[EXHIBIT 10.1]
ASSET PURCHASE AGREEMENT
by and among
AMERICAN APPAREL & ACCESSORIES, INC.
and
▇▇▇▇▇▇▇, INC.
DATED AS OF APRIL 1, 2004
TABLE OF CONTENTS
1. DEFINITIONS AND USAGE
1.1 Definitions
1.2 Usage
2. SALE AND TRANSFER OF ASSETS; CLOSING
2.1 Assets to Be Sold
2.2 Excluded Assets
2.3 Consideration and Adjustments
2.4 Closing Balance Sheet
2.5 Liabilities
2.6 Allocation
2.7 Closing
2.8 Closing Obligations
2.9 Consents
2.10 Facilities Lease
3. REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Organization and Good Standing
3.2 Authority; No Conflict
3.3 Financial Statements
3.4 Description of Leased Real Property
3.5 Title to Assets; Encumbrances
3.6 Condition of Assets
3.7 Accounts Receivable
3.8 Inventories
3.9 No Undisclosed Liabilities
3.10 No Material Adverse Change
3.11 Employee Benefits
3.12 Legal Proceedings; Orders
3.13 Absence of Certain Changes and Events
3.14 Contracts; No Defaults
3.15 Insurance
3.16 Environmental Matters
3.17 Employees
3.18 Labor Disputes; Compliance
3.19 Intellectual Property Assets
3.20 Brokers or Finders
3.21 Solvency
4. REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization and Good Standing
4.2 Authority; No Conflict
4.3 Certain Proceedings
4.4 Brokers or Finders
4.5 Payment of Assumed Liabilities
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4.6 Litigation
4.7 Approvals
4.8 Disclosure
4.9 Buyer's Knowledge; Resources of Purchaser
4.10 Maintenance of Insurance
4.11 Solvency
5.COVENANTS OF SELLER PRIOR TO CLOSING
5.1 Access and Investigation
5.2 Operation of the Business of Seller
5.3 Negative Covenant
5.4 Required Approvals
5.5 Notification
5.6 Reasonable Commercial Efforts
5.7 Change of Name
5.8 Payment of Liabilities
6. COVENANTS OF BUYER PRIOR TO CLOSING
6.1 Required Approvals
6.2 Best Efforts
7.CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
7.1 Accuracy of Representations
7.2 Seller's Performance
7.3 Consents
7.4 Additional Documents
7.5 No Proceedings
7.6 No Conflict
7.7 Governmental Authorizations
7.8 Employees
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
8.1 Accuracy of Representations
8.2 Buyer's Performance
8.3 Consents
8.4 Additional Documents
8.5 No Injunction
8.6 Employees
9. TERMINATION
9.1 Termination Events
9.2 Effect of Termination
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10. ADDITIONAL COVENANTS
10.1 Employees and Employee Benefits
10.2 Noncompetition, Nonsolicitation and Nondisparagement
10.3 Further Assurances
10.4 Inspection of Records
11. INDEMNIFICATION; REMEDIES
11.1 Survival
11.2 Indemnification and Reimbursement by Seller
11.3 Indemnification and Reimbursement by Buyer
11.4 Third-Party Claims
11.5 Other Claims
11.6 Limitations on Amount
11.7 Limitation on Time
12. GENERAL PROVISIONS
12.1 Expenses
12.2 Public Announcements
12.3 Notices
12.4 Waiver; Remedies Cumulative
12.5 Entire Agreement and Modification
12.6 Assignments, Successors and No Third-Party Rights
12.7 Severability
12.8 Construction
12.9 Time of Essence
12.10 Governing Law; Forum
12.11 Execution of Agreement
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is dated as of
April 1, 2004, by and among American Apparel & Accessories, Inc.,
an Arkansas corporation ("Buyer"); ▇▇▇▇▇▇▇, Inc., a Illinois
corporation ("Seller"); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, a resident of Illinois
("▇▇▇▇▇▇"); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ as Trustee of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 3
Year Grantor Retained Annuity Trust, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ as Trustee
of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 4 Year Grantor Retained Annuity Trust, ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇ as Trustee of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 5 Year Grantor Retained
Annuity Trust, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ as Trustee of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 8
Year Grantor Retained Annuity Trust, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ as Trustee
of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 5 Year Grantor Retained Annuity Trust, and
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ as Trustee of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 8 Year Grantor
Retained Annuity Trust (collectively referred to herein as
"Shareholders").
Shareholders own 100% (10,000 shares) of the common stock, no par
value, of Seller, which constitute One Hundred percent (100%) of
the issued and outstanding shares of capital stock of Seller.
Seller desires to sell, and Buyer desires to purchase, the Assets
of Seller for the consideration and on the terms set forth in
this Agreement.
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS AND USAGE
1.1 DEFINITIONS
For purposes of this Agreement, the following terms and
variations thereof have the meanings specified or referred to in
this Section 1.1:
"Accounts Receivable"--(a) all trade accounts receivable and
other rights to payment from customers of Seller and the full
benefit of all security for such accounts or rights to payment,
including all trade accounts receivable representing amounts
receivable in respect of goods shipped or products sold or
services rendered to customers of Seller, (b) all other accounts
or notes receivable of Seller and the full benefit of all
security for such accounts or notes and (c) any claim, remedy or
other right related to any of the foregoing.
"Assets"--as defined in Section 2.1.
"Assignment and Assumption Agreement"--as defined in Section
2.8(a)(ii).
"Assumed Liabilities"--as defined in Section 2.5(a).
"Assumed Liabilities Escrow"-- as defined in Section 2.5(a).
"Balance Sheet"--as defined in Section 2.4.
"Best Efforts"-- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to achieve
that result as expeditiously as possible, provided, however, that
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a Person required to use Best Efforts under this Agreement will
not be thereby required to take actions that would result in
material adverse change in the benefits to such Person of this
Agreement and the Contemplated Transactions or to dispose of or
make any change to its business, expend and material funds or
incur and other material burden.
"▇▇▇▇ of Sale"--as defined in Section 2.8(a)(i).
"Breach"--any breach of, or any inaccuracy in, any representation
or warranty or any breach of, or failure to perform or comply
with, any covenant or obligation, in or of this Agreement or any
other Contract, or any event which with the passing of time or
the giving of notice, or both, would constitute such a breach,
inaccuracy or failure.
"Bulk Sales Laws"--as defined in Section 5.8.
"Business Day"--any day other than (a) Saturday or Sunday or (b)
any day other than on which banks in Chicago, Illinois are
permitted or required to be closed.
"Buyer"--as defined in the first paragraph of this Agreement.
"Closing"--as defined in Section 2.7.
"Closing Date"-- July 30, 2004.
"Code"--the Internal Revenue Code of 1986.
"Commercially Reasonable Efforts"--will not be deemed to require
a Person to undertake extraordinary or unreasonable measures,
including the payment of amounts in excess of normal and usual
filing fees and processing fees, if any, or other payments with
respect to any Contract that are significant in the context of
such Contract (or significant on an aggregate basis as to all
Contracts).
"Confidential Information"--as defined in Section 10.2.
"Consent"--any approval, consent, ratification, waiver or other
authorization.
"Contemplated Transactions"--all of the transactions contemplated
by this Agreement.
"Contract"--any agreement, contract, Lease, consensual
obligation, promise or undertaking (whether written or oral).
"Contract Net Assets" -- means the amount of the purchased Assets
less the Assumed Liabilities calculated as of August 31, 2003
which totaled $11,461,291 (See Schedule A attached hereto).
"Copyrights"--as defined in Section 3. 19(a)(iii).
"Damages"--as defined in Section 11.2.
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"Effective Time"--The time at which the Closing is consummated.
"Employee Plans"--as defined in Section 3.11.
"Employment Agreement"--as defined in Section 2.8(a)(vi).
"Encumbrance"--any charge, claim, community or other marital
property interest, condition, equitable interest, lien, option,
pledge, security interest, mortgage, right of first option, right
of first refusal or similar restriction, including any
restriction on use, transfer, receipt of income or exercise of
any other attribute of ownership.
"Environment"--soil, land surface or subsurface strata, surface
waters (including navigable waters and ocean waters),
groundwaters, drinking water supply, stream sediments, ambient
air (including indoor air), plant and animal life and any other
environmental medium or natural resource.
"Environmental, Health and Safety Liabilities"--any cost,
damages, expense, liability, obligation or other responsibility
arising from or under any Environmental Law or Occupational
Safety and Health Law.
"Environmental Law"--any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees or the public of
intended or actual Releases of pollutants or hazardous substances
or materials, violations of discharge limits or other
prohibitions and the commencement of activities, such as resource
extraction or construction, that could have significant impact on
the Environment;
(b) preventing or reducing to acceptable levels the Release of
pollutants or hazardous substances or materials into the
Environment;
(c) reducing the quantities, preventing the Release or
minimizing the hazardous characteristics of wastes that are
generated;
(d) assuring that products are designed, formulated, packaged
and used so that they do not present unreasonable risks to human
health or the Environment when used or disposed of;
(e) protecting resources, species or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil or other
potentially harmful substances;
(g) cleaning up pollutants that have been Released, preventing
the Threat of Release or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment or
permitting self-appointed representatives of the public interest
to recover for injuries done to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974.
"Exchange Act"--the Securities Exchange Act of 1934.
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"Excluded Assets"--as defined in Section 2.2.
"Excluded Liabilities"--shall mean every Liability of Seller
other than the Assumed Liabilities.
"Facilities"--any real property, leasehold or other interest in
real property currently owned or operated by Seller, including
the Tangible Personal Property used or operated by Seller at the
respective locations of the Real Property specified in Section
3.4. Notwithstanding the foregoing, for purposes of the
definitions of "Hazardous Activity" and "Remedial Action" and
Sections 3.16 and 11.2, "Facilities" shall mean any real
property, leasehold or other interest in real property currently
or formerly owned or operated by Seller, including the Tangible
Personal Property used or operated by Seller at the respective
locations of the Real Property specified in Section 3.4.
"Final Closing Balance Sheet" -- shall be the balance sheet
calculated by Seller in accordance with Section 2.4.
"Final Net Assets" -- purchased Assets less Assumed Liabilities
as shown on the "Final Net Asset Statement."
"Final Net Asset Statement"-a statement prepared in substantially
the same form as the Contract Net Asset Statement, but prepared
by Seller using the Seller's Final Closing Balance Sheet and
delivered to Buyer within sixty (60) days of the Closing.
"Final Purchase Price Adjustment" -- as defined in Section 2.4.
"GAAP"--generally accepted accounting principles for financial
reporting in the United States, applied on a basis consistent
with the basis on which the Balance Sheet and the other financial
statements referred to in Section 3.3 were prepared.
"Governing Documents"--with respect to any particular entity, (a)
if a corporation, the articles or certificate of incorporation
and the bylaws; (b) if another type of Person, any other charter
or similar document adopted or filed in connection with the
creation, formation or organization of the Person; (c) all equity
holders' agreements, voting agreements, voting trust agreements,
joint venture agreements, registration rights agreements or other
agreements or documents relating to the organization, management
or operation of any Person or relating to the rights, duties and
obligations of the equity holders of any Person; and (d) any
amendment or supplement to any of the foregoing.
"Governmental Authorization"--any Consent, license, registration
or permit issued, granted, given or otherwise made available by
or under the authority of any Governmental Body or pursuant to
any Legal Requirement.
"Governmental Body"--any:
(a) nation, state, county, city, town, borough, village,
district or other jurisdiction;
(b) federal, state, local, municipal, foreign or other
government;
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(c) governmental or quasi-governmental authority of any nature
(including any agency, branch, department, board, commission,
court, tribunal or other entity exercising governmental or quasi-
governmental powers);
(d) multinational organization or body;
(e) body exercising, or entitled or purporting to exercise, any
administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power; or
(f) official of any of the foregoing.
"Hazardous Activity"--the distribution, generation, handling,
importing, management, manufacturing, processing, production,
refinement, Release, storage, transfer, transportation, treatment
or use (including any withdrawal or other use of groundwater) of
Hazardous Material in, on, under, about or from any of the
Facilities or any part thereof into the Environment and any other
act, business, operation or thing that increases the danger, or
risk of danger, or poses an unreasonable risk of harm, to persons
or property on or off the Facilities.
"Hazardous Material"--any substance, material or waste which is
or will foreseeably be regulated by any Governmental Body,
including any material, substance or waste which is defined as a
"hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste,"
"contaminant," "toxic waste" or "toxic substance" under any
provision of Environmental Law, and including petroleum,
petroleum products, asbestos, presumed asbestos-containing
material or asbestos-containing material, urea formaldehyde and
polychlorinated biphenyls.
"Improvements"--all buildings, structures, fixtures and
improvements located on the Land or included in the Assets,
including those under construction.
"Indemnified Person"--as defined in Section 11.4(a)
"Indemnifying Person"--as defined in Section 11.4(a).
"Intellectual Property Assets"--as defined in Section 3.19(a).
