**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
EXHIBIT 99.1
MEMBERSHIP INTERESTS PURCHASE AGREEMENT
BY AND AMONG
▇.▇. ▇▇▇▇▇▇▇ CO.,
▇▇▇▇▇▇▇ SPECIALTY RETAILING, INC.,
YOUNG AN HAT COMPANY,
J. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
GEORGIA ▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇.,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
AND
▇▇▇▇▇▇▇▇ ACQUISITION CORP.
DATED AS OF JULY 6, 2004
Note: Material has been omitted from this document pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission") on July 21, 2004. Such material is denoted by the insertion of
"****" in place of the omitted text. An unredacted version of this document was
filed with the Commission.
**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
MEMBERSHIP INTERESTS PURCHASE AGREEMENT
THIS MEMBERSHIP INTERESTS PURCHASE AGREEMENT (this "AGREEMENT") is made as
of July 6, 2004 by and among ▇.▇. ▇▇▇▇▇▇▇ Co., a Georgia corporation ("▇.▇.
▇▇▇▇▇▇▇"); ▇▇▇▇▇▇▇ Specialty Retailing, Inc., a Georgia corporation ("▇▇▇▇▇▇▇
RETAILING"); Young An Hat Company, a Korean entity ("YOUNG AN HAT"); J. ▇▇▇▇
▇▇▇▇▇▇▇▇▇, an individual ("▇. ▇▇▇▇▇▇▇▇▇"); Georgia ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, an individual
("▇. ▇▇▇▇▇▇▇▇▇"); ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, an individual ("▇. ▇▇▇▇▇▇▇▇▇"); ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, an individual ("▇. ▇▇▇▇▇▇▇▇▇"); ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇., an
individual ("▇▇▇▇▇▇▇"); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., an individual ("▇▇▇▇▇▇" and,
together with ▇.▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Retailing, Young An Hat, ▇. ▇▇▇▇▇▇▇▇▇, ▇.
▇▇▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇, the "SELLING MEMBERS"); and
▇▇▇▇▇▇▇▇ Acquisition Corp., a Delaware corporation ("BUYER"). Capitalized terms
used in this Agreement not otherwise defined have the meanings ascribed to them
in Section 9.1 hereof.
A. The Selling Members are the sole members of Gekko Brands, LLC, an
Alabama limited liability company (the "COMPANY"), and collectively hold one
hundred percent (100%) of the membership interests, including, but not limited
to, all common and preferred interests, in the Company (the "MEMBERSHIP
INTERESTS").
B. The Company owns or leases all of its assets related to, or used in
connection with, the Company's headwear manufacturing and sales business, which
include, among other matters, operations relating to the "Kudzu" and "The Game"
brands.
C. The Selling Members desire to sell to Buyer, and Buyer desires to
purchase from the Selling Members, all of the Membership Interests owned by the
Selling Members on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties and agreements set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
SALE AND PURCHASE
1.1 AGREEMENT TO SELL AND PURCHASE. On and subject to the terms and
conditions of this Agreement, at the Closing, (a) the Selling Members shall sell
to Buyer the Membership Interests; and (b) Buyer shall purchase from the Selling
Members the Membership Interests.
1.2 PURCHASE PRICE. As payment in full for all the Membership Interests
and subject to any other adjustments provided in this Agreement, Buyer shall pay
to the Selling Members an aggregate purchase price equal to (a) Twenty-Three
Million U.S. Dollars ($23,000,000) (the "BASE PURCHASE PRICE"); plus (b) a
promissory note of Buyer in aggregate principal amount of One Million U.S.
Dollars ($1,000,000) in favor of ▇.▇. ▇▇▇▇▇▇▇, in the form attached hereto as
Exhibit A (the "▇▇▇▇▇▇▇ NOTE"); plus (c) any Installment Payments, as
applicable.
**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
1.3 INSTALLMENT PAYMENTS.
Schedule 1.3 sets forth the terms and conditions of the Installment
Payments (as defined in Schedule 1.3).
1.4 BASE PURCHASE PRICE HOLDBACK.
(a) Holdback. As security for each Selling Member's
indemnification obligations under Article 7, but without limitation of each of
their obligations under this Agreement, an amount equal to **** ($****)
(together with any applicable interest paid thereon, the "HOLDBACK AMOUNT")
shall be withheld from the Base Purchase Price otherwise payable by Buyer to the
Selling Members and deposited by Buyer in a segregated escrow account with
Synovus Trust Company, N.A. (the "HOLDBACK ACCOUNT"), bearing simple interest at
three and one-half percent (3.5%) per annum, pursuant to the escrow agreement in
the form attached hereto as Exhibit B (the "ESCROW AGREEMENT").
(b) Release of Holdback. Pursuant to the Escrow Agreement, Buyer
shall authorize and request the escrow holder to pay to the Selling Members on
November 1, 2005 (the "HOLDBACK EXPIRY"), any positive amount equal to (i) the
Holdback Amount less (ii) the sum of (A) all resolved but unpaid Claims owing to
the Buyer Indemnitees existing on the Holdback Expiry, plus (B) all unresolved
Claims made by the Buyer Indemnitees prior to the Holdback Expiry in accordance
with Article 7 ("UNRESOLVED CLAIMS"). Any remaining Holdback Amount (together
with any interest thereon) that is not released on the Holdback Expiry shall, as
each Unresolved Claim is resolved, be released to the Selling Members or paid to
any Buyer Indemnitee to satisfy such Unresolved Claim, in such amounts as are
appropriate to reflect the resolution of such Claim. The parties shall use their
best efforts to resolve such Claims as promptly as possible. In any event, the
balance of the Holdback Amount shall be distributed to the Selling Members on or
before May 1, 2006, regardless of the status of Unresolved Claims. The release
of any remaining Holdback Amount (together with interest thereon) from the
Holdback Account in accordance with this Section 1.4(b) shall be by wire
transfer of immediately available funds, in accordance with each Selling
Member's duly authorized payment instructions and will be distributed in the
same percentages as each Selling Member's respective ownership interest as of
the Closing Date. Notwithstanding the release of funds pursuant to this Section
1.4(b), the Selling Members shall remain liable for the amount of any Unresolved
Claims made by Buyer in good faith prior to October 31, 2005; provided that any
such liability shall be subject to the terms, conditions and limitations set
forth in Article 7.
1.5 SELLING MEMBER ALLOCATION. The Base Purchase Price, any Installment
Payment and any make-up Installment Payment shall be payable by Buyer to each
Selling Member in accordance with the allocation schedule attached hereto as
Schedule 1.5.
1.6 PURCHASE PRICE ALLOCATION. Buyer and each Selling Member shall
allocate the Purchase Price (and all other capitalizable costs) for all purposes
(including financial accounting and Tax purposes) in accordance with the
allocation schedule attached hereto as Schedule 1.6. The parties hereto
acknowledge that such allocation has been made in the manner required by Section
1060 of the Internal Revenue Code of 1986, as amended (the "CODE"). The Buyer
and each Selling Member shall prepare and file an IRS Form 8594 in a timely
fashion in accordance
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
with the rules under Section 1060 of the Code. To the extent that the Purchase
Price is adjusted after the Closing Date, the parties hereto shall revise and
amend such Schedule and IRS Form 8594 in the same manner and according to the
same procedure as used in preparing Schedule 1.6 attached hereto.
1.7 CLOSING.
(a) Closing Date. The Closing will take place via facsimile with
originals to follow via overnight delivery at the offices of ▇▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇▇▇▇ LLP, ▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ either July 6, 2004 or such
other date that the parties hereto may mutually agree after all the conditions
set forth in Article 5 have either been satisfied or, in the case of conditions
not satisfied, waived in writing by the party entitled to the benefit of such
conditions (the "CLOSING DATE").
(b) Closing Deliverables of Selling Members. At the Closing, the
Selling Members shall deliver to Buyer:
(i) a duly executed Escrow Agreement in the form attached
hereto as Exhibit B from each Selling Member;
(ii) duly executed membership interests assignments, in the
form attached hereto as Exhibit C (the "MEMBERSHIP INTERESTS ASSIGNMENTS"), from
each Selling Member;
(iii) duly executed employment agreements, in the form
attached hereto as Exhibit D (the "EMPLOYMENT AGREEMENTS"), from each of ▇.
▇▇▇▇▇▇▇▇▇, Allison, Martin, ▇. ▇▇▇▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇▇▇;
(iv) a duly executed amended and restated sublease, in the
form attached hereto as Exhibit E (the "AMENDED AND RESTATED LEASE AGREEMENT"),
from 16 ▇▇▇▇▇▇▇, LLC, the landlord of the Phenix City, Alabama property;
(v) duly executed affidavits that satisfy the requirements
of Code Section 1445(b)(2), in the form attached hereto Exhibit F (the
"NON-FOREIGN AFFIDAVITS"), from each Selling Member, other than Young An Hat;
(vi) a duly executed subordination agreement, in the form
attached hereto as Exhibit G (the "SUBORDINATION AGREEMENT"), from ▇.▇. ▇▇▇▇▇▇▇;
(vii) duly executed resignations, dated as of the Closing
Date, of the manager of the Company and manager of the Company's subsidiaries;
(viii) a certificate of the Secretary of State of the State of
Alabama as to the legal existence and good standing (including tax) of the
Company in the State of Alabama, dated no more than ten (10) business days prior
to the Closing Date;
(ix) a certificate of the Secretary of State of the
jurisdiction of their respective organization as to the legal existence and good
standing (including tax) of each
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
subsidiary of the Company in such jurisdiction, dated no more than ten (10)
business days prior to the Closing Date;
(x) certificates of the Secretaries of State or other
similar governmental official of each jurisdiction in which the Company and its
subsidiaries is required to qualify to do business as to the due qualification
and good standing (including tax) of the Company and its subsidiaries in each
such jurisdiction, respectively, dated no more than ten (10) business days prior
to the Closing Date;
(xi) certificates of the Secretary of State of Georgia as to
the legal existence and good standing of ▇.▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ Retailing
dated no more than ten (10) business days prior to the Closing Date;
(xii) the certificates, other documents, legal opinion and
consents required to be delivered by the Selling Members under Section 5.2; and
(xiii) such other certificates, documents and instruments
incident to the transactions contemplated by this Agreement as Buyer or its
counsel may reasonably request.
(c) Closing Deliverables of Buyer. At the Closing, Buyer shall
deliver to the Selling Members:
(i) the Base Purchase Price less the Holdback, by wire
transfer of immediately available funds to Page, Scrantom, Sprouse, ▇▇▇▇▇▇ &
Ford, P.C. for distribution as set forth on Schedule 1.5 in accordance with the
duly authorized payment instructions provided in writing by the Selling Members
to Buyer at least three (3) business days prior to the Closing Date;
(ii) a certificate of the Secretary of State of the State of
Delaware as to the legal existence and good standing of Buyer in the State of
Delaware, dated no more than three (3) business days prior to the Closing Date;
(iii) the certificate and legal opinion required to be
delivered by Buyer under Section 5.3;
(iv) a duly executed Escrow Agreement in the form attached
hereto as Exhibit B;
(v) a duly executed Sublease Guaranty in the form attached
hereto as Exhibit H, from ▇▇▇▇▇▇▇▇; and
(vi) such other certificates, documents and instruments
incident to the transactions contemplated by this Agreement as the Selling
Members or their counsel may reasonably request.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLING MEMBERS
Each representation and warranty contained in this Article 2 is qualified
by the disclosure made with respect to any such particular representation and
warranty in the Company Disclosure Schedule attached hereto as Schedule 2, to
the extent that such disclosure specifically identifies the section or
subsection which it qualifies. This Article 2 and the Company Disclosure
Schedule shall be read together as an integrated provision. Except as
specifically set forth on the Company Disclosure Schedule, each Selling Member
hereby individually and separately and not jointly and severally make the
representations and warranties to Buyer as set forth below. Each Selling
Member's representation or warranty is limited to the extent it applies to such
Selling Member or the Company. No Selling Member makes any representation or
warranty herein with respect to any other Selling Member. Any item disclosed in
any particular section contained in the Company Disclosure Schedule shall
constitute an exception to all other representations and warranties made in this
Article 2 to which it is apparent on its face such item applies.
2.1 ORGANIZATION AND GOOD STANDING. ▇.▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Retailing and
Young An Hat are corporations duly incorporated, validly existing and in good
standing under the laws of the jurisdictions of their respective incorporation,
with full corporate power and authority to own the Membership Interests. ▇.
▇▇▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇▇▇, J. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ are
individuals with all necessary capacity and authority to own the Membership
Interests. Each of the Company and its subsidiaries is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, with all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Each of the
Company and its subsidiaries is duly qualified and in good standing to do
business in each jurisdiction, whether domestic or foreign, in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary.
2.2 AUTHORIZATION OF AGREEMENT. ▇.▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Retailing and
Young An Hat have all requisite corporate power and authority to enter into and
deliver this Agreement and to complete and perform the transactions contemplated
hereby, including their respective obligations. ▇. ▇▇▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇▇▇, ▇.
▇▇▇▇▇▇▇▇▇, J. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ have all necessary capacity and
authority to enter into and deliver this Agreement and to complete and perform
the transactions contemplated hereby, including their respective obligations.
This Agreement and the other Transaction Documents (except for Transaction
Documents to be executed and delivered solely by Buyer) have been duly and
validly approved by the respective boards of directors of ▇.▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Retailing and Young An Hat and no other proceedings on the part of any Selling
Member are necessary to approve this Agreement or the other Transaction
Documents and to complete the transactions contemplated hereby and thereby. This
Agreement and the other Transaction Documents to be delivered by the Selling
Members: (a) have been (or upon execution will have been) duly executed and
delivered by each Selling Member, and (b) constitute (or upon execution will
constitute) legal, valid and binding obligations of each Selling Member,
enforceable in accordance with their respective terms.
2.3 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
each Selling Member of this Agreement and the other Transaction Documents to be
executed and
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
delivered by a Selling Member and the completion of the transactions and
performance of the obligations contemplated hereby and thereby do not and will
not: (a) violate or conflict with any provision of the certificates of
incorporation or bylaws (or comparable charter documents) of ▇.▇. ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ Retailing or Young An Hat; (b) violate or conflict with any provision of
the limited liability company or operating agreement of the Company or any of
its subsidiaries; (c) violate or conflict with any provision of any agreement,
instrument, document or arrangement by which any of the Selling Members is
bound; (d) violate any provision or requirement of any federal, state or local
law, statute, judgment, order, writ, injunction, decree, award, rule, or
regulation of any Governmental Entity applicable to any Selling Member, the
Company or its subsidiaries; (e) violate, result in a breach of, constitute
(with due notice or lapse of time or both) a default or cause any obligation,
penalty, premium or right of termination to arise or accrue under, any Contract;
(f) result in the cancellation, modification, revocation or suspension of any
Permit; (g) result in the creation or imposition of any Encumbrance upon any of
the Membership Interests or any of the properties or assets of the Company or
its subsidiaries; or (h) require the consent, approval, or notification of, or
registration or filing with, any third party.
2.4 GOVERNMENTAL CONSENTS. No filing with or notice to, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for
the execution or delivery by any Selling Member of this Agreement or any other
Transaction Document required to be delivered by a Selling Member or the
completion of the transactions and performance of the obligations contemplated
hereby or thereby.
2.5 MEMBERSHIP INTERESTS.
(a) Capitalization. The Membership Interests held by the Selling
Members, as set forth in Section 2.5(a) of the Company Disclosure Schedule, are
the only voting securities of, or membership interests in, the Company. There
are no other outstanding (i) securities of, or membership interests in, the
Company; (ii) securities of the Company convertible into or exercisable or
exchangeable for securities of, or membership interests in, the Company; (iii)
options or other rights to acquire from the Company, or obligations of the
Company to issue, any securities, membership interests or securities convertible
into or exercisable or exchangeable for securities of, or membership interests
in, the Company; or (iv) equity equivalents, interests in the ownership or
earnings of the Company or other similar rights. There are no outstanding
obligations of the Company to repurchase, redeem or otherwise acquire any
Membership Interests.
