suspend sales or
purchases pursuant to any prospectus contained therein, for a reasonable period
of time (a "BLACKOUT PERIOD") , but not in excess of thirty (30) days, if the
Board of Directors of Parent reasonably and in good faith determines that the
registration and distribution of Registrable Shares (or the use of the
Registration Statement or any related prospectus) would interfere with any
pending acquisition, corporate reorganization or any other material corporate
development involving Parent or any of its subsidiaries or would require
premature disclosure thereof. If circumstances beyond the control of Parent
require a Black-Out Period, Parent agrees to use its reasonable efforts to (A)
cause such filings to be made or the registration statement to be declared
effective and/or to (B) lift such suspension as soon as possible after the
commencement of a Black-Out Period. Parent shall promptly give each Holder
seeking to sell or purchase Registrable Shares pursuant to the Registration
Statement written notice of such determination and an approximation of the
anticipated delay.
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(e) Each Holder seeking to sell Registrable Shares
pursuant to the Registration Statement shall provide in writing all information
relating to such Holder reasonably requested by Parent for inclusion in the
Registration Statement and any such information shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(f) Parent shall bear all costs and expenses of the
registration provided for in this Section 5.16, including, but not limited to,
printing, legal and accounting expenses, SEC and NASD filing fees and all
related "Blue Sky" fees and expenses, provided, however, that Parent shall have
no obligation to pay or otherwise bear any portion of the underwriters' or other
commissions or discounts or brokerage fees or commissions, attributable to the
Registrable Shares being offered and sold by the Holders or any attorneys' fees,
except that the Surviving Corporation will pay the expenses of one counsel to
represent the Holders in the preparation and review of the Registration
Statement in an amount not to exceed $15,000 for actual hours expended and
documented.
(g) So long as the Registration Statement is effective
covering the resale of the Registrable Shares, Parent shall file in a timely
manner all documents that Parent is required to file under the Securities
Exchange Act and shall furnish to each Holder upon request: (i) any such
documents filed by Parent with the SEC; (ii) upon the reasonable request of the
Holder, any other information concerning Parent that is generally available to
the public; and (iii) an adequate number of copies of the prospectuses relating
to the resale of the Registrable Shares to supply to any party requiring such
prospectuses.
5.17 LISTING ON AMEX. Prior to the initial effectiveness of the
Registration Statement, Parent shall cause all of the Parent Shares to be issued
in connection with the Merger to be listed with AMEX.
5.18 CONFIDENTIALITY. Except as may be required by applicable law
or legal process, and except for such disclosure to those of its directors,
officers, employees and representatives as may be appropriate or required in
connection with the transactions contemplated hereby, each Party shall hold in
confidence all nonpublic information obtained from the other Party (including
work papers and other material derived therefrom) as a result of this Agreement
or in connection with the transactions contemplated hereby (whether so obtained
before or after the execution hereof) until such time as the Party providing
such information consents to its disclosure or such information becomes
otherwise publicly available. Promptly following any termination of this
Agreement, each of the Parties agrees to use its reasonable best efforts to
cause its respective directors, officers, employees and representatives to
destroy or return to the providing party all such nonpublic information
(including work papers and other material retrieved therefrom), including all
copies thereof. Each Party shall, and shall use reasonable efforts to cause its
advisers and agents to, maintain the confidentiality of all confidential
information furnished to it by the other Party concerning its business,
operations, and financial position and shall not use such information for any
purpose except in furtherance of the transactions contemplated by this
Agreement.
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5.19 TAX MATTERS. The parties hereto shall not take or agree to
take any action that would prevent the Merger and the other transactions
contemplated by this Agreement from qualifying as a "reorganization" within the
meaning of Section 368(a) of the Code; provided, however, that Parent does from
time to time repurchase shares of its common stock in the open market pursuant
to stock repurchase programs.
5.20 SEVERANCE PAYMENTS. Notwithstanding anything herein to the
contrary, the Surviving Corporation shall have no obligation to continue the
employment of any employee after the Effective Time. The Surviving Corporation
will pay severance to any person who is an employee of X.X. Xxxxx as of the
Effective Time (other than Xxxxx Xxxxx who is a party to a separate and
independent agreement) and prior to December 31, 2003 (a) is terminated by the
Surviving Corporation or (b) who is advised that his or her position with the
Surviving Corporation is being relocated outside of the greater Bozeman, Montana
area and thereafter fails to relocate within the time frame established by the
Surviving Corporation and instead resigns as an employee of the Corporation. In
such event, the employee shall receive a severance payment from the Surviving
Corporation in such amount as may be determined by Parent and the Surviving
Corporation (but will not be less than such employee's last four weeks W-2 wages
prior to termination plus $1,500); provided, that the employee shall not be paid
such amount unless he or she first executes a general release reasonably
acceptable to the Parent and the Surviving Corporation in favor of the Surviving
Corporation and other specified persons. Notwithstanding the foregoing or
anything else herein to the contrary, neither the Parent nor the Surviving
Corporation shall have any obligation to make any severance payment to any
employee who is terminated or resigns as an employee of the Surviving
Corporation after December 31, 2003.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF MERGER
6.1 CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES TO EFFECT THE
MERGER. The respective obligations of the Parties to consummate the Merger are
subject to the satisfaction or waiver (where permissible) of the following
conditions:
(a) This Agreement and the transactions contemplated
hereby and the Articles Amendment shall have been approved and adopted by the
requisite vote of the stockholders of X.X. Xxxxx in accordance with applicable
law.
(b) The Offer shall have been consummated and at least a
majority of the outstanding shares of each series of X.X. Xxxxx Preferred Shares
shall have been purchased by Purchaser and Purchaser shall have taken the
actions necessary to convert all outstanding X.X. Xxxxx Preferred Shares into
X.X. Xxxxx Common Shares.
6.2 CONDITIONS TO OBLIGATION OF PARENT AND PURCHASER. The
obligation of each of Parent and Purchaser to consummate the Merger are subject
to the satisfaction or waiver of the following additional conditions:
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(a) Each of the representations and warranties of X.X.
Xxxxx contained in this Agreement that are qualified as to materiality or any
similar standard or qualification, shall be true and correct in all respects,
and each of the representations and warranties of H.S. Trask contained in this
Agreement that are not qualified as to materiality or any similar standard or
qualification, shall be true and correct in all material respects, in each case
as of the date hereof and as of the Effective Time as though made on and as of
the Effective Time, except that those representations and warranties that
address matters only as of a particular date shall remain true and correct as of
such date. The representations and warranties of each H.S. Trask stockholder set
forth in such stockholder's Investment Representation Letter shall be true and
correct, except where the failure to be so true and correct would not result in
the failure of the Parent Shares to be issued in the Merger to be exempt from
registration under the Securities Act pursuant to Rule 506 thereof.
(b) H.S. Trask shall have performed and complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective Time.
(c) The aggregate number of Dissenting Shares shall not
exceed five percent (5%) of the H.S. Trask Common Shares outstanding immediately
prior to the Effective Time, including the H.S. Trask Common Shares which are
issuable upon the conversion of the H.S. Trask Preferred Shares (excluding those
held by Parent or Purchaser) and those that are issuable upon the exercise of
the outstanding H.S. Trask Stock Options and H.S. Trask Warrants.
(d) There will have been obtained at or prior to the
Closing Date and Parent shall have received (i) duly executed copies of all
third-party consents, approvals, assignments, waivers, authorizations or other
certificates set forth in Section 3.4 of the H.S. Trask Disclosure Schedules in
form and substance reasonably satisfactory to Parent and (ii) such permits or
authorizations, and there will have been taken all such other actions, as may be
required to consummate the transactions contemplated hereunder by any
Governmental Entity having jurisdiction over the Parties and the actions herein
proposed to be taken herein.
(e) Since December 31, 2002, there shall have been no
material adverse change in H.S. Trask's business, financial performance, assets
or liabilities, condition (financial or otherwise) or operations.
(f) Immediately prior to the Effective Time, all
outstanding H.S. Trask Stock Options and H.S. Trask Warrants shall have been
exercised or terminated and cancelled, and H.S. Trask shall have provided
evidence thereof to Parent.
(g) Immediately prior to the Effective Time, the H.S.
Trask Debt Level shall not be greater than $1,500,000 (excluding up to $85,000
in borrowings under H.S. Trask's line of credit that were incurred to finance
Transition Expenses) plus the following additional indebtedness related
exclusively to the purchase of inventory after the date hereof up to an
additional (i) $150,000 if the Effective Time is on or before July 18, 2003; and
(ii) another $150,000 if the Effective Time is on or after July 19, 2003.
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(h) H.S. Trask shall have delivered a certificate signed
by an officer of such corporation to the effect that each of the conditions
specified above in Sections 6.2(a) through (f) have been satisfied in all
respects.
(i) Prior to the Effective Time, Parent shall have
received Investment Representation Letters signed by all H.S. Trask stockholders
and persons holding options or warrants, in each case who will receive Merger
Shares, and no more than thirty-five (35) of these persons shall have indicated
in their Investment Representation Letters that they are not "accredited
investors" within the meaning of Regulation D promulgated under the Securities
Act and there shall be a Purchaser Representative, as defined in Regulation D
under the 1933 Act, reasonably satisfactory to Parent, representing each such
person who is not an "accredited investor" as defined in Rule 501 under the
Securities Act, and who does not have such knowledge and experience in financial
and business matters that he is not capable of evaluating the merits and risks
of the Merger, and such Purchaser Representative shall have executed and
delivered documentation with respect to its/his role as is reasonably
satisfactory to Parent. Each Investment Representation Letter shall be in the
form reasonably required by Parent.
(j) The issuance of Parent Shares to be issued in the
Merger shall be exempt from the registration requirements under the Securities
Act or alternative measures shall have been taken pursuant to Section 5.4.
(k) Parent shall have received a certificate executed by
the Secretary of H.S. Trask attaching and certifying as to H.S. Trask's current
Articles of Incorporation and Bylaws and the actions of H.S. Trask's Board of
Directors and stockholders approving and adopting this Agreement and the
transactions relating thereto in accordance with the requisite vote under H.S.
Trask's Articles of Incorporation and By-Laws and the MBCA.
(l) Harrison Trask shall have entered into the Employment
Agreement and the Non-Compete Agreement described in Section 5.11.
(m) At the Closing, the directors and officers of H.S.
Trask in office immediately prior to the Closing shall resign as directors and
officers of H.S. Trask effective immediately following the Closing.
(n) No litigation or proceeding (other than any
litigation or proceeding initiated by a Party hereto or disclosed prior to the
date hereof) will be pending or threatened (i) for the purpose or with the
probable effect of enjoining or preventing the consummation of the transactions
contemplated hereunder, or (ii) which could be reasonably expected to have a
Material Adverse Effect on H.S. Trask or after the Effective Time, the Surviving
Corporation. There will not be any outstanding, or enacted or adopted, any
order, decree, temporary, preliminary or permanent injunction, legislative
enactment, statute, regulation or any judgment or ruling by any court,
arbitrator, Governmental Entity, that, directly or indirectly, challenges,
prohibits, enjoins, restrains, suspends, delays, conditions or renders illegal
or imposes limitations on the transaction contemplated by this Agreement.
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(o) There will have been obtained at or prior to the
Closing Date such permits or authorizations, and there will have been taken all
such other actions, as may be required to consummate the Merger by any
Governmental Entity having jurisdiction over the parties and the actions herein
proposed to be taken.
(p) Parent and Purchaser shall have received from counsel
to H.S. Trask an opinion in form and substance as set forth in EXHIBIT F
attached hereto, addressed to Parent and Purchaser, and dated as of the Closing
Date.
(q) All actions to be taken by H.S. Trask in connection
with consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
Parent.
Parent and Purchaser may waive any condition specified in this Section
6.1 or 6.2 if they execute a writing so stating at or prior to the Closing.
6.3 CONDITIONS TO OBLIGATION OF H.S. TRASK. The obligation of H.S.
Trask to consummate the Merger is subject to the satisfaction or waiver (where
permissible) of the following additional conditions:
(a) Each of the representations and warranties of Parent
and Purchaser contained in this Agreement that are qualified as to materiality
or any similar standard or qualification, shall be true and correct in all
respects, and each of the representations and warranties of Parent contained in
this Agreement that are not qualified as to materiality or any similar standard
or qualification, shall be true and correct in all material respects, in each
case as of the date hereof and as of the Effective Time as though made on and as
of the Effective Time, except that those representations and warranties that
address matters only as of a particular date shall remain true and correct as of
such date.
(b) Parent and Purchaser shall have performed and
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Effective Time.
(c) Since December 31, 2002, there shall not have been
any material adverse change in Parent's business operations, financial
condition, assets or liabilities or condition (financial or otherwise),
provided, however, that any change in the trading price of Parent Shares shall
not be deemed a material adverse change of any kind.
(d) Each of Parent and Purchaser shall have delivered to
H.S. Trask a certificate to the effect that each of the conditions specified
above in Section 6.1(b) and 6.3(a) - (d) is satisfied in all respects.
(e) Parent shall have caused the Surviving Corporation to
enter into the Employment Agreement and Non-Compete Agreement described in
Section 5.11.
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(f) No litigation or proceeding (other than any
litigation or proceeding initiated by a Party hereto or disclosed prior to the
date hereof) will be pending or threatened (i) for the purpose or with the
probable effect of enjoining or preventing the consummation of the transactions
contemplated hereunder, or (ii) which could be reasonably expected to have a
Material Adverse Effect on H.S. Trask or after the Effective Time, the Surviving
Corporation. There will not be any outstanding, or enacted or adopted, any
order, decree, temporary, preliminary or permanent injunction, legislative
enactment, statute, regulation or any judgment or ruling by any court,
arbitrator or Governmental Entity, that, directly or indirectly, challenges,
prohibits, enjoins, restrains, suspends, delays, conditions or renders illegal
or imposes limitations on the transaction contemplated by this Agreement.
(g) The Company shall have entered into the Employment
Agreement and the Non-Compete Agreement described in Section 5.11.
(h) H.S. Trask shall have received from counsel to Parent
and Purchaser an opinion in form and substance as set forth in EXHIBIT G
attached hereto, addressed to H.S. Trask, and dated as of the Closing Date.
(i) All actions to be taken by Parent and Purchaser in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to H.S. Trask.
H.S. Trask may waive any condition specified in Section 6.1 or 6.3 if
it executes a writing so stating at or prior to the Closing.
ARTICLE VII
TERMINATION
7.1 TERMINATION OF AGREEMENT. Any of the Parties may terminate
this Agreement with the prior authorization of its board of directors (whether
before or after stockholder approval) as provided below:
(a) The Parties may terminate this Agreement by mutual
written consent of all the Parties at any time prior to the Effective Time.
(b) Parent and Purchaser may terminate this Agreement by
giving written notice to H.S. Trask at any time prior to consummation of the
Offer (i) in the event H.S. Trask has breached any representation, warranty, or
covenant contained in this Agreement in any material respect, Parent or
Purchaser has notified H.S. Trask of the breach, and the breach (other than
pursuant to Section 5.9) has continued without cure for a period of fifteen (15)
days after the notice of breach, (ii) H.S. Trask's Board of Directors shall have
failed to recommend or withdrawn, or modified in any manner adverse to Parent,
its approval or recommendation that H.S. Trask stockholders vote in favor of,
and approve the H.S. Trask Special Stockholders Meeting Proposals or (iii) if
the Closing shall not have occurred on or before August 31, 2003 (subject to
adjustment as provided in Section 5.4(c)), by
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reason of the failure of any condition precedent under Sections 6.1 or 6.2
(unless the failure results primarily from Parent or Purchaser breaching any
representation, warranty, or covenant contained in this Agreement).
(c) H.S. Trask may terminate this Agreement by giving
written notice to Parent and Purchaser at any time prior to the consummation of
the Offer (i) in the event Parent or Purchaser has breached any representation,
warranty, or covenant contained in this Agreement in any material respect, H.S.
Trask has notified Parent or Purchaser of the breach, and the breach has
continued without cure for a period of fifteen (15) days after the notice of
breach, or (ii) if the Closing shall not have occurred on or before August 31,
2003 (or December 31, 2003 in the alternative case as provided in Section
5.4(c)) , by reason of the failure of any condition precedent under Sections 6.1
or 6.3 hereof (unless the failure results primarily from H.S. Trask breaching
any representation, warranty, or covenant contained in this Agreement).
(d) In the event that prior to the consummation of the
Offer, H.S. Trask's Board of Directors determines in good faith by a majority
vote, with respect to any Competing Acquisition Proposal, that such Competing
Acquisition Proposal is a Superior Transaction and is in the best interests of
its stockholders, H.S. Trask may terminate this Agreement by giving written
notice to Parent and Purchaser at any time prior to the consummation of the
Offer and enter into an acquisition agreement for the Superior Transaction;
provided however, that, prior to any such termination, and in order for such
termination to be effective, (i) H.S. Trask shall provide Parent and Purchaser
five (5) business days written notice that it intends to terminate this
Agreement, identifying the Superior Transaction and delivering an accurate
description of all material terms of the Superior Transaction to be entered into
and (ii) on the date of termination, it shall deliver to the other party a
written notice of termination of this Agreement.
(e) Prior to the consummation of the Offer, H.S. Trask
may terminate this Agreement by giving written notice to Parent prior to the
H.S. Trask Special Stockholders Meeting in the event the Phoenix Stock Price
falls below $3.00 per share for any three (3) consecutive trading days up and
until the H.S. Trask Special Stockholders Meeting, provided, however, that
notice is given within five (5) days after the last day of such three (3) day
period.
(f) Any Party may terminate this Agreement by giving
written notice to the other Parties at any time after the H.S. Trask Special
Stockholders Meeting in the event that the Merger and the Articles Amendment is
not approved as required under H.S. Trask's Articles of Incorporation, By-Laws
and the MBCA.
7.2 EFFECT OF TERMINATION.
(a) If this Agreement is terminated pursuant to Section
7.1(b)(i) or (ii), or Section 7.1(d), H.S. Trask shall pay to Parent a
termination fee of $150,000. If this Agreement is terminated by Parent pursuant
to Section 7.1(f), H.S. Trask shall reimburse Parent and Purchaser for their
actual out of pocket expenses up to a maximum amount of $35,000.
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(b) If this Agreement is terminated pursuant to Section
7.1(c)(i), Parent shall pay H.S. Trask a termination fee of $150,000.
(c) A Party required to pay a termination fee shall make
such payment by wire transfer of immediately available funds concurrently with
the termination of this Agreement. If a Party fails to pay the required
termination fee when due, it shall pay the costs and expenses (including legal
fees and expenses) in connection with any action, including prosecution of any
lawsuit or other legal action, taken to collect payment, together with interest
on the amount of any unpaid fee at the publicly announced prime rate of Parent's
bank plus 3% from the date such fee was required to be paid to the date it is
paid.
(d) If any Party terminates this Agreement pursuant to
Section 7.1 above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party except that any
liability of any Party then in breach of this Agreement and the non-breaching
Party's cause of action for such breach shall survive.
ARTICLE VIII
INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Subject to
Sections 8.2(f) and 8.2(g) below, the representations, warranties or agreements
contained herein shall survive beyond the Effective Time until February 28, 2004
(the "INDEMNIFICATION PERIOD"); provided that any indemnification claims for
which Parent shall have given the Stockholder Representative written notice of
in accordance with Section 9.6 prior to the end of the Indemnification Period
shall survive until the resolution of any such claim and each of the Indemnitees
shall have been reimbursed for their Losses therefrom in accordance with the
terms hereof.
8.2 INDEMNIFICATION.
(a) From and after the Effective Time, the Former H.S.
Trask Stockholders shall individually, up to their respective Pro-Rata Share,
indemnify and hold harmless the Surviving Corporation, Parent, Purchasers and
each of their officers, directors, employees, agents, representatives and each
person, if any, who controls or may control Parent, Purchaser or the Surviving
Corporation within the meaning of the Securities Act (collectively, the
"INDEMNITEES" and individually, each an "INDEMNITEE") against and in respect of
any claims, damages, losses, costs, expenses, liabilities (absolute, accrued,
contingent or otherwise), and reasonable legal fees and expenses (collectively,
"LOSSES") incurred or suffered by any Indemnitee, directly or indirectly caused
by or arising out of or related to (i) any inaccuracy or misrepresentation in,
or any breach or violation of, any of the representations or warranties given or
made by H.S. Trask in this Agreement (including, but not limited to, those set
forth in Article III), in the H.S. Trask Disclosure Schedules or in any
certificate delivered by or on behalf of H.S. Trask to Parent and/or Purchaser
pursuant to this Agreement (or any fact, circumstance or event constituting such
an inaccuracy, misrepresentation, breach or violation); and (ii) any breach,
violation or default by H.S. Trask of its covenants or agreements in this
Agreement. Any obligation by H.S. Trask and/or the Surviving Corporation
incurred in connection with, arising out of or otherwise related to any
obligation to repurchase raw
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materials from Munro & Company or any costs, expenses (including reasonable
attorneys' fees) incurred in defending or opposing any claim that such an
obligation exists, in each case to the extent that the amount of such
obligation, costs, expenses (including reasonable attorneys' fees) is in excess
$17,500 after the date hereof shall be considered a Loss hereunder.
(b) From and after the Effective Time, each Former H.S.
Trask Stockholder will indemnify and hold harmless each Indemnitee from any
Losses incurred or suffered by an Indemnitee directly or indirectly caused by or
arising out of or related to any inaccuracy or misrepresentation of any of such
Former H.S. Trask Stockholder's representations or warranties contained in such
Former H.S. Trask Stockholder's Investment Representation Letter or Letter of
Transmittal delivered to Parent or the Exchange Agent. The Investment
Representative Letter and Letter of Transmittal shall include an undertaking by
each Former H.S. Trask Stockholder to be responsible for it or his obligations
under this Article VIII.
