Exhibit 10.2
================================================================================
SECURITIES PURCHASE AGREEMENT
AMONG
PHILLIPS-VAN HEUSEN CORPORATION,
LEHMAN BROTHERS INC.
AND
THE INVESTORS
DATED AS OF DECEMBER 16, 2002
================================================================================
TABLE OF CONTENTS
PAGE
ARTICLE I Definitions.................................................. 1
Section 1.01. Definitions........................................... 1
Section 1.02. Rules of Construction................................. 10
ARTICLE II issuance, Sale and Purchase of the Series B Stock........... 11
Section 2.01. Sale and Purchase of the Series B Stock............... 11
Section 2.02. Closing............................................... 11
Section 2.03. Use of Proceeds....................................... 12
ARTICLE III Representations and Warranties of the Company.............. 12
Section 3.01. Organization and Good Standing........................ 12
Section 3.02. Authority; Binding Effect............................. 12
Section 3.03. Organization and Good Standing of Company
Subsidiaries..................................... 13
Section 3.04. Capitalization........................................ 13
Section 3.05. No Violations; Consents............................... 14
Section 3.06. Listing............................................... 15
Section 3.07. Financial Statements.................................. 15
Section 3.08. Commission Filings.................................... 16
Section 3.09. Absence of Certain Developments....................... 16
Section 3.10. Litigation............................................ 18
Section 3.11. Tax Matters........................................... 19
Section 3.12. Real Property......................................... 19
Section 3.13. Inventory............................................. 20
Section 3.14. Intellectual Property................................. 20
Section 3.15. Material Contracts.................................... 20
Section 3.16. Company Employee Plans................................ 21
Section 3.17. Labor Relations....................................... 24
Section 3.18. Compliance with Laws; Permits......................... 25
Section 3.19. Preferred Stock Exemption............................. 25
Section 3.20. Environmental Protection.............................. 26
Section 3.21. Investment Company Act................................ 26
Section 3.22. Transactions with Affiliates.......................... 26
Section 3.23. Insurance............................................. 26
Section 3.24. Customers............................................. 27
Section 3.25. Financial Advisors.................................... 27
Section 3.26. DGCL Section 203 and Rights Agreement................. 27
Section 3.27. D&O Insurance......................................... 27
Section 3.28. Solvency.............................................. 27
i
Section 3.29. Full Disclosure....................................... 27
Section 3.30. No General Solicitation............................... 27
Section 3.31. No Integration........................................ 28
ARTICLE IV Representations and Warranties of the
initial purchaser and the Investors................... 28
Section 4.01. Initial Purchaser Representations..................... 28
Section 4.02. Investors Representations............................. 28
ARTICLE V Covenants of the Company..................................... 30
Section 5.01. Accounting System..................................... 30
Section 5.02. Taxes................................................. 31
Section 5.03. Corporate Existence................................... 31
Section 5.04. Maintenance of Properties............................. 31
Section 5.05. Insurance............................................. 31
Section 5.06. Compliance with Law................................... 31
Section 5.07. Maintain Listing...................................... 31
Section 5.08. Secure Listing........................................ 32
Section 5.09. Transfer Taxes........................................ 32
ARTICLE VI ACTIONS PRIOR TO CLOSING.................................... 32
Section 6.01. Access to Information................................. 32
Section 6.02. Conduct of Business................................... 33
Section 6.03. No Solicitation....................................... 34
Section 6.04. Consent............................................... 34
Section 6.05. HSR................................................... 34
Section 6.06. Notice of Breach...................................... 35
Section 6.07. Other Transaction Documents........................... 35
Section 6.08. Publicity............................................. 35
ARTICLE VII conditions to Closing...................................... 36
Section 7.01. Conditions to Obligations of the Initial
Purchaser and the Investors...................... 36
Section 7.02. Conditions to Obligations of the Company.............. 39
ARTICLE VIII survival.................................................. 39
Section 8.01. Survival.............................................. 39
ARTICLE IX Indemnification............................................. 40
Section 9.01. Generally............................................. 40
Section 9.02. Indemnification Procedure............................. 41
Section 9.03. Certain Qualifications................................ 42
Section 9.04. Limitations on Indemnification........................ 42
ii
ARTICLE X FEES, Expenses and costs..................................... 43
Section 10.01. Reimbursement........................................ 43
ARTICLE XI TERMINATION................................................. 44
Section 11.01. Termination.......................................... 44
Section 11.02. Effect Of Termination................................ 44
Section 11.03. Termination Fee...................................... 45
Section 11.04. Break-up Fee......................................... 45
Section 11.05. CK Recovery.......................................... 45
ARTICLE XII Miscellaneous.............................................. 45
Section 12.01. Notices and Addresses................................ 45
Section 12.02. Captions............................................. 47
Section 12.03. No Waiver............................................ 47
Section 12.04. Severability......................................... 47
Section 12.05. Exclusive Agreement; Amendment....................... 47
Section 12.06. Limitation on Assignment;
Parties in Interest.................................. 48
Section 12.07. Obligations of Investors Several..................... 48
Section 12.08. Governing Law........................................ 48
Section 12.09. Jurisdiction......................................... 48
Section 12.10. No Third Party Beneficiary........................... 48
Section 12.11. Injunctive Relief.................................... 48
Section 12.12. Counterparts......................................... 49
Section 12.13. Actions Simultaneous................................. 49
iii
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of December 16, 2002 (this
"Agreement"), is by and among Phillips-Van Heusen Corporation, a Delaware
corporation (the "Company"), Lehman Brothers Inc., as initial purchaser (the
"Initial Purchaser") and each investor executing a signature page hereto (each
an "Investor" and collectively, the "Investors").
RECITALS:
A. The Company, on or prior to closing will, authorize a new series of
Preferred Stock designated the "Series B Convertible Preferred Stock" (the
"Series B Stock"), which will be convertible into shares of Common Stock in
accordance with the terms of the Certificate of Designations governing the
Series B Stock, in the form attached hereto as Exhibit A (the "Certificate of
Designations").
B. The Initial Purchaser desires to purchase from the Company, and the
Company desires to sell to the Investors, upon the terms and subject to the
conditions of this Agreement, the Series B Shares.
C. The Investors have agreed to purchase from the Initial Purchaser, and
the Initial Purchaser has agreed to sell to the Investors, subject to the terms
and conditions of this Agreement, the Series B Shares.
D. The Company, the Initial Purchaser and the Investors desire to set
forth certain agreements herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and undertakings hereunder and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
intending to be legally bound, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. As used in this Agreement, the following terms
have the meanings set forth below.
"AAA" shall have the meaning set forth in Section 9.02(b).
"Accredited Investor" shall mean any Person that is an "accredited
investor" within the definition contained in Rule 501(a) under the Securities
Act.
"Affiliate" shall mean (a) with respect to an individual, any member of
such individual's family residing in the same household; (b) with respect to an
entity: (i) any executive officer, director, partner or Person that owns ten
percent (10%) or more of the outstanding beneficial interest of or in such
entity, or (ii) any brother, sister, brother-in-law, sister-in-law, lineal
descendant or ancestor of any executive officer, director, partner or Person
that owns ten percent (10%) or more of the outstanding beneficial interest of or
in such entity; and (c) with respect to a Person, any Person which directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with such Person or entity; provided, however, that for
purposes of the definition of "Affiliate," no Investor shall be deemed an
"Affiliate" of the Company.
"Agreement" shall have the meaning set forth in the preamble.
"Audited Financial Statements" shall have the meaning set forth in Section
3.07.
"Balance Sheet" shall have the meaning set forth in Section 3.07.
"Basket" shall have the meaning set forth in Section 9.04(a).
"Break-up Fee" shall mean any "break-up fee," "termination fee," or similar
fee that the Company will receive pursuant to the CK Purchase Agreement or that
certain letter agreement, dated September 26, 2002, between the Company and CKI
reduced by the amount that the Company's Expenses exceed the amount by which the
Company has been, or will be, reimbursed by CKI or any of its Affiliates for
such expenses.
"Board of Directors" shall mean the Board of Directors of the Company.
"Business Day" shall mean any day other than (i) a Saturday, (ii) a Sunday
or (iii) any other day on which banks in the City of New York are authorized or
required to close.
"By-Laws" shall mean, when used with respect to a specified Person, the
by-laws of a Person, as the same may be amended from time to time.
"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.
"Certificate of Designations" shall have the meaning set forth in the
recitals.
"Certificate of Incorporation" shall mean, when used with respect to a
specified Person, the Articles or Certificate of Incorporation or other
applicable organizational document of such Person, as currently in effect.
2
"CK Acquisition" shall mean the acquisition by the Company of all of the
Capital Stock of the CK Companies pursuant to the CK Purchase Agreement.
"CK Recovery" shall mean any amounts received by the Company or any Company
Subsidiary paid by the CK Companies or Sellers (or any insurer thereof) by
reason of the failure of the closing pursuant to the CK Purchase Agreement in
excess of (i) the Company Expenses, (ii) Fees and Expenses of the Investors paid
by the Company, and (iii) any out-of-pocket third party expense incurred by the
Company in obtaining the CK Recovery (i.e., legal fees in any action by the
Company against Sellers).
"CK Companies" shall have the meaning set forth in the CK Purchase
Agreement.
"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) of the CK
Purchase Agreement, (ii) the announcement, negotiation, or contemplation of the
closing of the transactions contemplated by the CK Purchase Agreement or any
actions taken in furtherance of the transactions contemplated by the CK Purchase
Agreement, (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 Purchase Agreement" shall mean that certain Stock Purchase Agreement,
by the Company, each CK Company, Mr. Calvin Klein, Mr. 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.
"CK Transaction Documents" shall mean the CK Purchase Agreement and the
Related Agreements (as such term is defined in the CK Purchase Agreement).
"CKI" shall mean Calvin Klein, Inc., a New York corporation.
"Closing" shall have the meaning set forth in Section 2.02(a).
"Closing Date" shall have the meaning set forth in Section 2.02(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Commission Filings" shall have the meaning set forth in Section 3.08.
"Common Stock" shall mean the common stock, $1 par value per share, of the
Company, including any associated Right.
3
"Company" shall have the meaning set forth in the preamble.
"Company Employee Plan" shall have the meaning set forth in Section
3.16(a).
"Company's Expenses" shall mean all of the fees and out-of-pocket expenses
incurred by the Company in connection with the Contemplated Transactions.
"Company Group Member" shall mean each of the Company and its Affiliates
and their respective directors, officers, employees, agents and attorneys and
their respective successors and assigns.
"Company Subsidiaries" and "Company Subsidiary" shall have the meaning set
forth in Section 3.03.
"Competing Offer" shall mean any offer or proposal for, or indication of
interest in, acquiring more than 10% of the Capital Stock or other equity
securities or securities convertible into or exchangeable for equity securities
of the Company or any of the Company Subsidiaries or any debt financing (other
than as contemplated by the CK Transaction Documents) intended to replace the
amounts committed pursuant to this Agreement.
"Consents" shall mean all governmental and third party consents, approvals,
authorizations, qualifications and waivers necessary to be received by a Person
for the consummation of the Contemplated Transactions.
"Contemplated Transactions" shall mean the transactions contemplated by
each of this Agreement, the other Transaction Documents, the CK Purchase
Agreement and the other CK Transactions Documents.
"Contract" shall mean any legally binding contract, agreement, mortgage,
deed of trust, bond, loan, indenture, lease, license, note, option, warrant,
right, instrument, commitment or other similar document, arrangement or
agreement, whether written or oral.
"Credit Facility" shall mean the Revolving Credit Agreement dated as of
October 17, 2002 among the Company, certain of the Company Subsidiaries, as
co-borrowers, the lenders identified therein (or that may thereafter become
party thereto), and JPMorgan Chase Bank, as agent for such lenders.
"DGCL Section 203" shall have the meaning set forth in Section 3.26.
"Employee" shall mean any current, former or retired officers, directors,
consultants, employees, independent contractors, agents and other Persons who
render services to the Company or any Company Subsidiary.
"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.
4
"Environment" shall mean soil, surface waters, ground waters, land, stream,
sediments, surface or subsurface strata and ambient air.
"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 Bodies pertaining to reporting, licensing,
permitting, investigation, remediation and removal of, emissions, discharges,
releases or threatened releases of Hazardous Materials, 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 Materials, pollutants, contaminants
or hazardous or toxic substances, materials or wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any entity which at any time during the
six-year period ending on the date of this Agreement has been considered a
single employer with the Company or any Company Subsidiary under Section 4001(b)
of ERISA or Section 414(b), (c), (m) or (o) of the Code.
"Excess Amount" shall have the meaning set forth in Section 10.01(d).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Fees and Expenses" shall have the meaning set forth in Section 10.01(a).
"Fifth Amendment" shall have the meaning set forth in Section 7.01(m).
"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, the Company or any Company Subsidiary.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis as used in the United States of America.