(b) Ownership of Membership Interests. The Selling Members are the
only record holders of the Membership Interests and each Selling Member has sole
legal and beneficial ownership of, and good, valid and marketable title to, the
Membership Interests held by him, her or it, as set forth on Section 2.5(a) of
the Company Disclosure Schedule. All of the Membership Interests were validly
issued to the Selling Members and none of the Membership Interests were issued
to any Selling Member in violation of any U.S. federal, state or foreign
securities law. All of the Membership Interests are owned by the Selling Members
free and clear of any Encumbrance and there is no security, option, warrant,
right (including, without limitation, preemptive rights), put, call,
subscription agreement, commitment, understanding or claim of any nature
whatsoever, fixed or contingent, to which any Selling Member, the Company or any
of its
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
subsidiaries is a party or by which any Selling Member, the Company or any of
its subsidiaries is bound that directly or indirectly (i) calls for the
issuance, sale, pledge, delivery or other disposition of any interests in the
Company or any securities convertible into or exercisable or exchangeable for
securities of, or membership interests in, the Company, (ii) relates to the
voting or control of any interests in the Company, or (iii) obligates any
Selling Member, the Company, any of its subsidiaries or any of their respective
Affiliates to grant, offer or enter into any of the foregoing. There are no
stockholder agreements, voting trusts or other agreements or understandings to
which the Company or any of its subsidiaries is a party or by which it is bound
relating to the voting or registration of any shares of capital stock of the
Company. Each Selling Member has the absolute and unrestricted right, power,
authority and capacity to transfer the Membership Interests held by him, her or
it to Buyer and, upon the completion of the transactions contemplated by this
Agreement, Buyer will become the sole record holder of the Membership Interests
and acquire from the Selling Members sole legal and beneficial ownership of, and
good, valid and marketable title to, the Membership Interests, free and clear of
any Encumbrance.
2.6 SUBSIDIARIES AND INVESTMENTS. Section 2.6 of the Company Disclosure
Schedule identifies each direct and indirect subsidiary of the Company and shows
the jurisdiction of organization of each such subsidiary. Neither the Company
nor any of its subsidiaries controls, directly or indirectly, or possesses any
direct or indirect ownership, equity participation or other interest in, any
other corporation, partnership, limited liability company, trust or other
business entity. All of the outstanding membership or other ownership interests
of the Company's subsidiaries are owned by the Company, directly or indirectly,
free and clear of any Encumbrance or any other limitation or restriction
(including any restriction on the right to vote or sell the same, except as may
be provided as a matter of law) or in Section 2.5(b) of the Company Disclosure
Schedule. There are no securities of the Company or any of its subsidiaries
convertible into or exercisable or exchangeable for, no options or other rights
to acquire from the Company or its subsidiaries, and no other contract,
understanding, arrangement or obligation (whether or not contingent) providing
for the issuance or sale, directly or indirectly, of, any membership or other
ownership interests in, or any other securities of, any subsidiary of the
Company. There are no outstanding contractual obligations of the Company or any
of its subsidiaries to repurchase, redeem or otherwise acquire any outstanding
membership or other ownership interests in any subsidiary of the Company.
2.7 PROPERTIES AND ASSETS.
(a) Owned Property. None of the properties or assets owned by the
Company or any of its subsidiaries is subject to any Encumbrance, except for
liens for current Taxes not yet due and payable. Section 2.7(a) of the Company
Disclosure Schedule lists all material personal property and assets owned by the
Company or any of its subsidiaries. The Company owns no real property.
(b) Leased Property. The properties and assets leased by the
Company or any of its subsidiaries are held under valid leasehold interests in
such properties and assets. Section 2.7(b) of the Company Disclosure Schedule
sets forth a correct and complete list of (i) all material leases or rental
contracts under which the Company or any of its subsidiaries is a lessee,
lessor, sublessee or sublessor, and (ii) all material leased property or
equipment used by the Company or any of its subsidiaries in the operation of the
Business. All payments have been
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
made under, and the Company and its subsidiaries are in material compliance with
the terms of, each lease or rental contract to which any of them is a party. The
Company and its subsidiaries, as applicable, are in peaceable and undisturbed
possession of the real property and improvements, buildings, machinery,
equipment or other tangible property or assets covered by a lease. All
improvements on leased property used by the Company or any of its subsidiaries
in the operation of the Business and the current use thereof are in material
accordance with all applicable laws and the agreements under which such
improvements are leased.
(c) Condition of Property. All of the tangible properties and
assets owned or leased by the Company or any of its subsidiaries are, and at the
Closing Date will be, in materially good operating condition and repair and are
adequate and suitable for the purposes for, and the manner in, which they are
currently being used. No proceeding is pending or proposed which would preclude
or impair the use of any such properties and assets by the Company or any of its
subsidiaries for the purposes for, and the manner in, which it is currently
used. Neither the Company nor any of its subsidiaries leases or subleases to any
other entity or person any property or asset owned, leased or held by it.
2.8 INTELLECTUAL PROPERTY.
(a) Intellectual Property Rights. Section 2.8(a) of the Company
Disclosure Schedule sets forth a complete and correct list of all material
Intellectual Property Rights owned, licensed or used by the Company or its
subsidiaries in the conduct of the Business (collectively, the "COMPANY IP
ASSETS"), together with a listing of all material licenses, franchises,
licensing agreements (whether as licensor or licensee) to which the Company or
its subsidiaries is a party, and any other arrangement with respect to the
Company IP Assets. The Company or its subsidiaries owns all right, title and
interest in each of the Company IP Assets identified in Section 2.8(a) of the
Company Disclosure Schedule. Other than the Company IP Assets, no other
Intellectual Property Rights are necessary for the unimpaired continued conduct
of the Business, as currently conducted, as of the date hereof or after the
Closing.
(b) No Proceedings Against Company IP Assets. Neither the Company
nor any of its subsidiaries has, during the three (3) years preceding the date
of this Agreement, been a party to any Proceeding, nor, to the knowledge of any
Selling Member, is any Proceeding threatened, that involved or is reasonably
expected to involve a claim of infringement or misappropriation by any person
(including any Governmental Entity) of any Intellectual Property Right of such
person. No Company IP Asset owned by the Company is subject to any outstanding
order, judgment, decree, or stipulation restricting the use thereof by the
Company or any of its subsidiaries, or restricting the licensing thereof by the
Company or any of its subsidiaries. No Company IP Asset has been, or to the
knowledge of any Selling Member is alleged to have been, misappropriated from
any other person and the current use and exploitation of the Company IP Assets
by the Company and its subsidiaries does not infringe upon, violate or result in
the misappropriation of any Intellectual Property Right of any person. None of
the Selling Members, the Company or any of its subsidiaries has received any
notice or claim challenging the absolute and unrestricted right of the Company
or any of its subsidiaries to use any of the Company IP Assets or suggesting
that any other person has any claim with respect thereto.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(c) Company Marks.
(i) The Company or its subsidiaries owns all right, title
and interest in each of the Marks listed in Section 2.8(a) of the Company
Disclosure Schedule (collectively, the "COMPANY MARKS"), and the Company and its
subsidiaries have not received any notice or claim (whether written or oral)
challenging the Company's or the relevant subsidiary's exclusive and complete
ownership of any Company Marks or suggesting that any other person has any claim
of legal or beneficial ownership or other claim or interest with respect
thereto.
(ii) The Company Marks are legally valid and enforceable and
none of the Selling Members, the Company or its subsidiaries has received any
notice or claim (whether written or oral) challenging the validity or
enforceability of any Company Marks.
(iii) The Company and its subsidiaries have not taken any
action (or failed to take any action), or used or enforced (or failed to use or
enforce) any of the Company Marks in a manner that would result in the
abandonment, cancellation, forfeiture, relinquishment, or unenforceability of
any of the Company Marks or any of their respective rights therein.
(iv) The Company and its subsidiaries have taken all
reasonable steps necessary to protect their respective rights in and to each of
the Company Marks and to prevent the unauthorized use thereof by any other
person, in each case in accordance with standard industry practice, and has
adequately policed the Company Marks against third party infringement.
(v) None of the Selling Members, the Company or any of its
subsidiaries has granted to any person any right, license or permission to use
any of the Company Marks.
(vi) All material maintenance fees, annuities, and the like
due on the Company Marks have been timely paid.
(vii) No Company ▇▇▇▇ has been or is now involved in any
opposition or cancellation proceeding and, to the knowledge of any Selling
Member, no such action is threatened with the respect to any of the Company
Marks.
(viii) Neither the Company nor any of its subsidiaries has any
Patents.
(d) Protection. The Selling Members, the Company and its
subsidiaries have taken all reasonable actions necessary to protect the
confidentiality of all trade secrets and confidential information (including,
without limitation, know-how, specifications, financial and business plans)
comprising the Company IP Assets. To the knowledge of any Selling Member, no
employee of the Company or any of its subsidiaries has entered into any contract
or other agreement with any person that restricts or limits in any way the scope
or type of work in which the employee may be engaged for the Company or any of
its subsidiaries or requires the employee to transfer, assign, or disclose
information concerning the employee's work with the Company or any of its
subsidiaries to any other person. Except under appropriate confidentiality
obligations, there has been no disclosure by any Selling Member, the Company or
any of its
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
subsidiaries of any trade secret or other confidential information (including,
without limitation, know-how, specifications, financial and business plans)
comprising the Company IP Assets.
2.9 CONTRACTS.
(a) Contracts. Section 2.9(a) of the Company Disclosure Schedule
sets forth a correct and complete list, and the Selling Members have furnished
to Buyer correct and complete copies, of all material contracts, agreements,
arrangements and commitments, whether written or oral, to which the Company or
any of its subsidiaries is a party or bound (collectively, the "CONTRACTS"),
including, without limitation:
(i) all Employee Agreements and Employee Benefit Plans;
(ii) all arrangements for the employment of any officer,
individual employee or other person performing work for the Company or any of
its subsidiaries on a full-time, part-time, consulting or other basis;
(iii) all arrangements under which the Company or any of its
subsidiaries has advanced or loaned any other person amounts in the aggregate
exceeding $10,000;
(iv) all agreements and indentures relating to borrowed
money or other indebtedness or the mortgaging, pledging or otherwise placing any
Encumbrance on any asset of the Company or its subsidiaries;
(v) all guaranties and performance bonds;
(vi) all leases and agreements under which the Company or
any of its subsidiaries is lessee of or holds or operates any real property
owned by any other party;
(vii) all leases and agreements under which the Company or
any of its subsidiaries is lessee of or holds or operates any personal property
owned by any other party, except for leases of personal property pursuant to
which the aggregate rental payments do not exceed $10,000 per annum;
(viii) all leases and agreements under which the Company or
any of its subsidiaries is lessor of or permits any third party to hold or
operate any property, real or personal, owned or controlled by the Company or
its subsidiaries;
(ix) all agreements and groups of related agreements with
the same party or group of affiliated parties the performance of which involves
consideration in the aggregate in excess of $10,000 per annum;
(x) all supply and manufacturing agreements;
(xi) all distribution agreements;
(xii) all licensing agreements;
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(xiii) all agreements prohibiting the Company or any of its
subsidiaries from freely engaging in any business or competing anywhere in the
world;
(xiv) all settlement and conciliation agreements;
(xv) all powers of attorney; and
(xvi) all other agreements material to the operations and
business prospects of the Company and its subsidiaries or involves a
consideration in excess of $10,000 per annum exclusive of open purchase orders.
(b) Enforceability of Contracts. All the Contracts are valid,
binding and enforceable, in accordance with their respective terms, and shall
remain in full force and effect after the Closing. The Company and its
subsidiaries have performed all obligations required to be performed by them and
are not in default under or in breach of, nor in receipt of any claim of default
or breach under, any Contract. No event has occurred which, with the passage of
time or the giving of notice or both, would result in a default under or breach
of the Company or any of its subsidiaries under any Contract. Neither the
Company nor any of its subsidiaries has any expectation or intention of not
fully performing all its obligations under any Contract. No Contract is
currently subject to, or to the knowledge of any Selling Member is expected to
be subject to, any penalty, right of set-off or other charge by the other party
thereto for late performance or delivery in accordance with the terms of such
Contract. None of the Selling Members, the Company or any of the subsidiaries
has knowledge of any breach or anticipated breach by the other parties to any
Contract. No claim, action, proceeding or investigation, is pending or, to the
knowledge of any Selling Member, threatened against the Company or any of its
subsidiaries, challenging the enforceability of any Contract.
2.10 PERMITS. The Company and its subsidiaries are in possession of all
Permits related to, or necessary for, the operation of the Business. Section
2.10 of the Company Disclosure Schedule sets forth a complete and accurate list
of all Permits that are held by the Company or any of its subsidiaries in
connection with the operation of the Business. All of the Permits are, and as of
the Closing Date will be, valid and in full force and effect. The continuing
validity and effectiveness of the Permits will not be affected by the
transactions contemplated by this Agreement. The Selling Members have provided
Buyer with complete and accurate copies of each Permit. The Company is and has
been in compliance in all respects with all the conditions or requirements of
each Permit and none of the Selling Members, the Company or any of its
subsidiaries has been notified by any Governmental Entity or permitting
authority that such Governmental Entity or permitting authority intends to
cancel, terminate or modify any of the Permits.
2.11 ADEQUACY OF ASSETS. The Company and its subsidiaries possess good
and marketable title to, or sufficient rights to use for the purposes of the
Business, all properties and assets used in its operations or necessary for the
unimpaired continued conduct (both before and after the Closing) of the Business
as currently conducted and proposed to be conducted. The sale and assignment of
the Membership Interests by the Selling Members to Buyer will effectively convey
to Buyer all of the assets and rights that are used in connection with, or
necessary for the unimpaired continued conduct of, the Business. The Selling
Members have no basis to believe
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
that the Company and its subsidiaries will be unable to fulfill in all respects
all of the obligations under the Contracts which remain to be performed after
the Closing.
2.12 CUSTOMERS, DISTRIBUTORS AND SUPPLIERS. Section 2.12 of the Company
Disclosure Schedule sets forth a complete and accurate listing of (a) each
customer or distributor of the Company or any of its subsidiaries for the period
from January 1, 2003 through July 2, 2004, together with detail regarding gross
purchases and gross revenues for each such customer or distributor; (b) each
supplier or distributor for the Company or any of its subsidiaries that is the
sole supplier or distributor of any product or component or sole provider of any
product related service, the product, component or service provided thereby, the
most recent and best prices quoted and, if applicable, the lead time for such
product, component or service; and (c) each supplier that holds any tooling for
the Company or for the manufacturing of any of its products, the tooling, its
location and the part and product line the tooling supports.
2.13 IMPAIRMENT OF RELATIONSHIPS. No such customer, supplier or
distributor of the Company or any of its subsidiaries listed in Section 2.12 of
the Company Disclosure Schedule (a) refuses or has refused to honor any of its
commitments; (b) is dissatisfied with the quality or price of the Company's
products or is otherwise dissatisfied with its relationship with the Company;
(c) has canceled, terminated or threatened to cancel or terminate its
relationship with the Company or any of its subsidiaries; (d) has materially
decreased its purchases of products from the Company or any of its subsidiaries,
in the case of any such customer or distributor; (e) has materially decreased
its supplies to the Company or any of its subsidiaries, in the case of any such
supplier; (f) to the knowledge of any Selling Member, intends to cancel or
terminate its relationship with the Company or any of its subsidiaries or
materially decrease its purchases from or supplies to the Company or any of its
subsidiaries; or (g) intends to alter in any material respect the extent of its
dealings with the Company. Neither the Company nor any of its subsidiaries has
breached any agreement with, or engaged in any fraudulent conduct with respect
to, any customer, distributor or supplier of the Company or any of its
subsidiaries.
2.14 CERTAIN PAYMENTS. None of the Selling Members, the Company or any of
its subsidiaries, nor any of their respective stockholders, members, managers,
directors, officers, employees or agents, has directly or indirectly made any
illegal bribe, payoff, influence payment, kickback or other payment to any
person, public or private, regardless of form, whether in money, property or
services (a) to obtain favorable treatment, or to pay for favorable treatment
already obtained, in securing sales for the Business; (b) to obtain special
concessions, or to pay for special concessions already obtained, for or in
respect of the Business; or (c) in violation of any applicable U.S. federal,
state, local or foreign law.
2.15 FINANCIAL STATEMENTS.
(a) Company Financial Statements. Attached as Section 2.15(a) of
the Company Disclosure Schedule are (i) audited balance sheets of the Company
and its subsidiaries at December 31, 2001, 2002 and 2003 and the related audited
consolidated statements of income and cash flow of the Company and its
subsidiaries for the years then ended; and (ii) unaudited balance sheets of the
Company and its subsidiaries at May 31, 2004 and the related unaudited
consolidated statements of income and cash flow of the Company and its
subsidiaries for the five-month period then ended (such statements specified in
clauses (i) and (ii), together with the
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
related notes thereto, if any, collectively, the "FINANCIAL STATEMENTS"). The
Financial Statements have been prepared in accordance with the books and records
of the Company and its subsidiaries and in accordance with accounting principles
generally accepted in the United States, consistently applied, and fairly
present the financial condition of the Company and its subsidiaries as of the
dates thereof and the results of their operations for the periods covered
thereby, except, in the case of the Financial Statements at and for the
five-month period ended May 31, 2004, for the absence of notes and as otherwise
noted therein and subject to normal recurring year-end adjustments (which are
not, in the aggregate, material). Section 2.15(a) of the Company Disclosure
Schedule also sets forth a true and complete list of all of the indebtedness of
the Company and its subsidiaries as of May 31, 2004.
