EXHIBIT D
SUPPORT AGREEMENT
This SUPPORT AGREEMENT, is entered into as of September 17, 1999, among HK
Merger Corp., a New York corporation ("HK") and the persons listed on Schedule A
hereto (each a "Shareholder", and, collectively, the "Shareholders").
Capitalized terms not otherwise defined herein have the meanings set forth in
the Merger Agreement (defined below).
WHEREAS, Happy Kids Inc., a New York corporation (the "Company") and HK
have, simultaneously with the execution and delivery of this Agreement, entered
into an Agreement and Plan of Merger (as the same may be amended or
supplemented, the "Merger Agreement") providing for the merger of HK with and
into the Company (the "Merger"), which Merger has been recommended by the
Special Committee of the Company's Board of Directors;
WHEREAS, each Shareholder is the record and beneficial owner of the number
of shares of Common Stock, par value $.01 per share, of the Company (the
"Company Common Stock") set forth opposite such Shareholder's name on Schedule A
hereto and under the heading "Total Shares" (such shares of the Company Common
Stock, as such shares may be adjusted by stock dividend, stock split,
recapitalization, combination or exchange of shares, merger, consolidation,
reorganization or other change or transaction of or by the Company, together
with shares of the Company Common Stock that may be acquired after the date
hereof by such Shareholder, including shares of the Company Common Stock
issuable upon the exercise of options to purchase the Company Common Stock (as
the same may be adjusted as aforesaid), being collectively referred to herein as
the "Shares"); and
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, HK has requested that the Shareholders enter into this Agreement;
NOW, THEREFORE, to induce HK to enter into, and in consideration of it
entering into, the Merger Agreement, and in consideration of the premises and
the representations, warranties and agreements contained herein, the parties
agree as follows:
1. Representations and Warranties of the Shareholders. Each Shareholder
acting solely in its capacity as a Shareholder and not as a Director of the
Company, hereby, severally and not jointly, represents and warrants to HK as
follows:
(a) Authority. The Shareholder has all requisite power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by the Shareholder. This Agreement has been duly executed and
delivered by the Shareholder and, assuming this Agreement constitutes a valid
and binding obligation of HK, constitutes a valid and binding obligation of the
Shareholder enforceable
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against the Shareholder in accordance with its terms. Except for the expiration
or termination of the waiting periods under the HSR Act and informational
filings with the Securities and Exchange Commission, neither the execution,
delivery or performance of this Agreement by the Shareholder nor the
consummation by the Shareholder of the transactions contemplated hereby will (i)
require any filing with, or permit, authorization, consent or approval of, any
federal, state, local, municipal or foreign or other government or subdivision,
branch, department or agency thereof or any governmental or quasi-governmental
authority of any nature, including any court or other tribunal, (a "Governmental
Entity"), (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default under, or give rise to
any right of termination, amendment, cancellation or acceleration under, or
result in the creation of any Lien upon any of the properties or assets of the
Shareholder under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, permit, concession, franchise, contract,
agreement or other instrument or obligation (a "Contract") to which the
Shareholder is a party or by which the Shareholder or any of the Shareholder's
properties or assets, including the Shareholder's Shares, may be bound or (iii)
violate any judgment, order, writ, preliminary or permanent injunction or decree
(an "Order") or any statute, law, ordinance, rule or regulation of any
Governmental Entity (a "Law") applicable to the Shareholder or any of the
Shareholder's properties or assets, including the Shareholder's Shares.
(b) The Shares. The Shareholder's Shares and the certificates
representing such Shares are now, and at all times during the term hereof will
be, held by such Shareholder, or by a nominee or custodian for the benefit of
such Shareholder, and the Shareholder has good and marketable title to such
Shares, free and clear of any Liens, proxies, voting trusts or agreements,
understandings or arrangements, except for any such Liens or proxies arising
hereunder. Except as set forth on Schedule B, the Shareholder owns of record or
beneficially no shares of the Company Common Stock other than such Shareholder's
Shares and shares of the Company Common Stock issuable upon the exercise of
Company stock options, as set forth on Schedule A hereto.
(c) Merger Agreement. The Shareholder understands and acknowledges
that HK is entering into the Merger Agreement in reliance upon the Shareholder's
execution and delivery of this Agreement.
2. Representations and Warranties of HK. HK hereby represents and warrants
to the Shareholders as follows:
(a) Authority. HK has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by HK and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of HK This
Agreement has been duly executed and delivered by HK and, assuming this
Agreement constitutes a valid and binding obligation of the Shareholders,
constitutes a valid and binding obligation of HK enforceable in accordance with
its terms.