"Governmental Body" shall mean any government or governmental or
quasi-governmental authority including, without limitation, any federal, state,
territorial, county, municipal or other governmental or quasi-governmental
agency, board, branch, bureau, commission, court, arbitral body (public or
private), department or other instrumentality or political unit or subdivision,
whether located in the United States or abroad, the National Association of
Securities Dealers, Inc., the New York Stock Exchange, the Nasdaq National
Market, the Nasdaq SmallCap Market or the American Stock Exchange.
5
"Hazardous Materials" shall mean any substance whether solid, liquid or
gaseous in nature: (i) the presence of which requires or may hereafter require
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 or future Environmental Laws; (ii) the presence of which adversely
affects or is injurious to human health or the Environment; (iv) which is toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous and is or becomes regulated by any Governmental
Body; (v) which contains gasoline, diesel fuel or other petroleum hydrocarbons
or volatile organic compounds; (vi) which contains polychlorinated byphenyls
(PCBs) or asbestos or urea formaldehyde foam insulation; or (vii) which contains
or emits radioactive particles, waves or materials, including radon gas.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indemnitee" shall have the meaning set forth in Section 9.01.
"Indemnitor" shall have the meaning set forth in Section 9.01.
"Initial Purchase Price" shall have the meaning set forth in Section 2.01.
"Initial Purchaser" shall have the meaning set forth in the preamble.
"Initial Purchaser Group Members" shall mean the Initial Purchaser and its
Affiliates and their respective directors, officers, employees, agents and
attorneys and their respective successors and assigns.
"Intellectual Property" shall have the meaning set forth in Section
3.14(a).
"Investors" shall have the meaning set forth in the preamble.
"Investor Group Member" shall mean the Investors and each of their
respective partners, officers, employees, agents and attorneys and their
respective successors and permitted assigns.
"Investor Representatives" shall mean each of Apax Managers, Inc. and Apax
Partners Europe Managers Ltd.
"Investors' Rights Agreement" shall have the meaning set forth in Section
7.01(l).
"IRS" shall mean the Internal Revenue Service.
"Law" shall mean any treaty, statute, ordinance, code, rule, regulation,
Order or other legal requirement enacted, adopted, promulgated, applied or
followed by any Governmental Body.
6
"Leased Real Property" shall have the meaning set forth in Section 3.12(b).
"Legal Proceeding" shall mean any judicial, administrative or arbitral
actions, suits, proceedings (public or private) or governmental proceedings.
"Legend" shall mean the Legend set forth in Section 4.02(e).
"Liability" shall mean any debt, liability or obligation, whether known or
unknown, asserted or unasserted, accrued, absolute, contingent or otherwise,
whether due or to become due.
"Lien" shall mean any mortgage, pledge, lien (statutory or otherwise),
security interest, hypothecation, conditional sale agreement, encumbrance or
similar restriction or agreement.
"Loan Documents" shall mean the Term Loan Agreement between the Company, as
borrower, and the Investors, as lenders, of even date herewith and the various
instruments and agreements described therein.
"Loss" shall have the meaning set forth in Section 9.01.
"Marks" shall mean all of the trademarks, service marks and trade names
throughout the entire world licensed to or used by the Company or any Company
Subsidiary and/or owned by the Company or any Company Subsidiary 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.
"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, financial condition or, to the knowledge of the Company, prospects
of the Company and the Company Subsidiaries, taken as a whole. For the purposes
of this Agreement, a Material Adverse Effect shall not be deemed to arise by
reason of (i) the entering into of any transaction consented to by the Investor
Representatives pursuant to Section 6.02, (ii) the Contemplated Transactions,
(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.
"Material Employee" shall mean any Person, including any employee, officer
or director of the Company or any Company Subsidiary, that earned or was paid in
any twelve (12) month period two hundred and fifty thousand dollars ($250,000)
or more, for services rendered in any capacity to the Company or any Company
Subsidiary during the past two (2) years.
"Maximum Amount" shall mean an amount equal to all of the Fees and Expenses
plus all of the Monitor Expenses.
"Minimum Amount" shall mean an amount equal to 50% of the Fees and Expenses
plus all of the Monitor Expenses.
7
"Monitor Expenses" shall have the meaning set forth in Section 10.01(a).
"Multiemployer Plan" shall have the meaning set forth in Section 3.16(a).
"Notice" shall have the meaning set forth in Section 9.02(a).
"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
the Company is a party, under which the Company, 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 the
Company; or (iv) any obligation or liability in excess of $5,000,000, 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 the Company (excluding the footnotes thereto).
"Order" shall mean any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award.
"Owned Real Property" shall have the meaning set forth in Section 3.12(a).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Partial Reimbursement" shall have the meaning set forth in Section
10.01(d).
"Percentage" shall mean that percentage of the Company's Expenses paid by
CKI or any of its Affiliates.
"Permits" shall mean any approvals, authorizations, licenses, permits or
certificates by or of any Governmental Body.
"Permitted Liens" shall mean (a) easements, restrictions, covenants, rights
of way or minor irregularities of title currently of record against any of the
Real Property, (b) real and personal property leases, (c) Liens for Taxes not
yet due and payable, or for Taxes being contested in good faith, provided that
in each such case, adequate reserves are maintained in accordance with GAAP on
the Balance Sheet, and (d) any Lien created by statute of carriers,
warehousemen, vendors, mechanics, laborers or materialmen incurred in the
ordinary course of business for sums not yet due and payable.
"Person" shall mean any individual, corporation, partnership, firm, limited
liability company, joint venture, trust, association, unincorporated
organization, group, joint-stock company, Governmental Body or other entity.
8
"Preferred Stock" shall mean the preferred stock, $100 par value per share,
of the Company.
"Purchase Price" shall mean $250,000,000 in the aggregate, payable as set
forth in Section 2.02.
"Real Property" shall have the meaning set forth in Section 3.12(b).
"Registration Rights Agreement" shall have the meaning set forth in Section
7.01(k).
"Reportable Event" shall mean a 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.
"Retiree" shall mean any Employee who has retired or terminated employment
from the Company or any Company Subsidiary.
"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 (including, without limitation, the Fifth Amendment).
"SEC" shall mean the U.S. Securities and Exchange Commission. ---
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Sellers" shall have the meaning set forth in the CK Purchase Agreement.
"Series A Stock" shall mean the Series A Cumulative Participating Preferred
Stock, $100 par value per share, of the Company.
"Series B Designees" shall mean the directors elected by the Investors to
the Board of Directors pursuant to the Certificate of Designations.
"Series B Shares" shall have the meaning set forth in Section 2.01.
"Series B Stock" shall have the meaning set forth in the recitals.
"Specified Purchase Price" shall have the meaning set forth in Section
2.01.
9
"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, by such first Person or one
or more of its Subsidiaries or by such first Person and one or more of its
Subsidiaries.
"Tax Return" shall have the meaning set forth in Section 3.11(a).
"Taxes" shall mean all U.S. federal, state, local and foreign income, gross
income, corporation, advance corporation, gross receipts, estimated, import,
customs, duties, transfer, excise, property, sales, use, value-added, license,
payroll, pay as you earn, withholding, social security and franchise or other
governmental taxes, imposed by any Governmental Body and any interest, penalties
or additions to tax with respect thereto.
"Termination Fee" shall have the meaning set forth in Section 11.03.
"Termination Warrants" shall mean ten-year warrants to purchase an
aggregate amount of shares of Common Stock equal to ten percent (10%) of the
Common Stock of the Company determined on a fully-diluted basis at an exercise
price per share equal to the volume weighted average price of the shares Common
Stock as reported by Bloomberg (or if such information is not available from
Bloomberg, from another nationally recognized independent pricing source) on the
date of execution of this Agreement, in the form annexed hereto as Exhibit B.
"Transaction Documents" shall mean this Agreement, the schedules and
exhibits hereto, the Certificate of Designations, the Registrations Rights
Agreement, the Investors' Rights Agreement, the Fifth Amendment and the Loan
Documents and any certificate or other document delivered by or on behalf of the
Company or the Investors pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement, but does not include the CK
Transaction Documents.
"Unaudited Financial Statements" shall have the meaning specified in
Section 3.07.
"Warrants" shall have the meaning set forth in the CK Purchase Agreement.
"2002 Budget" shall mean the annual operating budget for the Company, for
the fiscal year commencing on February 4, 2002 and ending on February 2, 2003,
previously delivered to each of the Investor Representatives.
Section 1.02. Rules of Construction. Unless the context otherwise
requires:
(a) an accounting term defined by GAAP that is not otherwise defined herein
has the meaning assigned to it in accordance with GAAP;
(b) "or" is not exclusive;
10
(c) words in the singular include the plural, and words in the plural
include the singular;
(d) the words "include" and "including" shall be deemed to mean "include,
without limitation," and "including, without limitation";
(e) "herein," "hereof," "hereto," "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular article,
section, paragraph or clause where such terms may appear;
(f) references to sections mean references to such section in this
Agreement, unless stated otherwise; and
(g) the use of any gender shall be applicable to all genders.
ARTICLE II
ISSUANCE, SALE AND PURCHASE OF THE SERIES B STOCK
Section 2.01. Sale and Purchase of the Series B Stock. Upon the terms and
subject to the conditions of this Agreement, the Company will sell to the
Initial Purchaser, and the Initial Purchaser will purchase from the Company, an
aggregate of 10,000 shares of the Series B Stock (the "Series B Shares") for an
aggregate purchase price of $249,250,000 (the "Initial Purchase Price"). The
Initial Purchaser will then immediately sell the Shares to the Investors, and
the Investors will purchase from the Initial Purchaser, an aggregate of 10,000
shares of the Series B Shares for an aggregate purchase price of $250,000,000
(the "Purchase Price"). The number of Series B Shares to be purchased by each
Investor at the Closing and the portion of the aggregate purchase price to be
paid by each Investor at the Closing in the exchange therefor, shall be as
specified in Schedule 2.01 (with respect to each such Investor, such Investor's
"Specified Purchase Price").
Section 2.02. Closing.
(a) Subject to the satisfaction or waiver of the conditions set forth in
this Agreement, the closing of the transactions contemplated by Section 2.01
(the "Closing") shall take place immediately prior to or concurrently with the
closing of the CK Acquisition, or at such other time as may be mutually agreed
upon by the Investor Representatives and the Company (the "Closing Date"). The
Closing shall occur on the Closing Date at the offices of Katten Muchin Zavis
Rosenman, 575 Madison Avenue, New York, New York.
(b) At the Closing: (i) the Company will deliver to the Initial Purchaser
certificates for the Series B Shares to be sold in accordance with the
provisions of Section 2.01 registered in the name of the Initial Purchaser; (ii)
the Initial Purchaser, in full payment for the Series B Shares, will deliver to
the Company immediately available funds, by wire transfer to such account as the
Company shall specify, the Initial Purchase Price; and (iii) each party shall
11
take or cause to happen such other actions, and shall execute and deliver such
other instruments or documents, as shall be required under Article VII.
(c) At the Closing: (i) the Initial Purchaser will deliver to the Investor
Representatives certificates for the Series B Shares to be sold in accordance
with the provisions of Section 2.01 registered in the respective names of the
Investors and proportions set forth in Schedule 2.01; (ii) each Investor, in
full payment for the Series B Shares, will deliver to the Initial Purchaser
immediately available funds, by wire transfer to such account as the Initial
Purchaser shall specify, such Investor's Specified Purchase Price; and (iii)
each party shall take or cause to happen such other actions, and shall execute
and deliver such other instruments or documents, as shall be required under
Article VII.
Section 2.03. Use of Proceeds. The Company shall use the proceeds from
the sale of the Series B Stock solely to (i) pay a portion of the purchase price
for the Capital Stock of the CK Companies and (ii) pay the fees and
out-of-pocket expenses relating to the Contemplated Transactions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Initial Purchaser and to each of
the Investors as follows:
Section 3.01. Organization and Good Standing. The Company is a
corporation duly incorporated, validly existing and in good standing under the
Laws of the jurisdiction of its incorporation, has full corporate power and
authority to own, lease and operate its properties, and carry on its business as
presently conducted. The Company is duly qualified, registered or licensed as a
foreign corporation to do business and is in good standing in each jurisdiction
in which the ownership or leasing of its properties or the character of its
present operations makes such qualification, registration or licensing
necessary, except where the failure to so qualify or be in good standing could
not reasonably have a Material Adverse Effect. The Company has heretofore
delivered or made available to the Initial Purchaser and to the Investors
complete and correct copies of the Certificate of Incorporation and By-Laws of
the Company, as in effect as of the date of this Agreement.