"Inventories"--all inventories of Seller, wherever located,
including all finished goods, work in process, raw materials,
spare parts and all other materials and supplies to be used or
consumed by Seller in the production of finished goods.
"IRS"--the United States Internal Revenue Service and, to the
extent relevant, the United States Department of the Treasury.
"Knowledge"--an individual will be deemed to have Knowledge of a
particular fact or other matter if:
(a) that individual is actually aware of that fact or matter; or
(b) a prudent individual could be expected to discover or
otherwise become aware of that fact or matter in the course of
conducting a reasonably comprehensive investigation regarding the
accuracy of any representation or warranty contained in this
Agreement.
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A Person (other than an individual) will be deemed to have
Knowledge of a particular fact or other matter if any individual
who is serving, or who has at any time served, as a director,
officer, partner, executor or trustee of that Person (or in any
similar capacity) has, or at any time had, Knowledge of that fact
or other matter (as set forth in (a) and (b) above), and any such
individual (and any individual party to this Agreement) will be
deemed to have conducted a reasonably comprehensive investigation
regarding the accuracy of the representations and warranties made
herein by that Person or individual.
"Land"--all parcels and tracts of land in which Seller has an
ownership interest.
"Lease"--any Real Property Lease or any lease or rental
agreement, license, right to use or installment and conditional
sale agreement to which Seller is a party and any other Seller
Contract pertaining to the leasing or use of any Tangible
Personal Property.
"Legal Requirement"--any federal, state, local, municipal,
foreign, international, multinational or other constitution, law,
ordinance, principle of common law, code, regulation, statute or
treaty.
"Liability"--with respect to any Person, any liability or
obligation of such Person of any kind, character or description,
whether known or unknown, absolute or contingent, accrued or
unaccrued, disputed or undisputed, liquidated or unliquidated,
secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or
otherwise, and whether or not the same is required to be accrued
on the financial statements of such Person.
"Marks"--as defined in Section 3. 19(a)(i).
"Material Consents"--as defined in Section 7.3.
"Net Proceeds From Sale"-the net proceeds that Seller will
receive at Closing calculated consistently with Schedule 9.1(e).
As of the date of this Agreement, the Net Proceeds From Sale are
estimated to be $5,437,152.
"Order"--any order, injunction, judgment, decree, ruling,
assessment or arbitration award of any Governmental Body or
arbitrator.
"Ordinary Course of Business"--an action taken by a Person will
be deemed to have been taken in the Ordinary Course of Business
only if that action:
(a) is consistent in nature, scope and magnitude with the past
practices of such Person and is taken in the ordinary course of
the normal, day-to-day operations of such Person;
(b) does not require authorization by the board of directors or
shareholders of such Person (or by any Person or group of Persons
exercising similar authority) and does not require any other
separate or special authorization of any nature; and
(c) is similar in nature, scope and magnitude to actions
customarily taken, without any separate or special authorization,
in the ordinary course of the normal, day-to-day operations of
other Persons that are in the same line of business as such
Person.
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"Patents"--as defined in Section 3.19(a)(ii).
"Permitted Encumbrances"--as defined in Section 3.5.
"Person"--an individual, partnership, corporation, business
trust, limited liability company, limited liability partnership,
joint stock company, trust, unincorporated association, joint
venture or other entity or a Governmental Body.
"Preliminary Net Purchased Assets"--purchased Assets less Assumed
Liabilities as shown on the "Preliminary Net Purchased Asset
Statement."
"Preliminary Net Purchased Asset Statement"-a statement prepared
in substantially the same form as the Contract Net Asset
Statement, but prepared by Seller using the Seller's then most
recent interim financial statements and delivered to Buyer at
least ten (10) days prior to the Closing.
"Proceeding"--any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal,
administrative, judicial or investigative, whether formal or
informal, whether public or private) commenced, brought,
conducted or heard by or before, or otherwise involving, any
Governmental Body or arbitrator.
"Promissory Note"--as defined in Section 2.3(b)(ii).
"Purchase Price"--as defined in Section 2.3(a).
"Real Property"--the Land and Improvements and all Appurtenances
thereto and any Ground Lease Property.
"Real Property Lease"--any Ground Lease or Space Lease.
"Record"--information that is inscribed on a tangible medium or
that is stored in an electronic or other medium and is
retrievable in perceivable form.
"Related Person"--
With respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by any
one or more members of such individual's Family;
(c) any Person in which members of such individual's Family hold
(individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which one or more members of such
individual's Family serves as a director, officer, partner,
executor or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly
or indirectly controlled by or is directly or indirectly under
common control with such specified Person;
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(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner,
executor or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest; and
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar
capacity).
For purposes of this definition, (a) "control" (including
"controlling," "controlled by," and "under common control with")
means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by
contract or otherwise, and shall be construed as such term is
used in the rules promulgated under the Securities Act; (b) the
"Family" of an individual includes (i) the individual, (ii) the
individual's spouse, (iii) any other natural person who is
related to the individual or the individual's spouse within the
second degree and (iv) any other natural person who resides with
such individual; and (c) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of voting securities or other voting interests
representing at least ten percent (10%) of the outstanding voting
power of a Person or equity securities or other equity interests
representing at least ten percent (10%) of the outstanding equity
securities or equity interests in a Person.
"Release"--any release, spill, emission, leaking, pumping,
pouring, dumping, emptying, injection, deposit, disposal,
discharge, dispersal, leaching or migration on or into the
Environment or into or out of any property.
"Remedial Action"--all actions, including any capital
expenditures, required or voluntarily undertaken (a) to clean up,
remove, treat or in any other way address any Hazardous Material
or other substance; (b) to prevent the Release or Threat of
Release or to minimize the further Release of any Hazardous
Material or other substance so it does not migrate or endanger or
threaten to endanger public health or welfare or the Environment;
(c) to perform pre-remedial studies and investigations or post-
remedial monitoring and care; or (d) to bring all Facilities and
the operations conducted thereon into compliance with
Environmental Laws and environmental Governmental Authorizations.
"Representative"--with respect to a particular Person, any
director, officer, manager, employee, agent, consultant, advisor,
accountant, financial advisor, legal counsel or other
representative of that Person.
"SEC"--the United States Securities and Exchange Commission.
"Securities Act"--as defined in Section 3.3.
"Seller"--as defined in the first paragraph of this Agreement.
"Seller Contract"--any Contract (a) under which Seller has or may
acquire any rights or benefits; (b) under which Seller has or may
become subject to any obligation or liability; or (c) by which
Seller or any of the assets owned or used by Seller is or may
become bound.
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"Shareholders"--as defined in the first paragraph of this
Agreement.
"Software"--all computer software and subsequent versions
thereof, including source code, object, executable or binary
code, objects, comments, screens, user interfaces, report
formats, templates, menus, buttons and icons and all files, data,
materials, manuals, design notes and other items and
documentation related thereto or associated therewith.
"Space Lease"--any lease or rental agreement pertaining to the
occupancy of any improved space on any Land.
"Subsidiary"--with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other
interests having the power to elect a majority of that
corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other
than securities or other interests having such power only upon
the happening of a contingency that has not occurred), are held
by the Owner or one or more of its Subsidiaries.
"Tangible Personal Property"--all machinery, equipment, tools,
furniture, office equipment, computer hardware, supplies,
materials, vehicles and other items of tangible personal property
(other than Inventories) of every kind owned by Seller.
"Tax"--any income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, property,
environmental, windfall profit, customs, vehicle, airplane, boat,
vessel or other title or registration, capital stock, franchise,
employees' income withholding, foreign or domestic withholding,
social security, unemployment, disability, real property,
personal property, sales, use, transfer, value added,
alternative, add-on minimum and other tax, fee, assessment, levy,
tariff, charge or duty of any kind whatsoever and any interest,
penalty, addition or additional amount thereon imposed, assessed
or collected by or under the authority of any Governmental Body
or payable under any tax-sharing agreement or any other Contract.
"Tax Return"--any return (including any information return),
report, statement, schedule, notice, form, declaration, claim for
refund or other document or information filed with or submitted
to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"Third Party"--a Person that is not a party to this Agreement.
"Third-Party Claim"--any claim against any Indemnified Person by
a Third Party, whether or not involving a Proceeding.
"Threat of Release"--a reasonable likelihood of a Release that
may require action in order to prevent or mitigate damage to the
Environment that may result from such Release.
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1.2. USAGE
(a) Interpretation. In this Agreement, unless a clear
contrary intention appears:
(i) the singular number includes the plural number and
vice versa; and
(ii) reference to any gender includes each other
gender;
(iii) disclosures made on one Schedule shall be
deemed made on all Schedules.
(b) Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be
interpreted and all accounting determinations hereunder
shall be made in accordance with GAAP as consistently
applied by Seller and determined by Seller.
(c) Legal Representation of the Parties. This Agreement
was negotiated by the parties with the benefit of legal
representation, and any rule of construction or
interpretation otherwise requiring this Agreement to be
construed or interpreted against any party shall not apply
to any construction or interpretation hereof.
2. SALE AND TRANSFER OF ASSETS; CLOSING
2.1 ASSETS TO BE SOLD
Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing, but effective as of the Effective
Time, Seller shall sell, convey, assign, transfer and deliver to
Buyer, and Buyer shall purchase and acquire from Seller, free and
clear of any Encumbrances other than Permitted Encumbrances and
the Assumed Liabilities Escrow, all of Seller's right, title and
interest in and to all of Seller's property and assets, personal
or mixed, tangible and intangible, of every kind and description,
wherever located, including the following (but excluding the Real
Property and other Excluded Assets referred to in Section 2.2):
(a) all Tangible Personal Property, including those items
described in Schedule 2.1(a);
(b) all Inventories;
(c) all Accounts Receivable;
(d) all Seller Contracts, including those listed in
Schedule 3.14(a);
(e) all Governmental Authorizations and all pending
applications therefore or renewals thereof, in each case to
the extent transferable to Buyer;
(f) all data and Records related to the operations of
Seller;
(g) all of the intangible rights and property of Seller,
excluding "Highway-Flyway" Intellectual Property Assets
which are owned by ▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ individually,
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but including all other Intellectual Property Assets, going
concern value, goodwill, telephone, telecopy and e-mail
addresses and listings and those items listed in Schedules
3.19(b), (c), (d), (e) and (g);
(h) all claims of Seller against third parties relating to
the Assets, whether ▇▇▇▇▇▇ or inchoate, known or unknown,
contingent or noncontingent, including all such claims
listed in Schedule 2.1(h); and
(i) all rights of Seller relating to deposits and prepaid
expenses, claims for refunds and rights to offset in respect
thereof that are not listed in Schedule 2.2(f) and that are
not excluded under Section 2.2(h).
All of the property and assets to be transferred to Buyer
hereunder are herein referred to collectively as the "Assets."
2.2 EXCLUDED ASSETS
Notwithstanding anything to the contrary contained in
Section 2.1 or elsewhere in this Agreement, the assets listed on
Schedule A as excluded assets, including without limitation, the
following assets of Seller (collectively, the "Excluded Assets")
are not part of the sale and purchase contemplated hereunder, are
excluded from the purchased Assets and shall remain the property
of Seller after the Closing:
(a) all cash, cash equivalents and short term investments;
(b) all Real Estate;
(c) all minute books, stock Records and corporate seals;
(d) the shares of capital stock of Seller held in treasury;
(e) all insurance policies and rights thereunder (except to
the extent specified in Section 2.1(i));
(f) all of the Seller Contracts listed in Schedule 2.2(f);
(g) all personnel Records and other Records that Seller is
required by law to retain in its possession;
(h) all claims for refund of Taxes and other governmental
charges of whatever nature;
(i) all rights in connection with the assets of the
Employee Plans;
(j) all rights of Seller under this Agreement, the ▇▇▇▇ of
Sale, the Assignment and Assumption Agreement, the
Promissory Note and the Assumed Liabilities Escrow;
11
(k) the Northwestern Mutual Policies identified as #9672584
and #10897162 and listed on Schedule 2.2(k) and any cash
surrender value or other rights under such policies;
(l) the Excluded Fixed Assets listed on Schedule 2.2(l);
(m) all employee receivables of Seller with the exception
of promissory note from ▇▇▇▇▇ ▇▇▇▇▇▇;
(n) the rights under the Lease listed on Exhibit 2.2(n);
(o) the rights to market and sell ▇▇▇▇▇▇▇ Products used in
the construction industry (including, without limitation,
the "▇▇▇▇▇ Boot" and other products marketed for the
construction industry, but specifically excluding products
used in the sporting goods industry) in accordance with the
Independent Sales Representative Agreement in the form
attached hereto as Exhibit 2.2(o);
(p) (Intentionally left blank);
(q) the stock of FTW Holding Company, Inc.; and
(r) the LIFO reserve and the rent deposits in excess of
$25,000.00.