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(b) Securities Act. The Shares will be acquired in compliance with,
and HK will not offer to sell or otherwise dispose of any Shares so acquired by
it in violation of the registration requirements of the Securities Act of 1933,
as amended.
3. Covenants of the Shareholders. Each Shareholder, severally and not
jointly, to the extent he has the capacity to vote, solely in his capacity as
Shareholder and not as a Director of the Company, agrees as follows:
(a) Each Shareholder shall not, except as contemplated by the terms of
this Agreement or the Merger Agreement, (i) sell, transfer, pledge, assign or
otherwise dispose of, or enter into any Contract, option or other arrangement
(including any profit sharing arrangement) or understanding with respect to the
sale, transfer, pledge, assignment or other disposition of his Shares to any
person other than HK or HK's designee, (ii) enter into any voting arrangement,
whether by proxy, voting agreement, voting trust, power-of-attorney or
otherwise, with respect to his Shares or (iii) take any other action that would
in any way restrict, limit or interfere with the performance of his obligations
hereunder or the transactions contemplated hereby.
(b) At any meeting of shareholders of the Company called to vote upon
the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval (including by
written consent) with respect to the Merger and the Merger Agreement is sought,
each Shareholder shall as requested by HK (including, without limitation, by
cooperating with HK with respect to the irrevocable proxy granted to HK pursuant
to Section 6 below), vote (or cause to be voted) such Shareholder's Shares in
favor of the Merger, the adoption by the Company of the Merger Agreement and the
approval of the other transactions contemplated by the Merger Agreement. At any
meeting of Shareholders of the Company or at any adjournment thereof or in any
other circumstances upon which the Shareholder's vote, consent or other approval
is sought, such Shareholder shall as requested by HK as provided above vote (or
cause to be voted) such Shareholder's 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 the Company or any other
Acquisition Proposal (collectively, "Alternative Transactions") or (ii) any
amendment of the Company's Certificate of Incorporation or by-laws or other
proposal or transaction involving the Company or any of its subsidiaries, which
amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify, the Merger, the Merger Agreement or any of the
other transactions contemplated by the Merger Agreement (collectively,
"Frustrating Transactions").
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4. Notice of Acquisition of Additional Shares. Each Shareholder hereby
agrees, while this Agreement is in effect, to promptly notify HK of the number
of any new Shares acquired by such Shareholder, if any, after the date hereof.
5. Non-Solicitation. From and after the date hereof, each Shareholder,
acting in his capacity as such, shall not:
(a) directly or indirectly solicit, initiate, or encourage (including
by way of furnishing nonpublic information or assistance), or take any other
action to facilitate, any inquiries or proposals from any person that
constitute, or may reasonably be expected to lead to, an acquisition, purchase,
merger, consolidation, share exchange, recapitalization, business combination or
other similar transaction involving any material portion of the assets or any
securities of, any merger, consolidation or business combination with, or any
public announcement of a proposal, plan, or intention to do any of the foregoing
by, the Company or any of its Subsidiaries (such transactions being referred to
herein as "Acquisition Proposals");
(b) enter into, maintain, or continue discussions or negotiations with
any Person in furtherance of such inquiries or to obtain an Acquisition
Proposal;
(c) agree to or endorse any Acquisition Proposal; or
(d) enter into any agreement, arrangement or understanding requiring
it to abandon, terminate or fail to consummate the Merger or any other
transaction contemplated by the Merger Agreement.
6. Grant of Irrevocable Proxy Coupled with an Interest; Appointment of
Proxy.
(a) Each Shareholder hereby irrevocably grants to, and appoints, Xxxx
Xxxxx, Xxxx Xxxxx, and any other individual who shall hereafter be designated by
HK, such Shareholder's proxy and attorney-in-fact (with full power of
substitution), for and in the name, place and stead of such Shareholder, to vote
such Shareholder's Shares, or grant a consent or approval in respect of such
Shares, at any meeting of shareholders of the Company or at any adjournment
thereof or in any other circumstances upon which their vote, consent or other
approval is sought, (i) in favor of the Merger, the adoption by the Company of
the Merger Agreement and the approval of the other transactions contemplated by
the Merger Agreement and (ii) against any Alternative Transaction or Frustrating
Transaction.
(b) Each Shareholder represents that any proxies heretofore given in
respect of such Shareholder's Shares are not irrevocable, and that any such
proxies are hereby revoked.