Section 3.02. Authority; Binding Effect. The Company has full corporate
power and authority to execute and deliver this Agreement, the other Transaction
Documents and the CK Transaction Documents and to consummate the Contemplated
Transactions. The execution and delivery of this Agreement and the other
Transaction Documents and the consummation by the Company of the transactions
contemplated hereby and by the other Transaction Documents have been duly and
validly approved by all necessary corporate action on the part of the Company.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
in accordance with its terms, except as such enforceability may be subject to
the effects of any applicable bankruptcy, insolvency,
12
fraudulent conveyance, reorganization, moratorium or similar Laws affecting
creditors' rights generally and subject to the effects of general equitable
principles. The other Transaction Documents and the CK Transaction Documents,
when executed and delivered by the Company, will be duly executed and delivered
by the Company and constitute legal, valid and binding obligations of the
Company, enforceable in accordance with their respective terms, except as such
enforceability may be subject to the effects of any applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar Laws
affecting creditors' rights generally and subject to the effects of general
equitable principles.
Section 3.03. Organization and Good Standing of Company Subsidiaries.
Schedule 3.03 lists all Subsidiaries of the Company and their respective
jurisdictions of incorporation (collectively, the "Company Subsidiaries" and
each, a "Company Subsidiary"). Except as set forth in Schedule 3.03, the Company
owns, directly or indirectly, all the shares of outstanding Capital Stock of
each Company Subsidiary. There are no outstanding securities or rights
convertible into or exchangeable for shares of any Capital Stock of any Company
Subsidiary and there are no Contracts by which any Company Subsidiary is bound
to issue additional shares of Capital Stock. All of the shares of Capital Stock
of each of the Company Subsidiaries are duly and validly authorized, fully paid
and non-assessable and, except for the Liens created by the security agreement
entered into in connection with the Credit Facility, are owned by the Company
free and clear of any Lien with respect thereto. Each Company Subsidiary is a
corporation duly organized, validly existing and, where recognized, in good
standing under the Laws of its jurisdiction of organization, and has all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted, and is duly licensed
or qualified to do business in each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, except where the failure to be so licensed or qualified in any
such jurisdiction could not reasonably have a Material Adverse Effect.
Section 3.04. Capitalization.
(a) Schedule 3.04(a) sets forth, in each case as of the date hereof, (i)
the authorized Capital Stock of the Company, the number of shares of each class
of Capital Stock issued and outstanding and the number of shares of Common Stock
reserved for issuance in connection with the Company'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 the Company, other than (x) options to purchase
615,887, 1,886,878 and 2,387,564 shares of Common Stock issued and outstanding
under the Company's 1987, 1997 and 2000 stock option plans, respectively and (y)
the Rights. All of the issued and outstanding shares of the Company'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, the Company's stock option plans, the Rights Agreement and the
Certificate of Designations, (i) no equity securities of the Company 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
13
rights convertible into or exchangeable for shares of any Capital Stock of the
Company, and (iii) there are no contracts, commitments, understandings or
arrangements by which the Company 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 the Company, or options, warrants or rights to
purchase or acquire any additional shares of its Capital Stock. Neither the
Company nor any Company Subsidiary is 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 the Company and any Person granting such Person the right to
require the Company to file a registration statement under the Securities Act
with respect to any securities of the Company owned or to be owned by such
Person or to require the Company to include such securities in any other
registration statement filed by the Company under the Securities Act.
(b) The Series B Shares will have the voting powers, designations,
preferences and rights, and the qualifications, limitations and restrictions
thereof, set forth in the Certificate of Designations which will be filed with
the Secretary of State of the State of Delaware on or prior to the Closing. The
Company has reserved, or will on or before Closing reserve, for issuance the
shares of Common Stock issuable upon conversion of the Series B Shares. When
paid for by, and issued to, the Initial Purchaser, the Series B Shares will be
duly authorized, validly issued, fully paid and non-assessable and will be free
and clear of any Liens. When paid for by, and sold to, each of the Investors the
Series B Shares will be duly authorized, validly issued, fully paid and
non-assessable and will be free and clear of any Liens. The issuance and sale of
the Series B Shares is not subject to any preemptive rights. Except for the
restrictions set forth, or referred to, in the Legend, the Series B Shares when
issued and sold will not be subject to any restriction on use, voting or
transfer; and the shares of Common Stock issuable to each such Investor upon
conversion of the Series B Shares, when issued in accordance with the Company's
Certificate of Incorporation, will be duly authorized, validly issued, fully
paid and non-assessable, and will be free and clear of any Liens and except for
the restrictions set forth, or referred to, in the Legend, will not be subject
to any restriction on use, voting or transfer or to any preemptive rights.
(c) Without limiting the generality of subsection (b) above, the terms and
conditions of the Rights to be associated with the Series B Shares will be set
forth in the Rights Agreement, substantially in the form provided to the Initial
Purchaser and to each of the Investors. The Company has reserved, or will on or
before Closing reserve, for issuance the shares of Series A Stock issuable upon
exercise of the Rights. The shares of Series A Stock issuable to each such
Investor upon exercise of the Rights, when issued in accordance with the Rights
Agreement, will be duly authorized, validly issued, fully paid, non-assessable,
and free of preemptive rights and will be free and clear of any Liens and except
for the restrictions set forth, or referred to, in the Legend, will not be
subject to any restriction on use, voting or transfer or to any preemptive
rights.
Section 3.05. No Violations; Consents. Except as set forth on Schedule
3.05, neither the execution, delivery or performance by the Company of this
Agreement, the other Transaction
14
Documents or the CK Transaction Documents nor the consummation of the
Contemplated Transactions, will (a) conflict with, or result in the breach of,
any provision of the Certificate of Incorporation or By-Laws of the Company or
any Company Subsidiary, (b) conflict with, violate, result in the breach or
termination of, or constitute a default or give rise to any right of termination
or acceleration or right to increase the obligations or otherwise modify the
terms thereof under any Contract, Permit or Order to which the Company or any
Company Subsidiary is a party or by which the Company or any Company Subsidiary
or any of the properties or assets of the Company or any Company Subsidiary is
bound, (c) constitute a violation of any Law applicable to the Company or any
Company Subsidiary; or (d) result in the creation of any Lien upon the
properties or assets of the Company or any Company Subsidiary, other than with
respect to the foregoing clauses (b), (c) and (d), such requirements, conflicts,
violations, breaches or rights which could not reasonably have a Material
Adverse Effect. Except as set forth on Schedule 3.05, other than those which
have been obtained or made or which could not reasonably have a Material Adverse
Effect, no Consent is required on the part of the Company or the Company
Subsidiaries in connection with the execution and delivery of this Agreement or
the Transaction Documents, or the compliance by the Company with any of the
provisions hereof or thereof.
Section 3.06. Listing. The Company is not in violation of the listing
requirements of the NYSE in any material respect. The Company has not received
any written notice from the NYSE that the Common Stock is to be delisted by the
NYSE. The transactions contemplated under this Agreement constitute a bona fide
private financing under paragraph 312.03 of the NYSE Listed Company Manual and
stockholder approval is not required under the rules and regulations of the NYSE
in order to authorize the issuance of the Series B Shares pursuant to this
Agreement or the listing of the Common Stock into which the Series B Stock is
convertible.
Section 3.07. Financial Statements. The Company has previously delivered
to the Initial Purchaser and to the Investors copies of (i) the consolidated
balance sheet of the Company and the Company 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 the Company's Annual
Report on Form 10-K for the fiscal year ended February 3, 2002, filed by the
Company with the SEC under the Exchange Act, and accompanied by the audit report
of Ernst & Young LLP, independent public accountants, (collectively, the
"Audited Financial Statements"), and (ii) the unaudited consolidated balance
sheet of the Company and the Company Subsidiaries as of August 4, 2002 (the
"Balance Sheet") and the related unaudited consolidated income statements and
cash flows for the thirteen weeks and twenty-six weeks ended August 4, 2002, as
reported in the Company's Quarterly Report on Form 10-Q for the quarterly period
ended August 4, 2002, filed with the SEC under the Exchange Act (the "Unaudited
Financial Statements"). The Audited Financial Statements accurately reflect the
books and records of the Company and
15
present fairly, in all material respects, the consolidated financial position of
the Company and the Company Subsidiaries and the consolidated results of their
operations and their cash flows for the periods and dates covered thereby, in
conformity with GAAP. The Unaudited Financial Statements accurately reflect the
books and records of the Company and present fairly, in all material respects,
the consolidated financial position of the Company and the Company 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. The Company and the Company
Subsidiaries have no liabilities or obligations of a type that GAAP would
require to be on the Balance Sheet (absolute, accrued, contingent or otherwise)
which are not fully reflected or reserved against in the Balance Sheet, except
for liabilities and obligations that may have arisen in the ordinary and usual
course of business and consistent with past practice since August 4, 2002 and
that, individually or in the aggregate, could not reasonably have a Material
Adverse Effect. Neither the Company nor any Company Subsidiary is 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
3.07. During the past three years, the Company has not restated any of its
published financial results and the Company is not aware of any facts which may
require such restatement.
Section 3.08. Commission Filings. The Company has filed all reports,
registration statements, proxy statements and other materials, together with any
amendments required to be made with respect thereto, that were required to be
filed with the SEC under the Securities Act or the Exchange Act from and after
January 30, 2000 (all such reports and statements are collectively referred to
herein as the "Commission Filings"). As of their respective dates, the
Commission Filings, including the financial statements contained therein,
complied in all material respects with all of the statutes and published rules
and regulations enforced or promulgated by the regulatory authority with which
the Commission Filings were filed, and, except to the extent the information in
any Commission Filing has been revised or superseded by a later filed Commission
Filing, did not and do not as of the date hereof contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Section 3.09. Absence of Certain Developments.
(a) Except as set forth on Schedule 3.09(a), since August 4, 2002 and
through the date hereof:
(i) no event occurred which could reasonably have a Material Adverse
Effect;
(ii) there has not been any declaration, setting a record date,
setting aside or authorizing the payment of, any dividend or other
distribution in respect of any shares of Capital Stock of the Company or
any repurchase, redemption or other acquisition by the Company, of any of
the outstanding shares of Capital Stock of the Company other than the
Company's regular quarterly dividends to its stockholders paid on September
13, 2002 and December 16, 2002;
16
(iii) neither the Company nor any Company Subsidiary has transferred,
issued, sold or disposed of any shares of their Capital Stock or granted
any options, warrants, calls or other rights to purchase or otherwise
acquire shares of their Capital Stock other than under the Company's
employee stock option plans and the dissolution of former Company
Subsidiaries;
(iv) neither the Company nor any Company Subsidiary, except in the
ordinary course of business and consistent with past practice, has (x)
awarded or paid any material bonuses to any senior executive, or (y)
entered into any Plan, material employment, deferred compensation,
severance or similar agreement (nor amended or terminated any such
agreement) or agreed to increase materially the compensation payable or to
become payable to any senior executive or agreed to increase materially the
coverage or benefits available under any material severance pay, deferred
compensation, bonus or other incentive compensation, pension or other
employee benefit plan, payment or arrangement made to, for or with such
senior executive;
(v) except in connection with the CK Acquisition, neither the Company
nor any Company Subsidiary has made, or agreed to, make any material
acquisition of any business or assets other than in the ordinary course of
business;
(vi) neither the Company nor any Company Subsidiary has made, or
agreed to make, any loans or investments in any business of any Affiliate
of the Company other than a Company Subsidiary;
(vii) there has not been any damage, destruction or loss, whether or
not covered by insurance, with respect to the property of the Company or
any Company Subsidiary having a material adverse impact on the business of
the Company or the Company Subsidiaries, taken as a whole;
(viii) except as granted under the Credit Facility or the Transaction
Documents, neither the Company nor any Company Subsidiary has mortgaged,
pledged or subjected to any Lien (other than Permitted Liens) any of its
assets, or sold, assigned, transferred, conveyed or otherwise disposed of
any material assets of the Company or any Company Subsidiary, except for
assets sold, assigned, transferred, conveyed or otherwise disposed of in
the ordinary course of business;
(ix) except for the CK Purchase Agreement, neither the Company nor any
Company Subsidiary has entered into any Contract to make any capital
expenditures obligating the Company or any Company Subsidiary to pay an
amount which together with amounts already expended or committed during its
2002 fiscal year would exceed the amount budgeted for capital expenditures
in the 2002 Budget;
(x) except in connection with the Credit Facility and the CK
Acquisition, neither the Company nor any Company Subsidiary has created,
incurred, assumed
17
or guaranteed any debt for borrowed money, whether due or to become due,
other than in the ordinary course of business and consistent with past
practice;
(xi) except in connection with the Contemplated Transactions, neither
the Company nor any Company Subsidiary has entered into any material
transaction other than in the ordinary course of business consistent with
past practice;
(xii) neither the Company nor any Company Subsidiary has made any
change in the accounting principles, methods or practices followed by it
(including, without limitation, its method of accounting for stock options)
other than a change which was required by reason of a concurrent change in
Law or GAAP;
(xiii) neither the Company nor any Company Subsidiary has amended its
Certificate of Incorporation or By-Laws except as contemplated by this
Agreement;
(xiv) neither the Company nor any Company Subsidiary has had any
material disagreements with its independent public accountants regarding
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which has not been resolved;
(xv) neither the Company nor any Company Subsidiary has sold, assigned
or transferred, or allowed any rights to lapse with respect to,
Intellectual Property, other than in the ordinary course of business and
consistent with past practice and which could reasonably have a Material
Adverse Effect;
(xvi) neither the Company nor any Company Subsidiary has entered into,
modified, amended or terminated any material Contract, other than in the
ordinary course of business and consistent with past practice and which
could reasonably have a Material Adverse Effect; and
(xvii) neither the Company nor any Company Subsidiary has agreed,
whether in writing or otherwise, to do any of the foregoing.