2.16 ABSENCE OF CHANGES. Since May 31, 2004, neither the Company nor any
of its subsidiaries has:
(a) issued any notes, bonds or other debt securities;
(b) issued any equity securities or rights convertible,
exchangeable or exercisable into any equity securities;
(c) borrowed any amount or incurred, or become subject to, any
liabilities, except current liabilities incurred in the ordinary course of
business, consistent with past practice;
(d) discharged or satisfied any Encumbrance or paid any obligation
or liability, other than current liabilities paid in the ordinary course of
business, consistent with past practice;
(e) canceled any debts or claims or waived any rights of any
value, except in the ordinary course of business;
(f) delayed or postponed in any manner the payment of any accounts
payable or commissions or any other liability or obligation or agreed or
negotiated with any party to extend the payment date of any accounts payable or
commissions or any other liability or obligation or discounted any accounts or
notes receivable;
(g) mortgaged or pledged any of its properties or assets or
subjected them to any Encumbrance;
(h) made any loans or advances to, guaranties for the benefit of,
or any investments in, any person (other than advances to Employees in the
ordinary course of business, consistent with past practice);
(i) acquired any assets, except in the ordinary course of
business, consistent with past practice;
(j) sold, assigned, transferred, leased or licensed any of its
tangible assets, other than the possible sale or liquidation of The Edge, LLC
and except in the ordinary course of business, consistent with past practice;
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(k) made or granted any bonus or any wage or salary increase to
any Employee or group of Employees (except as required by preexisting Employee
Agreements set forth on Section 2.9(a) of the Company Disclosure Schedule), made
or granted any increase in any Employee Benefit Plan or Employee Agreement,
amended or terminated any existing Employee Benefit Plan or Employee Agreement
or adopted any new Employee Benefit Plan or Employee Agreement, or entered into,
amended or terminated any collective bargaining agreement or other employment
agreement with respect to Employees;
(l) implemented any plant closing or other layoff of employees
that could implicate the WARN Act or any similar foreign, state or local law,
regulation or ordinance;
(n) suffered any extraordinary damage, destruction or casualty
loss, whether or not covered by insurance;
(o) experienced any event, circumstance, condition, development or
occurrence causing, resulting in or reasonably expected to have a Material
Adverse Effect;
(p) other than as set forth in Section 2.16(p) of the Company
Disclosure Schedule, made any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) or made
any write-down in the value of its assets that is material or that is other than
in the ordinary course of business, consistent with past practice, or reversed
any accruals whether or not in the ordinary course of business consistent with
past practice;
(q) declared, set aside or paid any dividend or distribution or
made any direct or indirect redemption, purchase or other acquisition of any
capital stock, membership interests or other equity interests;
(r) made any amendment of, or modification to, its limited
liability company agreement, charter, bylaws or similar governing documents;
(s) entered into any agreement or arrangement prohibiting or
restricting it from freely engaging in the conduct of the Business, as currently
conducted;
(t) entered into, amended or terminated any Contract other than in
the ordinary course of business, consistent with past practice;
(u) entered into any material transaction whether or not in the
ordinary course of business, consistent with past practice;
(v) materially changed any business practice;
(w) engaged in any business other than the Business and activities
ancillary thereto; or
(x) agreed, whether in writing or otherwise, to do any of the
foregoing.
2.17 NO UNDISCLOSED LIABILITIES. Except as may be disclosed in the
Company's
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
Disclosure Schedules, neither the Company nor any of its subsidiaries has any
liabilities or obligations of any nature, whether fixed, contingent, accrued or
otherwise, liquidated or unliquidated, whether or not known to the Selling
Members, the Company or any of its subsidiaries, and whether due or to become
due, other than:
(a) liabilities and obligations set forth in the Financial
Statements; and
(b) liabilities and obligations of the Company or any of its
subsidiaries incurred since May 31, 2004 in the ordinary course of business
consistent with past practice (none of which is a liability or obligation for
breach of contract, breach of warranty, tort, infringement, violation of law,
claim or lawsuit) and which are not incurred in violation of any of the
provisions of this Agreement.
2.18 LITIGATION. There is no pending or, to the knowledge of any Selling
Member, threatened, claim, suit, arbitration or other judicial or regulatory
proceeding or investigation of any character by, against or involving (a) any of
the Membership Interests, (b) the Company or any of its subsidiaries, (c) any of
the assets or properties of the Company or its subsidiaries, or (d) the manager
of the Company or any of its subsidiaries; and there are no facts in existence
which could reasonably be expected to form the basis for any such claim, suit,
arbitration or proceeding. There is also no judgment, decree, injunction or
order of any Governmental Entity against or involving (w) any of the Membership
Interests, (x) the Company or any of its subsidiaries, (y) any of the assets or
properties of the Company or its subsidiaries, or (z) the manager of the Company
or any of its subsidiaries; and there are no facts in existence which could
reasonably be expected to form the basis for any such judgment, decree,
injunction or order. There are no unresolved notices of deficiency or charges of
violation brought or, to the knowledge of any Selling Member, threatened against
the Company or any of its subsidiaries, including under any federal, state,
local or foreign regulation or otherwise, and there are no facts or
circumstances that could reasonably be expected to form a reasonable basis on
which any such proceedings, notices or actions may be instituted, issued or
brought hereafter.
2.19 COMPLIANCE WITH LAWS. The Company and its subsidiaries conduct, and
have conducted, the Business in compliance with all applicable laws, ordinances,
rules and regulations of any Governmental Entity, including, without limitation,
all federal, state, municipal and foreign laws and regulations relating to the
protection of the health and safety of employees and equal employment
opportunity. None of the Selling Members, the Company or any of its subsidiaries
has received any notice of any violation of any such law, regulation, order or
other legal requirement, and neither the Company nor any of its subsidiaries is
in default with respect to any order, writ, judgment, award, injunction or
decree of any Governmental Entity. No investigation or review by any
Governmental Entity with respect to the Company or any of its subsidiaries is
pending or, to the knowledge of any Selling Member, threatened, nor has any
Governmental Entity indicated an intention to conduct any investigation or
review with respect to the Company or any of its subsidiaries.
2.20 TAX MATTERS.
(a) Filing of Returns. There have been properly completed and
filed on a timely basis to include extensions and in correct form all Tax
Returns required to be filed by the
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
Company and its subsidiaries. As of the time of filing, all such Tax Returns
completely and accurately reflected the facts regarding the income, business,
assets, operations, activities, status and other matters of the Company and its
subsidiaries and any other information required to be shown thereon. In
particular, and without in any manner limiting the foregoing, none of such Tax
Returns contains any position which is or would be subject to penalties under
Section 6662 of the Code (or any corresponding provision of state, local or
foreign Tax law). An extension of time within which to file any Tax Return which
has not been filed has not been requested or granted.
(b) Payment of Taxes. With respect to all amounts in respect of
Taxes imposed upon the Company or any of its subsidiaries, or for which the
Company or any of its subsidiaries is or could be liable, whether to taxing
authorities (e.g., under law) or to other persons or entities (e.g., under Tax
allocation agreements), with respect to all taxable periods (or portions
thereof) ending on or before the Closing Date, all applicable Tax laws and
agreements have been complied with, and all such amounts required to be paid by
the Company or any of its subsidiaries to such taxing authorities or others have
been paid.
(c) Audit History. No issues have been raised (or are currently
pending) by any taxing authority in connection with any Tax Returns of the
Company or any of its subsidiaries. No waivers of statutes of limitation with
respect to such Tax Returns have been given by or requested from the Company or
any of its subsidiaries. Section 2.20(c) of the Company Disclosure Schedule sets
forth (i) the taxable years of the Company and its subsidiaries as to which the
respective statutes of limitations with respect to Taxes have not expired, and
(ii) with respect to such taxable years, those years for which examinations have
been completed, those years for which examinations are presently being
conducted, those years for which examinations have not been initiated, those
years for which required Tax Returns have not been initiated, and those years
for which required Tax Returns have not yet been filed. All deficiencies
asserted or assessments made as a result of any examinations have been fully
paid.
(d) Other Jurisdictions. There is no investigation or other
proceeding pending or, to the knowledge of any Selling Member, threatened or
expected to be commenced by any Tax authority for any jurisdiction where the
Company and its subsidiaries do not file Tax Returns that could lead to an
assertion by such Tax authority that the Company or any of its subsidiaries is
or may be subject to a Tax in such jurisdiction. There is no basis for any such
investigation or other proceeding.
(e) Liens. There are no liens for Taxes (other than for current
Taxes not yet due and payable) existing upon any of the Membership Interests or
any of the assets or properties of the Company or its subsidiaries.
(f) Tax Sharing or Allocation Agreements. Neither the Company nor
any of its subsidiaries is party to or bound by any Tax indemnity, Tax sharing
or Tax allocation agreement or arrangement.
(g) Withholdings. All Taxes required to be withheld by the Company
or any of its subsidiaries, including, without limitation, Taxes arising as a
result of payments or distributions (or amounts allocable) to out-of-state
members, foreign members, foreign persons
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
or to employees of the Company or any of its subsidiaries, have been collected
and withheld, and have been either paid to the respective Governmental Entities,
set aside in accounts for such purpose, or accrued, reserved against, and
entered upon the books and records of the Company or its Subsidiaries.
(h) Partnership Treatment. The Company qualifies, and since the
date of its formation has qualified, as a partnership for federal and state
income Tax purposes and none of the Company, any of its subsidiaries, any
Selling Member or any taxing authority has taken a position inconsistent with
such treatment.
(i) Non-Foreign Person and U.S. Real Property Holding Company. No
Selling Member is a "foreign person" within the meaning of Code Section 1445,
other than Young An Hat, and the Company is not a U.S. Real Property Holding
Company within the meaning of Code Section 895.
2.21 REAL PROPERTY.
(a) Owned Real Property. Neither the Company nor any of its
subsidiaries owns any real property.
(b) Leased Real Property.
(i) Section 2.21(b) of the Company Disclosure Schedule lists
all real property and interests therein leased or subleased by the Company or
any of its subsidiaries or which the Company or any of its subsidiaries is
granted a right to use or occupy (the "LEASED REAL PROPERTY") and appurtenant
easements. The Leased Real Property is leased pursuant to a Contract identified
on Section 2.9(a) of the Company Disclosure Schedule as a real property lease
(each, a "REAL PROPERTY LEASE"), including the date and name of the parties to
such Real Property Lease. The Company or a subsidiary has good, valid and
marketable leasehold title under each Real Property Lease, free and clear of any
Encumbrance, and the Leased Real Property constitutes all real property
currently used by the Company and its subsidiaries. Neither any portion of the
Leased Real Property nor the conduct of the Business thereon violates any
restrictive covenant applicable thereto. The restrictive covenants, easements
and rights-of-way affecting the Leased Real Property do not, and will not,
impair the conduct of the Business.
(ii) Section 2.9(a) of the Company Disclosure Schedule
contains a list of all documents (including all amendments, extensions,
renewals, guaranties and other agreements with respect thereto) for the Leased
Real Property. None of the Selling Members, the Company or any of its
subsidiaries owes, or will owe in the future, any brokerage commissions or
finder's fees with respect to any Real Property Lease and the other party to
each such Real Property Lease is not an Affiliate of the Company or its
subsidiaries. No security deposit or portion thereof deposited with respect the
Leased Real Property has been applied in respect of a breach or default under
the lease for the Leased Real Property which has not be redeposited in full,
there are no forbearance programs in effect with respect to the Leased Real
Property, and neither the Company nor any of its subsidiaries has assigned,
subleased, mortgaged, deeded in trust or otherwise transferred or encumbered the
Leased Real Property or any interest therein.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(iii) The Company and its subsidiaries have good and valid
leasehold interests in all buildings, improvements and fixtures located on the
Leased Real Property, regardless of whether such buildings, improvements or
fixtures are subject to reversion to the landlord or other third party upon the
expiration or termination of the lease for such Leased Real Property (the
"LEASEHOLD IMPROVEMENTS").
(iv) The classification of each parcel of the Leased Real
Property under applicable zoning laws, ordinances and regulations permits the
use and occupancy of such parcel and the operation of the Business thereon as
currently conducted, and permits the Leasehold Improvements located thereon as
currently constructed, used and occupied. The Leased Real Property includes
access to public streets or valid perpetual easements over private streets
sufficient for ingress and egress thereto for the conduct the Business. There is
no condemnation, expropriation or other proceeding in eminent domain pending or,
to the knowledge of the Selling Members, threatened, affecting any Leased Real
Property or any portion thereof or interest therein.
2.22 ENVIRONMENTAL MATTERS.
(a) Compliance with Environmental Laws. All current and prior uses
of each property currently or formerly owned or operated by the Company or any
of its subsidiaries, and all operations, activities and conduct of the Company
and its subsidiaries related thereto, materially comply and have at all times
materially complied with all relevant Environmental Laws. Neither the Company
nor any of its subsidiaries is required to make any capital or other
expenditures to comply with any Environmental Law nor is there any reasonable
basis on which any Governmental Entity could take action that would require such
capital or other expenditure.
(b) Release of Hazardous Materials. There has been no disposal,
release, or threatened release of Hazardous Materials (whether legal or illegal,
accidental or intentional) on, under, in, from or about any property currently
or formerly owned or operated by the Company or any of its subsidiaries, or
otherwise related to the operations, activities or conduct of the Company or any
of its subsidiaries that has subjected or may subject the Company or any of its
subsidiaries to liability under any Environmental Law. No Hazardous Materials
have migrated or threatened to migrate from any property currently or formerly
owned or operated by the Company or any of its subsidiaries onto, about or
beneath any other property, nor have any Hazardous Materials migrated or
threatened to migrate from other properties onto, about or beneath any property
currently or formerly owned or operated by the Company or any of its
subsidiaries. Neither the Company nor any of its subsidiaries has (i) disposed
of or arranged for disposal of Hazardous Materials on any third party property
that has subjected or may subject the Company or any of its subsidiaries to
liability under any Environmental Law or (ii) exposed any employee or third
party to any Hazardous Material or condition which has subjected or may subject
the Company or any of its subsidiaries to liability under any Environmental Law.
(c) No Environmental Claims. None of the Selling Members, the
Company or any of its subsidiaries has received any notice, demand, letter,
claim, request for information or other communication relating to any property
currently or formerly owned or operated by the Company or any of its
subsidiaries, or relating to the conduct of the Business by the Company or any
of its subsidiaries, alleging violation of or liability under any Environmental
Law and there
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
are no proceedings, actions, orders, decrees, injunctions or other claims or, to
the knowledge of any Selling Member, any threatened actions or claims, relating
to or otherwise alleging liability under any Environmental Law. Neither the
Company nor any of its subsidiaries has assumed any liability of any person for
investigation or remediation of Hazardous Materials, compliance with
Environmental Law, release or disposal of Hazardous Materials, or any claim for
personal injury or property damage related to or arising under Environmental
Law.
(d) USTs, Asbestos and PCBs. No underground storage tanks,
asbestos-containing material, or polychlorinated biphenyls have ever been
located on any property currently or formerly owned or operated by the Company
or any of its subsidiaries.
(e) Environmental Reports. The Selling Members have made available
to Buyer correct and complete copies of all environmental assessments, audits,
studies, and other environmental reports in its possession or reasonably
available to it relating to the Company and its subsidiaries and each of their
current or former properties or operations. There has not occurred any event
since the dates of such assessments, audits, studies and reports that could
alter or affect the findings or conclusions contained therein.
2.23 EMPLOYMENT MATTERS.
(a) Employees. Section 2.23(a) of the Company Disclosure Schedule
sets forth a correct and complete list of each individual employed by the
Company or any of its subsidiaries (the "EMPLOYEES") and includes the following
information for each Employee: (i) whether the Employee is a Key Employee; (ii)
current salary grade; (iii) annual target bonus and/or annual target sales
commissions; (iv) accrued vacation; (v) accrued sick days; and (vi) service date
or any adjusted service date reflecting service credit for prior employment.
Section 2.23(a) of the Company Disclosure Schedule also identifies those
Employees who, as of the date hereof, are on leave of absence, short- or
long-term disability leave, or who are otherwise not actively employed and the
date on which each such Employee is expected to return to active employment.
(b) Employment Agreements. Section 2.23(b) of the Company
Disclosure Schedule sets forth a correct and complete list, and the Selling
Members have furnished to Buyer correct and complete copies or abstracts, of all
agreements or arrangements, written or oral, between the Company or any of its
subsidiaries and any Employee, including, without limitation, all agreements or
arrangements providing for any employment, consulting or retention compensation,
deferred compensation, indemnification, equity-based incentive, loan,
change-in-control payment, severance, perquisite or any other provision pursuant
to which obligations may be owed by Buyer, the Company or any of its
subsidiaries to any Employee (collectively, the "EMPLOYEE AGREEMENTS").
