Exhibit 10.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
DATED AS OF DECEMBER 17, 2002
AMONG
PHILLIPS-VAN HEUSEN CORPORATION,
CALVIN KLEIN, INC.,
CALVIN KLEIN (EUROPE), INC.,
CALVIN KLEIN (EUROPE II) CORP.,
CALVIN KLEIN EUROPE S.R.L.,
CK SERVICE CORP.,
CALVIN KLEIN,
BARRY SCHWARTZ,
TRUST FOR THE BENEFIT OF THE ISSUE OF CALVIN KLEIN,
TRUST FOR THE BENEFIT OF THE ISSUE OF BARRY SCHWARTZ,
STEPHANIE SCHWARTZ-FERDMAN
AND
JONATHAN SCHWARTZ
TABLE OF CONTENTS
PAGE
ARTICLE I. CLOSING; SALE AND PURCHASE.................................... 1
1.1 The Closing................................................... 1
1.2 Sale and Purchase of the Purchase Shares...................... 2
1.3 Delivery of Purchase Price and Stock Certificates............. 2
1.4 Purchase Price Adjustment..................................... 2
1.5 Purchase of Design Services Agreement......................... 4
1.6 Satisfaction of Debt.......................................... 8
1.7 Releases ..................................................... 9
1.8 Actions Simultaneous.......................................... 10
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE SELLERS WITH
RESPECT TO THE PURCHASE SHARES............................... 10
2.1 Authority; Execution and Delivery; Enforceability............. 10
2.2 Non-Contravention............................................. 10
2.3 Title to Purchase Shares...................................... 11
2.4 Consents and Approvals........................................ 11
2.5 Litigation and Claims......................................... 11
2.6 Investment Representations.................................... 11
2.7 No Finder..................................................... 12
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE CK COMPANIES,
MR. KLEIN AND MR. SCHWARTZ WITH RESPECT TO THE
CK COMPANIES AND THE CK TRUST............................... 12
3.1 Organization; Good Standing................................... 12
3.2 Equity Interests.............................................. 13
3.3 Authority; Execution and Delivery; Enforceability............. 13
3.4 Non-Contravention............................................. 13
3.5 Corporate and Trust Documents; Books and Records.............. 14
3.6 Capitalization; Options; Trust Interests...................... 14
3.7 Consents and Approvals........................................ 15
3.8 Title to Assets............................................... 15
3.9 Real Property................................................. 15
3.10 Employment Related Agreements and Actions..................... 15
3.11 Contracts..................................................... 18
3.12 Intellectual Property......................................... 20
3.13 Insurance..................................................... 22
3.14 Financial Statements; Liabilities............................. 22
3.15 Tax Matters................................................... 23
3.16 Absence of Certain Changes and Events......................... 24
3.17 Litigation and Claims......................................... 26
3.18 Governmental Permits; Compliance with Laws.................... 26
3.19 Environmental Matters......................................... 27
3.20 Employee Plans................................................ 27
3.21 No Finder..................................................... 30
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PVH........................ 30
4.1 Organization; Good Standing................................... 30
4.2 Authority; Execution and Delivery; Enforceability............. 30
4.3 Non-Contravention............................................. 30
4.4 Consents and Approvals........................................ 31
4.5 Equity Matters................................................ 31
4.6 Litigation and Claims......................................... 31
4.7 SEC Reports................................................... 31
4.8 Private Offering.............................................. 32
4.9 Capitalization................................................ 32
4.10 Listing 34
4.11 Financial Statements.......................................... 33
4.12 Tax Matters................................................... 33
4.13 Intellectual Property......................................... 34
4.14 Employee Plans................................................ 34
4.15 Compliance with Laws; Permits................................. 37
4.16 Environmental Protection...................................... 38
4.17 No Finder..................................................... 38
4.18 No Reliance................................................... 38
ARTICLE V. ACTION PRIOR TO THE CLOSING DATE.............................. 39
5.1 Conduct of Business........................................... 39
5.2 No Breach of Representations and Warranties;
Notification of Certain Matters............................... 42
5.3 Access ....................................................... 42
5.4 Standstill.................................................... 42
5.5 Notice of Litigation.......................................... 43
5.6 Fulfillment of Conditions to PVH's Obligations................ 43
5.7 Fulfillment of Conditions to Sellers' Obligations............. 43
5.8 Governmental Consents......................................... 43
5.9 Third Party Consents.......................................... 43
5.10 Publicity..................................................... 43
5.11 Transfer of Certain Assets.................................... 44
ARTICLE VI. OTHER AGREEMENTS OF THE PARTIES.............................. 44
6.1 Cooperation in Litigation; Retention of Employees............. 44
6.2 Employees..................................................... 44
6.3 Non-Competition, Non-Solicitation,
Non-Derogation and Confidentiality............................ 46
6.4 Tax Matters................................................... 48
6.5 Access........................................................ 51
6.6 Directors' and Officers' Indemnification
and Insurance................................................. 51
6.7 Offices....................................................... 51
6.8 Legend........................................................ 51
6.9 Certain Matters. Each party agrees to comply with
Section 6.9 of the CK Companies Disclosure Schedule........... 52
6.10 Further Assurances............................................ 52
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ARTICLE VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF PVH.................. 52
7.1 Representations and Warranties................................ 52
7.2 Performance................................................... 52
7.3 No Material Adverse Effect.................................... 53
7.4 Certificates.................................................. 53
7.5 No Injunction................................................. 53
7.6 CK Debt Obligations; Liens Discharged......................... 53
7.7 HSR Act Clearance............................................. 53
7.8 Government Approvals.......................................... 53
7.9 Third Party Consents.......................................... 53
7.10 Consulting Agreement.......................................... 53
7.11 Agreement and Assignment...................................... 53
7.12 Notarial Deed................................................. 53
7.13 Stock Certificates............................................ 54
7.14 Good Standing................................................. 54
7.15 Resignations.................................................. 54
7.16 Stockholder Loans............................................. 54
7.17 Termination under Design Services Agreement................... 54
7.18 Escrow Agreement. The Sellers shall have entered
into the Escrow Agreement..................................... 54
ARTICLE VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS......... 54
8.1 Representations and Warranties................................ 54
8.2 Performance................................................... 54
8.3 Certificates.................................................. 54
8.4 No Injunction................................................. 55
8.5 HSR Act Clearance............................................. 55
8.6 Government Approvals.......................................... 55
8.7 Consulting Agreement.......................................... 55
8.8 Agreement and Assignment...................................... 55
8.9 Equity Matters................................................ 55
8.10 Notarial Deed................................................. 55
8.11 Termination under Design Services Agreement................... 55
8.12 Security Agreements........................................... 55
8.13 Registration Rights Agreement................................. 55
8.14 Escrow Agreement. PVH shall have entered into
the Escrow Agreement.......................................... 55
8.15 Opinion....................................................... 55
ARTICLE IX. INDEMNIFICATION.............................................. 56
9.1 Survival ..................................................... 56
9.2 Indemnification by the Sellers................................ 56
9.3 Indemnification by PVH........................................ 58
9.4 Limitations on Indemnification................................ 59
9.5 Tax Treatment of Indemnity Payments........................... 60
9.6 Tax Refunds................................................... 60
9.7 Notice of Claims.............................................. 61
9.8 Third Party Claims............................................ 61
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ARTICLE X. TERMINATION................................................... 62
10.1 Termination................................................... 62
10.2 Effects of Termination........................................ 62
ARTICLE XI. MISCELLANEOUS................................................ 63
11.1 Expenses of the Transaction................................... 63
11.2 Notices....................................................... 63
11.3 No Modification Except in Writing............................. 64
11.4 Entire Agreement.............................................. 64
11.5 Severability.................................................. 64
11.6 Assignment.................................................... 65
11.7 Governing Law; Jurisdiction................................... 65
11.8 Specific Performance.......................................... 65
11.9 Headings; References.......................................... 66
11.10 Interpretation................................................ 66
11.11 Schedules..................................................... 66
11.12 Third Parties................................................. 66
11.13 Counterparts.................................................. 66
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APPENDIX
APPENDIX A. DEFINITIONS................................................. A-1
SCHEDULES
SCHEDULE I. CK COMPANIES DISCLOSURE SCHEDULE.......................... I-1
SCHEDULE II. PVH DISCLOSURE SCHEDULE................................... II-1
SCHEDULE III. SELLERS DISCLOSURE SCHEDULE............................... III-1
SCHEDULE IV. BALANCE SHEET RULES....................................... IV-1
SCHEDULE V. LIQUIDATED DAMAGES STATEMENT.............................. V-1
EXHIBITS
ALLOCATION AMONG SELLERS EXHIBIT A
FORM OF ESCROW AGREEMENT EXHIBIT B
FORM OF DESIGN SERVICES PAYMENT STATEMENT EXHIBIT C
FORM OF CONSULTING AGREEMENT EXHIBIT D
FORM OF AGREEMENT AND ASSIGNMENT EXHIBIT E
FORM OF NOTARIAL DEED EXHIBIT F
FORM OF SCHWARTZ DESIGN SERVICES FORM EXHIBIT G
FORM OF REGISTRATION RIGHTS AGREEMENT EXHIBIT H
FORM OF DESIGN SERVICES SECURITY AGREEMENT EXHIBIT I
FORM OF WARRANT EXHIBIT J
FORM OF INTERCREDITOR AGREEMENT EXHIBIT K
FORM OF GUARANTEE EXHIBIT L
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement"), dated as of December 17, 2002,
among PHILLIPS-VAN HEUSEN CORPORATION, a Delaware corporation ("PVH"), CALVIN
KLEIN, INC., a New York corporation ("CKI"), CALVIN KLEIN (EUROPE), INC., a
Delaware corporation ("CK Europe I"), CALVIN KLEIN (EUROPE II) CORP., a Delaware
corporation ("CK Europe II"), CALVIN KLEIN EUROPE S.R.L., a limited liability
company organized under the laws of Italy ("CK Italy"), CK SERVICE CORP., a
Delaware corporation ("Service Corp." and, together with CKI, CK Europe I, CK
Europe II and CK Italy, the "CK Companies"), CALVIN KLEIN ("Mr. Klein"), BARRY
SCHWARTZ ("Mr. Schwartz"), TRUST FOR THE BENEFIT OF THE ISSUE OF CALVIN KLEIN
(the "Klein Trust"), TRUST FOR THE BENEFIT OF THE ISSUE OF BARRY SCHWARTZ (the
"Schwartz Trust"), STEPHANIE SCHWARTZ-FERDMAN ("Schwartz-Ferdman") and JONATHAN
SCHWARTZ ("J. Schwartz" and, together with Mr. Klein, Mr. Schwartz, the Klein
Trust, the Schwartz Trust and Schwartz-Ferdman, the "Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers are the owners of all of the issued and outstanding
shares of the capital stock (or all of the outstanding parts of capital in the
case of CK Italy) of each CK Company (the "Purchase Shares");
WHEREAS, PVH desires to purchase and acquire from the Sellers, and the
Sellers desire to sell and transfer to PVH, the Purchase Shares on the terms and
subject to the conditions hereinafter set forth;
WHEREAS, PVH desires to purchase and acquire from Mr. Klein, and Mr. Klein
desires to sell and transfer to PVH, his rights under the Design Services
Agreement (as herein defined); and
WHEREAS, terms used in this Agreement and not otherwise defined in this
Agreement are defined in Appendix A hereto.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I.
CLOSING; SALE AND PURCHASE
1.1 The Closing. The closing (the "Closing") of the transactions
contained in this Article I shall take place at 10:00 A.M., Eastern Time, on the
second Business Day after all of the conditions contained in Articles VII and
VIII have been satisfied or waived (other than those conditions which will be
satisfied at the Closing Time), provided, that, if the HSR Clearance in
connection with the Apax Transaction has not been received by such second
Business Day, then (i) the conditions contained in Sections 7.1, 7.8 and 7.9
shall be deemed to have been satisfied as of such second Business Day (the "HSR
Date") and (ii) the Closing shall take place at 10:00
A.M., Eastern Time, on the second Business Day after such HSR Clearance has been
received; provided, further, that if all the conditions contained in Articles
VII and VIII have been satisfied or waived, the Closing shall take place not
later than the Termination Date, or at such other time or such other date as PVH
and the Sellers may agree, at the offices of Katten Muchin Zavis Rosenman, 575
Madison Avenue, New York, New York. (Hereinafter, such date is referred to as
the "Closing Date" and such time on the Closing Date is referred to as the
"Closing Time.")
1.2 Sale and Purchase of the Purchase Shares. Upon the terms and subject
to the conditions set forth herein, at the Closing, the Sellers agree to sell,
convey, transfer, assign and deliver to PVH certificates (or such other
appropriate evidences of ownership with respect to CK Italy) representing the
Purchase Shares, duly endorsed in blank or accompanied by stock or other
appropriate powers in blank with all appropriate transfer stamps affixed thereto
(the "Stock Certificates"), and PVH (and its designee in the case of CK Italy)
agrees to purchase from the Sellers the Purchase Shares, for an aggregate
purchase price consisting of (i) $400,000,000 in cash (the "Cash Purchase
Price"), as adjusted in accordance with Section 1.4, and (ii) such number of
shares of PVH Common Stock equal to the quotient of (x) $30,000,000 over (y) the
PVH Common Stock Closing Price (the "PVH Shares" and, together with the Cash
Purchase Price, the "Purchase Price").
1.3 Delivery of Purchase Price and Stock Certificates. (a) At the
Closing, (i) the Cash Purchase Price shall be paid by PVH to the Sellers by wire
transfer of immediately available funds to accounts designated in writing by the
Sellers at least two Business Days prior to the Closing, (ii) subject to Section
1.3(b), the PVH Shares shall be delivered by PVH to the Sellers, and (iii) the
Stock Certificates shall be delivered by the Sellers to PVH, and in the case of
(i) and (ii) in the proportions as set forth on Exhibit A.
(b) At the Closing Time, the Holdback Shares shall be deposited in escrow
and held pursuant to the terms of an escrow agreement in substantially the form
attached hereto as Exhibit B (the "Escrow Agreement"). The Sellers agree, that,
in accordance with the terms of the Escrow Agreement, all of the certificates
representing the Holdback Shares shall be delivered, along with stock powers
executed by such Sellers in blank, to the escrow agent named therein.
1.4 Purchase Price Adjustment. In accordance with the procedures set
forth in this Section 1.4, the Cash Purchase Price shall be adjusted as follows:
(a) At least five Business Days prior to the Closing Date, the chief
financial officer of CKI, on behalf of the Sellers, shall deliver to PVH a good
faith estimate (as adjusted, the "Estimated Closing Net Book Value") of the
Closing Date Net Book Value prepared in accordance with GAAP and the resulting
Net Book Value Overage or Net Book Value Underage. A "Net Book Value Overage"
shall exist when (and shall be equal to the amount by which) the Estimated
Closing Net Book Value exceeds the Base Amount. A "Net Book Value Underage"
shall exist when (and shall be equal to the amount by which) the Base Amount
exceeds the Estimated Closing Net Book Value. Within five Business Days
following the Closing Date, in the event of a Net Book Value Overage, PVH shall
pay the amount of such Net Book Value Overage to the Sellers in accordance with
the procedures set forth in Section 1.3 (subject to adjustment only in the event
that the Estimated Closing Net Book Value, on its face,
2
fails to properly apply GAAP or contains material mathematical error) and in the
event of a Net Book Value Underage, PVH shall receive, in accordance with the
Escrow Agreement, such number of Holdback Shares equal to the quotient of (i) an
amount equal to the Net Book Value Underage, over (ii) the PVH Common Stock
Closing Price (subject to adjustment only in the event that the Estimated
Closing Net Book Value, on its face, fails to properly apply GAAP or contains
material mathematical error). Within 90 days after the Closing Date, PVH shall
deliver to the Sellers a combined balance sheet for the CK Companies as of the
Closing Date and after giving effect to any payments made or other actions taken
by the Sellers to satisfy or discharge the CK Debt Obligations pursuant to
Section 1.6 or in satisfaction of the condition contained in Section 7.16 (and
prior to giving effect to any action by PVH or its Affiliates that would impact
such balance sheet) prepared in accordance with GAAP (the "Closing Date Balance
Sheet").
(b) The Closing Date Balance Sheet shall become final and binding upon the
parties on the 30th day following delivery thereof, unless the Sellers give
written notice of their disagreement with the Closing Date Balance Sheet (a
"Notice of Disagreement") to PVH prior to such date. Any Notice of Disagreement
shall (i) specify in reasonable detail the nature of any disagreement so
asserted and (ii) only include disagreements based on mathematical errors or
based on the Closing Date Balance Sheet not being calculated pursuant to this
Section 1.4 or in accordance with GAAP. If a Notice of Disagreement is received
by PVH in a timely manner, then the Closing Date Balance Sheet (as revised in
accordance with this sentence) shall become final and binding upon PVH and the
Sellers on the earlier of (A) the date PVH and the Sellers resolve in writing
any differences they have with respect to the matters specified in the Notice of
Disagreement and (B) the date any disputed matters are finally resolved in
writing by the Accounting Firm. During the 30-day period following the delivery
of a Notice of Disagreement, PVH and the Sellers shall seek in good faith to
resolve in writing any differences that they may have with respect to the
matters specified in the Notice of Disagreement. At the end of such 30-day
period, PVH and the Sellers shall submit to an independent accounting firm (the
"Accounting Firm") for arbitration, in accordance with the standards set forth
in this Section 1.4, only matters that remain in dispute and were properly
included in the Notice of Disagreement in accordance with this Section 1.4, in
the form of a written brief. The Accounting Firm shall be KPMG LLP or, if such
firm is unable or unwilling to act, such other nationally recognized independent
public accounting firm as shall be agreed upon by PVH and the Sellers in
writing. PVH and the Sellers shall use their commercially reasonable efforts to
cause the Accounting Firm to render a written decision resolving the matters
submitted to the Accounting Firm within 30 days of the receipt of such
submission. The scope of the disputes to be resolved by the Accounting Firm
shall be limited to whether the items in dispute that were properly included in
the Notice of Disagreement were determined pursuant to this Section 1.4 and in
accordance with GAAP and whether there were mathematical errors in the Closing
Date Balance Sheet, and the Accounting Firm is not to make any other
determination, including any determination as to whether the Base Amount is
correct. The Accounting Firm's decision shall be based solely on written
submissions by PVH and the Sellers and their respective representatives and not
by independent review. The Accounting Firm shall address only those items in
dispute and may not assign a value greater than the greatest value for such item
claimed by either party or smaller than the smallest value for such item claimed
by either party. Judgment may be entered upon the determination of the
Accounting Firm in any court having jurisdiction over the party against
3
which such determination is to be enforced. The fees and expenses of the
Accounting Firm incurred pursuant to this Section 1.4 shall be borne by PVH and
the Sellers equally.
(c) If the Base Amount is less than the Closing Date Net Book Value, PVH
shall, and if the Base Amount is more than the Closing Date Net Book Value, the
Sellers shall, within ten Business Days after the Closing Date Balance Sheet
becomes final and binding on the parties, make payment to the other party by
wire transfer in immediately available funds of the amount of such difference,
net of any adjustment made as a result of any Net Book Value Overage or Net Book
Value Underage, as applicable, without interest (the "Adjustment Payment"). If
the Sellers are required to make an Adjustment Payment to PVH in accordance with
this Section 1.4, and such Adjustment Payment is not received by PVH within such
ten Business Day period, then, PVH shall receive such number of Holdback Shares
equal to the quotient of (i) an amount equal to such Adjustment Payment over
(ii) the PVH Common Stock Closing Price, in accordance with the Escrow
Agreement. The parties agree that if PVH receives Holdback Shares as a result of
a Net Book Value Underage and if PVH is required to make an Adjustment Payment
in accordance with this subsection (c), then, PVH shall, first, be entitled to
return to the Sellers such number of Holdback Shares equal to the quotient of
(i) an amount equal to such Adjustment Payment over (ii) the PVH Common Stock
Closing Price, and, second, with respect to the balance of such Adjustment
Payment, if any, make payment to the Sellers in accordance with the first
sentence of this subsection (c).
(d) Following the Closing, PVH shall not, and shall not permit the CK
Companies to, take any action with respect to the accounting books and records
of the CK Companies, or the items reflected thereon, on which the Closing Date
Balance Sheet is to be based, that is inconsistent with GAAP or which would
impair the ability of any party to make any calculation, or determine the
grounds for any Notice of Disagreement, contemplated by this Section 1.4. During
the period of time from and after the Closing Date through the final
determination of the Closing Date Net Book Value in accordance with this Section
1.4, PVH shall afford, and shall cause the CK Companies to afford, to the
Sellers and any accountants, counsel or financial advisers retained by the
Sellers in connection with the determination of the Closing Date Net Book Value
in accordance with this Section 1.4, access during normal business hours and
upon reasonable prior notice to the books, records, personnel and
representatives (including the CK Companies' accountants) of the CK Companies
relevant to the preparation of the Closing Date Balance Sheet and the
determination of the Closing Date Net Book Value in accordance with this Section
1.4.
1.5 Purchase of Design Services Agreement.
(a) Mr. Klein hereby agrees to sell, assign and transfer to PVH at the
Closing all of his rights under and pursuant to the Design Services Agreement.
In consideration of the foregoing, (i) effective at the Closing Time, PVH shall
deliver to Mr. Klein the Warrant, and CKI shall release Mr. Klein from his
obligations under the Design Services Agreement, and (ii) within 45 days after
the end of each PVH fiscal quarter, commencing with the quarter during which the
Closing occurs (the "Initial Quarter") and ending with the first PVH fiscal
quarter that ends after the Payment Period, PVH shall make payments (the "Design
Services Purchase Payments") to Mr. Klein or his heirs, successors or assigns
(the "Klein Heirs") equal to the
4
Design Services Rate multiplied by the Total Sales during such quarter;
provided, however, that with respect to the Initial Quarter, PVH shall make such
Design Services Purchase Payment to Mr. Klein or the Klein Heirs, as the case
may be, equal to the product of (x) the Design Services Rate multiplied by Total
Sales for the Initial Quarter, and (y) a fraction, (i) the numerator of which is
the number of days from and including the Closing Date to and including the last
day of the Initial Quarter, and (ii) the denominator of which is the number of
days in the Initial Quarter; provided, further, however, that with respect to
the quarter during which the Payment Period ends (the "Final Quarter"), PVH
shall make such Design Services Purchase Payment to Mr. Klein equal to the
product of (x) the Design Services Rate multiplied by Total Sales for the Final
Quarter, and (y) a fraction, (i) the numerator of which is the number of days
from and including the first day of the Final Quarter to and including the last
day of the Payment Period, and (ii) the denominator of which is the number of
days in the Final Quarter. For purposes of this Section 1.5, Total Sales shall
mean (without duplication), (A) total worldwide wholesale "net sales" (i.e.,
invoiced price less actual returns, allowances, customary and usual trade
discounts granted and itemized insurance, taxes and freight) by PVH and its
Affiliates of all products Bearing the Marks marketed, distributed or sold
during the applicable PVH fiscal quarter ("Wholesale Direct Sales"), (B) total
worldwide wholesale net sales or retail net sales, as the case may be, of all
products Bearing the Marks under licenses and other agreements between PVH and
its Affiliates, on the one hand, and its licensees and the others to whom PVH or
any of its Affiliates has granted the right to use the Marks, on the other hand,
which net sales for purposes hereof shall mean the net sales reported by such
licensees and the other Persons (taking into account any increases or decreases
in such reported amounts through the exercise of audit rights or any other
adjustments) during the applicable PVH fiscal quarter ("Licensee Sales"), (C)
total worldwide retail sales (i.e., cost to PVH or its Affiliates plus 15% for
all regular items and transfer pricing for surplus goods, close-outs and other
distressed goods) by PVH and its Affiliates of products Bearing the Marks
("Retail Direct Sales"), (D) total worldwide retail sales (i.e., cost to PVH or
its Affiliate plus 15% for all regular items and transfer pricing for surplus
goods, close-outs and other distressed goods) by PVH and its Affiliates of all
products not Bearing the Marks but which are sold under the CK Umbrella, (E)
with respect to goods and services other than products in the Restricted
Business, total Wholesale Direct Sales, Licensee Sales and Retail Direct Sales,
as the case may be, of all goods and services and other worldwide revenue from
goods and services either Bearing the Marks or marketed under the Marks (i.e,
the basis upon which PVH or an Affiliate receives payments from a licensee or
other authorized user, for example, food and beverage sales in a "CK Restaurant"
or hotel rooms in a "CK Hotel"), and (F) with respect to the Administration
Agreement, dated March 14, 1994, between CKI and Warnaco Inc., net sales of
Women's Intimate Apparel and Men's Underwear (as such terms are defined therein)
by Warnaco Inc. and their affiliates and net proceeds of any licensees and
sub-licensees of such Warnaco entities, in each case as and to the extent
provided in said Administration Agreement. For purposes of this Section 1.5,
"Bearing the Marks" shall mean a Mark displayed on the product in question or on
its labels or packaging. It is being acknowledged that on or after the Closing
Date, PVH may change its corporate name to a name including a Mark (the "New
Corporate Name") and after adoption of the New Corporate Name, if the New
Corporate Name is displayed on the labeling or packaging of a product to
identify (in a manner customary in the industry) the New Corporate Name as
merely the manufacturer, distributor or seller of such product or the owner of a
trademark, tradename or service mark other than a Mark (e.g., Izod,
5
manufactured by CKI), then such use of the Corporate Name and such product shall
not be included within this definition of Bearing the Marks. For purposes of
this Agreement, "CK Umbrella" shall include the marketing, distribution or sale
(i) in any store, catalogue, web site or other direct-to-consumer channel (each,
a "Channel") controlled by PVH or its Affiliates (a "PVH Channel") the primary
branding of which PVH Channel includes one of the Marks or where one of the
Marks is a principal element in the marketing or advertising for such PVH
Channel; (ii) in any PVH Channel where at least 50% of the net sales are derived
from products Bearing the Marks; or (iii) in any Channel where there is a
"shop-in-shop" or similar dedicated area for the sale of products Bearing the
Marks and PVH or its Affiliates have directed or permitted the operator of such
Channel to include for sale within such area other products of PVH not Bearing
the Marks. All Design Services Purchase Payments due to Mr. Klein or the Klein
Heirs, as the case may be, pursuant to this Section 1.5 shall be paid to Mr.
