Exhibit 2.1
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ASSET PURCHASE AGREEMENT
BETWEEN
CHAMBERS DELAWARE ACQUISITION COMPANY
AND
CHAMBERS BELT COMPANY
AND
STOCKHOLDERS OF CHAMBERS BELT COMPANY
DATED AS OF APRIL 18, 2005
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TABLE OF CONTENTS
ARTICLE I - DEFINITIONS................................................................... 1
Section 1.01 Definitions........................................................ 1
Section 1.02 Rules of Construction.............................................. 11
ARTICLE II - BASIC TRANSACTION............................................................ 12
Section 2.01 Purchase and Sale of Assets........................................ 12
Section 2.02 Assumption of Certain Liabilities.................................. 14
Section 2.03 Purchase Price..................................................... 17
Section 2.04 Delivery of Minimum Target Working Capital......................... 18
Section 2.05 Contingent Additional Consideration................................ 19
Section 2.06 Working Capital and Contingent Additional Consideration Disputes... 21
Section 2.07 Closing............................................................ 21
Section 2.08 Deliveries at Closing.............................................. 21
Section 2.09 Allocation......................................................... 23
ARTICLE III - REPRESENTATIONS AND WARRANTIES BY SELLER AND THE STOCKHOLDERS............... 24
Section 3.01 Organization and Authority of Seller............................... 24
Section 3.02 Authorization of Transaction....................................... 25
Section 3.03 Non-Contravention.................................................. 25
Section 3.04 Brokers' Fees...................................................... 25
Section 3.05 Assets............................................................. 25
Section 3.06 No Subsidiaries.................................................... 26
Section 3.07 Financial Information.............................................. 26
Section 3.08 Events Subsequent to Most Recent Balance Sheet Date................ 27
Section 3.09 Undisclosed Liabilities............................................ 29
Section 3.10 Legal Compliance................................................... 29
Section 3.11 Tax Matters........................................................ 29
Section 3.12 Leased Real Property............................................... 31
Section 3.13 Intellectual Property.............................................. 34
Section 3.14 Tangible Assets.................................................... 37
Section 3.15 Inventory.......................................................... 37
Section 3.16 Mexican Operations................................................. 38
Section 3.17 Contracts.......................................................... 38
Section 3.18 Notes and Accounts Receivable...................................... 40
Section 3.19 Powers of Attorney and Bank Accounts............................... 40
Section 3.20 Insurance.......................................................... 40
Section 3.21 Litigation......................................................... 41
Section 3.22 Product Warranty................................................... 41
Section 3.23 Product Liability.................................................. 42
Section 3.24 Employees.......................................................... 42
Section 3.25 Employee Benefits.................................................. 43
Section 3.26 Guaranties......................................................... 44
Section 3.27 Environmental, Health, and Safety Matters.......................... 44
Section 3.28 Relationships With Related Parties................................. 45
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Section 3.29 Licensors, Manufacturers, Customers and Suppliers........................................... 45
Section 3.30 Compliance With the Foreign Corrupt Practices Act and Export Control and Antiboycott Laws... 46
Section 3.31 Investment Representations.................................................................. 46
Section 3.32 Disclosure.................................................................................. 47
ARTICLE IV - BUYER'S REPRESENTATIONS AND WARRANTIES................................................................ 48
Section 4.01 Organization of Buyer....................................................................... 48
Section 4.02 Authorization of Transaction................................................................ 48
Section 4.03 Non-Contravention........................................................................... 48
Section 4.04 SEC Documents............................................................................... 49
Section 4.05 Brokers' Fees............................................................................... 49
ARTICLE V - PRE-CLOSING COVENANTS.................................................................................. 49
Section 5.01 General..................................................................................... 49
Section 5.02 Certain Consents and Notices................................................................ 49
Section 5.03 Leased Real Property........................................................................ 50
Section 5.04 Preservation and Operation of Business...................................................... 50
Section 5.05 Employees................................................................................... 53
Section 5.06 Full Access and Cooperation................................................................. 54
Section 5.07 Internal Financial Statements............................................................... 54
Section 5.08 Continued Effectiveness of Representations and Warranties................................... 54
Section 5.09 Exclusivity................................................................................. 55
Section 5.10 Mexican Operations.......................................................................... 55
Section 5.11 Pay-Off Letter.............................................................................. 55
Section 5.12 Prepayment; Releases........................................................................ 55
Section 5.13 Sales Tax Compliance Certificates........................................................... 56
Section 5.14 Financing................................................................................... 56
Section 5.15 Conveyance Taxes............................................................................ 56
Section 5.16 Stockholder Voting Obligations.............................................................. 56
ARTICLE VI - CONDITIONS TO OBLIGATION TO CLOSE..................................................................... 56
Section 6.01 Conditions to Buyer's Obligation............................................................ 56
Section 6.02 Conditions to Seller's Obligation........................................................... 59
ARTICLE VII - TERMINATION.......................................................................................... 60
Section 7.01 Termination of Agreement.................................................................... 60