Section 3.10. Litigation. There are no Legal Proceedings pending or, to
the knowledge of the Company, threatened, that question the validity of this
Agreement or the Transaction Documents or any action taken or to be taken by the
Company or any Company Subsidiary in connection with the consummation of the
Contemplated Transactions. Except as otherwise disclosed herein or on Schedule
3.10, there are no Legal Proceedings pending or, to the knowledge of the
Company, threatened, against or involving the Company or any Company Subsidiary
or any of their respective properties or assets, at Law or in equity, involving
claims of more than $1,000,000 by stockholders of the Company, 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
18
is no outstanding or, to the knowledge of the Company, threatened, Order of any
Governmental Body against the Company or any Company Subsidiary or any of their
respective properties or assets, which Order could reasonably have a Material
Adverse Effect.
Section 3.11. Tax Matters.
(a) For the periods since January 1, 1999, the Company and each Company
Subsidiary has timely filed or caused to be timely filed any and all returns,
declarations, reports (including any consolidated, combined or unitary returns),
claims for refund, information returns, or other documents or statements
relating to Taxes, including any schedule or attachment thereto and any
amendment or supplement thereof (each, a "Tax Return") required to be filed by
it under applicable federal, state, local or foreign Law, except to the extent
that any failure to do so could not reasonably have a Material Adverse Effect.
The reserves for Taxes contained in the financial statements of the Company or
carried on the books and records of the Company and the Company Subsidiaries, as
applicable, are in the aggregate adequate to cover all Tax liabilities and
deferred Taxes of the Company and the Company Subsidiaries as of the date of
this Agreement, except to the extent that any inadequacy could not reasonably
have a Material Adverse Effect.
(b) For the periods since January 1, 1999, all Taxes shown as being due and
owing by the Company or any Company Subsidiary on any Tax Return have been paid.
(c) The Company and each Company Subsidiary has 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 reasonably
have a Material Adverse Effect.
(d) None of the Company nor any Company Subsidiary has 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 on Schedule 3.11(d) or in the financial statements of the Company
and the Company Subsidiaries, as applicable, or that, if assessed could not
reasonably have a Material Adverse Effect.
(e) The Company 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.
Section 3.12. Real Property.
(a) Except as disclosed in Schedule 3.12(a), each of the Company and the
Company Subsidiaries has fee simple title to the material real property that it
owns (the "Owned Real Property"), free and clear of all Liens (other than
Permitted Liens).
19
(b) Schedule 3.12(b) contains a description of all real property leased by
the Company and the Company Subsidiaries as lessee (the "Leased Real Property;"
the Leased Real Property and the Owned Real Property are collectively referred
to as the "Real Property"), other than properties leased for retail store
operations. Except as disclosed in Schedule 3.12(b), each of the Company and the
Company Subsidiaries has a subsisting leasehold estate in the Leased Real
Property identified on Schedule 3.12(b), free and clear of all Liens (other than
Permitted Liens), and is in sole possession of each parcel of Leased Real
Property that it leases.
(c) There are no condemnation or appropriation proceedings pending or, to
the knowledge of the Company, threatened, against the Real Property.
(d) The buildings, structures, facilities, fixtures and other improvements
constituting a portion of the Owned Real Property are in good operating
condition and in a state of good maintenance and repair, ordinary wear and tear
excepted, and are adequate and suitable for the purposes for which they are
presently being used.
Section 3.13. Inventory. The Company does not now intend to write-down
more than $5,000,000 in inventory.
Section 3.14. Intellectual Property.
(a) For the purposes of this Agreement, "Intellectual Property" shall mean
(i) all 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 the Company and the Company Subsidiaries.
(b) Each of the Company and the Company Subsidiaries owns, or is licensed
to use, all Intellectual Property material to its business, and to the knowledge
of the Company, the use thereof by the Company and the Company 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 have a Material Adverse Effect.
(c) Except as set forth on Schedule 3.14(c), no Mark licensed to or used by
the Company or any Company Subsidiary is scheduled to expire (without the right
of extension on the part of the Company) within 12 months from the date hereof,
which such expiration could reasonably have a Material Adverse Effect.
Section 3.15. Material Contracts.
20
(a) Except as set forth on Schedule 3.15(a) or in the Commission Filings or
for the CK Transaction Documents, neither the Company, the Company Subsidiaries
nor any of their properties or assets is a party to or bound by any (i) Contract
involving a commitment or payment by the Company or the Company Subsidiaries in
excess of $5,000,000 in any twelve-month period (whether or not in the ordinary
course of business); (ii) Contract among stockholders that beneficially own five
percent (5%) or more of the Common Stock; (iii) Contract (other than a contract
for any Leased Real Property) which contains any provision that may require
payments to be made by the Company or any Company Subsidiary upon or following a
"change of control" (as such term is defined by such Contract) or similar event.
The Company has delivered or otherwise made available to the Initial Purchaser
and the Investors complete and correct copies of the Contracts listed on
Schedule 3.15(a), together with all amendments, modifications, supplements or
side letters to such Contracts.
(b) There is no default and the Company has received no written notice of
default under any Contract listed on Schedule 3.15(a) or a Contract listed in
the Commission Filings by the Company, the Company Subsidiaries or, to the
knowledge of the Company, by any other party thereto, in each case which could
reasonably have a Material Adverse Effect, and no event has occurred that with
the lapse of time or the giving of notice or both would constitute a default
thereunder by the Company, the Company Subsidiaries or, to the knowledge of the
Company, by any other party thereto, that could reasonably have a Material
Adverse Effect.
Section 3.16. Company Employee Plans.
(a) Schedule 3.16(a) sets forth a complete and correct list of every
Employee Program which is maintained, administered, sponsored or contributed to
by the Company or any Company Subsidiary, which covers any Employee of the
Company or any Company Subsidiary or with respect to which an obligation of the
Company or any Company Subsidiary to make any contribution exists, other than a
Foreign Plan. Any Employee Program listed in such schedule (other than any
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) The Company has made available to the Initial Purchaser and the
Investors 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 IRS
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
21
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 IRS 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 Material Adverse Effect. Neither the Company nor any
Company Subsidiary 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 Material Adverse Effect. To the
knowledge of the Company, 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 the Company or any
Company Subsidiary 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 Material Adverse Effect. The Company and each
Company Subsidiary 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 the Company or any Company
Subsidiary 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 of the Company or any of the Company Subsidiaries, threatened
with respect to any Company Employee Plan or Foreign Plan which could reasonably
have a 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
Schedule 3.16(f), if such Company Employee Plan is intended to be a "qualified
plan" within the meaning of Section 401(a) of the
22
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 the Company nor any Company Subsidiary
(x) has 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, the Company or
any of the Company 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 has occurred with respect to
such Company Employee Plan.
(g) Except as set forth on Schedule 3.16(g), no Employee Program which has
been maintained, administered or contributed to by the Company or any Company
Subsidiary, which has covered any Employee of the Company or any Company
Subsidiary, or to which the Company or any Company Subsidiary 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 the Company nor any Company
Subsidiary has, within the past six years, incurred any withdrawal liability to
a Multiemployer Plan.
(h) Except as set forth on Schedule 3.16(h), 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 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 the Company or any Company Subsidiary 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 Schedule 3.16(i), no payment made or contemplated
under any Company Employee Plan, or by the Company or any Company Subsidiary, in
connection with the Contemplated Transactions, 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.
23
(j) Except as set forth on Schedule 3.16(j), (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 the Company nor any
Company Subsidiary is 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 the Company or any Company Subsidiary, (ii) the Company or a
Company Subsidiary has 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 the Company or any of the Company Subsidiaries to
continue to employ or use the services of any Employee.
(k) Except as set forth on Schedule 3.16(k), there has been no amendment,
interpretation or announcement by the Company or any of the Company 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 ERISA Affiliate has any unpaid liability, fine, penalty or tax with
respect to any Employee Program for which the Company or any of the Company
Subsidiaries could be liable, and which could reasonably have a Material Adverse
Effect.
Section 3.17. Labor Relations. Except as set forth on Schedule 3.17(a):
(a) the Company and the Company Subsidiaries are in compliance in all
material respects with all applicable Laws respecting employment and employment
practices, terms and conditions of employment, wages, hours, collective
bargaining, safety and health, work authorization, equal employment opportunity,
immigration, withholding, unemployment compensation, worker's compensation and
employee privacy and right to know, other than any such failure to comply that
could not reasonably have a Material Adverse Effect;
(b) there is no pending, or to the knowledge of the Company, any
threatened, charge or complaint, against the Company or any of the Company
Subsidiaries before the National Labor Relations Board or any other comparable
Governmental Body, which could reasonably have a Material Adverse Effect;
(c) there is, and for the past three years have been, (i) no labor strike,
union-related slowdown, work stoppage or other union-related labor controversy
pending, or to the knowledge of the Company, threatened in writing, against or
otherwise affecting or involving the Company or the Company Subsidiaries or (ii)
no lawsuits (other than grievance proceedings) pending, or to the knowledge of
the Company, threatened, between any of the Company or the Company Subsidiaries
and any employee of the Company or the Company Subsidiaries or any union or
other collective bargaining unit representing any employees of the Company or
the Company Subsidiaries, which could reasonably have a Material Adverse Effect;
24
(d) none of the employees of the Company or the Company Subsidiaries are
covered by any collective bargaining agreements (other than as disclosed in the
Commission Filings) and, to the knowledge of the Company, no solicitation of the
employees of the Company or any of the Company Subsidiaries is currently being
made by any union to organize any of such employees; and
(e) no Material Employee has given notice to the Company or any Company
Subsidiary of his intent to terminate his employment with the Company or any
Company Subsidiary.
Section 3.18. Compliance with Laws; Permits.
(a) The Company and the Company Subsidiaries are in compliance in all
material respects with all material Laws (including, without limitation, the
Sarbanes-Oxley Act of 2002) and material Orders promulgated by any Governmental
Body applicable to the Company and the Company Subsidiaries or to the conduct of
the business or operations of the Company and the Company Subsidiaries or the
use of their properties (including any leased properties) and assets. Since
January 1, 1999, neither the Company nor any Company Subsidiary has received any
written notice of violation or alleged material violation of any such Law or
Order by any Governmental Body in any material respect that has not been
resolved. Since January 1, 1999, neither the Company nor any Company Subsidiary
has received written notice that it is the subject of an investigation by any
Governmental Body which could reasonably have a Material Adverse Effect.
(b) To the knowledge of the Company, except as set forth on Schedule
3.18(b), the Company and the Company Subsidiaries have all Permits necessary for
the conduct of their business, except where the failure to have such Permits
could not reasonably have a Material Adverse Effect. The Company and the Company
Subsidiaries have complied in all material respects with all conditions of such
Permits applicable to it.
Section 3.19. Preferred Stock Exemption.
(a) Assuming the representations and warranties of the Initial Purchaser
and of the Investors contained in Article IV are true, the offer and sale of the
Series B Shares (and the issuance of the Common Stock to such Investors upon the
conversion of such Series B Shares) are exempt from the registration
requirements of the Securities Act. The Company has not taken and will not take
any actions which would cause the offers and sales contemplated hereunder to
become ineligible for exemption under the Securities Act.
(b) Neither the Company nor any Person acting on its behalf has offered the
Series B Stock to any Person by means of general or public solicitation or
general or public advertising, such as by newspaper or magazine advertisements,
by broadcast media, or at any seminar or meeting whose attendees were solicited
by such means.
25
Section 3.20. Environmental Protection.
(a) Each of the Company and the Company Subsidiaries is 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 on Schedule 3.20(b), to the knowledge of the
Company, as a result of activities of the Company or the Company 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 the Company's
or any of the Company Subsidiaries' lease(s), or to the knowledge of the Company
without any investigation, any prior period, leased by the Company or any
Company Subsidiary 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 have a Material Adverse Effect; and,
except as set forth on Schedule 3.20(b), the Company has not received any
written notification from any Governmental Body or other third parties relating
to Hazardous Material on or affecting any property owned or leased by the
Company or the Company 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 have a Material Adverse Effect
Section 3.21. Investment Company Act. The Company and the Company
Subsidiaries are not, nor are they directly or indirectly controlled by or
acting on behalf of any Person that is, an investment company within the meaning
of the Investment Company Act of 1940, as amended.