2.3 CONSIDERATION AND ADJUSTMENTS
(a) The consideration for the Assets (the "Purchase
Price") will be (a) Thirteen Million Seven Hundred
Ninety-Three Thousand Nine Hundred Fifteen dollars
($13,793,915.00) as adjusted pursuant to Sections 2.3(d) and
Section 2.4 below; (b) the assumption of the Assumed
Liabilities; and (c) the additional consideration under
Section 2.3(c) below. The Buyer has paid to Seller the
amount of $75,000.00 to cover Seller's time, expenses,
professional fees and Section 5.9. This amount will be
applied to the Purchase Price at Closing. In the event the
Closing does not take place on July 30, 2004, Seller shall
be entitled to retain said amount without further obligation
to Buyer.
(b) In accordance with Section 2.8(b), at the Closing,
the Purchase Price, shall be delivered by Buyer to Seller as
follows: (i) Twelve Million Seven Hundred Ninety-Three
Thousand Nine Hundred Fifteen dollars ($12,793,915.00)
increased or decreased by any adjustments pursuant to
Section 2.3(d) by wire transfer; and (ii) One Million
dollars ($1,000,000.00) payable by Buyer's new subsidiary
("NEWCO") in the form of the Promissory Note in the form
shown on Exhibit 2.3(b). The Promissory Note shall bear
interest at the prime rate published in the Wall Street
Journal on the Closing Date plus one percent and payable
monthly over a period of four years. The Promissory Note
shall, at all times, be secured by an irrevocable letter of
credit issued by a bank approved by the Seller with language
acceptable to Seller and Seller's counsel, which will be
attached hereto and made a part this Agreement. Buyer may
prepay the Promissory Note without penalty.
12
(c) Additional Consideration. As additional
consideration, Buyer shall pay to Seller at Closing the
amount of $150,000 additional cash consideration in the form
of capital gain.
(d) Adjustments to Purchase Price. Ten (10) days
prior to Closing, the Seller shall submit to the Buyer a
calculation of the Preliminary Net Purchased Assets
determined using the Seller's Preliminary Net Purchased
Asset Statement.
(i) If the Preliminary Net Purchased Assets are
greater than the Contract Net Assets ($11,461,291.00), the
Purchase Price and the amount of the wire transfer at
Closing under this Agreement shall be increased on a dollar-
for-dollar basis by the amount by which the Preliminary Net
Purchased Assets are greater than the Contract Net Assets
($11,461,791.00).
(ii) If the Preliminary Net Purchased Assets are less
than the Contract Net Assets ($11,461,291.00), the Purchase
Price and the amount of the wire transfer at Closing under
this Agreement shall be decreased on a dollar-for-dollar
basis by the amount by which the Contract Net Assets are
greater than the Preliminary Net Purchased Assets
($11,461,291.00).
2.4 CLOSING BALANCE SHEET
Within sixty (60) days after the Closing Date, Seller shall
provide Buyer with a balance sheet of Seller effective as of the
Closing Date, which shall be prepared using inventory defective
reserve valuation methodologies and the actual inventory
obsolescence reserves agreed to during the Due Diligence Period
(the "Final Closing Balance Sheet"). Using the Final Closing
Balance Sheet, Seller shall calculate the Final Net Asset
Statement. If and to the extent the Final Net Assets (as shown
on the Final Net Asset Statement) differ from the Preliminary Net
Purchased Assets, then the Purchase Price shall be increased or
decreased accordingly on a dollar-for-dollar basis (the "Final
Purchase Price Adjustment"). All post close adjustments
attributed to the Final Purchase Price Adjustment are to be paid
within thirty (30) days after the preparation of the Final Net
Asset Statement and shall include interest at the interest rate
prescribed on the Seller note in Section 2.3(b) above. The cost
of preparing the Final Closing Balance Sheet shall be divided
equally between the parties with Seller's cost of the
aforementioned not to exceed $20,000. The Final Purchase Price
Adjustment shall be final, binding, and conclusive for each
party. Buyer agrees to make ▇▇▇▇▇ ▇▇▇▇▇▇ and other staff
available to Seller in order to prepare the Final Closing Balance
Sheet and the Final Net Asset Statement. Notwithstanding the
foregoing, the Final Purchase Price Adjustment shall not reduce
the Net Proceeds From Sale below the amount of $5,237,152.
2.5 LIABILITIES
(a) Assumed Liabilities. On the Closing Date, but effective as
-------------------
of the Effective Time, Buyer shall assume and agree to discharge
when due and payable in accordance with and subject to the terms
and conditions of the relevant governing agreements those
liabilities and obligations of Seller set forth in Schedule
13
2.5(a) (the "Assumed Liabilities") attached hereto and made a
part of this Agreement. As further assurances for payment of the
Assumed Liabilities, the Buyer agrees to fund an escrow account
with cash in an amount equal to the dollar value of the Assumed
Liabilities shown in the Preliminary Net Purchased Asset
Statement plus inventory shipments on open terms less scheduled
payments from date of Preliminary Net Purchased Asset Statement
to Closing Date in the form prepared by and acceptable to
Seller's counsel (the "Assumed Liabilities Escrow"). The Assumed
Liabilities shall include the following:
(i) All Liabilities and obligations reflected on the
Contract Net Asset Statement labeled as "assumed
liabilities" until the Final Net Asset Statement is
available, at which point the amount of the Liabilities
labeled as "assumed liabilities" on the Final Net Asset
Statement shall supercede the "assumed liabilities" shown on
the Contract Net Asset Statement for purposes of this
Section 2.5(a) and shall be final, binding and conclusive
for the parties;
(ii) All Liabilities of the Seller as of the Closing
Date arising out of the operation of the business and
incurred in the Ordinary Course of business;
(iii) All Liabilities arising out of or resulting
from the conduct of the business occurring subsequent to the
Closing Date; and
(iv) Liabilities not reflected on the Final Net Asset
Statement which pertain to contracts assumed by or assigned
to Buyer.
(b) Excluded Liabilities. The Excluded Liabilities shall
remain the sole responsibility of and shall be retained,
paid, performed and discharged solely by Seller. "Excluded
Liabilities" shall mean every Liability of Seller other than
the Assumed Liabilities and shall more specifically include
the claim for indemnification made by Sports Chalet, Inc.
relating to the sale of ▇▇▇▇▇▇▇ Products to minors
containing toluene prior to the Closing (the case number
075152 Superior Court California, County of San Bernardino).
2.6 ALLOCATION
The Purchase Price shall be allocated in accordance with Schedule
2.6. After the Closing, the parties shall make consistent use of
the allocation and fair market value specified in Schedule 2.6
for all Tax purposes and in all filings, declarations and reports
with the IRS in respect thereof, including the reports required
to be filed under Section 1060 of the Code. Buyer shall prepare
and deliver IRS Form 8594 to Seller within forty-five (45) days
after the Closing Date to be filed with the IRS.
2.7 CLOSING
The purchase and sale provided for in this Agreement (the
"Closing") will take place at the offices of Huck, Bouma, Martin,
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C., ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, July 30, 2004, unless Buyer and Seller
otherwise agree. Buyer and Seller shall have no required
obligation to agree to extend Closing.
2.8 CLOSING OBLIGATIONS
In addition to any other documents to be delivered under other
provisions of this Agreement, at the Closing:
(a) Seller and Shareholders, as the case may be, shall
deliver to Buyer:
(i) a ▇▇▇▇ of sale for all of the Assets that are
Tangible Personal Property in the form of Exhibit
2.8(a)(i) (the "▇▇▇▇ of Sale") executed by Seller;
(ii) an assignment of all of the purchased Assets that
are intangible personal property in the form of Exhibit
2.8(a)(ii), which assignment shall also contain Buyer's
undertaking and assumption of the Assumed Liabilities
(the "Assignment and Assumption Agreement") executed
by Seller;
(iii) for each interest in Real Property identified
on Section 3.4, a Lease in the form of Exhibit 2.2(n)
duly executed by Seller;
(iv) assignments of all purchased Intellectual Property
Assets and separate assignments of all registered
Marks, Patents and Copyrights in the form of Exhibit
2.8(a)(iv) executed by Seller;
(v) such other bills of sale, assignments,
certificates of title, documents and other instruments
of transfer and conveyance as may reasonably be
requested by Buyer, each in form and substance
satisfactory to Buyer and its legal counsel and
executed by Seller;
(vi) (intentionally left blank);
(vii) noncompetition agreements in the form of
Exhibit 2.8(a)(vii), executed by Seller and ▇▇▇▇▇▇
▇▇▇▇▇▇ (the "Noncompetition Agreements");
(viii) the Independent Sales Representative
Agreement in the form attached hereto as Exhibit 2.2(o)
executed by Seller;
(ix) the Assumed Liabilities Escrow;
(x) certificate executed by Seller as to the accuracy
of their representations and warranties as of the date
of this Agreement and as of the Closing in accordance
with Section 7.1 and as to their compliance with and
performance of their covenants and obligations to be
performed or complied with at or before the Closing in
accordance with Section 7.2; and
(xi) a certificate of the Secretary of Seller
certifying, as complete and accurate as of the Closing,
attached copies of the Governing Documents of Seller
certifying and attaching all requisite resolutions or
actions of Seller's board of directors and shareholders
approving the execution and delivery of this Agreement
and the consummation of the Contemplated Transactions
and the change of name contemplated by Section 5.7 and
certifying to the incumbency and signatures of the
officers of Seller executing this Agreement and any
other document relating to the Contemplated
Transactions and accompanied by the requisite documents
for amending the relevant Governing Documents of Seller
15
required to effect such change of name in form
sufficient for filing with the appropriate Governmental
Body.
(b) Buyer shall deliver to Seller and Shareholders, as the
case may be:
(i) The Purchase Price of Twelve Million Seven
Hundred Ninety-Three Thousand Nine Hundred Fifteen
dollars ($12,793,915.00) increased or decreased by any
adjustments pursuant to Section 2.3(d) by wire transfer
to an account specified by Seller in a writing
delivered to Buyer at least three (3) business days
prior to the Closing Date;
(ii) a promissory note executed by Buyer and payable to
Seller in the principal amount of One Million dollars
($1,000,000.00) and secured by an Irrevocable Letter of
Credit in the form of Exhibit 2.3(b) (the "Promissory
Note");
(iii) the Assignment and Assumption Agreement
executed by Buyer together with an executed Assumed
Liability Escrow in a form acceptable to counsel for
Seller and delivered to Buyer ten (10) days before
Closing;
(iv) the Employment Agreements or severance payments as
the case may be delivered by Buyer;
(v) the Noncompetition Agreements executed by Buyer;
(vi) the Independent Sales Representative Agreement in
the form attached hereto as Exhibit 2.2(o) executed by
Buyer;
(vii) the Lease in the form attached hereto as
Exhibit 2.2(n) executed by Buyer;
(viii) a certificate executed by Buyer as to the
accuracy of its representations and warranties as of
the date of this Agreement and as of the Closing in
accordance with Section 8.1 and as to its compliance
with and performance of its covenants and obligations
to be performed or complied with at or before the
Closing in accordance with Section; and
(ix) a certificate of the Secretary of Buyer
certifying, as complete and accurate as of the Closing,
attached copies of the Governing Documents of Buyer
and certifying and attaching all requisite resolutions
or actions of Buyer's board of directors approving the
execution and delivery of this Agreement and the
consummation of the Contemplated Transactions and
certifying to the incumbency and signatures of the
officers of Buyer executing this Agreement and any
other document relating to the Contemplated
Transactions.
2.9 CONSENTS
(a) If any Material Consents listed in Schedule 7.3 have
not yet been obtained (or otherwise are not in full force and
effect) as of the Closing, in the case of each Seller Contract as
to which such Material Consents were not obtained (or otherwise
are not in full force and effect) (the "Restricted Material
Contracts"), Buyer hereby waives the closing condition as to such
Material Consents listed on Schedule 2.9, and may waive the
closing conditions as to any such other Material Consent and
elect to have Seller continue its efforts to obtain the Material
Consents. In the event Buyer has waived or waives the closing
conditions as to any such Material Consent, the parties shall use
Best Efforts, and cooperate with each other, to obtain the
Material Consent relating to each Restricted Material Contract as
16
quickly as practicable, and pending the obtaining of such
Material Consents relating to any Restricted Material Contract
the Buyer agrees to indemnify and hold Seller harmless from any
and all claims made by any party to the Restricted Material
Contracts.
(b) If there are any Consents not listed on Schedule 7.3
necessary for the assignment and transfer of any Seller Contracts
to Buyer (the "Nonmaterial Consents") which have not yet been
obtained (or otherwise are not in full force and effect) as of
the Closing, Buyer shall at the Closing, in the case of each of
the Seller Contracts as to which such Nonmaterial Consents were
not obtained (or otherwise are not in full force and effect) (the
"Restricted Nonmaterial Contracts"), accept the assignment of
such Restricted Nonmaterial Contract, in which case, as between
Buyer and Seller, such Restricted Nonmaterial Contract shall, to
the maximum extent practicable and notwithstanding the failure to
obtain the applicable Nonmaterial Consent, be transferred at the
Closing pursuant to the Assignment and Assumption Agreement as
elsewhere provided under this Agreement.