Section 7.02 Effect of Termination....................................................................... 60
ARTICLE VIII - POST-CLOSING COVENANTS.............................................................................. 60
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Section 8.01 Collection of Accounts............................... 60
Section 8.02 After-Acquired Assets................................ 61
Section 8.03 Intellectual Property Rights......................... 61
Section 8.04 Returned Inventory................................... 61
Section 8.05 Further Assurances; Cooperation and Assistance....... 61
Section 8.06 Nondisclosure........................................ 62
Section 8.07 Non-Competition...................................... 62
Section 8.08 Securities Law Restrictions.......................... 63
Section 8.09 Operations During the Contingent Earn-Out Periods.... 64
ARTICLE IX - SURVIVAL; INDEMNIFICATION...................................... 65
Section 9.01 Expiration of Representations and Warranties......... 65
Section 9.02 Indemnification by Seller and Stockholders........... 65
Section 9.03 Indemnification by Buyer............................. 68
Section 9.04 Notice of Claims..................................... 68
Section 9.05 Opportunity to Defend Third Party Claims............. 69
Section 9.06 Limitation of Liability of Seller and Stockholders... 70
Section 9.07 Limitation of Liability of Buyer..................... 71
Section 9.08 Right of Set-Off..................................... 71
Section 9.09 Indemnity Payments, etc.............................. 72
Section 9.10 Escrow............................................... 72
Section 9.11 Exclusivity.......................................... 72
ARTICLE XI - MISCELLANEOUS.................................................. 72
Section 10.01 Press Releases and Public Announcements............. 72
Section 10.02 No Third-Party Beneficiaries........................ 73
Section 10.03 Entire Agreement.................................... 73
Section 10.04 Succession and Assignment........................... 73
Section 10.05 Counterparts........................................ 73
Section 10.06 Headings............................................ 73
Section 10.07 Notices............................................. 73
Section 10.08 Governing Law....................................... 74
Section 10.09 Amendments and Waivers.............................. 74
Section 10.10 Severability........................................ 75
Section 10.11 Expenses............................................ 75
Section 10.12 Construction........................................ 75
Section 10.13 Incorporation of Exhibits and Schedules............. 75
Section 10.14 Specific Performance................................ 75
Section 10.15 Submission to Jurisdiction.......................... 76
Section 10.16 Sellers' Agent...................................... 76
LIST OF EXHIBITS
Exhibit A - Assignment and Assumption of Contracts
Exhibit A-1 - Assignment and Assumption of Leases
Exhibit B - Assignment of Intellectual Property
Exhibit C - Bill of Sale
Exhibit D-1 - Employment Agreement
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Exhibit D-2 - Specific Terms of Employment Agreements
Exhibit E - Escrow Agreement
Exhibit F - New Maquila Contract
Exhibit G-1 - Non-Competition Agreement
Exhibit G-2 - Specific Terms of Non-Competition Agreements
Exhibit H - Contingent Additional Consideration Statement
Exhibit I - Opinion Letter of Seller's Counsel
Exhibit J - Opinion Letter of Buyer's Counsel
Exhibit K - Form of Closing Working Capital Statement
Exhibit L - Stockholders' Pro Rata Shares and Addresses
Exhibit M Registration Rights Agreement
LIST OF SCHEDULES
Schedule 1.01 - Calculation of Phoenix Short Term Incentive
Plan for Two Months Ending February 28, 2005
Schedule 2.01(a)(i) - List of Tangible Personal Property
Schedule 2.01(a)(v) - List of Assigned Contracts
Schedule 2.01(a)(vii) - List of all Customer and Industry Approvals
and/or Certifications
Schedule 2.01(b) - Excluded Assets
Schedule 3.01(a) - List of Seller's Authorized Jurisdictions
Schedule 3.01(b) - List of Duly Elected Officers and Directors
of Seller
Schedule 3.03(a) - List of Contracts Requiring Consents
Schedule 3.03(b) - List of Required Governmental Authorizations
Schedule 3.05(a) - List of Existing Liens
Schedule 3.05(b) - Seller's Booked and Confirmed Orders
Schedule 3.07 - Revised Fiscal 2005, 2006 and 2007 Budgets
Schedule 3.10 - List of Permits, Licenses, Etc.
Schedule 3.11 - List of Income Tax Returns
Schedule 3.12(b) - List of Leased Real Property
Schedule 3.12(i) - List of Seller's Real Property Permits
Schedule 3.13(a) - List of Patents, etc.
Schedule 3.13(b) - List of Trademarks, etc.
Schedule 3.13(c) - List of Copyrights, etc.
Schedule 3.13(e) - List of IP Licenses
Schedule 3.13(f)(i) - Description of Computer System Used in the
Business
Schedule 3.13(f)(ii) - List of Commercial Software
Schedule 3.13(f)(iii) - List of IP Documents
Schedule 3.15(a) - List of Inventory Locations
Schedule 3.15(b) - List of Product Types and Product Lines
Schedule 3.17 - List of Contracts
Schedule 3.19 - List of Bank Accounts, etc.
Schedule 3.20 - List of Insurance Policies
Schedule 3.22 - Description of Product Warranties
Schedule 3.25(a) - List of Employee Benefit Plans
Section 3.27(b) - List of Environmental, Health and Safety
Government
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Authorizations
Schedule 3.28(a) - Description of Related Party Relationships
Schedule 3.28(b) - Indebtedness with Affiliates
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "AGREEMENT") is entered into on April
18, 2005 (the "EXECUTION DATE") by and between CHAMBERS BELT COMPANY, an Arizona
corporation ("SELLER"); CHARLES STEWART, GARY EDMAN, KELLY GREEN, SCOTT
ROBINSON, DAVE MATHESON and SCOTT ADELSON (individually, a "STOCKHOLDER" and
collectively, "STOCKHOLDERS"); and CHAMBERS DELAWARE ACQUISITION COMPANY, a
Delaware corporation ("BUYER"). Buyer, Seller and Stockholders are referred to
collectively herein as the "PARTIES." Charles Stewart is also joined as a party
to this Agreement solely to accept the duties herein of the "SELLERS' AGENT" set
forth in Section 10.16, and in his individual capacity to the extent expressly
provided herein.
A. Seller is engaged in the business of designing, manufacturing,
sourcing, importing, warehousing, marketing, distributing, and selling of men's,
boy's, women's and girl's western, dress and casual belts and related leather
accessories and products (the "BUSINESS").
B. Seller desires to sell, assign, transfer, convey and deliver to Buyer
and Buyer desires to acquire from Seller, all of Seller's assets, properties,
goodwill and business of every kind and description and wherever located,
whether tangible or intangible, real, personal or mixed, owned directly or
indirectly by Seller or to which Seller is directly or indirectly entitled
(other than Excluded Assets), for a Purchase Price, as set forth in Section 2.03
of this Agreement, and on the other terms and conditions herein.
C. Stockholders are the owners of all of the outstanding capital stock of
Seller and Stockholders desire to facilitate the sale of Seller's assets and
other transactions and agreements referred to herein by providing certain
representations, warranties and covenants set forth herein in favor of Buyer.