Section 3.22. Transactions with Affiliates. Except: (i) for transactions
between the Company and any wholly-owned Company Subsidiary, (ii) for expenses
in the ordinary course of business, and (iii) as disclosed in the Company's
reports filed with the SEC pursuant to the Exchange Act (including transactions
related to the Gant Company), neither the Company nor any Company Subsidiary has
made any payment to, or received any payment from, or made or received any
investment in, or entered into any transaction with, any Affiliate, including
without limitation, the purchase, sale or exchange of property or the rendering
of any service, where the amount involved is material to the business of the
Company.
Section 3.23. Insurance. There is in full force and effect certain
policies of insurance issued by insurers of recognized responsibility,
including, without limitation, fire and casualty insurance, insuring the Company
and each Company Subsidiary and their properties against such
26
losses and risks, and in such amounts, as are usual and customary in the case of
companies engaged in the same or similar business and similarly situated.
Section 3.24. Customers. Except as set forth in Schedule 3.24, neither
the Company nor any Company Subsidiary has received any written notice that any
customer has ceased, or will cease, or has substantially reduced, or will
substantially reduce, their overall purchases of the products or goods of the
Company or Company Subsidiary, in each case which could reasonably have a
Material Adverse Effect.
Section 3.25. Financial Advisors. Except as set forth on Schedule 3.25,
no agent, broker, investment banker, finder, financial advisor or other Person
is or will be entitled to any broker's or finder's fee or any other commission
or similar fee from the Company, directly or indirectly, in connection with the
Contemplated Transactions.
Section 3.26. DGCL Section 203 and Rights Agreement. The Board of
Directors has taken all action necessary to exempt from the provisions of
Section 203 of the Delaware General Corporation Law ("DGCL Section 203") and
from being deemed an "Acquiring Person" under the Rights Agreement, to the
extent applicable, this Agreement, any acquisition by the Investors or their
Affiliates of the Series B Stock pursuant to this Agreement, and the Certificate
of Designations and any conversion or exercise by the Investors or their
Affiliates of the Series B Stock into Common Stock. No agreement or instrument
to which the Company or any of the Company Subsidiaries is a party or by which
any of them is bound, and no state statute similar to DGCL Section 203 that is
applicable to the Company or any of the Company Subsidiaries imposes any
restrictions on business combinations or similar transactions with interested
stockholders of a nature similar to those set forth in DGCL Section 203.
Section 3.27. D&O Insurance. The Company maintains director and officer
liability insurance coverage in the aggregate amount of $20 million, which
policy has a $5,000 per individual deductible up to $50,000 in the aggregate.
Section 3.28. Solvency. The Company is not, and after giving effect to
the Contemplated Transactions, will not be, insolvent within the meaning of
Title 11 of the United States Code, the General Corporation Law of the State of
Delaware, or the General Laws of the State of New York.
Section 3.29. Full Disclosure. No representation or warranty made by the
Company in this Agreement or any other Transaction Document contains or will
contain any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading.
Section 3.30. No General Solicitation. None of the Company or any of its
"affiliates" (as defined in Rule 501(b) of Regulation D under the Securities Act
("Regulation D")), has, directly or through an agent, engaged in any form of
general solicitation or general advertising in connection with the offering of
the Series B Shares (as those terms are used in Regulation D)
27
under the Securities Act or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act; and the Company has not entered
into any contractual arrangement with respect to the distribution of the Series
B Shares except for this Agreement and the Registration Rights Agreement, and
the Company will not enter into any such arrangement.
Section 3.31. No Integration. None of the Company or any of its
Affiliates (other than the Initial Purchaser in connection with the transactions
contemplated by this Agreement about which no representation is made by the
Company) has, directly or through any agent, sold, offered for sale, solicited
offers to buy or otherwise negotiated in respect of, any "security" (as defined
in the Securities Act) which is or will be integrated with the sale of the
Series B Shares or the Common Stock in a manner that would require the
registration under the Securities Act of the Series B Shares or the Common
Stock. The Company has not sold or issued any Series B Shares, shares of Common
Stock, any security convertible into Series B Shares or shares of Common Stock,
or any security of the same class as the Series B Shares or Common Stock during
the six-month period prior to the Closing Date, including any sales pursuant to
Rule 144A, Regulation D or Regulation S under the Securities Act, other than
shares issued pursuant to employee benefit plans, qualified stock options plans
or other employee compensation plans or pursuant to outstanding options, rights
or warrants.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE
INITIAL PURCHASER AND THE INVESTORS
Section 4.01. Initial Purchaser Representations.
(a) The Initial Purchaser represents and warrants to and agrees with the
Company that it is an institutional accredited investor, as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act, as the case may be, with
such knowledge and experience in financial and business matters as is necessary
in order to evaluate the merits and risks of an investment in the Series B
Shares, and (ii) it is not acquiring the Series B Shares with any present
intention of offering or selling any of the Series B Shares in a transaction
that would violate the Securities Act or the securities laws of any state of the
United States or any other applicable jurisdiction
(b) The Initial Purchaser hereby represents and warrants to the Company
that it (i) has not solicited offers for, or offered or sold, the Series B
Shares by means of any form of general solicitation or general advertising or in
any manner involving a public offering within the meaning of Section 4(2) of the
Securities Act and (ii) has only solicited offers for the Series B Shares from
persons whom the Initial Purchaser reasonably believed to be accredited
investors.
Section 4.02. Investors Representations. Each of the Investors represents
and warrants, severally and not jointly, to the Company as follows:
28
(a) Authorization. Such Investor is a limited partnership duly organized
and validly existing under the Laws of the state or country of its jurisdiction
of formation. Such Investor has the full power and authority to enter into this
Agreement and the other Transaction Documents and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the other Transaction Documents and the consummation by the Investors of the
transactions contemplated hereby and thereby have been duly and authorized by
all necessary action on the part of the Investors. This Agreement and the other
Transaction Documents have been and will be, as the case may be, duly executed
and delivered by the Investors and constitute legal, valid and binding
obligations of the Investors, enforceable in accordance with their respective
terms, except as such enforceability may be subject to the effects of any
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar Laws affecting creditors' rights generally and subject to
the effects of general equitable principles.
(b) Investment Representations. Such Investor is an Accredited Investor
and is acquiring the Series B Shares allocated to such Investor for such
Investor's own account, for investment, and not with a view to, or for sale in
connection with, the distribution thereof or of any interest therein. Such
Investor has adequate net worth and means of providing for its current needs and
contingencies and is able to sustain a complete loss of the investment in such
Series B Shares, and has no need for liquidity in such investment. Such
Investor, itself or through its officers, employees or agents, has sufficient
knowledge and experience in financial and business matters to be capable of
evaluating the merits and risks of an investment such as an investment in the
Series B Shares, and such Investor, either alone or through its officers,
employees or agents, has evaluated the merits and risks of the investment in
such Series B Shares. Such Investor understands that the Series B Stock has not
been registered under the Securities Act by reason of its issuance in a
transaction exempt from the registration requirements of the Securities Act
pursuant to the exemption provided in Section 4(2), and that the Series B Stock
may not be sold or otherwise disposed of unless registered under the Securities
Act or exempted from such registration.
(c) Investors' Acknowledgment. Each Investor has had the opportunity,
directly or through its representatives, to ask questions of and receive answers
from Persons acting on behalf of the Company concerning the transactions
contemplated by this Agreement.
(d) Financial Advisors. No agent, broker, investment banker, finder,
financial advisor or other Person is or will be entitled to any broker's or
finder's fee or any other commission or similar fee from any of the Investors,
directly or indirectly, in connection with any of the transactions contemplated
by this Agreement or any of the Transaction Documents.
(e) Legend.
(i) The certificates evidencing the Series B Stock and the Common
Stock issuable upon conversion of the Series B Stock will bear a legend
(the "Legend") substantially similar to the following:
29
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. NO INTEREST IN THESE
SECURITIES MAY BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT
IS IN EFFECT UNDER SAID ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT. THIS CERTIFICATE IS ISSUED
PURSUANT TO AND SUBJECT TO THE RESTRICTIONS ON TRANSFER AND
OTHER PROVISIONS OF THE INVESTORS' RIGHTS AGREEMENT BETWEEN
THE COMPANY, AND THE INVESTORS REFERRED TO THEREIN, A COPY OF
WHICH IS ON FILE WITH THE COMPANY. EXCEPT AS PROVIDED IN SUCH
AGREEMENT, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
NOT TRANSFERABLE AND ANY PURPORTED TRANSFER IN VIOLATION OF
THE PROVISIONS OF SUCH AGREEMENT SHALL BE VOID AND OF NO
FORCE AND EFFECT.
(ii) The legend endorsed on the certificates pursuant to Section
4.02(e) hereof 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).
(f) No Reliance. Each Investor acknowledges that the Company is not making
any representation, warranty, covenant or agreement, other than as set forth in
this Agreement and the other Transaction Documents.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees that for so long as the Series B Shares
are outstanding:
Section 5.01. Accounting System. The Company will maintain a system of
accounting and proper books of record and account, in accordance with GAAP.
30
Section 5.02. Taxes. The Company will, and will cause each Company
Subsidiary to, pay when due (a) all Taxes imposed upon it or any of its
properties or income, other than Taxes which could not reasonably have a
Material Adverse Effect, Taxes which are being contested in good faith by
appropriate proceedings and Taxes which are subject to filings that are on valid
extensions, and (b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons which, if unpaid, might result in
the creation of a Lien upon any of its properties other than claims or demands
which are being contested in good faith or could not reasonably have a Material
Adverse Effect.
Section 5.03. Corporate Existence. The Company will preserve and keep in
full force and effect its corporate existence and the corporate existence of
each Company Subsidiary (unless merged into the Company) and all rights and
franchises of the Company and the Company Subsidiaries unless, in the good faith
judgment of the Company, the termination of or failure to preserve or keep in
full force and effect such corporate existence, right or franchise could not
reasonably have a Material Adverse Effect.
Section 5.04. Maintenance of Properties. The Company will, and will cause
each Company Subsidiary to, maintain all of its properties necessary for the
conduct of its business in good condition, repair and working order (normal wear
and tear excepted) and cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be conducted at all times.
Section 5.05. Insurance. Each of the Company and the Company Subsidiaries
will maintain insurance with insurers of recognized responsibility, insuring the
Company, the Company Subsidiaries and their respective properties, assets,
business and projects against such losses and risks, and in such amounts, as the
Company reasonably determines. Section 5.06. Compliance with Law. The Company
will, and will cause each Company Subsidiary to, comply, in all material
respects, with all material Laws which it reasonably believes are applicable
with respect to the conduct of their respective businesses and the ownership of
their respective properties, provided that the Company shall not be deemed to be
in violation of this Section 5.06 as a result of any failure to comply with any
provisions of such Laws, the noncompliance with which would not result in
enforceable fines, penalties, injunctive relief or other civil or criminal
liabilities which, in the aggregate, could reasonably have a Material Adverse
Effect.
Section 5.07. Maintain Listing. The Company will use commercially
reasonable efforts to (x) maintain the listing and trading of its Common Stock
on the NYSE, for so long as the Company qualifies for such listing under the
rules and regulations of the NYSE and (y) comply in all material respects with
the Company's reporting, filing, and other obligations, under the rules and
regulations of the NYSE. In the event that the Common Stock is no longer
eligible for listing and trading on the NYSE, the Company will use commercially
reasonable efforts to secure the listing or quotation of the Common Stock on the
Nasdaq National Market, the Nasdaq
31
SmallCap Market or the American Stock Exchange (if such listing is permitted by
the bylaws, rules or regulations of any of the foregoing) and to comply in all
material respects with the Company's reporting, filing and other obligations
under the bylaws or rules of such exchanges or the National Association of
Securities Dealers, Inc., as applicable. The Company will promptly provide to
the Initial Purchaser and each of the Investor Representatives copies of any
notices it receives from the NYSE and any other exchange or quotation system on
which the Common Stock is then listed regarding the continued eligibility of the
Common Stock for listing on such exchanges or quotation systems.
Section 5.08. Secure Listing. The shares of Common Stock issuable upon
conversion of the Series B Stock shall have been duly listed, pending notice of
issuance, on the NYSE and the Company shall maintain such listing in accordance
with Section 5.07.
Section 5.09. Transfer Taxes. The Company shall be responsible for any
Liability with respect to any transfer, stamp or similar non-income Taxes that
may be payable in connection with the execution, delivery and performance of
this Agreement including, without limitation, any such Taxes with respect to the
issuance of the Series B Shares or shares of Common Stock issuable upon
conversion thereof.