(c) Each Shareholder hereby affirms that the proxy set forth in this
Section 6 is coupled with an interest and is irrevocable until the earlier of
(i) such time as this Agreement
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terminates by mutual agreement of the parties, (ii) consummation of the Merger
in accordance with the terms of the Merger Agreement, or (iii) HK terminating
the Merger Agreement in accordance with its terms or (iv) the Company
terminating the Merger Agreement in accordance with its terms. Such Shareholder
hereby further affirms that the irrevocable proxy is given in connection with
the execution of the Merger Agreement, and that such irrevocable proxy is given
to secure the performance of the duties of such Shareholder under this
Agreement. Such Shareholder hereby ratifies and confirms all that such
irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such
irrevocable proxy is executed and intended to be irrevocable in accordance with
the provisions of Section 609 of the New York Business Corporation Law.
7. Indemnity and Escrow.
(a) Escrow. Upon the effective date of the Merger (the "Effective
Date") and receipt of the cash consideration for certain of the Shares owned by
Shareholders immediately prior to the Effective Date, Shareholders agree that
they will deposit, and hereby direct the Exchange Agent (as defined in the
Merger Agreement) to deposit, $4,250,000 in cash into an escrow account (the
"Escrow") established pursuant to the terms of that certain Escrow Agreement by
and among HK, Shareholders and an escrow agent (the "Escrow Agent")
substantially in the form of Exhibit A attached hereto. The Escrow will be
available to satisfy any amounts owing to HK pursuant to Section 7(b), and,
other than pursuant to this Xxxxxxx 0, XX and its affiliates shall not assert,
directly or indirectly, any claim, proceeding or action against the Shareholders
with respect to the Merger Agreement or any action or inaction of the
Shareholders acting in their capacity as officers, directors, shareholders or
employees of the Company occurring prior to the Merger (except claims relating
to or arising out of the fraudulent acts or fraudulent omissions by any of the
Shareholders). Except as otherwise permitted under the Escrow Agreement,
assuming consummation of the transactions contemplated herein and in the Merger
Agreement, after the Effective Date, Shareholders shall not assert, directly or
indirectly, any claim, proceeding or action against the Company, HIG-HK
Investment, Inc. ("Parent") or their affiliates with respect to this Agreement
(other than to enforce this Section 7), the Merger Agreement or any action or
inaction of the Company, Parent or any of their affiliates relating to or in
connection with the Company, the Merger Agreement or this Agreement (except
claims relating to or arising out of the fraudulent acts or failure to act by
Parent or its affiliates).
(b) Indemnification of the Company by Shareholders. Subject to the
limitations set forth in Section 7(c), after the Effective Date, Shareholders,
jointly and severally, will indemnify HK and its affiliates, officers,
directors, employees, agents, representatives, successors and assigns and, to
the extent Parent is not made whole, Parent (each, an "Indemnitee") and hold
each Indemnitee harmless from and against any loss, liability, deficiency,
damage or expense (including reasonable legal expenses and costs and any cost or
expense arising from or incurred in connection with any action, suit,
proceeding, claim or judgement relating solely to any matter described in this
Section 7(b), or in enforcing the indemnity provided by this Section 7(b)) (any
such amount being a "Loss"), which such Indemnitee may suffer, sustain or become
subject to, as a result of any breach by (i) the
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Company of any representation or warranty set forth in Article 3 of the Merger
Agreement or (ii) the Shareholders of any representation or warranty set forth
in this Agreement (in each case, determined without regard to any qualifications
therein referencing the terms "materiality," "Material Adverse Effect" or
"knowledge," or other term of similar import or effect).
(c) Limitations. Shareholders' indemnification obligation set forth in
Section 7(b) is subject to the following limitations:
(i) Survival and Notice. Notwithstanding Section 8.1 of the
Merger Agreement, for purposes of this Agreement all representations and
warranties of the Company in the Merger Agreement shall survive the Closing
Date and the consummation of the transactions contemplated hereby and shall
not be affected by any examination made for or on behalf of any party, the
knowledge of any of such party's officers, directors, stockholders,
employees, or agents, or the acceptance of any certificate or opinion.