D. Buyer is a wholly-owned subsidiary of Phoenix Footwear Group, Inc., a
Delaware corporation ("PHOENIX"). Concurrently with the execution of this
Agreement, in order to facilitate the Buyer's purchase of Seller's assets,
Phoenix has executed and delivered a guaranty in favor of Seller of Buyer's
obligations hereunder (the "PHOENIX GUARANTY").
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows.
ARTICLE I
DEFINITIONS
Section 1.01 DEFINITIONS.
(a) For purposes of this Agreement the following terms shall have
the meanings ascribed to them in this Section 1.01:
"ACCOUNTS PAYABLE AND ACCRUED EXPENSES" means normal current trade
payables (including Liabilities relating to sales allowances, customer rebates,
and non-delinquent third
party royalty payments and commissions under the Assigned Contracts) incurred in
the ongoing operations of the Business in the Ordinary Course of Business prior
to Closing and all accrued expenses of Seller incurred in the ongoing operations
of the Business in the Ordinary Course of Business prior to Closing. For
avoidance of doubt, Accounts Payable and Accrued Expenses shall not include any
Liabilities or costs and expenses described in Section 2.02(b) except to the
extent reserved for in the Closing Working Capital Statement to the extent
expressly permitted by Section 2.02(b).
"AFFILIATE" means each Stockholder and any of their respective
"affiliates" as defined in Rule 12b-2 of the regulations promulgated under the
Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local, or foreign law.
"ANCILLARY AGREEMENTS" means the Bill of Sale, the Assignment and
Assumption of Contracts, the Assignment and Assumption of Leases, the Assignment
of Intellectual Property, the Employment Agreements, the Non-Competition
Agreements, the Escrow Agreement and the Registration Rights Agreement.
"APPLICABLE RATE" means the prime rate (as set forth in the "Money
Rates" section of The Wall Street Journal (western edition) on the Closing Date)
calculated on the basis of a 365 day year.
"ASBESTOS LIABILITIES" means any Liabilities arising from, relating
to, or based on asbestos or asbestos-containing materials, including the
presence thereof at any property or facility or in any structure, and arising
from, relating to or based on any personal or bodily injury or illness or
otherwise.
"ASSIGNMENT AND ASSUMPTION OF CONTRACTS" means the Assignment and
Assumption of Contracts to be executed and delivered by Seller and Buyer at the
Closing, such assignment to be in the form and substance of EXHIBIT A attached
hereto.
"ASSIGNMENT AND ASSUMPTION OF LEASES" means the Assignment and
Assumption of Leases to be executed and delivered by Seller and Buyer at the
Closing, such assignment to be in the form and substance of EXHIBIT A-1 attached
hereto.
"ASSIGNMENT OF INTELLECTUAL PROPERTY" means the Assignment of
Intellectual Property to be executed by Seller and delivered to Buyer at the
Closing, such assignment to be in the form and substance of EXHIBIT B attached
hereto.
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms, or could reasonably be expect
to, form the basis for any specified consequence.
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"BILL OF SALE" means the Bill of Sale to be executed by Seller and
delivered to Buyer at the Closing, such Bill of Sale to be in the form and
substance of EXHIBIT C attached hereto.
"CAPITAL LEASE" means any Lease, if the obligations thereunder
should be capitalized and accounted for on a capital lease basis on the balance
sheet of the lessee in accordance with GAAP. For the purposes of this Agreement,
the amount of the obligations under the Capital Lease at any time shall be
determined in accordance with GAAP as applied in the Most Recent Financial
Statements.
"CHAMBERS DE MEXICO" means Maquiladora Chambers de Mexico, S.A. De
C. V., which is a Mexican corporation owned by certain Stockholders and a third
party Mexican citizen.
"CIT FACTORING AGREEMENTS" means all agreements between Seller and
CIT Business Group, Inc. ("CIT") with respect to the factoring of accounts
receivable, including (a) the Non-Notification Factoring Agreement dated
December 2003 , as amended, between Seller and CIT, (b) the Single Customer
Credit Approved Receivables Purchasing Agreement (K-Mart) between Seller and CIT
and (c) the Single Customer Credit Approved Receivables Purchasing Agreement
between Seller and CIT (Value City).
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code Section 4980B and of any similar state law.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMERCE CITY FACILITIES" means the Leased Real Property and
Improvements located in Commerce City, California occupied and used by Seller
for the production, packaging, warehousing and distribution of its products.
"COMMISSION" means Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"COMPENSATION AND BENEFIT PLANS" means bonus, deferred compensation,
pension, retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, deferred and restricted stock, stock option,
employment, termination, severance, compensation, life insurance, medical,
health or other employee plans, agreements, policies or arrangements that cover
any current or former employees or directors of Seller.
"CONTINGENT EARN-OUT PERIODS" means both the First Contingent
Earn-Out Period and the Second Contingent Earn-Out Period.
"CONTRACT" means any written, oral, implied or other agreement,
contract, understanding, arrangement, instrument, note, guaranty, indemnity,
representation, warranty, deed, assignment, power of attorney, certificate,
customer order, purchase order, work order, insurance policy, benefit plan,
commitment, covenant, assurance or undertaking of any nature.
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"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" (as such
term is defined in ERISA Section 3(3)) and any other employee benefit plan,
program or arrangement of any kind.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"EMPLOYMENT AGREEMENT" means each Employment Agreement to be
executed and delivered to Buyer by Charles Stewart, Kelly Green and Dave
Matheson at the Closing, each such agreement to be substantially in the form and
substance of EXHIBIT D-1 attached hereto, and to be completed in accordance with
the specific terms for each such Person set forth in EXHIBIT D-2 attached
hereto.
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" means, as amended
and as now and hereafter in effect, all federal, state, local, and foreign
statutes, regulations, ordinances, and other provisions having the force or
effect of law, all judicial and administrative orders and determinations, all
contractual obligations, and all common law concerning public health and safety,
worker health and safety, pollution, or protection of the environment,
including, without limitation, all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances, or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise, or radiation.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" means each entity that is treated as a single
employer with Seller for purposes of Code Section 414.