(c) From and after the Effective Time, each Former H.S.
Trask Stockholder, acting through the Stockholder Representative, will be
entitled to be indemnified and held harmless by Parent and the Surviving
Corporation against and in respect of any Losses incurred or suffered by such
Former H.S. Trask Stockholder, directly or indirectly caused by or arising out
of or related to (i) any inaccuracy or misrepresentation in, or any breach or
violation of, any of the representations or warranties given or made by Parent
or Purchaser in this Agreement (including, but not limited to, those set forth
in Article IV) or in any certificate delivered by or on behalf of Parent and/or
Purchaser pursuant to this Agreement (or any fact, circumstance or event
constituting such an inaccuracy, misrepresentation, breach or violation); and
(ii) any breach, violation or default by Parent and/or Purchaser of their
covenants or agreements in this Agreement.
(d) Notwithstanding anything to the contrary other than
and except as provided in Sections 8.2(f) and (g), in no event shall (i) the
payment obligation of the Former H.S. Trask Stockholders for their
indemnification obligations pursuant to Section 8.2(a) above exceed in the
aggregate the value of 150,000 Parent Shares based on the Parent Stock Price
during the five (5) trading days prior to the Effective Time (the
"INDEMNIFICATION CAP"); (ii) the indemnification obligations pursuant to Section
8.2(c) above exceed in the aggregate the Indemnification Cap. All claims for
indemnification pursuant to Sections 8.2(a) and (b) shall be made first against
the Escrow Fund and thereafter any such claims shall be satisfied by payment
from the Former H.S. Trask Stockholders. Indemnities may seek payment from any
Former H.S. Trask Stockholder only up to their Pro-Rata Share with respect to
any claim made under Section 8.2(a).
(e) If any claim for indemnification hereunder shall be
made by an Indemnitee, such Indemnitee shall notify the Stockholder
Representative, of the existence of such claim; provided, that any failure to so
notify the Stockholder Representative shall not relieve the obligations of the
Former H.S. Trask Stockholder to indemnify an Indemnitee hereunder except to the
extent that such Former H.S. Trask Stockholders have been actually and
materially prejudiced by the lack of notice. The Former H.S. Trask Stockholders,
acting through the Stockholder Representative, shall be entitled to assume the
defense of any third-party action against an Indemnitee on which an
indemnification claim is based with counsel reasonably satisfactory to
Indemnitee. If any claim for indemnification hereunder shall be made by a Former
H.S. Trask Stockholder, such stockholder shall notify Parent, through the
Stockholder Representative, of the existence of such claim and the basis
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therefor; provided, that any failure to so notify Parent shall not relieve the
obligations of Parent to indemnify a Former H.S. Trask Stockholder hereunder
except to the extent that Parent has been actually and materially prejudiced by
the lack of notice. Parent shall be entitled to assume the defense of any
third-party action against a Former H.S. Trask Stockholder on which an
indemnification claim is based with counsel reasonably satisfactory to the
Stockholder Representative.
(f) Notwithstanding anything herein to the contrary, none
of the limitations on the representations, warranties or indemnification
obligations of the Former H.S. Trask Stockholders set forth in Sections 8.1 or
8.2(d) and (h) shall apply to, or otherwise in any manner limit or restrict, the
right or ability of Parent, Purchaser and/or any other Indemnitee to recover, or
seek recovery, from any Former H.S. Trask Stockholder (pursuant to any claim,
demand, suit, investigation or other proceeding) of any Losses incurred by such
Indemnitee which arises or results from (i) the fraudulent or intentional breach
of this Agreement by H.S. Trask or such Former H.S. Trask Stockholder or (ii)
any claim made pursuant to Section 8.2(b) (each of the foregoing, a "H.S. TRASK
EXCLUDED CLAIM"). Accordingly there shall be no limitation on the liability of
the Former H.S. Trask Stockholders for the amount of Losses arising from any
H.S. Trask Excluded Claim may be brought by Parent, the Surviving Corporation
and/or any Indemnitee at any time prior to expiration of the statute of
limitations applicable to such claim under applicable law. No H.S. Trask
Excluded Claim need be made, brought, asserted or raised prior to the end of the
Indemnification Period and no Indemnitee will be required to, or restricted to,
seeking recovery from the Escrow Fund as a first means of being compensated for
any such claim, but the Escrow Fund shall be available to compensate the
affected Indemnitee(s) for such Losses if it so elects. In addition, the
Excluded H.S. Trask Claims need not be prosecuted pursuant to Section 8.2 but
may be prosecuted by Parent, the Surviving Corporation or the affected
Indemnitee(s), at its election, pursuant to any legal process it may elect
before any court having jurisdiction of the parties. Any Former H.S. Trask
Stockholder responsible for an H.S. Trask Excluded Claim shall indemnify,
reimburse and hold harmless the other Former H.S. Trask Stockholders not
responsible for such H.S. Trask Excluded Claim for any amounts recovered by the
Indemnitees.
(g) Notwithstanding anything herein to the contrary, none
of the limitations on the representations, warranties or indemnification
obligations of Parent or the Surviving Corporation set forth in Sections 8.1 or
8.2(d) and (h) shall apply to, or otherwise in any manner limit or restrict, the
right or ability of the Former H.S. Trask Stockholders to recover, or seek
recovery, from Parent or the Surviving Corporation (pursuant to any claim,
demand, suit, investigation or other proceeding) of any Losses incurred by any
Former H.S. Trask Stockholder which arises or results from (i) the failure by
Parent or the Purchaser to pay the Merger Consideration in accordance with the
terms hereof or (ii) the fraudulent or intentional breach of this Agreement by
Parent or Purchaser (each, a "PARENT EXCLUDED BREACH CLAIM"). Accordingly there
shall be no limitation on the liability of Parent for the amount of Losses
arising from any Parent Excluded Breach Claim may be brought by any of the
Former H.S. Trask Stockholders at any time prior to expiration of the statute of
limitations applicable to such Parent Excluded Breach Claim under applicable
law. No Parent Excluded Breach Claim need be made, brought, asserted or raised
prior to the end of the Indemnification Period. In addition, Parent Excluded
Breach Claims need not be prosecuted pursuant to Section 8.2 but may be
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prosecuted by Former H.S. Trask Stockholders at their election, pursuant to any
legal process it may elect before any court having jurisdiction of the parties.
(h) Other than as provided in Sections 8.2(f) and 8.2(g),
from and after the Effective Time, the rights to indemnification under this
Article VIII shall be the exclusive remedy for the Parties with respect to this
Agreement contemplated and consummated hereby, and the Parties shall not be
entitled to pursue, and each hereby expressly waives as of the Effective Time,
any and all other rights that may otherwise be available to either of them
either at law or in equity with respect thereto. This Section 8.2(h) does not
limit the remedies available to any Party under the Employment Agreement, the
Non-Compete Agreement or the Investment Representation Letter and/or Letter of
Transmittal signed by a Former H.S. Trask Stockholder.
8.3 NOTICE AND DETERMINATION OF CLAIMS.
(a) If Parent or the Surviving Corporation wishes to make
a claim for indemnification to be satisfied from the Escrow Fund, such party
(individually or collectively, the "CLAIMING PARTY") shall so notify the Escrow
Agent in writing (the "CLAIM NOTICE") of the claim for indemnification
hereunder. At the time of delivery of any Claim Notice to the Escrow Agent, a
duplicate copy of such Claim Notice shall be delivered by the Claiming Party to
the Stockholder Representative.
(b) Unless the Stockholder Representative shall have
delivered an Objection in accordance with Section 8.3(c), the Escrow Agent
shall, on the thirtieth (30th) day (or such earlier day as the Stockholder
Representative shall authorize in writing to the Escrow Agent) after receipt of
a Claim Notice with respect to indemnification for a specified amount, deliver
to the Claiming Party such portion of the Escrow Fund, with a value equal to the
specified amount. For this purpose, the Escrow Shares shall be valued based on
the Parent Stock Price for the five trading days prior to the Effective Time.
(c) Until the thirtieth (30th) day following delivery of
a Claim Notice, the Stockholder Representative may deliver to the Escrow Agent a
written objection (an "OBJECTION") to the claim made in such Claim Notice with
the basis therefor. At the time of delivery of any Objection to the Escrow
Agent, a duplicate copy of such Objection shall be delivered to the Claiming
Party.
(d) Upon receipt of an Objection properly made, the
Escrow Agent shall (i) deliver to the Claiming Party such portion of the Escrow
Fund, valued based on the Parent Stock Price for the five trading days prior to
the Effective Time, with a value equal to that portion of the amount subject to
the Claim Notice, if any, which is not disputed by the Stockholder
Representative and (ii) designate and segregate out of the Escrow Fund a portion
thereof, valued in the same manner, with a value equal to the amount subject to
the Claim Notice which is disputed by the Stockholder Representative.
Thereafter, the Escrow Agent shall not dispose of such segregated portion of the
Escrow Fund until the Escrow Agent shall have received a certified copy of any
judicial order or judgment determining the dispute, or the Escrow Agent shall
have received a copy of a written memorandum signed by the Claiming Party and
the Stockholder Representative resolving such dispute and setting forth the
amount, if any, which such Claiming Party is entitled to
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receive. The Escrow Agent will deliver to the Claiming Party such portion of the
Escrow Fund, valued based on the Parent Stock Price for the five trading days
prior to the Effective Time, with a value equal to the amount that the Claiming
Party is entitled to receive as set forth in the judicial order or judgment
after the expiration of ten (10) business days from the receipt thereof or, in
the event that the amount to which the Claiming Party is entitled is established
pursuant to a memorandum signed by the Claiming Party (and the Parent if it is
not the Claiming Party) and the Stockholder Representative, promptly after the
Escrow Agent's receipt of such signed memorandum.
8.4 RESOLUTION OF CONFLICTS. If the Stockholder Representative
provides the Escrow Agent with an Objection, then the Claiming Party shall
deliver a written response to the Stockholder Representative in respect of such
Objection. If after twenty (20) days following delivery of such response there
remains a dispute as to any claims, the Stockholder Representative and the
Claiming Party shall attempt in good faith for an additional twenty (20) days to
agree upon the rights of the respective parties with respect to each claim. If
the Stockholder Representative and the Claiming Party should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both and
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum in carrying out its duties under the Escrow
Agreement. If no agreement is reached by the Parties, then Parent or the
Surviving Corporation or the Stockholder Representative on behalf of the Former
H.S. Trask Stockholders may commence legal action either to obtain a judicial
determination of the dispute unless the amount of the Losses is at issue in
pending litigation with a third party, in which event the action shall not be
commenced until such amount is ascertained or such Parties agree to the
commencement of such action. Upon resolution of the dispute, the Escrow Agent
will distribute any portion of the Escrow Fund withheld with respect to such
Claim in accordance with Section 8.4
8.5 TERMINATION AND RELEASE OF ESCROW FUND. (a) The Escrow Fund
shall terminate and be released at the conclusion of the Indemnification Period;
provided, however, that a portion of the Escrow Fund, which, in the reasonable
judgment of Purchaser is necessary to satisfy any unsatisfied claims specified
in any Claim Notice theretofore delivered to the Escrow Agent before the end of
the Indemnification Period with respect to facts and circumstances existing
prior to expiration of the Indemnification Period, shall remain in the Escrow
Fund until such claims have been resolved.
(b) Within ten (10) business days after the end of the
Indemnification Period (the "RELEASE DATE"), the Escrow Agent shall release from
escrow to the Former H.S. Trask Stockholders each such holder's Pro-Rata Share
of the Escrow Fund less (i) such holder's Pro-Rata Share of any portion of the
Escrow Fund delivered or to be delivered to an Indemnitee in accordance with
Section 8.3(d) and 8.4 in satisfaction of indemnification claims by Indemnitee
and (B) such holder's Pro-Rata Share of the portion of the Escrow Fund that is
withheld and continued in escrow in accordance with Section 8.5(a) with respect
to any pending but unresolved indemnification claims of any Indmenitee. Any
Escrow Shares and other amounts held in the Escrow Fund held as a result of
clause 8.5(b)(ii) shall be released to such holders or released to Parent and
Purchaser (as appropriate) promptly upon resolution of each specific
indemnification claim involved. Escrow Shares and additional amounts held in the
Escrow Fund shall be released to the Former H.S. Trask Stockholders based on
each such holder's Pro-Rata Share thereof. Certificates representing Escrow
Shares and additional amounts held in Escrow Fund so issued that are subject to
resale restrictions under applicable securities laws
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will bear a legend to that effect. No fractional shares shall be released and
delivered from Escrow to the stockholders of H.S. Trask. In lieu of any fraction
of an Escrow Share to which a Former H.S. Trask Stockholder would otherwise be
entitled, such holder will receive from Parent an amount of cash (rounded to the
nearest whole cent) equal to the product of such fraction multiplied by the
Parent Stock Price for the five (5) trading days prior to the distribution
thereof to the Former H.S. Trask Stockholders.
(c) No Escrow Shares or any beneficial interest therein
or any other portion of the Escrow Fund may be pledged, sold, assigned or
transferred, including by operation of law, by any Former H.S. Trask Stockholder
or be taken or reached by any legal or equitable process in satisfaction of any
debt or other liability of any such holder, prior to the delivery to such holder
of his Pro-Rata Share of the Escrow Fund by the Escrow Agent as provided herein.
8.6 STOCKHOLDER REPRESENTATIVE.
(a) By virtue of the approval of this Agreement by the
holders of H.S. Trask Common Shares, the Stockholder Representative shall be
constituted and appointed as agent and attorney-in-fact for and on behalf of
each of the Former H.S. Trask Stockholders. The Stockholder Representative shall
have full power and authority to represent all of the Former H.S. Trask
Stockholders and their successors with respect to all matters arising under this
Agreement and all actions taken by the Stockholder Representative hereunder and
thereunder shall be binding upon all Former H.S. Trask Stockholders and their
successors as if expressly confirmed and ratified in writing by each of them,
including, but not limited to, resolving all claims relating the Escrow Fund and
any indemnification claims and obligations. The Stockholder Representative shall
take any and all actions which he believes are necessary or appropriate under
this Agreement for and on behalf of the Former H.S. Trask Stockholders, as fully
as if she were acting on her own behalf, including, without limitation,
consenting to, compromising or settling issues with respect to the Escrow Fund
and all such indemnity claims with Parent under this Agreement, taking any and
all other actions specified in or contemplated by this Agreement, and engaging
counsel, or accountants in connection with the foregoing matters. Without
limiting the generality of the foregoing, the Stockholder Representative shall
have full power and authority to interpret all the terms and provisions of this
Agreement and to consent to any amendment hereof on behalf of all Former H.S.
Trask Stockholders and such successors. The Person designated to serve as the
Stockholder Representative may be changed by the Former H.S. Trask Stockholders
who are entitled to receive a majority of the Escrow Fund when and if it becomes
payable hereunder from time to time upon not less than ten (10) days prior
written notice to Parent. No bond shall be required of the Stockholder
Representative, and the Stockholder Representative shall receive no compensation
for services but shall be entitled to be reimbursed by the Former H.S. Trask
Stockholders for reasonable expenses incurred in the performance of her duties
hereunder, including expenses of legal counsel. All such expenses shall be
payable from the Escrow Fund, if sufficient, and shall be payable in Parent
Shares valued in accordance with the Claims valuation.
(b) The Stockholder Representative shall not be liable to
H.S. Trask Stockholders for any act done or omitted hereunder as Stockholder
Representative while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the written advice of counsel
shall be conclusive evidence of such good faith. The Former H.S. Trask
Stockholders shall
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severally indemnify the Stockholder Representative and hold her harmless from
and against any loss, liability or expense incurred without gross negligence or
bad faith on the part of the Stockholder Representative and arising out of or in
connection with the acceptance and administration of her duties hereunder.
(c) The Stockholder Representative shall treat
confidentially and not disclose any nonpublic information from or about Parent
or the Surviving Corporation to anyone (except on a need to know basis to
individuals who agree to treat such information confidentially).
8.7 ACTIONS OF THE STOCKHOLDER REPRESENTATIVE. A decision, act,
consent or instruction of the Stockholder Representative shall constitute a
decision of all the Former H.S. Trask Stockholders and shall be final, binding
and conclusive upon each such stockholder of H.S. Trask, and Parent may rely
upon any decision, act, consent or instruction of the Stockholder Representative
as being the decision, act, consent or instruction of each and every such Former
H.S. Trask Stockholder. The Exchange Agent, Parent and the Surviving Corporation
are hereby relieved from any liability to any Person for any acts done by them
in accordance with such decision, act, consent or instruction of the Stockholder
Representative.
ARTICLE IX
MISCELLANEOUS
9.1 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that (a) the
provisions in Article II above concerning payment of the Merger Consideration
are intended for the benefit of Former H.S. Trask Stockholders and (b) the
provisions in Section 5.10 above concerning insurance and indemnification are
intended for the benefit of the individuals specified therein and their
respective legal representatives.
9.2 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement among the Parties and supersede any prior
understandings, agreements, or representations by or among the Parties, written
or oral, to the extent they relate in any way to the subject matter hereof,
including, but not limited to, a certain letter of intent dated April 11, 2003
among Parent, H.S. Trask and Harrison Trask.
9.3 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties.
9.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
9.5 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
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9.6 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to H.S. Trask: H.S. Trask & Co.
685 Old Buffalo Trail
Bozeman, Montana 59715
Attention: Harrison S. Trask, President
Copy to: Preston Gates & Ellis LLP
925 Fourth Avenue
Suite 2900
Seattle, Washington 98104-1158
Attention: Gary J. Kocher, Esq.
If to the Stockholder
Representative: Nancy Delekta
2975 Hwy #287 North
Cameron, MT 59720
If to Parent: Phoenix Footwear Group, Inc.
5759 Fleet Street, Suite 220
Carlsbad, California 92008
Attention: James Riedman, Chairman and
CEO
If to Purchaser: PFG Acquisition, Inc.
5759 Fleet Street, Suite 220
Carlsbad, California 92008
Attention: James Riedman, Chairman and
CEO
Copy to: Woods Oviatt Gilman LLP
700 Crossroads Building
Rochester, New York 14614
Attention: Gordon E. Forth, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
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9.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
9.8 AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the MBCA. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
9.9 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
9.10 EXPENSES. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby, except that in the event the
Merger is consummated, the Surviving Corporation will pay at Closing all
reasonable expenses and costs related to the Merger and the transactions
contemplated thereby incurred by H.S. Trask prior to the Closing Date. At
Closing, H.S. Trask shall provide an accounting of all Transaction Expenses it
has incurred.
9.11 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including, without limitation.
9.12 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.
PHOENIX FOOTWEAR GROUP, INC.
By: /s/ James R. Riedman
------------------------------------
Name: James R. Riedman
Title: Chief Executive Officer and
President
PFG ACQUISITION, INC.
By: /s/ James R. Riedman
------------------------------------
Name: James R. Riedman
Title: Chief Executive Officer and
President
H.S. TRASK & CO.
By: /s/ Harris S. Trask
------------------------------------
Name: Harrison S. Trask
Title: President
STOCKHOLDER REPRESENTATIVE
(SOLELY WITH RESPECT TO ROLE SET
FORTH IN SECTION 8.6)
/s/ Nancy Delekta
------------------------------------
Nancy Delekta
2975 Hwy #287 North
Cameron, MT 59720
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LIST OF EXHIBITS:
A. Stockholders Support Agreement
B. Articles of Merger
C. Escrow Agreement
D. Employment and Consulting Agreement
E. Non-Compete Agreement
F. Form of Preston Gates & Ellis Opinion Letter
G. Form of Woods Oviatt Gilman Opinion Letter
LIST OF SCHEDULES:
Schedule I: Defined Items
Schedule II: H.S. Trask Disclosure Schedule
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SCHEDULE I
DEFINED TERMS
Capitalized terms not otherwise defined herein shall have the following
meaning:
"AMEX" means the American Stock Exchange.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or is reasonably likely to
form the basis for any specified consequence.
"BENEFIT ARRANGEMENT" means any plan, agreement, arrangement or
practice providing for insurance coverage (including any self-insured plan,
agreement, arrangement or practice), supplemental unemployment benefits,
deferred compensation, bonuses, stock options, stock purchases, "parachute
payments" (within the meaning of Section 280G of the Code), or other form of
incentive or post-employment compensation or benefits, which (a) is not an
Employee Benefit Plan and (b) covers or may provide benefits to any employee or
prior employee of any Party or its Subsidiaries.
"BORROWED MONEY" means, with respect to any Person, the aggregate
amount of all
(a) indebtedness for borrowed money (excluding interest)
by such Person, including, but not limited to amounts owed to a bank or any
other Person, and
(b) remaining payments on capitalized equipment leases.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code Section 4980B and of any similar state law.
"CODE" means the Internal Revenue Code of 1986, as amended.
"DEFINED BENEFIT PENSION PLAN" means a Pension Plan that is not an
"individual account plan" as defined in Section 3(34) of ERISA.
"DISSENTING SHARE" means any H.S. Trask Common Share outstanding
immediately prior to the Effective Time, with respect to which any holder
thereof has not voted in favor of the Merger or consented thereto and who has
duly exercised his or its appraisal rights under the MBCA in connection with the
Merger.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" (as such term
is defined in ERISA Section 3(3)) and any other employee benefit plan, program
or arrangement of any kind.