Klein or such Klein Heirs at the address designated pursuant to Section 11.2 or
by wire transfer of funds to an account designated by Mr. Klein or such Klein
Heirs in a notice to PVH pursuant to Section 11.2. Except as otherwise provided
in this Section 1.5, PVH shall not be obligated to pay interest on the Design
Services Purchase Payments and shall report the payment of the Design Services
Purchase Payments in accordance with the Code.
(b) At the time each Design Services Purchase Payment is due, PVH shall
deliver to Mr. Klein or the Klein Heirs, as the case may be, a written statement
(each, a "Payment Statement") setting forth the amount of the Design Services
Purchase Payment payable pursuant to Section 1.5(a) with respect to such quarter
and the calculation thereof. Each Payment Statement shall be delivered to Mr.
Klein or the Klein Heirs, as the case may be, in substantially the form attached
hereto as Exhibit C.
(c) Mr. Klein or the Klein Heirs and/or their respective authorized
representatives shall have the right one time with respect to each fiscal year
of PVH (although such right may also be exercised as to multiple years (up to
three years at any one time) at the same time or as to partial years), during
normal business hours and upon reasonable prior notice, during the Payment
Period and for two years thereafter, to audit and copy those books, records and
supporting documentation of PVH (and to the extent PVH can make them available,
the workpapers of PVH's accountants) pertaining to transactions arising out of
or relating to this Section 1.5, and may have access to employees of PVH and its
Affiliates who are responsible for overseeing or are directly involved in
calculating Design Services Purchase Payments for purposes of asking questions
and obtaining information relating to such calculations. Acceptance by Mr. Klein
or the Klein Heirs, as the case may be, of any Design Services Purchase Payment
shall not preclude Mr. Klein or the Klein Heirs, as the case may be, from
questioning its correctness; provided, however, that once Mr. Klein or the Klein
Heirs, as the case may be, has exercised his or their right to audit the books,
records, supporting documentation and/or ask questions of PVH employees pursuant
to this Section 1.5(c) with respect to any period during the Payment Period, he
or they, as the case may be, shall thereafter be barred from disputing the
accuracy of any Design Services Purchase Payment or Payment Statement received
during the portion of the Payment Period examined, unless Mr. Klein or the Klein
Heirs, as the case may be, raises an objection to any such payment or statement
within one year after all reasonably requested books, records, supporting
documentation and personnel are made available for such audit.
6
(d) If Mr. Klein or the Klein Heirs, as the case may be, shall raise any
objections with respect to any Payment Statement and related Design Services
Purchase Payment during the Payment Period or within the two-year period after
the Payment Period (but subject to the limitations set forth in Section 1.5(c)),
then Mr. Klein or the Klein Heirs, as the case may be, on the one hand, and PVH,
on the other hand, shall attempt promptly to resolve the matter or matters in
dispute. If the dispute is so resolved, then the applicable Payment Statement
shall be revised in accordance with the resolution, and shall be final and
binding on all parties hereto. If the resolution of a dispute requires PVH to
pay additional amounts (i.e., the revised calculation of the Design Services
Purchase Payment exceeds the amount of the Design Services Purchase Payment set
forth in the applicable Payment Statement) then PVH shall make payment to Mr.
Klein or the Klein Heirs, as the case may be, of such additional amounts. If
such dispute cannot be resolved by Mr. Klein or the Klein Heirs, as the case may
be, on the one hand, and PVH, on the other hand, within 30 Business Days after
the delivery of the objection, then the specific matters in dispute shall be
submitted to mediation in accordance with Section 11.7. Notwithstanding Sections
11.1 and 11.7, if the determination of the aggregate amount of the Design
Services Purchase Payments by the mediators for the period of time in dispute
(i) exceeds the aggregate amount set forth in the Payment Statements by $500,000
or more, PVH shall bear all the fees and expenses of the mediation, or (ii) is
less than $100,000 in excess of the aggregate amount thereof set forth in the
Payment Statements, Mr. Klein or the Klein Heirs, as the case may be, shall bear
all the fees and expenses of the mediation; otherwise each party shall bear its
own expenses of such mediation and share equally the other costs of such
mediation. If the resolution of a dispute in accordance with this Section 1.5
requires PVH to pay additional amounts to Mr. Klein or the Klein Heirs, as the
case may be, then PVH shall make payment to Mr. Klein or the Klein Heirs, as the
case may be, of such additional amounts plus, in the case of any such payment
which is greater than $1,000,000, interest at the rate of 15% per annum, and, in
the case of any such payment which is equal to or less than $1,000,000, interest
at the prime lending rate as in effect on the date such payment is due as
established by JPMorgan Chase Bank (or its successor) in New York, New York, in
each case from the date the original payment was due to Mr. Klein or the Klein
Heirs, as the case may be, until such payment is made in accordance with this
Section 1.5; provided, however, no such interest shall accrue or be required to
be paid by PVH as a result of increases in Design Services Purchase Payments
because of changes in amounts reported to PVH by the licensees and other third
parties to whom rights to use the Marks have been granted; provided, that Mr.
Klein is paid all such amounts as part of the next Design Services Purchase
Payment due to Mr. Klein. Any Design Services Purchase Payment which is not made
to Mr. Klein or the Klein Heirs, as the case may be, as a result of a default in
payment by PVH shall accrue interest at 15% per annum; provided, however, no
such interest shall accrue or be required to be paid by PVH as a result of
increases in Design Services Purchase Payments because of changes in amounts
reported to PVH by the licensees and other third parties to whom rights to use
the Marks have been granted. Notwithstanding any Design Services Purchase
Payment made hereunder, such payment shall not restrict or compromise PVH's
right to dispute (with respect to the three-year period prior to any such
dispute) that an overpayment was made to Mr. Klein or the Klein Heirs.
(e) For income Tax purposes, PVH, the Sellers and the CK Companies agree
that they will report the Design Services Purchase Payments as made in exchange
solely for the surrender by Mr. Klein of all his rights under the Design
Services Agreement and that except for
7
the portion of such payment required to be treated as interest for income Tax
purposes and except for changes in Law, the parties agree to file their Tax
Returns accordingly.
(f) If PVH defaults in the payment of any Design Services Purchase Payment
for more than 30 days after the same becomes due and payable or any other Event
of Default (as defined in the Design Services Security Agreement) occurs (each
such default, a "Design Services Purchase Payment Default"), Mr. Klein or the
Klein Heirs may, at their option declare that the entire amount of all unpaid
Design Services Purchase Payments together with the Liquidated Damages Amount
shall be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby waived.
The parties acknowledge that, in the event of a Design Services Purchase Payment
Default, precise damages would be difficult or impossible to calculate and
expressly agree that the Liquidated Damages Amount is a fair and reasonable
estimate of such damages and that the Liquidated Damages Amount is not a
penalty. The parties acknowledge and agree that the provisions of this Section
1.5(f) are for the mutual benefit of the parties and are intended to avoid a
protracted dispute respecting damages occurring by reason of a Design Services
Purchase Payment Default. In the event the Design Services Purchase Payments
together with the Liquidated Damages Amount shall be declared immediately due
and payable pursuant to this Section 1.5(f), PVH shall have the right to make a
one-time request within 30 days of such declaration by giving written notice to
Mr. Klein or the Klein Heirs, as the case may be, and upon receipt of such
notice, Mr. Klein or the Klein Heirs, as the case may be, shall rescind any such
declaration and its consequences if (i) the Design Services Purchase Payment
Default upon which such declaration was based shall have resulted from the
inability of PVH to receive information from third parties necessary to
calculate the amount of such Design Services Purchase Payment in a timely
manner, (ii) PVH has paid in full all overdue Design Services Purchase Payments
and all overdue interest on such Design Services Purchase Payments, (iii) no
default or event of default shall have occurred and be continuing with respect
to the Design Services Security Agreement, the Guarantee or any Material
Indebtedness (as defined in the Design Services Security Agreement), and (iv) no
judgment or decree has been entered for the payment of any monies due pursuant
to this Agreement. No rescission under this Section 1.5(f) will extend to or
affect any subsequent Design Services Purchase Payment Default or impair any
right arising in connection therewith.
(g) In connection with this Section 1.5, at the Closing, PVH and Mr. Klein
shall enter into the Design Services Security Agreement.
(h) Except as otherwise provided in this subsection (h), all amounts
payable pursuant to this Section 1.5 shall be paid without reduction, set-off or
counterclaim of any kind. Any breach by Mr. Klein of any of his obligations
under this Agreement for which amounts are required to be paid to a PVH Group
Member, upon and in accordance with a final non-appealable judgment by a court
of competent jurisdiction finding such a breach, or otherwise as agreed to in
writing by the parties, shall entitle PVH to offset against the Design Services
Purchase Payments.
1.6 Satisfaction of Debt. The Sellers shall cause all of the obligations
(including, without limitation, any contingent obligations, whether by guarantee
or otherwise), of each CK
8
Company in respect of debt for borrowed money (other than any Customs
performance bonds, trade letters of credit covering purchases of inventory and
stand-by letters of credit covering obligations under certain leases and the
capitalized leases, guarantees of employee credit cards and any intercompany
indebtedness set forth in the CK Companies Disclosure Schedule), together with
any interest accruing on any such obligation (the "CK Debt Obligations") to be
repaid in full and cancelled by no later than the Closing Time, or shall cause
such CK Company to be released and discharged from such obligations effective
prior to the Closing Time and shall cause all Liens granted under the Line
Letter to be discharged; it being understood that (i) the CK Debt Obligations
may be paid simultaneously at Closing with the proceeds of the Cash Purchase
Price, and (ii) PVH shall not acquire or assume any obligations of any CK
Company in respect of debt for borrowed money except as provided in this Section
1.6. Set forth on the CK Companies Disclosure Schedule is a list of all of the
performance bonds and trade letters of credit of the CK Companies as are in
effect on the date hereof. Within ten Business Days prior to the Closing, the
Sellers shall provide to PVH a list of each then outstanding letter of credit,
stating the letter of credit number, the issuing bank, the name, address and
country of the beneficiary, the purchase orders covered, the expiration date and
the amount outstanding on the day the list is compiled with respect to each
outstanding letter of credit, as well as a list of each Customs performance bond
then outstanding, stating the amount, issuer, beneficiary, permitted importers,
amount of premium and date of the last premium payment and the due date of the
next premium payment with respect to each such bond. Within five Business Days
prior to the Closing, PVH shall provide to the Sellers a list of the letters of
credit and Customs performance bonds it can and is willing to assume and will
replace such letters of credit and performance bonds not being assumed by PVH.
Notwithstanding anything to the contrary contained in this Agreement, in no
event shall PVH's inability or unwillingness to assume any such letters of
credit and Customs performance bonds give rise to any breach on the part of the
Sellers or the CK Companies hereunder or the failure of any condition to PVH's
obligation to consummate the transactions contemplated hereby as it relates to
the obligations of the CK Companies underlying such letters of credit and
Customs performance bonds or in respect of which such letters of credit or
performance bonds were issued or the impact thereof on the business of the CK
Companies.
1.7 Releases. Each Seller, on behalf of himself, herself or itself, and
also on behalf of his, her or its heirs, successors and/or assigns,
unconditionally and irrevocably waives and relinquishes as of the Closing Date,
any claims (and resulting damages) which he, she or it has, had, may have or
claims to have had against any CK Company, the CK Trust, PVH or PVH's Affiliates
(in the case of PVH and its Affiliates (other than any CK Company or the CK
Trust) solely as a result of PVH's ownership of the CK Companies after the
Closing Date), from the beginning of the world through the date of the Closing,
other than claims in respect of, or relating to, this Agreement, each Related
Agreement and the transactions contemplated hereby. PVH, on behalf of itself,
its Affiliates and the CK Companies (as constituted after the Closing) and also
on behalf of their respective heirs, successors and/or assigns, unconditionally
and irrevocably waives and relinquishes as of the Closing Date, any claims (and
resulting damages) which the CK Companies, the CK Trust, PVH or PVH's Affiliates
(in the case of PVH and its Affiliates, solely as a result of PVH's ownership of
the CK Companies after the Closing Date) has, had, may have or claims to have
had against any Seller from the beginning of the world through the date of the
Closing, other than claims in respect of, or relating to, this Agreement, each
Related Agreement and the transactions contemplated hereby.
9
1.8 Actions Simultaneous. All actions to be taken and all documents to be
executed and delivered by all parties at the Closing shall be deemed to have
been taken and executed and delivered simultaneously and no actions shall be
deemed to have been taken nor shall any documents be deemed to have been
executed and delivered until all actions have been taken and all documents have
been executed and delivered.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS WITH RESPECT TO THE PURCHASE SHARES
Each Seller, individually as to such Seller, hereby represents and warrants
to PVH as follows (provided, that, Mr. Klein, jointly and severally, makes the
representations and warranties contained in this Article II with respect to the
other Klein Group Seller, and Mr. Schwartz, jointly and severally, makes the
representations and warranties contained in this Article II with respect to the
other Schwartz Group Sellers):
2.1 Authority; Execution and Delivery; Enforceability.
(a) Such Seller has full power, authority and capacity to execute and
deliver this Agreement and, to the extent a party thereto, the Related
Agreements, to perform such Seller's respective obligations hereunder and under
such Related Agreements and to consummate the transactions contemplated hereby
and by such Related Agreements. Each of this Agreement and (when executed) the
Related Agreements has been (or will be) duly executed and delivered by such
Seller (to the extent a party thereto), and constitutes (or will, when executed,
constitute) the legal, valid and binding obligation of such Seller (to the
extent a party thereto), enforceable against such Seller in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, moratorium and
other similar Laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(b) In the case of the Klein Trust and the Schwartz Trust, all acts and
other proceedings required to be taken by such Trust to authorize the execution,
delivery and performance of this Agreement and the Related Agreements have been
duly and properly taken. The Klein Trust was created under agreement dated April
1, 1976 between Mr. Klein, as grantor, and Mr. Schwartz and Charles Ballon, as
trustees. The Schwartz Trust was created under agreement dated April 1, 1976
between Mr. Schwartz, as grantor, and Mr. Klein and Charles Ballon, as trustees.
2.2 Non-Contravention.
(a) The execution and delivery of this Agreement and the Related Agreements
by such Seller (to the extent a party thereto) does not, and the consummation by
such Seller of the transactions contemplated hereby and by such Related
Agreements and compliance by such Seller with the terms hereof and of such
Related Agreements, will not:
10
(i) constitute a default under or a violation or breach of, or result
in the acceleration of any obligation under, any provision of any contract
or other instrument to which such Seller is a party, except to the extent
such default, violation, breach or acceleration does not materially
adversely affect such Seller's ability to consummate the transactions
contemplated hereby and by such Related Agreements;
(ii) assuming the consents described in Section 2.4 have been
received, violate any Order or any Law affecting such Seller; or
(iii) result in the creation of any Lien on such Seller's Purchase
Shares, other than any Lien created by or through any action of PVH or its
Affiliates.
(b) In the case of the Klein Trust and the Schwartz Trust, the execution
and delivery of this Agreement and the Related Agreements by such Trust (to the
extent a party thereto) does not, and the consummation of the transactions
contemplated hereby and by such Related Agreements and compliance with the terms
hereof and of such Related Agreements will not, constitute a violation or breach
of the trust agreement governing such Trust or any related trust instrument.
2.3 Title to Purchase Shares. Such Seller has good and valid title to the
Purchase Shares owned by such Seller as set forth on the Sellers Disclosure
Schedule, free and clear of all Liens. Except as set forth in the Sellers
Disclosure Schedule, such Seller is not currently bound by any contract,
agreement, arrangement, commitment or understanding with, or has not granted any
option or right currently in effect or which would arise after the date hereof
to, any party other than PVH with respect to the acquisition of any of such
Seller's Purchase Shares.
2.4 Consents and Approvals. Except as set forth in the Sellers Disclosure
Schedule, no consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any Governmental Authority or Person
is required to be obtained by or on behalf of such Seller in connection with the
execution, delivery and performance of this Agreement or the Related Agreements
(to the extent a party thereto) or the consummation of the transactions
contemplated hereby and by such Related Agreements, other than compliance with
and filings under the HSR Act and similar Laws of any jurisdiction.
2.5 Litigation and Claims. There is no Action pending or, to the
Knowledge of such Seller, threatened, against or affecting such Seller that
could reasonably be expected to materially adversely affect such Seller's
ability to consummate the transactions contemplated hereby or by the Related
Agreements (to the extent a party thereto).
2.6 Investment Representations. Such Seller understands that the PVH
Shares, and Mr. Klein understands that the Warrant and the shares of PVH Common
Stock underlying such Warrant, will not have been registered under the
Securities Act. Such Seller also understands that the PVH Shares, and Mr. Klein
also understands that the Warrant and the shares of PVH Common Stock underlying
such Warrant, are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon the
representations of such
11
Seller contained in this Agreement. Such Seller hereby represents and warrants
to PVH as follows:
(i) Such Seller is capable of evaluating the merits and risks of the
investment in PVH and has the capacity to protect such Seller's own
interests. Such Seller must bear the economic risk of this investment
indefinitely unless the relevant securities are registered pursuant to the
Securities Act, or an exemption from registration is available. Such Seller
also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow such Seller to transfer all or any
portion of such securities under the circumstances, in the amounts or at
the times such Seller might propose.
(ii) Such Seller is acquiring the relevant securities for such
Seller's own account for investment only, and not with a view towards its
distribution.
(iii) Such Seller represents that such Seller is an "accredited
investor" within the meaning of Regulation D under the Securities Act.
2.7 No Finder. Except as set forth in the Sellers Disclosure Schedule,
neither such Seller nor any party acting on such Seller's behalf has paid or
become obligated to pay any fee or commission to any broker, finder or
intermediary (other than counsel) for or on account of the transactions
contemplated hereby or by the Related Agreements.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE
CK COMPANIES, MR. KLEIN AND MR. SCHWARTZ
WITH RESPECT TO THE CK COMPANIES AND THE CK TRUST
Each of Mr. Klein and Mr. Schwartz and each CK Company, jointly and
severally (but subject to the limitations contained in Section 9.4), hereby
represents and warrants to PVH as follows:
3.1 Organization; Good Standing.
(a) Each CK Company is a corporation duly organized, validly existing and
in good standing under the Laws of the jurisdiction in which it is organized.
Each CK Company has full corporate power and authority to conduct all of the
business and activities conducted by it, and to own or lease all of the assets
owned or leased by it; and is duly licensed or qualified to do business and is
in good standing as a foreign corporation in all jurisdictions in which the
nature of the business and activities conducted by it, and/or the character of
the assets owned or leased by it, makes such qualification or license necessary,
except for those jurisdictions in which the failure to be so qualified or
licensed would not, individually or in the aggregate, limit any CK Company's
ability to consummate the transactions contemplated hereby and by the Related
Agreements or have a CK Companies Material Adverse Effect.
12
(b) The CK Trust is a Delaware business trust, was duly established under
the CK Trust Agreement and remains in good standing under the Laws of the State
of Delaware.
3.2 Equity Interests. Except as set forth in the CK Companies Disclosure
Schedule, none of the CK Companies, directly or indirectly, own any capital
stock of or other equity interests in any Person. Except as set forth in the CK
Companies Disclosure Schedule, none of the CK Companies is a participant in any
joint venture, partnership, or similar arrangement, it being acknowledged and
agreed by PVH that the license agreements for the Marks do not create such an
arrangement as a result of CKI being entitled to share in certain revenue, or
have licensees or others share in certain costs.
3.3 Authority; Execution and Delivery; Enforceability. Each CK Company
has full corporate power and authority to execute and deliver this Agreement
and, to the extent a party thereto, the Related Agreements, to perform its
respective obligations hereunder and under such Related Agreements and to
consummate the transactions contemplated hereby and by such Related Agreements.
All corporate acts and other proceedings required to be taken by each CK Company
to authorize the execution, delivery and performance of this Agreement and such
Related Agreements have been duly and properly taken. Each of this Agreement and
(when executed) the Related Agreements has been (or will be) duly executed and
delivered by each CK Company (to the extent a party thereto), and constitutes
(or will, when executed, constitute) the legal, valid and binding obligation of
each CK Company (to the extent a party thereto), enforceable against each CK
Company in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, moratorium and other similar Laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
3.4 Non-Contravention. The execution and delivery of this Agreement and
the Related Agreements by each CK Company (to the extent a party thereto) does
not, and the consummation by any such CK Company of the transactions
contemplated hereby and by such Related Agreements and compliance by any such CK
Company with the terms hereof and of such Related Agreements, will not:
(i) constitute a violation or breach of the articles or certificate of
incorporation, as applicable, or the by-laws of any CK Company;
(ii) except as set forth in the CK Companies Disclosure Schedule,
constitute a default under or a violation or breach of, or result in the
acceleration of any obligation of a CK Company under, or a change in any
right or obligation of, a CK Company or counterparty, under, any provision
of any Contract required to be listed in a Schedule to this Agreement
(including, without limitation, the CK Trust Agreement) or by which (a) any
of the assets of any CK Company or (b) the Purchase Shares may be affected
or secured;
(iii) assuming the consents described in Section 3.7 have been
received, violate any Order or any Law affecting any CK Company or the CK
Trust, or the assets of any CK Company or the CK Trust;
13
(iv) result in the creation of any Lien on any of the assets of any CK
Company or the CK Trust, other than a Permitted Lien or any Lien created by
or through any action of PVH or its Affiliates; or
(v) assuming the consents described in Section 3.7 have been received,
result in the termination of (A) any license agreement for any Mark, (B)
any material license (excluding licenses for the Marks), franchise, lease
or permit to which any CK Company or the CK Trust is a party or by which it
is bound, or (C) any material right of any CK Company or the CK Trust under
any of the foregoing.
3.5 Corporate and Trust Documents; Books and Records. The Sellers have
made available to PVH complete and correct copies of the articles or certificate
of incorporation, as applicable, by-laws and stock transfer books of each CK
Company, and of the certificate of trust relating to the CK Trust, the CK Trust
Agreement and any related agreements thereto. The Sellers have made available to
PVH complete and correct in all material respects copies of all minute books and
all other existing records of any meeting of the board of directors or other
similar governing body (and any committee thereof) or stockholders (or
partholders in the case of CK Italy) of each CK Company.
3.6 Capitalization; Options; Trust Interests.
(a) The CK Companies Disclosure Schedule sets forth for each CK Company the
amount of its authorized capital stock, the amount of its outstanding capital
stock and the record and beneficial owners of its outstanding capital stock. All
the outstanding shares of capital stock (and all of the outstanding parts of
capital in the case of CK Italy) of each CK Company have been duly authorized
and validly issued and are fully paid and non-assessable, free and clear of all
Liens. There are no outstanding warrants, options, contracts, rights (preemptive
or otherwise), calls or commitments of any character binding on a CK Company
relating to any authorized and issued or unissued shares of capital stock (or
parts of capital in the case of CK Italy) of any CK Company or other instruments
binding on any CK Company convertible into or exchangeable for such stock, or
which obligate any CK Company to seek authorization to issue additional shares
of any class of stock (or parts of capital in the case of CK Italy), nor will
any be created by virtue of this Agreement or the Related Agreements or the
transactions contemplated hereby or by the Related Agreements. The Purchase
Shares constitute all of the outstanding shares of capital stock (and all of the
outstanding parts of capital in the case of CK Italy) of the CK Companies.
(b) The CK Trust estate is divided into three series of beneficial
ownership: Class A, Class B and Class C, with separate rights with respect to
that portion of the CK Trust estate allocated to that series. The CK Companies
Disclosure Schedule sets forth for the CK Trust the outstanding ownership
interests and the record and beneficial owners of its outstanding ownership
interests. All the outstanding ownership interests in the CK Trust have been
duly authorized and validly issued in compliance with the CK Trust Agreement,
free and clear of all Liens, and CKI has made all required contributions to the
CK Trust under the CK Trust Agreement. Except as set forth in the CK Companies
Disclosure Schedule, there are no other classes of ownership interest of the CK
Trust authorized or issued. There are no outstanding
14
warrants, options, contracts, rights (preemptive or otherwise), calls or
commitments of any character binding on the CK Trust relating to any interests
of the CK Trust or other instruments convertible into or exchangeable for such
interests, or which obligate the CK Trust to seek authorization to issue
additional interests, nor will any be created by virtue of this Agreement or the
Related Agreements or the transactions contemplated hereby or by the Related
Agreements.
3.7 Consents and Approvals. Except as set forth in the CK Companies
Disclosure Schedule, no consent, approval, license, permit, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority, and no consent or approval of any Person under any Contract required
to be listed in a Schedule to this Agreement, is required to be obtained by or
on behalf of any CK Company or the CK Trust in connection with the execution,
delivery and performance of this Agreement or the Related Agreements (to the
extent a party thereto) or the consummation of the transactions contemplated
hereby and by such Related Agreements, other than compliance with and filings
under the HSR Act and similar Laws of any jurisdiction.
3.8 Title to Assets.
(a) Each of the CK Companies and the CK Trust has good and valid title to
(or sufficient rights to use), free and clear of all Liens (other than Permitted
Liens and Liens granted under the Line Letter), all of its assets, not including
the CK Intellectual Property Rights, the representations with respect to which
are set forth in Section 3.12.
(b) Except as set forth in the CK Companies Disclosure Schedule, none of
the Sellers or any of their Affiliates (other than the CK Companies and the CK
Trust) own any assets primarily used in or necessary to conduct the business of
any CK Company.
(c) All of the material tangible personal property of the CK Companies has
been maintained in all material respects in accordance with generally accepted
industry practice. All of the material leased personal property of the CK
Companies is in all material respects in the condition required of such property
by the terms of the lease applicable thereto during the relevant term of the
lease.
3.9 Real Property.
(a) None of the CK Companies owns any real property.
(b) The CK Companies Disclosure Schedule lists all Real Property Leases.
Complete and correct copies of each Real Property Lease have been provided to
PVH.
3.10 Employment Related Agreements and Actions.
(a) The CK Companies Disclosure Schedule contains a complete and correct
list, as of the date hereof, of the directors and the officers of each CK
Company.