"ESCROW AGENT" means Manufacturers & Traders Trust Company or such
other financial institution as is acceptable to both Seller and Buyer.
"ESCROW AGREEMENT" means an escrow agreement to be executed and
delivered by Seller, Buyer and the Escrow Agent at the Closing, such agreement
to be substantially in the form and substance of EXHIBIT E attached hereto.
"EXISTING MAQUILA CONTRACT" means the Export Maquila Contract dated
December 4, 2003 between Seller and Chambers de Mexico pursuant to which Seller
has delivered to Chambers de Mexico certain tangible personal property and
inventory and Chambers de Mexico has manufactured and sold to Seller products
pursuant to orders by Seller, when and if made by Seller.
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"EXISTING MEXICAN ADMINISTRATION CONTRACT" means the Contract
between Seller and Serma Marketing pursuant to which Serma Marketing provides
Seller with certain administrative services with respect to the operation of the
Mexican Facilities.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"GOVERNMENTAL AUTHORIZATION" means any: (a) permit, license,
certificate, franchise, concession, approval, consent, ratification, permission,
clearance, confirmation, endorsement, waiver, certification, designation,
rating, registration, qualification or authorization issued, granted, given or
otherwise made available by or under the authority of any Governmental Authority
or pursuant to any Legal Requirement; or (b) right under any Contract with any
Governmental Authority.
"GOVERNMENTAL AUTHORITY" means any: nation, state, county, city,
town, borough, village, district or other jurisdiction; federal, state, local,
municipal, foreign or other government; governmental or quasi-governmental
authority of any nature (including any agency, branch, department, board,
commission, court, tribunal or other entity exercising governmental or
quasi-governmental powers); multinational organization or body; body exercising,
or entitled or purporting to exercise, any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or power; or official of any
of the foregoing.
"INTELLECTUAL PROPERTY" means all of the following in any
jurisdiction throughout the World: (a) all inventions (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, (b) all trademarks, service marks, trade dress, logos,
slogans, trade names, corporate names (including the name "Chambers Belt
Company" or any derivative thereof), Internet domain names and rights in
telephone and fax numbers and e-mail addresses, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all mask
works and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including source code, executable code, data, databases, and related
documentation), (g) all advertising and promotional materials, (h) all other
proprietary rights, including all designs, prototypes, patterns and other design
materials owned or used by Seller or Seller Affiliates relating to any products
bearing any trademark or logo owned or licensed by Seller or any of its
customers, and (i) all copies and tangible embodiments thereof (in whatever form
or medium).
"KNOWLEDGE" means when used with respect to Seller, (a) the actual
knowledge of any fact or circumstance or other matter by any Stockholder or any
officer or director of Seller or (b) any knowledge or any fact or circumstance
or other matter that any such Person should have
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if he or she were to conduct a reasonably comprehensive investigation of the
subject matter with respect to which the term Knowledge is used.
"LEGAL REQUIREMENTS" means any federal, state, local, municipal,
foreign or other law, statute, legislation, constitution, principle of common
law, resolution, ordinance, code, edict, decree, proclamation, treaty,
convention, rule, regulation, ruling, directive, pronouncement, requirement,
specification, determination, decision, opinion or interpretation issued,
enacted, adopted, passed, approved, promulgated, made, implemented or otherwise
put into effect by or under the authority of any Governmental Authority.
"LEASED REAL PROPERTY" means all leasehold or subleasehold estates
and other rights to use or occupy any land, buildings, structures, improvements,
fixtures, or other interest in real property held by Seller.
"LEASES" means all leases, subleases, licenses, concessions and
other agreements (written or oral), including all amendments, extensions,
renewals, guaranties, and other agreements with respect thereto, pursuant to
which Seller holds any Leased Real Property, including the right to all security
deposits and other amounts and instruments deposited by or on behalf of Seller
thereunder.
"LIABILITY" means any liability or obligation of whatever kind or
nature (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability for
Taxes.
"LIEN" means any charge, claim, community or other marital property
interest, condition, equitable interest, lien, option, pledge, security
interest, mortgage, right of way, easement, encroachment, servitude, right of
first option, right of first refusal or similar restriction, including any
restriction on use, voting (in the case of any security or equity interest),
transfer, receipt of income or exercise of any other attribute of ownership.
"LOSS" means any and all judgments, losses, Liabilities, amounts
paid in settlement, damages, fees, fines, penalties, deficiencies, costs and
expenses (including interest, court costs, reasonable fees and expenses of
attorneys, accountants and other experts or other reasonable expenses of
litigation or other proceedings or of any claim, default or assessment).
"MATERIAL ADVERSE CHANGE" means any act, circumstance, condition,
occurrence, changes, or developments that would have a Material Adverse Effect,
except to the extent caused by changes (a) to the United States economy in
general or the economy of any foreign country in general in which the Business
operates (that does not affect the operations or financial condition of Seller
in a materially disproportionate manner), (b) in general to the industries in
which Seller operates (that does not affect the operations or financial
condition of Seller in a materially disproportionate manner), (c) to financial,
banking or securities markets (including any disruption thereof and any decline
in the price of any security or any market index), (d) resulting from the
announcement of this Agreement or any of the transactions contemplated
hereunder, the fulfillment of the parties' obligations hereunder or the
consummation of the transactions contemplated by this Agreement (excluding any
loss of customers), (e) to any outbreak or
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escalation of hostilities or act of terrorism involving the United States or any
declaration of war by the United States, or (f) anticipated changes in the sales
of Seller's Riders brand products to the extent reflected in the Revised Fiscal
2005, 2006 and 2007 Budgets.
"MATERIAL ADVERSE EFFECT" means any event, circumstance, state of
facts or matters that, individually or in the aggregate with any other event,
circumstances, state of facts or circumstances has or is, or could reasonably be
expected to be, materially adverse to the Business, or the operations, assets or
liabilities (including, without limitation, contingent liabilities), employee,
customer, license or supply relationships, prospects, results of operations or
the condition (financial or otherwise) of the Business.