(c) Compliance with Agreements. No Employee is in violation of any
term of any Employee Agreement, confidentiality or non-disclosure agreement or
any other contract, agreement, commitment or understanding with the Company or
any of its subsidiaries or relating to the Business. No Key Employee is
obligated under any contract or agreement, subject to any judgment, decree, or
order of any court or administrative agency, that would interfere with such
person's efforts to promote the interests of Buyer, the Company or any of its
subsidiaries or that
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
would interfere with the Business. The execution, delivery and performance of
this Agreement and the other Transaction Documents will not violate, conflict
with or accelerate any benefits under any agreement between the Company or any
of its subsidiaries and any Employee. The conduct of the Business, as currently
conducted, and the completion of the transactions contemplated by this
Agreement, will not violate or conflict with any contract or agreement under
which any Employee is now bound.
(d) Benefit Plans. Section 2.23(d) of the Company Disclosure
Schedule contains a correct and complete list of each (i) "employee pension
benefit plan" as defined in Section 3(2) of ERISA and not exempted under Section
4(b) or 201 of ERISA maintained by the Company or any of its subsidiaries, or to
which the Company or any of its subsidiaries is required to contribute or with
respect to which the Company or any of its subsidiaries may have any liability,
including without limitation any multiemployer pension plan (as defined in
Section 3(37) of ERISA), and (ii) each "employee welfare benefit plan" as
defined in Section 3(1) of ERISA maintained by the Company or any of its
subsidiaries, or to which the Company or any of its subsidiaries contributes or
is required to contribute, or with respect to which the Company or any of its
subsidiaries may have any liability , and each other plan or arrangement that
provides benefits (including, without limitation, profit-sharing, bonus, equity
option, equity purchase, equity bonus, dependent care assistance, excess
benefit, incentive, salary continuation, and other compensation arrangements,
vacation plans or programs, severance benefits, sick leave plans or programs,
dental or medical plans or programs, and related or similar benefits) are
afforded to employees of, or otherwise required to be provided by, the Company
or any of its subsidiaries (all plans, programs and arrangements described in
clauses (i) and (ii), together, the "EMPLOYEE BENEFIT PLANS"). With respect to
each Employee Benefit Plan, the Selling Members have furnished to Buyer, to the
extent applicable, correct and complete copies of (A) the most recent annual
reports on Form 5500 (including schedules) filed with the IRS; (B) the documents
and instruments governing each such Employee Benefit Plan and related funding
arrangement; (C) the most recent summary plan description and any summaries of
modifications for each such Employee Benefit Plan; and (D) the most recent
favorable IRS determination letter and antecedent application materials for each
Employee Benefit Plan that is intended to be qualified pursuant to Code section
401(a). There is no, and could not be any, liability of the Company or any of
its subsidiaries under any insurance policy or similar arrangement procured in
connection with any Employee Benefit Plan in the nature of a retroactive rate
adjustment or loss sharing arrangement. The Company and its subsidiaries do not
maintain or contribute to, and could not incur any liability with respect to,
any plan subject to Title IV of ERISA. Each Employee Benefit Plan has been
operated and maintained in all material respects, in accordance with its terms
and applicable law (including, without limitation, ERISA and the Code), and
there has been no violation of any reporting or disclosure requirement imposed
by ERISA or the Code. Each Employee Benefit Plan intended to be qualified under
Section 401(a) of the Code, and each trust intended to be exempt under Section
501(a) of the Code, has been determined to be so qualified or exempt by the IRS,
and no event has occurred that could reasonably be expected to result in the
loss of such tax qualification. No fiduciary or party in interest of any
Employee Benefit Plan has participated in, engaged in or been a party to any
transaction that is prohibited under Section 4975 of the Code or Section 406 of
ERISA and not exempt under Section 4975 of the Code or Section 408 of ERISA (or
any administrative class exemption issued thereunder), respectively. Other than
routine claims for benefits, there is no claim or proceeding (including any
audit or investigation) pending or, to the knowledge of any of the Selling
Members,
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
threatened, involving any Employee Benefit Plan by any person, or by the IRS or
any other Governmental Entity or quasi-governmental agency. There will be no
payment, accrual of additional benefits, acceleration of payments or vesting of
any benefit under any Employee Benefit Plan or any other agreement or
arrangement to which the Company or any of its subsidiaries is a party, and no
employee, officer or director of the Company or its subsidiaries will become
entitled to severance, termination allowance, or any other payments, solely by
reason of entering into or in connection with the transactions contemplated by
this Agreement. To the extent permitted by applicable law, each Employee Benefit
Plan can be amended or terminated at any time, without consent from any other
party and without liability other than for benefits accrued as of the date of
such amendment or termination (and ordinary administration expenses). The
Company and its subsidiaries have made full and timely payment of all amounts
required to be contributed or paid as expenses under the terms of each Employee
Benefit Plan and applicable law.
2.24 LABOR.
(a) General. The Company and its subsidiaries have complied with
all applicable laws with respect to independent contractor status, employment
and employment practices, labor relations, occupational safety and health, plant
closings, mass layoffs, nondiscrimination obligations, human rights, pay equity
and terms and conditions of employment and wages. None of the Employees have
been improperly classified as independent contractors, leased employees or as
being exempt from the payment of wages for overtime. The Company and its
subsidiaries have complied with the provisions of the WARN Act and do not expect
to incur any liability under the WARN Act prior to the completion of the
transactions contemplated by this Agreement. Neither the Company nor any of its
subsidiaries has engaged in any unfair labor practice, unlawful employment
practice or unlawful discriminatory practice. There is no pending, or to the
knowledge of any Selling Member, threatened claim or investigation involving the
Company or any of its subsidiaries by the National Labor Relations Board or any
comparable federal, state or foreign agency or Governmental Entity.
(b) Unions. None of the Employees are represented by a union and
there is no request for union representation pending, or to the knowledge of any
Selling Member, threatened with respect to the Employees. There are no strikes,
lockouts, work stoppages, slowdowns or jurisdictional disputes occurring, or to
the knowledge of any Selling Member, threatened with respect to any of the
Employees. There are no organizing activities occurring or, to the knowledge of
any Selling Member, threatened with respect to any of the Employees.
2.25 INSURANCE. Section 2.25 of the Company Disclosure Schedule sets
forth a correct and complete list, and the Selling Members have furnished to
Buyer correct and complete copies, of all insurance policies of any nature
whatsoever maintained by, or on behalf of, the Company or any of its
subsidiaries with respect to the Business. The Company and its subsidiaries
maintain valid policies of insurance of such types and in such amounts as are
customary and reasonable. Such policies are in full force and effect, all
premiums with respect thereto have been paid to the extent due, and such
policies, or other policies covering the same risks, have been in full force and
effect, without gaps, continuously since inception. There is no default of any
kind under any of such policies and there has been no failure to give any notice
or to present any claim under any such policy in a due and timely fashion. No
notice of cancellation or
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
termination has been received by any of the Selling Members, the Company or any
of its subsidiaries with respect to any such policies. There are no claims
pending, nor have there been any claims made in past three (3) years, under any
insurance policies.
2.26 WARRANTY OBLIGATIONS. Section 2.26 of the Company Disclosure
Schedule sets forth a correct and complete listing of (a) all warranties,
guarantees and warranty policies, whether written or unwritten (the "WARRANTY
OBLIGATIONS"), in respect of any products sold in connection with the Business
and the duration of each Warranty Obligation; (b) all pending and, to the
knowledge of any Selling Member, threatened disputes or claims with respect to
any Warranty Obligation; and (c) the experience history with respect to the
Warranty Obligations. There have been no material deviations from the Warranty
Obligations and no employee, salesperson or agent of the Company or any of its
subsidiaries is authorized to undertake obligations with respect to any person
in excess of the Warranty Obligations. All products manufactured, designed,
licensed or sold by the Company and it subsidiaries conform with published
documentation and satisfy any and all contract or other specifications related
thereto to the extent stated in writing in such contracts or specifications.
Unless product was not provided as ordered or the wrong product shipped, there
is no basis for any refund, adjustment, return or allowance with respect to any
product manufactured, designed, licensed or sold by the Company or any of its
subsidiaries.
2.27 INVENTORY. The inventory reflected in the Financial Statements has
been determined and valued as reflected in the Financial Statements at the lower
of cost or market on a first-in, first-out basis, net of applicable reserves.
The inventory (whether raw materials, work-in-process or finished goods) is
usable or salable in the ordinary course of business, except for obsolete or
damaged inventory for which adequate reserves have been made in the Financial
Statements. The finished goods inventories of the Company and its subsidiaries
consist of items which are good and merchantable (as defined in the Uniform
Commercial Code) at normal ▇▇▇▇-ups in the ordinary course of business equal to
at least forty percent (40%), except for obsolete or damaged inventory for which
adequate reserves have been made on the Financial Statements. No previously sold
inventory is subject to refunds, adjustments, returns or allowances in excess of
that historically experienced by the Company or any of its subsidiaries. The
quantities of each type of inventory (whether raw materials, work-in-process or
finished goods) are not excessive in the present circumstances of the Business
and all commitments or orders for work-in-process were entered into in the
ordinary course of business, consistent with past practice.
2.28 BANK ACCOUNTS. Section 2.28 of the Company Disclosure Schedule
contains a correct and complete list of (a) each bank, savings and loan or other
institution in which the Company or any of its subsidiaries has a deposit,
custodial, trust or similar account or safety deposit or lock-box account and
the numbers and types of the accounts or safety deposit boxes maintained by the
Company or any of its subsidiaries at such institution; and (b) the names of all
persons authorized to draw on each such account or to have access to any such
safety deposit or lock-box facility, together with a description of any
limitations on the authority of each such person with respect thereto.
2.29 CERTIFICATE, LLC AGREEMENT AND MINUTES. The Selling Members have
furnished to Buyer correct and complete copies of the certificate of formation,
limited liability company or operating agreement, similar governing documents
and minute books of the
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
Company and its subsidiaries, together with all amendments thereto. The minute
books of the Company and its subsidiaries contain correct and complete records
of all action taken by the members, manager and officers of the Company and its
subsidiaries and no material action by the members, manager or officers has been
taken for which minutes have not been prepared and are not contained in such
minute books. At the Closing, all of those books and records will be in the
possession of the Company.
2.30 RELATED PARTY TRANSACTIONS. None of the Selling Members or any of
their respective Affiliates is a party to any Contract or any other arrangement
with the Company or any of its subsidiaries (a) providing for the furnishing of
services (other than as a manager, officer or employee) or assets; (b) providing
for the rental of property or assets; or (c) requiring the payment of money.
There are no outstanding financial obligations of any Selling Member, any of
their respective Affiliates or any of their respective officers or employees, to
the Company or any of its subsidiaries, and there are no outstanding financial
obligations of the Company or any of its subsidiaries to any Selling Member, any
of their respective Affiliates or any of their respective officers or employees.
2.31 SOLVENCY. Each Selling Member is a solvent entity or person and will
continue to be so after the consummation of the transactions contemplated by
this Agreement. No Selling Member is subject to or contemplating either the
filing of a petition by it, him or her under any federal or state bankruptcy or
insolvency laws or the liquidation of all or a major portion of its, his or her
respective assets or property and, to the knowledge of any Selling Member, no
person is contemplating the filing of any such petition against any Selling
Member.
2.32 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement, based upon arrangements
made by or on behalf of the Selling Members.
2.33 RESIDENCY. The States of Alabama and Georgia are not community
property states, and each of the spouses of ▇. ▇▇▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇▇▇, ▇.
▇▇▇▇▇▇▇▇▇, J. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ are residents of either Alabama or
Georgia.
2.34 FULL DISCLOSURE. No statement by any Selling Member contained in
this Agreement or any other Transaction Document, including, without limitation,
the exhibits and schedules attached hereto and thereto, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby makes the representations and warranties to each Selling
Member as set forth below.
3.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
3.2 AUTHORIZATION OF AGREEMENT. Buyer has all requisite corporate power
and authority to enter into and deliver this Agreement and to complete the
transactions and perform its obligations contemplated hereby. This Agreement and
the other Transaction Documents have (except for Transaction Documents to be
executed and delivered solely by the Selling Members) been duly and validly
approved by the board of directors of Buyer and no other proceedings on the part
of Buyer is necessary to approve this Agreement or the other Transaction
Documents and to complete the transactions and perform its obligations
contemplated hereby and thereby. This Agreement and the other Transaction
Documents to be delivered by Buyer: (a) have been (or upon execution will have
been) duly executed and delivered by Buyer, and (b) constitute (or upon
execution will constitute) legal, valid and binding obligations of Buyer,
enforceable in accordance with their respective terms.
3.3 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
Buyer of this Agreement and the other Transaction Documents to be executed and
delivered by Buyer and the completion of the transactions and the performance of
it obligations contemplated hereby and thereby do not and will not: (a) violate
or conflict with any provision of the certificate of incorporation or bylaws of
Buyer; or (b) violate any provision or requirement of any federal, state or
local law, statute, judgment, order, writ, injunction, decree, award, rule, or
regulation of any Governmental Entity applicable to Buyer, except for violations
that do not affect the ability of Buyer to complete the transactions and perform
its obligations contemplated by this Agreement.
3.4 GOVERNMENTAL CONSENTS. No filing with or notice to, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for
the execution and delivery by Buyer of this Agreement and the other Transaction
Documents required to be delivered by Buyer or the completion of the
transactions and the performance of it obligations contemplated hereby or
thereby, except for consents that do not affect the ability of Buyer to complete
the transactions contemplated by this Agreement.
3.5 LITIGATION. There are no claims, actions, suits, or proceedings
(including, without limitation, any arbitration proceeding) of any nature, at
law or in equity, pending or, to the knowledge of Buyer, threatened by or
against Buyer, the directors, officers, employees, agents of Buyer, or any of
their respective Affiliates involving, affecting or relating to the transactions
contemplated by this Agreement or Buyer's ability to complete the transactions
and perform the obligations contemplated by this Agreement. Buyer is not subject
to any order, writ, judgment, award, injunction or decree of any Governmental
Entity involving, affecting or relating to the transactions contemplated by this
Agreement or materially and adversely affecting Buyer's ability to complete the
transactions and perform the obligations contemplated by this Agreement.
3.6 SECURITIES MATTERS. The Membership Interests to be purchased by
Buyer will be acquired for investment for Buyer's own account, not with a view
to the distribution of any part thereof, and Buyer has no present intention of
selling, granting any participation in, or otherwise distributing the same.
Buyer does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to any third person, with
respect to any of the Membership Interests. Buyer understands that the
Membership Interests are characterized as "restricted securities" under the U.S.
federal securities laws inasmuch as such securities are being acquired in a
transaction not involving a public offering and that under such laws and
applicable
24
**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
regulations such securities may not be resold in the absence of an effective
registration statement covering the Membership Interests or an exemption from
registration under the Securities Act.
3.7 BROKERS. Other than with respect to ▇▇▇▇ ▇▇▇▇▇ Capital LLC and
Globalview Advisors LLC, which such fees shall be paid by Buyer, no broker,
finder, investment banker, or other person is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement, based upon arrangements made by or on behalf of
Buyer.
ARTICLE 4
CERTAIN AGREEMENTS
4.1 INTENTIONALLY OMITTED.
4.2 CERTAIN TAX MATTERS.
(a) Tax Returns.
(i) Each Selling Member shall include the income
attributable to the Company, its subsidiaries and the Business on such Selling
Member's U.S. federal income Tax Return (and similar state, local or foreign Tax
Return) for all periods through and including the Closing Date and pay any Taxes
attributable to such income. Buyer shall furnish Tax information to each Selling
Member for inclusion in such Selling Member's U.S. federal income Tax Return
(and similar state, local or foreign Tax Return) for the period which includes
the Closing Date in accordance with the past income Tax practices of such
Selling Member and the Company. Each Selling Member shall make all payments
required with respect to any such Tax Return.
(ii) Buyer shall include the income attributable to the
Company, its subsidiaries and the Business on Buyer's consolidated U.S. federal
income Tax Return (and similar state, local or foreign Tax Return) for all
periods after the Closing Date and pay any income Taxes attributable to such
income. Each Selling Member shall furnish Tax information to Buyer with respect
to the Company, its subsidiaries, the Business and the operations, ownership and
activities thereof for all periods through and including the Closing Date to the
extent such information is relevant to any Tax Return which Buyer has the right
and obligation hereunder to file. Buyer shall make all payments required with
respect to any such Tax Return.