ARTICLE VI
ACTIONS PRIOR TO CLOSING
Section 6.01. Access to Information. Until the Closing Date or the
earlier termination of this Agreement:
(a) The Company shall provide the Initial Purchaser and each of the
Investor Representatives with (i) monthly reports, as soon as practicable and in
any event within 20 calendar days after the close of each such month, (ii)
copies of: (A) the unaudited balance sheet of the Company as of the end of such
month, (B) the unaudited statements of operations of the Company for such month,
and (C) the unaudited statements of changes in cash flows of the Company for
such month setting forth in each case in comparative form the corresponding
figures for the preceding month and, with respect to statements relating to the
Company's 2002 fiscal year, for the 2002 Budget, for the year to date and for
the comparable periods in the preceding year; and (iii) such other financial and
operating data as the Initial Purchaser and any Investor Representative may
reasonably request.
(b) The Company will permit the Initial Purchaser and representatives of
the Investors to visit and inspect any of the properties of the Company or any
of the Company Subsidiaries, to examine the corporate books, records, agreements
and files of the Company and make copies or extracts therefrom and to request
information at reasonable times and intervals concerning the general status of
the Company's financial condition and operations, all upon reasonable notice and
at such reasonable times and as often as the Initial Purchaser and such Investor
may reasonably request. The Investors will, and will instruct each of their
respective Affiliates and advisors to, hold in confidence all "Information" as
provided in the letter
32
agreement between Apax Partners, Inc., an Affiliate of the Investors, and the
Company, dated January 17, 2002.
Section 6.02. Conduct of Business.
(a) Except as set forth in Schedule 6.02(a), or as otherwise agreed to in
writing by the Initial Purchaser and the Investors, from the date hereof to the
Closing Date, the Company shall, and shall cause each Company Subsidiary to (i)
use its commercially reasonable efforts to maintain all of the material assets
it owns or uses in the ordinary course of business consistent with past practice
(subject to the good faith judgement of management of the Company); (ii) use its
commercially reasonable efforts to preserve the goodwill and ongoing operations
of its business; (iii) maintain its books and records in the usual, regular and
ordinary manner, on a basis consistent with past practice; (iv) use its
commercially reasonable efforts to maintain insurance in full force and effect
with respect to its business with responsible companies, comparable in amount,
scope and coverage to that in effect on the date of this Agreement; and (v)
comply in all material respects with applicable material Laws.
(b) Without limiting the generality of the foregoing, except as expressly
contemplated by this Agreement or as set forth on Schedule 6.02(b), between the
date hereof and the Closing Date, the Company shall not, and shall cause each
Company Subsidiary not to, do any of the following without the prior written
consent of the Investors:
(i) engage in any act, other than in the ordinary course of business
and consistent with past practice, which could reasonably have a Material
Adverse Effect or in any way prevent the consummation of the Contemplated
Transactions;
(ii) declare, set a record date, set aside or authorize the payment
of, any dividend or other distribution in respect of any shares of Capital
Stock of the Company or repurchase, redeem or acquire any of the
outstanding shares of Capital Stock of the Company, except for the
Company's regular dividends;
(iii) transfer, issue, sell or dispose of any shares of its Capital
Stock or grant any option, warrant, call or other right to purchase or
otherwise acquire shares of its Capital Stock, except for (x) grants of
options (and the issuance of any shares of its Capital Stock upon exercise
of such options) under the Company's employee option plans, and (y) the
issuance of the Warrants;
(iv) except with respect to the CK Acquisition, mortgage or pledge
(other than pursuant to the Credit Agreement or with respect to Permitted
Liens) any of its assets, or acquire any material assets or sell, assign,
transfer, convey or otherwise dispose of any material assets of the Company
or the Company Subsidiaries, except in the ordinary course of business;
33
(v) except for the CK Purchase Agreement, enter into any Contract to
make any capital expenditures for the Company's fiscal year ending February
2, 2003 obligating the Company or any Company Subsidiary to pay an amount
in excess of $1,000,000 or an amount which together with amounts already
expended or committed during its 2002 fiscal year would exceed the amount
budgeted for capital expenditures in the 2002 Budget;
(vi) except with respect to the CK Acquisition or under the Credit
Facility, create, incur, assume or guarantee any debt for borrowed money in
excess of $5,000,000, whether due or to become due, except debt incurred in
the ordinary course of business;
(vii) change its accounting principles, methods or practices
(including, without limitation, its method of accounting for stock options)
other than a change which is required by reason of a concurrent change in
Law or GAAP;
(viii) cancel or terminate any material insurance policy naming it as
a beneficiary or a loss payee without obtaining substitute insurance
coverage except where such cancellation or termination could not reasonably
have a Material Adverse Effect;
(ix) amend its Certificate of Incorporation or By-Laws; or
(x) agree, whether in writing or otherwise, to do any of the
foregoing.
Section 6.03. No Solicitation. From the date hereof to the Closing Date,
the Company agrees that neither it nor the Company Subsidiaries shall, and shall
not permit any of their respective directors, officers, Employees,
representatives or agents to, directly or indirectly, solicit or initiate any
discussions or negotiations with, participate in any negotiations with, provide
any information to or otherwise cooperate in any other way with, or facilitate
or encourage any effort or attempt by, any Person, other than the Initial
Purchaser, the Investors and their respective, partners, directors, officers,
employees, representatives and agents, respecting any Competing Offer. The
Company will promptly advise the Initial Purchaser and each Investor
Representative of any proposal or inquiry made to it, the Company Subsidiaries
or any of their respective directors, officers, Employees, representatives, or
agents with respect to any of the foregoing transactions.
Section 6.04. Consent. Each of the parties hereto will use its reasonable
best efforts and shall fully cooperate with each other party to make promptly
all registrations, filings and applications, give all notices and obtain all
Consents in connection with the transactions contemplated hereby.
Section 6.05. HSR. The Company and the Investors shall, as promptly as
practicable following the execution and delivery of this Agreement, submit all
filings required by the HSR Act to the Federal Trade Commission and the
Department of Justice and thereafter provide any supplemental information
requested in connection therewith pursuant to the HSR Act and make
34
any similar filing within, to the extent reasonably practicable, a similar time
frame with any other Governmental Body for which such filing is required. Any
such notification and report form and supplemental information will be in
substantial compliance with the requirements of the HSR Act or other applicable
antitrust regulation. The Company and the Investors shall furnish to each other
such necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission which is necessary
under the HSR Act or other applicable antitrust regulation. The Company and the
Investors shall request early termination of the applicable waiting period under
the HSR Act and any other applicable antitrust regulation; shall respond with
reasonable diligence and dispatch to any request for additional information made
in response to such filings or information requests made by any other
Governmental Body and shall keep each other apprised of any communications with,
and inquiries or requests for additional information from the Federal Trade
Commission, Department of Justice or any other Governmental Body and shall
comply with any inquiry or request made thereby. Notwithstanding anything to the
contrary contained herein, the Company will pay the filing fees of the Investors
with respect to the notification and report forms required by the HSR Act.
Section 6.06. Notice of Breach. From the date hereof through the Closing
Date, as promptly as practicable, and in any event not later than five Business
Days after the Company becomes aware thereof, the Company shall provide the
Initial Purchaser and each Investor Representative with written notice of (a)
any representation or warranty of the CK Companies or the Sellers contained in
the CK Purchase Agreement being untrue or inaccurate in any material respect, or
(b) any failure of the CK Companies or the Sellers to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with or
satisfied by such Person under any of the CK Transaction Documents.
Section 6.07. Other Transaction Documents. The Company shall keep the
Initial Purchaser, each Investor Representative and their respective counsel
fully informed of, provide the Initial Purchaser, each Investor Representative
and their respective counsel with copies of all drafts of, and, at the request
of the Initial Purchaser or any Investor Representative, discuss with the
Initial Purchaser, each Investor Representative and their respective counsel on
a timely basis, each of the CK Transaction Documents and shall not, without the
prior consent of the Initial Purchaser and each Investor Representative (which
consent shall not be unreasonably withheld or delayed), (i) execute any of the
CK Transaction Documents to be executed after the date hereof or (ii) amend,
waive, supplement or modify any material provisions of any of the CK Transaction
Documents executed on or prior to the date hereof.
Section 6.08. Publicity. The parties agree not to issue any announcement,
press release, public statement or other information to the press or any third
party with respect to this Agreement or the Contemplated Transactions without
obtaining the prior written approval of the other parties hereto (which approval
shall not be unreasonably withheld); provided, however, that nothing contained
herein shall prevent any party hereto, at any time, from furnishing any required
information to any Governmental Body or from issuing any announcement, press
release, public statement or other information to the press or any third party
with respect to this
35
Agreement or the Contemplated Transactions if required by Law, although, the
parties agree to consult with each other as to the content of any release so
required and consider in good faith the comments of the other thereon.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.01. Conditions to Obligations of the Initial Purchaser and the
Investors. The obligation of the Initial Purchaser and the Investors to
consummate the transactions contemplated hereby shall be subject to the
fulfillment on or prior to the Closing Date of the following conditions, any or
all of which may be waived by the Initial Purchaser and the Investors, in whole
or in part (except with respect to conditions 7.01 (n)(i) and (r) which may be
waived only by the Initial Purchaser and except with respect to condition 7.01
(n)(ii) which may be waived only by the Investors) to the extent permitted by
applicable Law:
(a) Consents. The Company shall have obtained the consents set forth in
Schedule 3.05, in form and substance reasonably satisfactory to the Initial
Purchaser and the Investors.
(b) Material Adverse Effect. Between the date hereof and the Closing Date,
none of the CK Companies shall have suffered or experienced a CK Companies
Material Adverse Effect.
(c) No Governmental Order or Other Proceeding or Litigation. No Order of
any Governmental Body shall be in effect that restrains or prohibits the
Contemplated Transactions.
(d) CK Transaction Documents. (i) The CK Transaction Documents executed
prior to or simultaneously with this Agreement shall not have been amended,
modified, supplemented, or provisions thereof waived, in violation of Section
6.07, and (ii) the CK Transaction Documents executed subsequent to this
Agreement shall have been entered into in accordance with Section 6.07.
(e) CK Acquisition. The transactions contemplated by the CK Transaction
Documents that by their terms are to be completed concurrently with, or
immediately after, the Closing shall be capable of being completed at the
Closing and the closing of the CK Acquisition in accordance with the terms and
provisions of the applicable CK Transaction Document and all conditions required
in the CK Transaction Documents to be satisfied on or prior to closing of the CK
Acquisition shall have been satisfied or capable of being satisfied without
waiver, amendment or modification unless otherwise approved in writing by the
Initial Purchaser and each of the Investor Representatives. The closing of the
CK Acquisition shall occur substantially simultaneous with the Closing
hereunder.
36
(f) HSR Act. All filing and other requirements under the HSR Act shall
have been satisfied, and the applicable waiting period with respect to the
Contemplated Transactions under the HSR Act shall have expired or been
terminated.
(g) Closing Fees. The Company shall have paid or reimbursed the Investors
for all of the expenses specified in Section 10.01(a).
(h) Legal Opinion. The Initial Purchaser and the Investors shall have
received, dated the Closing Date and addressed to each of the Initial Purchaser
and the Investors, an opinion of Katten Muchin Zavis Rosenman, counsel to the
Company, substantially in the form attached hereto as Exhibit C.
(i) Certificate of Designations. The Certificate of Designations shall
have been duly filed with the Secretary of State of Delaware and shall be in
full force and effect.
(j) Directors. The Series B Designees shall have been appointed to the
Board of Directors, effective as of the Closing and the Board of Directors shall
consist of no more than 14 directors.
(k) Registration Rights Agreement. The Registration Rights Agreement shall
have been executed and delivered by the parties thereto and shall be in full
force and effect, in substantially the form attached hereto as Exhibit D (the
"Registration Rights Agreement").
(l) Investors' Rights Agreement. The Investors Rights Agreement shall have
been executed and delivered by the parties thereto and shall be in full force
and effect, in substantially the form attached hereto as Exhibit E (the
"Investors' Rights Agreement").
(m) Amendment to the Rights Agreement. The Fifth Amendment to the Rights
Agreement shall have been executed and delivered by the parties thereto and
shall be in full force and effect, in substantially the form attached hereto as
Exhibit F (the "Fifth Amendment").
(n) Stock Certificates.
(i) The Company shall have delivered to the Initial Purchaser a
certificate or certificates representing the Series B Shares, duly
registered in the name of the Initial Purchaser.
(ii) The Initial Purchaser shall have delivered to the Investor
Representatives certificates representing the Series B Shares in the
amounts specified on Schedule 2.01, duly registered by the Company in the
respective names of the Investors as set forth in Schedule 2.01.
(o) NYSE Listing. The shares of Common Stock issuable upon conversion of
the Series B Stock shall have been listed, pending notice of issuance, on the
NYSE and the NYSE shall not have withdrawn its advice that the transactions
contemplated under this
37
Agreement constitute a bona fide private financing under paragraph 312.03 of the
NYSE Listed Company Manual.