(b) The CK Companies Disclosure Schedule contains a complete and correct
list, as of the date hereof, of all Contracts currently in effect with current
or former employees,
15
consultants, or independent contractors of each CK Company in each case which
provides for payments in excess of $75,000 per annum or $250,000 in the
aggregate (in the case of Contracts providing for "at-will" employment only to
the extent such payments are guaranteed following termination of employment).
(c) Except as set forth in the CK Companies Disclosure Schedule and with
respect to current employees of any CK Company whose primary work location is in
the United States:
(i) none of the CK Companies is a party to any collective bargaining
agreement or other contract with any labor organization or other
representative of the CK Companies' employees, nor is any such contract
presently being negotiated, and no question concerning representation
exists or has been raised with respect to any of the employees of the CK
Companies since January 1, 1999, nor, to the Knowledge of the Sellers or
any CK Company, are there any campaigns being conducted to solicit cards
from the CK Companies' employees to authorize representation by any labor
organization;
(ii) there is no labor strike, union-related slowdown, work stoppage,
lockout or other union-related labor controversy in effect, or to the
Knowledge of the Sellers or any CK Company, threatened, against or
otherwise affecting any CK Company, and none of the CK Companies has
experienced any such event since January 1, 1999, and there is no unfair
labor practice, charge or complaint pending or, to the Knowledge of the
Sellers or any CK Company, threatened, against any CK Company;
(iii) no material Action by or before any Governmental Authority
brought by or on behalf of any employee, prospective employee, former
employee, retiree, labor organization or other representative of the
employees of any CK Company is pending or, to the Knowledge of the Sellers
or any CK Company, threatened, against any CK Company, and none of the CK
Companies is a party to, or otherwise bound by, any consent decree with, or
citation by, any Governmental Authority relating to employees or employment
practices at any CK Company;
(iv) no grievance is pending or, to the Knowledge of the Sellers or
any CK Company, threatened, by any Person or Persons at any CK Company
against any CK Company which would reasonably be expected to have a CK
Companies Material Adverse Effect;
(v) each CK Company is in compliance in all material respects with all
applicable Laws, Contracts and policies relating to employment, employment
practices, wages, hours, occupational safety and health, the withholding
and payment of Taxes from or with respect to the compensation of employees,
and terms and conditions of employment;
(vi) each CK Company has paid in full or accrued (subject to any good
faith dispute) to all of its employees all wages, salaries, commissions,
bonuses, benefits and
16
other compensation due to such employees or otherwise arising under any
policy, practice, agreement, plan, program, statute or other applicable
Law;
(vii) none of the CK Companies is closing, or since January 1, 1999,
has closed any Facility, effectuated any company-wide layoffs of employees
or implemented any early retirement, separation or window program, nor has
any CK Company planned or announced any such action or program for the
future; and
(viii) each CK Company is in compliance in all material respects with
its obligations pursuant to WARN, and all other notification and bargaining
obligations arising under any collective bargaining agreement or statute.
(d) With respect to current employees of any CK Company whose primary work
location is outside the United States ("International Employees") and except as
set forth in the CK Companies Disclosure Schedules:
(i) none of the CK Companies is a party to any collective bargaining
agreement or other contract with any labor organization or other
representative of the International Employees, recognized for the purposes
of the collective bargaining of terms and conditions, nor is any agreement
presently being negotiated, and no question concerning representation
exists or has been raised with respect to any of the International
Employees since January 1, 1999, nor, to the Knowledge of the Sellers or
any CK Company, are there any campaigns being conducted to solicit
registration with any union or subscription to collective bargaining
agreement from the International Employees to authorize representation by
any labor organization;
(ii) there is no labor strike, union-related slowdown, work stoppage,
lockout or other union-related labor controversy in effect, or to the
Knowledge of the Sellers or any CK Company, threatened, against or
otherwise affecting any CK Company, and none of the CK Companies has
experienced any such event since January 1, 1999, and there is no unfair
labor practice, charge or complaint pending or, to the Knowledge of the
Sellers or any CK Company, threatened, against any CK Company;
(iii) no material Action by or before any Governmental Authority or
union representative, brought by or on behalf of any International
Employee, prospective employee, former employee, retiree, labor
organization or other representative of the International Employees is
pending or, to the Knowledge of the Sellers or any CK Company, threatened,
against any CK Company, and none of the CK Companies is a party to, or
otherwise bound by, any consent decree with, or citation by, any
Governmental Authority or union representative relating to employees or
employment practices at any CK Company;
(iv) no formal grievance is pending or, to the Knowledge of the
Sellers or any CK Company, threatened, by any Person or Persons at any CK
Company against any CK Company which would reasonably be expected to have a
CK Companies Material Adverse Effect;
17
(v) each CK Company is in compliance in all material respects with all
applicable Laws and individual and/or collective Contracts, and policies
including, but not limited to, relating to employment, employment
practices, wages, hours, holidays, occupational safety and health, social
security contribution, accruals for termination indemnity, the withholding
and payment of Taxes from or with respect to the compensation of
International Employees, and terms and conditions of employment;
(vi) each CK Company has paid in full or accrued (subject to any good
faith dispute) to all of its International Employees all wages, salaries,
commissions, bonuses, benefits, holidays, termination notices, indemnity,
refunds and reinbursements, and other compensation due to such employees or
otherwise arising under any policy, practice, individual and/or collective
agreement, plan, program, statute or other applicable Law;
(vii) none of the CK Companies is closing, or since January 1, 1999,
has closed any Facility, effectuated any company-wide and partial layoffs
of International Employees or implemented any early retirement, incentive
to resignation, separation or window program, nor has any CK Company
planned or announced any such action or program for the future; and
(viii) each CK Company is in compliance in all material respects with
its obligations pursuant to any applicable Law relating to factory or
facility closings and all other notification and bargaining obligations
arising under any collective bargaining agreement or statute.
3.11 Contracts.
(a) The CK Companies Disclosure Schedule contains a complete and correct
list, as of the date hereof, of all Contracts (other than Contracts between or
among the CK Companies) that involve payments by, or to, any CK Company or the
CK Trust, of more than $250,000 per annum or $500,000 in the aggregate and all
Contracts without regard to dollar amount, or such lower amount expressly set
forth, in the following categories:
(i) commitments or agreements for services for which a prepayment or
advance has been made to, or by, or on behalf of, any CK Company or the CK
Trust in excess of $100,000 per commitment or agreement (other than
inventory or advertising related purchase order or commitments, licensing
arrangements or minimum guaranteed payments for advertising in the ordinary
course of business consistent with past practice (collectively, "Permitted
Arrangements"));
(ii) partnership or joint venture Contracts or arrangements or any
other agreements involving a sharing of revenue or profits (other than
license agreements described below and sales associate and agency
commission arrangements);
(iii) Contracts restricting any CK Company or the CK Trust from
carrying on its business or activities, as the case may be, in any material
respect in its usual and customary manner in any jurisdiction;
18
(iv) any non-competition agreements in favor of any CK Company (other
than employment or consulting agreements);
(v) except as set forth in clause (ix) below, each Contract between
any CK Company or the CK Trust, on the one hand, and any Affiliate of any
CK Company or the CK Trust, on the other hand;
(vi) any Contracts for the sale or other disposition by any CK Company
or the CK Trust of any of its assets in excess of $50,000 other than in the
ordinary course of business, consistent with past practice, and in no event
in excess of $100,000 (other than the sale or disposition of inventory in
the ordinary course of business consistent with past practice);
(vii) each Contract granting to a third party the right to use any CK
Intellectual Property Rights to manufacture and sell products, other than
Contracts that may be terminated upon less than 90 days' notice by a CK
Company granting the right to manufacture and sell products for seasonal
purposes, and each co-existence agreement relating to any Mark;
(viii) any letters of credit, Customs performance bonds or capitalized
leases which will not be satisfied at or prior to Closing; and
(ix) each outstanding loan or advance made by any CK Company to any
director, officer, employee, stockholder or other Affiliate of such CK
Company (other than any intercompany indebtedness and any business-related
advances to employees made in the ordinary course of business, consistent
with past practice and in an amount not in excess of $25,000 per employee
or $100,000 in the aggregate).
(b) Except as set forth in the CK Companies Disclosure Schedule, each CK
Company and the CK Trust has, with respect to all Contracts required to be
listed in any Schedule to this Agreement, performed in all material respects all
obligations required to be performed by it, and is not in default in any
material respect under any such Contract, and, to the Knowledge of the Sellers
or any CK Company, no other party to any such Contract is in default in any
material respect under any such Contract. Except as set forth in the CK
Companies Disclosure Schedule, no event has occurred which, with the lapse of
time or the giving of notice or both, would constitute a default in any material
respect by any CK Company or the CK Trust, or, to the Knowledge of the Sellers
or any CK Company, by any other party to any such Contract. Solely for purposes
of Section 7.1, the term "Contract" used in Sections 3.4(ii), 3.7 and this
Section 3.11(b) shall also include any Contract entered into after the date of
this Agreement that would have been required to be listed in a Schedule to this
Agreement had such Contract been in effect as of the date of this Agreement. For
purposes of Sections 3.4(ii), 3.7 and this Section 3.11(b), representations that
are qualified by Knowledge with respect to another party's compliance shall be
deemed not to include the Knowledge qualifier if such other party to the
Contract is an Affiliate required to be listed on the CK Companies Disclosure
Schedule pursuant to Section 3.2.
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3.12 Intellectual Property.
(a) For the purposes of this Agreement, "Intellectual Property Rights"
shall mean (i) all trademarks, service marks, trade dress, design marks, logos,
trade names, domain names, web-sites, brand names and corporate names, whether
registered or unregistered, active or inactive, together with all goodwill
associated therewith, and all applications, registrations and renewals in
connection therewith, (ii) all inventions and designs (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions and
reexaminations thereof, (iii) all artwork, photographs, advertising and
promotional materials and computer software and all copyright applications,
registrations and renewals in connection therewith, (iv) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information), and (v) all other rights in all
of the foregoing, including such rights as are provided by treaties, conventions
and common law; and the "CK Intellectual Property Rights" shall mean all of the
foregoing, including the Marks, and, (vi) the library of historical examples of
prior "Calvin Klein" women's collection apparel lines (and certain other "Calvin
Klein" apparel items), as well as the CAD systems with historical data and
information relating to such prior lines, and (vii) all rights to pursue,
recover and retain damages and costs and attorneys' fees for past, present and
future infringement of any of the foregoing, in each instance owned or used by
the CK Companies or the CK Trust. Notwithstanding the foregoing, the definition
of "CK Intellectual Property Rights" shall exclude (A) any Intellectual Property
Rights owned by, beneficially owned by and/or licensed for use by the CK Trust
to the extent evidenced by its Class B and Class C ownership interests and (B)
computer software that may be purchased over the counter.
(b) The CK Companies Disclosure Schedule sets forth a complete and correct
list, as of the date hereof of all: (i) subsisting registrations and
applications for registration in the name of any CK Company or the CK Trust for
trademarks, service marks, trade names, corporate names, brand names, logos,
domain names, patents and copyrights included in the CK Intellectual Property
Rights; (ii) unregistered and/or common law Intellectual Property Rights
included in the CK Intellectual Property Rights and material to the business of
the CK Companies as presently conducted; and (iii) pending Actions (including,
but not limited to those in Patent and Trademark Offices and courts) directly
related to any CK Intellectual Property Rights and material Actions threatened
in writing within the six years in respect of patents, and the three years in
respect of any other CK Intellectual Property Rights, in each case, prior to the
date of this Agreement (e.g., via cease-and-desist letters) directly relating to
any CK Intellectual Property Rights.
(c) The CK Trust and the CK Companies own, beneficially own and/or are
licensed or otherwise have the right to use, all Intellectual Property Rights
necessary to conduct, or material to, the businesses of the CK Companies as they
are currently conducted. The CK Trust is the sole and exclusive title owner of
the Marks other than as set forth on the CK Companies Disclosure Schedule, free
and clear of all Liens other than the Contracts listed on the CK Companies
Disclosure Schedule granting third parties rights to use such Marks. All
material
20
applications and registrations for Intellectual Property Rights included in the
CK Intellectual Property Rights, including the Marks, as set forth in the CK
Companies Disclosure Schedule, are as of the date hereof, valid, subsisting, in
full force and effect; have not been assigned and have been properly maintained
by the filing of all necessary declarations and renewals in compliance in all
material respects with the CK Trust Agreement and the Servicing Agreement.
Except as disclosed on the CK Companies Disclosure Schedule, the CK Trust owns
all of the Marks and continues to own, preserve, maintain, defend and protect
the Marks owned by the CK Trust in compliance in all material respects with the
CK Trust Agreement and the Servicing Agreement. CKI is the servicer of the CK
Trust and effects all maintenance of the Marks on behalf of the CK Trust, in
compliance in all material respects with the Servicing Agreement. CKI continues
to own, preserve, maintain, defend and protect the Marks owned by CKI as a
nominee for the benefit of the CK Trust, as set forth in the CK Companies
Disclosure Schedule. Except as disclosed in the CK Companies Disclosure
Schedule, and to the Knowledge of the Sellers or any CK Company, there is no
Intellectual Property Right necessary to conduct or material to the businesses
of the CK Companies as currently conducted whether used by any Seller, any CK
Company or any Person authorized by any of the foregoing that is not owned, or
beneficially owned, by the CK Trust or a CK Company or that the CK Trust or the
CK Companies are not properly authorized to use. The CK Companies and/or the CK
Trust have taken all necessary actions to maintain and protect in all material
respects the Marks and each other material item of CK Intellectual Property
Rights in the ordinary course of business.
(d) The continued operation of the business of the CK Companies as
presently conducted does not infringe, misappropriate or make unauthorized use
of, in any material respect, any Intellectual Property Rights of third parties.
Except as disclosed in the CK Companies Disclosure Schedule, there are no
material Actions pending or threatened in writing that alleges that the use or
exploitation of the CK Intellectual Property Rights infringes, misappropriates
or constitutes the unauthorized use of any Intellectual Property Rights of third
parties. To the Knowledge of the Sellers or any CK Company, and except as
disclosed in the CK Companies Disclosure Schedule, the CK Intellectual Property
Rights are not being infringed by any Person. Except as disclosed in the CK
Companies Disclosure Schedule, there are no material Actions pending for which
notice has been provided to any Seller, any CK Company or the CK Trust, or
Actions threatened in writing, challenging any CK Company's or the CK Trust's
ownership of, right to use, or the validity or enforceability or patentability
of any CK Intellectual Property Rights.
(e) None of the CK Companies or the CK Trust is in breach of or default in
any material respect, or is alleged in writing, to be in breach of or default,
in any material respect, under any CK Intellectual Property Rights Contract, nor
has an event or condition occurred (or been alleged by any other party in
writing to have occurred) which would constitute a material breach
21
or event of default on the part of any CK Company or the CK Trust or would
provide a basis for a valid claim, acceleration, additional fees or termination
by any other party under any CK Intellectual Property Rights Contract. Except as
disclosed in the CK Companies Disclosure Schedule, to the Knowledge of Sellers
or any CK Company, no other party is in breach of or default, in any material
respect, under any CK Intellectual Property Rights Contract, nor, to the
Knowledge of the Sellers or any CK Company, has any event or condition occurred
(or been alleged by any other party in writing to have occurred) which would
constitute a material breach or event of default on the part of such other party
under any such Contract. Except as disclosed in the CK Companies Disclosure
Schedule, no material waiver or deferral of enforcement of the rights or
benefits of any CK Company has been provided under any CK Intellectual Property
Rights Contract since January 1, 2000. Except as disclosed in the CK Companies
Disclosure Schedule, the consummation of the transactions contemplated hereby
and the Related Agreements shall not result in the loss or impairment of any CK
Company's or the CK Trust's rights in the CK Intellectual Property Rights.
(f) None of the CK Companies or the CK Trust has given to any Person an
indemnity in connection with any Intellectual Property Right, other than
indemnities that, individually or in the aggregate, would not reasonably be
expected to result in liability to the CK Companies or the CK Trust in excess of
$100,000, except as otherwise disclosed in the CK Companies Disclosure Schedule.
3.13 Insurance. The CK Companies Disclosure Schedule contains a complete
and correct list, as of the date hereof (together with their respective
termination dates), of all policies of fire, casualty, general liability,
defamation, general media liability, personal injury, property damage, workers'
compensation and all other forms of insurance carried by each CK Company or
pursuant to which any CK Company is a named beneficiary or pursuant to which the
business or properties of each CK Company is insured and complete and correct
copies of which have been provided to PVH. All of such policies and any
substantially equivalent replacement coverages are in full force and effect and
no notice of cancellation or termination has been received with respect to such
policies. Each CK Company has notified such insurers of any material claim
arising since January 1, 2000 known to it which it believes is covered by any
such insurance policy and has provided PVH with a list of such claim which is
pending as of the date hereof.
3.14 Financial Statements; Liabilities.
(a) CKI has provided to PVH the audited combined balance sheets of CKI and
its affiliates as of, and the audited combined statements of operations and cash
flows of CKI and its affiliates for, the fiscal years ended December 29, 2001,
December 30, 2000 and January 1, 2000, together with the notes thereto and the
opinions of PricewaterhouseCoopers LLP thereon (collectively, the "Audited
Financial Statements"). Except as set forth in the CK Companies Disclosure
Schedule, the Audited Financial Statements have been prepared from the books and
records of CKI and its affiliates, and present fairly in all material respects,
in conformity with GAAP, the financial condition, results of operations and cash
flows of CKI and its affiliates on a combined basis for the periods and dates
covered
22
thereby. Additionally, CKI has provided to PVH the unaudited combined balance
sheets of CKI and its affiliates as of, and the unaudited combined statements of
operations and cash flows of CKI and its affiliates for, the nine-month period
ended September 28, 2002 (collectively, the "Unaudited Financial Statements").
Except as set forth in the CK Companies Disclosure Schedule, the Unaudited
Financial Statements have been prepared from the books and records of CKI and
its affiliates, and present fairly in all material respects, in conformity with
GAAP, the financial condition, results of operations and cash flows of CKI and
its affiliates on a combined basis for such period and date covered thereby,
except for adjustments and accruals which are normally made at year end and the
absence of footnote disclosures thereto.
(b) Except as set forth in the CK Companies Disclosure Schedule (which,
notwithstanding Section 11.11, with respect to clause (iii) shall mean any
section of the CK Companies Disclosure Schedule), CKI and its affiliates do not
have any liabilities or obligations of any kind, whether absolute, accrued,
asserted or unasserted, contingent or otherwise, except liabilities, obligations
and contingencies, that (i) are reflected on or accrued or reserved against in
the 2001 Balance Sheet, or reflected in any notes thereto, or the September 28
Balance Sheet, or reflected in any notes thereto, (ii) were incurred since
September 28, 2002 in the ordinary course of business (iii) were incurred since
September 28, 2002 not in the ordinary course of business but only if reflected
on, or accrued or reserved against, the Closing Date Balance Sheet, or (iv) with
respect to liabilities and obligations of a type not required to be disclosed by
GAAP in a combined balance sheet of the CK Companies, would not reasonably be
expected to have a CK Companies Material Adverse Effect.
3.15 Tax Matters. Except as set forth in the CK Companies Disclosure
Schedule:
(i) For all periods beginning after December 31, 1994, each of the CK
Companies is not and has not at any time during the period for which any
Tax adjustment could be made been a member of any consolidated, combined,
unitary or similar group with respect to any Taxes. Each of the CK
Companies currently qualifies as an S corporation for federal income Tax
purposes and has so qualified since the applicable date stated on the CK
Companies Disclosure Schedule. The states in which each of the CK Companies
qualifies as an S corporation and the date from which it so qualified are
stated on the CK Companies Disclosure Schedule. Each of the CK Companies
qualifies as an S corporation in every jurisdiction in which it files
income or franchise Tax Returns that permits corporations to elect to
qualify as S corporations.
(ii) All Tax Returns required to be filed by, or with respect to, each
of the CK Companies have been filed when due, all such Tax Returns were
correct and complete in all material respects, and all Taxes shown on said
Tax Returns have been paid or, to the extent not paid, accrued in the
September 28 Balance Sheet. The Sellers have made available to PVH complete
and correct copies of (i) all income and franchise Tax Returns filed by
each of the CK Companies for the last three taxable years, and (ii) all Tax
examination reports and statements of deficiencies assessed with respect to
each of the CK Companies for the last five taxable years.
(iii) No Tax proceeding is currently being conducted with respect to
any of the CK Companies, no issues that had been raised by a Tax Authority
with respect to any of them are pending and none of them has received
written notification from any Tax Authority that it intends to commence a
Tax proceeding with respect to any Tax Return.
(iv) There are no outstanding waivers of the time for assessment of
any Taxes relating to any of the CK Companies. There are no Liens for any
Tax (other than Taxes not yet due and payable) on the assets of any of the
CK Companies.
24
(v) To the Knowledge of the Sellers or any CK Company, no claim has
been made by any Tax Authority in a jurisdiction where Tax Returns are not
filed, that any of the CK Companies is or may be subject to taxation by
that jurisdiction.
(vi) None of the CK Companies will be required to recognize taxable
income on or after the Closing Date in connection with a transaction with
respect to which money or other property which is the subject of such
taxable income was received and distributed to the Sellers prior to the
Closing Date.
(vii) There is not, and will not be as of the Closing, any agreement
or consent made under Section 341(f) of the Code affecting any of the CK
Companies.
(viii) None of the CK Companies has assets that constitute tax-exempt
bond financed property or tax-exempt use property within the meaning of
Section 168 of the Code, and none of such assets is subject to a lease,
safe-harbor lease, or other arrangement as a result of which the purported
owner is not treated as the owner for federal income Tax purposes.
(ix) None of the CK Companies is a party to any Tax sharing or Tax
indemnification agreement or arrangement, whether formal or informal, and
from and after the Closing Date, none of them shall have any rights,
obligations or liabilities under any such agreement or arrangement in
existence prior to the Closing.
(x) None of the CK Companies has undergone a change in accounting
method that currently requires, or will require, an adjustment to taxable
income under Section 481 of the Code for any period following the Closing
Date.
(xi) All material Taxes that any of the CK Companies is or was
obligated to withhold from amounts paid prior to the date hereof to any
Person have been fully paid or accrued on the CK Companies' financial
statements.
(xii) None of the CK Companies is or has been a "United States real
property holding company" within the meaning of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(xiii) The CK Trust has been classified and treated as a grantor trust
for federal income tax purposes at all times since inception.
(xiv) For purposes of the representations set forth in (ii) through
(vi) and (viii) through (xi) of this Section 3.15, the term "CK Companies"
shall include the CK Trust.
3.16 Absence of Certain Changes and Events. Since September 28, 2002,
except as set forth in the CK Companies Disclosure Schedule, each CK Company has
conducted its business in the ordinary course thereof consistent with past
practice and from such date through the date of this Agreement, with respect to
any CK Company or the CK Trust, as the case may be, there has not been any:
24
(i) change in the business, assets, liabilities, results of operations
or financial condition of the CK Companies, or any event, condition or
contingency (either individually or taken together) that constitutes a CK
Companies Material Adverse Effect;
(ii) (A) incurrence, payment or discharge of any liability or
obligation (absolute, accrued, contingent or otherwise), (B) sale or
transfer of any property, or (C) acquisition or sale, lease, grant of
interest in, or other disposition of, any assets or businesses, in each of
clauses (A), (B) and (C), other than in the ordinary course of business,
consistent with past practice;
(iii) (A) guarantee or any other assumption of the obligations of any
Person (other than another CK Company) or (B) making of any loan or advance
to any Person (other than business-related advances to employees in the
ordinary course of business, consistent with past practice and in an amount
not in excess of $25,000 per employee or $100,000 in the aggregate);
(iv) settlement or compromise of any Action if the amount of such
settlement will not be paid in full prior to the Closing or which
settlement or compromise would reasonably be expected to have a continuing
adverse impact on the business of the CK Companies after the Closing;
(v) Tax election or change in a Tax election or the filing for any
change in any material respect of any method of accounting with the
Internal Revenue Service, except as required by any change in Law;
(vi) change in any method of accounting applied in the preparation of
the Financial Statements, other than a change which is required by reason
of a concurrent change in Law or GAAP;
(vii) (A) adoption of or amendment in any material respect to any
benefit plan or bonus, profit sharing, deferred compensation, incentive,
stock option or stock purchase plan, program or commitment, paid time off
for sickness or other plan, program or arrangement for the benefit of its
employees, consultants or directors, or (B) grant of any increase (other
than increases required under any Contract and annual increases in the
ordinary course of business, consistent with past practice) in the
compensation of its employees, officers or directors (including any such
increase pursuant to any bonus, profit sharing or other compensation or
incentive plan, program or commitment);
(viii) material change or modification in any of the Contracts, nor
has any of the CK Companies or the CK Trust entered into any Contract,
except, in each case, in the ordinary and regular course of its business
and in no event calling for annual payments by, or to, any CK Company in
excess of $250,000 (other than with respect to Permitted Arrangements);
(ix) issuance or sale by any CK Company or the CK Trust of any capital
stock or trust interest of any CK Company or the CK Trust, as the case may
be, or any security convertible into or exchangeable for, any shares of
such capital stock or trust interests;
25
(x) declaration, distribution or the setting aside for distribution of
any property other than cash, cash equivalents and readily marketable
securities of any CK Company or the CK Trust, or directly or indirectly,
the redemption, purchase or otherwise acquisition of any shares of capital
stock or trust interests for property other than cash, as the case may be;
and
(xi) agreement, whether in writing or otherwise, to take any action
described in this Section 3.16.
3.17 Litigation and Claims. Except as set forth in the CK Companies
Disclosure Schedule, there is no material Action pending or, to the Knowledge of
the Sellers or any CK Company, threatened, against or affecting any CK Company,
the CK Trust or the Purchase Shares, and there is no material Action pending or,
to the Knowledge of the Sellers or any CK Company, threatened, against any CK
Company or the CK Trust affecting the propriety or validity of the transactions
contemplated hereby or by the Related Agreements. Except as set forth in the CK
Companies Disclosure Schedule, none of the CK Companies or the CK Trust is
subject to or in default under or with respect to any Order.