2.10 FACILITIES LEASE
Buyer, NEWCO and Seller shall enter into a real estate lease
in the form shown in Exhibit 2.2(n).
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows (the
Schedules and Exhibits are being prepared based on December 31,
2003 information unless stated on the Schedule or Exhibit or
otherwise stated herein and furthermore, during the Due Diligence
Period, Seller may modify or amend the Schedules and Exhibits to
this Agreement, and any such modifications or amendments shall
supercede and replace the Schedules and Exhibits as originally
prepared):
3.1 ORGANIZATION AND GOOD STANDING
(a) Schedule 3.1(a) contains a complete and accurate list
of Seller's jurisdiction of incorporation and any other
jurisdictions in which it is qualified to do business as a
foreign corporation. Seller is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations
under the Seller Contracts. To Seller's Knowledge, Seller
is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of
the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
(b) Complete and accurate copies of the Governing Documents
of Seller as currently in effect, are attached to Exhibit
3.1(b) or will be delivered during the Due Diligence Period.
17
(c) Seller has no Subsidiary and, except as disclosed in
Schedule 3.1(c), does not own any shares of capital stock or
other securities of any other Person.
3.2 AUTHORITY; NO CONFLICT
(a) Except as set forth in Schedule 3.2(a), neither the
execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without
notice or lapse of time):
(i) breach (A) any provision of any of the Governing
Documents of Seller or (B) any resolution adopted by
the board of directors or the shareholders of Seller;
(ii) to Seller's knowledge, breach or give any
Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under any
Legal Requirement or any Order to which Seller or
either Shareholder, or any of the Assets, may be
subject;
(iii) to Seller's Knowledge, contravene, conflict
with or result in a violation or breach of any of the
terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel,
terminate or modify, any Governmental Authorization
that is held by Seller or that otherwise relates to the
Assets or to the business of Seller; or
(iv) breach any provision of, or give any Person the
right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of,
or payment under, or to cancel, terminate or modify,
any Seller Contract.
(b) Except as set forth in Schedule 3.2(b), neither Seller
nor any Shareholder is required to give any notice to or
obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
3.3 FINANCIAL STATEMENTS
(a) Seller has delivered to Buyer: (a) an audited balance
sheet of Seller as of December 31, 2002 and the related
audited statements of income, changes in shareholders'
equity and cash flows for the fiscal year then ended,
including in each case the notes thereto, together with the
report thereon of Sikich and ▇▇▇▇▇▇▇, independent certified
public accountants; (b) audited balance sheets of Seller as
of December 31 in each of the fiscal years 1999 through
2001, and the related audited statements of income, changes
in shareholders' equity and cash flows for each of the
fiscal years then ended, including in each case the notes
thereto together with the report thereon of Sikich and
▇▇▇▇▇▇▇, independent certified public accountants; and (c)
an unaudited balance sheet of Seller as of December 31,
2003, and the related unaudited statement(s) of income,
changes in shareholders' equity, and cash flows for the
twelve (12) months then ended, certified by Seller's chief
financial officer. To Seller's knowledge, the audited
financial statements fairly present the financial condition
and the results of operations, changes in shareholders'
equity and cash flows of Seller as of the respective dates
18
of and for the periods referred to in such financial
statements, all in accordance with GAAP as consistently
applied by Seller and determined by Seller. The financial
statements referred to in this Section 3.3 will reflect the
consistent application of such accounting principles
throughout the periods involved, except as disclosed in the
notes to such financial statements.
(b) Until the Closing Date, Seller shall deliver to Buyer
within 20 days after the end of each month a copy of its
regular monthly financial reports for such month prepared in
a manner and containing information consistent with Seller's
current practices.
3.4 DESCRIPTION OF LEASED REAL PROPERTY
Schedule 3.4 contains a correct legal description, street address
and tax parcel identification number of all tracts, parcels and
subdivided lots in which Seller has a leasehold interest and an
accurate description (by location, name of lessor, date of Lease
and term expiry date) of all Real Property Leases.
3.5 TITLE TO ASSETS; ENCUMBRANCES
Seller owns good and transferable title to all of the purchased
Assets free and clear of any Encumbrances other than those
described in Schedule 3.5 (which schedule shall be delivered
during the Due Diligence Period) (the "Permitted Encumbrances")
and the obligations under the Assumed Liabilities Escrow. Seller
warrants to Buyer that, at the time of Closing, all other Assets
shall be free and clear of all Permitted Encumbrances.
3.6 CONDITION OF ASSETS
Except as otherwise disclosed on Schedule 3.6, each item of
Tangible Personal Property is in good repair and good operating
condition, ordinary wear and tear excepted, is suitable for
immediate use in the Ordinary Course of Business. To Seller's
Knowledge, no item of Tangible Personal Property is in need of
repair or replacement other than as part of routine maintenance
in the Ordinary Course of Business. Except as disclosed in
Schedule 3.6, all Tangible Personal Property used in Seller's
business is in the possession of Seller.
3.7 ACCOUNTS RECEIVABLE
All Accounts Receivable that are reflected on the
Preliminary Net Asset Statement or the Final Net Asset Statement
prepared as of the Closing Date represented, currently represent
or will represent valid obligations arising from sales actually
made or services actually performed by Seller in the Ordinary
Course of Business. Except to the extent paid prior to the
Closing Date, to Seller's Knowledge such Accounts Receivable are
or will be as of the Closing Date collectible net of the
respective reserves shown on the Final Net Asset Statement as of
the date of Closing. There is no contest, claim, defense or
right of setoff, other than returns in the Ordinary Course of
Business of Seller, under any Contract with any account debtor of
an Account Receivable relating to the amount or validity of such
Account Receivable. Schedule 3.7 contains a complete and
19
accurate list of all Accounts Receivable as of December 31, 2003,
which list sets forth the aging of each such Account Receivable.
3.8 INVENTORIES
All items included in the Inventories are being sold "As Is,
Where is" and Seller makes no representations or warranties with
respect to the condition of the Inventory. The calculation of
the inventory value on the Final Net Asset Statement shall be
final, binding, and conclusive for each party (including the
obsolescence standards provided for in Section 2.4). The
calculation of the inventory value on the Firm Net Asset
Statement shall be prepared using inventory defective reserve
valuation methodologies and the actual inventory obsolescence
reserves agreed to during the Due Diligence Period.
3.9 NO UNDISCLOSED LIABILITIES
Except as set forth in Schedule 3.9 and as of December 31,
2003, Seller has no known liabilities except for Liabilities
reflected or reserved against in the December 31, 2003 balance
sheet and current liabilities incurred in the Ordinary Course of
Business of Seller.
3.10 NO MATERIAL ADVERSE CHANGE
Since December 31, 2003, there has not been any material
adverse change in the business, operations, prospects, assets,
results of operations or condition (financial or other) of
Seller, and no event has occurred or circumstance exists that may
result in such a material adverse change.
3.11 EMPLOYEE BENEFITS
(a) Set forth in Schedule 3.11 is a complete and correct
list of all "employee benefit plans" as defined by Section 3(3)
of ERISA, all specified fringe benefit plans as defined in
Section 6039D of the Code, (whether qualified or nonqualified,
currently effective or terminated, written or unwritten) and any
trust, escrow or other agreement related thereto that (i) is
maintained or contributed to by Seller or any other corporation
or trade or business controlled by, controlling or under common
control with Seller (within the meaning of Section 414 of the
Code or Section 4001(a)(14) or 4001(b) of ERISA) ("ERISA
Affiliate") or has been maintained or contributed to in the last
six (6) years by Seller or any ERISA Affiliate, or with respect
to which Seller or any ERISA Affiliate has or may have any
liability, and (ii) provides benefits, or describes policies or
procedures applicable to any current or former director, officer,
employee or service provider of Seller or any ERISA Affiliate, or
the dependents of any thereof, regardless of how (or whether)
liabilities for the provision of benefits are accrued or assets
are acquired or dedicated with respect to the funding thereof
(collectively the "Employee Plans").
(b) Seller has delivered to Buyer true, accurate and
complete copies of (i) the documents comprising each Employee
Plan (or, with respect to any Employee Plan which is unwritten, a
detailed written description of eligibility, participation,
benefits, funding arrangements, assets and any other matters
20
which relate to the obligations of Seller or any ERISA
Affiliate); (ii) all trust agreements, insurance contracts or any
other funding instruments related to the Employee Plans; (iii)
all rulings, determination letters, no-action letters or advisory
opinions from the IRS, the U.S. Department of Labor, the Pension
Benefit Guaranty Corporation ("PBGC") or any other Governmental
Body that pertain to each Employee Plan and any open requests
therefor; (iv) the most recent actuarial and financial reports
(audited and/or unaudited) and the annual reports filed with any
Government Body with respect to the Employee Plans during the
current year and each of the three preceding years; (v) all
contracts with third-party administrators, actuaries, investment
managers, consultants and other independent contractors that
relate to any Employee Plan, (vi) with respect to Employee Plans
that are subject to Title IV of ERISA, the Form PBGC-1 filed for
each of the three most recent plan years; and (vii) all summary
plan descriptions, summaries of material modifications and
memoranda, employee handbooks and other written communications
regarding the Employee Plans.
3.12 LEGAL PROCEEDINGS; ORDERS
Except as set forth in Schedule 3.12, there is no pending
or, to Seller's Knowledge, threatened proceeding or order: (i) by
or against Seller or that otherwise relates to or may affect the
business of, or any of the assets owned or used by, Seller; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the
consummation of this Agreement.
To Seller's knowledge, no event has occurred or circumstance
exists that is reasonably likely to give rise to or serve as a
basis for the commencement of any such proceeding, Seller has
delivered to Buyer copies of all pleadings, correspondence and
other documents relating to each Proceeding listed in Schedule
3.12.
3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Schedule 3.13, since December 31,
2003, Seller has conducted its business only in the Ordinary
Course of Business.
3.14 CONTRACTS; NO DEFAULTS
(a) As of February 21, 2003, Schedule 3.14(a) contains an
accurate and complete list, and Seller has or will deliver
to Buyer, during the Due Diligence Period, accurate and
complete copies, of:
(i) each Seller Contract that involves performance of
services or delivery of goods or materials by or to
Seller of an amount or value in excess of fifty
thousand dollars ($50,000.00);
(ii) each Seller Contract containing covenants that in
any way purport to restrict Seller's business activity
or limit the freedom of Seller to engage in any line of
business or to compete with any Person;
(iii) each Seller Contract providing for payments
to or by any Person based on sales, purchases or
profits, other than direct payments for goods;
21
(iv) each Seller Contract for capital expenditures in
excess of fifty thousand dollars ($50,000.00); and
(v) each written warranty, guaranty and/or other
similar undertaking with respect to contractual
performance extended by Seller other than in the
Ordinary Course of Business.
(b) Except as set forth in Schedule 3.14(b):
(i) each Contract identified or required to be
identified in Schedule 3.14(a) and which is to be
assigned to or assumed by Buyer under this Agreement is
in full force and effect and is valid and to the
Seller's Knowledge enforceable in accordance with its
terms;
(ii) each Contract identified or required to be
identified in Schedule 3.14(a) and which is being
assigned to or assumed by Buyer is assignable by Seller
to Buyer without the consent of any other Person or
such consents cannot be unreasonably withheld by any
other person; and
(iii) Seller has not given to or received from any
other Person, at any time since December 31, 2003, any
notice or other communication (whether oral or written)
regarding any actual, alleged, possible or potential
violation or Breach of, or default under, any Contract
which is being assigned to or assumed by Buyer.
(c) There are no renegotiations of, attempts to renegotiate
or outstanding rights to renegotiate any material amounts
paid or payable to Seller under current or completed
Contracts with any Person having the contractual or
statutory right to demand or require such renegotiation and
no such Person has made written demand for such
renegotiation.
3.15 INSURANCE
Seller has delivered or will deliver to Buyer:
(a) accurate and complete copies of all policies of
insurance (and correspondence relating to coverage
thereunder) to which Seller is a party or under which Seller
is or has been covered at any time since December 31, 2003,
a list of which is included in Schedule 3.15(a);
(b) accurate and complete copies of all pending
applications by Seller for policies of insurance;
(c) any statement by the auditor of Seller's financial
statements or any consultant or risk management advisor with
regard to the adequacy of Seller's coverage or of the
reserves for claims;
(d) except as otherwise shown on Schedule 3.15(d), Seller
has not received (i) any refusal of coverage or any notice
that a defense will be afforded with reservation of rights
or (ii) any notice of cancellation or any other indication
that any policy of insurance is no longer in full force or
effect or that the issuer of any policy of insurance is not
willing or able to perform its obligations thereunder; and
(e) To Seller's Knowledge, Seller has given notice to the
insurer of all claims that may be insured thereby.
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3.16 ENVIRONMENTAL MATTERS
Except as disclosed in Schedule 3.16:
(a) Seller is, and at all times has been, in full
compliance with, and has not been and is not in violation of
or liable under, any Environmental Law.