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"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean all
federal, state and local statutes, regulations, ordinances and other provisions
having the force or effect of law, all applicable judicial and administrative
orders and determinations, all applicable contractual obligations and all
applicable common law concerning public health and safety, worker health and
safety, and pollution or protection of the environment, including, without
limitation, all those relating to the presence, use, production, generation,
handling, transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or cleanup
of any hazardous materials, substances or wastes, chemical substances or
mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation,
each now in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means each entity which is treated as a single
employer with Trask for purposes of Code Section 414.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FORMER H.S. TRASK STOCKHOLDERS" means any Person who held H.S. Trask
Common Shares immediately prior to the Effective Time and are entitled to
receive Merger Consideration pursuant to Section 2.4(f)(i).
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"GOVERNMENTAL ENTITY" means any federal, state or local governmental
authority, court, tribunal, administrative or regulatory agency or commission or
other governmental authority or agency, domestic or foreign.
"H.S. TRASK DEBT LEVEL" means the sum of the amount of H.S. Trask's
Borrowed Money at the Effective Time plus H.S. Trask's unpaid Transaction
Expenses.
"H.S. TRASK PRODUCTS" shall mean those products that bear any
trademarks owned by H.S. Trask immediately prior to the Effective Time.
"H.S. TRASK SHARE CERTIFICATE" means any certificate representing
shares of H.S. Trask capital stock.
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"INTELLECTUAL PROPERTY" means all of the following in any jurisdiction
throughout the world: (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade
names, corporate names, Internet domain names, and rights in telephone numbers,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(f) all computer software (including source code, executable code, data,
databases and related documentation), (g) all advertising and promotional
materials, (h) all other proprietary rights, and (i) all copies and tangible
embodiments thereof (in whatever form or medium).
"KNOWLEDGE" of any Party means actual knowledge of the officers of the
relevant Party and the knowledge imputed to them if a reasonable investigation
had been conducted.
"LEASED REAL PROPERTY" means all leasehold or subleasehold estates and
other rights to use or occupy any land, buildings, structures, improvements,
fixtures or other interest in real property.
"LEASES" means all leases, subleases, licenses, concessions and other
agreements (written or oral), including all amendments, extensions, renewals,
guaranties and other agreements with respect thereto, pursuant to which a Person
holds any Leased Real Property, including the right to all security deposits and
other amounts and instruments deposited by or on behalf of such Person
thereunder.
"LETTERS OF CREDIT" means a letter of credit issued for the account of
H.S. Trask.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MATERIAL ADVERSE EFFECT" when used with reference to any Party, means
any event, change or effect that is (or will with the passage of time be)
materially adverse to the financial condition, properties, assets, liabilities,
business, operations, or results of operations of such Party and its
subsidiaries (if any), taken as a whole, or prevent or materially delay the
Party from performing its obligations hereunder or consummating the transactions
contemplated hereunder.
"MBCA" means the Montana Business Corporation Act, as amended.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
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"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARENT SHARES" means any share of the common stock, par value $.01 per
share, of Parent.
"PARENT STOCK PRICE" means the average closing trading price of Parent
Shares as reported on the AMEX for the referenced time period.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a Governmental Entity.
"PROHIBITED TRANSACTION" means a transaction prohibited by Section 406
of ERISA.
"PRO-RATA SHARE" means the ratio of the portion of the Merger
Consideration which a Former H.S. Trask Stockholder is entitled to receive as of
the Effective Time (including any amounts initially deposited with the Escrow
Agent) compared to the total Merger Consideration to which all Former H.S. Trask
Stockholders are entitled to receive as of the Effective Time, excluding,
however, any such amounts attributable to any Dissenting Shares. For purposes of
determining Pro-Rata Share at any time, Parent Shares shall be valued based on
the Parent Stock Price during the five (5) days immediately prior to the
Effective Time.
"REGISTRABLE SHARES" shall mean all Parent Shares issued as Merger
Shares (and any shares received in respect of such shares because of a stock
split, stock dividend, recapitalization, classification or other similar event),
but excluding shares that have been sold or otherwise transferred by any Holders
as Merger Shares; provided however, that a distribution of Parent Shares issued
in the Merger without additional consideration, to underlying beneficial owners
(such as the general and limited partners, shareholders or trust beneficiaries
of a Holder), or by gift, inheritance or devise, shall not be deemed such a sale
or transfer for purposes of Section 5.16 and such underlying beneficial owners
shall be entitled to the same rights under Section 5.16 as the initial Holder
from which the Registrable Shares were received and shall be deemed a Holder for
the purposes of Section 5.16.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section 4043.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialman's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is in good faith contesting in good faith through appropriate
proceedings which are properly reserved for in the taxpayer books and records,
(c) purchase money
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liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TRANSACTION EXPENSES" means with respect to a Person, the aggregate of
the amount of actual legal, accounting, and financing fees incurred by such
Person in connection with preparing for and consummating the transaction
contemplated hereunder.
The following is a schedule of the location of terms defined elsewhere
in the Agreement:
DEFINED TERM SECTION
------------ -------
"2003 STOCK SPLIT" Recitals
"AFFIDAVIT OF LOST CERTIFICATE" 2.12
"ARTICLES AMENDMENT" 5.4
"BLACKOUT PERIOD". 5.16(d)
"CERCLA" 3.27(e)
"CLAIM NOTICE" 8.3(a)
"CLAIMING PARTY" 8.3(a)
"CLOSING" 2.2
"CLOSING DATE" 2.2
"CLOSING EXCHANGE RATIO" 2.4(f)(i)
"COMPETING ACQUISITION PROPOSAL" 5.9
"EMPLOYMENT AGREEMENT" 5.11
"EFFECTIVE TIME". 2.3(b)
"ENVIRONMENTAL AND SAFETY PERMITS SCHEDULE" 3.28(b)
"ESCROW AGENT" 2.6(b)
"ESCROW FUND" 2.6(b)
"ESCROW SHARES" 2.6(b)
"EXCESS CASH CONSIDERATION" 2.3(a)
"EXCHANGE AGENT" 2.6(a)
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"EXPIRATION TIME" 1.1(c)
"HOLDER" 5.16(d)
"H.S. TRASK" Preface
"H.S. TRASK COMMON SHARES Recitals
"H.S. TRASK DISCLOSURE SCHEDULE" Article III
"H.S. TRASK EXCLUDED CLAIM" 8.2(f)
"H.S. TRASK PREFERRED SHARES Recitals
"H.S. TRASK SERIES A PREFERRED SHARES Recitals
"H.S. TRASK SERIES B PREFERRED SHARES Recitals
"H.S. TRASK SERIES C PREFERRED SHARES Recitals
"H.S. TRASK SPECIAL STOCKHOLDERS MEETING" 5.4(a)
"H.S. TRASK STOCK OPTIONS" 3.3(b)
"H.S. TRASK WARRANTS" 3.3(b)
"IMPROVEMENTS" 3.12(c)
"INDEMNIFICATION CAP" 8.2(c)
"INDEMNIFICATION PERIOD" 8.1
"INDEMNITEE" 8.2(a)
"INDEMNITEES" 8.2(a)
"LETTER OF TRANSMITTAL" 2.7(a)
"LOSSES" 8.2(a)
"MERGER" 2.1
"MERGER CLOSING ACTIONS" 2.2
"MERGER CONSIDERATION" 2.4(f)(i)
"MERGER SHARES" 2.4(f)(i)
"MINIMUM CONDITION" 1.1(b)
"NON-COMPETE AGREEMENT" 5.11
"OBJECTION" 8.3(c)
"OFFER" 1.1(a)
"OFFER CONDITIONS" 1.1(b)
"OFFER DOCUMENTS" 1.1(e)
"OFFER PRICE" 1.1(a)
"OFFER TO PURCHASE" 1.1(e)
"OFFERING MEMORANDUM/PROXY STATEMENT" 5.5(a)
"PARENT" Preface
"PARENT EXCLUDED BREACH CLAIM" 8.2(g)
"PARENT FINANCIAL STATEMENTS" 4.6
"PARENT SEC DOCUMENTS" 4.5
"PARTY" Preface
"PARTIES" Preface
"PURCHASER" Preface
"REAL PROPERTY LAWS" 3.12(e)
"REAL PROPERTY PERMITS" 3.12(g)
"REGISTRABLE SHARES" 5.16(a)
"REGISTRATION STATEMENT" 5.16(b)
"RELEASE DATE" 8.5(b)
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"SECURITIES LAWS" 4.5
"STOCKHOLDER REPRESENTATIVE" Preface
"SUBSEQUENT PHOENIX FOOTWEAR SEC DOCUMENTS" 4.5
"SUPERIOR TRANSACTION" 5.9
"SUPPORT AGREEMENT" Recitals
"SURVIVING CORPORATION" 2.1
"SWDA" 3.27(e)
"SUPPORT AGREEMENT" Preface
"TAKEOVER LAW" 5.13
"THIRD PARTY" 5.9
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SCHEDULE II TO MERGER AGREEMENT
H.S. TRASK DISCLOSURE SCHEDULE
This H.S. Trask Disclosure Schedule is being delivered by H.S. Trask &
Co., a Montana corporation ("H.S. Trask" or the "Company") pursuant to Article
III of the Agreement and Plan of Merger entered into as of June ___, 2003 by and
among Phoenix Footwear Group, Inc., a Delaware corporation, PFG Acquisition,
Inc., a Montana corporation, and H.S. Trask. Section numbers herein correspond
to section numbers in the Merger Agreement. Disclosure as to one section shall
be deemed to be a disclosure as to all relevant sections. Capitalized terms used
and not otherwise defined herein have the meanings assigned to them in the
Merger Agreement.
3.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER.
Foreign qualifications:
Texas
Washington
Directors:
Harrison Trask, Chairman
Emily Trask
Tad Swanson
Nancy Delekta
David House
Officers:
Harrison Trask, President
Nancy Alston Delekta, Chief Financial Officer, VP, Secretary
John Brewer, VP Sales
Jason Jones, Executive Vice President Design and Product Development
3.4 NONCONTRAVENTION.
Pursuant to the terms of the $3,000,000 Business Loan Agreement (Asset Based)
with American Bank of Montana dated April 30, 2003, any change in the Company
ownership by 25% or greater is deemed a default under the loan and all amounts
will be immediately due and payable.
The following contracts require consent in connection with the Merger:
Commercial Lease Agreement dated May 1, 1999 between the Company and
Cook-Lehrkind Investments, leasing 9,800 square feet of warehouse space to
Company. The lease was extended to
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April 30, 2004, by letter agreement of the parties dated February 5, 2003.
Lease Agreement dated March 31, 2000 between Market Center Management Company
Ltd and the Company for 670 square feet of space. The lease expires June 30,
2007. Landlord has notified the Company it desires to move the Company to
Relocation Space (as defined in and pursuant to Section 2.5 of the Lease
Agreement).
$3,000,000 Business Loan Agreement (Asset Based) with American Bank of Montana
dated April 30, 2003.
Trademark License Agreement dated March 1, 2002 between Company and Ducks
Unlimited, Inc., whereby Ducks Unlimited licenses certain trademarks to the
Company.
3.6 TITLE TO ASSETS.
Company has granted a security interest in all Company assets, including without
limitation all inventory, accounts, equipment, intangibles, machinery, and
fixtures to American Bank of Montana in connection with the Business Loan
Agreement (Asset Based) dated April 30, 2003.
3.7 FINANCIAL INFORMATION.
The disclosures contained in Sections 3.8, 3.9 and 3.11 are
incorporated herein.
3.8 EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END.
Since December 31, 2002 the following events have occurred, which could
constitute or result in a material adverse change in the business, financial
condition, operations, results of operations or future prospects of the Company:
- The Company has granted a security interest in all Company assets,
including without limitation all inventory, accounts, equipment,
intangibles, machinery, and fixtures to American Bank of Montana in
connection with the Business Loan Agreement (Asset Based) dated April
30, 2003.
- Pursuant to the terms of the $3,000,000 Business Loan Agreement (Asset
Based) with American Bank of Montana dated April 30, 2003, any change
in the Company ownership by 25% or greater is deemed a default under
the loan and all amounts will be immediately due and payable.
- In addition to the Company's regular monthly allowance and reserve
accounting entries, the Company intends to book an additional reserve
on its May 31, 2003 balance sheet to cover possible bad debts and
obsolete inventory which will not exceed $175,000.
- The Company purchased additional computer equipment (a portion of which
was budgeted), including without limitation a new server for its web
site and two new laptops for development and sales.
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- FedEx removed software and required a switch which included an
equipment purchase using funds budgeted for marketing, which may cost
the Company approximately $2000.
- The Company recently notified Addison Footwear, a division of Munro &
Company., Inc. that it no longer expects to place any shoe production
orders with Addison. The Company received its last product from Addison
on May 16, 2003. Addison has submitted to the Company a list of raw
materials totaling approximately $162,000 and has requested the
Company's assistance in disposing of it. Other than purchase orders,
the Company has no formal agreement with Addison or Munro, and it has
no financial obligation to Addison in respect to the raw materials.
However, it is possible that Addison may later argue that the Company
should take financial responsibility for all or a portion of the raw
materials. Addison is in possession of certain equipment (dies, shoe
lasts, etc.) which the Company will request to be returned. The Company
currently has payables outstanding to Addison of approximately $146,000
of which the Company intends to hold back a reserve of $18,000 until
December 31, 2003 to offset returns for defective shoes.
- The Company switched production from a domestic supplier to one located
in Brazil. This switch could impact the number of customer product
returns.
- The Company received a notice from the Social Security Administration
regarding the Company's 2001 returns where certain amounts were not
consistent. The Company's payroll service sent the appropriate
documents to report the matched numbers due to a late entry regarding
moving expenses. See Section 3.11.
- The Company's out of state worker's compensation carrier
"Legion/Crawford Insurance" filed bankruptcy. This was underwritten
under our State Fund Carrier. The Company has an existing claim by a
former employee in Minnesota which has been settled with regard to
wages, but remains active with regard to the issues of medical and
medicine expenses.. To date this has been handled by the carriers.
- The Company has agreed to increase payments by approximately 1% to the
Herrington Catalog for co-op advertising and payment of increased
insertion fees.
- K Graphics has notified the Company that it will be increasing its fees
by approximately double effective January 2003 due to extensive catalog
work planned in 2003.
- On March 1, 2003 the Company renewed its D&O policy (#_CD 1000205A)
with the same carrier and has obtained a new Corporate Commercial
Liability policy with a new carrier. There has been no gap in
applicable insurance coverage due to this switch over in insurance and
such switch has not caused an adverse impact on the Company's financial
condition.
- The Company has renewed its Blue Cross Blue Shield Policy with an
increase in rates.
- The Company granted two employee stock options in 2003.
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1. Christine Clark 02/01/03 1,500 shares at $.40 vesting 25% annually
2. John Brewer 02/01/03 10,000 shares at $.40 vesting 25% annually
- The Company has committed to spending a minimum of $9,600 to participate in
the WSA shoe show in August 2003, however, 50% may be refunded if cancelled
by June 15, 2003.
- Company has committed to building a new concept store in Nashville with
customer David Parker Shoes, the cost of which to the Company will not
exceed $45,000.
- Trademark License dated January 28, 1998 with W.L. Gore and Associates,
Inc. whereby the Company is granted rights to use certain Gore-Tex
trademarks has been terminated by W.L. Gore and Associates, Inc., effective
on or about October 16, 2003. The loss of this license will not adversely
affect the Company's financial condition, performance or prospects given
current production plans.
- Other liabilities that have arisen since December 31, 2002 are reflected on
the Financial Statements as of April 30, 2003.
- The Company has granted the following increases in compensation to the
employees listed below. These increases reflect a cost of living increase
and in some cases a market adjustment to such employees compensation.
Employee Amount of Increase
Anthon, Jennifer A $2,500.00
Behrens, Shelly D $ 800.00
Curtis, John $ 1,000
Ganzer, Dina $ 490.00
Hinton, Dustin E $ 500.00
Kogel, Polly E $ 576.00
Malyurek, Pamela I $3,016.00
Nuss, Michelle L $1,000.08
Reedy, Christopher D $3,500.00
Winjum, Christine L $ 630.00
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- The Company has made the following changes impacting sales
commissions.
Rich Doran:
Jan. 1 - Rich Doran now responsible for Nordstrom store 760 and
762 (2%)
Jan. 1 - added FL, GA, AL and MS
Morris Reynolds:
Jan. 1 - Nordstrom #760 taken away
Jan. 1 - added VA and part of TN
Jan. 1 - added David Parker at 4% (excludes closeouts)
Jan. 1 - took away FL and GA with exception of 2 accounts in GA
Jan. 1 - added 11 Dillards stores @ 2%
Jenny Fredericks:
Feb. 1 - NWBJ discount @ 3%
May 16 - decreased commission rate on independents from 4% to 3%
excluding 3 Schnee's and Canada
Todd Ingbretsen:
Jan. 1 - added 15 Dillards stores @ 2%
Feb. 1 - NWBJ discount @ 3%
Feb. 1 - added Dillards #924, 934 and 939
Mar. 1 - added Dillards #322, 323, 330, 331 and 343
Mitchell Crane:
Feb. 1 - NWBJ discount @ 3%
Mar. 1 - added Dillards #301, 302, 351, 365, 368 and 371 @ 2%
Apr. 1 - added Dillards #367
Bill Volk:
Jan. 1 - took away VA
Michael Stevens:
Feb. 1 - NWBJ discount @ 3%
May 16 - increase commission rate on Jenny's independents from 1% to
2% excluding 3 Schnee's and Canada
May 16 - added Texas Nordstrom @ 2%
3.9 UNDISCLOSED LIABILITIES.
New liabilities incurred since December 31, 2002 in the normal course of
business are reflected on the April 30, 2003 Financial Statements.
Letters of credit with American Bank of Montana opened but undrawn as of April
30, 2003.
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Product that has been shipped by the manufacturer, financed by letters of credit
and/or wire transfers, and has not been received or paid for by the Company are
not reflected on the Financial Statements until received.
Pursuant to the Hide Sourcing Agreement, the Company ensures that Durham Ranches
will receive certain minimum revenues with respect to buffalo hide inventories
and provides for sales commissions.
The Company has discontinued manufacturing with Munro & Company, Inc. (Addison
Footwear) in Arkansas and will need to come to a settlement with them regarding
payments, returns, equipment, materials, etc. See disclosure in Section 3.8.
N.W. Buyers & Jobbers, Inc. Affiliation Agreement dated March 6, 2003, between
the Company and N.W. Buyers & Jobbers, Inc., providing for payment by the
Company of 3% of all net shipments made to NWBJ member stores. The agreement may
be cancelled by either party with 30 days prior written notice.
The Company has approximately $2,800,000 in outstanding product purchase orders
and continues to place additional purchase orders as needed in the ordinary
course of business, which orders may exceed $20,000 per vendor.
Company employees have earned vacation leave since December 31, 2002 in
accordance with the Company' vacation policy, which has not changed since
December 31, 2002. The Company is in the process of confirming the amount of
vacation leave owed to its employees in accordance with the foregoing and will
set forth an additional accrual for such amount on its May 31, 2003 balance
sheet.
Sales promotions for the month of June 2003 include (1) extending the retail
store terms of payment from 30 days to 60 days, (2) offering free shipping to
certain retail stores ordering in specified quantities, and (3) offering an
additional $2,000 in performance based bonuses to the Company's sales
representatives.
The Company's Board of Directors has authorized payment of a bonus to Nancy
Alston Delekta in the amount of $15,000 payable as soon as reasonably
practicable after the special shareholder meeting to approve the merger.
The Company is in the process of storing its log cabin show room in a new
location, which will cost the Company an additional $75.00 per month.
Recently the Company has received indications that Dino Dardano is having
difficulty fulfilling his obligations as service contractor for the Company's
extended wear program. If Mr. Dardano becomes unable to fulfill his commitments,
the Company may incur costs of finding a replacement for the extended wear
program and/or discontinuing the program.
II-6
The disclosures contained in Section 3.8 are incorporated herein.
3.11 TAX MATTERS.
(a)
- H.S. Trask does not make any representations or warranties
regarding (i) its basis in its assets; (ii) the amount of any
net operating loss, net capital loss, unused investment or
other credit, unused foreign tax, or excess charitable
contribution allocable to it; or (iii) any other tax
attribute.
- H.S. Trask filed its 2002 Texas Sales and Use Tax Return ten
(10) days late. The return was due on January 20, 2003, but
was not filed until January 30, 2003. The return showed a zero
(0) tax liability, and H.S. Trask paid a $50 late filing
penalty. Certain prior period Texas Sales and Use Tax Returns
were also filed late, but in each cash the returns showed a
zero (0) tax liability.
- H.S. Trask has not collected or paid state or local sales,
deferred sales or use taxes on Internet retail sales by the
Company.
- H.S. Trask has made certain sales at wholesale for which it
has not collected retail sales tax. H.S. Trask has not yet
obtained sales tax exemption certificates from all of such
wholesale customers.
- H.S. Trask received a notice in March 2003 regarding a $2,500
discrepancy in the 2001 IRS and Social Security Administrative
("SSA") records. The appropriate corrected documents were sent
to the SSA on April 23, 2003.
(b)
- H.S. Trask received a notice in March 2003 regarding a $2,500
discrepancy in the 2001 IRS and Social Security Administrative
("SSA") records. The appropriate corrected documents were sent
to the SSA on April 23, 2003.