3.18 Governmental Permits; Compliance with Laws.
(a) Each CK Company owns, holds or possesses all material Governmental
Permits which are necessary to entitle it to own or lease, operate and use its
assets and to carry on and conduct its business substantially as currently
conducted, except for such Governmental Permits which would be obtainable in due
course by any qualified applicant without any undue burden or cost in the event
of any failure to apply, lapse, termination, cancellation or forfeiture thereof.
(b) The CK Companies Disclosure Schedule sets forth a complete and correct
list and brief description of each Governmental Permit owned, held or possessed
by the CK Companies, as of the date hereof, except for such Governmental Permits
which would be obtainable in due course by any qualified applicant without any
undue burden in the event of any lapse, termination, cancellation or forfeiture
thereof. Except as set forth in the CK Companies Disclosure Schedule, (i) each
CK Company has fulfilled and performed in all respects its obligations under
each of the Governmental Permits which it owns, holds or possesses other than
where the failure to perform could not reasonably be expected to have a CK
Companies Material Adverse Effect, and (ii) no written notice of cancellation,
of default or of any material dispute concerning any Governmental Permit, or of
any event, condition or state of facts described in the preceding clause, has
been received by the Sellers or any CK Company. Solely for purposes of Section
7.1, the term "Governmental Permit" used in this Section 3.18(b) shall also
include any Governmental Permit owned, held or possessed by any CK Company after
the date of this Agreement that would have been required to be listed in a
Schedule to this Agreement had such Governmental Permit been owned, held or
possessed by such CK Company as of the date of this Agreement.
(c) Each CK Company is in compliance in all respects with all Laws which
are applicable to its business other than any failure to comply which could not
reasonably be expected to have a CK Companies Material Adverse Effect.
26
3.19 Environmental Matters. Except as set forth in the CK Companies
Disclosure Schedule:
(i) Each CK Company is in compliance in all material respects with its
obligations under applicable Environmental Laws;
(ii) There are no Environmental Conditions present at, on, or under,
any Facility, as a result of activities of any CK Company or any of their
employees or agents or, to the Knowledge of the Sellers or any CK Company,
as a result of activities of any other Person, in each case in amounts
exceeding the levels permitted by applicable Environmental Law or under
circumstances that would reasonably be expected to result in liability in
any material respect under or relating to Environmental Law;
(iii) None of the CK Companies has disposed of, arranged for the
disposal of, released, threatened to release, or transported any Hazardous
Substances in violation of any applicable Environmental Law or in a manner
that would reasonably be expected to result in material Damages to PVH or
to any CK Company;
(iv) None of the CK Companies is subject to any Actions, is subject to
any Order or has received any notice or other communication from any
Governmental Authority or the current or prior owner or operator of any of
the Facilities or any other Person, in each case with respect to any actual
or potential violation or failure to comply with any Environmental Law or
of any actual or threatened obligation or liability under any Environmental
Law, or regarding any Hazardous Substances; and to the Knowledge of the
Sellers or any CK Company, none of the CK Companies is threatened with any
such written Action, Order, notice or communication;
(v) None of the CK Companies has specifically contractually assumed
any liability or obligation under or relating to Environmental Laws or
Hazardous Substances; and
(vi) Since January 1, 1992, there are no Environmental Reports in the
custody or control of the CK Companies relating to the Facilities, business
of any CK Company or activities of any CK Company that have not been made
available to PVH.
3.20 Employee Plans.
(a) Except as set forth in the CK Companies Disclosure Schedule, none of
the CK Companies or the Sellers nor any other Person which together with the CK
Companies or any of the Sellers constitutes a member of the CK Companies' or
such Seller's "controlled group" or "affiliated service group" (within the
meaning of Sections 4001(a)(14) and/or (b) of ERISA and/or Sections 414(b), (c),
(m) or (o) of the Code (each such group or groups and each member thereof
hereinafter referred to individually and collectively as the "Group")) has at
any time adopted or maintained, has any liability or is a fiduciary with respect
to or has any present or future obligation to contribute to or make payment
under (i) any employee benefit plan (as defined in Section 3(3) of ERISA) which
is subject to ERISA, or (ii) any other benefit plan, program, contract or
arrangement of any kind whatsoever (whether for the benefit of present,
27
former, retired or future employees, consultants or independent contractors of
the Group, or for the benefit of any other Person or Persons) including, without
limitation, plans, programs, contracts or arrangements with respect to pension,
retirement, profit sharing, deferred compensation, thrift, savings, stock
ownership, stock bonus, restricted stock, health, dental, medical, life,
hospitalization, disability, relocation, child care, educational assistance,
stock purchase, stock option, incentive, bonus, sabbatical leave, vacation,
severance, cafeteria, pre-tax premium, flexible spending or other contribution,
benefit or payment of any kind, and plans, programs, contracts or arrangements
providing for contributions, benefits or payments in the event of a change of
ownership or control in whole or in part of the Group, other than any such
benefit plan, program, contract or arrangement maintained outside the United
States primarily for the benefit of International Employees (hereinafter
individually and collective called the "International Plans"), (all such
employee benefit plans and other benefit plans, programs, contracts or
arrangements, whether written or oral, other than any International Plan,
hereinafter individually and collectively called the "Employee Benefit Plans").
No member of the Group has any obligation other than as required by applicable
Law, to amend any Employee Benefit Plan so as to increase benefits thereunder or
otherwise.
(b) No Employee Benefit Plan is subject to Title IV of ERISA, Section 302
of ERISA or Section 412 or 413(c) of the Code, other than the ILGWU National
Retirement Fund and NRF-2000.
(c) Except as set forth in the CK Companies Disclosure Schedule with
respect to the filings of Forms 5330, any and all amounts which any member of
the Group is required to pay as contributions or otherwise, with respect to the
Employee Benefit Plans, have been timely paid.
(d) Except as disclosed on the CK Companies Disclosure Schedule, each of
the Employee Benefit Plans (other than any Multiemployer Plans (as defined in
Section 3.20(e)) and any welfare plans (within the meaning of Section 3(1) of
ERISA) maintained by a labor union (such welfare plans and Multiemployer Plans
that are Employee Benefit Plans hereinafter individually and collectively called
"Union Plans")) sponsored or maintained by any CK Company, to which such CK
Company has any current or future obligation to contribute or under which any
employee of such CK Company (and/or any dependent or beneficiary of such
employee) is covered or entitled to benefits by reason of employment with such
CK Company (such Employee Benefit Plans hereinafter individually and
collectively called "Company Plans") and, to the Knowledge of the Sellers or any
CK Company, each of the Union Plans, has been established, maintained, operated
and administered in all material respects in accordance with its terms and all
applicable Law. Each of the Company Plans which is intended to be "qualified"
within the meaning of Sections 401(a) and 501(a) of the Code (a "Qualified
Plan") has been determined by the Internal Revenue Service to be so qualified
and nothing to the Knowledge of the Sellers or any CK Company has occurred since
the issuance of such determination to adversely affect such qualified status.
There are no pending, threatened or anticipated proceedings (other than routine
claims for benefits) involving any of the Company Plans, or, to the Knowledge of
the Sellers or any CK Company, any of the Union Plans, with respect to or
affecting any CK Company or any current or former employee of any CK Company.
There have been no nonexempt "prohibited transactions" within the meaning of
Section 406 of ERISA or Section 4975 of the Code with respect to any of the
Employee Benefit Plans with respect to
28
which all obligations and liabilities of any CK Company has not been satisfied
in full prior to November 1, 2002.
(e) No member of the Group has incurred any withdrawal liability with
respect to a "multiemployer plan" within the meaning of Section 3(37) of ERISA
(each such plan hereinafter a "Multiemployer Plan") under Title IV of ERISA. No
member of the Group is a party to, or participates in, or has any liability or
contingent liability with respect to any Multiemployer Plan (other than the
ILGWU National Retirement Fund and NRF-2000 as disclosed in Section 3.20(e) of
the CK Companies Disclosure Schedule).
(f) A complete and correct copy of each of the Company Plans and each of
the International Plans, and all amendments thereto, whether currently effective
or to become effective at a later date, and all contracts and agreements
relating thereto, or to the funding thereof (including, without limitation, all
trust agreements, insurance contracts, investment management agreements,
subscription and participation agreements, administration and recordkeeping
agreements) have been provided to PVH. In the case of any Company Plan that is
not in written form, an accurate and complete description of such Company Plan
has been provided to PVH. With respect to each Company Plan, PVH has been
provided with a complete and correct copy of each of (i) the three most recent
annual reports (Form 5500 series), and (ii) the most recent summary plan
description (including summaries of material modification), and Internal Revenue
Service determination letter and/or ruling.
(g) Except as set forth on the CK Companies Disclosure Schedule, each
Company Plan, and all contracts and agreements relating thereto or to the
funding thereof, can be unilaterally terminated by such CK Company, without
penalty, on no more than 30 days' notice, and all obligations of such CK Company
with respect to all other Employee Benefit Plans can be unilaterally terminated
by such CK Company, without penalty, on no more than 30 days' notice. There have
been no material changes in the financial condition of the respective Company
Plans (or other information provided hereunder) from that stated in each Company
Plan's most recent of such annual reports.
(h) Except as set forth on the CK Companies Disclosure Schedule, no Company
Plan provides benefits including, without limitation, death or medical benefits
(whether or not insured), with respect to any employees, former employees or
directors of any CK Company beyond their retirement or other termination of
service, other than (i) coverage mandated by applicable Law or (ii) death
benefits or retirement benefits under any "employee pension plan," as that term
is defined in Section 3(2) of ERISA.
(i) Except as set forth in the CK Companies Disclosure Schedules, neither
the execution and delivery by the Sellers or any CK Company of this Agreement or
the Related Agreements nor the consummation by the Sellers of the transactions
contemplated hereby or by the Related Agreements shall (either alone or upon the
occurrence of additional events or acts) (x) require any CK Company to make any
payment to, or obtain any consent or waiver from, any officer, director,
employee, consultant or agent of any member of the Group or (y) accelerate
vesting or payment of any benefits or any payments, increase the amount or value
of any benefit or payment.
29
(j) The CK Companies Disclosure Schedule separately identifies each
International Plan as well as each severance or other post termination
arrangement applicable to International Employees. Any and all amounts that any
member of the Group is required to pay as contribution or otherwise with respect
to each International Plan have been timely paid. Each International Plan has
been established, maintained and operated in all material respects in accordance
with their terms and all applicable Law including, without limitation, any Law
relating to exemption from Tax for any International Plan intended to be
Tax-exempt. There are no pending, threatened or anticipated proceedings (other
than routine claims for benefits) involving any of the International Plans.
3.21 No Finder. None of the CK Companies or any party acting on their
behalf, has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary (other than counsel which fee or commission shall be paid
in full by the CK Companies prior to the Closing) for or on account of the
transactions contemplated hereby or by the Related Agreements.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PVH
PVH represents and warrants to each CK Company and the Sellers as follows:
4.1 Organization; Good Standing. PVH is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
4.2 Authority; Execution and Delivery; Enforceability. PVH has full
corporate power and authority to execute and deliver this Agreement and the
Related Agreements, to perform its respective obligations hereunder and under
the Related Agreements and to consummate the transactions contemplated hereby
and by the Related Agreements. All corporate acts and other proceedings required
to be taken by PVH to authorize the execution, delivery and performance of this
Agreement and the Related Agreements have been duly and properly taken. Each of
this Agreement and (when executed) the Related Agreements has been (or will be)
duly executed and delivered by PVH, and constitutes (or will, when executed,
constitute) the legal, valid and binding obligation of PVH, enforceable against
PVH in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, moratorium and other similar Laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
4.3 Non-Contravention. The execution and delivery of this Agreement and
the Related Agreements by PVH does not, and the consummation of the transactions
contemplated hereby and by the Related Agreements and compliance with the terms
hereof and of the Related Agreements, will not:
(i) constitute a violation or breach of the certificate of
incorporation or the by-laws of PVH;
30
(ii) except as set forth in the PVH Disclosure Schedule, constitute a
default under or a violation or breach of, or result in the acceleration of
any obligation under, any provision of any material contract or other
instrument to which PVH is a party or by which any of the assets of PVH; or
(iii) assuming the consents described in Section 4.4 have been
received, violate any Order or any Law affecting PVH or the assets of PVH.
4.4 Consents and Approvals. Except as set forth in the PVH Disclosure
Schedule, no consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any Governmental Authority or Person
is required to be obtained by or on behalf of PVH in connection with the
execution, delivery and performance of this Agreement or the Related Agreements
or the consummation of the transactions contemplated hereby and by the Related
Agreements, other than compliance with and filings under the HSR Act and similar
Laws of any jurisdiction.
4.5 Equity Matters. The PVH Shares, the Warrant and the shares of PVH
Common Stock underlying the Warrant, when issued in accordance with the terms of
this Agreement or the Warrant, as the case may be, will be duly and validly
issued, fully paid and non-assessable, will be free and clear of any Liens
imposed by or through PVH, will not be subject to preemptive rights and will not
subject the holder thereof to personal liability by reasons of being such a
holder.
4.6 Litigation and Claims. There is no Action pending or, to the
knowledge of PVH, threatened, against or affecting PVH with respect to the
propriety or validity of the transactions contemplated hereby or by the Related
Agreements. Except as otherwise disclosed herein or in the PVH Disclosure
Schedules, there are no Actions pending or, to the knowledge of PVH, threatened,
against or involving PVH or any of its Subsidiaries or any of their respective
properties or assets, at Law or in equity, involving claims of more than
$1,000,000 by stockholders of PVH, or claims involving more than $1,000,000 for
product liability, infringement of trademark, patent or intellectual property,
violations of health and safety laws covering employees, violations of
Environmental Laws, violations of customs laws, sexual harassment or
discrimination, or racial discrimination. There is no outstanding or, to the
knowledge of PVH, threatened, Order of any Governmental Authority against PVH or
any of its Subsidiaries or any of their respective properties or assets, which
Order could have a PVH Material Adverse Effect.
4.7 SEC Reports. PVH has timely filed all forms, reports and documents
required to be filed by it with the Securities and Exchange Commission since
February 4, 2001 (the "SEC Reports"). The SEC Reports (i) were prepared in all
material respects in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (ii) did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Each of the balance sheets (including the related notes)
included in the SEC Reports presents fairly in all material respects the
consolidated financial position of PVH as of the respective dates thereof, and
the
31
other related financial statements (including the related notes) included
therein presented fairly in all material respects the consolidated results of
operations and changes in financial position of PVH for the respective periods
indicated, except, in the case of interim financial statements, for year-end
audit adjustments, consisting only of normal recurring accruals. Each of the
financial statements (including the related notes) included in the SEC Reports
has been prepared in accordance with GAAP, except as otherwise noted therein or,
in the case of the unaudited financial statements, as permitted by the
applicable rules and regulations of the Securities and Exchange Commission.
4.8 Private Offering. Subject to the accuracy of the Sellers'
representations and warranties contained in Article II, the offer, sale and
issuance of the PVH Shares, the Warrant and the shares of PVH Common Stock
underlying the Warrant, as contemplated hereby and by the Warrant, is (and will
be) exempt from the registration requirements of the Securities Act. PVH has not
offered or sold such securities by any form of general solicitation or general
advertising, as such terms are used in Rule 502(c) under the Securities Act.
4.9 Capitalization. The PVH Disclosure Schedule sets forth, in each case
as of the date hereof, (i) the authorized Capital Stock of PVH, the number of
shares of each class of Capital Stock issued and outstanding and the number of
shares of PVH Common Stock reserved for issuance in connection with PVH's stock
option plans, and (ii) all options, warrants, rights to subscribe to, calls,
contracts, undertakings, arrangements and commitments to issue which may result
in the issuance of Capital Stock of PVH, other than (x) options to purchase
615,887, 1,886,878 and 2,387,564 shares of PVH Common Stock issued and
outstanding under PVH's 1987, 1997 and 2000 stock option plans, respectively,
and (y) the Rights. All of the issued and outstanding shares of PVH's Capital
Stock have been duly and validly authorized and issued and are fully paid and
non-assessable and are not subject to any preemptive rights. Except pursuant to
this Agreement or in connection with stock option plans, the Rights Agreement
and the Apax Transaction, (i) no equity securities of PVH are or may be required
to be issued by reason of any options, warrants, rights to subscribe to, calls
or commitments of any character whatsoever, (ii) there are outstanding no
securities or rights convertible into or exchangeable for shares of any Capital
Stock of PVH, and (iii) there are no contracts, commitments, understandings or
arrangements by which PVH is bound to issue additional shares of its Capital
Stock or securities or rights convertible into or exchangeable for shares of any
Capital Stock of PVH, or options, warrants or rights to purchase or acquire any
additional shares of its Capital Stock. Neither PVH nor any of its Subsidiaries
are subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any of its Capital Stock. Except as contemplated by
the Registration Rights Agreement, there are no contracts between PVH and any
Person granting such Person the right to require PVH to file a registration
statement under the Securities Act with respect to any securities of PVH owned
or to be owned by such Person or to require PVH to include such securities in
any other registration statement filed by PVH under the Securities Act.
4.10 Listing. PVH is not in violation of the listing requirements of the
NYSE in any material respect. PVH has not received any written notice from the
NYSE that the PVH Common Stock is to be delisted by the NYSE.
32
4.11 Financial Statements. PVH has made available to the Sellers copies
of (i) the consolidated balance sheet of PVH and its Subsidiaries as of February
3, 2002 and February 4, 2001 and the related consolidated income statements,
changes in stockholders' equity and cash flows for the fiscal years ended
February 3, 2002, February 4, 2001 and January 30, 2000, as reported in PVH's
Annual Report on Form 10-K for the fiscal year ended February 3, 2002, filed by
PVH with the SEC under the Exchange Act, and accompanied by the audit report of
Ernst & Young LLP, independent public accountants, and (ii) the unaudited
consolidated balance sheet of PVH and its Subsidiaries as of November 3, 2002
(the "PVH Balance Sheet") and the related unaudited consolidated income
statements and cash flows for the thirteen weeks and thirty-nine weeks ended
November 3, 2002, as reported in PVH's Quarterly Report on Form 10-Q for the
quarterly period ended November 3, 2002, filed with the SEC under the Exchange
Act. Such audited financial statements accurately reflect the books and records
of PVH and present fairly, in all material respects, the consolidated financial
position of PVH and its Subsidiaries and the consolidated results of their
operations and their cash flows for the periods and dates covered thereby, in
conformity with GAAP. Such unaudited financial statements accurately reflect the
books and records of PVH and present fairly, in all material respects, the
consolidated financial position of PVH and its Subsidiaries and the consolidated
results of their operations and their cash flows for the period and date covered
thereby, in conformity with GAAP, except for changes resulting from year-end
adjustments (none of which will be material in amount) and the absence of
footnote disclosures thereto. PVH and its Subsidiaries have no liabilities or
obligations of a type that GAAP would require to be on the PVH Balance Sheet
(absolute, accrued, contingent or otherwise) which are not fully reflected or
reserved against in the PVH Balance Sheet in conformity with GAAP, except for
liabilities and obligations that may have arisen in the ordinary and usual
course of business and consistent with past practice since November 3, 2002 and
that, individually or in the aggregate, could not reasonably have a PVH Material
Adverse Effect. Neither PVH nor any of its Subsidiaries are currently a party to
any Off-Balance Sheet Arrangement, which is not reflected in the financial
statements (or the footnotes thereto) referred to in this Section 4.11. During
the past three years, PVH has not restated any of its published financial
results and PVH is not aware of any facts which may require such restatement.
4.12 Tax Matters.
(a) For the periods commencing after January 1, 1999, PVH and each of its
Subsidiaries has timely filed or caused to be timely filed any and all Tax
Returns required to be filed by it under applicable Law, except to the extent
that any failure to do so could not reasonably be likely to have a PVH Material
Adverse Effect. The reserves for Taxes contained in the financial statements of
PVH or carried on the books and records of PVH and its Subsidiaries, as
applicable, are in the aggregate adequate to cover all Tax liabilities and
deferred Taxes of PVH and its Subsidiaries, as of the date of this Agreement,
except to the extent that any inadequacy could not have a PVH Material Adverse
Effect.
(b) For the periods commencing after January 1, 1999, all Taxes shown as
being due and owing by PVH or any of its Subsidiaries on any Tax Return have
been paid.
33
(c) PVH and each of its Subsidiaries have timely withheld and paid all
Taxes required to have been withheld and paid in connection with any amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
third party, except to the extent that any failure to do so could not have a PVH
Material Adverse Effect.
(d) None of PVH nor any of its Subsidiaries have waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency, in each case except as to Taxes that are
disclosed in the PVH Disclosure Schedules or in the financial statements of PVH
and its Subsidiaries, as applicable, or that, if assessed could not have a PVH
Material Adverse Effect.
(e) PVH has not been a "United States real property holding corporation"
within the meaning of Section 897 of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code.
4.13 Intellectual Property.
(a) For the purposes of this Section 4.13, "PVH Intellectual Property"
shall mean (i) all PVH Marks, trade dress, logos, trade names, domain names,
web-sites, brand names and corporate names (and all licenses or other rights
relating to any of the foregoing), together with all goodwill associated
therewith, and all applications, registrations and renewals in connection
therewith, (ii) all inventions and designs (whether patentable or unpatentable
and whether or not reduced to practice), all improvements thereto, and all
patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions and
reexaminations thereof, and (iii) all copyrightable works, all copyrights and
all applications, registrations and renewals in connection therewith, in each
case which is owned by or licensed to PVH and its Subsidiaries as of the date
hereof.
(b) Each of PVH and its Subsidiaries owns, or is licensed to use, all PVH
Intellectual Property material to its business, and to the knowledge of PVH, the
use thereof by PVH and its Subsidiaries does not infringe upon the trademark,
copyright or proprietary rights of any other Person, except for any such
infringements that, individually or in the aggregate, could not reasonably be
likely to have a PVH Material Adverse Effect.
(c) Except as set forth in the PVH Disclosure Schedules, no PVH Mark
licensed to or used by PVH or any of its Subsidiaries is scheduled to expire
(without the right of extension on the part of PVH) within 12 months from the
date hereof, which such expiration could reasonably be likely to have a PVH
Material Adverse Effect.
4.14 Employee Plans.
(a) The PVH Disclosure Schedule sets forth a complete and correct list of
every Employee Program which is maintained, administered, sponsored or
contributed to by PVH or any of its Subsidiaries, which covers any employee of
PVH or any of its Subsidiaries or with respect to which an obligation of PVH or
any of its Subsidiaries to make any contribution exists, other than a Foreign
Plan. Any Employee Program listed in such schedule (other than any
34
Employee Program that is a multiemployer plan, as defined in Section 3(37) of
ERISA (a "Multiemployer Plan")) is referred to below as a "Company Employee
Plan."
(b) PVH has made available to the Sellers with respect to each Company
Employee Plan complete and correct copies of (i) all written documents
comprising such Company Employee Plan (including amendments, individual
agreements, service agreements, trusts and other funding agreements), (ii) the
three most recent annual returns in the Federal Form 5500 series (including all
schedules thereto) filed with respect to such Company Employee Plan, (iii) the
three most recent audited financial statements and actuarial reports, if any,
pertaining to such Company Employee Plan, (iv) the summary plan description
currently in effect and all material modifications thereto, if any, for such
Company Employee Plan, (v) any employee handbook which includes a description of
such Company Employee Plan, (vi) the most recent Internal Revenue Service
determination letter, if any, for such Company Employee Plan, and (vii) any
other written communications to any employee, to the extent that the provisions
of such Company Employee Plan described therein differ materially from such
provisions as set forth or described in the other information or materials
furnished under this subsection (b).
(c) Each Company Employee Plan which is intended to qualify under Section
401(a) of the Code has received a determination letter from the Internal Revenue
Service which states that such plan is so qualified, and on which any employer
which has adopted such plan may currently rely.
(d) Each Company Employee Plan and Foreign Plan has been maintained in
accordance with its terms and with all applicable Laws, except to such extent as
could not reasonably have a PVH Material Adverse Effect. Neither PVH nor any of
its Subsidiaries has any unsatisfied liability, or any unpaid fine, penalty or
tax, with respect to any Company Employee Plan, any Foreign Plan or any other
Employee Program, which could reasonably have a PVH Material Adverse Effect. To
the knowledge of PVH, there has been no "prohibited transaction" (within the
meaning of Section 406 of ERISA or Section 4975 of the Code), or any breach of
any duty under ERISA, any other applicable Law or any agreement, with respect to
any Company Employee Plan or Foreign Plan which could subject PVH or any of its
Subsidiaries to material liability either directly or indirectly (including,
without limitation, through any obligation of indemnification or contribution)
for any damages, penalties, taxes or any other loss or expense which could
reasonably have a PVH Material Adverse Effect. PVH and each of its Subsidiaries
has made full and timely payment of all contributions required to be made by it
to each Company Employee Plan and Foreign Plan by the terms of any such plan or
under the applicable Law, except that all contributions which are so required to
be made by PVH or any of its Subsidiaries to each Company Employee Plan and
Foreign Plan for any period ending prior to the Closing, but which are not due
by the date of the Closing, shall be properly reserved or accrued in the
appropriate financial statements. There have been no material violations of any
reporting or disclosure requirements under ERISA or the Code with respect to any
Company Employee Plan, including any requirement to file an annual return.
(e) No litigation or claim (other than routine claims for benefits), and no
governmental administrative proceeding, audit or investigation, is pending or,
to the knowledge
35
of PVH or any of its Subsidiaries, threatened with respect to any Company
Employee Plan or Foreign Plan which could reasonably have a PVH Material Adverse
Effect.