(b) There are no pending or, to Seller's Knowledge,
threatened claims, Encumbrances, or other restrictions of
any nature resulting from any Environmental, Health and
Safety Liabilities or arising under or pursuant to any
Environmental Law with respect to or affecting any Facility
or any other property or asset (whether real, personal or
mixed) in which Seller has or had an interest.
(c) Neither Seller nor any Shareholder has any Knowledge of
or any basis to expect, nor has any of them, or any other
Person for whose conduct they are or may be held
responsible, received, any citation, directive, inquiry,
notice, Order, summons, warning or other communication that
relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply
with any Environmental Law, or of any alleged, actual, or
potential obligation to undertake or bear the cost of any
Environmental, Health and Safety Liabilities with respect to
any Facility or property or asset (whether real, personal or
mixed) in which Seller has or had an interest, or with
respect to any property or facility to which Hazardous
Materials generated, manufactured, refined, transferred,
imported, used or processed by Seller or any other Person
for whose conduct it is or may be held responsible, have
been transported, treated, stored, handled, transferred,
disposed, recycled or received.
(d) There has been no Release or, to the Seller's
Knowledge, Threat of Release, of any Hazardous Materials at
or from any Facility or at any other location where any
Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used, or processed from or
by any Facility, or from any other property or asset
(whether real, personal or mixed) in which Seller has or had
an interest, or to the Seller's Knowledge any geologically
or hydrologically adjoining property, whether by Seller or
any other Person.
(e) Seller has delivered to Buyer true and complete copies
and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by Seller pertaining to
Hazardous Materials or Hazardous Activities in, on, or under
the Facilities, or concerning
compliance, by Seller or any other Person for whose conduct
it is or may be held responsible, with Environmental Laws.
3.17 EMPLOYEES
Schedule 3.17 contains a complete and accurate list of the
following information for each employee, independent contractor,
consultant and agent of Seller, including each employee on leave
of absence or layoff status: name; job title; date of hiring or
engagement; date of commencement of employment or engagement;
23
sick and vacation leave that is accrued but unused; and service
credited for purposes of vesting and eligibility to participate
under any Employee Plan, or any other employee or director
benefit plan.
3.18 LABOR DISPUTES; COMPLIANCE
Seller has complied in all respects with all Legal
Requirements relating to employment practices, terms and
conditions of employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits,
collective bargaining and other related requirements, the payment
of social security and similar Taxes and occupational safety and
health. Seller is not liable for the payment of any Taxes, fines,
penalties, or other amounts, however designated, for failure to
comply with any of the foregoing Legal Requirements.
3.19 INTELLECTUAL PROPERTY ASSETS
(a) The term "Intellectual Property Assets" means all
intellectual property owned or licensed (as licensor or
licensee) by Seller in which Seller has a proprietary
interest, including:
(i) Seller's name, all assumed fictional business
names, trade names, registered and unregistered
trademarks, service marks and applications
(collectively, "Marks");
(ii) all patents, patent applications and inventions
and discoveries that may be patentable (collectively,
"Patents");
(iii) all registered and unregistered copyrights in
both published works and unpublished works
(collectively, "Copyrights");
(iv) all know-how, trade secrets, confidential or
proprietary information, customer lists, Software,
technical information, data, process technology, plans,
drawings and blue prints (collectively, "Trade
Secrets"); and
(v) all rights in internet web sites and internet
domain names presently used by Seller (collectively
"Net Names").
(b) Schedule 3.19(b) contains a complete and accurate list
and summary description, including any royalties paid or
received by Seller, and Seller has delivered to Buyer
accurate and complete copies, of all Seller Contracts
relating to the Intellectual Property Assets, except for any
license implied by the sale of a product and perpetual,
paid-up licenses for commonly available Software programs
with a value of less than $1,000.00 under which Seller is
the licensee. There are no outstanding and, to Seller's
Knowledge, no threatened disputes or disagreements with
respect to any such Contract.
(c) Except as set forth in Schedule 3.19(c) and to Seller's
Knowledge, the Intellectual Property Assets are all those
necessary for the operation of Seller's business as it is
currently conducted.
24
(d) (i) Schedule 3.19(d) contains a complete and accurate
list and summary description of all Patents;
(ii) To Seller's Knowledge all of the issued Patents
are currently in compliance with formal legal
requirements (including payment of filing, examination
and maintenance fees and proofs of working or use), are
valid and enforceable;
(iii) No Patent has been or is now involved in any
interference, reissue, reexamination, or opposition
Proceeding;
(iv) To Seller's Knowledge, there is no potentially
interfering patent or patent application of any Third
Party.
(v) Except as set forth in Schedule 3.19(d), (A) no
Patent is infringed or, to Seller's Knowledge, has been
challenged or threatened in any way and (B) none of the
products manufactured or sold, nor any process or
know-how used, by Seller infringes or is alleged to
infringe any patent or other proprietary right of any
other Person.
(vi) To Seller's Knowledge all products made, used or
sold under the Patents have been marked with the proper
patent notice.
(e) (i) Schedule 3.19(e) contains a complete and accurate
list and summary description of all Marks.
(ii) To Seller's Knowledge, all Marks have been
registered with the United States Patent and Trademark
Office, are currently in compliance with all formal
Legal Requirements (including the timely
post-registration filing of affidavits of use and
incontestability and renewal applications), and are
valid and enforceable.
(iii) Except as otherwise disclosed on Section
3.19(e)(iii), no ▇▇▇▇ has been or is now involved in
any opposition, invalidation or cancellation Proceeding
and, to Seller's Knowledge, no such action is
threatened with respect to any of the Marks.
(iv) To Seller's Knowledge, there is no potentially
interfering trademark or trademark application of any
other Person.
(v) No ▇▇▇▇ is infringed or, to Seller's Knowledge,
has been challenged or threatened in any way. To
Seller's Knowledge, none of the Marks used by Seller
infringes or is alleged to infringe any trade name,
trademark or service ▇▇▇▇ of any other Person.
(vi) To Seller's Knowledge, all products and materials
containing a ▇▇▇▇ ▇▇▇▇ the proper federal registration
notice where permitted by law.
(f) (Intentionally left blank).
(g) (i) Schedule 3.19(g) contains a complete and accurate
list and summary description of all domain names.
(ii) All domain names have been registered in the name
of Seller and are in compliance with all formal Legal
Requirements.
(iii) No domain name has been or is now involved in
any dispute, opposition, invalidation or cancellation
Proceeding and, to Seller's Knowledge, no such action
is threatened with respect to any domain name.
25
(iv) To Seller's Knowledge, there is no domain name
application pending of any other person which would or
would potentially interfere with or infringe any domain
name.
(v) No domain name is infringed or, to Seller's
Knowledge, has been challenged, interfered with or
threatened in any way. To Seller's Knowledge, no domain
name infringes, interferes with or is alleged to
interfere with or infringe the trademark, copyright or
domain name of any other Person.
3.20 BROKERS OR FINDERS
Neither Seller nor any of its Representatives have incurred
any obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other
similar payments in connection with the sale of Seller's business
or the Assets or the Contemplated Transactions.
3.21 SOLVENCY
Seller is not now insolvent and will not be rendered
insolvent by any of the Contemplated Transactions. As used in
this section, "insolvent" means that the sum of the debts and
other probable Liabilities of Seller exceeds the present fair
saleable value of Seller's assets.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and Shareholders as
follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Arkansas, with
full corporate power and authority to conduct its business as it
is now conducted.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with
its terms. Upon the execution and delivery by Buyer of the
Assignment and Assumption Agreement, the Assumed Liabilities
Escrow Agreement, the Employment Agreements, the Promissory Note
and each other agreement to be executed or delivered by Buyer at
Closing (collectively, the "Buyer's Closing Documents"), each of
the Buyer's Closing Documents will constitute the legal, valid
and binding obligation of Buyer, enforceable against Buyer in
accordance with its respective terms. Buyer has the absolute and
unrestricted right, power and authority to execute and deliver
this Agreement and the Buyer's Closing Documents and to perform
its obligations under this Agreement and the Buyer's Closing
Documents, and such action has been duly authorized by all
necessary corporate action.
(b) Neither the execution and delivery of this Agreement by
Buyer nor the consummation or performance of any of the
Contemplated Transactions by Buyer will give any Person the right
26
to prevent, delay or otherwise interfere with any of the
Contemplated Transactions pursuant to:
(i) any provision of Buyer's Governing Documents;
(ii) any resolution adopted by the board of directors
or the shareholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer
may be subject; or
(iv) any Contract to which Buyer is a party or by which
Buyer may be bound.
Buyer is not and will not be required to obtain any Consent
from any Person in connection with the execution and delivery of
this Agreement or the consummation or performance of any of the
Contemplated Transactions.
4.3 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced
against Buyer that challenges, or may have the effect of
preventing, delaying, making illegal or otherwise interfering
with, any of the Contemplated Transactions. To Buyer's Knowledge,
no such Proceeding has been threatened.
4.4 BROKERS OR FINDERS
Neither Buyer nor any of its Representatives have incurred
any obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other
similar
payment in connection with the Contemplated Transactions.
4.5 PAYMENT OF ASSUMED LIABILITIES
Buyer agrees to pay all Assumed Liabilities when due and
represents and warrants that it will have adequate resources to
pay all Assumed Liabilities when due.
4.6 LITIGATION.
There are no Proceedings pending against or threatened
against or affecting Buyer at law or in equity, or before or by
any Governmental Body seeking to enjoin, restrain or delay the
consummation of the transactions contemplated by this Agreement
and to there is no basis for the foregoing.
4.7 APPROVALS.
To the best of Buyer's Knowledge, there exists no fact or
circumstances attributable to Buyer, or its subsidiaries that
would cause any Governmental Body whose authorization, consent or
similar approval is a requirement for the consummation of the
transactions contemplated by this Agreement to refuse to deliver
such authorization, consent or similar approvals.
27
4.8 DISCLOSURE.
Neither this Agreement, nor any of the schedules, exhibits
or attachments hereto prepared or supplied by Buyer, or any
documents, certificates or other written agreement delivered by
or on behalf of Buyer with respect to the transactions
contemplated hereby, contain any untrue statement of material
fact or omit a statement of material fact necessary to make such
statements not misleading in light of the circumstances in which
such statements were made.
4.9 BUYER'S KNOWLEDGE; RESOURCES OF PURCHASER.
To Buyer's Knowledge, there exists no fact or circumstance
that would cause any representation or warranty of Sellers to be
materially incorrect or untrue. Buyer acknowledges that it has
had adequate time to conduct its due diligence. Buyer represents
that Buyer has adequate resources to complete the transactions
contemplated hereby.
4.10 MAINTENANCE OF INSURANCE.
From and after the Closing Date and until all amounts
payable to Sellers hereunder are paid in full, Buyer shall
maintain such insurance policies as are adequate and reasonable,
in both scope and amount consistent with Seller's coverage prior
to Closing, for the Buyer and for the business being purchased
herein.
4.11 SOLVENCY
Buyer is not now insolvent and will not be rendered
insolvent by any of the Contemplated Transactions. As used in
this section, "insolvent" means that the sum of the debts and
other probable Liabilities of Buyer exceeds the present fair
saleable value of Buyer's assets.
5. COVENANTS OF SELLER PRIOR TO CLOSING
5.1 ACCESS AND INVESTIGATION
Beginning after the execution of this Agreement and
continuing until the Closing Date (the "Due Diligence Period"),
and upon reasonable advance notice received from Buyer, Seller
shall (a) afford Buyer and its Representatives and prospective
lenders and their Representatives (collectively, "Buyer Group")
reasonable access (which access shall not interfere with Seller's
normal business operations), during regular business hours, to
certain designated personnel of Seller, properties (including
subsurface testing), Contracts, Governmental Authorizations,
books and Records and other documents and data, such rights of
access to be exercised in a manner that does not unreasonably
interfere with the operations of Seller; (b) furnish Buyer Group
with copies of all such Contracts, Governmental Authorizations,
books and Records and other existing documents and data as Buyer
may reasonably request; (c) furnish Buyer Group with such
additional financial, operating and other relevant data and
information as Buyer may reasonably request; and (d) otherwise
cooperate and assist, to the extent reasonably requested by
Buyer, with Buyer's investigation of the properties, assets and
financial condition related to Seller. In addition, Buyer shall
have the right to have the Real Property and Tangible Personal
28
Property inspected by Buyer Group, at Buyer's sole cost and
expense, for purposes of determining the physical condition and
legal characteristics of the Real Property and Tangible Personal
Property.