(p) Loan Documents. Each of the Loan Documents shall have been executed
and delivered by the parties thereto and shall be in full force and effect and
the closing of the loan transaction contemplated therein shall occur
substantially simultaneously with the Closing hereunder.
(q) Good Standing; Company Certificates. The Company shall have delivered
to the Initial Purchaser and the Investor Representatives:
(i) a certificate issued by the appropriate Governmental Body
evidencing, as of a recent date, the good standing of the Company in its
jurisdiction of incorporation;
(ii) a certificate, dated the Closing Date, executed by the Secretary
of the Company which certifies that (A) attached to such certificate is a
complete and correct copy of the Certificate of Incorporation of the
Company certified by the Secretary of State of the State of Delaware, and
that there has been no amendment to the Certificate of Incorporation of the
Company since that the date of such certification, and (B) attached to such
certificate is a complete and correct copy of the By-Laws of the Company,
as in full force and effect at the Closing Date; and
(iii) a certificate, dated the Closing Date, executed by the Secretary
of the Company, which certifies as complete and correct resolutions of the
Board of Directors: (A) authorizing the execution, delivery and performance
of this Agreement and each of the other Transaction Documents, the issuance
and sale of the Series B Stock and the issuance of the shares of Common
Stock issuable upon conversion of the Series B Stock, the reservation of
such shares of Common Stock and the performance of the transactions
contemplated by this Agreement and the other Transaction Documents, (B)
electing the Series B Designees, (C) implementing the actions with respect
to DGCL Section 203 and the Rights Agreement set forth in Section 3.26, and
(D) authorizing the issuance of the Rights and the issuance of the shares
of Series A Stock issuable upon exercise of the Rights.
(r) Comfort Letter. The Initial Purchaser shall have received from Ernst &
Young LLP a letter addressed to it, in form and substance reasonably
satisfactory to the Initial Purchaser, and dated as of the date hereof, (i)
confirming that they are independent public accountants within the meaning of
the Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of Regulation S-X
and (ii) stating, as of the date hereof (or, with respect to matters involving
changes or developments since the respective dates as of which specified
financial information is given in the Commission Filings filed in 2002, as of a
date not more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and other
matters ordinarily covered by accountants' "comfort letters" to underwriters.
38
Section 7.02. Conditions to Obligations of the Company. The obligation of
the Company to consummate the transactions contemplated hereby shall be subject
to the fulfillment on or prior to the Closing Date of the following conditions,
any or all of which may be waived by the Company:
(a) No Governmental Order or Other Proceeding or Litigation. No Order of
any Governmental Body shall be in effect that restrains or prohibits the
Contemplated Transactions.
(b) CK Acquisition. The transactions contemplated by the CK Transaction
Documents that by their terms are to be completed concurrently with, or
immediately after, the Closing shall be capable of being completed at the
Closing and the closing of the CK Acquisition in accordance with the terms and
provisions of the applicable CK Transaction Document.
(c) HSR Act. All filing and other requirements under the HSR Act shall
have been satisfied, and the applicable waiting period with respect to the
transactions described herein together with any extensions thereof, under the
HSR Act, shall have expired or been terminated.
(d) NYSE Listing. The shares of Common Stock issuable upon conversion of
the Series B Stock shall have been listed, pending notice of issuance on the
NYSE and the NYSE shall not have withdrawn its advice that the transactions
contemplated under this Agreement constitute a bona fide private financing under
paragraph 312.03 of the NYSE Listed Company Manual.
(e) Registration Rights Agreement. The Registration Rights Agreement shall
have been executed and delivered by the parties thereto and shall be in full
force and effect.
(f) Investors' Rights Agreement. The Investors Rights Agreement shall have
been executed and delivered by the parties thereto and shall be in full force
and effect.
(g) Purchase Price. The Initial Purchaser shall have delivered to the
Company the Initial Purchase Price.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival. The representations, warranties and covenants to
be performed at or prior to Closing of the parties set forth in this Agreement
shall survive for a period of 24 months following the execution and delivery of
this Agreement and thereafter shall be of no further force or effect, provided
that the representations and warranties set forth in Sections 3.11 (Taxes), 3.16
(ERISA) and 3.20 (Environmental Protection) shall survive for the applicable
period of the statute of limitations and the representations and warranties set
forth in Sections 3.01 (Organization), 3.02 (Authorization) and 3.04
(Capitalization) shall survive indefinitely (or if indefinite survival is not
permitted by Law, then for the maximum period permitted by
39
applicable Law). No representations, warranties or covenants of the Company in
this Agreement shall be affected by any examination made for or on behalf of the
Initial Purchaser or the Investors, the knowledge of the Initial Purchaser or
the Investors, or the acceptance by the Initial Purchaser or the Investors of
any certificate or opinion. Following the expiration of the periods set forth
above with respect to any particular representation or warranty, no party hereto
shall have any further liability with respect to such representation or
warranty. Except as set forth herein, all of the covenants, agreements and
obligations of the parties hereto shall survive the Closing indefinitely (or if
indefinite survival is not permitted by Law, then for the maximum period
permitted by applicable Law). Anything herein to the contrary notwithstanding,
any claim for indemnification that is asserted by written notice which notice
specifies in reasonable detail the facts upon which such claim is made as
provided in this Section 8.01 within the survival period shall survive until
resolved pursuant to a final non-appealable judicial determination or otherwise.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Generally. Subject to the limitations and other provisions
of this Article IX, the Company covenants and agrees to indemnify, defend and
hold harmless the Investor Group Members and the Initial Purchaser Group Members
from and against (but only to the extent of) any and all Losses resulting from,
incurred in connection with or arising out of (but only to the extent of) (a)
any breach of any representation, warranty, covenant or agreement of the Company
contained herein or in any other Transaction Document, (b) the failure of the
Company to perform any of the agreements, covenants or obligations contained
herein or in any other Transaction Documents, or (c) any claims by the Sellers
relating to the CK Acquisition (other than if any such claim was a result of a
breach by the Investors under this Agreement). Subject to the limitations and
other provisions of this Article IX, each Investor, severally and not jointly,
covenants and agrees to indemnify, defend and hold harmless the Company Group
Members from and against (but only to the extent of) any and all Losses
resulting from, incurred in connection with or arising out of (but only to the
extent of) (a) any breach of any representation, warranty, covenant or agreement
of such Investor contained herein or in any other Transaction Document, or (b)
the failure of such Investor to perform any of the agreements, covenants or
obligations of such Investor contained herein or in any other Transaction
Document. The term "Loss" or any similar term shall mean any and all damages,
reduction in value of the original investment in the Series B Shares,
deficiencies, costs, claims, fines, judgments, amounts paid in settlement,
expenses of investigation, interest, penalties, assessments, out-of-pocket
expenses (including reasonable attorneys' and auditors' fees and disbursements,
witness fees and court costs). The party or parties being indemnified are
referred to herein as the "Indemnitee" and the indemnifying party is referred to
herein as the "Indemnitor."
40
Section 9.02. Indemnification Procedure.
(a) Any party who receives notice of a potential claim that may, in the
judgment of such party, result in a Loss shall use all reasonable efforts to
provide the parties hereto notice thereof, provided that failure or delay or
alleged delay in providing such notice shall not adversely affect such party's
right to indemnification hereunder, unless and then only to the extent that such
failure or delay or alleged delay has resulted in actual prejudice to the
Indemnitor, including, without limitation, by the expiration of a statute of
limitations. In the event that any party shall incur or suffer any Losses in
respect of which indemnification may be sought by such party hereunder, the
Indemnitee shall assert a claim for indemnification by written notice (a
"Notice") to the Indemnitor stating the nature and basis of such claim. In the
case of Losses arising by reason of any third party claim, the Notice shall be
given within thirty (30) days of the filing or other written assertion of any
such claim against the Indemnitee, but the failure of the Indemnitee to give the
Notice within such time period shall not relieve the Indemnitor of any liability
that the Indemnitor may have to the Indemnitee, except to the extent that the
Indemnitor demonstrates that the defense of such action has been materially
prejudiced by the Indemnitee's failure to timely give such Notice.
(b) In the case of third party claims for which indemnification is sought,
the Indemnitor shall, if necessary, retain counsel reasonably satisfactory to
the Indemnitee, and have the option (i) to conduct any proceedings or
negotiations in connection therewith, (ii) to take all other steps to settle or
defend any such claim (provided that the Indemnitor shall not settle any such
claim without the consent of the Indemnitee which consent shall not be
unreasonably withheld) and (iii) to employ counsel to contest any such claim or
liability in the name of the Indemnitee or otherwise. In any event, the
Indemnitee shall be entitled to participate at its own expense and by its own
counsel in any proceedings relating to any third party claim. The Indemnitor
shall, within 15 Business Days of receipt of the Notice, notify the Indemnitee
of its intention to assume the defense of such claim. If (i) the Indemnitor
shall decline to assume the defense of any such claim, (ii) the Indemnitor shall
fail to notify the Indemnitee within 15 Business Days after receipt of the
Notice of the Indemnitor's election to defend such claim, (iii) the Indemnitee
shall have reasonably concluded that there may be defenses available to it which
are different from or in addition to those available to the Indemnitor (in which
case the Indemnitor shall not have the right to direct the defense of such
action on behalf of the Indemnitee), or (iv) a conflict exists between the
Indemnitor and the Indemnitee which the Indemnitee has reasonably concluded
would prejudice the Indemnitor's defense of such action, then in each such case
the Indemnitor shall not have the right to direct the defense of such action on
behalf of the Indemnitee and the Indemnitee shall, at the sole expense of the
Indemnitor, defend against such claim and (x) in the event of a circumstance
described in clause (i) and (ii), the Indemnitee may settle such claim without
the consent of the Indemnitor (and the Indemnitor may not challenge the
reasonableness of any such settlement) and (y) in the event of a circumstance
described in clause (iii) and (iv), the Indemnitee may not settle such claim
without the consent of the Indemnitor (which consent will not be unreasonably
withheld or delayed). The reasonable expenses of all proceedings, contests or
lawsuits in respect of such claims shall be borne and paid by the Indemnitor if
the Indemnitee is entitled to indemnification hereunder
41
and the Indemnitor shall pay the Indemnitee, in immediately available funds, the
amount of any Losses, within a reasonable time of the incurrence of such Losses.
Regardless of which party shall assume the defense or negotiation of the
settlement of the claim, the parties agree to cooperate fully with one another
in connection therewith. In the event that any Losses incurred by the Indemnitee
do not involve payment by the Indemnitee of a third party claim, then, the
Indemnitor shall, within 20 days after written notice from the Indemnitee
specifying the amount of Losses, pay to the Indemnitee, in immediately available
funds, the amount of such Losses. Any disagreement between the Indemnitor and
Indemnitee relating to the amount of the Losses shall be resolved by arbitration
in accordance with the rules of the American Arbitration Association (the "AAA")
then pertaining in the City of New York, New York, by a single arbitrator to be
mutually agreed upon by the parties or, if they are unable to so agree, by an
arbitrator selected by the AAA. Anything in this Article X to the contrary
notwithstanding, the Indemnitor shall not, without the Indemnitee's prior
written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
Indemnitee or which does not include, as an unconditional term thereof, the
giving by the claimant or plaintiff to the Indemnitee, a release from all
liability in respect of such claim.
Section 9.03. Certain Qualifications. The Material Adverse Effect and
other materiality (or correlative meaning) qualifications included in the
representations, warranties, covenants and agreements contained herein shall
have no effect on any provisions in this Article IX concerning the indemnities
of the Company with respect to such representations, warranties, covenants and
agreements, each of which shall be read as though there were no Material Adverse
Effect or other materiality qualification for purposes of such indemnities. All
knowledge qualifications included in the representations, warranties, covenants
and agreements contained herein shall have no effect on any provisions of this
Article IX concerning the indemnities of the Company with respect to such
representations, warranties, covenants and agreements, each of which shall be
read as though there were no such knowledge qualifications for purposes of such
indemnities.
Section 9.04. Limitations on Indemnification.
(a) No Investor Group Member shall be entitled to be indemnified hereunder
unless and until the aggregate of all Losses incurred by Investor Group Members
shall exceed $7,000,000 (the "Basket"); provided, however, that the Basket shall
not apply to any Losses incurred by the Investor Group Members with respect to
any third party claim against any Investor Group Member for which the Investor
Group Members are entitled to indemnity pursuant to Section 9.01.
Notwithstanding anything to the contrary contained herein, the liability of (i)
the Company under this Article IX shall be limited to an amount equal to the
Purchase Price; and (ii) the Investors in the aggregate under this Article IX
and under the Loan Documents shall be limited to an amount equal to
$100,000,000.
(b) The parties acknowledge and agree that the indemnification provisions
contained herein shall be the sole and exclusive remedy for Losses arising out
of or caused by the breach of any of the representations, warranties, covenants
or agreements of the parties
42
contained in this Agreement, except (i) with respect to claims arising out of
fraud, or (ii) for the amounts payable pursuant to Articles X and XI hereof.