(f) With respect to each Company Employee Plan which is a defined benefit
pension plan, (i) such Company Employee Plan has not incurred an "accumulated
funding deficiency", within the meaning of Section 412 of the Code or Section
302 of ERISA, whether or not waived, (ii) such Company Employee Plan has not
been terminated, (iii) no notice of intent to terminate such Company Employee
Plan has been issued to participants or filed with the PBGC, (iv) the PBGC has
not instituted any proceeding to terminate, or to appoint a trustee or
administrator of, such Company Employee Plan, and no circumstances exist that
are reasonably likely to constitute grounds under Section 4042 of ERISA which
may allow the PBGC to institute any such proceeding, (v) except as set forth on
the PVH Disclosure Schedule, if such Company Employee Plan is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code, as of the
most recent valuation date for such Company Employee Plan, the present value of
benefit liabilities, when computed on a termination basis using actuarial
assumptions which are reasonable under the circumstances, does not exceed the
value of assets, (vi) neither PVH nor any of its Subsidiaries (x) have incurred
any liability to the PBGC or any other Person, or has become subject to any
lien, under Title IV of ERISA in connection with such Company Employee Plan
(other than PBGC premiums), or (y) has knowledge of any facts or transactions
that might reasonably be anticipated to result in the imposition of any
liability on, or the imposition of any lien on the assets of, PVH or any of its
Subsidiaries to, or in favor of, the PBGC or any other Person under Title IV of
ERISA in connection with such Company Employee Plan (other than PBGC premiums),
and (vii) no reportable event as defined in Section 4043 of ERISA and the
regulations issued under such section, excluding, however, such events as to
which the PBGC has by regulation waived the requirement of Section 4043 of ERISA
that it be notified within 30 days of the occurrence of such event, has occurred
with respect to such Company Employee Plan.
(g) Except as set forth on the PVH Disclosure Schedule, no Employee Program
which has been maintained, administered or contributed to by PVH or any of its
Subsidiaries, which has covered any employee of PVH or any of its Subsidiaries,
or to which PVH or any of its Subsidiaries has had any obligation to make a
contribution, during the six-year period ending on the date of this Agreement,
is (i) a "multiemployer plan", as defined in Section 3(37) of ERISA, (ii) a
"multiple employer plan", as described in Section 413(c) of the Code, (iii) a
"multiple employer welfare arrangement", as defined in Section 3(40) of ERISA,
(iv) a "voluntary employees' beneficiary association" within the meaning of
Section 501(c)(9) of the Code, or (v) a Foreign Plan other than a plan which
does not provide benefits materially greater than any benefits which may be
required by applicable Law. Neither PVH nor any of its Subsidiaries has, within
the past six years, incurred any withdrawal liability to a Multiemployer Plan.
(h) Except as set forth on the PVH Disclosure Schedule, all health and
medical benefit coverage, and all death benefit coverage, under each Company
Employee Plan is provided solely through insurance, and no Company Employee Plan
provides health or medical coverage, life insurance coverage, or coverage for
any other welfare benefit to any retiree, except
36
for continuation coverage required by Section 4980B of the Code, Sections 601 to
608 of ERISA or any applicable State Law.
(i) No employee of PVH or any of its Subsidiaries shall accrue or receive
additional benefits, additional credit for service, accelerated vesting or
accelerated rights to payment of any benefit under any Company Employee Plan, or
become entitled to any severance, termination allowance or similar payments or
to the forgiveness of any indebtedness, solely as a result of the execution and
delivery of, or the transactions contemplated by this Agreement. Such execution
and delivery, or the occurrence of such transactions, shall not result in any
increase in the contributions required to be made to any Company Employee Plan.
Except as set forth on the PVH Disclosure Schedule, no payment made or
contemplated under any Company Employee Plan, or by PVH or any of its
Subsidiaries, in connection with the transactions contemplated hereby and by the
Apax Transaction, constituted, or would constitute, either (i) an "excess
parachute payment" within the meaning of Section 280G of the Code or (ii) a
payment which is not deductible by reason of Section 404 of the Code.
(j) Except as set forth on the PVH Disclosure Schedule, (i) except for the
adoption of a plan amendment which is needed to bring the plan documents into
conformity with statutory changes enacted in recent years, neither PVH nor any
of its Subsidiaries are under any obligation (express or implied) to modify any
Company Employee Plan, or to establish any new Employee Program which will cover
any employee of PVH or any of its Subsidiaries, (ii) PVH or its Subsidiaries
have expressly reserved to itself the right to amend, modify or terminate each
Company Employee Plan (and any service or funding agreement or arrangement for
each Company Employee Plan), at any time without material liability or penalty
to itself (other than routine expenses), and (iii) no Company Employee Plan
requires PVH or any of its Subsidiaries to continue to employ or use the
services of any employee.
(k) Except as set forth on the PVH Disclosure Schedule, there has been no
amendment, interpretation or announcement by PVH or any of its Subsidiaries
relating to any Company Employee Plan which would materially increase the
expense of maintaining such plan above the level of expense incurred with
respect to that plan, as indicated in the applicable financial statements, for
its most recent fiscal year.
(l) No entity, which at any time during the six-year period ending on the
date of this Agreement has been considered a single employer with PVH or any of
its Subsidiaries under Section 4001(b) of ERISA or Section 414(b), (c), (m) or
(o) of the Code, has any unpaid liability, fine, penalty or tax with respect to
any Employee Program for which PVH or any of its Subsidiaries could be liable,
and which could reasonably have a PVH Material Adverse Effect.
4.15 Compliance with Laws; Permits.
(a) PVH and its Subsidiaries are in compliance in all material respects
with all material Laws and material Orders promulgated by any Governmental
Authority applicable to PVH and its Subsidiaries or to the conduct of the
business or operations of PVH and its Subsidiaries or the use of their
properties (including any leased properties) and assets. Since January 1, 1999,
neither PVH nor any of its Subsidiaries have received any written notice of
37
violation or alleged material violation of any such Law or Order by any
Governmental Authority in any material respect that has not been resolved. Since
January 1, 1999, neither PVH nor any of its Subsidiaries have received written
notice that it is the subject of an investigation by any Governmental Body which
could reasonably be likely to have a PVH Material Adverse Effect.
(b) To the knowledge of PVH, except as set forth in the PVH Disclosure
Schedules, PVH and its Subsidiaries have all Permits necessary for the conduct
of their business, except where the failure to have such Permits could not
reasonably be likely to have a PVH Material Adverse Effect. PVH and its
Subsidiaries have complied in all material respects with all conditions of such
Permits applicable to it.
4.16 Environmental Protection.
(a) Each of PVH and its Subsidiaries are in compliance in all material
respects with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any applicable Environmental Laws, or in any plan, Order, notice or demand
letter issued, entered, promulgated or approved thereunder.
(b) Except as set forth in the PVH Disclosure Schedules, to the knowledge
of PVH, as a result of activities of PVH or its Subsidiaries or any of their
employees, no Hazardous Material has been incorporated in, used on, stored on or
under, released from, treated on, transported to or from, or disposed of on or
from, any property owned or during the period of PVH's or any of its
Subsidiaries' lease(s), or, to the knowledge of PVH without any investigation,
any prior period, leased by PVH or any of its Subsidiaries such that, under
applicable Environmental Laws (i) any such Hazardous Material would be required
to be removed, cleaned-up or remediated before the property could be altered,
renovated, demolished or transferred, or (ii) the owner or lessee of the
property could be subjected to liability for the removal, clean-up or
remediation of such Hazardous Material, except, under circumstances that could
not reasonably be likely to have a PVH Material Adverse Effect; and, except as
set forth in the PVH Disclosure Schedules, PVH has not received any written
notification from any Governmental Authority or other third parties relating to
Hazardous Material on or affecting any property owned or leased by PVH or its
Subsidiaries or relating to any potential or known liability under applicable
Environmental Laws arising from the ownership or leasing of any property, which
could reasonably be likely to have a PVH Material Adverse Effect.
4.17 No Finder. Except for the engagement of The Blackstone Group L.P.,
JPMorgan Chase and Lehman Brothers, neither PVH nor any party acting on its
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated hereby
or by the Related Agreements.
4.18 No Reliance. PVH acknowledges that no written or oral
representations or warranties have been made to it or any of its Affiliates or
representatives, with regard to any of the CK Companies or otherwise with
respect to the transactions contemplated by this Agreement or any Related
Agreement, other than as set forth in Article II and Article III and in the
Agreement and Assignment. Without limiting the foregoing, PVH acknowledges that
the Sellers and the CK Companies are not making any representations and
warranties with respect to the
38
effect on PVH after the Closing of any agreement the CK Companies may have with
UNITE, Local 89-22-1 or any other union as a result of the consummation of the
transactions contemplated hereby; provided, however, that nothing herein shall
relieve the Sellers of any liability hereunder as a result of a breach by the CK
Companies of any such agreement or the representations and warranties of the
Sellers and the CK Companies with respect thereto.
ARTICLE V.
ACTION PRIOR TO THE CLOSING DATE
From and after the execution of this Agreement until the Closing Time (or
earlier termination of this Agreement in accordance with Section 10.1):
5.1 Conduct of Business.
(a) Each CK Company shall, and each Seller shall cause each CK Company to,
(i) continue to conduct the business of such CK Company in the ordinary course
thereof and use its commercially reasonable efforts to maintain its business in
substantially the same manner as heretofore, carry on its business' practices in
substantially the same manner as heretofore and keep the business' books of
account, records and files in a manner consistent with past practice, (ii) use
its commercially reasonable efforts to preserve the organization of such CK
Company intact, to retain the services of the non-administrative and non-union
employees of such CK Company and to preserve the goodwill of the licensees,
suppliers and customers of such CK Company and others having business relations
with such CK Company, (iii) pay and perform all of the debts, obligations and
liabilities of such CK Company as and when due consistent with past practice and
all Contracts in accordance in all material respects with the terms and
provisions thereof; provided, however, the CK Companies shall repay in full and
cancel, at or prior to the Closing Time, the CK Debt Obligations and shall cause
all Liens granted under the Line Letter to be discharged, (iv) maintain all CK
Intellectual Property Rights in a manner consistent with past practices and not
take any action adverse to the preservation of such CK Intellectual Property
Rights, (v) fully satisfy all obligations, on a timely basis, under each
employee benefit plan (as defined in Section 3(3) of ERISA), including, without
limitation, all contribution obligations, and to administer, operate and
maintain each such employee benefit plan in accordance with its terms and all
applicable Law, including with respect to any Qualified Plan, the qualification
requirements of the Code, and (vi) use the same efforts as heretofore used to
comply with all Laws applicable to such CK Company.
(b) Notwithstanding Section 5.1(a) hereof, none of the CK Companies shall,
and each Seller shall cause the CK Companies to not, without the prior written
consent of PVH:
(i) make any material change in the businesses or the operations of
any CK Company;
(ii) (A) incur, pay or discharge any liability or obligation
(absolute, accrued, contingent or otherwise), except with respect to the CK
Debt Obligations, (B) sell or
29
transfer any property, or (C) acquire or sell, lease, grant an interest in
or dispose of any assets or businesses, in each case, other than in the
ordinary course of business consistent with past practice or pursuant to
Section 5.11;
(iii) (A) guarantee or assume any other obligation of any Person
(other than another CK Company), or (B) make any loan or advance to any
Person (other than business-related advances to employees in the ordinary
course of business, consistent with past practice and in an amount not to
exceed $25,000 per employee or $100,000 in the aggregate);
(iv) waive any right of value owed to, cancel any debt owed to, or
claims held by, any CK Company, except in the ordinary course of business
consistent with past practice, or with respect to the CK Debt Obligations;
(v) settle or compromise any Action, which amount of such settlement
or compromise is not paid in full prior to the Closing or which settlement
or compromise would have a continuing adverse impact on the business of the
CK Companies after the Closing;
(vi) make any Tax election or change a Tax election or file for any
change in any material respect of any method of accounting with the
Internal Revenue Service, except as required by any change in Law;
(vii) revoke any CK Company's election to be taxed as an S corporation
within the meaning of Sections 1361 and 1362 of the Code, or the comparable
elections or status for applicable state and local Tax purposes, or take or
permit to be taken any action that would reasonably be expected to have the
effect of terminating any such election or status;
(viii) make any change in the methods of accounting or accounting
principles applied in the preparation of the financial statements of the CK
Companies other than a change which is required by reason of a concurrent
change in Law or GAAP;
(ix) (A) adopt, terminate or amend, except as required by this
Agreement or applicable Law, or as permitted by Section 6.2(d), in any
material respect (other than as may be required to comply with applicable
Law), fund or secure any benefit plan or bonus, profit sharing, deferred
compensation, incentive, stock option or stock purchase plan, program or
commitment, paid time off for sickness or other plan, program or
arrangement for the benefit of its employees, consultants or directors, (B)
grant any general increase (other than increases required under a Contract)
in the compensation of its employees (including any such increase pursuant
to any bonus, profit sharing or other compensation or incentive plan,
program or commitment) or any increase (other than increases required under
a Contract) in the compensation payable or to become payable to any officer
or director, or (C) take any action to or permit any member of the Group to
take any action to completely or partially withdraw (within the meaning of
Section 4201 of ERISA) from any Multiemployer Plan;
40
(x) enter into, amend or modify any Contract except in the ordinary
course of business and in no event calling for annual payments, if a new
Contract, or an increase in annual payments, if an amendment or
modification, by, or to, any CK Company in excess of $100,000, other than
(i) with respect to Permitted Arrangements, and (ii) any amendments and
modifications pursuant to grace periods customary in the industry;
(xi) amend or modify any employment agreement or any consulting
agreement with respect to an employee of, or consultant to, any CK Company,
as applicable, entitled to receive a base salary or consulting fee, as
applicable, in excess of $75,000 per year;
(xii) enter into, amend or modify any Contract granting to a third
party the right to use any CK Intellectual Property Rights to manufacture
and sell products, other than Contracts that may be terminated upon less
than 90 days' notice by a CK Company granting the right to manufacture and
sell products for seasonal purposes or any co-existence agreement relating
to any Mark;
(xiii) enter into, amend or modify any collective bargaining
agreements;
(xiv) authorize, undertake, or enter into any commitment with respect
to, capital expenditure projects individually in excess of $50,000 or in
the aggregate in excess of $250,000;
(xv) amend the articles or certificates of incorporation, as
applicable, or by-laws of any CK Company, or amend the CK Trust Agreement;
(xvi) issue, deliver, or agree (actually or contingently) to issue or
deliver (whether pursuant to any option or otherwise), or grant or modify
any option, warrant or other right to purchase or otherwise acquire, any
shares of the capital stock or trust interests of any CK Company or the CK
Trust, as the case may be, or any security convertible into or exchangeable
for, any shares of such capital stock or trust interests, or issue or agree
to issue any bonds, notes, or other securities, except borrowings drawn
under the Line Letter and ordinary course trade letters of credit and
performance bonds;
(xvii) split, combine or reclassify any shares of the capital stock or
trust interests of any CK Company or the CK Trust, as the case may be,
retire, redeem or otherwise acquire any shares of the capital stock or
trust interests of any CK Company or the CK Trust, as the case may be, or
declare, set aside or make any distributions of property other than
pursuant to Section 5.11 or other than cash, cash equivalents or readily
marketable securities in respect of the capital stock or trust interests of
any CK Company or the CK Trust, as the case may be, or agree to do any of
the foregoing;
(xviii) fail to maintain in force, or make any change in (except in
the ordinary course of business), the insurance contemplated by Section
3.13 (or substantially equivalent replacement coverage) as being maintained
by any CK Company;
41
(xix) issue any communication to employees of any CK Company with
respect to compensation, benefits or employment continuation or opportunity
following the Closing, except as required by Law;
(xx) enter into any partnership or joint venture agreement or
arrangement or any similar agreement or arrangement;
(xxi) enter into any Contract which would require a consent thereunder
with respect to the consummation of the transactions hereby or by any
Related Agreement; or
(xxii) agree, whether in writing or otherwise, to do any of the
foregoing.
5.2 No Breach of Representations and Warranties; Notification of Certain
Matters. The Sellers, the CK Companies or PVH, as the case may be, will, in the
event of, and promptly after the occurrence of, or promptly after becoming aware
of the occurrence of, or the impending or threatened occurrence of, any event or
condition which would result in the inability of any condition contained in
Articles VII or VIII to be satisfied or would otherwise prevent it from
consummating the transactions contemplated hereby or by any Related Agreement,
give detailed written notice thereof to the Sellers, the CK Companies or PVH, as
the case may be, and each of the Sellers, the CK Companies or PVH, as the case
may be, shall use its reasonable best efforts to prevent or promptly to remedy
such event, condition or breach. None of the disclosures pursuant to this
Section 5.2 will be deemed to qualify, modify, or amend or supplement the
representations, warranties or covenants of any party.
5.3 Access. Subject to the terms of the Confidentiality Agreement, the
Sellers and CKI shall afford PVH's employees, auditors, legal counsel and other
authorized representatives and advisors, as well as representatives of PVH's
financing sources, all reasonable opportunity and access during normal business
hours to inspect, investigate and audit the assets, liabilities, Contracts,
operations and business of the CK Companies and the CK Trust and to interview
the employees and officers of the CK Companies. The Sellers and CKI shall also
permit PVH to meet with the licensees and other business partners of the CK
Companies to discuss the business conducted between the CK Companies and such
licensees and business partners so long as representatives of the Sellers and/or
the CK Companies participate in such meetings and discussions.
5.4 Standstill. None of the CK Companies or the Sellers shall, and shall
not permit any of their respective officers, directors, employees, agents or
Affiliates to, initiate, solicit, encourage, negotiate or enter into any
agreement with any Person other than PVH (and the other Sellers) respecting the
acquisition of any portion of the business of any CK Company or any of the
Purchase Shares.
5.5 Notice of Litigation. Promptly after obtaining knowledge of the
occurrence of or the written threatened occurrence of any Action against any CK
Company, the CK Trust, any Mark or the Purchase Shares, the Sellers or such CK
Company shall give detailed written notice thereof to PVH.
42
5.6 Fulfillment of Conditions to PVH's Obligations. Each Seller agrees,
and agrees to cause each CK Company, to use reasonable best efforts to
effectuate the transactions contemplated hereby and by the Related Agreements
and to fulfill the conditions contained in Article VII and Article VIII, as
applicable.
5.7 Fulfillment of Conditions to Sellers' Obligations. PVH agrees to use
reasonable best efforts to effectuate the transactions contemplated hereby and
by the Related Agreements and to fulfill the conditions contained in Article VII
and Article VIII, as applicable.
5.8 Governmental Consents. Each of PVH, the Sellers and the CK Companies
shall as promptly as practicable following the execution and delivery of this
Agreement make all filings, notices, petitions, statements, registrations,
submissions of information, application or submission of other documents
required by any Governmental Authority in connection with the transactions
contemplated hereby and by the Related Agreements, including without limitation
(i) the notification and report forms with the FTC and the DOJ, and any
supplemental information requested in connection therewith pursuant to the HSR
Act, and (ii) any other comparable notification forms required by any
Governmental Authority. Each party will cause all documents that it is
responsible for filing with any Governmental Authority under this Section 5.8 to
comply in all material respects with all applicable Law. Each such party shall
furnish to the other such necessary information and reasonable assistance as the
other may request in connection with its preparation of such filings or
submissions. Each such party shall keep the other apprised of the status of any
communications with, and any inquiries or requests for additional information
from, any Governmental Authority and shall comply promptly with any such inquiry
or request. Each such party shall use its reasonable best efforts to obtain any
clearance required under applicable Law for the consummation of the transactions
contemplated hereby and by the Related Agreements. Filing fees attributable to
the filings made pursuant to this Section 5.8 shall be borne by the party
responsible for making the filing (it being understood that PVH shall pay all
filing fees with respect to any filing required under the HSR Act or any other
filings with any Governmental Authority in connection with the transactions
contemplated hereby).
5.9 Third Party Consents. The CK Companies and the Sellers shall use
their respective reasonable best efforts (without the obligation to make payment
other than obligations when and as required under existing Contracts) to obtain
all consents from parties to Contracts which are required by the terms thereof
to be obtained in connection with the transactions contemplated hereby and by
the Related Agreements. PVH shall use its reasonable efforts to cooperate in
obtaining any such consents, so long as PVH is not required to make any payments
with respect thereto.
5.10 Publicity. No public release or announcement concerning the
transactions contemplated hereby or by the Related Agreements shall be issued by
any party without the prior consent of the other party (which consent shall not
be unreasonably withheld or delayed), except as such release or announcement may
be required by Law or the rules or regulations of any United States or foreign
securities exchange, in which case the party required to make the release or
announcement shall allow the other party reasonable time to comment on such
release or
43
announcement in advance of such issuance and shall make a reasonable effort to
take into account such comments.
5.11 Transfer of Certain Assets. (a) To the extent any of the Sellers
(or any of their Affiliates, other than the CK Companies or the CK Trust) own
any assets primarily used in or necessary to conduct any CK Company's business,
such Seller, effective as of the Closing Time, shall (i) sell, assign, deliver
and transfer to PVH or the relevant CK Company or the CK Trust all such assets,
and (ii) use its best efforts to cause such Affiliate to enter into an agreement
with PVH to sell, assign, deliver and transfer to PVH or the relevant CK Company
or the CK Trust all of such assets, in each case for no additional
consideration; provided, however, that the property set forth in Section 5.11 of
the CK Companies Disclosure Schedule may be retained by (or transferred to) the
Sellers on or prior to Closing.
ARTICLE VI.
OTHER AGREEMENTS OF THE PARTIES
6.1 Cooperation in Litigation; Retention of Employees
(a) Prior to the third anniversary of the Closing Date, the Sellers shall
provide to PVH (at PVH's sole cost and expense) such cooperation as may
reasonably be requested (taking into account the business and personal
activities of the Sellers) in connection with the defense of any litigation
relating to any CK Company whether existing on the Closing Date or arising
thereafter out of, or relating to, an occurrence or event happening before the
Closing Date, provided, that such cooperation is limited to matters of which the
Sellers have Knowledge.
(b) From and after the date hereof until the Closing, the Sellers agree to
use their reasonable best efforts (at PVH's sole cost and expense which shall
not include the payment by PVH of any obligations of any CK Company for periods
prior to Closing) to assist PVH in retaining, subsequent to the Closing Date,
the services of the employees of the CK Companies whom PVH wishes to employ.
6.2 Employees.
(a) Any "Severance Qualified Employee" (as hereinafter defined) whose
employment with PVH or any CK Company is involuntarily terminated without cause
(as determined in good faith by PVH) by PVH or any CK Company during the
nine-month period beginning on the Closing Date will be entitled to be paid
severance by PVH or such CK Company as follows:
(i) With respect to any such Severance Qualified Employee who, as of
the employment termination in question, has more than 15 full years of
service with a CK Company (taking into account such Severance Qualified
Employee's service with PVH or a CK Company after the Closing), such
severance will be based on two weeks of such Severance Qualified Employee's
salary for each full year of such Severance Qualified Employee's service
with a CK Company (taking into account such Severance Qualified
44
Employee's service with PVH or a CK Company after the Closing), up to a
maximum severance payment equal to one year's salary; and
(ii) With respect to any such Severance Qualified Employee who is not
described in Section 6.2(a)(i) above, such severance will be based on one
week of such Severance Qualified Employee's salary for each full year of
such Severance Qualified Employee's service with a CK Company (taking into
account such Severance Qualified Employee's service with PVH or a CK
Company after the Closing), up to a maximum severance payment equal to one
year's salary.
Payment of severance pay, if any, to any individual who is not a Severance
Qualified Employee and with respect to employment terminations occurring after
the expiration of the nine-month period beginning on the Closing Date will be
made in accordance with the then-generally applicable policies of PVH. Any
severance payments made hereunder shall be net of withholding and other Taxes
required under applicable Law. For purposes hereof, a "Severance Qualified
Employee" is any individual, other than an International Employee, who was an
employee of any CK Company immediately prior to the Closing, who, prior to the
employment termination in question, was continuously employed by a CK Company
(taking into account such employee's service with PVH or a CK Company after the
Closing) for at least one full year and who, as of the employment termination in
question, is not covered by a written agreement that provides such Severance
Qualified Employee with a severance benefit. The amount of severance, if any,
payable to International Employees whose employment terminates after the Closing
shall be determined by PVH in accordance with its then-generally applicable
policies and applicable Law.
(b) PVH agrees that each individual who was an employee of the CK Companies
immediately prior to the Closing will receive service credit for all periods of
employment with the CK Companies or any predecessor thereto prior to the Closing
Date for purposes of eligibility and vesting under any employee plan within the
meaning of Section 3(3) of ERISA in which such employee participates after the
Closing Date (but specifically excluding credit for benefit accrual purposes)
and vacation entitlement.
(c) With respect to any plan maintained by the CK Companies, PVH or any
Affiliate at or following the Closing Date that provides welfare benefits to
employees of the CK Companies, with respect to such employees:
(i) Any pre-existing condition limitations with respect to any
employee of the CK Companies shall be waived to the extent the condition of
such employees would have been covered under the plan of the CK Companies
in which such employee participated immediately prior to the Closing Date;
and
(ii) Such employee will be provided with credit for any co-payments
and deductible paid prior to the Closing Date and during the calendar year
in which the Closing occurs under a CK Companies plan in satisfying any
applicable deductible or out-of-pocket requirements for such calendar year
under any welfare benefit plan in which such employee may be eligible to
participate after the Closing Date.
45
(d) Immediately prior to the Closing, the CK Companies shall terminate the
Calvin Klein, Inc. Retirement Savings Plan (the "CKI Plan"), effective as of
immediately prior to the Closing. Each individual who was an employee of the CK
Companies immediately prior to the Closing and who satisfies the requirements
for eligibility in either the PVH Associates Investment Plan for Salaried
Associates or the PVH Associates Investment Plan for Hourly Associates (each a
"PVH Savings Plan"), taking into account service credited pursuant to Section
6.2(b) above, shall be eligible to participate in the applicable PVH Savings
Plan immediately following the Closing. Immediately prior to the Closing, PVH
and the Sellers shall cooperate and use their commercially reasonable efforts to
(i) prevent any loan to a participant under the CKI Plan that is outstanding as
of the termination of the CKI Plan from accelerating solely on account of such
termination of the CKI Plan, and (ii) obtain any participant consents and adopt
any amendments to the CKI Plan necessary to prevent such acceleration. As soon
as practicable following the Closing, PVH and the Sellers shall cooperate to
communicate such termination of the CKI Plan and such eligibility under the
applicable PVH Savings Plan to affected employees.
(e) Immediately prior to the Closing, the Sellers shall take all reasonable
steps to terminate the participation of any individual who, immediately prior to
the Closing, is not an employee of any of the CK Companies or an eligible
dependent of such an employee in any Employee Benefit Plan maintained by any of
the CK Companies and such termination of participation shall not be a
"qualifying event" within the meaning of Section 4980B of the Code.