(iii) The income attributable to the Company, its subsidiaries
and the Business shall be apportioned to the period up to and including the
Closing Date (the "PRE-CLOSING SHORT YEAR") and the period after the Closing
Date (the "POST-CLOSING SHORT YEAR") by closing the books of the Company as of
the end of the Closing Date. For purposes of this Section 4.2, in the case of
any Taxes that are imposed on a periodic basis and are payable for a taxable
period that includes (but does not end on) the Closing Date, the portion of such
Tax which relates to the portion of such taxable period ending on the Closing
Date shall (A) in the case of Taxes that are not based on income or gross
receipts (e.g., property Taxes), be deemed to be the total amount of such Taxes
for the period in question multiplied by a fraction, the numerator of which is
the number of days in the taxable period ending on the Closing Date, and the
denominator of which is the total number of days in the entire taxable period in
question, and
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(B) in the case of Taxes that are based on income or gross receipts, be deemed
to be the Taxes that would be due if the relevant taxable period ended on the
Closing Date.
(b) Cooperation. Each Selling Member, on the one hand, and Buyer,
on the other hand, shall, with respect to any Tax Return which such party is
responsible for preparing and filing, make such Tax Return and related work
papers available for meaningful review, comment and reasonable modification by
the other party, if the Tax Return (i) is with respect to Taxes for which the
other party or one if its Affiliates may be liable, or (ii) claims Tax benefits
which the other party or one of its Affiliates is entitled to receive. Each
Selling Member and Buyer shall cooperate fully, and to the extent reasonably
requested by the other party, in connection with the filing of all Tax Returns
pursuant to this Agreement and any audit, litigation, or other proceeding
related to such Tax Returns. Such cooperation shall include the retention and
provision of records and information relevant to any such Tax filing, audit,
litigation or other matter and making employees available on a reasonable basis.
With respect to the retention of records, each Selling Member shall retain all
Tax Returns, schedules and work papers, and all records and other documents
relating thereto, until the expiration of the applicable statute of limitations
(including any extension thereof).
(c) Tax Controversies and Audits.
(i) In the event any Tax authority informs any Selling
Member, on the one hand, or Buyer, on the other hand, of any notice of proposed
audit, claim, assessment or other dispute concerning an amount of Taxes with
respect to which the other party may incur liability hereunder, the party so
informed shall promptly notify the other party of such matter. Such notice shall
contain factual information (to the extent known) describing any asserted Tax
liability in reasonable detail and shall be accompanied by copies of any notice
or other documents received from any Tax authority with respect to such matter.
(ii) Each Selling Member (or the member designated the tax
matters member) shall control all audits and contests relating to any Taxes
attributable to the Company, its subsidiaries or the Business for all Tax
periods ending on or prior to the Closing Date. Buyer shall control all audits
and contests relating to any Taxes attributable to the Company, its subsidiaries
or the Business that arise following the Closing Date, including Taxes related
to the Post-Closing Short Year. Subject to the foregoing, in the event an
adverse determination could result in a party having liability for Taxes, such
party shall be entitled to participate in that portion of the proceedings
relating to the Taxes with respect to which it or he may incur liability
hereunder, including, (A) participation in conferences, meetings or proceedings
with any taxing authority, (B) participation in appearances before any
Governmental Entity, and (iii) with respect to the matters described in the
preceding clauses (i) and (ii), participation in the submission and
determination of the content of the documentation, protests, memoranda of fact
and law, briefs, and the conduct of oral arguments and presentations.
(iii) Without the prior written consent of Buyer, no Selling
Member may settle or agree to any settlement of any Tax liability relating to a
Tax period ending on or prior to the Closing Date if such settlement or
agreement would have a material adverse impact on Buyer's Tax liability for any
Tax period ending after Closing Date. Without the prior written consent of the
Selling Member impacted, Buyer may not settle or agree to any settlement of any
26
**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
Tax liability relating to a Tax period ending after the Closing Date if such
settlement or agreement would have a material adverse impact on a Selling
Member's Tax liability for any Tax period ending on or prior to the Closing
Date.
(d) Tax Sharing Agreements. Any Tax sharing agreement between any
Selling Member or any of such Selling Member's Affiliates, on the one hand, and
the Company or any of its Affiliates, on the other hand, shall terminate as of
the Closing Date and will have no further effect for any taxable year (whether
the current year, a future year, or a past year).
(e) Transfer Taxes. All stamp, documentary, recording, transfer
and sales and use Taxes incurred in connection with this Agreement and the
transactions contemplated hereby shall be borne by Buyer. Each Selling Member
shall file, to the extent required by applicable law, all necessary Tax Returns
and other documentation with respect to all such transfer or sales and use
Taxes. The expense of such filing shall be borne solely by Buyer.
4.3 INSURANCE. The Selling Members shall cause the Company and its
subsidiaries to maintain, through and including the Closing Date, the insurance
policies identified in Section 2.25 of the Company Disclosure Schedule.
4.4 CERTAIN AGREEMENTS AND ARRANGEMENTS.
(a) Employment Agreements. The Selling Members shall use all their
commercially reasonable efforts to cause each of ▇. ▇▇▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇▇▇, J.
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ to enter into the Employment Agreements with the
Company.
(b) Sublease. The Selling Members shall cause 16 ▇▇▇▇▇▇▇, LLC to
enter into the Amended and Restated Lease Agreement with the Company.
(c) Other Agreements and Arrangements. The Selling Members shall
cause (i) each of ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ to terminate, and release the
Company from any liability with respect to, the bonus and severance arrangements
between the Company and each of them, (ii) ▇▇▇▇▇▇ to terminate, and release the
Company from any liability with respect to, that certain consulting Agency
Services Agreement, effective January 1, 2004 (the "▇▇▇▇▇▇ CONSULTING
AGREEMENT"), between the Company and ▇▇▇▇▇▇, and (iii) ▇.▇. ▇▇▇▇▇▇▇ to
terminate, and release the Company from any liability with respect to, that
certain membership services Agreement, effective July 1, 1997, between the
Company and ▇.▇. ▇▇▇▇▇▇▇ (the "MEMBERSHIP SERVICES AGREEMENT").
4.5 NOTICE OF CHANGES. Until the Closing (or the earlier termination of
this Agreement), (a) each Selling Member shall promptly advise Buyer in writing
with respect to any matter arising after execution of this Agreement of which
such Selling Member obtains knowledge and which, if existing or occurring at the
date of this Agreement, would have been required to be disclosed in the Company
Disclosure Schedule or would cause a breach of any of the representations,
warranties or covenants of any Selling Member under this Agreement or any other
Transaction Document, and (b) Buyer shall promptly advise the Selling Members in
writing with respect to any matter arising after execution of this Agreement of
which Buyer obtains knowledge and which, if existing or occurring at the date of
this Agreement, would have been required to be disclosed in connection with
Article 3 hereof or would cause a breach of any
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
of the representations, warranties or covenants of Buyer under this Agreement or
any other Transaction Document.
4.6 PUBLICITY. Upon execution of this Agreement, the Selling Members and
Buyer may jointly issue a press release, as mutually agreed upon by the Selling
Members and Buyer. The Selling Members and Buyer intend that all future
statements or communications to the public or press regarding this Agreement or
the transactions contemplated by this Agreement must be mutually agreed upon by
the Selling Members and Buyer and none of the Selling Members or Buyer, or any
of their respective subsidiaries or Affiliates may, without such mutual
agreement, issue any statement or communication to the public or to the press
regarding this Agreement, or any of the terms, conditions, or other matters with
respect to this Agreement, except as required by any applicable law, rule,
regulation or requirement and then only following at least one (1) day's notice
to other party (which notice shall include a copy of the proposed statement or
communication to be issued to the press or public). The foregoing will not
restrict any party's communications with its employees or customers in the
ordinary course of business.
ARTICLE 5
CONDITIONS TO CLOSING
5.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations of each
Selling Member, on the one hand, and Buyer, on the other hand, to complete the
transactions contemplated hereby are subject to the fulfillment, on or before
the Closing Date, of the conditions set forth in this Section 5.1, any one or
more of which may be waived in writing by the party entitled to the benefit of
such condition.
(a) No Action or Proceeding. No preliminary or permanent
injunction or other order issued by any Governmental Entity that declares this
Agreement invalid in any respect or prevents or would be violated by the
completion of the transactions contemplated hereby, or which would have a
Material Adverse Effect, is in effect. No action or proceeding has been
instituted or threatened by any Governmental Entity, other person, or entity
which seeks to prevent or delay the completion of the transactions contemplated
by this Agreement or which challenges the validity or enforceability of this
Agreement, the result of which could constitute a Material Adverse Effect.
(b) Governmental Consents, Approvals and Filings. All consents,
authorizations and approvals from, and all declarations, filings and
registrations with, any Governmental Entity that are listed on Section 2.4 to
the Company Disclosure Schedule have been obtained or made.
5.2 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
complete the transactions contemplated hereby are subject to the fulfillment, on
or before the Closing Date, of the conditions set forth in this Section 5.2, any
one or more of which may be waived by Buyer in writing in its discretion.
(a) Representations and Warranties; Covenants. The representations
and warranties of each Selling Member contained in this Agreement and each other
Transaction Document are true and correct in all respects on and as of the
Closing Date, and each Selling
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
Member shall have performed in all respects the obligations required to be
performed by it, him or her under this Agreement and each other Transaction
Document on or before the Closing Date.
(b) Intentionally omitted.
(c) Compliance Certificate. Each Selling Member shall have
delivered to Buyer a compliance certificate, dated as of the Closing Date,
certifying to the satisfaction of the conditions specified in Sections 5.2(a)
and (b).
(d) Employment Agreements. The Selling Members shall have
delivered to Buyer duly executed Employment Agreements from each of ▇.
▇▇▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇▇▇, Allison, Martin, ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇.
(e) Amended and Restated Lease Agreement. The Selling Members
shall have delivered to Buyer a duly executed Amended and Restated Lease
Agreement between 16 ▇▇▇▇▇▇▇, LLC and the Company.
(f) Rates and Services Schedule. ▇.▇. ▇▇▇▇▇▇▇ shall extend, for a
period ending no earlier than December 25, 2004, the rates and services schedule
as set forth on Schedule 5.2(f) applicable for the call center and fulfillment
services provided to the Company on terms no less favorable than those in effect
for the current fiscal year of the Company.
(g) Income and Balance Sheet. Each of the Selling Members shall
have delivered to Buyer a certificate, dated as of the Closing Date, certifying
that, based on all available information through the Closing Date, there is no
reason to believe that the Company will not achieve the July 2004 income and
balance sheet targets set forth on Schedule 5.2(g) attached hereto, including,
without limitation, meeting or bettering: (i) sales, (ii) earnings before
interest and taxes, and (iii) operating bank debt, all as adjusted to reflect
the reserves set forth in Section 2.16(p) of the Company Disclosure Schedule.
(h) Subordination Agreement. ▇.▇. ▇▇▇▇▇▇▇ shall have delivered to
Buyer a duly executed Subordination Agreement.
(i) Non-Foreign Affidavits. The Selling Members shall have
delivered to Buyer duly executed Non-Foreign Affidavits from each Selling
Member.
(j) Termination of Certain Agreements and Arrangements. The
Selling Members shall have delivered to Buyer duly executed termination and
releases of: (i) ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ with respect to the severance
arrangements between the Company and each of them, (ii) ▇▇▇▇▇▇ with respect to
the ▇▇▇▇▇▇ Consulting Agreement, and (iii) ▇.▇. ▇▇▇▇▇▇▇ with respect to the
Membership Services Agreement.
(k) Opinion of Counsel. The Selling Members shall have delivered
to Buyer a legal opinion, dated as of the Closing Date, from Page, Scrantom,
Sprouse, ▇▇▇▇▇▇ & Ford, P.C., counsel to the Selling Members, in substantially
the form attached hereto as Exhibit I.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(l) Third Party Consents and Approvals. The Selling Members shall
have delivered to Buyer all third party consents, waivers, authorizations and
approvals required as set forth in Section 2.3 to the Company Disclosure
Schedule, in form and substance satisfactory to Buyer.
5.3 CONDITIONS TO OBLIGATIONS OF SELLING MEMBERS. The obligations of the
Selling Members to complete the transactions contemplated hereby are subject to
the fulfillment, on or before the Closing Date, of the conditions set forth in
this Section 5.3, any one or more of which may be waived by the Selling Members
in writing in their discretion.
(a) Representations and Warranties; Covenants. The representations
and warranties of Buyer contained in this Agreement shall be true and correct in
all respects on and as of the Closing Date, and Buyer shall have performed in
all respects all obligations required to be performed by it under this Agreement
and each other Transaction Document on or before the Closing Date.
(b) Compliance Certificate. Buyer shall have delivered to the
Selling Members a compliance certificate, executed by its President, dated as of
the Closing Date, certifying to the satisfaction of the conditions specified in
Section 5.3(a).
(c) Opinion of Counsel. Buyer shall have delivered to the Selling
Members a legal opinion, dated as of the Closing Date, from ▇▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇▇▇▇ LLP, counsel to Buyer, in substantially the form attached hereto as
Exhibit J.
(d) Sublease Guaranty. Buyer shall have delivered to the Selling
Members a duly executed Sublease Guaranty from ▇▇▇▇▇▇▇▇ to 16 ▇▇▇▇▇▇▇, LLC.
(e) Note Guaranty. ▇▇▇▇▇▇▇▇ shall have delivered to ▇.▇. ▇▇▇▇▇▇▇
its guarantee of the ▇▇▇▇▇▇▇ Note.
(f) Subordination Agreement. Buyer shall have delivered to ▇.▇.
▇▇▇▇▇▇▇ a duly executed Subordination Agreement.
(g) Release of ▇.▇. ▇▇▇▇▇▇▇ Co. Guarantee. Columbus Bank and Trust
Company, as trustee, shall deliver a duly executed release of ▇.▇. ▇▇▇▇▇▇▇ Co.
from its guaranty in connection with the Company's outstanding line of credit.
ARTICLE 6
CERTAIN POST-CLOSING COVENANTS
6.1 CONFIDENTIAL INFORMATION. From and after the Closing Date, each
Selling Member shall hold in confidence, and shall cause its, his or her
respective Affiliates, stockholders, members, directors, officers, employees and
agents to hold in confidence, all Confidential Information. Other than solely in
connection with any Employment Agreement, none of the Selling Members will
disclose or make use of, and each shall cause its, his or her respective
Affiliates, stockholders, members, directors, officers, employees and agents not
to disclose or make use of, Confidential Information without the prior written
consent of Buyer.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
6.2 SOLICITATION AND HIRING OF EMPLOYEES. For a period beginning with
the Closing Date and continuing through January 29, 2009, none of the Selling
Members will, either directly or indirectly as a stockholder, investor, member,
partner, director, officer, employee or otherwise, (a) solicit or attempt to
induce any employee to terminate employment with the Company, any of
subsidiaries, Buyer or any of their respective Affiliates, or (b) hire or
attempt to hire (whether in an employment, consulting or other capacity) any
employee of the Company, any of its subsidiaries, Buyer or any of their
respective Affiliates, other than through the general solicitations of potential
employees.
6.3 NONCOMPETITION, REFERRAL OF CUSTOMERS.
(a) Noncompete. For a period beginning with the Closing Date and
continuing through January 29, 2009, unless earlier terminated as provided
herein, each of the Selling Members, with the exception of Young An Hat, agrees
to neither, directly or indirectly, as a stockholder, investor, partner,
director, officer, employee, consultant or otherwise, (i) design, develop,
manufacture, market, sell, perform or offer anywhere in the world any material,
product, component or service which is competitive with any material, product,
component or service designed, developed (or under development), manufactured,
marketed, sold or offered by the Company or any of its subsidiaries on or prior
to the Closing Date or (ii) engage anywhere in the world in any business
competitive with the Business, as conducted on the date of this Agreement or
during the two (2) years prior to the Closing Date. Notwithstanding the
foregoing, if an individual Selling Member's employment with the Company is
terminated for cause or disability and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. is either Chairman or
Chief Executive Officer of ▇▇▇▇▇▇▇▇ at the time of such termination for cause or
disability, the period of this noncompete applicable to such terminated
individual shall be three (3) years from the Closing Date or one (1) year from
the date of such termination, whichever is greater; provided, however, that if
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. is neither Chairman nor Chief Executive Officer of ▇▇▇▇▇▇▇▇
at the time of such termination for cause or disability or there is a Change of
Control of ▇▇▇▇▇▇▇▇, the period of the noncompete will be one (1) year from the
Closing Date or one (1) year from the date of such termination for cause or
disability, whichever is greater. The covenants of the Selling Members under
this Section 6.3 terminate as of the end of the day on January 29, 2009.
Notwithstanding anything to the contrary in this Section 6.3(a), if
four of the five individual Selling Members to be employed by the Company are
terminated for cause or disability within two (2) years of the Closing Date, the
period of the noncompete will be four (4) years from the Closing Date, provided,
that ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. is either Chairman or Chief Executive Officer of
▇▇▇▇▇▇▇▇ at the time of such termination and there has been no Change of Control
of ▇▇▇▇▇▇▇▇.