(c) H.S. Trask filed the following federal, state, local and
foreign income Tax Returns for taxable years ended on or after December 31,
1998:
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2002 12/31/2001 12/31/2000 12/31/1999
FEDERAL Yes Yes Yes Yes
ARIZONA Yes* Yes Yes Yes
CALIFORNIA Yes Yes Yes Yes
COLORADO Yes Yes Yes Yes
II-7
CONNECTICUT No No No Yes*
FLORIDA Yes Yes Yes Yes
GEORGIA Yes Yes No No
ILLINOIS Yes Yes Yes Yes
INDIANA No No No Yes*
MARYLAND No Yes* Yes Yes
MICHIGAN Yes Yes Yes Yes
MINNESOTA Yes* Yes Yes No
MISSOURI Yes* Yes Yes Yes
MONTANA Yes Yes Yes Yes
NEW JERSEY Yes* Yes No Yes**
NEW YORK Yes Yes Yes Yes
OREGON Yes Yes Yes No
PENNSYLVANIA No No No Yes*
TEXAS Yes Yes Yes Yes
* Final return
** The 1999 New Jersey income Tax Return was marked as the "final return". The
New Jersey taxing authority would not issue a tax clearance certificate until
the Company filed a 2001 return and a 2002 return (based on estimated amounts).
None of the Tax Returns listed above have been audited or are currently the
subject of audit.
3.12 REAL PROPERTY.
(b)
LEASE PARTY FROM TO TERMS
(1) Commercial Lease Agreement Cook-Lehrkind Investments, a 05/01/99 04/30/04 $4,460.93 per month plus
(Back Warehouse Lease 9,800 Montana Partnership doing business operating escalator. Company
Square Feet) as Bridger Industrial Park pays utilities.
II-8
(2) Commercial Lease Agreement Cook-Lehrkind Investments, a 03/27/96 04/30/04 $10,270.49 per month plus
(Office and Warehouse Lease Montana Partnership doing business operating escalator. Company
18,220 Square Feet) as Bridger Industrial Park pays utilities.
(3) Letter Agreement to Landlord Cook-Lehrkind Investments, a 04/30/04 $500 per month plus 1pair shoes
(Additional small warehouse Montana Partnership doing business and 1 belt. Company pays
lease) as Bridger Industrial Park utilities.
(4) Lease Agreement (Showroom Market Center Management 07/01/00 06/30/07 $1,035-$1,200 per month
lease in market center) Company LTD
(5) Trailer Rental Agreement Montana Ready Mix, Ltd. 01/26/01 $80.00 per month
(trailer lease for warehouse)
(6) Trailer Rental Agreement Montana Ready Mix, Ltd. 04/03/01 $80.00 per month
(trailer lease for warehouse)
3.13 INTELLECTUAL PROPERTY.
3.13(c) Trademarks
CASE
NUMBER/SUBCASE APPLICATION PUBLICATION REGISTRATION STATUS
TRADEMARK COUNTRY NAME NUMBER/DATE NUMBER/DATE NUMBER/DATE
AFTER THE HATCH 3736650003/ 75/457,417 2,304,796 Registered
United States of America 26-Mar-1998 29-Dec-1998 28-Dec-1999
AFTER THE HUNT 3736650004/ 75/457,258 2,300,813 Registered
United States of America 26-Mar-1998 29-Dec-1998 14-Dec-1999
II-9
AMERICA'S ORIGINAL LEATHER, FO 3736650023/ 74/527,549 2,081,869 Registered
United States of America 10-May-1994 22-Jul-1997 22-Jul-2007
BUFFALO BUTTER 3736650018/ 75/816,867 Abandoned
United States of America 06-Oct-1999
BUFFALO ROBE 3736650024/ 74/691,796 2,037,849 Registered
United States of America 21-Jun-1995 11-Feb-1997 11-Feb-2007
BUFFALO WAX 3736650019/ 75/816,868 Abandoned
United States of America 06-Oct-1999
COLTER CREEK 3736650047/ 75/887,366 Abandoned
United States of America 04-Jan-2000 05-Sep-2000
H. S. TRASK AND DESIGN 3736650038/ 83077987 701217 Registered
Taiwan 31-Dec-1994 16-Dec-1995 15-Dec-2005
H. S. TRASK AND DESIGN 3736650022/ 818300108 Suspended
Brazil 24-Jan-1995 18-Nov-1997
H. S. TRASK AND DESIGN 3736650030/ 394 09 681.9 394 09 681 Registered
Germany 28-Dec-1994 17-Aug-1995 28-Dec-2004
H. S. TRASK AND DESIGN 3736650032/ 95 00230 1969/1998 Registered
Hong Kong 09-Jan-1995 09-Jan-1995 09-Jan-2016
II-10
H. S. TRASK AND DESIGN 3736650033/ MI95C000217 734.581 Registered
Italy 12-Jan-1995 17-Nov-1997 12-Jan-2005
H. S. TRASK AND DESIGN 3736650034/ 6-132625 4014515 Registered
Japan 28-Dec-1994 20-Jun-1997 20-Jun-2007
H. S. TRASK AND DESIGN 3736650035/ 226,183 495,137 Registered
Mexico 03-Mar-1995 19-Jun-1995 03-Mar-2005
H. S. TRASK AND DESIGN 3736650036/ 3991/95 T95/03991E Registered
Singapore 05-May-1995 05-May-1995 05-May-2005
H. S. TRASK AND DESIGN 3736650037/ 94-13253 306638 Registered
Sweden 28-Dec-1994 08-Dec-1995 08-Dec-2005
H. S. TRASK AND DESIGN 3736650031/ 2006161 2006161 Registered
United Kingdom 30-Dec-1994 30-Dec-1994 30-Dec-2004
H. S. TRASK AND DESIGN 3736650040/ 74/511,479 2,124,609 Registered
United States of America 12-Apr-1994 30-Dec-1997 30-Dec-2007
H. S. TRASK AND DESIGN 3736650039/ 979636 418 Published
Venezuela 14-May-1997 27-Jan-1998
H.S. TRASK AND DESIGN 3736650046/ 649,575 649,575 Registered
Australia 29-Dec-1994 29-Dec-1994 29-Dec-2004
II-11
H.S. TRASK AND DESIGN 3736650025/ 608/95 159.733 Registered
Austria 02-Mar-1995 08-Sep-1995 30-Sep-2005
H.S. TRASK AND DESIGN 3736650026/ 839,612 566612 Registered
Benelux 23-Dec-1994 23-Dec-1994 23-Dec-2004
H.S. TRASK AND DESIGN 3736650020/ 772,109 517,003 Registered
Canada 30-Dec-1994 10-Jun-1998 24-Sep-1999
H.S. TRASK AND DESIGN 3736650027/ 298.827 455.585 Registered
Chile 06-Feb-1995 11-Jan-1996 11-Jan-2006
H.S. TRASK AND DESIGN 3736650028/ 95009305 909199 Registered
China 23-Jan-1995 07-Dec-1996 06-Dec-2006
H.S. TRASK AND DESIGN 3736650007/ VA01.5311998 VR01.8301998 Registered
Denmark 30-Mar-1998 13-May-1998 17-Apr-1998
H.S. TRASK AND DESIGN 3736650008/ 116035 116035 Registered
Egypt 04-Jul-1998 15-Jul-2002 04-Jul-2008
H.S. TRASK AND DESIGN 3736650009/ T199801179 213216 Registered
Finland 31-Mar-1998 15-Mar-1999 15-Mar-2009
H.S. TRASK AND DESIGN 3736650029/ 94551 075 94551 075 Registered
France 27-Dec-1994 27-Dec-1994 26-Dec-2004
H.S. TRASK AND DESIGN 3736650010/ 98/1133 208032 Registered
Ireland 27-Mar-1998 24-Mar-1999 27-Mar-1998
II-12
H.S. TRASK AND DESIGN 3736650011/ 118776 118776 Registered
Israel 29-Mar-1998 31-Jan-1999 06-May-1999
H.S. TRASK AND DESIGN 3736650015/ 98-9776 441827 Registered
Korea, Republic of 21-Apr-1998 04-Nov-1998 18-Feb-1999
H.S. TRASK AND DESIGN 3736650012/ 290497 290497 Registered
New Zealand 31-Mar-1998 26-Jun-1998 22-Oct-1998
H.S. TRASK AND DESIGN 3736650013/ T9802846 192,157 Registered
Norway 30-Mar-1998 21-Sep-1998 14-Aug-1998
H.S. TRASK AND DESIGN 3736650014/ 98/05385 Registered
South Africa 31-Mar-1998 24-Dec-2001 04-Apr-2002
H.S. TRASK AND DESIGN 3736650016/ 2155165 2155165 Registered
Spain 07-Apr-1998 01-Jun-1998 20-May-1999
H.S. TRASK AND DESIGN 3736650017/ 02604/1998 457 077 Registered
Switzerland 30-Mar-1998 13-Jan-1999 30-Mar-1998
H.S. TRASK AUTHENTIC.... 3736650006/ 2.146.554 1.756.005 Registered
Argentina 23-Apr-1998 06-Oct-1999 06-Oct-2009
H.S. TRASK BOZEMAN MONTANA 3736650049/ 2000C010867 Pending
Italy 04-Oct-2000
II-13
H.S. TRASK BOZEMAN MONTANA 3736650048/ 76/138,665 2,496,187 Registered
United States of America 02-Oct-2000 17-Jul-2001 09-Oct-2001
HABITAT FOR YOUR FEET 3736650050/ 76/409,902 Published
United States of America 20-May-2002 26-Nov-2002
MISCELLANEOUS DESIGN (CHISOLM) 3736650000/ 75/411,611 Abandoned
United States of America 29-Dec-1997
MISCELLANEOUS DESIGN (SADDLE ) 3736650002/ 75/411,635 Abandoned
United States of America 29-Dec-1997
MISCELLANEOUS DESIGN (SIOUX) 3736650001/ 75/411,246 Abandoned
United States of America 29-Dec-1997
MONTANA TRADER 3736650021/ 74/628,863 Abandoned
United States of America 02-Feb-1995
OLD MONTANA 3736650041/ 74/676,780 Abandoned
United States of America 19-May-1995
OLD SHOE COMFORT...RIGHT FROM 3736650042/ 75/209,885 2,182,890 Registered
United States of America 09-Dec-1996 18-Aug-1998 18-Aug-2008
II-14
PRAIRIE BOOT 3736650043/ 74/529,795 Abandoned
United States of America 26-May-1994
PRAIRIE MOC 3736650005/ 75/464,658 2,315,525 Registered
United States of America 08-Apr-1998 16-Nov-1999 08-Feb-2000
RAISIN 3736650044/ 75/365,793 Abandoned
United States of America 30-Sep-1997
TRASK 3736650045/ 74/511,477 1,946,133 Registered
United States of America 12-Apr-1994 02-Jan-1996 02-Jan-2006
Company's Internet domain name: xxx.xxxxxxx.xxx
(d) Trademark License Agreement dated March 1, 2002 between
Company and Ducks Unlimited, Inc., whereby Ducks Unlimited licenses certain
trademarks to the Company.
Trademark License dated January 28, 1998 with W.L. Gore and Associates,
Inc. whereby Company is granted rights to use certain Gore-Tex trademarks.
3.14 TANGIBLE ASSETS.
The Munro & Company, Inc. currently possesses some equipment owned by the
Company which will need to be returned to the Company's possession after
termination of Munro's business relationship with the Company.
II-15
3.15 INVENTORY.
(a) The Company, in the ordinary course of its business, sells
excess merchandise on a close-out basis at a discount to liquidate older
inventory. It is likely that some inventory listed on the Company's April 30,
2003 balance sheet will be sold at a discount in the ordinary course of business
(b)
(i) Purchasing Agents
(ii) Note: The Company does not buy directly from the
agents but pays the agents a fee that exceeds the
$50,000 threshold.
Portugal: Joao Carvalho, Reprsentacoes, Lda. (not currently using)
Italy: S.E.CE S.r.l.
Brazil: Gateway Com. Imp. Exp. Ltda
China: Goodsoles/Gundry Sales & Marketing
(III) THIRD PARTY MANUFACTURERS
Active - Samello
Not Active - Artecola
Italy:
Active - LGM--formerly Morini
Not Active - Mastromarco; Nuovo Nicar; Marros
China:
Active - Wan Chang
China (Ducks):
Active - Kimo
Not Active - New Star Enterprises; Fulgent Sun
Dominican Republic:
Not Active - Bojos Manufacturing
Portugal:
Not Active - Campeao
Third Party Manufacturer - Belts
USA:
Active - Highland Belts
Not Active - Leegin Belts
Third Party Manufacturer - Leather Goods
USA:
Active - Appalachian Stitching Co.
Not Active - Waterbury Leather Works
II-16
Third Party Manufacturer - POP
USA:
Active - Big Sky Carvers
Active - Hutchinson Company
Active - Meissenburg Design
Active - American Traders
Active - Spectragraphics
Active - Creative Edge Specialty
Active - Montana Container Corp
Active -- Skidmores
Active - Summit Resources
Active - Ramirez & Cutter
Not Active - Bell Manufacturing
Not Active - Woodlore
Not Active - American Needle
Not Active - XPEDEX
Not Active - Sam Tai Metalware
(c)
(IV) RAW MATERIAL SUPPLIERS
Note: the Company does not buy directly from these suppliers, the factories buy
direct.
Hundreds of suppliers from laces to outsoles
Bison Leather - Gutmann Tannery - Chicago
Bison Leather - Horween Tannery - Chicago
@06/05/03
2001 2002 2003
VENDOR NAME COUNTRY PAYMENTS PAYMENTS PAYMENTS TOTAL PAYMENTS
----------- ------- -------- -------- -------- --------------
Calcados Samello Brazil $1,206,557 $1,228,222 $730,208 $3,164,986
Artecola Brazil $ 160,446 $ 347,290 $ 99,825 $ 607,561
LGM Shoes (formerly Morini) Italy $ 0 $ 102,806 $182,233 $ 285,038
Calzaturificio Morini Italy $ 1,647 $ 290,323 $ 235 $ 292,204
Calzaturieri Mastromarco Italy $ 902,094 $ 103,444 $ 0 $1,005,537
Nuovo Nicar Italy $ 140,578 $ 0 $ 0 $ 140,578
Industria Calzaturiera Marros Italy $ 144,360 $ 0 $ 0 $ 144,360
Wan Chang Enterprises China $ 246,786 $ 330,648 $ 22,506 $ 599,941
Good Soles (Ducks Unlimited) China $ 0 $ 165,185 $209,286 $ 374,471
Bojos Manufacturing, LTD Dominican
Republic $ 0 $ 81,180 $ 0 $ 81,180
Campeao Portugues, LDA Portugal $ 162,801 $ 0 $ 0 $ 162,801
Addison Shoe Co. USA $1,395,793 $1,469,786 $333,413 $3,198,993
Ansewn Shoe Co. USA $ 276,721 $ 22,708 $ 0 $ 299,429
Leegin Leather Products USA $ 64,782 $ 19,619 $ 0 $ 84,401
Highland Belts & Fine Leathergoods USA $ 0 $ 76,427 $ 65,079 $ 141,506
Appalachian Stitching Co. USA $ 0 $ 7,930 $ 16,328 $24,258
VENDOR NAME STATUS DESCRIPTION
----------- ------ -----------
Calcados Samello Active 3rd party manufacturer of shoes
Artecola Not Active 3rd party manufacturer of shoes
LGM Shoes (formerly Morini) Active 3rd party manufacturer of shoes
Calzaturificio Morini Not Active 3rd party manufacturer of shoes
Calzaturieri Mastromarco Not Active 3rd party manufacturer of shoes
Nuovo Nicar Not Active 3rd party manufacturer of shoes
Industria Calzaturiera Marros Not Active 3rd party manufacturer of shoes
Wan Chang Enterprises Active 3rd party manufacturer of shoes
Good Soles (Ducks Unlimited) Active 3rd party manufacturer of shoes
Bojos Manufacturing, LTD Not Active 3rd party manufacturer of shoes
Campeao Portugues, LDA Not Active 3rd party manufacturer of shoes
Addison Shoe Co. Not Active 3rd party manufacturer of shoes
Ansewn Shoe Co. Not Active 3rd party manufactuer of shoes &
belts
Leegin Leather Products Not Active 3rd party manufacturer of belts
Highland Belts & Fine Leathergoods Active 3rd party manufacturer of belts
Appalachian Stitching Co. Active 3rd party manufacturer of
leathergoods
II-17
Waterbury Leatherworks Co. USA $ 0 $ 4,752 $ 3,205 $ 7,958
Big Sky Carvers USA $ 26,096 $ 22,435 $ 4,050 $ 52,581
Hutchinson Co. USA $ 6,282 $ 3,838 $ 0 $ 10,120
Meissenburg Design USA $ 2,718 $ 990 $ 77 $ 3,785
American Traders USA $ 0 $ 1,232 $ 0 $ 1,232
Creative Edge Specialty USA $ 398 $ 0 $ 0 $ 398
Skidmore's Beeswax USA $ 38,400 $ 54,576 $ 26,679 $ 119,655
Summit Resources USA $ 17,233 $ 17,882 $ 0 $ 35,114
Ramirez & Cutter Philippines $ 0 $ 9,418 $ 1,200 $ 10,618
Woodlore USA $ 3,256 $ 0 $ 0 $ 3,256
American Needle & Novelty Co. USA $ 849 $ 0 $ 0 $ 849
Sam Tai Metalware Factory Hong Kong $ 0 $ 4,629 $ 0 $ 4,629
Montana Container Corp USA $ 15,590 $ 15,574 $ 6,195 $ 37,360
Xpedx USA $ 903 $ 153 $ 747 $ 1,802
Spectragraphics USA $ 1,476 $ 865 $ 0 $ 2,341
Bell Manufacturing Co. USA $ 3,517 $ 0 $ 0 $ 3,517
3rd party manufacturer of
Waterbury Leatherworks Co. Not Active leathergoods
Big Sky Carvers Active 3rd party manufacturer of POP
Hutchinson Co. Active 3rd party manufacturer of POP
Meissenburg Design Active 3rd party manufacturer of POP
American Traders Active 3rd party manufacturer of POP
Creative Edge Specialty Active 3rd party manufacturer of POP
Skidmore's Beeswax Active 3rd party manufacturer of POP
Summit Resources Active 3rd party manufacturer of POP
Ramirez & Cutter Active 3rd party manufacturer of POP
Woodlore Not Active 3rd party manufacturer of POP
American Needle & Novelty Co. Not Active 3rd party manufacturer of POP
Sam Tai Metalware Factory Not Active 3rd party manufacturer of POP
Montana Container Corp Active 3rd party manufacturer of boxes
Xpedx Not Active 3rd party manufacturer of boxes
Spectragraphics Active 3rd party manufacturer of labels
3rd party manufacturer of silk sock
Bell Manufacturing Co. Not Active labels for shoes
(d)
At signing Company will provide a list of pending purchase orders placed by it
with factories as of April 30, 2003.
On May 16, 2003, the Company received its last product from and ceased using
facilities owned and operated by the Munro & Company, Inc.
The Hide Sourcing Agreement allocates rights and responsibilities between the
Company and Durham Ranches with respect to bison hide inventories.
3.16 CUSTOMERS; ACCOUNTS PAYABLE.
[Schedules to be attached prior to signing as of April 30, 2003.]
3.17 CONTRACTS.
(b)
- 2002 Bison Hide Agreement dated September 20, 2002 among Company,
Durham Ranches, Inc. and Bud Flocchini.
- $3,000,000 Business Loan Agreement (Asset Based) with American Bank of
Montana dated April 30, 2003. (Pursuant to the terms of the $3,000,000
Business Loan Agreement (Asset Based) with American Bank of Montana
dated April 30, 2003, any change in the Company ownership by 25% or
greater is deemed a default under the loan and all amounts will be
immediately due and payable.)
- Letter Agreement dated March 3, 2003, for the construction of a Company
concept shop
II-18
at a David Parker Shoes location in Nashville, TN.
- Trademark License Agreement dated March 1, 2002 with Ducks Unlimited.
- Letter Agreement dated January 7, 2003 with Herrington Catalog and
later amended by email correspondence on May 1, 2003.
(d)
$3,000,000 Business Loan Agreement (Asset Based) with American Bank of Montana
dated April 30, 2003.
Indemnity and Guaranty Fee Agreements dated April 30, 2003 (with Harrison Trask,
David House, Armondo Flocchini and James Mead relating to Business Loan
Agreement)
(f)
Indemnity and Guaranty Fee Agreements dated April 30, 2003 (with Harrison Trask,
David House, Armondo Flocchini and James Mead relating to Business Loan
Agreement)
(g)
Company's Stock Option Plan
(k)
$3,000,000 Business Loan Agreement (Asset Based) with American Bank of Montana
dated April 30, 2003.
Indemnity and Guaranty Fee Agreements dated April 30, 2003 ( with Harrison
Trask, David House, Armondo Flocchini and James Mead relating to Business Loan
Agreement) All other agreements of the Company referenced in this Disclosure
Schedule are herein incorporated by reference.
(i)
Employment Letter to Jason Jones dated October 22, 2001.
Employment Letter to Brenda Morris dated April 15, 2003.
Employment Letter to Shauna Anderson dated May 16, 2003.
Oral agreement of employment with Nancy Delekta, which provides that Mrs.
Delekta will work in the H.S. Trask office Tuesday through Thursday and from
home on an as-needed basis. Mrs. Delekta will be reimbursed for expenses
including but not limited to mileage to and from Cameron, MT, lodging, and
dinner meals while in Bozeman and expenses incurred if working from her home in
Cameron (e.g. phone, fax, copies).
Oral agreement with K. Graphics, which provides for a monthly retainer of $3,140
plus reimbursement of expenses to perform graphic design work for H.S. Trask.
..