Notwithstanding the foregoing, with respect to the representations and
warranties contained in Article 3 of the Merger Agreement, HK shall not be
entitled to recover for any Loss pursuant to Section 7(b) unless written
notice of a claim thereof is delivered to the Shareholders before the
Applicable Limitation Date. For purposes of this Agreement, the term
"Applicable Limitation Date" shall mean March 31, 2001; provided that the
Applicable Limitation Date with respect to any Loss arising from or related
to a breach of the representations and warranties of the Company set forth
in Section 3.1 (Organization and Qualifications; Subsidiaries), 3.2
(Capitalization; Subsidiaries), 3.3 (Authority Relative to this Agreement),
and 3.9 (Taxes) of the Merger Agreement shall be the date of expiration of
the statute of limitations applicable to the statute, regulation or other
authority which related to such Loss (including extensions or waivers
thereof). All statements as to factual matters contained in any certificate
or other instrument delivered at the Closing on behalf any Shareholder, the
Company or its Subsidiaries shall be deemed to be representations and
warranties by such party hereunder as of the Closing Date.
(ii) Dollar Basket. Shareholders shall not be obligated to
indemnify the Indemnities for any single Loss covered by Section 7(b)
(consolidating into any single Loss any series of related events, factors
or circumstances giving rise to liability on the same or a substantially
related basis) unless such Loss exceeds $250,000, in which case
Shareholders shall be obligated to indemnify the Indemnities for the full
amount of such Loss (subject to the other limitations set forth in clauses
(i) and (ii) of this Section 7(c)).
(iii) Cap. An Indemnitee's remedy for any indemnification claim
against the Shareholders pursuant to Section 7(b) shall be limited to and
satisfied solely from the Escrow; provided that with respect to any Loss
arising from or related to a breach of the representations and warranties
of the Company set forth in Section 3.1 (Organization and Qualifications;
Subsidiaries), 3.2 (Capitalization; Subsidiaries), 3.3 (Authority Relative
to this Agreement), and 3.9 (Taxes), or in the case of fraud, an
Indemnitee's remedy for any
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indemnification claim shall not be limited to the Escrow and the
Shareholders will be obligated to indemnify the Indemnitees for Losses up
to the Merger Consideration received by the Shareholders.
(d) Indemnification Procedures.
(i) Notice of Claim. Any Person making a claim for
indemnification pursuant to Section 7(b) above (an "Indemnified Party")
must give the Party from whom indemnification is sought (an "Indemnifying
Party") written notice of such claim describing such claim and the nature
and amount of such Loss (to the extent that the nature and amount of such
Loss is known at such time) (an "Indemnification Claim Notice") promptly
after the Indemnified Party receives any written notice of any action,
lawsuit, proceeding, investigation or other claim (a "Proceeding") against
or involving the Indemnified Party or otherwise discovers the liability,
obligation or facts giving rise to such claim for indemnification; provided
that the failure to notify or delay in notifying an Indemnifying Party will
not relieve the Indemnifying Party of its obligations pursuant to Section
7(b), except to the extent that (and only to the extent that) such failure
shall have caused the damages for which the Indemnifying Party is obligated
to be greater than such damages would have been had the Indemnified Party
given the Indemnifying Party prompt notice hereunder.
(ii) Control of Defense: Conditions. With respect to the defense
of any Proceeding against or involving an Indemnified Party in which the
party in question seeks only the recovery of a sum of money for which
indemnification is provided in Section 7(b), at its option an Indemnifying
Party may appoint as lead counsel of such defense any legal counsel
selected by the Indemnified Party; provided that before the Indemnifying
Party assumes control of such defense it must first
(A) enter into an agreement with the Indemnified Party (in form
and substance satisfactory to the Indemnified Party) pursuant to which
the Indemnifying Party agrees to be fully responsible (with no
reservation of any rights other than the right to be surrogate to the
rights of the Indemnified Party) for all Losses relating to such
Proceeding and unconditionally guarantees the payment and performance
of any liability or obligation which may arise with respect to such
Proceeding or the facts giving rise to such claim for indemnification,
and
(B) furnish the Indemnified Party with evidence that the
Indemnifying Party, in the Indemnified Party's sole judgment, is and
will be able to satisfy any such liability.
(iii) Control of Defense: Exceptions, etc. The Indemnified Party
will be entitled to participate in the defense of such claim and to employ
counsel of its choice for
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such purpose at its own expense; provided that notwithstanding the
foregoing, the Indemnifying Party will bear the reasonable fees and
expenses of such separate counsel incurred prior to the date upon which the
Indemnifying Party effectively assumes control of such defense. The
Indemnifying Party will not be entitled to assume control of the defense of
such claim, and will pay the reasonable fees and expenses of legal counsel
retained by the Indemnified Party, if
(A) the Indemnified Party reasonably believes that an adverse
determination of such Proceeding could be detrimental to or injure the
Indemnified Party's reputation or future business prospects,
(B) the Indemnified Party reasonably believes that there exists
or could arise a conflict of interest which, under applicable
principles of legal ethics, could prohibit a single legal counsel from
representing both the Indemnified Party and the Indemnifying Party in
such Proceeding, or
(C) a court of competent jurisdiction rules that the Indemnifying
Party has failed or is failing to prosecute or defend vigorously such
claim; and
The Indemnifying Party must obtain the prior written consent of the Indemnified
Party (which the Indemnified Party will not unreasonably withhold) prior to
entering into any settlement of such claim or Proceeding or ceasing to defend
such claim or Proceeding.