(f) Following the Closing, each of Mr. Klein and Mr. Schwartz, will be
entitled under "COBRA" to continue their current group health plan coverage for
a period of up to 18 months; continuation of such coverage shall be at Mr.
Klein's and Mr. Schwartz's respective sole discretion and at their sole cost.
6.3 Non-Competition, Non-Solicitation, Non-Derogation and Confidentiality.
(a) From and after the Closing Date (until the fifth anniversary of the
Closing Date with respect to Mr. Schwartz), each of Mr. Klein and Mr. Schwartz
agrees individually on his own behalf that he will not, directly or indirectly
(including, without limitation, through any other Seller), engage in, be
employed by, be a consultant to, own, manage, operate, provide financing to,
control or participate in the ownership, management or control of, or otherwise
have an interest in any other Person in the conduct of, any Restricted Business
or any Person with respect to any Restricted Business, provided, that neither
Mr. Klein nor Mr. Schwartz shall be precluded from ownership of (i) the PVH
Shares, the Warrant or the shares underlying the Warrant, as applicable, (ii)
less than 5% of the issued and outstanding stock or other securities of a
corporation listed on a national securities exchange, electronic quotation and
trading system or traded in the over-the-counter market, and (iii) 10% or less
in a fund or similar investment vehicle, as a passive investor, provided,
further that, if PVH has breached its obligations under Section 1.5(a), and such
breach continues for 60 days or more after a final non-appealable judgment by a
court of competent jurisdiction relating to such breach, Mr. Klein shall not be
restricted by the provisions of this Section 6.3. For purposes of this Section
6.3, "Restricted Business" means the business of developing, designing,
merchandising, licensing, manufacturing or causing the manufacture of, wearing
apparel of any type, shoes, accessories, luggage, watches, jewelry, fragrances,
eyewear and optical products, home furnishing products and accessories,
46
table top housewares, silverware, floor and wall coverings, furniture, leather
goods, beauty products, and retail stores, internet sites and locations,
primarily engaged in the business of selling any of the foregoing, and excludes,
(x) with respect to Mr. Schwartz, the business of all activities related to the
equine business, and engaging in any activity that is incidental to the equine
business including, horse breeding and horse racing or any other business in
which he engages that is not a Restricted Business (e.g., selling NYRA
t-shirts), and (y) with respect to Mr. Klein, engaging in any activity that is
incidental to any other business in which he engages that is not a Restricted
Business (e.g. selling t-shirts at a restaurant bearing the name of the
restaurant). In no event shall any agreement contained in this Section 6.3
modify the rights and obligations of Mr. Klein and PVH contained in the
Agreement and Assignment. No Seller shall be in violation of this Section 6.3(a)
if the action of such Seller would otherwise be permitted by another
subparagraph of this Section 6.3 or under the Agreement and Assignment.
(b) From and after the Closing Date, until the third anniversary of the
Closing Date, each of Mr. Klein and Mr. Schwartz agrees individually on his own
behalf that he will not, without the prior written consent of PVH, directly or
indirectly, for or on behalf of himself or any other Person, employ or solicit
for employment any officer or executive or key employee of PVH or of any CK
Company (other than those staff members listed in Section 6.3(b) of the CK
Companies Disclosure Schedule) at the time of such solicitation or hiring or
during the immediately preceding six-month period or cause or seek to cause any
such individual to leave the employ of PVH or any CK Company, provided, that
this Section 6.3(b) will not be deemed to apply to a general solicitation to the
public.
(c) (i) Each Seller agrees that such Seller shall not make any public
comment with the intent to hurt or disparage the Marks or make any public
comment with the intent to hurt, disparage or be derogatory of PVH or any of its
Affiliates known to such Seller and those individuals known to such Seller to be
its officers, directors and key employees. Notwithstanding the foregoing,
nothing in this Agreement shall prevent Sellers from (A) making public
statements including complimentary statements about third parties and their
goods and services in the Restricted Business, or (B) providing general
commentary, opinions or interviews regarding any goods or services of a
Restricted Business, so long as such commentary, opinions or interviews are not
intended to (x) provide any comparison with the goods or services Bearing a Mark
that is adverse to such goods or services Bearing a Mark, or (y) be negative
about any goods or services marked under the Marks or (C) making any comments
otherwise restricted by this Section 6.3(c) that are specifically related to
asserting his or their claims filed in a court of law or with another body
exercising arbitration or similar quasi-judicial authority or power or defending
itself against claims made by PVH or any of its Affiliates.
(ii) PVH shall not, and shall cause its Affiliates not to, issue or make
any public comment with the intent to hurt or to be disparaging or derogatory to
a Seller or any member of his or her immediate family or any of their respective
affiliates known to PVH to be affiliates of such Seller. Notwithstanding the
foregoing, nothing in this Agreement shall prevent PVH or its Affiliates from
making any such comments that are specifically related to asserting their claims
or defending themselves against claims filed in a court of law or with another
body exercising arbitration or similar quasi-judicial authority or power or
defending itself against claims made by a Seller.
47
(d) Each Seller acknowledges and agrees that the covenants and agreements
contained in this Section 6.3 have been negotiated in good faith by each of them
and reflect the fame, prestige and geographic coverage of the businesses
operated by the CK Companies and their licensees and distributors, as well as
the fame and prestige of the Sellers. Each Seller further acknowledges and
agrees that the covenants and agreements contained in this Section 6.3 are
reasonable and not more restrictive or broader than necessary to protect the
interests of PVH in purchasing the CK Companies and would not achieve their
intended purpose if they were on different terms or for shorter periods of time
or applied in more restrictive geographical and business line areas than are
provided herein. If any one or more of the provisions contained in this Section
6.3 shall be held to be excessively broad as to scope, territory or period of
time, such provisions shall be construed by limiting and reducing them so as to
be enforceable to the maximum extent allowed by applicable Law.
(e) Each Seller agrees to hold confidential in accordance with commercial
business practice all Confidential Information obtained in the course of its
ownership of shares or participation in the management of any CK Company or
otherwise which is either non-public, confidential or proprietary in nature.
(f) Each Seller agrees that PVH shall be entitled to seek equitable relief,
including injunction and specific performance, in the event of any breach of the
provisions of this Section 6.3. Such remedies shall not be deemed to be the
exclusive remedies for a breach of this Section 6.3 by any Seller but shall be
in addition to all other remedies available at Law or equity (subject to the
provisions of Article IX). It is further understood and agreed that failure or
delay by PVH in exercising any right, power or privilege under this Section 6.3
shall not operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise of any right, power or privilege
under this Agreement. Each Seller hereby waives any requirement that PVH post a
bond in connection with any claim for equitable relief.
6.4 Tax Matters.
(a) The Sellers shall prepare or cause to be prepared and file or cause to
be filed in a timely manner all Tax Returns for the CK Companies and the CK
Trust for all periods ending on or prior to the Closing Date ("Pre-Closing Tax
Periods"). Any such Tax Returns filed between the date hereof and the Closing
Date for any Pre-Closing Tax Period shall be prepared, and each item thereon
treated, in a manner consistent with past practices (including, without
limitation, prior Tax elections and accounting methods or conventions made or
utilized by the CK Companies and the CK Trust), except as required by a change
in the applicable Law.
(b) PVH shall prepare or cause to be prepared and file or cause to be filed
all Tax Returns for the CK Companies and the CK Trust for all periods beginning
before and ending after the Closing Date ("Straddle Periods") which are filed
after the Closing Date. All such Tax Returns with respect to Pre-Closing Tax
Periods with respect to which the Sellers have agreed to indemnify PVH pursuant
to Section 9.2 shall be prepared and filed in a manner that is consistent with
past practices (including, without limitation, prior Tax elections and
accounting methods or conventions made or utilized by the CK Companies and the
CK Trust), except (i) as is due to the termination of the Subchapter S status
(or analogous status under state or local Law) of the CK
48
Companies in connection with the transactions contemplated hereby or (ii) as
required by a change in the applicable Law. PVH shall submit such Tax Returns to
the Sellers' Representative for review and comment at least 30 days prior to
filing. However, if the Sellers' Representative disputes any item on such Tax
Return, it shall promptly notify PVH of such disputed item (or items) and the
basis for its objection. The parties shall act in good faith to resolve any such
dispute prior to the date on which the Tax Return is required to be filed. If
the parties cannot resolve any disputed item, the item in question shall be
resolved by an independent accounting firm mutually acceptable to the Sellers
and PVH. The fees and expenses of such accounting firm shall be borne equally by
the Sellers and PVH. All disputes must be resolved prior to the date on which
the Tax Return is required to be filed and the parties shall resolve all
disputes (in the manner described herein) and the applicable CK Company (or the
CK Trust) shall sign and file the Tax Return on or before the last day on which
such Tax Return is required to be filed.
(c) The Sellers shall pay or cause to be paid when due and payable all
unreserved Taxes of each of the CK Companies and the CK Trust, to the extent
allocable to any of the CK Companies, for any Pre-Closing Tax Period and any
pre-Closing portion of a Straddle Period; and (ii) PVH shall so pay or cause to
be paid such Taxes for any Tax periods commencing on or after the Closing Date
and any post-Closing portion of a Straddle Period. If the aggregate reserves for
accrued and unpaid Taxes of the CK Companies for any Pre-Closing Tax Period and
any pre-Closing portion of a Straddle Period exceeds the aggregate Taxes shown
on the applicable Tax Returns later filed for such periods, then PVH shall pay
such excess to the Sellers, but only to the extent that such Tax reserves were
reflected as liabilities or otherwise reduced the Closing Date Net Book Value.
(d) PVH and the Sellers agree to furnish or cause to be furnished to each
other, upon request, as promptly as practicable, such information and assistance
relating to each CK Company and the CK Trust (including, without limitation,
access to books and records, employees, contractors and representatives) as is
reasonably necessary for the filing of all Tax Returns, the making of any
election related to Taxes, the preparation for and conduct of any audit by any
Tax Authority, and the prosecution or defense of any claim, suit or proceeding
relating to any Tax Return. Such cooperation and information shall include
providing copies of relevant Tax Returns or portions thereof, together with
accompanying schedules, related work papers and documents relating to rulings or
other determinations by Tax Authorities at the sole cost of the requesting
party. If reasonably requested by PVH, the Sellers' Representative shall make
himself available on a basis mutually convenient to both parties to provide
explanations of any documents or information provided hereunder. PVH and the
Sellers shall retain all books and records with respect to Taxes pertaining to
the CK Companies and the CK Trust in their respective possession (which shall
include, in the case of PVH, books and records in the possession of the CK
Companies) until the later of (i) the expiration of the statute of limitations
of the Tax periods to which such Tax Returns and other documents relate, without
regard to extensions except to the extent notified by the other party in writing
of such extensions for the respective Tax periods prior to such expirations, and
(ii) six years following the due date (without extension) for such Tax Returns.
At the end of such period, each party shall provide the others with at least ten
days' prior written notice before destroying any such books and records, during
which period the parties receiving such notice can elect to take possession, at
their own expense, of such books and records. PVH and the Sellers shall
cooperate with each other in the
49
conduct of any audit or other proceeding related to Taxes involving the CK
Companies. Any information provided or obtained under this Section 6.4 shall be
kept confidential except as may be otherwise necessary in connection with the
filing of Tax Returns or in conducting an audit or other proceeding.
(e) As a result of the transfer of the Purchase Shares, each of the CK
Companies and the CK Trust shall be treated for federal income Tax purposes as
having two short years for Tax purposes during the calendar year in which the
Closing occurs pursuant to Section 1362(e)(1) of the Code: (i) a period from
January 1 of the calendar year in which the Closing occurs through the end of
the day prior to the Closing Date; and (ii) a period from the beginning of the
Closing Date through December 31 of the calendar year in which the Closing
occurs. Accordingly, each of the CK Companies and the CK Trust shall close their
books as of the Closing Date.
(f) The Sellers and PVH agree that each will pay one-half of all applicable
transfer Taxes, sales and/or use Taxes, real property transfer or excise Taxes,
recording, deed, stamp and other similar Taxes, fees and duties under applicable
Law incurred in connection with the transfer of the Purchase Shares. The Sellers
and PVH agree to jointly prepare or cause to be prepared and file or cause to be
filed in a timely manner, all Tax Returns required to be filed with respect to
such Taxes.
(g) For all Tax purposes, PVH, the Sellers, and the CK Companies agree that
they will report the transactions contemplated by this Agreement in a manner
consistent with the terms of this Agreement, and all parties agree to file their
Tax Returns accordingly.
(h) Mr. Klein shall, and shall cause each holder, if any, of rights with
respect to the Design Services Purchase Payments (in either case, a "Rights
Holder") to, provide to PVH two properly completed and executed Internal Revenue
Service Forms W-9 or other applicable forms, certificates or documents
prescribed by the Internal Revenue Service of the United States certifying as to
such Rights Holder's entitlement to exemption from United States withholding Tax
and back-up withholding Tax with respect to the Design Services Purchase
Payments to be made to such Rights Holder hereunder ("Certificates of
Exemption"). Mr. Klein shall provide such Certificates of Exemption on or before
the Closing Date and thereafter as and when requested to do so by PVH. Mr. Klein
shall cause each Person that becomes a Rights Holder after the Closing Date to
provide Certificates of Exemption on or before the date such Person becomes a
Rights Holder and thereafter as and when requested to do so by PVH. Mr. Klein
agrees, and shall cause each Rights Holder to agree, to provide PVH with new
Certificates of Exemption (x) upon the obsolescence of any letter, form,
certificate or document previously delivered by such Rights Holder to PVH
hereunder or (y) promptly after the occurrence of any event requiring a change
in the status of the Rights Holder or in any of the other information provided
on the most recent letter, form, certificate or document previously delivered by
the Rights Holder to PVH hereunder. If PVH shall provide written notice to a
Rights Holder that new Certificates of Exemption are required, and if the Rights
Holder does not submit them within 30 days following the receipt of such notice,
then PVH shall be permitted to deduct all applicable withholding Taxes from the
payment due to such Rights Holder.
40
6.5 Access. From and after the Closing Date, PVH shall and shall cause the
CK Companies to afford to the Sellers and their agents reasonable access to
their properties, books, records, employees and auditors (during normal business
hours and upon reasonable prior written notice) to the extent necessary to
permit the Sellers to determine any matter relating to their rights and
obligations hereunder or to any period ending on or before the Closing Date;
provided, that any such access by the Sellers or their agents shall not
unreasonably interfere with the conduct of the business of PVH or the CK
Companies.
6.6 Directors' and Officers' Indemnification and Insurance. To the extent
any director, officer or employee of any of the CK Companies has the benefit of
any right to indemnification pursuant to the certificate of incorporation or
by-laws or similar organizational documents of any of the CK Companies or the CK
Trust, PVH agrees to continue such indemnification and not to amend, alter or
waive in any adverse respect any such indemnification for a period of not less
than six years following the Closing; provided, however, PVH shall not be
required to provide such indemnification for any liability or expense of such
director, officer or employee arising out of the willful malfeasance, bad faith
or fraud of any such director, officer or employee, or for any liability or
expense arising from any state of facts, event or condition for which any PVH
Group Member would be entitled to indemnification under Article IX, disregarding
any limitations set forth in Section 9.4 and the survival periods set forth in
Section 9.1. In addition, PVH will provide, or cause the CK Companies to
provide, for a period of not less than six years after the Closing, each of the
CK Companies' current directors and officers an insurance and indemnification
policy that provides coverage for events occurring at or prior to the Closing
that is no less favorable than the existing policy pursuant to which such
directors and officers are covered; provided, however, that PVH and the CK
Companies shall not be required to pay an annual premium for such policy in
excess of 200% of the annual premium currently paid by the CK Companies for such
insurance, but in such case shall purchase as much of such coverage as possible
for such amount.
6.7 Offices. PVH agrees that it will maintain and make available, at
PVH's sole cost and expense, to Mr. Klein and Mr. Schwartz, their existing
office space for the benefit of each of Mr. Klein and Mr. Schwartz on an
as-needed basis and for transition purposes for a period of up to 90 days
following the Closing.
6.8 Legend.
(a) The certificates evidencing the PVH Shares, the Warrant and the shares
of the PVH Common Stock issuable upon conversion of the Warrant will bear a
legend substantially similar to the following:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY JURISDICTION. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD OR TRANSFERRED EXCEPT
PURSUANT TO (I) A REGISTRATION STATEMENT WITH RESPECT TO
SUCH SECURITIES THAT IS EFFECTIVE UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAW, OR (II) ANY
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EXEMPTION FROM REGISTRATION UNDER SAID ACT, AND APPLICABLE
STATE SECURITIES LAW, RELATING TO THE DISPOSITION OF
SECURITIES."
(b) The legend endorsed on the certificates pursuant to Section 6.8(a)
shall be removed and the Company shall issue a certificate without such legend
to the holder thereof at such time as the securities evidenced thereby cease to
be restricted securities upon the earliest to occur of (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) the securities shall
have been sold to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, and (iii) such securities may be sold by the holder
without restriction or registration under Rule 144(k) under the Securities Act
(or any successor provision).
6.9 Certain Matters. Each party agrees to comply with Section 6.9 of the
CK Companies Disclosure Schedule.
6.10 Further Assurances. From and after the Closing Date, each party
shall, at any time and from time to time, make, execute and deliver, or cause to
be made, executed and delivered, for no additional consideration but at the cost
and expense of the requesting party (excluding any internal costs incurred, such
as having any of the following reviewed by counsel) such assignments, deeds,
drafts, checks, stock certificates, returns, filings and other instruments,
agreements, consents and assurances and take or cause to be taken all such
actions as the other party or its counsel may reasonably request for the
effectual consummation and confirmation of this Agreement and the Related
Agreements and the transactions contemplated hereby and by the Related
Agreements.
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF PVH
The obligation of PVH to consummate the transactions contemplated under
this Agreement are subject to the fulfillment of each of the following
conditions, any or all of which may be waived in whole or in part by PVH, in its
sole discretion:
7.1 Representations and Warranties. The representations and warranties
contained in Articles II and III shall be materially true and correct when taken
as a whole as of the Closing Time.
7.2 Performance. The CK Companies and the Sellers shall each have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by any CK
Company or any Seller prior to or at the Closing Time.
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7.3 No Material Adverse Effect. Between the date of the execution of this
Agreement and the Closing Date, none of the CK Companies shall have suffered or
experienced a CK Companies Material Adverse Effect.
7.4 Certificates. PVH shall have received (a) a certificate of an
executive officer of the CK Companies dated the Closing Date (or the HSR Date,
if applicable) and certifying as to the knowledge of such officer (taking into
account the Knowledge of those persons identified in the definition of
"Knowledge" contained in Appendix A) to the fulfillment on the part of the CK
Companies of the conditions specified in Sections 7.1, 7.2, and 7.3; (b) a
certificate of the Secretary or Assistant Secretary of the CK Companies dated
the Closing Date, setting forth the resolutions of the Board of Directors of the
CK Companies adopting and approving this Agreement, the Related Agreements (to
the extent a party thereto) and all other documents contemplated hereby and
thereby and authorizing the transactions hereby and thereby contemplated; and
(c) such other evidence with respect to the fulfillment of said conditions as
PVH may reasonably request.
7.5 No Injunction. There shall not be in effect any injunction or
restraining order issued by a court of competent jurisdiction in an Action
against the consummation of the transactions contemplated hereby or by any
Related Agreement.
7.6 CK Debt Obligations; Liens Discharged. All of the CK Debt Obligations
shall have been repaid in full and cancelled by the CK Companies and all Liens
granted under the Line Letter shall have been discharged, and the Sellers shall
have delivered reasonably satisfactory evidence to PVH thereof.
7.7 HSR Act Clearance. The transactions contemplated hereby and by the
Related Agreements shall have received HSR Clearance.
7.8 Government Approvals. In addition to the HSR Clearance, the parties
hereto shall have received all other approvals from any applicable Governmental
Authority necessary to consummate the transactions contemplated hereby and by
the Related Agreements, other than non-material approvals of a local
governmental authority.
7.9 Third Party Consents. The CK Companies and the Sellers shall have
obtained any written consents necessary to consummate the transactions
contemplated hereby and by the Related Agreements, in form and substance
reasonably satisfactory to PVH, relating to any Contracts to which any CK
Company or any Seller is a party.
7.10 Consulting Agreement. Mr. Klein shall have entered into an agreement
(the "Consulting Agreement") with PVH in the form attached hereto as Exhibit D.
7.11 Agreement and Assignment. Mr. Klein shall have entered into an
agreement (the "Agreement and Assignment") with PVH and CKI in the form attached
hereto as Exhibit E.
7.12 Notarial Deed. The Sellers shall have executed the notarial deed
relating to CK Italy (the "Notarial Deed") in substantially the form attached
hereto as Exhibit F and such other documents including any proxies as are
necessary to effect the sale of all of the parts of capital of
53
CK Italy to PVH (and its designee) in accordance with the terms of this
Agreement and applicable Law.
7.13 Stock Certificates. PVH shall have received the Stock Certificates.
7.14 Good Standing. PVH shall have received long-form good standing
certificates, where recognized (or the equivalent thereto in the relevant
jurisdiction) relating to each CK Company and the CK Trust, dated within five
Business Days of the Closing Date (or the HSR Date, if applicable), issued by
the Secretary of State (or other similar official) of their respective states of
incorporation or organization, as the case may be.
7.15 Resignations. PVH shall have received the written resignations of
all directors of the CK Companies (and in the case of CK Italy, any internal
auditors), effective as of the Closing Time.
7.16 Stockholder Loans. Any loan from any CK Company to a stockholder of
any CK Company shall have been paid in full by such stockholder as of the
Closing Time; it being understood that any such loan of a Seller may be paid
simultaneously at Closing with the proceeds of the Cash Purchase Price, and the
Sellers shall have delivered reasonably satisfactory evidence to PVH thereof.
7.17 Termination under Design Services Agreement. Mr. Schwartz shall have
entered into an agreement in substantially the form attached hereto as Exhibit G
(the "Schwartz Design Services Form") evidencing the termination of the rights
and obligations of Mr. Schwartz under the Design Services Agreement.
7.18 Escrow Agreement. The Sellers shall have entered into the Escrow
Agreement.
ARTICLE VIII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS
The obligation of the Sellers to consummate the transactions contemplated
by this Agreement are subject to the fulfillment of each of the following
conditions, any or all of which may be waived in whole or in part by the
Sellers:
8.1 Representations and Warranties. The representations and warranties
contained in Article IV shall be materially true and correct when taken as a
whole as of the Closing Time.
8.2 Performance. PVH shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it prior to or at the Closing Time.
8.3 Certificates. The Sellers shall have received (a) a certificate of an
executive officer of PVH, dated the Closing Date, certifying to the fulfillment
of the conditions specified in Sections 8.1 and 8.2; (b) a certificate of the
Secretary of PVH, dated the Closing Date, setting
54
forth the resolutions of the Board of Directors of PVH approving this Agreement,
the Related Agreements and all other documents contemplated hereby and thereby,
and authorizing the transactions hereby and thereby contemplated; and (c) such
other evidence with respect to the fulfillment of any of said conditions as the
Sellers may reasonably request.
8.4 No Injunction. There shall not be in effect any injunction or
restraining order issued by a court of competent jurisdiction in an Action
against the consummation of the transactions contemplated hereby or by any
Related Agreement.
8.5 HSR Act Clearance. The transactions contemplated hereby and by the
Related Agreements shall have received HSR Clearance.
8.6 Government Approvals. In addition to the HSR Clearance, the parties
hereto shall have received all other approvals from any applicable Governmental
Authority necessary to consummate the transactions contemplated hereby and by
the Related Agreements.
8.7 Consulting Agreement. PVH shall have entered into the Consulting
Agreement.
8.8 Agreement and Assignment. PVH shall have entered into the Agreement
and Assignment.
8.9 Equity Matters. PVH shall have delivered the PVH Shares (subject to
the Holdback Shares delivered in accordance with the Escrow Agreement) to the
Sellers in the proportions as set forth on Exhibit A and shall have executed and
delivered to Mr. Klein the Warrant.
8.10 Notarial Deed. PVH shall have executed the Notarial Deed and such
other documents including proxies as are necessary to effect the sale of all of
the parts of capital of CK Italy to PVH (and its designee) in accordance with
the terms of this Agreement and applicable Law.
8.11 Termination under Design Services Agreement. PVH shall have entered
into the Schwartz Design Services Form.
8.12 Security Agreements. PVH shall have entered into the Design Services
Security Agreement and the Intercreditor Agreement and shall have caused the
Guarantee to be entered into by CKI.
8.13 Registration Rights Agreement. PVH shall have entered into the
registration rights agreement (the "Registrations Rights Agreement") with the
Sellers and the other parties thereto in the form attached hereto as Exhibit H.
8.14 Escrow Agreement. PVH shall have entered into the Escrow Agreement.
8.15 Opinion. Mr. Klein shall have received the opinion of Katten Muchin
Zavis Rosenman in form and substance reasonably satisfactory to Mr. Klein and
his counsel, but such
55
opinion shall not relate to the PVH Shares, the Warrant, or the shares of PVH
Common Stock underlying the Warrant, or the purchase and sale of the Purchase
Shares.
ARTICLE IX.
INDEMNIFICATION
9.1 Survival. All representations and warranties made herein (or in the
certificates to be delivered pursuant to Sections 7.4 or 8.3 hereof) by the
parties to this Agreement and their respective obligations, covenants and
agreements to be performed pursuant to the terms hereof, shall survive the
Closing Time, provided, that, the representations and warranties made herein (or
in such certificates) by the parties shall terminate on the second anniversary
of the Closing Date, except that (i) the representations and warranties set
forth in Sections 3.15 (Tax Matters), 3.19 (Environmental Matters) and 3.20
(Employee Plans) shall survive the Closing Time for the applicable statute of
limitations, and (ii) the representations and warranties set forth in Sections
2.1 (Authority; Execution and Delivery; Enforceability), 2.2
(Non-Contravention), 2.3 (Title to Purchase Shares), 3.1 (Organization; Good
Standing), 3.3 (Authority; Execution and Delivery; Enforceability) and 3.6
(Capitalization; Options; Trust Interests) shall survive the Closing Time
indefinitely. Notwithstanding the foregoing, if written notice of any matter
setting forth in reasonable detail a claim for a breach of any representation or
warranty is given to PVH or the applicable Sellers, as the case may be, in
writing pursuant to this Agreement prior to the end of the applicable survival
period, any such representation or warranty that would otherwise terminate shall
be deemed to survive solely with respect to such matter until such matter is
resolved.