Oral Independent Contractor Agreement with Roland Salas which provides:
- Company will engage Salas as independent contractor to assist H.S.
Trask in shoe sales in the California, Hawaii and Nevada.
- Salas will receive a commission of 8% of shipped sales net of returns,
markdowns, discounts, allowances and adjustments for collections over
90 days.
- Salas will pay own expenses except travel to home office for company
sales meetings.
II-19
- Payments on a monthly basis.
Salas contact information:
360 S. Pastoria
Sunnyvale, CA 94086
(408) 773-1850 PH
(408) 773-2720 FAX
E-Mail: salasrl@aol.com
Independent Contractor Agreement with William M. Volk, III dated August 15,
2001.
Independent Contractor Agreement with Harmon Morris Reynolds dated October 29,
2001.
(l)
- 2002 Bison Hide Agreement dated September 20, 2002 among Company,
Durham Ranches, Inc. and Bud Flocchini.
- $3,000,000 Business Loan Agreement (Asset Based) with American Bank of
Montana dated April 30, 2003. (Pursuant to the terms of the $3,000,000
Business Loan Agreement (Asset Based) with American Bank of Montana
dated April 30, 2003, any change in the Company ownership by 25% or
greater is deemed a default under the loan and all amounts will be
immediately due and payable.)
- Letter Agreement dated March 3, 2003, for the construction of a Company
concept shop at a David Parker Shoes location in Nashville, TN.
- Trademark License Agreement dated March 1, 2002 with Ducks Unlimited.
- Letter Agreement dated January 7, 2003 with Herrington Catalog and
later amended by email correspondence on May 1, 2003.
3.18 NOTES AND ACCOUNTS RECEIVABLE.
Accounts receivable aging schedule as of 12/31/02 and 03/31/03 is attached
hereto. The disclosures in Section 3.8 relating to bad debt and obsolete
inventory are incorporated herein.
3.19 BANK ACCOUNTS; POWERS OF ATTORNEY.
Powers of attorney for customs purposes:
Emery Distribution Systems, Inc. D.B.A. Emery Customs Brokers
I.C.S. Customs Service, Inc.
L.E. Coppersmith, Inc.
Lynden International
Miami International Forwarders
Radix Group International, Inc. dba Danzas AEI Customs Brokerage Services
Samuel Shapiro & Company, Inc.
Samuel Shapiro & Company, Inc. and Norman G. Jensen Inc
II-20
Paychex is our power of attorney for payroll tax related filings while we are
using their services. Prior to Paychex we filed our own payroll taxes.
Paychex, Inc.
Suite 260
6955 S. Union Park Center
Midvale, UT 84047-4190
American Bank of Montana
1632 West Main Street
P.O. Box 1970
Bozeman, MT 59771-1970
Atn: Craig Hveem
Account # 28013301 (Note: this is checking and payroll - the accounts are swept
together with deposits and borrowing nightly)
Business Loan Agreement Account #8659 ($3,000,000)
The current officers with signing authority on the checking account are Harrison
Trask and Nancy Delekta
3.20 INSURANCE.
Name, address, and telephone number of insurance agent
Rich Deming CIC
First West Insurance
1905 Stadium Drive
Bozeman, MT 59715
PH: 406-587-5111
FX: 406-586-2757
Names of insurer, policyholder, and each covered insured
-------------------------------------------------------------------------------------------------------------------------
CONTRACT NAME COMPANY ADDRESS TO
-------------------------------------------------------------------------------------------------------------------------
Commercial and General First West Insurance 1905 Stadium
Liability Coverage St. Paul Fire & Marine Drive Bozeman, MT 59715 04/01/2004
-------------------------------------------------------------------------------------------------------------------------
First West Insurance 1905 Stadium
Marine Cargo St. Paul Fire & Marine Drive Bozeman, MT 59715 07/01/2003
-------------------------------------------------------------------------------------------------------------------------
Corporate Directors
and Officers and
Employment Practices
Liability Policy (D&O
$3million, EE Practices United States Liability
$1million) Insurance Company Wayne, PA 03/01/2004
-------------------------------------------------------------------------------------------------------------------------
Policy 03-185048-0 Montana State Fund 5 South Last Chance Gulch, P.O. 04/04/2004
-------------------------------------------------------------------------------------------------------------------------
II-21
-------------------------------------------------------------------------------------------------------------------------
Worker's Comp Policy for State and out
of state Box 4759 Helena, MT 9604-4759
-------------------------------------------------------------------------------------------------------------------------
Policy 011939583
Disability policy on Life Investors Ins Co. 4333 Edgewood Road NE
Harrison Trask of America Cedar Rapids, IA 52499 07/31/2003
-------------------------------------------------------------------------------------------------------------------------
Policy 011962288
Life insurance policy on Life Investors Ins Co. 4333 Edgewood Road NE
Harrison Trask of America Cedar Rapids, IA 52499 06/30/2003
-------------------------------------------------------------------------------------------------------------------------
Worker's Compensation
and Employer's Liability Argonaut Insurance Co.
Policy United States Insurance P.O. Box 8704
WC-47-657-821362 Service Inc. Baltimore, MD 21240 04/04/04
-------------------------------------------------------------------------------------------------------------------------
The Guardian Insurance 1560 Valley Certer Parkway
Contract Number: & Annuity Company, Suite 100
604574 Inc. Bethlehem, PA 18017-2289
-------------------------------------------------------------------------------------------------------------------------
Professional Benefit 1193 Royvonne S.E., Ste.
401K Administration Services, Inc. Salem, OR 97302 2/31/2003
-------------------------------------------------------------------------------------------------------------------------
Group Contract H.S. Blue Cross Blue Shield 404 Fuller Avenue
Trask & Co. of Montana Helena, MT 59604 2/28/2004
-------------------------------------------------------------------------------------------------------------------------
Associated Employers 2910 Third Avenue North
Membership of Montana Billings, MT 59103-1301 2/31/2003
-------------------------------------------------------------------------------------------------------------------------
P.O. Box 5474
Missoula, MT 59806
Benefit Innovations,
Inc.
POP and Flex Plan 12/31/2003
Administration
-------------------------------------------------------------------------------------------------------------------------
II-22
3.22 PRODUCT WARRANTY.
Company guarantees the quality of its products and regularly repairs or replaces
its products upon customer request or request of Company's account services
representatives after review for reasonableness. Company has a 30 day return
policy for its direct customer sales.
Company maintains a reserve on its balance sheet for product returns and
defective products, which offsets sales and accounts receivable. The Company
does not maintain an additional reserve for product warranty because it is
covered in the returns reserve.
3.24 EMPLOYEES.
(a)
Employees:
Anderson, Shauna
Anthon, Jennifer A
Behrens, Shelly D
Brewer, John
Clark, Ciana
Crane, Mitchell A
Curtis, John
Delekta, Nancy A
Doran, Richard C
Fredericks, Jennifer
Ganzer, Dina
Hinton, Dustin E
Ingbretsen, Todd M
Jones, Jason C
Kogel, Polly E
Malyurek, Pamela I
Morris, Brenda A
Nuss, Michelle L
Reedy, Christopher D
Ruffatto, Alysha J
Stevens, Michael B
Trask, Harrison S
Winjum, Christine L
Officers and Directors:
The officers and directors listed in Section 3.1 are incorporated herein.
Pursuant to the Jason Jones employment letter dated October 22, 2001, a new
Company owner not employing Jason Jones for a period of one year after a sale of
the company is obligated to pay Mr. Jones severance in the amount of $120,000.
Mr. Jones is also entitled to a $100,000 bonus payment upon a merger or
acquisition of the Company if he remains employed by the Company. The Company
has one former employee receiving worker's compensation payments.
II-23
(b)
The Company pays all employees on an exempt salary basis. It is possible that
some Company employees may not qualify as exempt employees. The Company does not
have any employees that are questionable as to status working overtime and
believes such possible discrepancy is not material.
3.25 EMPLOYEE BENEFITS.
(a)
Employee Benefit Plan and Benefit Arrangements
401(k) without a match
Flex Plan
Premium Only Plan
Medical and Dental Insurance with life included
Vacation, Holiday, and Sick Leave
3.26 GUARANTIES.
$3,000,000 Business Loan Agreement (Asset Based) with American Bank of Montana
dated April 30, 2003.
Under the Hide Sourcing Agreement, the Company ensures that Durham Ranches will
receive certain minimum revenues with respect to certain hide inventories.
The disclosures in Section 3.9 are incorporated herein.
II-24
EXHIBIT A TO MERGER AGREEMENT
STOCKHOLDER SUPPORT AGREEMENT
This STOCKHOLDER SUPPORT AGREEMENT, dated as of 16, 2003 (this
"AGREEMENT"), by and among HARRISON S. TRASK, EMILY TRASK, AND TAD SWANSON,
(each a "STOCKHOLDER" and together, the "STOCKHOLDERS"), PHOENIX FOOTWEAR GROUP,
INC., a Delaware corporation ("PHOENIX FOOTWEAR") and PHOENIX ACQUISITION, INC.,
a Montana corporation and a wholly-owned subsidiary of Phoenix Footwear ("PFG
ACQUISITION").
R E C I T A L S :
WHEREAS, Phoenix Footwear, PFG Acquisition and H.S. Trask & Co., a
Montana corporation ("H.S. TRASK") proposed to enter into an Agreement and Plan
of Merger, dated as of July 16, 2003 (as the same maybe amended or supplemented
from time to time, the "MERGER AGREEMENT"), which provides, among other things,
that PFG Acquisition will make a cash tender offer (the "OFFER") for all of the
outstanding shares of each series of H.S. Trask preferred stock (which includes
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock)
(collectively, the "PREFERRED SHARES") and, after expiration of the Offer, (a)
PFG Acquisition will take such actions as may be necessary to convert all
Preferred Shares not purchased in the Offer into H.S. Trask common stock and (b)
H.S. Trask will merge with an into PFG Acquisition (the "MERGER"), all upon the
terms and subject to the conditions in the Merger Agreement (with all
capitalized terms used but not defined herein having the meanings set forth in
the Merger Agreement);
WHEREAS, each Stockholder owns the number of shares of common stock,
par value $.01 per share, of H.S. Trask and warrants to purchase shares of H.S.
Trask common stock as is set forth and further described on EXHIBIT A attached
hereto (such common shares and warrants, together with any other shares of
capital stock of H.S. Trask acquired (whether beneficially or of record) by the
Stockholders after the date hereof and prior to the earlier of the Effective
Time and the termination of all of the Stockholders' obligations under this
Agreement, including any shares acquired by means of purchase, dividend or
distribution, or issued upon the exercise of any warrants or options, and the
conversion of any convertible securities or otherwise being collectively
referred to herein as the "SUBJECT SHARES"); and
WHEREAS, as a condition to the willingness of Phoenix Footwear and PFG
Acquisition to enter into the Merger Agreement and make the Offer, Phoenix
Footwear has required that the Stockholders agree and, in order to induce
Phoenix Footwear and PFG Acquisition to enter into the Merger Agreement and make
the Offer, the Stockholders have agreed, to enter into this Agreement.
NOW, THEREFORE, to induce Phoenix Footwear and PFG Acquisition to enter
into, and in consideration of their entering into, the Merger Agreement, and in
consideration of the premises and the representations, warranties and agreements
contained herein the parties agree as follows:
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1. COVENANTS OF STOCKHOLDERS. Until the termination of the
Stockholders' obligations in accordance with Section 5, Stockholders agrees as
follows:
(a) At the H.S. Trask Special Stockholders Meeting (or at
any adjournment thereof) or in any other circumstances upon which a vote,
consent or other approval with respect to the Merger or the Merger Agreement is
sought, the Stockholders shall vote (or cause to be voted) the Subject Shares in
favor of the Merger, the adoption of the Merger Agreement and the approval of
the terms thereof and each of the other transactions contemplated by the Merger
Agreement, including the approval the Articles Amendment (as defined in the
Merger Agreement).
(b) At any meeting of stockholders of H.S. Trask (or at
any adjournment thereof) or in any other circumstances upon which the
Stockholderss vote, consent or other approval is sought, the Stockholders shall
vote (or cause to be voted) the Subject Shares against (i) any merger agreement
or merger (other than the Merger Agreement and the Merger), consolidation,
combination, sale of substantial assets, reorganization, recapitalization,
dissolution, liquidation or winding up of or by H.S. Trask or any subsidiary
thereof or any other Competing Acquisition Proposal or (ii) any amendment of
H.S. Trask's Articles of Incorporation or its By-Laws or other proposal or
transaction involving H.S. Trask or any of its subsidiaries, which amendment or
other proposal or transaction would in any manner impede, frustrate, prevent or
nullify the Offer, the Merger, the Merger Agreement or any of the other
transactions contemplated by the Merger Agreement or change in any manner the
voting rights of any class of capital stock of H.S. Trask. The Stockholders
further agree not to commit or agree to take any action inconsistent with the
foregoing.
(c) The Stockholders shall not, nor shall the
Stockholders permit any affiliate, employee or other representative of the
Stockholders to, (i) directly or indirectly solicit, initiate or knowingly
encourage the submission of, any Competing Acquisition Proposal or (ii) directly
or indirectly participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes or
may reasonably be expected to lead to, any Competing Acquisition Proposal.
(d) The Stockholders shall cooperate with Phoenix
Footwear to support and to consummate and make effective, in the most
expeditious manner practicable, the Offer, the Merger and the other transactions
contemplated by the Merger Agreement.
(e) The Stockholders hereby agree not to (i) sell,
transfer, pledge, assign or otherwise dispose of (including by gift)
(collectively, "TRANSFER"), or enter into any contract, option or other
arrangement (including any profit-sharing arrangement) with respect to the
Transfer of their Subject Shares to any person or (ii) enter into any voting
arrangement, whether by proxy, voting agreement or otherwise, in relation to
their Subject Shares, and agree not to commit or agree to take any of the
foregoing actions.
(f) The Stockholders hereby irrevocably grant to, and
appoint James Riedman, Greg Tunney and Kenneth Wolf, each in their capacities as
officers of Phoenix Footwear, and each of them, the Stockholders' proxy and
attorney-in-fact (with full power of substitution), for and in the
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name, place and stead of each of the Stockholders, to vote, or cause to be
voted, the Subject Shares, or grant a consent or approval in respect of such
Subject Shares, at every annual, special or other meeting of the stockholders of
H.S. Trask, and at any adjournment or adjournments thereof, or pursuant to any
consent in lieu of a meeting or otherwise, in the manner specified in Section
1(a) and 1(b) hereof; provided, that the foregoing grant of a proxy shall
terminate immediately upon the termination of this Agreement in accordance with
its terms, including with respect to matters as to which a record date has
theretofore passed. This grant of proxy is coupled with an interest. This
appointment of proxy shall survive the death or incapacity of the Stockholder.
2. REPRESENTATIONS AND WARRANTIES. The Stockholders each
represent and warrant to Phoenix Footwear as follows:
(a) The Stockholder is the record and beneficial owner
of, and has good title to, his/her Subject Shares. The Stockholder does not own,
of record or beneficially, any shares of capital stock of H.S. Trask other than
his/her Subject Shares. The Stockholder has the sole right to vote, the sole
power of disposition, the sole power to demand appraisal rights and the sole
power to agree to all of the matters set forth in this Agreement, in each case
with respect to all of his/her Subject Shares, with no limitations,
qualifications or restrictions on such rights, subject to applicable federal
securities laws and the terms of this Agreement.
(b) This Agreement has been duly executed and delivered
by the Stockholder. Assuming the due authorization, execution and delivery of
this Agreement by Phoenix Footwear, this Agreement constitutes the valid and
binding agreement of the Stockholder enforceable against the Stockholder in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application which may affect the enforcement of creditors' rights generally and
by general equitable principles. The execution and delivery of this Agreement by
the Stockholder does not and will not conflict with any agreement, order or
other instrument binding upon the Stockholder, nor require the Stockholder to
make or obtain any regulatory filing or approval.
3. OPTION.
(a) Each Stockholder hereby grants to Phoenix Footwear an
irrevocable option (the "OPTION") to purchase his/her Subject Shares, upon the
terms and subject to the conditions set forth herein (the "OPTIONED SHARES").
The Option may be exercised by Phoenix Footwear in whole or from time to time in
part, at any time following the occurrence of the Trigger Event (defined below)
and prior to the termination of this Agreement in accordance with Section 5. In
the event Phoenix Footwear wishes to exercise the Option, Phoenix Footwear shall
send a written notice to the Stockholder (the "OPTION EXERCISE NOTICE")
specifying the total number of Optioned Shares it wishes to purchase and a date
(not later than five (5) business days and not earlier than one (1) business day
from the date such notice is given for the closing of such purchase (the
"CLOSING DATE"). Phoenix Footwear may revoke an exercise of the Option at any
time prior to the Closing Date by written notice to the Stockholder. In the
event of any change in the number of issued and outstanding shares of Subject
Shares by reason of any stock dividend, stock split, split-up, recapitalization,
merger or other change in the corporate or capital structure of H.S. Trask, the
number of Optioned Shares
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subject to the Option and the Exercise Price (defined below) per Optioned Shares
shall be appropriately adjusted.
(b) Phoenix Footwear's right to exercise the Option is
subject only to the Offer having been consummated and the Merger not having been
consummated within three (3) business days thereafter (the "TRIGGER EVENT").
(c) On the Closing Date, each Stockholder with respect to
who the Option has been exercised will deliver to Phoenix Footwear a certificate
or certificates for any shares that are certificated representing the Optioned
Shares in the denominations designated by PFG Acquisition in its Option Exercise
Notice, free and clear of all security interest, liens or encumbrances of any
kind together with executed stock powers and Phoenix Footwear will purchase such
Optioned Shares from the Stockholder in exchange for the consideration that the
Stockholder would have received under the Merger Agreement had the Merger closed
on the Closing Date hereunder (the "EXERCISE PRICE").
(d) Any closing hereunder shall take place on the Closing
Date specified by Phoenix Footwear in its Option Exercise Notice pursuant to
Section 3(a) at 10:00 a.m., local time on such date, at the principal executive
office of H.S. Trask, or at such other time and place as the parties hereto may
agree.
4. NO SOLICITATION OF ACQUISITION PROPOSALS. The Stockholders
shall not, and shall not authorize, permit or cause any of their respective,
agents, representatives and advisors (including any investment banker, attorney
or accountant retained by H.S. Trask or the Stockholder) to, directly or
indirectly, (a) encourage (including by way of furnishing non-public
information), solicit, initiate or facilitate any Competing Acquisition
Proposal, or (b) participate in any way in discussions or negotiations with, or
furnish any information to, any person in connection with, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or could reasonably be expected to lead to, any Competing
Acquisition Proposal, or otherwise cooperate in any way with, or participate in
or assist, facilitate or encourage any effort or attempt by any other person to
do or seek any of the foregoing. The Stockholders shall promptly communicate to
Phoenix Footwear, to the same extent as is required by H.S. Trask pursuant to,
and subject to the same conditions contained in, the Merger Agreement, the
terms, and other information concerning, any proposal, discussion, negotiation
or inquiry and the identity of the party making such proposal or inquiry which
the Stockholder may receive in respect of any such Competing Acquisition
Proposal.
5. TERMINATION. The obligations of the Stockholders hereunder
shall terminate upon the earlier of the termination of the Merger Agreement
pursuant to Section 7.1 thereof or the Effective Time. No such termination shall
relieve the Stockholders from any liability in connection with this Agreement
incurred prior to such termination.
6. FURTHER ASSURANCES. The Stockholders will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further consents, documents and other instruments as Phoenix Footwear may
reasonably request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
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7. SUCCESSORS, ASSIGNS AND TRANSFEREES BOUND. Any successor,
assignee or transferee of any Stockholder (including a successor, assignee or
transferee as a result of the death of the Stockholder, such as an executor or
heir) shall be bound by the terms hereof, and the Stockholder shall take any and
all actions necessary to obtain the written confirmation from such successor,
assignee or transferee that it is bound by the terms hereof.
8. REMEDIES. The Stockholders acknowledge that money damages
would be both incalculable and an insufficient remedy for any breach of this
Agreement by it and that any such breach would cause Phoenix Footwear
irreparable harm. Accordingly, the Stockholders agree that in the event of any
breach or threatened breach of this Agreement, Phoenix Footwear, in addition to
any other remedies at law or in equity it may have, shall be entitled, without
the requirement of posting a bond or other security, to equitable relief,
including injunctive relief and specific performance.
9. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity or
enforceability of any other provision of this Agreement in such jurisdiction, or
the validity or enforceability of any provision of this Agreement in any other
jurisdiction.
10. AMENDMENT. This Agreement may be amended only by means of a
written instrument executed and delivered by both the Stockholders and Phoenix
Footwear.
11. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
12. CAPITALIZED TERMS. Capitalized terms used in this Agreement
that are not defined herein shall have such meanings as set forth in the Merger
Agreement.
13. COUNTERPARTS. For the convenience of the parties, this
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
[SIGNATURE PAGE FOLLOWS]
A-5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
_______________________________________
Harrison S. Trask
_______________________________________
Emily Trask
_______________________________________
Tad Swanson
Accepted and agreed to
as of the date set forth above:
PHOENIX FOOTWEAR GROUP, INC.
By: _____________________________________
Name: James R. Riedman
Title: Chief Executive Officer and President
PFG ACQUISITION, INC.
By: _____________________________________
Name: James R. Riedman
Title: Chief Executive Officer and President
A-6
EXHIBIT B TO MERGER AGREEMENT
ARTICLES OF MERGER
OF
PFG ACQUISITION, INC. AND H.S. TRASK & CO.
INTO
PFG ACQUISITION, INC.