5.2 OPERATION OF THE BUSINESS OF SELLER
Between the date of this Agreement and the Closing, Seller
shall:
(a) conduct its business only in the Ordinary Course of
Business, including payment of liabilities in accordance
with normal and historic practices;
(b) except as otherwise directed by Buyer in writing, and
without making any commitment on Buyer's behalf, use its
Best Efforts to preserve intact its current business
organization, keep available the services of its officers,
employees and agents and maintain its relations and good
will with suppliers, customers, landlords, creditors,
employees, agents and others having business relationships
with it;
(c) make no material changes in management personnel
without prior consultation with Buyer;
(d) maintain the Assets in a state of repair and condition
that complies with legal requirements and is consistent
with the requirements and normal conduct of Seller's
business;
(e) keep in full force and effect, without amendment, all
material rights relating to Seller's business;
(f) comply with all legal requirements and contractual
obligations applicable to the operations of Seller's
business;
(g) continue in full force and effect the insurance
coverage under the policies set forth in Schedule 3.21 or
substantially equivalent policies;
(h) except as required to comply with ERISA or to maintain
qualification under Section 401(a) of the Code, not amend,
modify or terminate any Employee Plan without the express
written consent of Buyer, and except as required under the
provisions of any Employee Plan, not make any contributions
to or with respect to any Employee Plan without the express
written consent of Buyer,
(i) cooperate with Buyer and assist Buyer in identifying
the Governmental Authorizations required by Buyer to operate
the business from and after the Closing Date and either
transferring existing Governmental Authorizations of Seller
to Buyer, where permissible, or obtaining new Governmental
Authorizations for Buyer;
(j) maintain all books and Records of Seller relating to
Seller's business in the Ordinary Course of Business.
29
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted herein, between the
date of this Agreement and the Closing Date, Seller shall not,
and Shareholders shall not permit Seller to, without the prior
written Consent of Buyer, (a) make any modification to any
material Contract or Governmental Authorization or (b) enter into
any compromise or settlement of any litigation, proceeding or
governmental investigation relating to the Assets, the business
of Seller or the Assumed Liabilities.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement,
Seller shall make all filings required by Legal Requirements to
be made by it in order to consummate the Contemplated
Transactions. Seller and Shareholders also shall cooperate with
Buyer and its Representatives with respect to all filings that
Buyer elects to make or, pursuant to legal requirements, shall be
required to make in connection with the Contemplated
Transactions. Seller and Shareholders also shall cooperate with
Buyer and its Representatives in obtaining all Material Consents.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing, Seller
shall promptly notify Buyer in writing if any of them becomes
aware of (a) any fact or condition that causes or constitutes a
Breach of any of Seller's representations and warranties made as
of the date of this Agreement or (b) the occurrence after the
date of this Agreement of any fact or condition that would or be
reasonably likely to (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such
representation or warranty had that representation or warranty
been made as of the time of the occurrence of, or Seller's
discovery of, such fact or condition. During the same period,
Seller also shall promptly notify Buyer of the occurrence of any
Breach of any covenant of Seller in this Section 5 or of the
occurrence of any event that may make the satisfaction of the
conditions in Section 7 impossible or unlikely.
5.6 REASONABLE COMMERCIAL EFFORTS
Seller and Shareholders shall use their Commercially
Reasonable Efforts to cause the conditions in Section 7 and
Section 8.3 to be satisfied.
5.7 CHANGE OF NAME
On or before the Closing Date, Seller shall (a) file the
appropriate documents to amend its Governing Documents and take
all other actions necessary to change its name to one
sufficiently dissimilar to Seller's present name, in Buyer's
judgment, to avoid confusion and (b) take all actions requested
by Buyer to enable Buyer to change its name to Seller's present
name.
30
5.8 PAYMENT OF LIABILITIES
Seller shall pay or otherwise satisfy in the Ordinary Course
of Business all of its Liabilities and obligations. Buyer and
Seller hereby waive compliance with the bulk-transfer provisions
of the Uniform Commercial Code (or any similar law) ("Bulk Sales
Laws") in connection with the Contemplated Transactions.
5.9 NO NEGOTIATION
Until such time as this Agreement shall be terminated
pursuant to Section 9.1, neither Seller nor any Shareholder shall
directly solicit, initiate, encourage any inquiries or proposals
from, discuss or negotiate with, provide any nonpublic
information to or from any Person (other than Buyer) relating to
any business combination transaction involving Seller, including
the sale by Shareholders of Seller's stock, the merger or
consolidation of Seller or the sale of Seller's business or any
of the Assets (other than in the Ordinary Course of Business).
6. COVENANTS OF BUYER PRIOR TO CLOSING
6.1 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement,
Buyer shall make, or cause to be made, all filings required to be
made by it to consummate this Agreement. Buyer also shall
cooperate, and cause its Related Persons to cooperate, with
Seller (a) with respect to all filings Seller shall be required
to make hereunder and (b) in obtaining all Consents identified in
Section 8.3, provided, however, that Buyer shall not be required
to dispose of or make any change to its business, expend any
material funds or incur any other burden in order to comply with
this Section 6.1.
6.2 BEST EFFORTS
Buyer shall use its Best Efforts to cause the conditions in
Section 8 and Section 7.3 to be satisfied.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Assets and to take the
other actions required to be taken by Buyer at the Closing is
subject to the satisfaction, at or prior to the Closing, of each
of the following conditions (any of which may be waived by Buyer,
in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
(a) All of Seller's representations and warranties in this
Agreement (considered collectively), and each of these
representations and warranties (considered individually),
shall have been accurate in all material respects as of the
date of this Agreement, and shall be accurate in all
material respects as of the time of the Closing as if then
made.
31
(b) Each of the representations and warranties in Sections
3.2(a) and 3.4, and each of the representations and
warranties in this Agreement that contains an express
materiality qualification, shall have been accurate in all
respects as of the date of this Agreement, and shall be
accurate in all respects as of the time of the Closing as if
then made.
7.2 SELLER'S PERFORMANCE
All of the covenants and obligations that Seller and
Shareholders are required to perform or to comply with pursuant
to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations
(considered individually), shall have been duly performed and
complied with in all material respects.
7.3 CONSENTS
Each of the Consents identified in Schedule 7.3 (the
"Material Consents") shall have been obtained and shall be in
full force and effect (unless otherwise provided for in Section
2.9).
7.4 ADDITIONAL DOCUMENTS
Seller and Shareholders shall have caused the documents and
instruments required by Section 2.8(a) and the following
documents to be delivered (or tendered subject only to Closing)
to Buyer:
(a) The Certificated Articles of Incorporation and all
amendments thereto of Seller, duly certified as of a recent
date by the Secretary of State of the jurisdiction of
Seller's incorporation;
(b) Releases of all Encumbrances on the Assets, other than
Permitted Encumbrances and the Assumed Liabilities Escrow;
(c) Certificates dated as of a date not earlier than the
tenth (10th) business day prior to the Closing as to the
good standing of Seller;
(d) Such other documents as Buyer may reasonably request
for the purpose of:
(i) evidencing the accuracy of any of Seller's
representations and warranties;
(ii) evidencing the performance by Seller or either
Shareholder of, or the compliance by Seller or either
Shareholder with, any covenant or obligation required
to be performed or complied with by Seller or such
Shareholder;
(iii) evidencing the satisfaction of any condition
referred to in this Section 7; or
(iv) otherwise facilitating the consummation or
performance of this Agreement.
32
(e) A statement from the holder of each note and mortgage
listed on Schedule A, if any, dated the Closing Date,
setting forth the principal amount then outstanding on the
indebtedness represented by such note or secured by such
mortgage, the interest rate thereon and a statement to the
effect that Seller, as obligor under such note or mortgage,
is not in default under any of the provisions thereof;
7.5 NO PROCEEDINGS
Since the date of this Agreement, there shall not have been
commenced or threatened against Buyer, or against any Related
Person of Buyer, any Proceeding (a) involving any challenge to,
or seeking Damages or other relief in connection with, this
Agreement or (b) that may have the effect of preventing,
delaying, making illegal, imposing limitations or conditions on
or otherwise interfering with this Agreement.
7.6 NO CONFLICT
Neither the consummation nor the performance of any portion
of this Agreement will, directly or indirectly (with or without
notice or lapse of time), contravene or conflict with or result
in a violation of or cause Buyer or any Related Person of Buyer
to suffer any adverse consequence under (a) any applicable legal
requirement or order or (b) any legal requirement or order that
has been published, introduced or otherwise proposed by or before
any Governmental Body, excluding Bulk Sales Laws.
7.7 GOVERNMENTAL AUTHORIZATIONS
Buyer shall have received such Governmental Authorizations
as are necessary or desirable to allow Buyer to operate the
Assets from and after the Closing.
7.8 EMPLOYEES
(a) ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, or substitutes therefore
who shall be acceptable to Buyer, in its sole discretion,
shall have accepted the Employment Agreements with Buyer
with such employment to commence on and as of the Closing
Date. In the event that an Employment Agreement cannot be
reached with either ▇▇▇▇▇ ▇▇▇▇▇▇ or Drake ▇▇▇▇▇▇, the Buyer
shall pay at Closing the amount of six month's severance to
them (based upon their monthly compensation with the Seller
immediately prior to the Closing Date).
(b) Substantially all other employees of Seller shall be
available for hiring by Buyer, in its sole discretion, on
and as of the Closing Date.
(c) With regard to the key employees, at Closing, Buyer
will agree to: (i) employ some or all of the key employees
with a compensation package commensurate with the
33
compensation package they received as employees of Seller
and providing them with continued security in the form of a
post-Closing severance policy (the "post-Closing severance
policy"); or (ii) at Closing, pay to each respective key
employee, who is not employed by Buyer at Closing, the
amount of one month's compensation (based on the amount of
their compensation while employed by Seller) for each year
such key employee was retained by the Seller (the "Closing
severance payment"). For purposes of this Agreement, "key
employees" shall be ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, Rich
Chiba, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇, and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇. The post-Closing severance
policy shall be as follows: during the first six (6) months
after the Closing, any key employee who is terminated by
Buyer shall be entitled to the amount they would have
received as a Closing severance payment, or following the
six (6) month period after the Closing, any key employee who
is terminated by Buyer shall be entitled to a severance in
the amount of six (6) month's compensation (except for ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, who shall be entitled to 12 month's
compensation). Notwithstanding the foregoing, severance
shall not be owed to any employee who is fired for cause
(e.g., insubordination, negligence, fraud or failure to work
in good faith using reasonable efforts in a manner customary
for the type of position held by such employee).
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Assets and to take the other
actions required to be taken by Seller at the Closing is subject
to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Seller in
whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this
Agreement (considered collectively), and each of these
representations and warranties (considered individually), shall
have been accurate in all material respects as of the date of
this Agreement and shall be accurate in all material respects as
of the time of the Closing as if then made.
8.2 BUYER'S PERFORMANCE
All of the covenants and obligations that Buyer is required
to perform or to comply with pursuant to this Agreement at or
prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), shall have
been performed and complied with in all material respects.
8.3 CONSENTS
Each of the Consents shall have been obtained and shall be
in full force and effect.
34
8.4 ADDITIONAL DOCUMENTS
Buyer shall have caused the documents and instruments
required by Section 2.8(b) and the following documents to be
delivered (or tendered subject only to Closing) to Seller and
Shareholders:
(a) an opinion of Buyer's Counsel, dated the Closing Date,
in the form of Schedule 8.4; and
(b) such other documents as Seller may reasonably request
for the purpose of
(i) evidencing the accuracy of any representation or
warranty of Buyer,
(ii) evidencing the performance by Buyer of, or the
compliance by Buyer with, any covenant or obligation
required to be performed or complied with by Buyer,
(iii) evidencing the satisfaction of any condition
referred to in this Article 8.
8.5 NO INJUNCTION
There shall not be in effect any legal requirement or any
injunction or other Order that (a) prohibits the consummation of
this Agreement and (b) has been adopted or issued, or has
otherwise become effective, since the date of this Agreement.
8.6 EMPLOYEES
(a) ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, or substitutes therefore
who shall be acceptable to Buyer, in its sole discretion,
shall have accepted the Employment Agreements with Buyer
with such employment to commence on and as of the Closing
Date. In the event that an Employment Agreement cannot be
reached with either ▇▇▇▇▇ ▇▇▇▇▇▇ or Drake ▇▇▇▇▇▇, the Buyer
shall pay at Closing the amount of six month's severance to
them (based upon their monthly compensation with the Seller
immediately prior to the Closing Date).
(b) With regard to the key employees, at Closing, Buyer
will agree to: (i) employ some or all of the key employees
with a compensation package commensurate with the
compensation package they received as employees of Seller
and providing them with continued security in the form of a
post-Closing severance policy (the "post-Closing severance
policy"); or (ii) at Closing, pay to each respective key
employee, who is not employed by Buyer at Closing, the
amount of one month's compensation (based on the amount of
their compensation while employed by Seller) for each year
such key employee was retained by the Seller (the "Closing
severance payment"). For purposes of this Agreement, "key
employees" shall be ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, Rich
Chiba, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇, and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇. The post-Closing severance
policy shall be as follows: during the first six (6) months
after the Closing, any key employee who is terminated by
Buyer shall be entitled to the amount they would have
received as a Closing severance payment, or following the
six (6) month period after the Closing, any key employee who
is terminated by Buyer shall be entitled to a severance in
the amount of six (6) month's compensation (except for ▇▇▇▇
35
▇▇▇▇▇▇▇▇▇▇, who shall be entitled to 12 month's
compensation). Notwithstanding the foregoing, severance
shall not be owed to any employee who is fired for cause
(e.g., insubordination, negligence, fraud or failure to work
in good faith using reasonable efforts in a manner customary
for the type of position held by such employee).