9.2 Indemnification by the Sellers.
(a) Mr. Klein, jointly and severally as to Mr. Klein and the other Klein
Group Seller, and the other Klein Group Seller, severally as to such Klein Group
Seller, shall indemnify and hold harmless any PVH Group Member from and against
any and all Damages incurred by such PVH Group Member arising from:
(i) any failure by any Klein Group Seller to perform any covenants or
other obligations of any Klein Group Seller contained in Article I or
Section 6.3;
(ii) any breach of any representation or warranty of any Klein Group
Seller contained in Article II (as of the date hereof for purposes of
indemnification hereunder), provided, that for purposes of this Section 9.2
(a)(ii), with respect to any representation or warranty qualified by
materiality, a breach of such representation or warranty will be deemed to
occur if there would have been a breach of such representation or warranty
absent such qualification; or
(iii) the allegation in writing by any third party of the existence of
any liability, obligation, lease, agreement, contract, other commitment or
state of facts which, if such allegation were true, would have constituted
a breach by any Klein Group Seller of any
56
representation or warranty of such Klein Group Seller contained in Article
II (as of the date hereof for purposes of indemnification hereunder),
provided, that for purposes of this Section 9.2(a)(iii), with respect to
any representation or warranty qualified by materiality, a breach of such
representation or warranty will be deemed to occur if there would have been
a breach of such representation or warranty absent such qualification.
(b) Mr. Schwartz, jointly and severally as to Mr. Schwartz and the other
Schwartz Group Sellers, and the other Schwartz Group Sellers, severally as to
such Schwartz Group Seller, shall indemnify and hold harmless any PVH Group
Member from and against any and all Damages incurred by such PVH Group Member
arising from:
(i) any failure by any Schwartz Group Seller to perform any covenants
or other obligations of any Schwartz Group Seller contained in Article I or
Section 6.3;
(ii) any breach of any representation or warranty of any Schwartz
Group Seller contained in Article II (as of the date hereof for purposes of
indemnification hereunder), provided, that for purposes of this Section
9.2(b)(ii), with respect to any representation or warranty qualified by
materiality, a breach of such representation or warranty will be deemed to
occur if there would have been a breach of such representation or warranty
absent such qualification; or
(iii) the allegation in writing by any third party of the existence of
any liability, obligation, lease, agreement, contract, other commitment or
state of facts which, if such allegation were true, would have constituted
a breach by any Schwartz Group Seller of any representation or warranty of
such Schwartz Group Seller contained in Article II (as of the date hereof
for purposes of indemnification hereunder), provided, that for purposes of
this Section 9.2(b)(iii), with respect to any representation or warranty
qualified by materiality, a breach of such representation or warranty will
be deemed to occur if there would have been a breach of such representation
or warranty absent such qualification.
(c) Each of Mr. Klein and Mr. Schwartz shall indemnify (to the extent set
forth in Section 9.4(c)) and hold harmless any PVH Group Member from and against
any and all Damages incurred by such PVH Group Member arising from:
(i) any failure by any CK Company (as constituted prior to the
Closing) to perform any covenants or other obligations of any CK Company
contained in this Agreement, or any failure by any Seller to perform any
covenants or other obligations of any Seller contained in this Agreement
(other than in Article I or Section 6.3);
(ii) any breach of any representation or warranty of any Seller or any
CK Company (as constituted prior to the Closing) contained in Article III
(as of the date hereof for purposes of indemnification hereunder);
(iii) the allegation in writing by any third party of the existence of
any liability, obligation, lease, agreement, contract, other commitment or
state of facts which, if such allegation were true, would have constituted
a breach by any Seller or any CK Company (as constituted prior to the
Closing) of any representation or warranty of such Seller or
57
such CK Company (as constituted prior to the Closing) contained in Article
III (as of the date of this Agreement for purposes of indemnification
hereunder);
(iv) any and all Taxes imposed upon or assessed against any of the CK
Companies by reason of liability under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local or foreign Law), for periods or
portions thereof ending on or prior to the Closing Date, or pursuant to any
Tax sharing agreement, indemnification agreement, partnership or trust
agreement or other contract in effect prior to the Closing Date, to the
extent that such Taxes exceed Taxes which are included as current
liabilities (excluding any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) in the Closing Date
Balance Sheet;
(v) Taxes of any of the CK Companies or the CK Trust for periods or
portions thereof ending on or before the Closing Date, to the extent that
such Taxes exceed Taxes which are included as current liabilities
(excluding any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the Closing Date Balance Sheet,
including without limitation, Taxes required to have been withheld;
(vi) any and all Taxes imposed upon or assessed against any of PVH,
the CK Companies, the CK Trust or their respective assets as a result of
the transfer of the Purchase Shares or rights under the Design Services
Agreement as contemplated by this Agreement;
(vii) the matter of Sydney Bachman v. Calvin Klein, Inc. (provided,
however, to the extent that the amount reserved for such litigation on the
Closing Date Balance Sheet, exceeds the Damages arising from such
litigation, after the final judicial determination or settlement of such
litigation, then PVH shall pay such excess to the Sellers); or
(viii) the notice from Union of Needletrades Industrial and Textile
Employees regarding potential claims relating to the production of goods in
the Commonwealth of the Northern Marianas Islands (to the extent the amount
of such Damages is in excess of amounts paid prior to Closing in respect
thereof).
9.3 Indemnification by PVH. PVH will indemnify and hold harmless any
Seller Group Member from and against any and all Damages incurred by such Seller
Group Member arising from:
(a) any failure by PVH to perform any of its covenants or other obligations
in this Agreement;
(b) any breach of any representation or warranty of PVH contained in
Article IV (as of the date hereof for purposes of indemnification hereunder),
provided, that for purposes of this Section 9.3(b), with respect to any
representation or warranty that is qualified by materiality, a breach of such
representation or warranty will be deemed to occur if there would have been a
breach of such representation or warranty absent such qualification;
58
(c) the allegation in writing by any third party of the existence of any
liability, obligation, lease, agreement, contract, other commitment or state of
facts which, if such allegation were true, would have constituted a breach by
PVH of any representation or warranty of PVH contained in this Agreement (as of
the date hereof for purposes of indemnification hereunder), provided, that for
purposes of this Section 9.3(c), with respect to any representation or warranty
that is qualified by materiality, a breach of such representation or warranty
will be deemed to occur if there would have been a breach of such representation
or warranty absent such qualification; or
(d) the ownership or operation of PVH, the CK Companies and the CK Trust
with respect to all periods and the allegation in writing by any third party of
the existence of any liability, obligation, lease, agreement, contract, other
commitment or state of facts which, if such allegation were true, would give
rise to indemnification under this Section 9.3(d); provided, however, PVH shall
not be required to provide such indemnification to the extent such Damages are
incurred as a result of a state of facts, event or condition for which any PVH
Group Member would be entitled to indemnification under this Article IX,
disregarding any limitations set forth in Section 9.4 and the survival periods
set forth in Section 9.1 or as a result of fraud by a Seller Group Member.
9.4 Limitations on Indemnification.
(a) No PVH Group Member shall be entitled to be indemnified pursuant to
Sections 9.2(a)(ii) or (iii), 9.2(b)(ii) or (iii), 9.2(c)(ii) or (iii), or for
any breach of Section 5.2, as the case may be, unless and until the aggregate of
all Damages incurred by PVH Group Members shall exceed $5,000,000 (the
"Basket"), and the maximum aggregate amount of indemnification pursuant to
Sections 9.2(a)(ii) or (iii), 9.2(b)(ii) or (iii), 9.2(c)(ii) or (iii) or for
breaches of Section 5.2 that may be received by PVH Group Members shall not
exceed $100,000,000 (the "Cap"); provided, however, PVH Group Members shall be
entitled to be indemnified for all Damages on a dollar-for-dollar basis from the
first dollar of Damages, without regard to the Basket or the Cap, incurred as a
result of any breach of the representations and warranties set forth in Sections
2.1, 2.3, 3.1(b), 3.3, 3.6 or 3.15. Notwithstanding anything contained herein to
the contrary, nothing in this Section 9.4 shall limit PVH's or CKI's (as
constituted after the Closing) rights under the Agreement and Assignment or the
Consulting Agreement.
(b) The maximum aggregate amount of indemnification for breaches of the
representations and warranties contained in Sections 4.9, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15 and 4.16 that may be received by Seller Group Members shall not
exceed $30,000,000.
(c) Without limitation to the foregoing, for purposes of Sections
9.2(c)(ii) and 9.2(c)(iii), in determining the amount of any Damages in
connection with any inaccuracy of a representation and warranty (but not for
purposes of determining whether any such inaccuracy has occurred), any
materiality or CK Companies Material Adverse Effect qualifier in such
representation or warranty will be disregarded.
(d) Notwithstanding the preamble to Article III, in no event will Mr. Klein
or Mr. Schwartz be liable for more than one-half of any Damages arising under
Section 9.2(c). PVH
59
agrees to proceed against Mr. Klein and Mr. Schwartz at the same time in
connection with any action arising under Section 9.2(c).
(e) The amount of any Damages for which indemnification is provided under
this Article IX shall be net of (i) any amount accrued or reserved for on the
Closing Date Balance Sheet in respect of Damages, and (ii) any insurance
proceeds available under any insurance policies as then in effect to an
Indemnitee hereunder in connection with the events or circumstances giving rise
to the indemnification, but only to the extent that the Indemnitee actually
receives any such insurance proceeds or any benefits thereof and only in an
amount not to exceed the amount of any such insurance proceeds actually received
by the Indemnitee. The Indemnitee will use commercially reasonable efforts to
claim and recover under such insurance policies.
(f) The parties acknowledge and agree that after the Closing, the
indemnification provisions contained in Sections 9.2 and 9.3 shall be the sole
and exclusive remedy for Damages arising out of or caused by the breach of any
of the representations, warranties, covenants or agreements of the parties
contained in this Agreement or in any certificate delivered in connection
herewith, except for any remedies that may be available under Section 6.3, for a
breach of Section 1.5, or with respect to claims arising out of fraud.
9.5 Tax Treatment of Indemnity Payments. It is the intention of the
parties to treat any indemnity payment made under this Agreement as an
adjustment to the Purchase Price for all federal, state, local and foreign Tax
purposes, and the parties agree to file their Tax Returns accordingly.
9.6 Tax Refunds. PVH shall pay to Sellers or credit against their
indemnification obligations (if applicable), all refunds or credits of Taxes
received by PVH or any CK Company after the Closing Date and attributable to
Taxes paid by or on behalf of any CK Company (unless paid by PVH) with respect
to Pre-Closing Tax Periods net of any Taxes imposed on such refund amount;
provided, however, that the rights and obligations described in this sentence
shall not apply (i) if such refunds or credits of Taxes were reflected as assets
or otherwise increased the Closing Date Net Book Value, (ii) to any net
operating loss of any CK Company arising in any Pre-Closing Tax Period that is
utilized by PVH in any period beginning after the Closing Date, or (iii) to any
refund or credit that is attributable to the carry-back of losses, deductions,
or credits from a taxable period other than a Pre-Closing Tax Period. The
Sellers agree that they will promptly pay PVH the amount of any refund or credit
received by them that results from PVH's carry-back of any losses or other Tax
attributes to a Pre-Closing Tax Period. Each such payment (which shall include
any interest received or credited with respect to such refund or credit) shall
be made to the other party promptly after receipt of any such refund from, or
allowance of such credit by, the relevant Tax Authority. The Sellers and PVH
shall cooperate (at the sole cost and expense of the party seeking the
applicable refund or credit) in obtaining any refund or credit of Taxes
available from the relevant Tax Authority. In the event that any refund or
credit of Taxes for which a payment has been made pursuant to this Section 9.6
is subsequently reduced or disallowed, the party that ultimately received the
benefit of the refund or credit pursuant to this Section 9.6 shall promptly pay
to the other party the amount of any refund or credit that has been disallowed
or the amount by which such refund or credit has been
60
reduced and shall indemnify, defend, and hold harmless the other parties for any
Tax liability, including interest and penalties, assessed against such
indemnified person by reason of the reduction or disallowance.
9.7 Notice of Claims. Any PVH Group Member or Seller Group Member seeking
indemnification hereunder (an "Indemnitee") shall give to the party or parties
obligated to provide indemnification to such Indemnitee (an "Indemnitor") a
notice ("Claim Notice") describing in reasonable detail the facts giving rise to
any claim for indemnification hereunder and shall include in such Claim Notice
(if then known) the amount or the method of computation of the amount of such
claim, and a reference to the provision of this Agreement or any other
agreement, document or instrument executed hereunder or in connection herewith
upon which such claim is based.
9.8 Third Party Claims. In the case of any third party Action as to which
indemnification is sought by an Indemnitee, the Indemnitor shall have 15
Business Days after receipt of a Claim Notice to notify the Indemnitee that it
elects to conduct and control such Action. If the Indemnitor elects to conduct
and control such Action, the Indemnitor shall agree promptly to reimburse the
Indemnitee for the full amount of any Damages resulting from such Action, except
fees and expenses of counsel for the Indemnitee incurred after the assumption of
the conduct and control of such Action by the Indemnitor. If the Indemnitor does
not give the foregoing notice, the Indemnitee shall have the right, at the sole
expense of the Indemnitor, to conduct and control such Action, provided, that
(x) the Indemnitee shall permit the Indemnitor to participate in such conduct or
settlement through counsel chosen by the Indemnitor, but the fees and expenses
of such counsel shall be borne by the Indemnitor, and (y) the Indemnitee may not
compromise or settle such Action without the consent of the Indemnitor (which
consent will not be unreasonably withheld or delayed), unless (i) there is no
finding or admission of any violation of Law by the Indemnitor or any violation
by the Indemnitor of the rights of any Person and no effect on any other claims
that may be made against the Indemnitor, (ii) the sole relief provided is
monetary Damages that are paid in full by the Indemnitee, (iii) the Indemnitor
shall have no liability with respect to any compromise or settlement and (iv)
such settlement includes an unconditional release in favor of the Indemnitor by
the third-party claimant from all liability with respect to such claim, or (v)
the claim is solely for other than money Damages which would not affect the
business of the Indemnitor and the Indemnitee waives any right to
indemnification for any claim of the type identified in this clause (v), other
than with respect to reimbursement of the reasonable fees and expenses incurred
in the defense of such Action. If the Indemnitor gives the foregoing notice,
subject to the first and second sentences of this Section 9.8, the Indemnitor
shall have the right, at the sole expense of the Indemnitor, to conduct and
control, such Action with counsel reasonably acceptable to the Indemnitee, and
the Indemnitee shall cooperate with the Indemnitor in connection therewith,
provided, that (x) the Indemnitor shall permit the Indemnitee to participate in
such conduct or settlement through counsel chosen by the Indemnitee, but the
fees and expenses of such counsel shall be borne by the Indemnitee, and (y) the
Indemnitor may not compromise or settle any such Action without the consent of
the Indemnitee (which consent will not be unreasonably withheld or delayed)
unless (i) there is no finding or admission of any violation of Law by the
Indemnitee or any violation by the Indemnitee of the rights of any Person and no
effect on any other claims that may be made against the Indemnitee, (ii) the
sole relief provided is money Damages that are paid in full by the
61
Indemnitor, (iii) the Indemnitee shall have no liability with respect to any
compromise or settlement and (iv) such settlement includes an unconditional
release in favor of the Indemnitee by the third-party claimant from all
liability with respect to such claim. In the case of any third party Action as
to which indemnification is sought by the Indemnitee which involves a claim for
Damages other than solely for money Damages which could have a continuing effect
on the business of the Indemnitee, the Indemnitee and the Indemnitor shall
jointly control the conduct of such Action. The parties hereto shall use their
reasonable best efforts to minimize any Damages from claims by third parties and
shall act in good faith in responding to, defending against, settling or
otherwise dealing with such claims, notwithstanding any dispute as to liability
under this Article IX.
ARTICLE X.
TERMINATION
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual consent of PVH and all of the Sellers; or
(b) by PVH, if there has been (i) a material breach by any CK Company or
any Seller of the representations and warranties contained in this Agreement
when taken as a whole or (ii) a material violation by any CK Company or any
Seller of any covenant or agreement contained in this Agreement, provided, that
written notice of such violation or breach shall have been given to such CK
Company or such Seller, as applicable, and such violation or breach shall not
have been cured within ten days of receipt of such notice (provided, further,
that, to exercise its rights under this Section 10.1(b) for any particular
violation or breach, PVH must terminate this Agreement within 15 Business Days
after the cure period provided for in this Section 10.1(b)); or
(c) by all of the Sellers, if there has been (i) a material breach by PVH
of the representations and warranties contained in this Agreement when taken as
a whole or (ii) a material violation by PVH of any covenant or agreement
contained in this Agreement, provided, that written notice of such violation or
breach shall have been given to PVH and such violation or breach shall not have
been cured within ten days of receipt of such notice (provided, further, that,
to exercise their rights under this Section 10.1(c) for any particular violation
or breach, the Sellers must terminate this Agreement within 15 Business Days
after the end of the cure period provided for in this Section 10.1(c)); or
(d) by either PVH, on one hand, or all of the Sellers, on the other hand,
if the Closing shall not have occurred by March 31, 2003 (the "Termination
Date").
10.2 Effects of Termination. (a) In the event of a termination of this
Agreement pursuant to this Article X (i) all further obligations of the parties
under this Agreement shall terminate, (ii) no party shall have any right under
or in connection with this Agreement or the transactions contemplated hereby
against any other party except as set forth in Sections 11.1, 11.8 (to the
62
extent such rights were pursued through legal process prior to such termination)
and the Confidentiality Agreement, and (iii) each party shall bear its own costs
and expenses, except as provided in Section 11.1; provided, however, that any
termination of this Agreement under this Article X shall not relieve any party
of liability for any material breach of this Agreement prior to the date of
termination that gives rise to such termination, or constitute a waiver of any
claim with respect thereto.
ARTICLE XI.
MISCELLANEOUS
11.1 Expenses of the Transaction. Each of the parties hereto agrees to
pay such party's own fees and expenses in connection with this Agreement and the
Related Agreements and the transactions contemplated hereby and by the Related
Agreements including, without limitation, legal and accounting fees and expenses
(it being understood that PVH shall pay all filings fees in connection with any
filings to be made by either party under the HSR Act or any other filings with
any Governmental Authority).
11.2 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (i) when
delivered personally or by private courier, (ii) when actually delivered by
registered or certified United States mail, return receipt requested, or (iii)
when sent by facsimile transmission (provided, that it is confirmed by a means
specified in clause (i) or (ii)), addressed as follows:
If to PVH or to any CK Company (subsequent to the Closing) to:
Phillips-Van Heusen Corporation
200 Madison Avenue
New York, New York 10016
Attention: Vice President, General Counsel and Secretary
Facsimile: (212) 381-3970
Telephone: (212) 381-3509
with a copy to:
Katten Muchin Zavis Rosenman
575 Madison Avenue
New York, New York 10022
Attention: David H. Landau, Esq.
Facsimile: (212) 940-8776
Telephone: (212) 940-8800
63
If to any Seller to the addresses set forth in Section 11.2 of the Sellers
Disclosure Schedule and if to any CK Company (prior to the Closing) to:
Calvin Klein, Inc.
205 West 39th Street
New York, New York 10018
Attention: Mr. Barry Schwartz, Chairman and CEO
Facsimile: (212) 719-4591
Telephone: (212) 719-2600
in each case, with copies to:
Grubman, Indursky & Schindler, P.C.
152 West 57th Street
New York, New York 10019
Attention: Arthur Indursky, Esq.
Facsimile: (212) 554-0444
Telephone: (212) 554-0400
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: James H. Schwab, Esq.
Facsimile: (212) 757-3990
Telephone: (212) 373-3000
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
11.3 No Modification Except in Writing. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
affected by such change, modification or amendment, and this Agreement may not
be discharged except by performance in accordance with its terms or by a writing
signed by the party to which performance is to be rendered.
11.4 Entire Agreement. This Agreement together with the Schedules,
Appendices and Exhibits hereto and the Confidentiality Agreement, sets forth the
entire agreement and understanding among the parties as to the subject matter
hereof and merges and supersedes all prior discussions, agreements and
understandings of every kind and nature among them with respect to such subject
matter.
11.5 Severability. If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held invalid, the
remainder of this Agreement
64
and the application of such provision to other persons or circumstances shall
not be affected unless the provision held invalid shall substantially impair the
benefits of the remaining portions of this Agreement.
11.6 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. This Agreement may not be
assigned by any Seller or any CK Company except with the prior written consent
of PVH; provided, however, Mr. Klein may assign all or part of his rights to
receive the Design Services Purchase Payments. PVH may assign its rights, but
not its obligations, under this Agreement to any Affiliate of PVH so long as
said Affiliate agrees in writing provided to the Sellers that it will also be
bound by and perform all obligations of PVH in this Agreement. Notwithstanding
the foregoing, PVH may assign its rights under Section 6.3 to any Person in
connection with the sale of all or substantially all of the assets of PVH or all
or substantially all of the assets comprising the business of the CK Companies
(whether conducted directly, or indirectly, by PVH) to such Person, so long as
such Person agrees in writing reasonably acceptable to the Sellers that it will
also be bound by and will perform all of the obligations of PVH in this
Agreement and the Related Agreements.
11.7 Governing Law; Jurisdiction.
(a) This Agreement shall be governed by, and construed in accordance with,
the Laws of the State of New York applicable to contracts made and to be
performed wholly within said State, without giving effect to the conflict of
laws principles thereof.
(b) Each party to this Agreement irrevocably submits to the exclusive
jurisdiction of (i) the courts of the State of New York located in New York
County and (ii) the United States District Court for the Southern District of
New York, for the purposes of any Action arising out of this Agreement or the
transactions contemplated hereby.
(c) Notwithstanding Sections 11.7(a) and (b), in the event of any dispute
between PVH, on the one hand, and any Seller, on the other hand, prior to the
commencement of any litigation proceeding, such parties may (but are not
obligated to) select an independent mediator to assist in the mediation and
resolution of such disputes. PVH and the Sellers with the assistance of such
mediator, shall use reasonable best efforts to mediate their disputes within 60
days after the submission of the dispute to such mediator. If the parties are
not able to successfully mediate such disputes within such 60-day period, the
parties agree that the resolution of such dispute will be governed by Sections
11.7(a) and (b). Unless provided otherwise in this Agreement, the cost of such
mediator shall be borne equally by the parties.
11.8 Specific Performance. The parties agree that if any of the
provisions of this Agreement were not performed by PVH, on the one hand, or the
Sellers and the CK Companies, on the other hand, in accordance with their
specific terms or were otherwise breached by such parties, irreparable damage
would occur, no adequate remedy at Law would exist and damages would be
difficult to determine, and that the non-breaching party will be entitled to
specific performance of the terms hereof. The parties waive any requirement for
the posting of a bond in connection with any Action seeking specific
performance; provided, however, that nothing
65
herein will affect the right of any of the parties to seek recovery against any
party hereto, at Law, in equity or otherwise, with respect to any covenants,
agreements or obligations to be performed by such party or parties after the
Closing Date.
11.9 Headings; References. The headings appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. Any reference in this Agreement (including in any Exhibit,
Appendix or Schedule hereto) to a "Section," "Article," or "Exhibit" shall mean
a Section, Article or Exhibit of or to this Agreement unless expressly stated
otherwise.
11.10 Interpretation. In this Agreement, (a) words used herein regardless
of the gender specifically used shall be deemed and construed to include any
other gender, masculine, feminine or neuter, as the context shall require, and
(b) all terms defined in the singular shall have the same meanings when used in
the plural and vice versa. Any statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such statute as from
time to time amended, modified or supplemented, including (in the case of
statutes) by succession of comparable successor statutes. References to a Person
are also its predecessors and permitted successors and assigns.
11.11 Schedules. Any item that is disclosed in any part of the CK
Companies Disclosure Schedule, the Sellers Disclosure Schedule or of the PVH
Disclosure Schedule with sufficient specificity so that it is apparent on the
face of such Schedule that such disclosure is also applicable to one or more
other parts of such Schedule shall also be deemed disclosed for purposes of such
other parts of such Schedule to which such disclosure is applicable. Terms used
in any Schedule to this Agreement and not otherwise defined in such Schedule
shall have the meaning ascribed to such term in this Agreement.
11.12 Third Parties. Except as expressly provided herein or as otherwise
agreed by the parties hereto, the provisions of this Agreement are solely for
the benefit of the parties hereto and shall not inure to the benefit of any
third party.
11.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute a single agreement. This Agreement will become binding
when one or more counterparts taken together will have been executed and
delivered (including by facsimile) by the parties.
66
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
on the day and year first above written.
PHILLIPS-VAN HEUSEN CORPORATION
By: /s/ Bruce J. Klatsky
--------------------------------------
Name: Bruce J. Klatsky
Title: Chairman and Chief Exec. Officer
CALVIN KLEIN, INC.
By: /s/ Barry Schwartz
--------------------------------------
Name: Barry Schwartz
Title: Chairman and Chief Exec. Officer
CALVIN KLEIN (EUROPE), INC.
By: /s/ Barry Schwartz
--------------------------------------
Name: Barry Schwartz
Title: Chairman and Chief Exec. Officer
CALVIN KLEIN (EUROPE II) CORP.
By: /s/ Barry Schwartz
--------------------------------------
Name: Barry Schwartz
Title: Chairman and Chief Exec. Officer
67
CALVIN KLEIN EUROPE S.R.L.
By: /s/ Barry Schwartz
--------------------------------------
Name: Barry Schwartz
Title: Chairman and Chief Exec. Officer
CK SERVICE CORP.