Pursuant to the provisions of Section 35-1-816 of the Montana Business
Corporation Act, the undersigned Montana corporations adopt the following
Articles of Merger:
1. The Agreement and Plan of Merger dated as of June __, 2003, is
set forth as EXHIBIT A attached hereto.
2. The Agreement and Plan of Merger was approved by the
shareholders and:
(a) the designation, number of outstanding shares, and
number of votes entitled to be cast by each voting group entitled to vote
separately on the plan as to each corporation was:
NAME OF NO. OF NO. OF VOTES
CORPORATION DESIGNATION OUTSTANDING SHARES ENTITLED TO CAST
----------- ----------- ------------------ ----------------
PFG Acquisition, Inc. Common 1,000 1,000
H.S. Trask & Co. All Common and
Preferred Stock [3,918,530] [3,918,530]
Series B Preferred Stock [833,194] [833,194]
Series C Preferred Stock [500,000] [500,000]
; and
(b) the total number of votes cast for and against the
plan by each voting group entitled to vote separately on the plan was:
B-1
NAME OF VOTING TOTAL NO. OF VOTES CAST TOTAL NO. OF VOTES CAST
CORPORATION GROUP FOR THE PLAN AGAINST THE PLAN
----------- ------ ----------------------- -----------------------
PFG Acquisition, Inc. Common 1,000 1,000
H.S. Trask & Co. All Common and
Preferred Stock
Series B Preferred Stock
Series C Preferred Stock
3. The effective date of the merger is the date the Secretary of
State files this Articles of Merger.
Dated: July ___, 2003
Corporate Seal: PFG ACQUISITION, INC.
_____________________________________
By: James R. Riedman
Title: President and Chief Executive Officer
_____________________________________
By:
Title: Secretary
H.S. TRASK & CO.
_____________________________________
By: Harrison S. Trask
Title: President
_____________________________________
By: Nancy A. Delekta
Title: Secretary
B-2
EXHIBIT C TO MERGER AGREEMENT
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "AGREEMENT") is made and entered into as of
June ____, 2003 by and among PHOENIX FOOTWEAR GROUP, INC., a Delaware
corporation ("PHOENIX FOOTWEAR"), and Nancy Delekta (the "STOCKHOLDER
REPRESENTATIVE") for and on behalf of the former holders of outstanding H.S.
Trask Common Shares (the "FORMER H.S. TRASK STOCKHOLDERS") under that certain
Agreement and Plan of Merger dated as of June_______, 2003 (the "MERGER
AGREEMENT") by and among Phoenix Footwear, PFG Acquisition Inc., a Montana
corporation and a wholly-owned subsidiary of Phoenix Footwear ("PURCHASER"), and
H.S. Trask & Co., a Montana corporation ("H.S. TRASK").
W I T N E S S E T H:
WHEREAS, pursuant to the Merger Agreement, Phoenix Footwear will issue
the Merger Consideration to the Former H.S. Trask Stockholders pursuant to the
merger (the "MERGER") of H.S. Trask with and into Purchaser; and
WHEREAS, pursuant to Article VIII of the Merger Agreement, the Former
H.S. Trask Stockholders have agreed to make available to Phoenix Footwear and
certain other Indemnitees an escrow fund to compensate such parties for certain
Losses incurred as permitted therein;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual obligations herein, the parties agree as follows:
1. DEFINITIONS. All capitalized terms used herein without
definitions shall have the meanings specified in the Merger Agreement.
2. ESCROW ARRANGEMENTS. Except as otherwise expressly set forth
herein, all matters pertaining to the Escrow Fund shall be governed by the
provisions of Article VIII of the Merger Agreement; provided, however, that if
any express provision of this Agreement conflicts with the provisions of Article
VIII of the Merger Agreement, the provisions of Article VIII of the Merger
Agreement shall control.
3. ESTABLISHMENT OF ESCROW. Within five (5) business days of the
Effective Time, Phoenix Footwear shall cause its transfer agent to deliver to
the Escrow Agent for deposit into escrow a certificate representing 50,000
shares of Phoenix Footwear common stock (the "ESCROW SHARES") as required by
Section 2.6(b) of the Merger Agreement. The Escrow Agent agrees to establish the
Escrow Fund in the manner set forth in Section 2.6(b) and Article VIII of the
Merger Agreement.
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4. MAINTENANCE OF THE ESCROW.
(a) The Escrow Agent shall establish a separate account
("SUBACCOUNTS") for each Former H.S. Trask Stockholder for the number of Escrow
Shares set opposite such Former H.S. Trask Stockholder ANNEX B (the "FORMER H.S.
TRASK STOCKHOLDER LIST"), which has been determined on the basis of the
provisions of the Merger Agreement. All dividends and distributions in respect
of the Escrow Shares, whether in cash, additional shares of Phoenix Footwear
common stock or other property received by the Escrow Agent shall be distributed
currently to the Former H.S. Trask Stockholders and shall be retained by the
Escrow Agent as part of the Escrow Fund and credited proportionately to the
Subaccounts to which the Escrow Shares are credited. In the event the Escrow
Shares are reclassified or otherwise changed into or exchanged for other
securities, property or cash pursuant to any merger, consolidation, sale of
assets and liquidation or other transaction, the securities, cash or other
property received by the Escrow Agent in respect of the Escrow Shares shall be
retained by it as part of the Escrow Fund, credited proportionately to the
Subaccounts to which the Escrow Shares are credited and, in the case of
securities, registered in the name of the Escrow Agent or its nominee. All cash,
property, Phoenix Footwear common stock and other securities received and
retained by the Escrow Agent as described in this Section 4 are referred to
herein as "DISTRIBUTIONS." The provisions of this Section 4 shall apply to
successive Distributions.
(b) The Escrow Agent shall maintain records showing each
Stockholder's Pro-Rata Share of the Escrow Fund and shall adjust each Former
H.S. Trask Stockholder's account to reflect distributions from, and additions or
substitutions to, the property held for the account of such Former H.S. Trask
Stockholder in the Escrow Fund. The Escrow Agent is hereby granted the power to
effect any transfer of Escrow Shares required by this Agreement. Phoenix
Footwear shall cooperate with the Escrow Agent in promptly issuing, or causing
its transfer agent to promptly issue, such stock certificates as shall be
required to effect such transfers. All Escrow Shares held in the Escrow Fund
shall be registered in the name of the Escrow Agent or its nominee on behalf of
the Former H.S. Trask Stockholders in the respective amounts set forth on the
Former H.S. Trask Stockholder List. Notwithstanding the above, upon the
determination by Phoenix Footwear that a Stockholder has perfected its
dissenter's right of appraisal under applicable Montana law, Phoenix Footwear
shall deliver to the Escrow Agent a revised Former H.S. Trask Stockholder List
that takes into account such determination in calculating the Pro-Rata Share of
all other Former H.S. Trask Stockholders, which revised Former H.S. Trask
Stockholder List shall be satisfactory in form and substance to the Stockholders
Representative and which shall replace, in its entirety, the ANNEX B attached
hereto.
(c) All dividends, distributions, interest and gains
earned or realized on the Escrow Fund ("Earnings") and credited to a Subaccount
shall be accounted for by the Escrow Agent separately from the Escrow Fund and,
notwithstanding any provisions of this Agreement, shall be treated as having
been received by the Former H.S. Trask Stockholders to whose Subaccount the
Earnings are credited for tax purposes. The Former H.S. Trask Stockholder List
sets forth each Former H.S. Trask Stockholder's address and Taxpayer
Identification Number. The Escrow Agent shall file information returns with the
United States Internal Revenue Service and payee statements
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with the Former H.S. Trask Stockholders, documenting such Earnings. H.S. Trask
Stockholders shall provide to the Escrow Agent all forms and information
necessary to complete such information returns and payee statements. In the
event the Escrow Agent becomes liable for the payment of taxes, including
withholding taxes, relating to Earnings or any payment made hereunder, the
Escrow Agent may deduct such taxes from the Escrow Fund.
(d) The Stockholder Representative shall have the right
to vote all Escrow Shares.
5. ADMINISTRATION OF ESCROW FUND. The Escrow Agent shall
administer the Escrow Fund as set forth in Article VIII of the Merger Agreement.
6. TERM OF ESCROW AGREEMENT. This Agreement shall terminate upon
the the complete distribution in accordance with Article VIII of the Merger
Agreement of all property held in the Escrow Fund.
7. FEES OF THE ESCROW AGENT. The fees of the Escrow Agent,
including (i) the normal costs of administering the Escrow Fund as set forth on
the Fee Schedule attached hereto as ANNEX C and (ii) all fees and costs
associated with the Escrow Agent's administration of Claims, shall be paid
one-half by Phoenix Footwear and one-half out of the Escrow Fund on behalf of
the Former H.S. Trask Stockholders. Payment out of the Escrow Fund shall be made
by sale back to Phoenix Footwear of Escrow Shares for the amount required to be
paid to the Escrow Agent based on the Parent Stock Price for the period five
days Such amount shall be treated as though a Pro Rata Share thereof has been
paid by each Former H.S. Trask Stockholder and such Pro Rata Share shall be
credited against the amount otherwise distributable to the Former H.S. Trask
Stockholders hereunder. In the event that the Escrow Agent renders any service
hereunder not provided for herein or there is any assignment of any interest in
the subject matter of the Escrow Fund or modification hereof, the Escrow Agent
shall be reasonably compensated for such extraordinary services by the party
that is responsible for or requests such services and if made by the Stockholder
Representative, payment shall be made out of the Escrow Fund in the same manner
as provided above.
8. LIABILITY OF THE ESCROW AGENT. In performing any of its duties
under this Agreement, the Escrow Agent shall not be liable to any party for
damages, losses or expenses, except in the event of gross negligence or willful
misconduct on the part of the Escrow Agent. The Escrow Agent shall not incur any
such liability for (a) any act or failure to act made or omitted in good faith
or (b) any action taken or omitted in reliance upon any instrument, including
any written statement or affidavit provided for in this Agreement that the
Escrow Agent shall in good faith believe to be genuine; nor will the Escrow
Agent be liable or responsible for forgeries, fraud or determining the scope of
any agent's authority. In addition, the Escrow Agent, at the expense of Phoenix
Footwear and the Former H.S. Trask Stockholders, to the extent of the amount
that may be paid out of the Escrow Fund, may consult with legal counsel in
connection with its duties under this Agreement and shall be fully protected in
any act taken, suffered or permitted by it in good faith in accordance with the
advice of counsel. The Escrow Agent shall not be responsible for mistakes with
respect to determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement to the extent the
Escrow Agent is not grossly negligent.
C-3
9. CONTROVERSIES. If any controversy arises between the parties
to this Agreement, or with any other party, concerning the subject matter of the
Escrow Fund, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and funds and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in the
Escrow Agent's discretion, it may require, despite what may be set forth
elsewhere in this Agreement. In such event, the Escrow Agent will not be liable
for interest or damage. Furthermore, the Escrow Agent may at its option, file an
action of interpleader requiring the parties to answer and litigate any claims
and rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and funds held in the escrow, except all costs,
expenses, charges and reasonable attorneys' fees incurred by it due to the
interpleader action and which the parties jointly and severally agree to pay.
Upon initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of the
escrow, and the action will be deemed to be solely a dispute between the parties
subject to Article VIII of the Merger Agreement.
10. INDEMNIFICATION OF ESCROW AGENT. Phoenix Footwear and the
Stockholder Representative, on behalft of the Former H.S. Trask Stocholders, to
the extent of the amount available from the Escrow Fund agree to jointly and
severally indemnify and hold the Escrow Agent harmless against any and all
losses, claims, damages, liabilities and expenses, including reasonable costs of
investigation, outside counsel fees, and disbursements that may be imposed on
the Escrow Agent, or incurred by it in connection with the performance of its
duties under this Agreement, including but not limited to any arbitration or
litigation arising from this Agreement or involving its subject matter, unless
such loss, claim, damage, liability or expense shall be caused by the negligence
or willful misconduct on the part of the Escrow Agent. Nothing contained in this
Section 10 shall impair the rights of the Former H.S. Trask Stockholders and
Phoenix Footwear, as between themselves.
11. RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign at
any time upon giving at least 30 days written notice to the other parties;
provided, however, that no such resignation shall become effective until the
appointment of a successor Escrow Agent which shall be accomplished as follows:
Phoenix Footwear and the Stockholders Representative shall use their best
efforts to agree on a successor Escrow Agent within 30 days after receiving such
notice. If the parties fail to agree on a successor Escrow Agent within such
time, then the Escrow Agent shall have the right to appoint a successor Escrow
Agent, provided that the successor so chosen shall have capital, surplus and
undivided profits of at least $[200,000,000]. The successor Escrow Agent shall
execute and deliver to the Escrow Agent an instrument accepting such
appointment, and the successor Escrow Agent shall, without further acts, be
vested with all the estates, property rights, powers and duties of the
predecessor Escrow Agent as if originally named as Escrow Agent herein. The
predecessor Escrow Agent then shall be discharged from any further duties and
liability under this Agreement.
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12. MISCELLANEOUS.
(a) Assignment; Binding Upon Successors and Assigns. None
of the parties hereto may assign any of its rights or obligations hereunder
without the prior written consent of the other parties. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(b) Severability. If any provision of this Agreement, or
the application thereof, shall for any reason and to any extent be held to be
invalid or unenforceable, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further agree
to replace such invalid or unenforceable provision of this Agreement with a
valid and enforceable provision which will achieve, to the extent possible, the
economic, business and other purposes of the invalid or unenforceable provision.
(c) Entire Agreement. This Agreement, the Merger
Agreement, the Annexes hereto, the documents referenced herein, and the exhibits
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and thereof and supersede all prior
and contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect hereto and
thereto. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
(d) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed duly delivered if delivered
personally (upon receipt), or three business days after being mailed by
registered or certified mail, postage prepaid (return receipt requested), or one
business day after it is sent by reputable nationwide overnight courier service,
or upon transmission, if sent via facsimile (with confirmation of receipt) to
the parties at the following address (or at such other address for a party as
shall be specified by like notice):
(i) If to Stockholder Representative:
Nancy Delekta
2975 Hwy No. 287
Cameron, Montana 59720
Copy to: Preston Gates & Ellis LLP
925 Fourth Avenue
Suite 2900
Seattle, Washington 98104-1158
Attention: Gary J. Kocher, Esq.
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(ii) If to Phoenix Footwear:
Phoenix Footwear Group, Inc.
5759 Fleet Street, Suite 220
Carlsbad, California 92008
Attention: James Riedman,
Chairman and CEO
Copy to: Woods Oviatt Gilman LLP
700 Crossroads Building
Rochester, New York 14614
Attention: Gordon E. Forth, Esq.
(e) Other Remedies. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party shall be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy shall not preclude the
exercise of any other.
(f) Amendment and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default.
(g) Further Assurances. Each party agrees to cooperate
fully with the other parties and to execute such further instruments, documents
and agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
(h) Absence of Third Party Beneficiary Rights. No
provisions of this Agreement are intended, nor shall be interpreted, to provide
or create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, shareholder, partner of any party hereto or any
other person or entity unless specifically provided otherwise herein and except
for the Former H.S. Trask Stockholders, and, except as so provided, all
provisions hereof shall be solely between the parties to this Agreement.
(i) Governing Law. It is the intention of the parties
hereto that the internal laws of the State of Delaware (irrespective of its
choice of law principles) shall govern the validity of this agreement, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
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(j) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original and all of
which together shall constitute one and the same instrument.
SIGNATURES ON FOLLOWING PAGE
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IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as
of the date first set forth above.
[_________________]
By: ___________________________________________
Its: ___________________________________________
PHOENIX FOOTWEAR GROUP, INC.
By: _________________________________________
Name: James R. Riedman
Title: Chief Executive Officer and President
________________________________________________
Nancy Delekta, as Stockholder Representative
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EXHIBIT D TO MERGER AGREEMENT
EMPLOYMENT AND CONSULTING AGREEMENT
This EMPLOYMENT AND CONSULTING AGREEMENT, made as of the __ day of
June, 2003 between H.S. TRASK & CO., a Montana corporation, with its principal
place of business located at 685 Old Buffalo Trail, Bozeman, Montana 59715 (the
"COMPANY") and HARRISON S. TRASK, residing 101 Sourdough Ridge Road, Bozeman,
Montana 59715 (the "EXECUTIVE").
A. The Company currently employs the Executive as its President and
Chief Executive Officer and he is concurrently herewith resigning from such
positions, but has agreed to continue his relationship with the Company on the
terms and conditions herein.
B. This Agreement is being entered into pursuant to the Agreement and
Plan of Merger among Phoenix Footwear Group, Inc. ("PHOENIX FOOTWEAR"), a
Delaware corporation, the Company, and the predecessor entity to the Company,
dated as of June ____, 2003 (the "MERGER AGREEMENT") and in satisfaction of the
condition precedent in Section 6.2(k) thereon
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties agree as follows:
ARTICLE 1
EMPLOYMENT AND CONSULTING ENGAGEMENT
1.1 EMPLOYMENT. The Company hereby continues Executive's
employment with the Company and Executive hereby agrees to continue such
employment on the terms and conditions herein. During the Employment Term (as
defined in Section 3.1), Executive shall provide the Company's executive
officers with: (a) advice regarding the operations of the Company; (b)
introductions and assistance with relationships (including customers, third
party manufacturers, purchasing agents and suppliers) products and markets; (c)
assistance in implementing the transition following the Acquisition; and (d)
such other duties consistent with the foregoing as the Company's President and
Chief Executive Officer may reasonably request from time to time. During the
Employment Term, Executive will devote his full business time and attention to
performing such duties, however, nothing in this Agreement will prevent
Executive from engaging in additional activities in connection with personal
investments and community affairs that are not inconsistent with Executive's
duties hereunder. Employee will be entitled to two weeks vacation during the
Employment Term.
1.2 CONSULTANT. Following the expiration of the Employment Term as
provided in Section 4.1 below, the Company shall engage the Executive and the
Executive agrees to serve as a consultant to the Company on an independent
contractor basis, performing such duties as may be
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reasonably requested from time to time by the Company's President and Chief
Executive Officer. During the Consulting Term (as defined in Section 3.2),
Executive shall not be asked or expected to devote more than ten (10) hours per
month to the Company.
1.3 PERFORMANCE OF SERVICES. Executive shall perform his duties
and discharge his responsibilities hereunder in a faithful manner and to the
best of his ability. Executive shall observe and comply with such rules,
regulations and policies as may be reasonably determined from time to time by
the Board of Directors of the Company (the "BOARD") in writing, within the scope
of his duties as an employee or consultant.
ARTICLE 2
COMPENSATION
2.1 SALARY. For all of his services under this Agreement as an
employee of the Company, Executive shall receive a salary, payable in such
regular intervals as shall be determined by the Company, at the annual rate of
One Hundred Thousand Dollars ($100,000) (the "SALARY"). All Salary payments and
other compensation for services as an employee pursuant to this Agreement shall
be subject to the customary withholding of taxes as required by law.
2.2 CONSULTING PAYMENTS. In exchange for his services as a
consultant to the Company pursuant to Section 1.2, Executive shall be paid a
consulting fee at the annual rate of One Hundred Thousand Dollars ($100,000)
(the "CONSULTING FEE"). Payments shall be made in regular equal installments as
the Company and Executive may agree, but no less frequently than monthly.
2.3 REIMBURSEMENT OF EXPENSES. Executive shall be entitled to
compensation for expenses reasonably incurred in the performance of services for
the Company either as an employee or consultant, provided appropriate
documentation is provided to the Company and the expenses are in accordance with
the Company's policies for reimbursement of expenses.
2.4 MEDICAL AND DENTAL INSURANCE. During his period of service as
an employee and consultant of the Company, Executive and his spouse, if any,
will be able to participate in the medical and dental insurance plans of Phoenix
Footwear on the same terms generally applicable to employees of Phoenix Footwear
or its subsidiaries. At the end of his service Executive shall be offered, at
his sole cost and expense, the opportunity to continue his coverage on the same
terms for 18 months thereafter to the extent coverage is not required by the
Consolidated Omnibus Reconciliation Act ("COBRA"). The Company shall not be
liable to Executive, or his spouse or beneficiaries or other successors, for any
amount payable or claimed to be payable under any plan of insurance. Executive
shall not be entitled to participate in any other benefits offered by the
Company or its parent corporation, Phoenix Footwear, except as otherwise agreed
or as may be required by law.
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ARTICLE 3
TERM AND TERMINATION
3.1 EMPLOYMENT TERM. The employment term of this Agreement shall
be from the date hereof and continue until December 31, 2003 (the "EMPLOYMENT
TERM"), unless terminated prior to such date in accordance with the terms of
this Agreement.
3.2 CONSULTANT TERM. Unless the Employment Term is earlier
terminated pursuant to Section 3.3, then on January 1, 2004 and continuing
thereafter until December 31, 2005 (subject to earlier termination as provided
in Section 3.3) (the "CONSULTING TERM") Executive shall serve as a consultant to
the Company, as provided in Section 1.2 above. If the Employment Term is
terminated pursuant to Section 3.3, then the Company shall not be obligated to
engage Executive as a consultant under this Agreement.
3.3 TERMINATION. The Employment Term and Consulting Term Agreement
shall terminate prior to the expiration of its Employment or Consultant Term
upon occurrence of any one or more of the following events:
(a) Termination for Cause. The Company may terminate the
Employment Term or the Consulting Term (as applicable) for Cause at any time.