ARTICLE X
FEES, EXPENSES AND COSTS
Section 10.01. Reimbursement.
(a) In the event that the transactions contemplated by this Agreement are
consummated, the Company agrees to pay at the Closing and hold the Investors
harmless against liability for the payment of (i) all reasonable legal fees and
expenses owed by the Investors to their counsel, incurred in connection with
this Agreement, (ii) stamp and other transfer Taxes which may be payable in
respect of (A) the execution and delivery of this Agreement or (B) the issuance
of the Series B Stock and the Common Stock issuable upon the conversion of the
Series B Stock, (iii) all other reasonable costs and expenses (including,
without limitation, accounting expenses and consultants' fees) incurred by the
Investors in connection with this Agreement (clauses (i), (ii) and (iii) of this
subsection (a) are referred to collectively as, the "Fees and Expenses"), and
(iv) all reasonable fees and expenses owed by the Investors to Monitor Company
incurred in connection with this Agreement (the "Monitor Expenses").
(b) In the event that the transactions contemplated by the CK Purchase
Agreement or a similar transaction in which the Company acquires voting control
of the CK Companies or substantially all of their assets are consummated within
one year from the date of termination of this Agreement and the transactions
contemplated by this Agreement are not consummated (other than by reason of a
material breach hereunder by the Investors), the Company agrees to pay on demand
the Maximum Amount.
(c) In the event that none of the Contemplated Transactions are consummated
and the Company has been, or will be, reimbursed by CKI or any of its Affiliates
for all of the Company's Expenses relating to the CK Acquisition, the Company
agrees to pay on demand the Maximum Amount.
(d) In the event that none of the Contemplated Transactions are consummated
and the Company has been, and will only be, partially reimbursed by CKI or any
of its Affiliates for the Company's Expenses relating to the CK Acquisition (the
"Partial Reimbursement"), the Company agrees to pay on demand the Minimum
Amount. In addition to the foregoing, if the aggregate amount of the Partial
Reimbursement exceeds the Minimum Amount (the "Excess Amount"), the Company
shall pay to the Investors an amount equal to the Percentage of the Excess
Amount; provided, however, that in no event shall the Company pay to the
Investors an amount in excess of the Maximum Amount or less than the Minimum
Amount.
(e) In the event that none of the Contemplated Transactions are consummated
and Company has not been, and will not be, reimbursed by CKI or any of its
Affiliates for any of the Company's Expenses, the Company agrees to pay on
demand the Minimum Amount.
43
(f) Notwithstanding anything to the contrary contained herein, the Company
agrees to reimburse the Initial Purchaser and Investors on demand for the
Initial Purchaser's and the Investors' reasonable out-of-pocket fees and
expenses incurred in connection with any amendment to, or waiver of, this
Agreement and the other Transaction Documents.
(g) The Company shall pay and hold the Initial Purchaser harmless against
liability for the payment of (i) all reasonable legal fees and expenses owed by
the Initial Purchaser to its counsel, incurred in connection with this
Agreement, (ii) stamp and other transfer Taxes which may be payable in respect
of (A) the execution and delivery of this Agreement, (B) the issuance of the
Series B Stock and the Common Stock issuable upon the conversion of the Series B
Stock, or (C) the transfer of the Series B Stock to the Investors, and (iii) all
other reasonable costs and expenses (including, without limitation, accounting
expenses and consultants' fees) incurred by the Initial Purchaser in connection
with this Agreement.
ARTICLE XI
TERMINATION
Section 11.01. Termination. This Agreement may be terminated on or any
time prior to the Closing:
(a) by the mutual written consent of each of the Investors and the Company;
or
(b) by either the Company or the Investors if the CK Purchase Agreement
shall have been terminated pursuant to its terms; or
(c) by the Investors if the Closing shall not have occurred (unless the
failure of such occurrence shall be due to the failure of the Investors to
perform or observe any material agreement set forth herein required to be
performed or observed by the Investors on or before the Closing) on or before
March 31, 2003; provided that if the Company and the Investors agree to extend
the period within which the Closing must occur beyond March 31, 2003, the
Initial Purchaser shall also agree to extend beyond March 31, 2003 (but in any
event not beyond June 30, 2003).
Section 11.02. Effect Of Termination. In the event of the termination of
this Agreement as provided in Section 11.01, all obligations and agreements of
the parties set forth in this Agreement shall forthwith become void except for
the obligations set forth in: (i) the last sentence of Section 6.05 (HSR) (which
shall remain in full force and effect) (ii) Section 6.08 (Publicity), (iii)
Article IX (Indemnification), (iv) Section 10.01(b), (c), (d), (e) and (g) (Fees
and Expenses) (as applicable), (v) Section 11.03 (Termination Fee) and (vi)
Section 11.04 (Break-up Fee), and there shall be no liability or obligation on
the part of the parties hereto except as otherwise provided in this Agreement.
Notwithstanding the foregoing, the termination of this Agreement under Section
11.01 shall not relieve either party of any liability for breach of this
Agreement prior to the date of termination.
44
Section 11.03. Termination Fee. The Company shall pay to the Investors
(pro rata at their respective commitments) a termination fee of (a) cash in the
amount of $22,500,000, and (b) the Termination Warrants (referred to
collectively as the "Termination Fee"), in the event that:
(i) the transactions contemplated by the CK Purchase Agreement are
consummated and the transactions contemplated by this Agreement are not
consummated; or
(ii) the Company consummates a similar transaction, within one year of
the termination of this Agreement, in which the Company acquires voting
control of CKI or substantially all of its assets and the Investors do not
participate in the financing of such similar transaction.
Notwithstanding the foregoing, the Investors shall not be entitled to a
Termination Fee in the event that the transactions contemplated by this
Agreement are not consummated (x) by reason of a default hereunder by the
Investors or (y) due to the waiting period with respect to Investors' filing not
having expired by the Termination Date by reason of competitive issues raised by
the Federal Trade Commission or the Department of Justice regarding the
Investors investment in the Company.
Section 11.04. Break-up Fee. In the event that the Contemplated
Transactions are not consummated and the Break-up Fee is paid, the Company
agrees to pay to the Investors an amount equal to 33% of the Break-up Fee.
Section 11.05. CK Recovery. The Company shall pay to the Investors 33% of
any CK Recovery.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Notices and Addresses. Any notice, demand, request, waiver,
or other communication under this Agreement shall be in writing and shall be
deemed to have been duly given on the date of service, if personally served or
sent by facsimile; on the Business Day after notice is delivered to a courier or
mailed by express mail, if sent by courier delivery service or express mail for
next day delivery; and on the third day after mailing, if mailed to the party to
whom notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
If to the Company:
Phillips-Van Heusen Corporation
200 Madison Avenue
New York, New York 10016
Attention: Vice President, General Counsel and Secretary
45
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
If to the Initial Purchaser:
Lehman Brothers Inc.
745 Seventh Avenue
New York, New York 10019
Attention: Global Retailing/Consumer Group
Facsimile: (212) 520-9602
with a copy to Office of the General Counsel
Lehman Brothers Inc.
399 Park Avenue
10th Floor
New York, New York 10022
Attention: Director of Litigation
Facsimile: (212) 526-3633; and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Andrew Keller, Esq.
Facsimile: (212) 455-2502
If to any Investor, to the Investor Representatives:
Apax Managers, Inc.
445 Park Avenue, 11th Floor
New York, NY 10022
Attention: David H. Landau
46
Facsimile: (212) 753-6300
Telephone: (212) 319-6155
Apax Partners Europe Managers Ltd.
15 Portland Place
London W1B 1PT
United Kingdom
Attention: Adrian Beecroft and Clive Sherling
Facsimile: 44-20-7872-6475
Telephone: 44-20-7872-6300
With a copy to:
Swidler Berlin Shereff Friedman, LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attention: Morris Orens, Esq.
Facsimile: (212) 891-9598
Section 12.02. Captions. The captions in this Agreement are for
convenience of reference only and shall not be given any effect in the
interpretation of this Agreement.
Section 12.03. No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement. Any waiver must be
in writing. Any of the covenants or agreements contained in this Agreement may
be waived only by the written consent of the Initial Purchaser and the Investor
Representative.
Section 12.04. Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable Law, such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms so long as the economic or legal substance of the
transactions contemplated by this Agreement are not affected in any manner
materially adverse to any party.
Section 12.05. Exclusive Agreement; Amendment. This Agreement supersedes
all prior agreements among the parties with respect to its subject matter, other
than the letter agreement dated January 17, 2002 with respect to the
non-disclosure of confidential information, is intended (with the documents
referred to herein) as a complete and exclusive statement of the terms of the
agreement among the parties with respect thereto and cannot be changed or
terminated except by a written instrument executed by the party or parties
against whom enforcement thereof is
47
sought, except that, with respect to the Investors, this Agreement may be
amended by a written instrument executed by the Investor Representative.
Section 12.06. Limitation on Assignment; Parties in Interest.
(a) No assignment of this Agreement or of any rights or obligations
hereunder may be made by the Company or the Investors (by operation of Law or
otherwise) without the prior written consent of the other parties hereto and any
attempted assignment without the required consents shall be void; provided,
however, that each Investor may validly assign any of its rights and obligations
hereunder to an Affiliate of such Investor without the prior written consent of
the other parties hereto; provided, that such Investor shall remain liable for
any and all obligations assigned to such Affiliate.
(b) This Agreement shall be binding upon, and shall inure to the benefit
of, and be enforceable by, the parties and their respective successors,
transferees and assigns.
Section 12.07. Obligations of Investors Several. The obligations of the
Investors hereunder shall be several and not joint. No Investor shall be
responsible for the breach of any provision of this Agreement by any other
Investor.
Section 12.08. Governing Law. This Agreement and (unless otherwise
provided) all amendments hereof and waivers and consents hereunder shall be
governed by the internal Laws of the State of New York, without regard to the
conflicts of Law principles thereof which would specify the application of the
Law of another jurisdiction.
Section 12.09. Jurisdiction. Each of the Investors and the Company (a)
hereby irrevocably and unconditionally submits to the exclusive jurisdiction of
any state or federal court sitting in New York County, New York for the purposes
of any suit, action or other proceeding arising out of this Agreement or the
subject matter hereof brought by the Company, or any Investor and (b) hereby
waives and agrees not to assert, by way of motion, as a defense, or otherwise,
in any such suit, action or proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court.
Section 12.10. No Third Party Beneficiary. The terms and provisions of
this Agreement are intended solely for the benefit of each party hereto and
their respective successors or permitted assigns, and it is not the intention of
the parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Article IX.
Section 12.11. Injunctive Relief. In the event that any party threatens
to take any action prohibited by this Agreement, the parties agree that there
may not be an adequate remedy at law. Accordingly, in such an event, a party may
seek and obtain preliminary and permanent injunctive
48
relief (without the necessity of posting any bond or undertaking). Such remedies
shall, however, be cumulative and not exclusive and shall be in addition to any
other remedies which any party may have under this Agreement or otherwise.
Section 12.12. Counterparts. This Agreement may be executed via facsimile
and in any number of counterparts, each of which shall be deemed to be an
original instrument and all of which together shall constitute one and the same
instrument.
Section 12.13. 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.
[Signature Pages Follow]
49
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PHILLIPS-VAN HEUSEN CORPORATION
By: /s/ Mark D. Fishcer
--------------------------------------
Name: Mark D. Fischer
Title: Vice President
50
APAX EXCELSIOR VI, L.P.
By: Apax Excelsior VI Partners, L.P.,
Its General Partner
By: Apax Managers, Inc.
Its General Partner
By: /s/ David Landau
--------------------------------------
Name: David Landau
Title: Vice President
APAX EXCELSIOR VI-A C.V.
By: Apax Excelsior VI Partners, L.P.,
Its General Partner
By: Apax Managers, Inc.
Its General Partner
By: /s/ David Landau
--------------------------------------
Name: David Landau
Title: Vice President
APAX EXCELSIOR VI-B C.V.
By: Apax Excelsior VI Partners, L.P.,
Its General Partner
By: Apax Managers, Inc.
Its General Partner
By: /s/ David Landau
--------------------------------------
Name: David Landau
Title: Vice President
PATRICOF PRIVATE INVESTMENT CLUB III, L.P.
By: Apax Excelsior VI Partners, L.P.,
Its General Partner
By: Apax Managers, Inc.
Its General Partner
By: /s/ David Landau
--------------------------------------
Name: David Landau
Title: Vice President
51
APAX EUROPE V A-L.P.
By: Apax Partners Europe Managers Ltd.
Its Investment Manager
By: /s/ Adrian Beecroft
--------------------------------------
Name: Adrian Beecroft
Title: Managing Director
By: /s/ Clive Sherling
--------------------------------------
Name: Clive Sherling
Title: Managing Director
52
LEHMAN BROTHERS INC.
By: /s/ Dominic Rispoli
--------------------------------------
Authorized Representative
53