"MEXICAN FACILITIES" means the real property and Improvements owned
by Chambers de Mexico, located in Pitiquito, Mexico, at which certain of
Seller's products are manufactured pursuant to the Existing Maquila Contract and
orders made thereunder by Seller.
"MINIMUM TARGET WORKING CAPITAL" means Working Capital in the amount
of $7,000,000.
"MOST RECENT BALANCE SHEET " means the balance sheet as of December
31, 2004 for the fiscal year then ended.
"MOST RECENT BALANCE SHEET DATE" means December 31, 2004.
"MOST RECENT FINANCIAL STATEMENTS" means the audited balance sheet
as of December 31, 2004 and the related statements of earnings, stockholders'
equity, and cash flows as of and for the fiscal year then ended together with
the report of Clifton Gunderson, LLP on such balance sheet and statements.
"NET CONTRIBUTION " means with respect to the applicable period, the
operating earnings of the Business determined in accordance with GAAP, with
allocation of expenses for services, facilities, equipment or products shared
with other Phoenix product brands consistent with the method used by the Phoenix
Short-Term Incentive Plan. For illustration, the calculation of the Net
Contribution for Phoenix's brands under the Phoenix Short-Term Incentive Plan
for the two months ended February 28, 2005 is set forth in SCHEDULE 1.01. For
avoidance of doubt, no indirect corporate overhead expenses shall be allocated
to the operating earnings of the Business in determining its Net Contribution.
"NEW MAQUILA CONTRACT" means the Export Maquila Contract to be
executed and delivered by each Chambers de Mexico and Buyer at the Closing, such
agreement to be substantially in the form and substance of EXHIBIT F attached
hereto pursuant to which Chambers de Mexico shall possess and return to Buyer
certain tangible personal property and inventory owned by Buyer and Chambers de
Mexico will manufacture and sell to Buyer products pursuant to orders when and
if made by Buyer.
"NON-COMPETITION AGREEMENT" means a Non-Competition Agreement to be
executed and delivered by Charles Stewart, Kelly Green, Dave Matheson and Gary
Edman at the Closing, each such agreement to be substantially in the form and
substance of EXHIBIT G-1
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attached hereto, and to be completed in accordance with the specific terms for
each such Person set forth in EXHIBIT G-2 attached hereto with respect to each
such person.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
of Seller consistent with Seller's past custom and practice (including with
respect to quantity and frequency).
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED LIENS" means (a) Liens securing taxes, assessments and
other charges or levies of Governmental Authorities under Leases included in the
Assigned Contracts to the extent not yet due and payable as of the Closing Date;
(b) Capital Leases included in the Assigned Contracts, provided, that such Liens
attach only to the assets the purchase of which was financed by such purchase
money indebtedness or which is the subject of such Capital Leases; (c)
mechanics', carriers', workers', repairmen's, landlords' and other similar lien
arising or incurred in the Ordinary Course of Business with respect to charges
not yet due and payable to the extent such charges constitute Assumed
Liabilities; (d) with respect to each parcel of Leased Real Property: (i)
zoning, building codes and other land use laws regulating the use or occupancy
of such Leased Real Property or the activities conducted thereon that are
imposed by any Governmental Authority having jurisdiction over such Leased Real
Property that are not violated by the current use or occupancy of such Leased
Real Property or the operation of the Business by Seller as currently conducted
thereon; and (ii) easements, covenants, conditions, restrictions, and other
similar matters of record affecting title to such Leased Real Property that do
not or would not impair the use or occupancy of such Leased Real Property in the
operation of the Business by Seller as currently conducted thereon and as
contemplated to be conducted; and (e) licenses for Commercial Software.
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, any other business entity, or a
Governmental Authority.
"PHOENIX AZ FACILITY" means Seller's corporate headquarters located
in Phoenix Arizona.
"PHOENIX SHARES" means the Closing Phoenix Shares and the Additional
Phoenix Shares.
"PRO RATA SHARE" means with respect to each Stockholder, the
percentage set opposite such Stockholder's name on EXHIBIT L attached hereto
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Section
406 and Code Section 4975.
"REGISTRATION RIGHTS AGREEMENT" means Registration Rights Agreement
to be executed and delivered by Seller and Phoenix at the Closing, such
agreement to be in the form and substance of EXHIBIT M attached hereto.
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"REPRESENTATIVES" means, when used with respect to any Person, such
Person's attorneys, accountants and other advisors.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"SELLERS' AGENT" means the agent and attorney in fact for Seller and
Stockholders, who shall be Charles Stewart unless and until such agency is
changed by Seller and Stockholders upon written notice to the Buyer.
"SELLER DEBT" means all indebtedness of Seller on which interest
accrues (including both the current and long-term portions of any long-term
indebtedness), including the indebtedness owed by Seller to First National Bank
of Arizona ("FNBA"), as evidenced by a Promissory Note dated April 27, 2004
executed by Seller in favor of FNBA pursuant to a Business Loan Agreement dated
April 27, 2004 between Seller and FNBA and a $7,000,000 Promissory Note dated
April 27, 2004 evidencing borrowings pursuant to a $7,000,000 line of credit
provided to Seller by FNBA pursuant to a Business Loan Agreement dated April 27,
2004 between Seller and FNBA (the "FNBA LINE OF CREDIT"). Seller Debt does not
include any amounts due under any Capital Lease which is included in the
Assigned Contracts.
"SERMA MARKETING" means Serma Marketing Corporation, an Arizona
corporation which (a) is owned by some Stockholders and a third party Mexican
citizen and (b) provides general administrative services to Seller's operations
in Mexico.
"SUBSIDIARY" means, with respect to any Person, any corporation,
limited liability company, partnership, association, or other business entity of
which (a) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers, or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (b) if a limited
liability company, partnership, association, or other business entity (other
than a corporation), a majority of the partnership or other similar ownership
interests thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more Subsidiaries of that Person or a combination thereof
and for this purpose, a Person or Persons own a majority ownership interest in
such a business entity (other than a corporation) if such Person or Persons
shall be allocated a majority of such business entity's gains or losses or shall
be or control any managing director or general partner of such business entity
(other than a corporation). The term "Subsidiary" shall include all Subsidiaries
of such Subsidiary.