9. TERMINATION
9.1 TERMINATION EVENTS
By notice given prior to or at the Closing, this Agreement
may be terminated as follows:
(a) by Buyer if a material Breach of any provision of this
Agreement has been committed by Seller or Shareholders and
such Breach has not been waived by Buyer or cured by Seller
within ten (10) days of written notice delivered from Buyer
to Seller;
(b) by Seller if a material Breach of any provision of this
Agreement has been committed by Buyer and such Breach has
not been waived by Seller;
(c) by Buyer if any condition in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such
a condition by such date is or becomes impossible (other
than through the failure of Buyer to comply with its
obligations under this Agreement), and Buyer has not waived
such condition on or before such date;
(d) by Seller if any condition in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such
a condition by such date is or becomes impossible (other
than through the failure of Seller or the Shareholders to
comply with their obligations under this Agreement), and
Seller has not waived such condition on or before such date;
(e) by Seller if the Net Proceeds From Sale (as calculated
in accordance with Schedule 9.1(e)) are less than $5,237,152
at Closing and Buyer does not agree to pay an additional
purchase price amount to Seller at Closing necessary to
increase the Net Proceeds From Sale to the amount of
$5,237,152; or
(f) by mutual consent of Buyer and Seller.
9.2 EFFECT OF TERMINATION
Each party's right of termination under this Section 9 is an
election of remedies. If this Agreement is terminated pursuant
to Section 9.1, all obligations of the parties under this
Agreement will terminate, except that the obligations of the
parties in Sections 9.2, 10 and 11, will survive, provided,
further , that, if this Agreement is terminated prior to Closing
pursuant to Section 9.1, the Seller shall be entitled to retain
the $75,000.00 payment from Buyer as its sole exclusive remedy
(other than Damages arising from a breach of Buyer's obligations
in Sections 9.2, 10, and 11) and the parties shall have no other
obligations under this Agreement (other than those in Sections
9.2, 10 and 11). In the event Seller fails to close for reasons
other than those set forth in Section 9.1, Buyer shall be
entitled to specific performance.
36
10. ADDITIONAL COVENANTS
10.1 EMPLOYEES AND EMPLOYEE BENEFITS
(a) Information on Active Employees. For the purpose of
-------------------------------
this Agreement, the term "Active Employees" shall mean all
employees employed on the Closing Date by Seller for its
business who are employed exclusively in Seller's business
as currently conducted, including employees on temporary
leave of absence, including family medical leave, military
leave, temporary disability or sick leave, but excluding
employees on long-term disability leave.
(b) Employment of Active Employees by Buyer.
---------------------------------------
(i) Buyer is not obligated to hire any Active
Employee. Buyer will provide Seller with a list of
Active Employees to whom Buyer has made an offer of
employment that has been accepted to be effective on
the Closing Date (the "Hired Active Employees").
Subject to Legal Requirements, Buyer will have
reasonable access to the Facilities and personnel
Records (including performance appraisals, disciplinary
actions, grievances and medical Records) of Seller for
the purpose of preparing for and conducting employment
interviews with all Active Employees and will conduct
the interviews as expeditiously as possible prior to
the Closing Date. Access will be provided by Seller
upon reasonable prior notice during normal business
hours. Effective immediately before the Closing, Seller
will terminate the employment of all of its Hired
Active Employees. In addition to its other obligations
hereunder, Buyer agrees to pay severance payments to
each Active Employee that is not employed by Buyer
immediately after the Closing consistent with Seller's
existing severance policy. The severance amounts made
to the Active Employees that are not employed by Buyer
shall not be used to reduce the Purchase Price in any
way, but shall otherwise be considered an Assumed
Liability.
(ii) Neither Seller nor any Shareholder nor their
Related Persons shall solicit the continued employment
of any Active Employee (unless and until Buyer has
informed Seller in writing that the particular Active
Employee will not receive any employment offer from
Buyer) or the employment of any Hired Active Employee
after the Closing. Buyer shall inform Seller promptly
of the identities of those Active Employees to whom it
will not make employment offers.
(c) Salaries and Benefits. Seller shall be responsible
---------------------
for the payment of all accrued wages and other remuneration
due to Active Employees with respect to their services as
employees of Seller presented on the Final Net Asset
Statement through the close of business on the Closing Date,
excluding all accrued vacation pay as of the Closing Date
(which are part of the Assumed Liabilities). It is
understood that all severance obligations are being assumed
by Buyer.
37
(d) Establishment of Benefit Plans for Hired
--------------------------------------------
Active Employees. Effective on the Closing Date, Buyer
-----------------
shall establish or maintain for the Hired Active Employees,
employee plans and employee benefit arrangements
(collectively, "Benefit Plans") that in the aggregate are
comparable economically to the Employee Plans set forth on
Schedule 3.11. All such Benefit Plans shall credit Hired
Active Employees for years of service with Seller for
purposes of eligibility and vesting. To the extent
allowable under Section 401(k) of the Code and regulations
issued thereunder, Hired Active Employees shall be eligible
to receive, at their election, a distribution of their
account balance from Seller's 401(k) plan, and Buyer shall
cause a 401(k) plan established or maintained by Buyer
pursuant to this Agreement to accept rollover of such
distributions. Buyer shall coordinate with Seller in an
effort to ensure, to the extent administratively
practicable, that the annual dollar limits applicable under
Section 402(g) of the Code for the year in which the Closing
Date occurs shall not be exceeded by any Hired Active
Employee.
(e) COBRA Liability. Seller shall retain the
----------------
liability and obligation (if any) to provide any
continuation of group health coverage required under Code
Section 4980B or ERISA Sections 601 through 608 ("COBRA
Coverage") with respect to any Hired Active Employee or
"qualified beneficiary" (as defined in Code Section 4980B)
of such Hired Active Employee whose initial "qualifying
event" (as defined in Code Section 4980B) occurred prior to
the Closing Date. Buyer agrees to provide administrative
support to assist in any COBRA administrative duties for
employees who are not retained at Closing and to offer COBRA
Coverage through its group health coverage for such
employees who are not employed by Buyer at Closing (if
administratively possible).
(f) Flexible Spending Accounts. Effective as of the
--------------------------
Closing Date, Seller shall transfer (i) the positive net
amount of the aggregate account balances, or the negative
net account balances, as the case may be, of the Hired
Active Employees maintained under Seller's health care
flexible spending account plan ("Seller's Health Care
Accounts") and (ii) the positive net amount of the aggregate
account balances of the Hired Active Employees maintained
under Seller's dependent care flexible spending account
plan. Buyer will pay or cause to be paid all eligible
health care or dependent care claims incurred by Hired
Active Employees during the plan year in which the Closing
Date occurs which remain unpaid as of the Closing Date.
10.2 NONCOMPETITION, NONSOLICITATION AND NONDISPARAGEMENT
(a) Noncompetition. In the event this Agreement is
--------------
Terminated for any reason, the Buyer agrees that for a
period of five (5) years from the date of this Agreement,
Buyer, shall not, directly or indirectly invest in, own,
manage, operate, finance, control, advise, render services
to or guarantee the obligations of any Person engaged in or
planning to become engaged in the business of selling,
marketing, distributing and/or reselling waders or products
to resellers that are competitive with Seller's products as
of the date of this Agreement ("Competing Business"),
provided, however, that Buyer may (i) acquire retailers or
mail order business that sell directly to the consumer; (ii)
pursue (either itself or through its subsidiaries) the
Buyer's current business of licensing products to third
parties; or (iii) purchase or otherwise acquire up to (but
not more than) five percent (5%) of any class of the
38
securities of any Person (but may not otherwise participate
in the activities of such Person) if such securities are
listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Exchange
Act. That the parties acknowledge that this noncompetition
provision is made in connection with the disclosure of due
diligence materials that would not otherwise be made
available to Buyer.
(b) Nonsolicitation. In the event this Agreement is
---------------
Terminated for any reason, the Buyer agrees that for a
period of five (5) years from the date of this Agreement,
Buyer shall not, directly or indirectly (including without
limitation as independent contractor):
(i) solicit the business of any Person who is a
customer of Seller in the Sellers line of business;
(ii) cause, induce or attempt to cause or induce any
customer, supplier, licensee, licensor, franchisee,
employee, consultant or other business relation of
Seller to cease doing business with Seller, to deal
with any competitor of Seller or in any way interfere
with its relationship with Seller;
(iii) cause, induce or attempt to cause or induce
any customer, supplier, licensee, licensor, franchisee,
employee, consultant or other business relation of
Seller on the Closing Date or within the year preceding
the Closing Date to cease doing business with Seller,
to deal with any competitor of Seller or in any way
interfere with its relationship with Seller; or
(iv) hire, retain or attempt to hire or retain any
employee or independent contractor of Seller or in any
way interfere with the relationship between Seller and
any of its employees or independent contractors.
(c) Nondisparagement. In the event this Agreement is
----------------
Terminated for any reason, Buyer will not disparage Seller
or any of Seller's shareholders, directors, officers,
employees or agents, and Seller will not disparage Buyer or
any of Buyer's shareholders, directors, officers, employees
or agents.
(d) Confidentiality Agreement. In the event this Agreement
-------------------------
is Terminated for any reason, the parties agree that the
terms of the Confidentiality Agreement shall continue.
(e) Modification of Covenant. If a final judgment of a
-------------------------
court or tribunal of competent jurisdiction determines that
any term or provision contained in Section 10.2(a) through
(d) is invalid or unenforceable, then the parties agree that
the court or tribunal will have the power to reduce the
scope, duration or geographic area of the term or provision,
to delete specific words or phrases or to replace any
invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or
unenforceable term or provision. This Section 10.2 will be
enforceable as so modified after the expiration of the time
within which the judgment may be appealed. This Section
10.2 is reasonable and necessary to protect and preserve
Seller's legitimate business interests and the value of the
Assets and to prevent any unfair advantage conferred on
Buyer by the disclosure of such confidential information.
39
10.3 FURTHER ASSURANCES
Subject to the provision in Section 6.1, the parties shall
cooperate reasonably with each other and with their respective
Representatives in connection with any steps required to be taken
as part of their respective obligations under this Agreement, and
shall (a) furnish upon request to each other such further
information; (b) execute and deliver to each other such other
documents; and (c) do such other acts and things, all as the
other party may reasonably request for the purpose of carrying
out the intent of this Agreement and the Contemplated
Transactions.
10.4 INSPECTION OF RECORDS; POST CLOSING ADMINISTRATION
Seller and Buyer shall each retain and make their respective
books and records (including work papers in the possession of
their respective accountants) available for inspection by the
other party, or by its duly accredited representatives, for
reasonable business purposes at all reasonable times during
normal business hours, for a seven (7) year period after the date
hereof, upon reasonable advance written notice, with respect to
all transactions of Seller occurring prior to and those relating
to the Closing, and the historical financial condition, assets,
liabilities, operations and cash flows of Seller. In the case of
records owned by Seller, such records shall be made available at
Buyer's executive offices. As used in this Section 10.4, the
right of inspection includes the right to make extracts or
copies. The representative of a party inspecting the records of
the other party shall be reasonably satisfactory to the other
party. Buyer agrees that when requested to do so, Buyer will
assume Seller's post-closing administrative duties (including,
providing reasonable personnel) or make the records available to
Seller or Seller's agents, for performing the duties.
11. INDEMNIFICATION; REMEDIES
11.1 SURVIVAL
All representations, warranties, covenants and obligations
in this Agreement, the certificates delivered pursuant to Section
7.4 and any other certificate or document delivered pursuant to
this Agreement shall survive the Closing and the consummation of
this Agreement, subject to Sections 11.6 and 11.7
11.2 INDEMNIFICATION AND REIMBURSEMENT BY SELLER
Seller will indemnify and hold harmless Buyer, and subject
to Sections 11.6 and 11.7 hereof will reimburse the Buyer for any
actual loss, liability, claim, damage (excluding any and all
punitive, exemplary, or consequential damages), expense
(including reasonable attorneys' fees and expenses), whether or
not involving a Third-Party Claim (collectively, "Damages"),
arising from or in connection with:
40
(a) any Liability arising out of the ownership or operation
of the Assets prior to the Effective Time other than the
Assumed Liabilities;
(b) any noncompliance with any Bulk Sales Laws or
fraudulent transfer law;
(c) any Employee Plan established or maintained by Seller
for matters occurring prior to Closing;
(d) a breach of any representation, warranty, or covenant
of Buyer; or
(e) any Excluded Liabilities.
Buyer will be entitled to control any Proceeding with
respect to which indemnity may be sought under this Section 11.2
and relating to a Third Party Claim. The procedure described in
Section 11.4 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 11.2. The claim for
indemnification by Buyer shall be its sole and exclusive remedy
against Seller.