By: /s/ Barry Schwartz
--------------------------------------
Name: Barry Schwartz
Title: Chairman and Chief Exec. Officer
TRUST F/B/O ISSUE OF CALVIN KLEIN
By: /s/ Flore Klein
--------------------------------------
Flore Klein, as trustee
By: /s/ Deirdre Miles-Graeter
--------------------------------------
Deirdre Miles-Graeter, as trustee
TRUST F/B/O ISSUE OF BARRY SCHWARTZ
By: /s/ Sheryl Rona Schwartz
--------------------------------------
Sheryl Rona Schwartz, as trustee
68
/s/ Calvin Klein
--------------------------------------
Calvin Klein
/s/ Barry Schwartz
--------------------------------------
Barry Schwartz
/s/ Stephanie Schwartz-Ferdman
--------------------------------------
Stephanie Schwartz-Ferdman
/s/ Jonathan Schwartz
--------------------------------------
Jonathan Schwartz
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APPENDIX A
DEFINITIONS
Definitions. The following terms when used in the Agreement shall have the
respective meanings ascribed to them below:
"Accounting Firm" has the meaning ascribed to such term in Section 1.4(b).
"Action" shall mean any action, suit, claim, litigation, proceeding,
arbitration, audit, investigation, or hearing (whether civil, criminal,
administrative, investigative or informal) commenced, brought, conducted or
heard by or before, any Governmental Authority.
"Adjustment Payment" has the meaning ascribed to such term in Section
1.4(c).
"Affiliate" shall mean, with respect to a specified Person, any other
Person who, directly or indirectly, controls, is controlled by, or is under
common control with such specified Person. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
"Agreement" has the meaning ascribed to such term in the Preamble hereto.
"Agreement and Assignment" has the meaning ascribed to such term in Section
7.11.
"Apax Transaction" shall mean the transaction contemplated by the
Securities Purchase Agreement among PVH, Lehman Brothers Inc. and the Investors
named therein dated as of December 16, 2002.
"Audited Financial Statements" has the meaning ascribed to such term in
Section 3.14(a).
"Balance Sheet Rules" shall mean the rules identified on Schedule IV.
"Base Amount" shall mean $20,000,000.
"Basket" has the meaning ascribed to such term in Section 9.4(a).
"Bearing the Marks" has the meaning ascribed to such term in Section
1.5(a).
"Business Day" shall mean a day (other than a Saturday or Sunday), on which
commercial banks are open for business in New York, New York.
"CKI" has the meaning ascribed to such term in the Preamble hereto.
"CK Companies" has the meaning ascribed to such term in the Preamble hereto
and, for purposes of this Agreement, shall include any division of any CK
Company, whether or not such division is a separate entity including, without
limitation, CRK Advertising.
A-1
"CK Companies Disclosure Schedule" shall mean that certain schedule
attached hereto as Schedule I qualifying the representations and warranties
contained in Article III.
"CK Companies Material Adverse Effect" shall mean any event, condition or
contingency that has had, or is reasonably likely to have, a material adverse
effect on the business, assets, liabilities, results of operations or financial
condition of the CK Companies, taken as a whole. For the purposes of this
Agreement, a CK Companies Material Adverse Effect shall not include any event,
condition or contingency, or the effect thereof, resulting from (i) the entering
into of any transaction consented to by PVH pursuant to Section 5.1(b), (ii) the
announcement, negotiation, contemplation of Closing or actions taken in
furtherance, of the transactions contemplated herein, (iii) events of war
impacting the economy in general, and (iv) changes in general economic
conditions or in the fashion, apparel, accessories, home furnishings or
fragrance industries, in general.
"CK Debt Obligations" has the meaning ascribed to such term in Section 1.6.
"CK Europe I" has the meaning ascribed to such term in the Preamble hereto.
"CK Europe II" has the meaning ascribed to such term in the Preamble
hereto.
"CK Intellectual Property Rights" has the meaning ascribed to such term in
Section 3.12(a).
"CK Italy" has the meaning ascribed to such term in the Preamble hereto.
"CK Trust" shall mean the Calvin Klein Trademark Trust, provided, that all
references herein to the CK Trust shall only be with respect to the interests in
such owned by CKI and shall exclude for all purposes of this Agreement
(including Article III), the Class B and C ownership interests of Warnaco Inc.
or any action taken by or on behalf of Warnaco Inc. with respect to the CK Trust
or its interests therein.
"CK Trust Agreement" shall mean the trust agreement established on March
14, 1994, as amended, by and between CKI, as settlor, and Wilmington Trust
Company, as trustee, which trust agreement governs the CK Trust.
"CK Umbrella" has the meaning ascribed to such term in Section 1.5(a).
"CKI Plan" has the meaning ascribed to such term in Section 6.2(d).
"Cap" has the meaning ascribed to such term in Section 9.4(a).
"Capital Stock" shall mean, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock or any form of
membership, ownership or participation interests, as applicable, including
partnership interests, whether now outstanding or hereafter issued and any and
all securities, debt instruments, rights, warrants or options exercisable or
exchangeable for or convertible into such capital stock.
A-2
"Cash Purchase Price" has the meaning ascribed to such term in Section 1.2.
"Certificates of Exemption" has the meaning ascribed to such term in
Section 6.4(h).
"Channel" has the meaning ascribed to such term in Section 1.5(a).
"Claim Notice" has the meaning ascribed to such term in Section 9.7.
"Closing" has the meaning ascribed to such term in Section 1.1.
"Closing Date" has the meaning ascribed to such term in Section 1.1.
"Closing Date Balance Sheet" has the meaning ascribed to such term in
Section 1.4(a).
"Closing Date Net Book Value" shall mean the number obtained by subtracting
(a) the sum of the liabilities, including deferred revenues, of the CK Companies
set forth on the Closing Date Balance Sheet, from (b) the sum of the total
assets of the CK Companies set forth on the Closing Date Balance Sheet. The
Closing Date Net Book Value shall be calculated in accordance with GAAP.
"Closing Time" has the meaning ascribed to such term in Section 1.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute thereto and all final or temporary
regulations promulgated thereunder and published.
"Company Employee Plan" has the meaning ascribed to such term in Section
4.14(a).
"Company Plans" has the meaning ascribed to such term in Section 3.20(d).
"Confidential Information" shall mean trade secrets, confidential or
proprietary information, knowledge, or know-how pertaining primarily to the
business of any CK Company or any confidential or proprietary information
concerning any supplier or customer of any CK Company, including, without
limitation, customer lists, research and development information and materials,
inventions, formulas, methods, techniques, processes, plans, product designs,
material designs, fabric designs, procedures, contracts, financial information
and computer models. The term Confidential Information shall not include (i)
information that is generally available to the public or within the apparel and
fashion industry, other than as a result of a disclosure by the receiving party
or its directors, officers, stockholders, partners, Affiliates, employees,
agents or advisors in violation of this Agreement; (ii) information which, prior
to disclosure to the receiving party by or on behalf of the disclosing party,
was already in the receiving party's possession on a non-confidential basis;
(iii) information that was developed without the use of Confidential
Information; (iv) information that becomes available to the receiving party on a
non-confidential basis from a source other than any CK Company or any of its
advisors, agents or Affiliates, provided, that such source is not known by the
receiving party to be bound by a confidentiality agreement with or other
obligation of secrecy to such CK Company or any other party; (v) information
which is reasonably necessary for the purpose of
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the disclosing party asserting its rights in a dispute among the parties
hereunder or under any Related Agreement; or (vi) information reasonably related
to any Tax Returns or similar matters required to be prepared by the disclosing
party or any of their representatives and filed with any Governmental Authority,
provided, that, with respect to Confidential Information disclosed as a result
of or in connection with clause (vi) herein, the disclosing party shall request
confidential treatment of such Confidential Information.
"Confidentiality Agreement" shall mean that certain confidentiality
agreement between PVH and CKI dated March 6, 2002.
"Consulting Agreement" has the meaning ascribed to such term in Section
7.10.
"Contracts" shall mean all legally binding leases, including, without
limitation, Real Property Leases, licenses, contracts, agreements, indentures,
promissory notes, guarantees, arrangements, commitments and understandings of
any kind, whether written or oral, to which any CK Company or the CK Trust is a
party or by which any CK Company or the CK Trust or any of the assets of any CK
Company or the CK Trust may be bound, and all rights arising under any of them.
"Damages" shall mean losses, obligations, liabilities, settlement payments,
awards, judgments, fines, penalties, damages, deficiencies, Taxes and reasonable
expenses and costs, including reasonable attorneys' and auditors' fees (and any
reasonable experts' fees) and court costs, in each case as determined by an
agreement of the parties or a court of competent jurisdiction.
"Design Services Agreement" shall mean the letter agreement dated July 25,
1994 relating to the design services provided by Mr. Klein to CKI.
"Design Services Purchase Payment Default" has the meaning ascribed to such
term in Section 1.5(f).
"Design Services Purchase Payments" has the meaning ascribed to such term
in Section 1.5(a).
"Design Services Rate" has the meaning ascribed to such term in Section 1.5
of the Sellers Disclosure Schedule.
"Design Services Security Agreement" shall mean the pledge and security
agreement to be entered into at Closing between PVH, the CK Companies (other
than CK Italy) (each as constituted after the Closing) and Mr. Klein in the form
attached hereto as Exhibit I.
"DOJ" shall mean the United States Department of Justice.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute thereto and all final or
temporary regulations promulgated thereunder.
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"Employee Benefit Plans" has the meaning ascribed to such term in Section
3.20(a).
"Employee Program" shall mean any "employee benefit plan", within the
meaning of Section 3(3) of ERISA, whether or not it is subject to ERISA.
"Environment" shall mean soil, surface waters, ground waters, land, stream,
sediments, surface or subsurface strata and ambient air.
"Environmental Condition" shall mean any condition with respect to the
Environment on or off any Facility caused by a Release of Hazardous Substances
or violation of Environmental Laws, whether or not yet discovered, which could
or does result in any Damages, including, without limitation, any condition
resulting from the operation of the business of any CK Company or the operation
of the business of any subtenant or occupant of any Facility or that of other
property owners or operators in the vicinity of any Facility or any activity or
operation formerly conducted by any person or entity on or off such Facility.
"Environmental Laws" shall mean all Laws relating to the pollution of or
protection of the Environment, from contamination by, or relating to injury to,
or the protection of, real or personal property or human health or the
Environment, including, without limitation, all valid and lawful requirements of
courts and other Governmental Authorities pertaining to reporting, licensing,
permitting, investigation, remediation and removal of, emissions, discharges,
releases or threatened releases of Hazardous Substances, chemical substances,
pesticides, petroleum or petroleum products, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, into the Environment, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes.
"Environmental Report" shall mean any report, study, assessment, audit, or
other similar document that addresses any issue of actual or potential
noncompliance with, actual or potential liability under or cost arising out of,
or actual or potential impact on business in connection with, any Environmental
Law or any proposed or anticipated change in or addition to any Environmental
Law.
"Escrow Agreement" has the meaning ascribed to such term in Section 1.3(b).
"Estimated Closing Date Net Book Value" has the meaning ascribed to such
term in Section 1.4.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as
amended, or any successor law, and regulations and rules issued under that Act
or any successor law.
"FTC" shall mean the United States Federal Trade Commission. ---
"Facility" shall mean any facility that is now or has heretofore been
owned, leased or used in connection with the business of any CK Company.
"Final Quarter" has the meaning ascribed to such term in Section 1.5(a).
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"Financial Statements" shall mean the Audited Financial Statements and the
Unaudited Financial Statements.
"GAAP" shall mean United States generally accepted accounting principles,
and for purposes of Section 1.4 shall include the Balance Sheet Rules.
"Governmental Authority" shall mean any (i) federal, state, local,
provincial, municipal, foreign, or other government, (ii) governmental or
quasi-governmental authority of any nature or (iii) other body exercising any
statutory, administrative, judicial, arbitrative, legislative, police,
regulatory, or taxing authority or power.
"Governmental Permits" shall mean all licenses, franchises, registrations,
permits, privileges, immunities, approvals and other authorizations from a
Governmental Authority.
"Group" has the meaning ascribed to such term in Section 3.20(a).
"Guarantee" shall mean the pledgor guarantee in favor of Mr. Klein executed
by the CK Companies (other than CK Italy) (each as constituted after the
Closing) as of the Closing Time in the form attached hereto as Exhibit L.
"Hazardous Substance" shall mean any substance whether solid, liquid or
gaseous in nature:
(i) the presence of which requires notification, investigation, or
remediation under any Environmental Law;
(ii) which is or becomes defined as "toxic", a "hazardous waste",
"hazardous material" or "hazardous substance" or "pollutant" or
"contaminant" under any present Environmental Laws;
(iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is
regulated by any Governmental Authority;
(iv) which contains gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds;
(v) which contains polychlorinated byphenyls (PCBs) or asbestos or
urea formaldehyde foam insulation; or
(vi) which contains or emits radioactive particles, waves or
materials, including radon gas.
"Foreign Plan" shall mean any plan which is described in Section 4(b)(4) of
ERISA, and which is maintained, sponsored or contributed to by, or covers any
employee of, PVH or any of its Subsidiaries
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"HSR Act" shall mean the Hart Scott Rodino Antitrust Improvements Act of
1976, as amended.
"HSR Clearance" shall mean the expiration or early termination of any
applicable waiting period under the HSR Act, without any suit to enjoin the
transactions contemplated herein having been filed by the DOJ or FTC under Title
15 of the United States Code.
"HSR Date" has the meaning ascribed to such term in Section 1.1.
"Holdback Shares" shall mean such number of shares of PVH Common Stock
equal to the quotient of (i) $15,000,000 divided by (ii) the PVH Common Stock
Closing Price (rounded up to the nearest whole number).
"Indemnitee" has the meaning ascribed to such term in Section 9.7.
"Indemnitor" has the meaning ascribed to such term in Section 9.7.
"Initial Quarter" has the meaning ascribed to such term in Section 1.5(a).
"Intellectual Property Rights" has the meaning ascribed to such term in
Section 3.12(a).
"Intercreditor Agreement" shall mean the intercreditor and subordination
agreement by and among the Working Capital Agent, Term Lender (each term as
defined therein) and Mr. Klein to be entered into at Closing in the form
attached hereto as Exhibit K.
"International Employees" has the meaning ascribed to such term in Section
3.10(d).
"International Plans" has the meaning ascribed in Section 3.20(a).
"J. Schwartz" has the meaning ascribed to such term in the Preamble hereto.
"Klein Group Sellers" shall mean Mr. Klein and the Klein Trust.
"Klein Heirs" has the meaning ascribed to such term in Section 1.5(a).
"Klein Trust" has the meaning ascribed to such term in the Preamble hereto.
"Knowledge" shall mean, with respect to the Sellers, the actual knowledge,
or the knowledge that would be expected to have been obtained upon reasonable
inquiry by any of the Sellers, and with respect to the CK Companies, the actual
knowledge, or the knowledge that would be expected to have been obtained upon
reasonable inquiry of Mr. Klein, Mr. Schwartz, Tom Murry, Len LaSalandra, Kathy
Melita, Pamela Bradford, Deirdre Miles-Graeter, Max Weinstein, Kim Vernon,
William Baer, William Voight and Mark Katz.
"Law" shall mean any constitution, law, treaty, compact, directive,
ordinance, principal of common law, permit, authorization, variance, regulation,
rule, or statute, including, without limitation, all federal, foreign,
international, state and local laws related to Taxes, ERISA, Hazardous
Substances and the Environment, zoning and land use, intellectual property,
privacy,
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occupational safety and health, consumer protection, product quality, safety,
employment and labor matters.
"Licensee Sales" has the meaning ascribed to such term in Section 1.5(a).
"Liens" shall mean all mortgages, pledges, liens, security interests,
conditional sale agreements, encumbrances or similar restrictions.
"Line Letter" shall mean the Line Letter between CKI and JPMorgan Chase
Bank dated March 14, 2002.
"Liquidated Damages Amount" shall mean the amount of liquidated damages for
the year in which any Design Services Purchase Payment Default occurs determined
pursuant to the formula set forth on Schedule V.
"Marks" shall mean the trademarks and service marks CALVIN KLEIN, CK/CALVIN
KLEIN and CK, and all variations and combinations thereof throughout the entire
world in connection with all products and services other than to the extent a
trademark or service mark is subject to the Class B and Class C interest in the
CK Trust, together with all related recordations, applications for registration
and registrations, and all goodwill associated therewith. Notwithstanding the
foregoing, for purposes of Section 1.5, "Marks" shall have the meaning ascribed
thereto in the Agreement and Assignment.
"Mr. Klein" has the meaning ascribed to such term in the Preamble hereto.
"Mr. Schwartz" has the meaning ascribed to such term in the Preamble
hereto.
"Multiemployer Plan" has the meaning ascribed to such term in Section
3.20(e).
"Net Book Value Overage" has the meaning ascribed to such term in Section
1.4(a).
"Net Book Value Underage" has the meaning ascribed to such term in Section
1.4(a).
"New Corporate Name" has the meaning ascribed to such term in Section
1.5(a).
"Notarial Deed" has the meaning ascribed to such term in Section 7.12.
"Notice of Disagreement" has the meaning ascribed to such term in Section
1.4(b).
"NYSE" shall mean the New York Stock Exchange.
"Off-Balance Sheet Arrangement" shall mean any transaction, agreement or
other contractual arrangement to which an entity that is not consolidated with
PVH is a party, under which PVH, whether or not a party to the arrangement, has,
or in the future may have: (i) any obligation under a direct or indirect
guarantee or similar arrangement; (ii) a retained or contingent interest in
assets transferred to an unconsolidated entity or similar arrangement; (iii)
derivatives, to the extent that the fair value thereof is not fully reflected as
a liability or asset in the financial statements of PVH; or (iv) any obligation
or liability in excess of $5,000,000,
A-8
including a contingent obligation or liability, not incurred in the ordinary
course of business to the extent that such obligation or liability is not fully
reflected in the financial statements of PVH (excluding the footnotes thereto).
"Order" shall mean any award, decision, injunction, decree, stipulation,
determination, writ, judgment, order, ruling, or verdict ordered, issued, made
or rendered by any court, administrative agency or other Governmental Authority.
"Payment Period" has the meaning ascribed to such term in Section 1.5 of
the Sellers Disclosure Schedule.
"Payment Statement" has the meaning ascribed to such term in Section
1.5(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permitted Arrangements" has the meaning ascribed to such term in Section
3.11(a).
"Permitted Liens" shall mean Liens (i) for any current taxes or assessments
not yet delinquent, (ii) created by statute of carriers, warehousemen, vendors,
mechanics, laborers or materialmen incurred in the ordinary course of business
for sums not yet due or (iii) real and personal property leases and licenses for
the use of CK Intellectual Property Rights.
"Person" shall mean any individual, firm, unincorporated organization,
corporation (including any not-for-profit corporation), general or limited
partnership, limited liability company, cooperative marketing association, joint
venture, estate, trust, association or other entity as well as any syndicate or
group that would be deemed to be a person under Section 13(a)(3) of the Exchange
Act.
"Pre-Closing Tax Periods" has the meaning ascribed to such term in Section
6.4(a).
"Purchase Price" has the meaning ascribed to such term in Section 1.2.
"Purchase Shares" has the meaning ascribed to such term in the Recitals
hereto.
"PVH" has the meaning ascribed to such term in the Preamble hereto.
"PVH Balance Sheet" has the meaning ascribed to such term in Section 4.11.
"PVH Common Stock Closing Price" shall mean the average closing sales price
on the New York Stock Exchange Composite Tape (as reported in The Wall Street
Journal) for a share of PVH Common Stock for the ten Business Day period ending
on the Business Day immediately prior to the Closing Date.
"PVH Channel" has the meaning ascribed to such term in Section 1.5(a).
"PVH Disclosure Schedule" shall mean that certain schedule attached hereto
as Schedule II qualifying the representations and warranties contained in
Article IV.
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"PVH Group Member" shall mean each of PVH and its Affiliates (including,
each CK Company as constituted after the Closing) and their respective
directors, officers, employees, agents and attorneys and their respective
successors and assigns.
"PVH Intellectual Property" shall have the meaning ascribed to such term in
Section 4.13(a).
"PVH Marks" shall mean all of the trademarks, service marks and trade names
throughout the entire world licensed to or used by PVH or any of its
Subsidiaries and/or owned by PVH or any of its Subsidiaries including, but not
limited to, Van Heusen, Bass,G.H., Bass & Co., Izod, cKCalvin Klein, Geoffrey
Beene, Arrow, DKNY, Kenneth Cole New York and Reaction by Kenneth Cole.
"PVH Material Adverse Effect" shall mean any event, condition or
contingency that has had, or is reasonably likely to have, a material adverse
effect on the business, assets, liabilities (including contingent liabilities),
results of operations or financial condition or, to the knowledge of PVH,
prospects of PVH and its Subsidiaries, taken as a whole. For the purposes of
this Agreement, a PVH Material Adverse Effect shall not be deemed to arise by
reason of (i) the transactions contemplated hereby and by the Apax Transaction,
(ii) events of war impacting the economy in general, and (iii) changes in
general economic conditions or in the fashion, apparel, accessories, home
furnishings or fragrance industries, in general.
"PVH Savings Plan" has the meaning ascribed to such term in Section 6.2(d).
"PVH Shares" has the meaning ascribed to such term in Section 1.2.
"Qualified Plan" has the meaning ascribed to such term in Section 3.20(d).
"Real Property Leases" shall mean all leases for real property to which any
CK Company is a party or by which it is bound.
"Registration Rights Agreement" has the meaning ascribed to such term in
Section 8.13.
"Related Agreements" shall mean (i) the Consulting Agreement, the Agreement
and Assignment and the Registration Rights Agreement, and (ii) those other
agreements and documents entered into or delivered between PVH, the CK Companies
and the Sellers related to, ancillary to, or in connection with this Agreement
or the documents listed in clause (i) hereof.
"Restricted Business" has the meaning ascribed to such term in Section
6.3(a).
"Retail Direct Sales" has the meaning ascribed to such term in Section
1.5(a).
"Right" shall have the meaning set forth in the Rights Agreement.
"Rights Agreement" shall mean the Rights Agreement, dated as of June 10,
1986, as amended, by and between the Company and The Bank of New York (successor
to The Chase Manhattan Bank, N.A.), as Rights Agent, and each amendment and
extension thereof.
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"Rights Holder" has the meaning ascribed to such term in Section 6.4(h).
"Schwartz Design Services Form" has the meaning ascribed to such term in
Section 7.17.
"Schwartz Group Sellers" shall mean Mr. Schwartz, the Schwartz Trust,
Schwartz-Ferdman and J. Schwartz.
"Schwartz Trust" has the meaning ascribed to such term in the Preamble
hereto.
"Schwartz-Ferdman" has the meaning ascribed to such term in the Preamble
hereto.
"SEC Reports" has the meaning ascribed to such term in Section 4.7.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued under that Act or any successor
law.
"Seller Group Member" shall mean the Sellers and each of their respective
agents and attorneys and their respective successors and permitted assigns.
"Sellers" has the meaning ascribed to such term in the Preamble hereto.
"Sellers Disclosure Schedule" shall mean that certain schedule attached
hereto as Schedule III qualifying the representations and warranties contained
in Article II.
"Sellers' Representative" shall mean Mr. Klein, for the Klein Group
Sellers, and Mr. Schwartz for the Schwartz Group Sellers, or such other persons
as the Sellers from time to time designated by written notice to PVH.
"September 28 Balance Sheet" shall mean the combined balance sheets of CKI
and its affiliates for the period ended September 28, 2002.
"Service Corp." has the meaning ascribed to such term in the Preamble
hereto.
"Servicing Agreement" shall mean the servicing agreement dated as of March
14, 1994 between CKI and the CK Trust.
"Severance Qualified Employee" has the meaning ascribed to such term in
Section 6.2(a).
"Stock Certificates" has the meaning ascribed to such term in Section 1.2.
"Straddle Periods" has the meaning ascribed to such term in Section 6.4(b).
"2001 Balance Sheet" shall mean the combined balance sheets of CKI and its
affiliates for the fiscal year ended December 29, 2001.
"Subsidiary" shall mean, as to any Person, any other Person more than 50%
of the shares of the voting stock or other voting interests of which are owned
or controlled, or the ability to select or elect more than 50% of the directors
or similar managers is held, directly or indirectly,
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by such first Person or one or more of its Subsidiaries or by such first Person
and one or more of its Subsidiaries.
"Taxes" shall mean any and all federal, state, local and foreign taxes,
assessments, governmental charges, duties, impositions and liabilities,
including, but not limited to, income (whether net or gross), excise, property,
sales, transfer, gains, gross receipts, occupation, privilege, payroll, wage,
unemployment, workers' compensation, social security, escheat, use, value added,
capital, gross receipts, franchise, license, severance, stamp, premium, windfall
profits, environmental (including taxes under Code Sec. 59A), capital stock,
profits, withholding, disability, real property, personal property,
registration, customs duties, alternative or add-on minimum, estimated or other
tax of any kind whatsoever (whether disputed or not) imposed by any Tax
Authority, including any related charges, fees, interest, penalties, additions
to tax or other assessments.
"Tax Authority" shall mean any foreign or domestic government, any
subdivision, agency, commission or authority thereof, or any quasi-governmental
body or other authority exercising any taxing or Tax regulatory authority.
"Tax Returns" shall mean all returns, reports, declarations, estimates,
information returns and statements (including any related or supporting
information) filed or to be filed with any Tax Authority in connection with the
determination, assessment, collection or administration of any Taxes.
"Termination Date" has the meaning ascribed to such term in Section
10.1(d).
"Unaudited Financial Statements" has the meaning ascribed to such term in
Section 3.14(a).
"Union Plans" has the meaning ascribed to such term in Section 3.20(d).
"WARN" shall mean the Worker Adjustment and Retraining Notification Act of
1988, as amended.
"Warrant" shall mean the warrant exercisable for an aggregate of 320,000
shares of PVH's common stock, par value $1.00 per share (the "PVH Common Stock")
at an exercise price equal to $28 per share. The Warrant shall be issued to Mr.
Klein, exercisable for a nine-year period from the Closing Date, and shall be in
the form attached hereto as Exhibit J.
"Wholesale Direct Sales" has the meaning ascribed to such term in Section
1.5(a).
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