"TAX" or "TAXES" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, whether computed on a
separate or
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consolidated, unitary or combined basis or in any other manner, including any
interest, penalty, or addition thereto, whether disputed or not and including
any obligation to indemnify or otherwise assume or succeed to the Tax liability
of any other Person.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"WORKING CAPITAL" means the current assets of Seller (determined in
accordance with GAAP used in the Most Recent Financial Statements) included in
the Acquired Assets as of the Closing Date, minus the Accounts Payable and
Accrued Expenses included in the Assumed Liabilities as of the Closing Date,
minus all security deposits and other amounts and instruments deposited by or on
behalf of Seller under all Leases. For purposes of determining the amount of
Working Capital, the amount of the current assets and Accounts Payable and
Accrued Expenses shall be determined in the same manner as if they were being
reported in the Most Recent Balance Sheet in accordance with GAAP used therein.
"WRANGLER/RIDERS LICENSED MARKS" means Wrangler, 20X, Twenty X,
Rugged Wear, Wrangler Hero, Timber Creek, Wrangler Jeans Co., Riders, and
Outdoor Gear.
(b) Other defined terms used herein shall have the meaning set forth
in the Section as indicated below:
DEFINED TERM SECTION
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"ACCOUNTING FIRM" 2.06
"ACQUIRED ASSETS" 2.01(a)
"ADDITIONAL PHOENIX SHARES" 2.05(b)
"AGREEMENT" Preface
"ASSERTED LIABILITY" 9.04
"ASSIGNED CONTRACTS" 2.01(a)(v)
"ASSUMED LIABILITIES" 2.02(a)
"BUSINESS" Recital A
"BUYER" Preface
"BUYER GROUP" 5.06
"BUYER INDEMNITEES" 9.02
"CERCLA" 3.27(e)
"CLOSING" 2.07
"CLOSING DATE" 2.07
"CLOSING PHOENIX SHARES" 2.03(b)(iii)
"CLOSING WORKING CAPITAL" 2.04(a)
"CLOSING WORKING CAPITAL STATEMENT" 2.04(a)
"COMMERCE CITY PHASE I" 5.03(c)
"COMMERCIAL SOFTWARE" 3.13(f)
"CONTINGENT ADDITIONAL CONSIDERATION" 2.05(a)
"CONTINGENT ADDITIONAL CONSIDERATION STATEMENT" 2.05(c)
"ESTOPPEL CERTIFICATES" 5.03(b)
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"EXCLUDED ASSETS" 2.01(b)
"EXCLUDED CONTRACTS" 2.01(b)
"EXECUTION DATE" Preface
"EXISTING LIENS" 3.05(a)
"FINAL CLOSING WORKING CAPITAL" 2.04(b)
"FINAL WORKING CAPITAL STATEMENT" 2.04(b)
"FINANCIAL STATEMENTS" 3.07(a)
"FIRST CONTINGENT EARN-OUT PERIOD" 2.05(a)
"IMPROVEMENTS" 3.12(d)
"INDEMNIFIED PARTY" 9.04
"INDEMNIFYING PARTY" 9.04
"IP DOCUMENTS" 3.13(f)
"IP LICENSES" 3.13(e)
"IP LICENSORS" 5.02(a)
"LANDLORD CONSENTS" 5.03(b)
"MINIMUM HIRED EMPLOYEES" 5.05(b)
"NON-DISTURBANCE AGREEMENTS" 5.03(b)
"OTHER TAXES" 3.11(b)
"PARTIES" Preface
"PAY-OFF LETTER" 5.11
"PHOENIX" Recital D
"PHOENIX GUARANTY" Recital D
"PURCHASE PRICE" 2.03(a)
"REAL ESTATE IMPOSITIONS" 3.12(m)
"REAL PROPERTY LAWS" 3.12(f)
"REAL PROPERTY PERMITS" 3.12(H)
"REBATES" 8.01
"REVISED FISCAL 2005 BUDGET" 3.07(c)
"REVISED FISCAL 2005, 2006 AND 2007 BUDGETS" 3.07(c)
"SALES TAX COMPLIANCE CERTIFICATES" 5.13
"SEC DOCUMENTS" 4.04
"SECOND CONTINGENT EARN-OUT PERIOD" 2.05(a)
"SECTION 2.04 DISPUTE NOTICE" 2.04(b)
"SECTION 2.05 DISPUTE NOTICE" 2.05(d)
"SELLER" Preface
"SELLER INDEMNITEES" 9.03
"STOCKHOLDERS" Preface
"TRANSFERRED EMPLOYEES" 5.05(b)
"WARN ACT" 2.02(b)(vii)
SECTION 1.02 RULES OF CONSTRUCTION. Unless the context otherwise requires:
(a) A capitalized term has the meaning assigned to it in this
Agreement.
(b) An accounting term not otherwise defined herein has the meaning
assigned to it in accordance with GAAP as used in the Most Recent Financial
Statements.
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(c) "Including" means "without limitation," whether or not so
expressed.
(d) Words in the singular include the plural, and words in the
plural include the singular.
(e) "Herein", "hereof" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section or other
subdivision of this Agreement.
(f) Words in the masculine gender include the neuter and feminine
genders, words in the feminine gender include the neuter and masculine genders
and words in the neuter gender include the feminine and masculine genders.
(g) The Article and Section headings used or contained in this
Agreement are for convenience of reference only and shall not affect the
construction of this Agreement. References herein to Articles, Sections,
Schedules or Exhibits mean and refer to Articles and Sections of, and Schedules
and Exhibits to, this Agreement, unless otherwise specified.
ARTICLE II
BASIC TRANSACTION
SECTION 2.01 PURCHASE AND SALE OF ASSETS.