If an individual Selling Member's employment with the Company is
terminated by the Company without cause (to include a constructive discharge),
the noncompete period applicable to such individual will terminate as of the
date of such termination without cause.
As used in this Section 6.3, "cause," "disability" and "constructive
discharge" shall have the meanings given to them in the Selling Member's
employment agreement.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
With respect to ▇.▇. ▇▇▇▇▇▇▇'▇ and ▇▇▇▇▇▇'▇ respective ownership
interests in License Partners International, LLC, a Delaware limited liability
company, this Section 6.3(a) shall not prohibit ▇.▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇
continued ownership of such interests. In addition, this Section 6.3(a) shall
not preclude ▇.▇. ▇▇▇▇▇▇▇ from operating its existing businesses at the time of
the Closing as conducted as of the Closing Date and producing and selling brand
extensions related thereto.
(b) Young An Hat. Without the prior written consent of Buyer, each
of the Selling Members agrees that he or it, either as an owner, employee,
consultant, director, advisor, contractor or in any other capacity (whether paid
or unpaid), shall not directly or indirectly be engaged or interested in, or
enter into any equity, joint venture or other business transaction or
relationship with, Young An Hat or its current controlling person for the period
from the Closing Date through January 29, 2009. Buyer agrees not to unreasonably
withhold its consent pursuant to this Section 6.3(b) to the extent the request
of a Selling Member hereunder does not involve a relationship or business
transaction which directly or indirectly competes with the Company or its
Affiliates or subsidiaries, as determined in Buyer's sole discretion.
(c) Referral. Each Selling Member, with the exception of Young An
Hat, shall, and each shall cause its, his or her respective Affiliates,
stockholders, directors, officers, employees and agents to, refer all inquiries
regarding the Business to the Company, its subsidiaries and Buyer and none of
the Selling Members (nor any of their respective Affiliates), with the exception
of Young An Hat, will independently pursue any such inquiries. Each Selling
Member, with the exception of Young An Hat, shall notify its, his or her
respective Affiliates in writing promptly after the Closing Date that the
Business has been sold to Buyer, and such notice will inform such Affiliates of
their obligations under this Section 6.3(c). Such notice must be in such form
and substance satisfactory to Buyer.
6.4 REASONABLENESS OF COVENANTS. Each Selling Member acknowledges and
affirms that the duration and geographic scope of the nonsolicit provisions set
forth in Section 6.2 and the noncompetition provisions set forth in Section 6.3
are reasonable in all respects. Each Selling Member recognizes and acknowledges
that Buyer is paying significant consideration to acquire the Membership
Interests and the Business and that Buyer would not be doing so but for the
covenant not to solicit employees and the covenant not to compete contained
herein. Each Selling Member further recognizes and acknowledges that each of
them is deriving significant consideration and other tangible benefits from
Buyer's execution and delivery of this Agreement and that such covenants are
necessary to protect and maintain the business interests of the Company, its
subsidiaries and Buyer. In the event that any court determines that the duration
or the geographic scope, or both, are unreasonable and that any provision under
either Section 6.2 or 6.3 is to that extent unenforceable, the provision shall
remain in full force and effect for the greatest time period, to the greatest
extent and in the greatest area that would not render it unenforceable. The
parties hereto intend that the nonsolicit provisions set forth in Section 6.2
and the noncompetition provisions set forth in Section 6.3 will be deemed to be
a series of separate covenants, one for each and every county of each and every
state or province of each and every country.
6.5 SHARING OF DATA. Following the Closing Date, Buyer shall have the
right to have reasonable access, at Buyer's expense, to (a) those books, records
and accounts, including
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
financial and Tax information, correspondence, production records, employment
records and other records of the Company that are retained by any Selling Member
and (b) the work papers of the Company's accountants, in each case to the extent
that any of the foregoing is needed by Buyer for the purposes of conducting a
complete audit of the financial records of the Company or any of its
subsidiaries, conducting the Business or complying with its obligations under
applicable securities, Tax, environmental, employment or other laws and
regulations. None of the Selling Members shall destroy any books, records or
accounts retained by it, him or her relating to the Business without first
providing Buyer with the opportunity to obtain or copy such books, records or
accounts, except as such consists of personal tax returns.
6.6 COOPERATION IN LITIGATION. From and after the Closing Date, each
party shall fully cooperate with the other in the defense or prosecution of any
litigation or proceeding already instituted or which may be instituted hereafter
against or by such other party relating to or arising out of the conduct of the
Business prior to or after the Closing Date (other than litigation among the
parties hereto or their respective Affiliates arising out of the transactions
contemplated by this Agreement or the other Transaction Documents). The party
requesting such cooperation shall pay the reasonable out-of-pocket expenses
incurred in providing such cooperation (including legal fees and disbursements)
by the party providing such cooperation and by its directors, officers,
employees and agents, but shall not be responsible for reimbursing such party or
its directors, officers, employees and agents for their time spent in such
cooperation.
6.7 SALES AND TRANSFER TAXES. Notwithstanding any provision of law
imposing the burden of transfer Taxes on any Selling Member or Buyer, as the
case may be, Buyer shall bear all sales and transfer Taxes. Each Selling Member
and Buyer shall cooperate in good faith with each other and use their
commercially reasonable efforts to minimize any sales or transfer Taxes.
6.8 THE EDGE, LLC. As soon as practicable after the Closing Date, the
Selling Members shall use their best efforts to cooperate fully with and
otherwise assist Buyer and the Company in liquidating Kudzu, LLC's ownership
interest in The Edge, LLC and otherwise terminating any obligations of the
Company or any of its subsidiaries that are any way related to The Edge, LLC
without any past, present or future liability to Buyer, the Company or any of
its subsidiaries, and the Selling Members shall be responsible for any and all
costs associated with liquidating such interests.
ARTICLE 7
INDEMNIFICATION
7.1 INDEMNIFICATION BY SELLING MEMBERS. Subject to the limits set forth
in this Article 7, the Selling Members, and their respective successors and
assigns, shall individually and separately and not jointly and severally
indemnify, defend, reimburse and hold harmless the Buyer Indemnitees, from and
against any and all asserted good faith claims, losses, damages, diminution in
value, liabilities, obligations, assessments, penalties and interest, demands,
actions and expenses (including, without limitation, settlement costs and any
legal, accounting and other expenses for investigating or defending any actions)
(collectively, "LOSSES") incurred by any Buyer Indemnitee, arising out of
either:
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(a) the breach of any representation or warranty made by any
Selling Member contained in this Agreement or any other Transaction Document;
(b) the breach of any covenant, agreement or obligation of any
Selling Member contained in this Agreement or any other Transaction Document; or
(c) the payment of any and all Taxes (including any penalties or
interest) that are imposed on the Company, any of its subsidiaries or Buyer in
respect of any income, property, business or operations for any taxable period
ending on or prior to the date hereof and for any Pre-Closing Short Year
(whether or not such Tax obligation is disclosed in the Company Disclosure
Schedule).
7.2 INDEMNIFICATION PROCEDURE.
(a) Notice of Claim. Whenever any good faith claim for a Loss is
asserted (a "CLAIM") for indemnification under this Article 7, the Indemnitee
shall promptly give written notice to the Indemnitor and each other party
hereunder with respect to the Claim, which notice shall include reliable
information of the facts constituting the basis for the Claim, including but not
limited to, if feasible, a good faith estimate of the amount of said Claim.
Notwithstanding the foregoing, the failure to timely give such notice shall not
relieve the Indemnitor from any obligation under this Agreement, except to the
extent, if any, that the Indemnitor is materially prejudiced thereby. In the
event of any Claim resulting from or in connection with any claim or legal
proceedings by a third party, the notice to the Indemnitor shall specify, if
known, the amount or an estimate of the amount of liability arising therefrom.
The Indemnitee shall not settle or compromise any claim by any third party for
which it is entitled to indemnification hereunder, without the prior written
consent of the Indemnitor (which consent will not be unreasonably withheld,
conditioned or delayed) unless suit shall have been instituted against it and
the Indemnitor shall not have taken control of such suit after notification
thereof as provided in Section 7.2(c) hereof.
(b) Obligations of Indemnitor. Upon receipt of written notice from
the Indemnitee of a Claim, the Indemnitor shall provide counsel (such counsel
subject to the reasonable approval of the Indemnitee) to defend the Indemnitee
against the matter from which the Claim arose, at the Indemnitor's sole cost,
risk and expense. The Indemnitee shall cooperate in all reasonable respects with
the Indemnitor in the investigation, trial, defense and any appeal arising from
the matter from which the Claim arose. The Indemnitee shall be entitled to
participate in (but not control) the defense of any such action, with counsel at
its own expense. The Indemnitor shall have the right to elect to settle any
claim for monetary damages without the Indemnitee's consent only if the
settlement includes a complete release of the Indemnitee. If the settlement does
not include such a release, it will be subject to the consent of the Indemnitee,
which will not be unreasonably withheld; provided, however, if the Indemnitee
fails to give such consent within twenty (20) days of being requested to do so,
the Indemnitee shall, at its expense, assume the defense of such Claim and
regardless of the outcome of such matter, the Indemnitor's liability hereunder
shall be limited to the amount of the proposed settlement. The Indemnitor may
not admit any liability of the Indemnitee or waive any of the Indemnitee's
rights without the Indemnitee's prior written consent, which will not be
unreasonably withheld. If the subject of any Claim results in a judgment or
settlement, the Indemnitor shall promptly pay such judgment or settlement.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(c) Assumption of Defense. If the Indemnitor (i) fails to assume
the defense of the subject of any Claim in accordance with the terms of Section
7.2(b), (ii) fails diligently to prosecute such defense, or (iii) has, in the
Indemnitee's reasonable good faith judgment, a conflict of interest, the
Indemnitee may defend against the subject of the Claim, at the Indemnitor's sole
cost, risk and expense, in such manner and on such terms as the Indemnitee deems
appropriate, including, without limitation, settling the subject of the Claim;
provided, however, that any compromise or settlement shall be subject to the
Indemnitor's consent, which consent will not be unreasonably withheld,
conditioned or delayed. If the Indemnitee defends the subject of a Claim in
accordance with this Section 7.2(c), the Indemnitor shall cooperate with the
Indemnitee and its counsel in all reasonable respects and shall deliver to the
Indemnitee or its counsel copies of all pleadings and other information within
the Indemnitor's knowledge or possession reasonably requested by the Indemnitee
or its counsel that are relevant to the defense of the subject of any such Claim
and that will not prejudice the Indemnitor's position, claims or defenses. The
Indemnitee shall maintain confidentiality with respect to all such information
consistent with the conduct of a defense hereunder.
7.3 PAYMENT. All payments owing under any Claim will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 7.2(c), the expenses (including actual
attorneys' fees and costs) incurred by the Indemnitee shall be paid by the
Indemnitor in advance of the final disposition of such matter as incurred by the
Indemnitee; provided that the Indemnitee undertakes in writing to repay any such
advances with interest at the prime rate of interest charged by Columbus Bank
and Trust Company, Columbus, Georgia, in the event that it is ultimately
determined that the Indemnitee is not entitled to indemnification under the
terms of this Agreement or applicable law.
7.4 LIMITATIONS.
(a) Threshold. Notwithstanding any provision of this Agreement to
the contrary, no Indemnitor shall have any obligation to indemnify any Buyer
Indemnitee pursuant to Section 7.1(a) (other than any obligation to indemnify
arising from any breach by a Selling Member of any representation or warranty
set forth in Section 2.2 or Section 2.5 which breaches shall not be subject to
the limits in this Section 7.4(a) or Section 7.4(b), except that the Threshold
and the Aggregate Threshold shall apply and each Selling Member's liability
shall be limited to the amount of the Purchase Price proceeds received by such
breaching Selling Member) unless the Buyer Indemnitees have suffered Losses (i)
in an individual amount attributable for a Claim in excess of $**** (the
"THRESHOLD") or (ii) in the aggregate amount for all Claims pursuant to Section
7.1(a) in excess of $**** (the "AGGREGATE THRESHOLD"). Once the aggregate amount
of Losses arising out of Section 7.1(a) exceeds the Threshold or the Aggregate
Threshold, as the case may be, the Buyer Indemnitees shall be entitled to
recover the full amount of all Losses, including, without limitation, the
Threshold or the Aggregate Threshold, up to a maximum of $**** for Claims made
on or prior to October 31, 2005, provided that, after October 31, 2005, the
maximum amount of Losses arising out of Section 7.1(a) that may be recoverable
by Buyer shall be the sum of (x) $**** for Claims made after October 31, 2005
that are unrelated to Claims pending on October 31, 2005 plus (y) the amount of
Unresolved Claims made prior to October 31, 2005 up to a maximum of $****.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(b) Limit. The maximum aggregate liability of the Selling Members
to the Buyer Indemnitees for all Claims relating to the transactions
contemplated in this Agreement, to include, but not limited to, those arising
under Section 7.1(a) of this Agreement will be $**** and shall first be drawn
from the Holdback Account. The total aggregate Indemnitor's liability for Claims
related to the transactions contemplated herein, after exhaustion of the
Holdback Amount, shall be $****. No individual Selling Member's liability shall
exceed an amount determined by multiplying $**** times a percentage equal to
such Selling Member's percentage membership interest in the Company immediately
prior to the Closing Date for Claims made on or prior to October 31, 2005 (the
"PROPORTIONATE LIABILITY"). For the sake of clarity, however, the maximum
aggregate liability of the Selling Members after October 31, 2005 shall not
exceed $**** plus the amount of Unresolved Claims made on or prior to October
31, 2005; provided that in no event shall such amount exceed $****.
(c) Limit for Insurance Proceeds. No Indemnitee shall be entitled
to indemnification under this Article 7 for Losses covered by insurance proceeds
from insurance owned and paid for by any Selling Member, to the extent that the
Indemnitee actually receives such insurance proceeds to cover such Losses.
(d) Prior Disclosure. No Loss or Claim shall occur or exist with
respect to (i) facts or circumstances that were disclosed to the Buyer in the
Company Disclosure Schedule, or (ii) claims that were reserved for by the
Company either specifically or generally.
(e) The Edge, LLC. Notwithstanding anything to the contrary
herein, the Selling Members shall be liable for, and indemnify and hold Buyer
harmless from, all Losses or any other payments incurred by Buyer or the Company
arising out of, in connection with or in any way related to Kudzu LLC's
ownership interest in The Edge, LLC, as such interest is identified in Section
2.6 of the Company's Disclosure Schedule and otherwise in terminating any
obligations of the Company or any of its subsidiaries that are any way related
to The Edge, LLC. The liability of the Selling Members under this Section 7.4(e)
shall not be subject to the Threshold nor shall it be subject to, or considered
in calculating, the $**** maximum aggregate liability limitation as set forth in
Section 7.4(b).
7.5 SURVIVAL. All representations, warranties, covenants and obligations
set forth in this Agreement or any other Transaction Document will survive the
Closing and the completion of the transactions contemplated hereby or thereby.
All such representations and warranties will expire on October 31, 2005, except
that the representations and warranties under Sections ** and ** shall survive
indefinitely and the representations and warranties under Sections ** and **
shall survive until expiration of any applicable statute of limitations. No
party will be liable to another under any representation or warranty after the
applicable expiration of such warranty or representation; provided, however,
that if a Claim is properly made under this Article 7 with respect to any
representation or warranty prior to the applicable expiration date, such Claim
may be pursued to resolution notwithstanding expiration of the representation or
warranty under which the Claim was brought. No party will be liable to another
under any covenant or obligation after the applicable expiration of such
covenant or obligation, if any.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
ARTICLE 8
INTENTIONALLY OMITTED
ARTICLE 9
MISCELLANEOUS
9.1 DEFINITIONS.
(a) "ACTION" means any action, suit, counterclaim, cross-claim,
appeal, arbitration or mediation for any relief against a party hereunder or any
of its, his o her Affiliates, successors or assigns, declaratory or otherwise,
to enforce the terms of this Agreement or to declare rights under this
Agreement.
(b) "AFFILIATE" has the meaning ascribed to it in Rule 405 under
the Securities Act.
(c) "AGGREGATE THRESHOLD" has the meaning ascribed to it in
Section 7.4(a) hereof.
(d) "AGREEMENT" has the meaning ascribed to it in the preamble to
this Agreement.
(e) "▇▇▇▇▇▇▇" has the meaning ascribed to it in the preamble to
this Agreement.
(f) "AMENDED AND RESTATED LEASE AGREEMENT" has the meaning
ascribed to it in Section 1.7(b)(iv) of this Agreement.
(g) "▇▇▇▇▇▇▇▇" means ▇▇▇▇▇▇▇▇, Inc, a Delaware corporation.