(iv) Payments. Any payment pursuant to a claim for
indemnification shall be made not later than thirty (30) days after receipt
by the Indemnifying Party of written notice from the Indemnified Party
stating the amount of the claim, unless the claim is subject to defense as
provided in Section 7(d)(v) or is otherwise disputed by the Indemnifying
Party, in which case payment shall be made not later than 30 days after the
amount of the claim is finally determined in accordance with Section
7(d)(v). Any payment required under this Section 7(d)(iv) shall bear
interest at 8% per annum or, if less, the maximum rate permitted by
applicable usury laws from the date that the Indemnified Party incurred the
Loss for which indemnification is sought. Interest on any such unpaid
amount shall be compounded monthly, computed on the basis of a 365-day year
and shall be payable on demand. In addition, such party shall reimburse the
other party for any and all costs or expenses of any nature or kind
whatsoever (including but not limited to all attorneys' fees) incurred in
seeking to collect such Losses.
(v) Treatment of Indemnification Payments. Each Party will treat
all payments made pursuant to Section 7(b) as adjustments to the purchase
price paid for the Shareholders' Non-Rollover Shares (as defined in the
Merger Agreement) in connection with consummation of the Merger for all
purposes. Each Party agrees to use reasonable efforts to seek recovery
under any insurance coverage which such Party may have in respect of any
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Loss; provided that, to the extent not already taken into account, a
Party's Loss will include any increased premium which results from seeking
such recovery or the occurrence or existence of any fact or circumstance
giving rise to such Loss.
(vi) Other Indemnification Provisions. Each Shareholder hereby
agrees that he will not make any claim for indemnification hereunder
against the Company by reason of the fact that he was a shareholder,
director, officer, employee, or agent of the Company or was serving at the
request of the Company as a partner, trustee, director, officer, employee,
or other agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses or
expenses) with respect to any action, suit, proceeding, complaint, claim,
or demand brought by the Company against such Shareholder if such action,
suit, proceeding, complaint, claim or demand is pursuant to this Agreement;
it being understood that the foregoing limitation is not intended to apply
to any indemnification obligations owed to Shareholders with respect to any
action, suit, proceeding, complaint, claim or demand unrelated to this
Agreement and the transactions contemplated hereby. Each Shareholder hereby
acknowledges that he will have no claims or right to contribution or
indemnity from the Company with respect to amounts paid by such Shareholder
pursuant to Section 7(b).
(e) Arbitration Procedures.
(i) Each Party agrees that the arbitration procedure set forth
below shall be the sole and exclusive method for resolving and remedying
claims for money damages arising out of the provisions of Section 7(b) (the
"Disputes"). Nothing in this Section 7(e) shall prohibit a party hereto
from instituting litigation to enforce any Final Determination (as defined
below) or availing itself of the other remedies set forth in Section 7(f)
below. The Parties hereby agree and acknowledge that, except as otherwise
provided in this Section 7(e) or in the Commercial Arbitration Rules of the
American Arbitration Association as in effect from time to time, the
arbitration procedures and any Final Determination hereunder shall be
governed by, and shall be enforced pursuant to the Uniform Arbitration Act,
9 U.S.C. ss. 1 et seq.
(ii) In the event that any Party asserts that there exists a
Dispute, such Party shall deliver a written notice to each other Party
involved therein specifying the nature of the asserted Dispute and
requesting a meeting to attempt to resolve the same. If no such resolution
is reached within ten business days after such delivery of such notice, the
Party delivering such notice of Dispute (the "Disputing Person") may,
within 30 days after delivery of such notice, commence arbitration
hereunder by delivering to each other Party involved therein a notice of
arbitration (a "Notice of Arbitration") and by filing a copy of such Notice
of Arbitration with the New York office of the American Arbitration
Association. Such Notice of Arbitration shall specify the matters as to
which arbitration is sought, the nature of any Dispute, the claims of each
Party to the arbitration and shall specify the amount and
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nature of any damages, if any, sought to be recovered as a result of any
alleged claim, and any other matters required by the Commercial Arbitration
Rules of the American Arbitration Association as in effect from time to
time to be included therein, if any.