(a) Subject to the terms and conditions in this Agreement and in
reliance upon the representations, warranties, covenants and agreements of
Seller and Stockholders contained herein, at the Closing, Buyer shall purchase
from Seller, and Seller shall sell, assign, transfer, convey, and deliver to
Buyer, free and clear of all Liens (other than Permitted Liens), for the
consideration specified below in this Article II, all of Seller's right, title
and interest in and to all of its assets, properties, rights and interests of
Seller, wherever located, (including, for the avoidance of doubt, at the Phoenix
AZ Facility, the Commerce City Facilities, the Mexican Facilities, the sales
show room facilities leased by Seller, customer locations, in-transit or at
third party manufacturers), excluding, however, the Excluded Assets
(collectively, the "ACQUIRED ASSETS"). The Acquired Assets include, but are not
limited to, the following:
(i) all tangible personal property of Seller (other than
inventories of Seller as described in Section 2.01(a)(vi) below), including
fixtures, leasehold improvements, furniture, machinery, equipment, trailers,
pallets, tools, dies, molds, spare parts, vehicles (including cars, trucks,
tractors, trailers, lifts, vans and other transportation rolling stock), tools,
jigs, molds, dies, embossing equipment, "in-store" displays, trade show
displays, and similar fixtures, signage, computer hardware, computing and
telecommunication devices, including, without limitation, those listed or
described on SCHEDULE 2.01(a)(i) together with any express or implied warranty
by the manufacturer, seller or lessor of any such item or component part
thereof;
(ii) all Intellectual Property of Seller (excluding
non-transferable Commercial Software), including but not limited to all
Intellectual Property listed on SCHEDULE 3.13(a), SCHEDULE 3.13(b) and SCHEDULE
3.13(c), and all rights thereunder, remedies against
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infringements thereof, and rights to protection of interests therein under the
laws of all jurisdictions;
(iii) all tangible or physical materials embodying all
computer software, credit information, inventory, marketing, personnel,
financial, title and other documents, data and similar information and material,
however stored;
(iv) the Leases for the Leased Real Property, including those
listed on SCHEDULE 3.12(b), together with the right, title and interest of
Seller in and to all buildings, improvements, structures, facilities, fixtures
and all other appurtenances thereto;
(v) the Contracts listed in SCHEDULE 2.01(a)(v) and all of
Seller's purchase orders with vendors, suppliers and manufacturers and unfilled
and non-delinquent customer orders and all of Seller's rights thereunder
(collectively together with the Leases set forth in SCHEDULE 3.12(b), the
"ASSIGNED CONTRACTS");
(vi) all inventories, including all raw materials and
supplies, manufactured and purchased parts, packaging materials, goods
in-process and finished goods;
(vii) all customer and industry approvals and vendor
certifications, including those set forth on SCHEDULE 2.01(a)(vii);
(viii) all samples, prototypes, sample books, showroom
displays, , product literature, advertising materials, mockups, brochures,
catalogues, including those under developments;
(ix) all accounts, notes, other receivables and other rights
to payment of Seller (other than those included in the Excluded Assets) and the
full benefit of all security for such accounts, notes or other rights to payment
and any claim, remedy or other right related to any of the foregoing;
(x) all cash on hand, cash equivalents, investments (including
stock, debt instruments, options and other instruments and securities), bank
deposits, lock boxes and lock box receipts and all certificates of deposit and
other bank deposits owned or held by Seller;
(xi) all rights and claims in respect of third parties other
than those included in or relating solely to the Excluded Assets, including
without limitation, warranties, claims, rebates, deposits, prepayments, refunds,
causes of action, choses in action, rights of recovery, rights of set-off, and
rights of recoupment;
(xii) all insurance benefits, including rights of an insured
party in respect of any insurance claims arising from or relating to the
Acquired Assets;
(xiii) all Governmental Authorizations and all pending
applications therefor or renewals thereof, in each case to the extent
transferable to Buyer, including those listed in SCHEDULE 3.12(i);
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(xiv) all books, records, ledgers, files, documents,
correspondence, lists, specifications, studies, reports, production, licensing,
vendor, sourcing, supplier and manufacturer records, product files, technical
information, designs, drawings, product notebooks, confidential information,
price lists, business, operational and marketing plans and strategies, sales
records, product development techniques or plans, customer lists and files
(including customer credit and collection information), details of customer
relationships, operational methods, historical and financial records and files,
and other proprietary information, personnel and labor relations records,
environmental control, monitoring and test records, plant cost records,
maintenance records and all plans and designs of buildings, structures, fixtures
and equipment, including blueprints, building specifications and "as built"
plans, in all cases whether in written materials or stored on a computer system
or disk;
(xv) all noncompete agreements entered into by anyone with or
in favor of Seller; and
(xvi) all goodwill related to the conduct of the Business and
all rights to continue to use the Acquired Assets as an ongoing business.
Notwithstanding the foregoing, the transfer of the Acquired Assets
pursuant to this Agreement shall not include the assumption of any Liability
related to the Acquired Assets except for the Assumed Liabilities.
(b)The following assets, properties, rights and interests of Seller
(collectively, the "EXCLUDED ASSETS") are excluded from the Acquired Assets and
shall remain the property of Seller after the Closing: (i) Seller's corporate
charter, qualifications to conduct business as a foreign corporation,
arrangements with registered agents relating to foreign qualifications, taxpayer
and other identification numbers, seals, minute books, stock transfer books,
blank stock certificates, and other documents relating to the organization,
maintenance, and existence of Seller as a corporation; (ii) any assets relating
to Compensation and Benefit Plans; (iii) any items relating to the payment of
Taxes for periods prior to the Closing; (iv) any Contracts of Seller other than
the Assigned Contracts (the "EXCLUDED CONTRACTS"); (v) any of the rights of
Seller under this Agreement or any of the Ancillary Agreements; and (vi) any
items listed on SCHEDULE 2.01(b).
SECTION 2.02 ASSUMPTION OF CERTAIN LIABILITIES.