(h) "BASE PURCHASE PRICE" has the meaning ascribed to it in
Section 1.2 hereof.
(i) "▇▇▇▇▇▇▇ NOTE" has the meaning ascribed to it in Section 1.2
hereof.
(j) "▇▇▇▇▇▇▇ RETAILING" has the meaning ascribed to it in the
preamble to this Agreement.
(k) "BUSINESS" means the headwear and apparel manufacturing and
sales business and all other lines of business conducted by, or proposed to be
conducted by, the Company and its subsidiaries , including, without limitation,
the business related to the "Kudzu" and "The Game" brands.
(l) "BUYER" has the meaning ascribed to it in the preamble to this
Agreement.
(m) "BUYER INDEMNITEES" means Buyer and its respective Affiliates,
and the directors, officers, employees, representatives and agents of any of
them.
(n) "CHANGE OF CONTROL" means:
37
**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(i) Except as provided by subparagraph (iii) below, the
acquisition (other than from ▇▇▇▇▇▇▇▇) by any person, entity or "group",
within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (excluding, for this
purpose, ▇▇▇▇▇▇▇▇ or its subsidiaries, or any executive benefit plan of
▇▇▇▇▇▇▇▇ or its subsidiaries which acquires beneficial ownership of voting
securities of ▇▇▇▇▇▇▇▇), of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of forty percent (40%) or
more of either the then outstanding shares of common stock or the combined
voting power of ▇▇▇▇▇▇▇▇'▇ then outstanding voting securities entitled to
vote generally in the election of directors; or
(ii) Individuals who, as of the date hereof, constitute the
Board of Directors of ▇▇▇▇▇▇▇▇ (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board of Directors of ▇▇▇▇▇▇▇▇, provided that any person becoming a
director subsequent to the date of this Agreement whose election, or
nomination for election by ▇▇▇▇▇▇▇▇'▇ stockholders, is or was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the Directors of
the Company, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board; or
(iii) Approval by the stockholders of ▇▇▇▇▇▇▇▇ of a
reorganization, merger or consolidation with any other person, entity or
corporation, other than
(1) a merger or consolidation which would result in
the voting securities of ▇▇▇▇▇▇▇▇ outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of another entity) more
than fifty percent (50%) of the combined voting power of the voting
securities of ▇▇▇▇▇▇▇▇ or such other entity outstanding immediately
after such merger or consolidation, or
(2) a merger or consolidation effected to implement a
recapitalization of ▇▇▇▇▇▇▇▇ (or similar transaction) in which no
person acquires forty percent (40%) or more of the combined voting
power of ▇▇▇▇▇▇▇▇'▇ then outstanding voting securities; or
(iv) Approval by the stockholders of ▇▇▇▇▇▇▇▇ of a plan of
complete liquidation of ▇▇▇▇▇▇▇▇ or an agreement for the sale or other
disposition by ▇▇▇▇▇▇▇▇ of all or substantially all of ▇▇▇▇▇▇▇▇'▇ assets.
(o) "CLAIM" has the meaning ascribed to it in Section 7.2(a)
hereof.
(p) "CLOSING" means the closing of the sale by the Selling
Members, and the purchase by Buyer, of all the Membership Interests.
(q) "CLOSING DATE" has the meaning ascribed to it in Section
1.7(a) hereof.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(r) "CODE" means the Internal Revenue Code of 1986, as amended.
(s) "COMPANY" has the meaning ascribed to it in Recital A hereof.
(t) "COMPANY DISCLOSURE SCHEDULE" means the disclosure schedule
attached hereto as Schedule 2.
(u) "COMPANY IP ASSETS" has the meaning ascribed to it in Section
2.8(a) hereof.
(v) "CONFIDENTIAL INFORMATION" means any information not in the
public domain, in any form, whether acquired prior to or after the Closing Date,
received from the Company, its subsidiaries or any of their advisors relating to
the Business, including, without limitation, information regarding vendors,
suppliers, trade secrets, training programs, technical information, contracts,
systems, procedures, know-how, trade names, improvements, price lists, financial
or other data, business plans, computer programs, software systems, internal
reports, personnel files or any other compilation of information, written or
unwritten, which is or was used in the Business.
(w) "CONTRACTS" has the meaning ascribed to it in Section 2.9(a)
hereof.
(x) "DECISION" means any judgment, order, ruling, or award granted
with respect to an Action.
(y) "EBIT CARRYOVER" has the meaning ascribed to it in Section
1.3(b)(i) hereof.
(z) "EBIT CATCH-UP" has the meaning ascribed to it in Section
1.3(b)(ii) hereof.
(aa) "EBIT FACTOR," with respect to any Contingency Period, has the
meaning ascribed to it in the Contingency Payment Table.
(bb) "EMPLOYEE AGREEMENTS" has the meaning ascribed to it in
Section 2.23(b) hereof.
(cc) "EMPLOYEE BENEFIT PLANS" has the meaning ascribed to it in
Section 2.23(d) hereof.
(dd) "EMPLOYEES" has the meaning ascribed to it in Section 2.23(a)
hereof.
(ee) "EMPLOYMENT AGREEMENTS" has the meaning ascribed to it in
Section 1.7(b)(iii) hereof.
(ff) "ENCUMBRANCE" means any mortgage, pledge, claim, lien,
security interest, option, warrant, purchase right, easement, activity and use
restriction or limitation, right-of-way, deed restriction, defect or
imperfection of title, encumbrance or charge of any kind whatsoever, fixed or
contingent.
39
**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(gg) "ENVIRONMENTAL LAWS" means all applicable laws, regulations
and other requirements of Governmental Entities or duties under common law
relating to toxic or hazardous substances, wastes, pollution or to the
protection of health, safety or the environment.
(hh) "ENVIRONMENTAL PERMITS" means all licenses, permits and other
authorizations or registrations required under all Environmental Laws.
(ii) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(jj) "FINANCIAL STATEMENTS" has the meaning ascribed to it in
Section 2.15(a) hereof.
(kk) "FISCAL YEAR" means any full fiscal year of Buyer in which
Buyer, or another Affiliate of Buyer, owns and operates the Company and its
subsidiaries.
(ll) "▇. ▇▇▇▇▇▇▇▇▇" has the meaning ascribed to it in the preamble
to this Agreement.
(mm) "GOVERNMENTAL ENTITY" means any court, arbitrator, federal,
state or local government agency, regulatory body, or other governmental
authority.
(nn) "HAZARDOUS MATERIALS" means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. Section 300.5, or
defined as such by, or regulated as such under, any Environmental Law or any
other substances, materials, chemicals, wastes, petroleum products or
byproducts, noise or odors regulated under, or with respect to which liability
or standards of conduct are imposed by, any Environmental Laws.
(oo) "HOLDBACK ACCOUNT" has the meaning ascribed to it in Section
1.4(a) hereof.
(pp) "HOLDBACK AMOUNT" has the meaning ascribed to it in Section
1.4(a) hereof.
(qq) "HOLDBACK EXPIRY" has the meaning ascribed to it in Section
1.4(b) hereof.
(rr) "INDEMNITEE" means the entity or person entitled to
indemnification under Article 7 hereof.
(ss) "INDEMNITOR" means the party obligated to provide indemnity
under Article 7 hereof.
(tt) "INTELLECTUAL PROPERTY RIGHTS" means intellectual property
rights arising from or in respect of the following, whether protected, created
or arising under the laws of the United States or any other jurisdiction: (i)
fictional business names, trade names, service names, registered and
unregistered trademarks and service marks and logos (including any Internet
40
**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
domain names), and applications therefor; (ii) patents, patent rights and all
applications therefor, including any and all continuation, divisional,
continuation-in-part, or reissue patent applications or patents issuing thereon;
(iii) copyrights and all registrations and applications therefor; and (iv)
know-how, trade secrets, inventions, discoveries, concepts, ideas, methods,
processes, designs, formulae, technical data, drawings, specifications, data
bases and other proprietary and confidential information, including customer
lists, in each case to the extent not included in the foregoing clauses (i),
(ii) or (iii).
(uu) "IRS" means the U.S. Internal Revenue Service.
(vv) "▇. ▇▇▇▇▇▇▇▇▇" has the meaning ascribed to it in the preamble
to this Agreement.
(ww) "KNOWLEDGE" or "KNOWN" means, with respect to any individual,
the knowledge that such individual would reasonably possess after reasonable
inquiry and investigation, including, without limitation, inquiry of employees
responsible for any particular matter or, in the case of any entity, the
knowledge that the directors, manager or officers of such entity would
reasonably possess after investigation and reasonable inquiry.
(xx) "KEY EMPLOYEES" means, with respect to any entity, (i) all
officers, (ii) all members of senior management, and (iii) all salaried persons
earning a base salary of $100,000 per annum or more.
(yy) "LEASED REAL PROPERTY" has the meaning ascribed to it in
Section 2.21(b)(i) hereof.
(zz) "LEASEHOLD IMPROVEMENTS" has the meaning ascribed to it in
Section 2.21(b)(iii) hereof.
(aaa) "LOSSES" has the meaning ascribed to it in Section 7.1 hereof.
(bbb) "▇▇▇▇" means any fictional business name, trade name, service
name, registered or unregistered trademark or service ▇▇▇▇ or logo (including
any Internet domain names), or applications therefor.
(ccc) "▇▇▇▇▇▇" has the meaning ascribed to it in the preamble to
this Agreement.
(ddd) "▇▇▇▇▇▇ CONSULTING AGREEMENT" has the meaning ascribed to it
in Section 4.4(c) hereof.
(eee) "MATERIAL ADVERSE EFFECT" means an effect that either
individually or in the aggregate is, or could reasonably be expected to be,
materially adverse to the financial condition, results of operations or
prospects of the Business.
(fff) "MEMBERSHIP INTERESTS" has the meaning ascribed to it in
Recital A hereof.
41
**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(ggg) "MEMBERSHIP INTERESTS ASSIGNMENTS" has the meaning ascribed to
it in Section 1.7(b)(ii) hereof.
(hhh) "MEMBERSHIP SERVICES AGREEMENT" has the meaning ascribed to it
in Section 4.4(c) hereof.
(iii) "▇. ▇▇▇▇▇▇▇▇▇" has the meaning ascribed to it in the preamble
to this Agreement.
(jjj) "NON-FOREIGN AFFIDAVITS" has the meaning ascribed to it in
Section 1.7(b)(v) hereof.
(kkk) "▇. ▇▇▇▇▇▇▇▇▇" has the meaning ascribed to it in the preamble
to this Agreement.
(lll) "PERMIT" means any permit, license or other authorization of
any Governmental Entity.
(mmm) "POST-CLOSING SHORT YEAR" has the meaning ascribed to it in
Section 4.2(a)(iii) hereof
. (nnn) "PRE-CLOSING SHORT YEAR" has the meaning ascribed to it in
Section 4.2(a)(iii) hereof.
(ooo) "PURCHASE PRICE" means the Base Purchase Price, the ▇▇▇▇▇▇▇
Note and any Contingent Payments, subject to any adjustments provided in this
Agreement.
(ppp) "REAL PROPERTY LEASE" has the meaning ascribed to it in
Section 2.21(b)(i) hereof.
(qqq) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(rrr) "SELLING MEMBERS" has the meaning ascribed to it in the
preamble to this Agreement.
(sss) "SUBORDINATION AGREEMENT" has the meaning ascribed to it in
Section 1.7(b)(vi) of this Agreement.
(ttt) "SUBLEASE GUARANTY" has the meaning ascribed to it in Section
1.7(c)(v) of this Agreement.
(uuu) "TAX" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not, imposed by any United States federal,
state, local or foreign taxing authority.
42
**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
(vvv) "TAX RETURNS" means all returns, declarations, reports,
statements and other documents required to be filed in respect of any Taxes or
any claim for refunds of any Taxes, including, without limitation, any
amendments or supplements to any of the foregoing.
(www) "THRESHOLD" has the meaning ascribed to it in Section 7.4(a)
hereof.
(xxx) "TRANSACTION DOCUMENTS" means this Agreement, the Membership
Interests Assignments, the Employment Agreements, the Lease Amendment and the
other documents and certificates to be executed and delivered in connection with
the transactions contemplated by this Agreement.
(yyy) "TREASURY REGULATIONS" means the federal income tax
regulations, including any temporary or proposed regulations, promulgated under
the Code.
(zzz) "UNRESOLVED CLAIMS" has the meaning ascribed to it in Section
1.4(b) hereof.
(aaaa) "WARN ACT" means the Worker Adjustment and Retraining
Notification Act, as amended.
(bbbb) "WARRANTY OBLIGATIONS" has the meaning ascribed to it in
Section 2.26 hereof.
(cccc) "▇.▇. ▇▇▇▇▇▇▇" has the meaning ascribed to it in the preamble
to this Agreement.
(dddd) "YOUNG AN HAT" has the meaning ascribed to it in the preamble
to this Agreement.
9.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or one (1) business day after being sent via a nationally recognized overnight
courier service if overnight courier service is requested from such service or
upon receipt of electronic or other confirmation of transmission if sent via
facsimile, to the parties, their successors in interest or their assignees at
the following addresses and telephone numbers, or at such other addresses or
telephone numbers as the parties may designate by written notice in accordance
with this Section 9.2:
If to Buyer: ▇▇▇▇▇▇▇▇ Acquisition Corp.
c/▇ ▇▇▇▇▇▇▇▇, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
43
**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
With a copy to: ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
Jamboree Center
▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
IF TO A SELLING MEMBER: ▇.▇. ▇▇▇▇▇▇▇ Co.
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Telephone No.: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile No.: 706.571.3404
▇▇▇▇▇▇▇ Specialty Retailing, Inc.
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Telephone No.: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile No.: 706.571.3104
Young An Hat Company, Ltd.
▇▇▇-▇ ▇▇▇▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇-▇▇▇▇, ▇▇▇▇▇▇▇-▇▇
▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇. ▇. ▇▇▇▇
Telephone No.: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile No.: 8232.676.7211
J. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile No.: 334.448.8906
Georgia ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile No.: 334.448.8906
44
**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile No.: 334.448.8906
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile No.: 706.663.9729
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile No.: 334.448.8906
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
▇▇▇▇-▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile No.: 334.448.8906
With a copy to: Page, Scrantom, Sprouse, ▇▇▇▇▇▇ & Ford, P.C.
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto without the prior written consent of the other parties hereto.
This Agreement shall inure to the benefit of and be binding upon each Selling
Member and Buyer and their respective permitted successors and assigns. Except
as provided by Article 7 hereof, nothing in this Agreement will confer upon any
person or entity not a party to this Agreement, or the legal representatives of
such person or entity, any rights or remedies of any nature or kind whatsoever
under or by reason of this Agreement.
9.5 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto and the other Transaction Documents contain or will contain the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and therein and shall supersede all previous oral and
written and all contemporaneous oral negotiations, commitments, and
understandings. The exhibits and schedules to this Agreement are considered an
integral part of this Agreement and are hereby incorporated into this Agreement
by reference.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
9.6 MODIFICATIONS, AMENDMENTS AND WAIVERS. This Agreement may be
amended, modified or supplemented only by written agreement of the Selling
Members, on the one hand, and Buyer, on the other hand. Any failure of a Selling
Member, on the one hand, or Buyer, on the other hand, to comply with any
obligation, covenant, agreement, or condition herein may be waived by Buyer, on
the one hand, or the Selling Members, on the other hand, only by a written
instrument signed by an officer of the party granting such waiver.
Notwithstanding the foregoing, any such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement, or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing. Notwithstanding any
provision in this Agreement to the contrary, any term of this Agreement may be
amended, modified or supplemented, the observance of any term of this Agreement
may be waived and any other matter requiring the written consent or approval of
the Selling Members may be effected, with the written consent of Buyer and the
Selling Members holding at least a majority in interest of the Membership
Interests. Each Selling Member hereby acknowledges and confirms that any
amendment, modification, supplement, waiver or other action effected in
accordance with this Section 9.6 shall be binding upon each Selling Member.
9.7 HEADINGS; REFERENCES. The headings contained in this Agreement and
the other Transaction Documents are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement or any other
Transaction Document.
9.8 GOVERNING LAW. This Agreement and the other Transaction Documents
shall be governed by, and construed and enforced in accordance with, the
internal laws of the State of Delaware, without regard to the conflict of laws
principles thereof.
9.9 ARBITRATION. The parties hereto agree that all disputes,
controversies or claims that may arise out of, or relate to, this Agreement or
any of the Transaction Documents shall be submitted to, and determined by,
binding arbitration. Such arbitration shall be conducted before a single
arbitrator in Kansas City, Missouri pursuant to the Commercial Arbitration Rules
then in effect of the American Arbitration Association, except to the extent
such rules are inconsistent with this Section 9.9. The arbitrator shall apply
the laws of the State of Delaware (without regard to conflict of law rules) in
determining the substance of the dispute, controversy or claim and shall decide
the same in accordance with applicable usages and terms of trade. The prevailing
party in any such arbitration shall be entitled to recover its reasonable
attorneys' fees, costs and expenses incurred in connection with the arbitration.