11.3 INDEMNIFICATION AND REIMBURSEMENT BY BUYER
Buyer will indemnify and hold harmless Seller, and will
reimburse Seller, for any Damages arising from or in connection
with:
(a) any claim by any Person for brokerage or finder's fees
or commissions or similar payments based upon any agreement
or understanding alleged to have been made by such Person
with Buyer (or any Person acting on Buyer's behalf) in
connection with any of the Contemplated Transactions;
(b) a breach of any representation, warranty, or covenant
of Buyer;
(c) any Assumed Liabilities;
(d) any Seller Contracts; and
(e) any Employee Plan for matters occurring post Closing.
11.4 THIRD-PARTY CLAIMS
(a) Promptly after receipt by a Person entitled to
indemnity under Section 11.2 or 11.3 (an "Indemnified
Person") of notice of the assertion of a Third-Party Claim
against it, such Indemnified Person shall give notice to the
Person obligated to indemnify under such Section (an
"Indemnifying Person") of the assertion of such Third-Party
Claim, provided that the failure to notify the Indemnifying
Person will not relieve the Indemnifying Person of any
liability that it may have to any Indemnified Person, except
to the extent that the Indemnifying Person demonstrates that
the defense of such Third-Party Claim is prejudiced by the
Indemnified Person's failure to give such notice.
41
(b) If an Indemnified Person gives notice to the
Indemnifying Person pursuant to Section 11.4(a) of the
assertion of a Third-Party Claim, the Indemnifying Person
shall be entitled to participate in the defense of such
Third-Party Claim and, to the extent that it wishes (unless
(i) the Indemnifying Person is also a Person against whom
the Third-Party Claim is made and the Indemnified Person
determines in good faith that joint representation would be
inappropriate or (ii) the Indemnifying Person fails to
provide reasonable assurance to the Indemnified Person of
its financial capacity to defend such Third-Party Claim and
provide indemnification with respect to such Third-Party
Claim), to assume the defense of such Third-Party Claim with
counsel satisfactory to the Indemnified Person. After
notice from the Indemnifying Person to the Indemnified
Person of its election to assume the defense of such
Third-Party Claim, the Indemnifying Person shall not, so
long as it diligently conducts such defense, be liable to
the Indemnified Person under this Section 11 for any fees of
other counsel or any other expenses with respect to the
defense of such Third-Party Claim, in each case subsequently
incurred by the Indemnified Person in connection with the
defense of such Third-Party Claim, other than reasonable
costs of investigation. If the Indemnifying Person assumes
the defense of a Third-Party Claim, (i) such assumption will
conclusively establish for purposes of this Agreement that
the claims made in that Third-Party Claim are within the
scope of and subject to indemnification, and (ii) no
compromise or settlement of such Third-Party Claims may be
effected by the Indemnifying Person without the Indemnified
Person's Consent unless (A) there is no finding or admission
of any violation of Legal Requirement or any violation of
the rights of any Person; (B) the sole relief provided is
monetary damages that are paid in full by the Indemnifying
Person; and (C) the Indemnified Person shall have no
liability with respect to any compromise or settlement of
such Third-Party Claims effected without its Consent. If
notice is given to an Indemnifying Person of the assertion
of any Third-Party Claim and the Indemnifying Person does
not, within ten (10) days after the Indemnified Person's
notice is given, give notice to the Indemnified Person of
its election to assume the defense of such Third-Party
Claim, the Indemnifying Person will be bound by any
determination made in such Third-Party Claim or any
compromise or settlement effected by the Indemnified Person.
(c) Notwithstanding the foregoing, if an Indemnified Person
determines in good faith that there is a reasonable
probability that a Third-Party Claim may adversely affect it
or its Related Persons other than as a result of monetary
damages for which it would be entitled to indemnification
under this Agreement, the Indemnified Person may, by notice
to the Indemnifying Person, assume the exclusive right to
defend, compromise or settle such Third-Party Claim, but the
Indemnifying Person will not be bound by any determination
of any Third-Party Claim so defended for the purposes of
this Agreement or any compromise or settlement effected
without its Consent (which may not be unreasonably
withheld).
(d) With respect to any Third-Party Claim subject to
indemnification under this Section 11: (i) both the
Indemnified Person and the Indemnifying Person, as the case
may be, shall keep the other Person fully informed of the
status of such Third-Party Claim and any related proceedings
42
at all stages thereof where such Person is not represented
by its own counsel, and (ii) the parties agree (each at its
own expense) to render to each other such assistance as they
may reasonably require of each other and to cooperate in
good faith with each other in order to ensure the proper and
adequate defense of any Third-Party Claim.
(e) With respect to any Third-Party Claim subject to
indemnification under this Section 11, the parties agree to
cooperate in such a manner as to preserve in full (to the
extent possible) the confidentiality of all Confidential
Information and the attorney-client and work-product
privileges. In connection therewith, each party agrees that:
(i) it will use its best efforts, in respect of any
Third-Party Claim in which it has assumed or participated in
the defense, to avoid production of confidential information
(consistent with applicable law and rules of procedure), and
(ii) all communications between any party hereto and counsel
responsible for or participating in the defense of any
Third-Party Claim shall, to the extent possible, be made so
as to preserve any applicable attorney-client or
work-product privilege.
11.5 OTHER CLAIMS
(a) A claim for indemnification for any matter not
involving a Third-Party Claim may be asserted by notice to
the party from whom indemnification is sought and shall be
made in a written statement signed by the party seeking
indemnification which shall specify in reasonable detail
each individual item of damage and the estimated amount
thereof, the date such item was claimed or the facts giving
rise to such claim were discovered, the basis for any
alleged liability and the nature of the breach or claim to
which each such item is related.
(b) If the indemnifying party does not pay the amount
specified in any such statement within thirty (30) days
after it has been delivered by the party seeking
indemnification, the party seeking indemnification may
enforce its right in accordance with law.
11.6 LIMITATIONS ON AMOUNT
Notwithstanding any provisions of this Agreement to the
contrary, Seller shall have no liability with respect to claims
for indemnification under this Agreement other than for Damages
that are in the aggregate less than $1,000,000 (the
"Indemnification Cap"). Furthermore, Seller shall not be liable
for indemnification for Damages until the actual amount of
Damages exceeds, in the aggregate, the sum of $100,000 (the
"Indemnification Threshold"). All Damages shall be determined
net of any tax benefit or economic benefit to the Buyer, arising
in respect of or as a result of the matters for which the Damages
are claimed; or insurance proceeds derived (or reasonably
expected to be derived) by the party or parties indemnified
hereunder in respect thereof. Buyer's indemnification rights
under this Agreement shall be Buyer's sole and exclusive remedy
against Seller and Shareholders.
43
11.7 LIMITATIONS ON TIME
Notwithstanding any other provision to the contrary, the
representations, warranties, and covenants of Seller shall only
survive closing for a period of one (1) year from the date of
Closing. The Buyer agrees that any claim for indemnification
delivered to Seller after one (1) year from the date of Closing
shall automatically be denied by Seller, and Buyer agrees to
release Seller and hold Seller harmless from any such claims.
12. GENERAL PROVISIONS
12.1 EXPENSES
Except as otherwise provided in this Agreement, each party
to this Agreement will bear its respective fees and expenses
incurred in connection with the preparation, negotiation,
execution and performance of this Agreement and the Contemplated
Transactions, including all fees and expense of its
Representatives.
12.2 PUBLIC ANNOUNCEMENTS
No general discussion, public announcement, press release or
similar publicity with respect to this Agreement will be issued
at all until after closing. Seller and Buyer will consult with
each other concerning the means by which Seller's employees,
customers, suppliers and others having dealings with Seller will
be informed of this Agreement, and Buyer will have the right to
be present for any such communication. Buyer shall have a right,
subject to adequate confidentiality agreements, to discuss this
Agreement with its investors and financing sources.
12.3 NOTICES
All notices, Consents, waivers and other communications
required or permitted by this Agreement shall be in writing and
shall be deemed given to a party when (a) delivered to the
appropriate address by hand or by nationally recognized overnight
courier service (costs prepaid); (b) sent by facsimile or e-mail
with confirmation of transmission by the transmitting equipment;
or (c) received or rejected by the addressee, if sent by
certified mail, return receipt requested, in each case to the
following addresses, facsimile numbers or e-mail addresses and
marked to the attention of the person (by name or title)
designated below (or to such other address, facsimile
number, e-mail address or person as a party may designate by
notice to the other parties):
Seller (before the Closing): ▇▇▇▇▇▇▇, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Fax no.: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail address: none
44
with a mandatory copy to: Huck, Bouma, Martin, ▇▇▇▇▇ &
▇▇▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇. ▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax no.: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail address: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
---------------------
Seller and Shareholders
(after the Closing): ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Fax no.: None
E-mail address: None
with a mandatory copy to: Huck, Bouma, Martin, ▇▇▇▇▇ &
▇▇▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇. ▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax no.: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail address: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
---------------------
Buyer: American Apparel & Accessories
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇. ▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇
Fax no.: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail address: ▇▇▇▇▇▇@▇▇▇.▇▇▇
--------------
with a mandatory copy to: ▇▇▇▇▇▇ McCastlain & ▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇. ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Fax no.: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail address: ▇▇▇▇▇@▇▇▇▇▇.▇▇▇
---------------
12.4 WAIVER; REMEDIES CUMULATIVE
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither any failure nor any delay
by any party in exercising any right, power or privilege under
this Agreement or any of the documents referred to in this
Agreement will operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of
such right, power or privilege or the exercise of any other
right, power or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this
Agreement or any of the documents referred to in this Agreement
can be discharged by one party, in whole or in part, by a waiver
or renunciation of the claim or right unless in writing signed by
the other party; (b) no waiver that may be given by a party will
be applicable except in the specific instance for which it is
45
given; and (c) no notice to or demand on one party will be deemed
to be a waiver of any obligation of that party or of the right of
the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement or the
documents referred to in this Agreement.
12.5 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements, whether
written or oral, between the parties with respect to its subject
matter (including any letter of intent and any confidentiality
agreement between Buyer and Seller) and constitutes (along with
the Schedules and other documents delivered pursuant to this
Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter.
Any disclosures made on one Schedule shall be deemed made on all
other Schedules. This Agreement may not be amended,
supplemented, or otherwise modified except by a written agreement
executed by the party to be charged with the amendment.
12.6 ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS
No party may assign any of its rights or delegate any of its
obligations under this Agreement without the prior written
consent of the other parties, except that Buyer may assign any of
its rights and delegate any of its obligations under this
Agreement to any Subsidiary of Buyer and may collaterally assign
its rights hereunder to any financial institution providing
financing in connection with this Agreement. Subject to the
preceding sentence, this Agreement will apply to, be binding in
all respects upon and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other
than the parties to this Agreement any legal or equitable right,
remedy or claim under or with respect to this Agreement or any
provision of this Agreement, except such rights as shall inure to
a successor or permitted assignee pursuant to this Section 12.6.
12.7 SEVERABILITY
If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and
effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force
and effect to the extent not held invalid or unenforceable.
12.8 CONSTRUCTION
The headings of Articles and Sections in this Agreement are
provided for convenience only and will not affect its
construction or interpretation. All references to "Articles" and
"Sections" refer to the corresponding Articles and Sections of
this Agreement.
46
12.9 TIME OF ESSENCE
With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.
12.10 GOVERNING LAW; FORUM
This Agreement will be governed by and construed under the
laws of the State of Illinois without regard to conflicts-of-laws
principles that would require the application of any other law.
Any suit, action or proceeding seeking to enforce any provision
of, or based on any right arising out of, this Agreement shall be
brought against any of the parties only in the courts of the
State of Illinois, County of ▇▇▇▇, or, if it has or can acquire
the necessary jurisdiction, in the United States District Court
for the Northern District of Illinois, and each of the parties
consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding
and irrevocably waives any objection to venue laid therein.
Process in any suit, action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the
world.
12.11 EXECUTION OF AGREEMENT
This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed
to constitute one and the same agreement. The exchange of copies
of this Agreement and of signature pages by facsimile
transmission shall constitute effective execution and delivery of
this Agreement as to the parties and may be used in lieu of the
original Agreement for all purposes. Signatures of the parties
transmitted by facsimile shall be deemed to be their original
signatures for all purposes.
[Remainder of this page intentionally left blank]
47
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
Buyer:
American Apparel & Accessories, Inc., an Arkansas corporation
By: /s/
----------------------------
Seller:
▇▇▇▇▇▇▇, Inc., an Illinois
corporation
By: /s/
----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
For matters concerning Shareholders only:
/s/
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Individually and as Trustee of
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 3 Year Grantor Retained Annuity Trust;
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 4 Year Grantor Retained Annuity Trust;
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 5 Year Grantor Retained Annuity Trust;
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 8 Year Grantor Retained Annuity Trust
/s/
--------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, as Trustee of
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 5 Year Grantor Retained Annuity Trust;
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 8 Year Grantor Retained Annuity Trust
48