"CAUSE" shall mean: (i) any material breach of the Executive's obligations under
this Agreement (including any manifest failure, refusal, or serious neglect to
perform his duties contemplated herein) or under the Non-Competition and
Non-Disclosure Agreement of even date herewith among Phoenix Footwear, Phoenix
Acquisition and Executive (the "NON-COMPETITION AGREEMENT"), in each case that
remains uncured fifteen (15) days of having received written notice thereof;
(ii) fraud, theft, or gross malfeasance on the part of the Executive, including,
without limitation, conduct of a felonious or criminal nature, conduct involving
moral turpitude, embezzlement, or misappropriation of assets; (iii) the habitual
use of drugs or intoxicants to an extent that it impairs the Executive's ability
to properly perform his duties; and (iv) violation by the Executive of his
fiduciary obligations to the Company, including, without limitation, conduct
which is inconsistent with the Executive's position and which results in a
material adverse effect (financial or otherwise) on the business or reputation
of the Company or its parent corporation or any of the parent corporation's
subsidiaries, divisions or affiliates.
(b) Death of Executive. The Employment Term and
Consulting Term shall immediately terminate upon the death of Executive.
(c) Disability of Executive. In the event that Executive
becomes "disabled", as defined below, the Company shall have the option to
terminate the Employment Term and Consulting Term by giving thirty (30) days
advance written notice to Executive. For purposes of this Agreement, the term
"DISABLED" or "DISABILITY" shall mean the inability of Executive to perform the
essential functions of his regular duties for the Company for a period of one
hundred twenty (120) days in any three hundred sixty (360) day period, as
determined by an independent medical professional jointly selected by Executive
and the Company. For purposes of this Agreement,
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Executive shall first be deemed disabled on the date that is the one hundred
twentieth (120th) day of the disability in such three hundred sixty (360) day
period.
(d) Termination Without Cause. The Company may terminate
the Employment Term or the Consulting Term without Cause at any time on thirty
(30) days written notice to the Executive.
(e) Termination By Executive. At any time during the
Consulting Term, Executive may terminate this Agreement upon thirty (30) days
written notice to the Company.
Notwithstanding a termination under Sections 3.2(b), (c) or
(d) of the Employment Term or the Consulting Term (whichever is applicable) (or
the failure of the Consulting Term to commence due to the earlier termination of
the Employment Term), the Company shall continue to make payments equal to the
Salary and Consulting Fees that would have otherwise been due through the end of
the Consulting Term at such times as they would have been payable so long as in
the event of termination pursuant to Sections 3.1(c) and (d) the Executive
continues to observe and abide by the terms of the Non-Competition Agreement. In
the event of any breach under the Non-Competition Agreement that remains uncured
after fifteen (15) days written notice thereof by the Company to the Executive,
the Company may, at its election, either (i) suspend the payments otherwise due
hereunder and offset any amounts payable hereunder against any fees and expense
that it may incur to enforce the terms of the Non-Competition Agreement and any
damages that it may incur as a direct or indirect result of such breach or (ii)
terminate and forever be relieved from making such payments. These remedies
shall not be considered to be exclusive or liquidated damages.
ARTICLE 4
MISCELLANEOUS
4.1 ASSIGNMENT PROHIBITED. This Agreement is personal to Executive
and he may not assign or delegate any of his rights or obligations hereunder
without first obtaining the written consent of the Company. The Company may not
assign this Agreement without the written consent of Executive, except in
connection with (i) a merger or consolidation of the Company (in which case the
merged or consolidated entity shall remain fully liable for its obligations as
the Company under this Agreement), or (ii) a transfer of this Agreement to a
subsidiary or affiliate, provided that the subsidiary or affiliate continues the
primary business of the Company, and further, provided that, in the case of a
transfer to a subsidiary or affiliate, the Company shall remain liable for its
obligations under this Agreement.
4.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with
the Non-Competition Agreement, constitutes the entire agreement between the
parties hereto concerning the subject matter hereof. No amendments or additions
to this agreement shall be binding unless in writing and signed by the party
against whom enforcement of such amendment of addition is sought.
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4.3 PARAGRAPH HEADINGS. The paragraph headings used in this
Agreement are included solely for convenience and shall not affect or be used in
connection with the interpretation of this Agreement.
4.4 SEVERABILITY. If any provision of this Agreement is declared
invalid by any tribunal, then such provision shall be deemed automatically
modified to conform to the requirements for validity as declared at such time,
and as so modified, shall be deemed a provision of this Agreement as though
originally included herein. In the event that the provision invalidated is of
such a nature that it cannot be so modified, the provision shall be deemed
deleted from this Agreement as though the provision had never been included
herein. In either case, the remaining provisions of this Agreement shall remain
in effect.
4.5 RELEASE. The Executive on behalf of himself and his
successors, heirs, executors, administrators, representatives, affiliates,
agents and assigns, fully and unconditionally forever releases and discharges
the Company, its parent company and their officers, directors, successors,
assigns, affiliates, and subsidiaries (the "Releasees") from any and all claims,
demands, manners of action, causes of action, damages, judgments, agreements,
demands, debts or liabilities, whatsoever whether known or unknown, suspected or
unsuspected, both at law and in equity that he may have against the Releasees
for any claims now existing or hereafter arising, except for any claims related
to the enforcement of the terms of this Agreement, claims to release to him his
portion of the Escrow Fund to the extent provided for under the Merger
Agreement, claims related to the Company's failure to observe the requirements
of Section 5.10 of the Merger Agreement, or claims against the Company for
indemnification or contribution in defense by Executive of claims by a party
other than the Company so long as the Company is not precluded from obtaining
reimbursement for any such claim under the Company's directors and officers
insurance policy due to the 10% stockholder exclusion thereunder.
4.6 CHOICE OF LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
4.7 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be delivered in person or sent by certified or registered
mail, return receipt requested, postage prepaid to each party at the address
first written above or at such other address as provided in writing.
4.8 BINDING EFFECT. This Agreement shall be binding upon, and
inure to the benefit of, the parties, their heirs, successors and permitted
assigns.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
H.S. TRASK & CO.
By: ______________________________
Name:
Title:
___________________________________
Harrison Trask
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EXHIBIT E TO MERGER AGREEMENT
NON-COMPETITION AND
NON-DISCLOSURE AGREEMENT
This NON-COMPETITION AND NON-DISCLOSURE AGREEMENT dated this __ day of
June, 2003 (this "AGREEMENT"), is made and entered into by and between HARRISON
S. TRASK ("PRINCIPAL"), PHOENIX FOOTWEAR GROUP, INC., a Delaware corporation
("PHOENIX FOOTWEAR"), and its wholly-owned subsidiary PFG ACQUISITION, INC., a
Montana corporation ("PFG ACQUISITION").
A. Phoenix Footwear, PFG Acquisition and H.S. Trask & Co., a
Montana corporation ("COMPANY"), have entered into an Agreement and Plan of
Merger, dated June __, 2003 (the "MERGER AGREEMENT"), pursuant to which Company
shall merge with and into Acquisition Sub and the separate corporate existence
of Company shall cease.
B. Principal is employed as President and Chief Executive Officer
of Company and serves as a director of the Company.
C. It is mutually agreed between Principal, Company and PFG
Acquisition that Principal shall resign his employment as President and Chief
Executive Officer of Company and as a director, said resignation to take effect
as of the date that the Merger between Company and PFG Acquisition becomes
effective (the "MERGER EFFECTIVE DATE").
D. It is also mutually agreed between Principal, Company and PFG
Acquisition that Principal shall be employed as an employee of the surviving
corporation to the Merger ("SURVIVING CORPORATION") from the Merger Effective
Date to December 31, 2003 and thereafter as a consultant until December 31,
2005. Principal and Surviving Corporation have accordingly entered into an
Employment and Consulting Agreement dated ________, 2003 (the "EMPLOYMENT AND
CONSULTING AGREEMENT").
E. Principal owns approximately 38% of the outstanding voting
securities of the Company, and will receive considerable financial benefit when
the Merger becomes effective.
F. The Merger Agreement requires that Principal, Phoenix Footwear
and PFG Acquisition enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the
respective representations, warranties, covenants and agreements contained
herein, the parties agree as follows (unless otherwise defined herein,
capitalized terms used herein shall have the meanings given such terms in the
Merger Agreement):
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1. EFFECTIVE DATE. This Agreement shall take effect on the Merger
Effective Date.
2. NON-COMPETITION. In order to induce Phoenix Footwear and PFG
Acquisition to enter into the Merger Agreement and to pay the valuable
consideration required thereunder, to create a valuable independent asset of PFG
Acquisition, to preserve and protect the goodwill thereof, and to enhance the
going concern value and earnings of PFG Acquisition in future years, Principal
undertakes and agrees as follows:
+
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(a) Commencing on the effective date hereof and
continuing thereafter until December 31, 2005 (the "RESTRICTION PERIOD"),
Principal shall not, within the United States (the "TERRITORY"), create, seek or
accept employment or compensation of any kind or character from any enterprise,
or person associated with any enterprise that is engaged or planning to engage,
directly or indirectly, in the manufacture, sale, marketing, promotion or sale
of products in the brown shoe market segment of the men's footwear business (a
"COMPETING ENTERPRISE"); provided, however, that Principal may accept employment
as a salesman or as a sales representative with any such Competing Enterprise
without violating the foregoing.
(b) During the Term, neither Principal nor any entity in
which Principal may be interested (as a principal, owner, partner, joint
venturer, trustee, director, officer, shareholder, option holder, security
holder, lender, creditor, guarantor, advisor, member or in any other capacity
other than solely as a salesman or as a sales representative) shall, within the
Territory, engage, directly or indirectly, in any activity that, directly or
indirectly, manufactures, markets, promotes or engages in the sale of products
in the brown shoe market segment of the men's footwear business; provided,
however, that the foregoing shall not be deemed to prevent Principal from
investing in securities if (i) such class of securities in which the investment
so made is listed on a national securities exchange or is issued by a company
registered under Section 12(g) of the Securities Exchange Act of 1934, so long
as such investment holdings do not, in the aggregate, constitute more than five
percent (5%) of the voting power of the entity issuing such securities; and (ii)
any other securities so long as such investment holdings do not constitute more
than two percent (2%) of the voting power of the entity issuing such securities.
(c) During the Term, without the Company's written
consent, Principal shall not, either in his individual capacity or as an agent
for another: (i) hire or offer to hire any of Company's, Phoenix Footwear's or
PFG Acquisition's officers, employees, or agents; (ii) entice away or in any
other manner persuade or attempt to persuade any of Company's, Phoenix
Footwear's or PFG Acquisition's officers, employees, or agents to discontinue
their relationship with Company, Phoenix Footwear or PFG Acquisition; (iii)
contract, solicit, divert, or attempt to divert from Phoenix Footwear or PFG
Acquisition any business whatsoever by influencing or attempting to influence
any customer of Company, Phoenix Footwear or PFG Acquisition with whom Company,
Phoenix Footwear or PFG Acquisition has engaged in sales discussions prior to
the termination of this Agreement; or (iv) contract, solicit, divert, or attempt
to divert from Company, Phoenix Footwear or PFG Acquisition any supplier or
vendor.
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(d) The covenants set forth in this Section 2 shall be
construed as a series of separate covenants covering their subject matter in
each of the separate states within the Territory and, except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenant set forth above in this Section 2. To the extent that any such covenant
shall be judicially unenforceable in any one or more of such states, such
covenant shall not be affected with respect to each of the other states in the
Territory. Each covenant with respect to each such state in the Territory shall
be construed as severable and independent.
(e) Phoenix Footwear, PGG Acquisition and Principal
acknowledge and recognize that these covenants not to compete are integral to
the Merger Agreement, that without the protection of such covenants, Phoenix
Footwear and PFG Acquisition would not have entered into the Merger Agreement,
that the consideration paid by Phoenix Footwear and PFG Acquisition under the
Merger Agreement bears no relationship to the damages Phoenix Footwear and PFG
Acquisition may suffer in the event of any breach of the covenants, and that
such covenants contain reasonable limitations as to time, geographical area and
scope of activity to be restrained necessary to protect Phoenix Footwear's and
PFG Acquisition's business interests. If this Section 2 shall for any reason be
held excessively broad as to time, duration, geographical scope, activity or
subject, it shall be enforceable to the extent compatible with then-applicable
laws.
3. CONFIDENTIAL INFORMATION.
(a) The parties acknowledge and agree that:
(i) The Company assets being merged into PFG
Acquisition pursuant to the Merger Agreement include confidential and
proprietary information of Company and, in the course of his employment for PFT
Acquisition, Principal may develop and obtain access to confidential and
proprietary information of Phoenix Footwear and PFG Acquisition (collectively,
the "CONFIDENTIAL INFORMATION"), which Confidential Information shall include,
without limitation, all of the following materials and information of Company,
Phoenix Footwear or PFG Acquisition (whether or not reduced to writing and
whether or not patentable or protected by copyright): trade secrets, product
specifications, proprietary software systems, sources of data, databases,
know-how, formulae, inventions and ideas, designs, sketches, photographs,
graphs, drawings, samples, selling and pricing information, procedures, research
methodologies, customer lists, business and marketing plans, current and
anticipated customer requirements, market studies, supplier lists, operational
methods, product development plans and personnel plans. The parties hereto agree
that the failure of any Confidential Information to be marked or otherwise
labeled as confidential or proprietary information shall not affect its status
as Confidential Information.
(ii) The Confidential Information is confidential
and proprietary, and the development and protection of the Confidential
Information represents a substantial investment having a great economic and
commercial value to Phoenix Footwear and PFG Acquisition.
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(iii) Phoenix Footwear and PFG Acquisition would
be irreparably damaged if any of the Confidential Information was disclosed to,
or used or exploited on behalf of, any person other than Phoenix Footwear or PFG
Acquisition.
(b) Principal covenants and agrees that he shall not, at
any time, during the Restrictions Period, directly or indirectly, use, exploit,
or disclose to any person or entity, without the prior written consent of
Phoenix Footwear or PFG Acquisition, any Confidential Information, except as
expressly authorized by Phoenix Footwear or PFG Acquisition during the
performance of Principal's duties for and with PFG Acquisition.
(c) Notwithstanding the foregoing, Principal may use,
exploit, or disclose Confidential Information, but only to the extent that such
Confidential Information (i) is or becomes publicly known through no wrongful
act of Principal; or (ii) is disclosed pursuant to the requirement of a
governmental agency or a court of law or otherwise required by operation of law,
provided that Principal gives PFG Acquisition and Phoenix Footwear prompt
written notice of such requirement prior to disclosure.
4. REASONABLENESS OF RESTRICTIONS. PRINCIPAL HAS CAREFULLY READ
AND CONSIDERED THE PROVISIONS OF SECTIONS 2 AND 3 HEREOF AND, HAVING DONE SO,
HEREBY AGREES THAT THE RESTRICTIONS SET FORTH IN SUCH SECTIONS ARE FAIR AND
REASONABLE AND ARE REASONABLY REQUIRED FOR THE PROTECTION OF THE INTERESTS OF
PHOENIX FOOTWEAR AND PFG Acquisition.
5. INJUNCTIVE RELIEF.
(a) Principal acknowledges and agrees that Phoenix
Footwear and PFG Acquisition will suffer irreparable harm in the event that
Principal breaches any of its obligations under this Agreement, and that
monetary damages shall be inadequate to compensate Phoenix Footwear and PFG
Acquisition for any such breach. Principal agrees that in the event of any
breach or threatened breach by Principal of the provisions of this Agreement,
Phoenix Footwear and PFG Acquisition, or either of them, shall be entitled to a
temporary restraining order, preliminary injunction, and permanent injunction in
order to prevent or restrain any such breach or threatened breach by Principal,
or by any or all of Principal's agents, representatives or other persons
directly or indirectly acting for, on behalf of, or with Principal.
(b) Notwithstanding the provisions set forth in Section
5(a) above, or any other provision contained in this Agreement, the parties
hereby agree that no remedy conferred by any of the specific provisions of this
Agreement, including without limitation, this Section 5, is intended to be
exclusive of any other remedy, and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
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6. MISCELLANEOUS.
(a) Notices. All notices required or permitted to be
given under this Agreement shall be given by certified mail, return receipt
requested, to the parties at the following addresses or such other addresses as
any party may designate in writing to the other parties:
If to Phoenix Footwear or PFG Acquisition:
5759 Fleet Street, Suite 220
Carlsbad, California 92008
Attention: President and Chief Executive
Officer
with a copy (which shall not constitute notice) to:
Gordon E. Forth, Esq.
Woods Oviatt Gilman LLP
700 Crossroads Building
2 State Street
Rochester, New York 14614
If to Principal:
101 Sourdough Ridge Road
Bozeman, Montana 59715
(b) Governing Law. This Agreement shall be deemed to made
in and in all respects shall be interpreted, construed, and governed by and in
accordance with the laws of the State of Delaware without regard to the
conflicts of law principles thereof.
(c) Amendments. This Agreement may be amended,
supplemented, or modified only in writing, duly executed by all of the parties
hereto.
(d) Non-waiver. A delay or failure by any party to
exercise a right under this Agreement, or a partial or single exercise of that
right shall not constitute a waiver of that or any other right.
(e) Counterparts. This Agreement may be executed in any
number of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
(f) Entire Agreement. This Agreement, together with the
Employment and Consulting Agreement, constitutes the entire agreement, and
supersedes all other prior agreements, understandings, representations, and
warranties both written and oral, among the parties, with respect
E-5
to the subject matter hereof. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, orally or otherwise, have
been made by any party or anyone acting on behalf of any party which are not
embodied herein.
(g) Severability. The provisions of this Agreement shall
be deemed severable and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
If any provision of this Agreement, or the application thereof to any person or
any circumstance, is invalid or unenforceable, (i) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision; and (ii) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
(h) Binding Effect. Principal may not assign any of his
rights or delegate any of his duties or obligations under this Agreement. The
rights and obligations of Acquisition Sub and Company under this Agreement shall
be binding upon and inure to the benefit of their respective successors and
assigns.
[SIGNATURE PAGE FOLLOWS]
E-6
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by each of the parties hereto as of the date first written above.
PHOENIX FOOTWEAR GROUP, INC.
By:_____________________________
Name: James Riedman
Title: President and Chief Executive Officer
PFG ACQUISITION, INC.
By:_____________________________
Name: James Riedman
Title: President and Chief Executive Officer
____________________________________
Harrison S. Trask
E-7
EXHIBIT F TO MERGER AGREEMENT
FORM OF PRESTON GATES & ELLIS OPINION LETTER
[July __, 2003]
Phoenix Footwear Group, Inc.
5759 Fleet Street, Suite 220
Carlsbad, California 92008
PFG Acquisition, Inc.
5759 Fleet Street, Suite 220
Carlsbad, California 92008
Ladies and Gentlemen:
We have acted as counsel for H.S. Trask & Co., a Montana corporation
("H.S. Trask"), in connection with the acquisition of H.S. Trask by Phoenix
Footwear Group, Inc., a Delaware corporation ("Parent"), through its
wholly-owned subsidiary PFG Acquisition, Inc. a Montana corporation
("Purchaser"), by means of a tender offer by Purchaser for all of the issued and
outstanding Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock of H.S. Trask, followed by a merger of H.S. Trask with and into
Purchaser pursuant to that certain Agreement and Plan of Merger dated as of June
11, 2003 (the "Merger Agreement") by and among Parent, Purchaser and H.S. Trask.
In that capacity, we have reviewed the Merger Agreement, the H.S. Trask
Disclosure Schedules attached thereto and the Articles of Merger. We have also
reviewed such agreements, instruments, corporate records, certificates and other
documents and considered such questions of law as we have considered necessary
for the purpose of rendering this opinion.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord and the accompanying commentary and
technical notes, all as published in The Business Lawyer, Volume 47, No. 1,
November, 1991 (the "Accord"), which are incorporated herein by this reference.
As a consequence, this Opinion Letter is subject to a number of assumptions,
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction therewith. The law covered by the opinions
expressed herein is expressly limited to the Law (as defined in the Accord) of
the State of Washington, the Montana Business Corporations Act, the Delaware
General Corporation Law and the Securities Act of 1933, as amended (the
"Securities Act" and collectively, the "Covered Law"). To the extent that the
matters addressed in our opinions are governed by laws other than the Covered
Law, we have assumed that such other laws are identical in all material respects
to the Law of the State of Washington. Capitalized terms used but not defined
herein have the meanings defined for them in the Accord or, if not so defined in
the Accord, the Merger Agreement.
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________, 2003
Page -2-
With respect to certain factual matters underlying the opinions
expressed herein, we have relied upon a certificate of an officer of the H.S.
Trask, a copy of which is attached hereto (the "Officer Certificate"). With
respect to our opinions in Item 1 below, we have relied exclusively on a
certificate of existence and good standing received from the Montana Secretary
of State. With respect to the opinions in paragraphs 6 and 7 as to outstanding
securities of H.S. Trask and common stock reserved for issuance, we have relied
entirely upon a review of the stock ledger of H.S. Trask and the Officer
Certificate.
Based upon and subject to the foregoing, we are of the opinion that:
1. H.S. Trask is a corporation that has been duly incorporated
and organized is validly existing and is in good standing under the laws of the
State of Montana.
2. H.S. Trask has full corporate power and authority necessary to
carry on the businesses in which it is presently engaged and to own and use the
properties owned and used by it. To our knowledge, H.S. Trask does not have an
equity interest in any other corporation, partnership, association, joint
venture or other entity. H.S. Trask is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of such jurisdiction
where the location of its properties or the character of its operations makes
such qualification necessary except where any such failure to be so qualified or
in good standing would not have a Material Adverse Effect on it.