(iii) The Disputing Party, on the one hand, and the other Parties
involved therein, on the other hand, each shall select one non-neutral
arbitrator expert in the subject matter of the Dispute (the arbitrators so
selected shall be referred to herein as the "Disputing Party's Arbitrator"
and the "Non-Disputing Party's Arbitrator," respectively). In the event
that either Party fails to select an arbitrator as set forth herein within
ten (10) business days from the delivery of a Notice of Arbitration, then
the matter shall be resolved by the arbitrator selected by the other party.
The Disputing Party's Arbitrator and the Non- Disputing Party's Arbitrator
shall select a third independent, neutral arbitrator expert in the subject
matter of the dispute, and the three arbitrators so selected shall resolve
the matter according to the procedures set forth in this Section 7(e). If
the Disputing Party's Arbitrator and the Non-Disputing Party's Arbitrator
are unable to agree on a third arbitrator within twenty (20) days after
their selection, the American Arbitration Association shall select the
third arbitrator.
(iv) The arbitrator(s) selected pursuant to subsection (iii)
above will determine the allocation of the costs and expenses of
arbitration (including, without limitation, each Party's attorneys' fees
and cost of investigation) based upon the ratio of the portion of the
contested amount not awarded to each Party to the amount contested by such
Party. For example, if the Disputing Party submits a claim for $1,000 and
if the other Parties involved in the Dispute contest only $500 of the
amount claimed by the Disputing Party, and if the arbitrator(s) ultimately
resolves the dispute by awarding the Disputing Party $300 of the $500
contested, then the costs and expenses of arbitration will be allocated 40%
(i.e., 200 / 500) to the Disputing Party and 60% (i.e., 300 / 500) to the
other Parties involved in the Dispute.
(v) The arbitration shall be conducted under the Commercial
Arbitration Rules of the American Arbitration Association as in effect from
time to time, except as otherwise set forth herein or as modified by the
agreement of all of the Parties. The arbitration shall be conducted in New
York, New York. The arbitrators shall so conduct the arbitration that a
final result, determination, finding, judgment and/or award (the "Final
Determination") is made or rendered as soon as practicable, but in no event
later than 60 days after the delivery of the Notice of Arbitration nor
later than 10 business days following completion of the arbitration. The
Final Determination must be agreed upon and signed by the sole arbitrator
or by at least two of the three arbitrators (as the case may be). The Final
Determination shall be final and binding on all Parties and there shall be
no appeal from or reexamination of the Final Determination, except for
fraud, perjury, evident partiality or misconduct by an arbitrator
prejudicing the rights of any Party and to correct manifest clerical
errors.
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(vi) A Party may enforce any Final Determination in any state or
federal court having jurisdiction over the dispute. For the purpose of any
action or proceeding instituted with respect to any Final Determination,
each Party hereby irrevocably submits to the jurisdiction of such courts,
irrevocably consents to the service of process by registered mail or
personal service and hereby irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter have as to
personal jurisdiction, the laying of the venue of any such action or
proceeding brought in any such court and any claim that any such action or
proceeding brought in such court has been brought in an inconvenient forum.
(vii) Any party required to make a payment pursuant to this
Section 7(e) shall pay the party entitled to receive such payment within
three days of the delivery of the Final Determination to such responsible
party. If any party shall fail to pay the amount of damages, if any,
assessed against it within 10 days of the delivery to such party of such
award, the unpaid amount shall bear interest from the date of such delivery
at 14% per annum or, if less, the maximum rate permitted by applicable
usury laws. Interest on any such unpaid amount shall be compounded monthly,
computed on the basis of a 365-day year and shall be payable on demand. In
addition, such party shall reimburse the other party for any and all costs
or expenses of any nature or kind whatsoever (including but not limited to
all attorneys' fees) incurred in seeking to collect such damages or to
enforce any such award.
(f) Remedies. The foregoing indemnification provisions shall be the
exclusive remedy for the matters set forth in Section 7(b), except in the case
of fraud, in which case each Indemnitee shall be able to seek any statutory,
equitable or common law remedy it may have.