Any award pursuant to such arbitration shall be final and binding upon the
parties, and judgment on the award may be entered in any federal or state court
sitting in any court having jurisdiction. The obligations set forth in this
Section 9.9 shall survive the termination of this Agreement.
9.10 SEVERABILITY. Any provision of this Agreement which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. In case any
provision of this Agreement is found by a court of competent jurisdiction to be
invalid, illegal or unenforceable, it will, to the
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
extent practicable, be deemed modified so as to make it valid, legal and
enforceable and to retain as nearly as practicable the intent of the parties.
9.11 EXPENSES OF TRANSACTIONS. Except as otherwise provided in this
Agreement, (a) all fees, costs and expenses incurred by Buyer in connection with
the transactions contemplated by this Agreement shall be borne by Buyer, and (b)
all fees, costs and expenses incurred by any Selling Member in connection with
the transactions contemplated by this Agreement shall be borne by such Selling
Member.
9.12 ATTORNEYS' FEES. If Buyer or any of its Affiliates, successors or
assigns brings any Action against any Selling Member or any of its, his or her
respective Affiliates, successors or assigns, or if any Selling Member or any of
its, his or her respective Affiliates, successors or assigns brings any Action
against Buyer or any of its Affiliates, successors or assigns, in addition to
any damages and costs which the prevailing party otherwise would be entitled,
the non-prevailing party shall pay to the prevailing party its, his or her
actual attorneys' fees and costs incurred in bringing and prosecuting such
Action and/or enforcing any Decision granted therein, all of which shall be
deemed to have accrued on the commencement of such Action and shall be paid
whether or not such action is prosecuted to a Decision. Any Decision entered in
such Action shall contain a specific provision providing for the recovery of
attorneys' fees and costs incurred in enforcing such Decision. For the purposes
of this Section 9.12 attorneys' fees shall include, without limitation, fees
incurred in the following: (a) postjudgment motions and collection actions; (b)
contempt proceedings; (c) garnishment, levy and debtor and third party
examinations; (d) discovery; and (e) bankruptcy litigation.
9.13 SURETYSHIP WAIVER.
(a) Availability of Recourse. Without in any manner limiting the
obligations of any party under this Agreement, Buyer may, subject to the terms
and conditions hereof, (i) accept partial payments from any Selling Member on
account of the obligations under this Agreement; (ii) release or substitute any
Selling Member, and otherwise deal with any Selling Member as Buyer may
determine in accordance with the terms hereof and applicable law; (iii) settle
or release, either by agreement or by operation of law, any Selling Member; and
(iv) proceed directly against the property of any Selling Member without
proceeding against any other Selling Member to collect and recover the
proportionate amount of the obligations or any portion thereof, and each Selling
Member waives any right to require Buyer to proceed against any other Selling
Member, or pursue any other remedy whatsoever.
(b) Waiver of Defenses. Each Selling Member hereby waives any
defense arising by reason of any disability or other defense of the other or by
reason of the cessation from any action of any kind against the other. Buyer
may, in its sole discretion, exercise any right or remedy it may have against
any Selling Member without affecting or impairing in any way the liability of
the others hereunder. The rights of Buyer under this Agreement and the other
Transaction Documents will be enforceable without regard to the validity,
regularity or enforceability of the obligations of any Selling Member or any
document evidencing the same.
(c) Subrogation. Until all of the obligations under this Agreement
and the other Transaction Documents have been fully and finally satisfied, no
Selling Member shall have
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
any right of subrogation to any of the rights of Buyer against any Selling
Member and each Selling Member hereby waives any right to enforce any remedy
which Buyer now has or may hereafter have against any Selling Member.
(d) Financial Condition. Each Selling Member assumes the
responsibility for being and keeping itself informed of the financial condition
of the other Selling Members. Buyer shall have no duty to advise any Selling
Member regarding such condition.
(e) Election of Remedies. Each Selling Member hereby waives all
rights and defenses arising out of an election of remedies by Buyer even though
that election of remedies has destroyed any Selling Member's rights of
subrogation, reimbursement and/or contribution against the other.
(f) Limitation of Liability Nothing herein shall be construed to
increase any Selling Member's liability exposure to any amount in excess of
Selling Member's Proportionate Liability, except as otherwise set forth herein.
9.14 NO SET-OFF. No amounts due any Selling Member from Buyer pursuant to
this Agreement or any other agreement contemplated herein shall be subject to
any right of set-off, said set-off right being hereby waived by Buyer.
9.15 FURTHER ASSURANCES. Upon the reasonable request of a party or
parties hereto at any time after the Closing Date, the other party or parties
shall forthwith execute and deliver such further instruments of assignment,
transfer, conveyance, endorsement, direction or authorization and other
documents as the requesting party or parties or its, his, her or their counsel
may reasonably request in order to effectuate the purposes of this Agreement.
9.16 FACSIMILES; COUNTERPARTS. Facsimile transmission of any signed
original document and/or retransmission of any signed facsimile transmission
will be deemed the same as delivery of an original. At the request of any party,
the parties will confirm facsimile transmission by signing a duplicate original
document. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which shall constitute but one and the same
instrument.
[The remainder of this page has been intentionally left blank;
signature page follows.]
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
IN WITNESS WHEREOF, each of the parties hereto has executed this
Membership Interests Purchase Agreement as of the date first written above.
SELLING MEMBERS:
▇. ▇. ▇▇▇▇▇▇▇ Co.,
a Georgia corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: President
▇▇▇▇▇▇▇ Specialty Retailing, Inc.,
a Georgia corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: Chairman
Young An Hat Company,
a Korean entity
By: /s/ ▇. ▇. ▇▇▇▇
Name: ▇. ▇. ▇▇▇▇
Title: Chairman
J. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, an
individual
/s/ J. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
Georgia ▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
an individual
/s/ Georgia ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
an individual
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
an individual
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇.,
an individual
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇.
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.,
an individual
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
---------------------------------
BUYER:
▇▇▇▇▇▇▇▇ Acquisition Corp.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
----------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: President
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
SCHEDULE 1.3
INSTALLMENT PAYMENTS
SECTION 1
DEFINITIONS
As used in this Schedule 1.3, the following terms shall have the meanings
set forth below, and all capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Agreement:
1.1 Business. The business of the Company and its subsidiaries, as such
business may be expanded.
1.2 EBIT. The calculation of EBIT of the Business for each Fiscal Year
during the Installment Period shall be completed as soon as practicable after
completion of audited financial statements as follows:
The "Revenues of the Business", as defined herein, less the operating
expenses of the Business (inclusive of all operations, sales, general and
administrative expenses) during the relevant accounting period, exclusive
of (i) interest expense, (ii) book tax expense, (iii) the cumulative
effect of changes in accounting principles (if any) adopted by the Company
subsequent to the Closing Date, (iv) any management fee, charge, overhead
allocation or similar items charged or chargeable by Buyer as a result of
Buyer's expenses (as opposed to the Selling Member's), (v) the amount of
expense attributable to legal and accounting services in excess of the
amounts shown on Exhibit B attached hereto, (vi) accounting for the effect
of purchase accounting or costs as a result of Buyer's acquisition of the
Company, and (vii) commission payments made by the Company to sales
representatives that are directly related to the sale of ▇▇▇▇▇▇▇▇ and
Callaway branded apparel, excluding any such commission payments related
to headwear sales.
1.3 EBIT Carry Forward. The aggregate amount by which EBIT for each Fiscal
Year during the term hereof exceeded the EBIT Target for such Fiscal Year,
reduced by any amounts added to a previous Fiscal Year's EBIT as provided in
Section 1.5 captioned EBIT Target Percentage.
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
1.4 EBIT Target. The EBIT Target for each Fiscal Year of the Installment
Period shall be as follows:
FISCAL EBIT
YEAR TARGET
2004 $****
2005 $****
2006 $****
2007 $****
2008 $****
-----
Total $****
1.5 EBIT Target Percentage. A percentage, not exceeding 100%, represented
by a fraction, the numerator of which is the EBIT for the immediately preceding
Fiscal Year plus any EBIT Carry Forward (but only to the extent necessary to
increase the numerator to an amount not to exceed the EBIT Target for such year)
and the denominator of which is the EBIT Target for such Fiscal Year.
1.6 Fiscal Year. During the Installment Period, the Fiscal Year of the
Business commencing on November 1 and ending on October 31 of each such year,
provided, however, for purposes of this Agreement the 2004 Fiscal Year shall
commence on July 1, 2004 and run through October 31, 2004.
1.7 Flat Installment Payment. **** ($****) per year, totaling **** ($****)
over a period of four (4) years commencing Fiscal Year 2005 and ending Fiscal
Year 2008.
1.8 Gross Margin. The calculation of the gross margin of the Business for
each Fiscal Year during the Installment Period shall be based upon the Company's
internal calculations as traditionally determined and consistently applied.
1.9 Individual Installment Percentage. That percentage of each Installment
Payment to be paid to each Participating Selling Member each Fiscal Year as
shown across from each of the Participating Selling Member named below (each a
"Participating Selling Member"):
INDIVIDUAL
SELLER INSTALLMENT PERCENTAGE
J. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 20 %
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 20 %
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 20 %
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇. 20 %
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. 20 %
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
1.10 Variable Installment Amount. **** ($****).
1.11 Installment Factor. The percentage of the Variable Installment Amount
payable as a Variable Installment Payment for each Fiscal Year of the
Installment Period follows:
INSTALLMENT
FISCAL YEAR FACTOR
2004 9%
2005 18%
2006 21%
2007 24%
2008 28%
---
Total 100%
1.12 Installment Payment. The Variable Installment Payment and the Flat
Installment Payment.
1.13 Installment Period. The period beginning on July 1, 2004 and
continuing through October 31, 2008.
1.14 Payment Date. The date on which the Installment Payment will be made
pursuant to Section 2 hereof, which shall be no later than ninety (90) days
after each Fiscal Year End, unless the persons entitled to such payment shall
otherwise agree in writing.
1.15 Revenues of the Business. All revenues of the Business from all
sources during each Fiscal Year of the Installment Period excluding any earnings
attributable to sales of "▇▇▇▇▇▇▇▇" and "Callaway" branded apparel (with the
exception of headwear and other non-apparel merchandise, the earnings from sales
of which shall not be excluded).
1.16 Participating Selling Member's Accountant. The certified public
accounting firm retained by the Participating Selling Members in connection with
the determination of the Calculated Amounts as defined in Section 3 of this
Schedule 1.3.
1.17 Brands Sales and Gross Margin. The Top-Line Net Sales for each of the
Brands and Gross Margins are set forth as follows:
SALES AND
BRAND GROSS MARGIN ACTUAL 2003
KUDZU Net Sales $****
Gross Margin ****%
THE GAME Net Sales $****
Gross Margin ****%
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
OUTDOOR DIRECT Net Sales $****
Gross Margin ****%
1.18 Variable Installment Payment. The product of the Variable Installment
Amount multiplied by the Installment Factor for a Fiscal Year, multiplied by the
EBIT Target Percentage for such Fiscal Year.
SECTION 2
INSTALLMENT PAYMENTS
2.1. Qualification. If (i) the Company's EBIT Target Percentage for a
Fiscal Year meets or exceeds 80% for such Fiscal Year, and (ii) the Company
maintains or increases its Top-Line Net Sales and existing Gross Margin in The
Game, Kudzu and Outdoors Direct brands (the "Brands"), at or above the levels
set forth in Section 1.17 of this Schedule 1.3, (Top-Line Net Sales and existing
Gross Margins in each of the Brands may be supplemented by sales and Gross
Margins - the latter being calculated on a weighted average based on such
supplemental sales plus sales under the Brands - from the Company's other
distribution channels with Gross Margins that are at least equal to the existing
Gross Margins in the Brands, as set forth in Section 1.17), during such Fiscal
Year, then Buyer shall make an Installment Payment to each of the Participating
Selling Members based on their respective Individual Installment Percentage.
2.2 Time of Payments. Any Installment Payments, including any make-up
payment, for each Fiscal Year shall be made within ninety (90) days after the
end of a Fiscal Year.
2.3. Make-Up Payment. Final make-up payments of any unpaid Installment
Amount shall be made after determination of Fiscal Year 2008's EBIT provided
that the total aggregate EBIT for the Fiscal Years during the Installment Period
is greater than $****. In such event, a final make-up Installment Payment shall
be paid to the Participating Selling Members, based upon the Individual
Installment Percentages, in such amounts necessary to increase the total
aggregate of all Installment Payments under this Agreement to $6,500,000.
2.4 Treatment of Payments. Buyer shall pay and report the Installment
Payments, if any, to the Selling Member as installment payments for the
interests of the Company that the Participating Selling Members sold to Buyer on
the Closing Date. As such, each such Installment Payment shall include, and
which shall not increase the amount of such Installment Payment, simple interest
at the rate of three and one-half percent (3-1/2 %) per annum. Any payments to
be made pursuant to this Section 2 shall be made, at the option of each
recipient, by certified or official bank check or by wire transfer of same day
funds to a bank designated by such recipient.
SECTION 3
COMPUTATION AND VERIFICATION
3.1. Computations. All computations of Revenues and EBIT (collectively,
the "Calculated Amounts") with respect to any Fiscal Year shall be undertaken by
the Company using financial statements for such Fiscal Year prepared in
accordance with generally accepted accounting principles consistently applied,
and reported by the Company to Buyer and the participating Selling Members by a
written notice.
3.2. Dispute Procedure. If there should be any disagreement between a
Selling Member and Buyer as to the proper computation of the Calculated Amounts,
Buyer's Accountant and the Participating
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**CONFIDENTIAL TREATMENT REQUESTED BY ▇▇▇▇▇▇▇▇, INC.**
Selling Member's Accountant shall undertake to reach agreement as to the
Calculated Amounts and shall promptly notify Buyer and such Participating
Selling Member in writing as to such agreement. Any such agreement by such
accountants shall be conclusive and binding on the parties hereto. If within
twenty (20) business days after the matter is referred to them, the
Participating Selling Member's Accountant and Buyer's Accountant are unable to
agree as to the Calculated Amounts, such accountants jointly shall promptly
select a third independent certified public accounting firm (the "Third
Accountant"). The Third Accountant shall, within twenty (20) business days after
the matter is referred to it, notify Buyer and Seller in writing of its
determination of the Calculated Amounts. Any such determination by the Third
Accountant shall (i) not be less than the Calculated Amounts as determined by
Buyer's Accountant nor be greater than the Calculated Amounts as determined by
the Participating Selling Member's Accountant, and (ii) be conclusive and
binding on the parties hereto.
3.3. Fees and Expenses. The fees and expenses of the Third Accountant, and
all other costs associated with any dispute in which a Third Accountant is
appointed, shall be paid by the non-prevailing party in the resolution procedure
set forth above, provided that each of Buyer and Selling Member shall be
responsible for its own attorneys' fees, accountants' fees and other expenses
incurred in connection with the dispute. For purposes of this Section 3, the
non-prevailing party shall be considered to be the party whose proposed
Calculated Amounts differ the most, in the aggregate, from the Calculated
Amounts determined by the Third Accountant.
SECTION 4
ADDITIONAL CONTROL PROVISIONS
4.1 Ownership Structure. Buyer shall own and operate the Company as a
stand alone subsidiary of Buyer, with its own management and financial
statements.
4.2 Intercompany Services. Buyer agrees to charge the Company only for
services requested by the Company or for services Buyer is required by law to
provide or undertake with respect to its subsidiaries (exclusive of general
governance services). All intercompany expenses, if any, will be billed at
actual costs. All such costs will be cleared monthly by cash transfers in
response to an invoice or other documentation. Buyer will provide such
information as may be reasonably requested by the Company for the purpose of
permitting the Company to verify the pricing for intercompany services provided
by Buyer.
4.3 Accounting Controls. The parties agree that for the purposes of
calculations of all amounts in this Schedule 1.3 the Company will continue to
account for the results of its operations in conformity with generally accepted
accounting principles as historically and consistently applied by the Company
from the Closing Date through October 31, 2008. The Company shall make
day-to-day operational decisions that are in the best interests of, and provide
sound economic benefit for the Company. Any material changes in existing
financial policies, accounting practices, reserve and accrual assumptions and
capitalization practices may be made by the participating Selling Members with
the written concurrence of Buyer.
For purposes of the calculations under this Schedule 1.3, the
financial statements of the Company will be prepared on a stand alone basis
unless otherwise authorized by the majority vote of the Participating Selling
Members.
55