3. H.S. Trask has full corporate power and authority to enter
into the Merger Agreement and the Articles of Merger, to perform its obligations
thereunder and to consummate the transactions contemplated thereby. The
execution, delivery and performance of the Merger Agreement and the Articles of
Merger by H.S. Trask, and the consummation by H.S. Trask of the transactions
contemplated thereby, have been duly and validly approved by the Board of
Directors of H.S. Trask and by the stockholders of H.S. Trask. The Merger
Agreement and the Articles of Merger have been duly and validly executed and
delivered by an authorized officer of H.S. Trask and constitute legal, valid and
binding obligations of H.S. Trask enforceable against it in accordance with
their terms.
4. The execution, delivery and performance by H.S. Trask of the
Merger Agreement and the consummation by H.S. Trask of the transactions
contemplated thereby does not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default (or an event which with notice
or lapse of time, or both, would constitute a default) under, require a consent
under, or result in the creation or imposition of any lien, security interest,
charge or encumbrance upon any of its properties or assets pursuant to the terms
of any agreement which is listed on Schedule 3.18 of the H.S. Trask Disclosure
Schedule, or violate its Articles of Incorporation or By-laws or any license,
permit, judgment, decree, order, statute, rule or regulation applicable to it or
of its property or
F-2
________, 2003
Page -3-
business and known to us.
5. No authorization, approval, consent, waiver or other action or
consideration by, and no notice to or filing with, any governmental authority or
regulatory body or other person is required for the due execution and delivery
by H.S. Trask of the Merger Agreement or the performance by H.S. Trask of its
obligations thereunder, except for (i) such consents, approvals, authorizations,
registration or qualifications as may be required under state securities or Blue
Sky laws in connection with the issuance of Parent's common stock pursuant to
the Merger and (ii) the filing of the Articles of Merger.
6. The authorized capital stock of H.S. Trask consists solely of
5,000,000 shares of common stock, no par value, (the "Common Stock"), and
2,500,000 shares of preferred stock, no par value, (the "Preferred Stock"),
500,000 shares of which have been designated Series A Preferred Stock (the
"Series A Preferred"), 833,194 shares of which have been designated Series B
Preferred Stock (the "Series B Preferred") and 500,000 shares of which have been
designated Series C Preferred Stock (the "Series C Preferred"). As of the date
hereof, there are issued and outstanding: 2,085336 shares of Common Stock,
500,000 shares of Series A Preferred, 833,134 shares of Series B Preferred, and
500,000 shares of Series C Preferred. Pursuant to and in accordance with the
H.S. Trask Articles of Incorporation, each outstanding share of Preferred Stock
is currently convertibly at the election of the holder into one share of Common
Stock. No shares of Common Stock or Preferred Stock are currently held in the
treasury of H.S. Trask. To date, there are outstanding options to purchase
263,500 shares of Common Stock issued pursuant to H.S. Trask's 1994 Stock Plan
and outstanding warrants to purchase 75,000 shares of Common Stock.
7. To our knowledge, other than as set forth in Item 6 above,
H.S. Trask does not have outstanding any subscriptions, options, warrants,
rights (including "phantom" stock rights), preemptive rights or other contracts,
commitments, understandings, plans or arrangements, including any right of
conversion or exchange under any outstanding security, instrument or agreement,
obligating H.S. Trask to issue or sell any shares of capital stock of H.S. Trask
or to grant, extend or enter into any option with respect thereto.
F-3
________, 2003
Page -4-
8. To our knowledge, H.S. Trask is not (i) subject to any
outstanding injunction, judgment, order, decree or ruling or (ii) a party or is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
9. The Shareholder Representative is duly authorized to act for
and in behalf of each Former H.S. Trask Stockholders who has validly executed
and delivered a Letter of Transmittal in connection with the Merger.
In addition to the General Qualifications (which include the Bankruptcy
sand Insolvency Exception, the Equitable Principles Exception, and the Other
Common Qualifications), all of which apply to the foregoing opinions, the
foregoing opinions are further qualified by and subject to the following
assumptions and exceptions, which assumptions and exceptions modify the Accord
to the extent necessary:
A. We express no opinion on any fact made in any representation
or warranty or the accuracy of any calculations, descriptions or facts in the
Merger Agreement or in any exhibit or other document referenced therein.
B. Our opinions are subject to the context rule of interpretation
of contracts under the laws of the State of Washington. Under that rule, even
though terms of a contract may be unambiguous, courts will admit extrinsic
evidence to interpret the contract.
C. Our opinions are subject to the effect of general rules of
contract law limiting the recovery of damages to the extent the aggrieved party
could have avoided damages by reasonable effort.
D. Without limiting the generality of paragraphs A through F, we
express no opinion with respect to the enforceability of any contractual
provisions: (i) waiving, releasing or imposing liability, notwithstanding
defenses or claims, where such provisions are unconscionable or against public
policy, (ii) waiving, releasing or imposing liability, where such provisions are
in conflict with rights conferred by statute or other law, (iii) purporting to
fix evidentiary standards or waiving or modifying constitutional provisions,
court rules or statutes regarding litigation (including but not limited to
service of process, jurisdiction, venue, and rights to a jury trial), (iv)
allowing a third party to take action as attorney-in-fact or otherwise for a
party, (v) allowing extrajudicial setoff, or setoff in circumstances not allowed
by law, (vi) making available the remedy of specific performance, (vii) broadly
waiving rights or unknown future rights, (viii) providing for the severability
of clauses, (ix) making ineffective oral waivers or modifications, (x) setting
forth liquidated damages or other agreed upon damages which are deemed to
constitute a penalty, or (xi) providing for any conflicting terms (if any).
F-4
________, 2003
Page -5-
E. Rights to indemnification and contribution may be limited by
provisions of securities and environmental law and by principles governing the
construction and interpretation of indemnity provisions, in addition to the
limitations stated in the Accord. For example, Washington courts do not favor
and will not necessarily enforce clauses purporting to exculpate or indemnify an
indemnitee for losses flowing from the indemnitee's acts or omissions or not
caused or contributed to by the indemnitor.
F. We express no opinion as to the enforceability of cumulative
remedies to the extent such remedies purport to or would have the effect of
compensating the party entitled to the benefits thereof in amounts in excess of
the actual loss suffered by such party or would violate applicable laws
concerning election of remedies.
The phrases "to our knowledge," "to the best of our knowledge," "known
to us" and the like as used herein refer to the Actual Knowledge of the Primary
Lawyer Group. For purposes of application of the Accord hereto, the Primary
Lawyer Group consists of Gary J. Kocher, Carter Mackley and Won-Han Cheng, being
the attorneys of this firm who have actively and directly participated in and
devoted substantive attention to the negotiation and closing of the Merger
Agreement.
This Opinion Letter speaks as to the matters as of the date of this
Opinion Letter and we assume no responsibility for changes in law, regulations,
facts or circumstances after the date of this Opinion Letter. We have no duty,
and undertake no duty, to update this Opinion Letter or to deliver future
opinions.
This Opinion Letter may be relied upon by Parent and Purchaser only in
connection with the execution and delivery of the Merger Agreement and may not
be used or relied upon by you or by any other person for any purpose whatsoever,
except to the extent authorized in the Accord, without in each instance our
prior written consent.
Very truly yours,
PRESTON GATES & ELLIS LLP
F-5
EXHIBIT G TO MERGER AGREEMENT
FORM OF WOODS OVIATT GILMAN OPINION LETTER
[Woods Oviatt Gilman LLP Letterhead]
________, 2003
H.S. Trask & Co.
685 Old Buffalo Trail
Bozeman, Montana 58713
Attention: Harrison Trask, President
Dear Sir:
We have acted as counsel for Phoenix Footwear Group, Inc. ("PARENT"), a
Delaware corporation, and PFG Acquisition, Inc. ("PURCHASER"), a Montana
corporation, in connection with Purchaser's acquisition of H.S. Trask & Co.
("H.S. TRASK"), a Montana corporation, by means of a tender offer for all of the
issued and outstanding Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock of H.S. Trask, followed by a merger of H.S. Trask with
and into Purchaser pursuant to that certain Agreement and Plan of Merger dated
as of June __, 2003 (the "MERGER AGREEMENT") by and among Parent, Purchaser and
H.S. Trask. Capitalized terms used and not otherwise defined herein shall have
the meanings assigned to such terms in the Merger Agreement.
As such counsel, we have assisted in the preparation of the Merger
Agreement, the Articles of Merger and the Escrow Agreement dated as of ______,
2003 among Parent and Nancy Delekta, as representative for the Former H.S. Trask
Stockholders (collectively, the "TRANSACTION DOCUMENTS"). In connection with
this opinion, we have also examined and are familiar with and have relied upon
the following documents:
(a) The Certificate of Incorporation of Parent;
(b) The By-Laws of Parent;
(c) The Articles of Incorporation of the Purchaser;
(d) The By-Laws of the Purchaser;
(e) The stock records for Parent, including a certificate of
Registrar and Transfer Agent dated ________, 2003 executed and
delivered by Equiserve LLC (the "TRANSFER AGENT CERTIFICATE")
verifying the number of Parent's issued and outstanding shares
of
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H.S. Trask & Co.
_____, 2003
Page -2-
capital stock as of the date hereof;
(f) The form of share certificate (with legend affixed thereto)
which will represent the Parent Shares to be issued pursuant
to the Merger Agreement;
(g) A Certificate of the Secretary of State of Delaware, dated as
of a recent date, certifying as to the legal existence and
good standing of Parent in Delaware;
(h) A Certificate of the Secretary of State of Montana, dated as
of a recent date, certifying as to the legal existence of the
Purchaser in Montana;
(i) A certificate of the Secretary of Parent attesting to the
incumbency of Parent's officers and the authenticity of the
resolutions authorizing the transactions contemplated by the
Merger Agreement;
(j) A certificate of the Secretary of the Purchaser attesting to
the incumbency of the Purchaser's officers and the
authenticity of the resolutions authorizing the transactions
contemplated by the Merger Agreement;
(k) Resolutions of the Board of Directors of Parent approving the
Merger and authorizing, among other things, the execution,
delivery and performance by Parent of the Merger Agreement and
the Transaction Documents (including the issuance of the
Parent Shares);
(l) Resolutions of the Board of Directors and the sole stockholder
of the Purchaser approving the Merger and authorizing, among
other things, the execution, delivery and performance by the
Purchaser of the Merger Agreement and the Transaction
Documents;
(m) Copies of the agreements Parent has filed with the SEC in its
most recent annual and quarterly filings under the 1934 Act
and those identified to us by Parent as being material to
Parent (the "MATERIAL AGREEMENTS");
(n) Certificates addressed to us and dated the date hereof
executed by Parent and Purchaser containing certain factual
and other representations (the "MANAGEMENT CERTIFICATE");
(o) The closing certificate of Parent and the Purchaser described
in Section 6.2(j) of the Merger Agreement; and
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H.S. Trask & Co.
_____, 2003
Page -3-
(p) Such other documents, opinions, instruments and certificates
(including, but not limited to, certificates of public
officials and officers of Parent and Purchaser) as we have
considered necessary for purposes of this opinion.
In addition to the assumptions listed below in this opinion, we have
with your consent assumed, and have not independently verified, that (i) each
such document submitted to us as an original is authentic, (ii) each such
document submitted to us as a copy conforms to the original, (iii) the
signatures on all such documents examined by us are genuine, (iv) the
Transaction Documents accurately describe and contain the mutual understanding
of the parties as to all matters contained therein, and that no other agreements
or understandings exist between the parties with respect to the Transaction
Documents, (v) the Transaction Documents have been duly authorized, executed and
delivered by each of the signatories thereto other than Parent and Purchaser, as
the case may be, that the signatories thereto other than Parent and Purchaser,
as the case may be, have the legal capacity and all requisite power and
authority to effect the transactions contemplated by the Transaction Documents
and that the Transaction Documents are the valid, binding and enforceable
obligations of each of the signatories thereto other than Parent and Purchaser,
as the case may be, enforceable against them in accordance with their respective
terms and (vi) the lack of any undisclosed termination, modification, waiver or
amendment to any document reviewed by us. We are expressing no opinion herein as
to the application of or compliance with any federal, state or local law or
regulation relating to the power, authority or competence of any party to the
Transaction Documents other than Parent and Purchaser.
Our opinions expressed in paragraph 1 below, insofar as they relate to
the due organization, legal existence and good standing of the Parent and the
due organization and legal existence of the Purchaser, are based solely on the
certificates identified in paragraphs (g) and (h) above, are rendered as of the
respective dates thereof.
Our opinion in paragraph 7 below (i) as to the number of shares of
capital stock of the Parent outstanding and held in treasury as of ____________,
2003 and the full payment therefor is based solely upon the Management
Certificate and (ii) regarding issued and outstanding shares of capital stock of
the Parent is based solely upon our review of the Transfer Agent Certificate and
the stock records of Parent.
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H.S. Trask & Co.
_____, 2003
Page -4-
In connection with the opinions expressed in Paragraphs 5 and 6 below,
we have not conducted any special investigation of statutes, rules, regulations
or orders and our opinion is limited to such New York, Delaware General
Corporate Law and United States orders, statutes, rules or regulations as in our
experience are of general application to transactions of the sort contemplated
by the Merger Agreement.
In connection with the opinions expressed in Paragraph 7 below, we have
examined those items listed in (a), (b) and (e) above and the minute books of
Parent and Purchaser. Parent and Purchaser have represented to us, and we have
assumed, that these records accurately identify and describe all issuances of
shares of Parent's capital stock and of any options, warrants or other rights to
purchase such capital stock; however, we are not aware of any facts that would
cause us to believe that any of the opinions expressed in paragraphs 3 and 4 are
not accurate.
With respect to our opinion in Paragraph 5 concerning Material
Agreements of Parent, we have relied solely upon representations made to us in
the Management Certificate that Parent has supplied us with true copies of all
Material Agreements. We have examined only those copies of the Material
Agreements supplied to us by the Parent.
As to factual matters, we have relied solely upon, and assumed the
accuracy, completeness, and genuineness of the Management Certificate and
certificates of public officials and oral and written representations made to us
by officers of Parent and Purchaser. In addition, we have assumed that the
representations and warranties as to factual matters made by each of the H.S.
Trask stockholders in their respective Investment Representation Letters, are
true and correct. We have not attempted to verify independently such facts.
Based upon and subject to the foregoing, we are of the opinion that:
1. Parent is a corporation that has been duly incorporated and
organized and is validly existing and is in good standing under the laws of the
State of Delaware. Purchaser is a corporation that has been duly incorporated
and organized and is validly existing and is in good standing under the laws of
the State of Montana.
2. Each of Purchaser and Parent has full corporate power and
authority necessary to carry on the business in which it is engaged, and to own
and use the properties owned and used by it.
3. Parent has full corporate power and authority to enter into
the Merger Agreement, and the Escrow Agreement and to perform its obligations
thereunder and to consummate the transactions contemplated thereby, including
the power and authority to extend and consummate the Offer. The execution,
delivery and performance of the Merger Agreement and the Escrow Agreement by
Parent,
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H.S. Trask & Co.
_____, 2003
Page -5-
and the consummation by Parent of the transactions contemplated thereby,
including the Offer, have been duly and validly approved by the Board of
Directors of Parent and is not required to be submitted to the stockholders of
Parent for their approval. The Merger Agreement and the Escrow Agreement have
been duly and validly executed and delivered by and constitute the legal, valid
and binding obligations of Parent enforceable against it in accordance with
their terms.
4. Purchaser has full corporate power and authority to enter into
the Merger Agreement and the Articles of Merger and to perform its obligations
thereunder and to consummate the transactions contemplated thereby, including
the power and authority to extend and consummate the Offer. The execution,
delivery and performance of the Merger Agreement and the Articles of Merger by
Purchaser, and the consummation by Purchaser of the transactions contemplated
thereby, including the Offer, have been duly and validly approved by the Board
of Directors and the sole shareholder of Purchaser. The Merger Agreement and the
Articles of Merger have been duly and validly executed and delivered by and
constitute legal, valid and binding obligations of Purchaser enforceable against
it in accordance with their terms.
5. The execution, delivery and performance by Purchaser and
Parent of the Merger Agreement and the consummation by Parent and Purchaser of
the transactions contemplated thereby (including extending and consummating the
Offer by Parent) does not (i) conflict with or result in a breach of any of the
terms or provisions of, or constitute a default (or an event which with notice
or lapse of time, or both, would constitute a default) under, require a consent
under, or result in the creation or imposition of any lien, security interest,
charge or encumbrance upon any of its properties or assets pursuant to the terms
of any Material Agreement except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
would not have a Material Adverse Effect on the ability of Parent or Purchaser
to consummate the transactions contemplated by the Merger Agreement, or (ii)
violate either Parent or Purchaser's certificate or articles of incorporation,
as the case may be, or by-laws or any license, permit, judgment, decree, order,
statute, rule or regulation applicable to it or of its property or business and
known to us.
6. No authorization, approval, consent, waiver or other action or
consideration by, and no notice to or filing with, any federal, Delaware or
Montana Governmental Entity is required for the due execution and delivery by
Parent and Purchaser of the Merger Agreement and the Escrow Agreement and, in
the case of Purchaser, the Articles or Merger, or the performance by Parent and
Purchaser of their respective obligations thereunder (subject to the assumption
for purposes of this specific opinion that the offer and sale of the Parent
Shares thereunder is exempt from registration and without opining on Parent's
obligation with respect to the registration of the resale of the Parent Shares
under Section 5.16 of the Merger Agreement), except for (i) such consents,
approvals, authorizations, registration or qualifications as may be required
under state securities or blue sky
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H.S. Trask & Co.
_____, 2003
Page -6-
laws in connection with the issuance of the Parent Shares pursuant to the Merger
Agreement, (ii) the filing of the Articles of Merger with the Montana Secretary
of State required, and (iii) filings to be made under the Securities Act of
1933, as amended, after the sale of the Parent Shares.
7. The authorized capital stock of Parent consists solely of (i)
500,00 shares of preferred stock, $.01 par value per share, of which no shares
were outstanding; and (ii) 50,000,000 shares of common stock, $.01 par value per
share, of which 4,286,442 shares are issued and outstanding, including 829,249
shares of common stock held by the co-trustees of the Phoenix Footwear 401(k)
Plan. In addition, Parent has 1,082,500 shares of common stock reserved for
issuance pursuant to its stock option plan, of which options to purchase 483,656
shares are outstanding as of the date hereof. Parent has 400,000 shares of
common stock reserved for issuance pursuant to outstanding out-of-plan options
to acquire shares of Parent's common stock. All of the outstanding shares of
capital stock of Parent have been duly and validly authorized and issued and are
fully paid and non-assessable.
8. The Merger Shares, when issued in compliance with the
provisions of the Merger Agreement and after the certificates representing the
same have been duly countersigned by Parent's transfer agent and registrar, will
be duly and validly issued, fully paid and nonassessable and will not be subject
to any statutory preemptive rights or similar claims or, to our knowledge, any
right of first offer or similar right under any agreement to which Parent or any
of its subsidiaries is a party or by which Parent or any of its subsidiaries may
be bound.
9. Based on the representations and warranties set forth in the
Merger Agreement and the Investment Representation Letters signed by the Former
H.S. Trask Stockholders, the issuance of the Parent Shares pursuant to the
Merger Agreement is exempt from applicable registration requirements of U.S.
federal securities laws. The Parent Shares issued pursuant to the merger are
eligible for listing on the AMEX and the Parent has received a letter from AMEX
so authorizing such listing subject only to notice of issuance thereof and the
effectiveness of the registration statement contemplated by Section 5.16 of the
Merger Agreement.
Any reference herein to "the best of our knowledge," "our knowledge" or
to any matter "known to us," "of which we are aware" or "coming to our
attention" or any variation of any of the foregoing shall mean the conscious
awareness of the attorneys in this firm who have rendered substantive attention
to this transaction (including the preparation of the Transaction Documents) of
the existence or absence of any facts which would contradict our opinions set
forth below. We have not undertaken any independent investigation to determine
the existence or absence of such facts, and no inference as to our knowledge of
the existence or absence of such facts should be drawn from the fact of our
representation of Parent or Purchaser.
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H.S. Trask & Co.
_____, 2003
Page -7-
The opinions hereinafter expressed are subject to the following
qualifications:
A. We express no opinion as to the effect of general principles
of equity, including, but not limited to, concepts of materiality,
reasonableness, good faith and fair dealing, and the possible unavailability of
specific performance or injunctive relief (regardless of whether such remedy is
considered in a proceeding in equity or at law);
B. We express no opinion as to the effect on the enforceability
of any contract of applicable bankruptcy, insolvency, reorganization, moratorium
and other similar federal and state laws affecting the rights of creditors
generally;
C. We express no opinion as to compliance with the anti-fraud
provisions of state and federal laws, rules and regulations concerning the
issuance of securities or as to the compliance with any state securities laws;
D. We are members of Bar of the State of New York and we are not
expressing any opinion relating to any jurisdiction other than the laws of the
United States of America and the laws of the State of New York, the Delaware
General Corporation Law and the Montana Business Corporation Act.
E. We express no opinion with respect to the enforceability of
the provisions of the Merger Agreement regarding indemnification of H.S. Trask
stockholders to the extent it relates to the issuance and sale of the Parent
Shares as such provisions may be found to contravene applicable public policy
and therefore to be unenforceable.
The foregoing opinion is intended solely for your benefit and is not to
be made available to or be relied upon by any other person, firm, or entity
without our express prior written consent. We assume no obligation to advise you
of any fact, circumstance, event or change in the law or the facts that may
hereafter be brought to our attention, whether or not they would affect or
modify the opinions expressed herein.
Very truly yours,
WOODS OVIATT GILMAN LLP
G-7