8. Non-Competition. As a condition precedent to HK's obligation to enter
into and perform its obligations under the Merger Agreement, each Shareholder
agrees that:
(a) For a period of five (5) years after the Closing Date (the
"Non-Competition Period"), such Shareholder shall not, directly or indirectly,
either for himself or for any other person, "participate" anywhere in the world
in the business as currently conducted by or as proposed to be conducted by the
Company and its Subsidiaries, including but not limited to the design,
manufacture, marketing, distribution, licensing and sale of children's and
teen's (i.e. ages 0-21) apparel or accessories (the "Business"). For purposes of
this Agreement, the term "participate" includes any direct or indirect interest
in any enterprise, whether as an officer, director, employee, partner, sole
proprietor, agent, representative, independent contractor, consultant,
franchisor, franchisee, creditor, owner or otherwise; provided, that the term
"participate" shall not include ownership of less than 5% of the stock of a
publicly-held corporation whose stock is traded on a national securities
exchange or in the over-the-counter market or the continued participation by the
Shareholder on the Board of Directors of any company in which he serves as of
the date hereof.
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(b) During the Non-Competition Period, such Shareholder will not
divulge or appropriate for his own use, or for the use of any third party, any
secret or confidential information or knowledge obtained by such Shareholder
concerning the Business. This obligation of secrecy shall not apply to
information which (i) is or becomes part of the public domain other than through
breach of this Agreement or through the fault of such Shareholder from an
unaffiliated source, which source has no obligation of secrecy to the Company,
(ii) is required to be disclosed by law or government order (but only to the
extent so required), or (iii) is used by such Shareholder in any other lines of
business (but only to the extent so used).
(c) During the five-year period following the Closing Date, such
Shareholder shall not solicit the employment (in any capacity) of or hire
directly or through another entity any employee of the Business or any person
who was an employee of the Business during the one year period immediately
preceding the date of such solicitation or hire without the prior written
consent of the Company and Parent.
(d) If at the time of enforcement of this Section 8, a court holds
that the duration, scope, geographic area or other restrictions stated herein
are unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope, geographic area or other restrictions deemed reasonable
under such circumstances by such court shall be substituted for the stated
duration, scope, geographic area or other restrictions.
(e) Such Shareholder recognizes and affirms that in the event of
breach of any of the provisions of this Section 8, money damages would be
inadequate and the Company and its affiliates would have no adequate remedy at
law. Accordingly, such Shareholder agrees that the Company and its affiliates
shall have the right, in addition to any other rights and remedies existing in
their favor, to enforce their rights and such Shareholder's obligations under
this Section 10 not only by an action or actions for damages, but also by an
action or actions for specific performance, injunctive and/or other equitable
relief in order to enforce or prevent any violations (whether anticipatory,
continuing or future) of the provisions of Section 8 (including, without
limitation, the extension of the Non-Competition Period by a period equal to (i)
the length of the violation of this Section 8 plus (ii) the length of any court
proceedings necessary to stop such violation). In the event of a breach or
violation by such Shareholder of any of the provisions of this Section 8 the
running of the Non-Competition Period (but not of such Shareholder's obligations
under this Section 8) shall be tolled with respect to such Shareholder during
the continuance of any actual breach or violation.
9. Further Assurances. Each Shareholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
transfers, assignments, endorsements, consents and other instruments as HK may
reasonably request for the purpose of effectively carrying out the transactions
contemplated by this Agreement and to vest the power to vote such Shareholder's
Shares as contemplated by Section 3. HK agrees to use reasonable efforts to
take, or cause to be taken, all actions necessary to comply promptly with all
legal requirements
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that may be imposed with respect to the transactions contemplated by this
Agreement (including legal requirements of the HSR Act).
10. Termination and Alternate Transaction Fee. The Shareholders agree that
in the event the Company is required to pay a Termination Fee pursuant to
Section 7.3 of the Merger Agreement, the Shareholders shall jointly and
severally pay to HK $1.5 million in cash within ten days of the date such
Termination Fee becomes due and owing. In addition to the above payment, the
Shareholders agree that in the event the Company is required to pay a
Termination Fee pursuant to Section 7.3 of the Merger Agreement, the
Shareholders shall jointly and severally pay to HK in cash an Alternate
Transaction Fee at the closing of an Alternate Transaction. An "Alternate
Transaction" shall mean a transaction that closes within twelve months of the
date of the termination of the Merger Agreement wherein any of the Shareholders
sell shares in the Company to a person other than HK or an affiliate of HK. The
"Alternative Transaction Fee" shall mean the product of (i) 90%, multiplied by
(ii) the total number of shares sold by the Shareholders in an Alternate
Transaction, multiplied by (iii) the excess of (a) the price per share to be
received plus any other consideration to be received in any form (including
without limitation earn-out payments, bonus payments, excess compensation
payments, etc.) by the Shareholders in an Alternate Transaction over (b) $7.164.
11. Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties hereto and their respective successors and assigns. Notwithstanding
the foregoing, HK shall have the right to assign its rights, interests and
obligations hereunder to Parent and any of its affiliates at its sole option and
without the prior written consent of the other parties hereto; provided that no
such assignment shall relieve HK of its obligations hereunder. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
12. General Provisions.
(a) Payments. All payments required to be made to any party to this
Agreement shall be made by Wire Transfer to an account designated by such party
at least one trading day prior to such payment.
(b) Expenses. Subject to the terms of the Merger Agreement, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense.
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(c) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(d) Notice. All notices and other communications hereunder shall be in
writing and shall be deemed given upon receipt to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(i) if to HK, to
HK Merger Corp.
c/o H.I.G. Capital, LLC
0000 Xxxxxxxx Xxx Xxxxx
00xx Xxxxx
Xxxxx, XX 00000
Attention: Xxxx X. Xxxxx
Xxxx Xxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxxx & Xxxxx
000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx X. Learner, P.C.
Facsimile: (000) 000-0000
and
(ii) if to a Shareholder, to the address set forth under the name
of such Shareholder on Schedule A hereto
with a copy to:
Xxxxxxxx Ingersoll, P.C.
College Centre
000 Xxxxxxx Xxxx Xxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
(e) Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The headings
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contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation".
(f) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
(g) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
including, without limitation, the letter agreement dated July 9, 1999 between
H.I.G. Capital, LLC and the Majority Shareholders (as such term is defined
therein)and (ii) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
(h) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York without regard to any
applicable conflicts of law.
(i) Publicity. Except as otherwise required by law, court process or
the rules of a national securities exchange or the Nasdaq National Market or as
contemplated or provided in the Merger Agreement, for so long as this Agreement
is in effect, neither any Shareholder nor HK shall issue or cause the
publication of any press release or other public announcement with respect to
the transactions contemplated by this Agreement or the Merger Agreement without
the consent of the other parties, which consent shall not be unreasonably
withheld.
13. Shareholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a director or officer of the Company makes any
agreement or understanding herein in his or her capacity as such director or
officer. Each Shareholder signs solely in his capacity as the record holder and
beneficial owner of, or the trustee of a trust whose beneficiaries are the
beneficial owners of, such Shareholder's Shares and nothing herein shall limit
or affect any actions taken by a Shareholder in its capacity as an officer or
director of the Company to the extent specifically permitted by the Merger
Agreement.
14. Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in a court of the United States. This
being in addition to any other
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remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto waives any right to trial by jury with respect to any claim or
proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby.
15. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
16. Termination. The provisions of Sections 3, 4, 5, 6, 7, 8 and 9 shall
terminate automatically and be of no further force and effect upon the
termination of the Merger Agreement.
* * * * *
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IN WITNESS WHEREOF, each of the Company and HK has caused this
Agreement to be signed by its officer hereunto duly authorized and each
Shareholder (or the appropriate officer of a Shareholder) has signed this
Agreement, all as of the date first written above.
HK MERGER CORP.
/s/ Xxxx Xxxxxxxx
By:-------------------------------
Name: Xxxx Xxxxxxxx
Title: President
SHAREHOLDERS:
/s/ Xxxx X. Xxxxx
----------------------------------
Xxxx X. Xxxxx
/s/ Xxxx X. Xxxxx
----------------------------------
Xxxx X. Xxxxx
/s/ Xxxxx Xxxx
----------------------------------
Xxxxx Xxxx
SCHEDULE A
Number of options to
purchase the Company
Shareholder and Address Total Shares Common Stock
-------------------------- ------------------ ---------------------------
Xxxx X. Xxxxx 6,587,500 (1) 0
Xxxx X. Xxxxx 3,293,750 0
Xxxxx Xxxx 1,162,500 100,000
------------------------------------
(1) Includes 3,293,750 shares of Common Stock owned of record by Xxxx X. Xxxxx,
as to which shares Xxxx Xxxxx exercises voting power. Also includes 300,000
shares of Common Stock owned beneficially and of record by Xxxx X. Xxxxx Family,
L.P., of which Xx. Xxxxx is the general partner with a one percent (1%)
interest, and each of Xx. Xxxxx'x three daughters is a limited partner with a
33% interest.
Schedule A, Page 1