(a)Subject to the terms and conditions of this Agreement and in
reliance upon the representations, warranties, covenants and agreements of
Seller and Stockholders contained herein, at Closing, Buyer agrees to assume and
become responsible for the following (collectively, the "ASSUMED LIABILITIES"):
(i) Accounts Payable and Accrued Expenses of Seller to the
extent reflected in the Closing Working Capital Statement, as the same may be
adjusted in the Final Working Capital Statement, and specifically identified in
an exhibit thereto by name and amount; and
(ii) the obligations of Seller arising under the Assigned
Contracts that,
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by the terms of the Assigned Contracts, relate solely to periods following the
Closing or are to be observed, paid, discharged, or performed, as the case may
be, in each case at any time after the Closing Date, but in any event excluding
any Liabilities for any breach or default by Seller of or under any Assigned
Contract.
The assumption by Buyer of the Assumed Liabilities shall not in any
way expand the rights or remedies of any third party against Buyer or Seller as
compared to the rights and remedies which such third party would have had
against any such party had Buyer not assumed such liabilities. Without limiting
the generality of the foregoing, the assumption by Buyer of the Assumed
Liabilities shall not create any third party beneficiary rights in favor of any
third party. Seller shall pay and discharge, and Stockholders shall cause Seller
to pay and discharge, when due all of Seller's Liabilities that Buyer has not
specifically agreed to assume pursuant to this Section 2.02(a), provided that
Seller shall have the ability to contest, in good faith, any such claim of
Liability asserted by any Person other than (i) Buyer or Phoenix or (ii) any
Person who has an ongoing business relationship with Buyer after the Closing or
which could adversely affect the Business acquired by Buyer.
(b)Notwithstanding the forgoing or anything else to the contrary,
Assumed Liabilities shall not include:
(i) any Liability under the Assigned Contracts (A) that were
incurred on or prior to Closing or relate to periods on or prior to the Closing
except to the extent that any such Liability is for non-delinquent royalty
payments under the IP Licenses included in the Closing Working Capital
Statement, as adjusted by the Final Working Capital Statement or (B) relates to
any breach or claim of breach thereof by Seller of any Assigned Contracts;
(ii) any Liability (including any termination Liability) of
Seller with respect to any Excluded Contract;
(iii) any accounts payable or accrued expenses of Seller, to
the extent, if any, such accounts payable or accrued expenses of Seller are not
being assumed pursuant to Section 2.02(a)(i);
(iv) any Liability with respect product returns for product
sold prior to the Closing or for warranties for products manufactured, sold or
delivered by Seller prior to the Closing Date or in Seller's inventory on the
Closing Date, or to provide credits or price adjustments for products sold prior
to the Closing Date pursuant to any written instruments, understandings or
assurances by Seller of any kind, to the extent not reserved for in the Closing
Working Capital Statement, as adjusted in the Final Working Capital Statement;
(v) Seller Debt or any other indebtedness for borrowed money,
including any loans payable, letter of credit reimbursement obligations, or
bankers acceptances of Seller (excluding Capital Leases included in the Assigned
Contracts), all which shall be discharged at the Closing by the payment of a
portion of the Purchase Price due Seller hereunder at Closing;
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(vi) any and all governmental, judicial, or adversarial
proceedings (public or private), litigation, hearings, arbitrations, disputes or
investigations against or involving Seller, directly or indirectly;
(vii) any Liability to any former or current employee of
Seller, relating to, based upon or arising from or in connection with employment
with Seller for (A) service performed for Seller prior to the Closing Date,
including, without limitation, any claim or claims relative to, based upon or
arising from or in connection with the terms and conditions of employment
(except for the wages of any Transferred Employees for the last pay period
immediately prior to Closing to the extent accrued for in the Closing Working
Capital Statement, as adjusted by the Final Working Capital Statement) or the
termination of employment with Seller, including any Liability or obligation of
Seller imposed by the Worker Adjustment Retraining and Notification Act of 1988,
as amended, or any similar foreign, state or local law, regulation or ordinance
(collectively, the "WARN ACT") in connection with the notice or failure to
provide notice of a plant closing, mass layoff or termination of employees prior
to the Closing for which Buyer is not obligated to indemnify Seller under
Section 9.03(b) below, (B) any contracts of employment or collective bargaining
agreements between Seller and an employee or any union or representative
claiming to represent any employee of Seller, (C) any and all union or
collective bargaining contracts, agreements, or understandings to which Seller
is a signatory or to which Seller is claimed to be bound, (D) any and all
Liabilities that arise out of or relate to any Compensation and Benefit Plans
maintained by Seller or any union or other labor organization or ERISA
Affiliates, including, without limitation, any Liability arising from Seller's
under-funding or termination of any such plans or reduction of, termination or
failure to provide any other employment benefits of any kind or nature
whatsoever in connection with the consummation of the transactions contemplated
by this Agreement or otherwise or (E) any other Liability of any kind to any
former or current employee of Seller other than for which Buyer is not obligated
to indemnify Seller under Section 9.03(b) below;
(viii) any Liability of Seller for any infringement,
impairment, dilution, misappropriation or other violation or misuse of the
rights of any other Person relating to Intellectual Property;
(ix) any Liability resulting from product liability claims for
damages or injury to persons or property arising from the ownership, possession
or use of any product manufactured by or for Seller or sold by Seller before the
Closing Date;
(x) any Liability of Seller for Taxes, including any Liability
of Seller for income, transfer, sales, use, and other Taxes arising in
connection with the consummation of the transactions contemplated hereby
(including any income Taxes arising because Seller is transferring the Acquired
Assets) or any Liability of Seller for the unpaid Taxes of any Person under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise;
(xi) any Liability of Seller to indemnify any Person by reason
of the fact that such Person was a director, officer, employee, or agent of
Seller or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such
indemnification is for judgments, damages, penalties, fines, costs, amounts
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paid in settlement, losses, expenses or otherwise and whether such
indemnification is pursuant to any statute, charter document, bylaw, agreement
or otherwise);
(xii) any Liability of Seller arising from or under any
Environmental, Health and Safety Law, whether the claims with respect to such
Liability arise or accrue before, on or after the Closing;
(xiii) any Liability of Seller to any Stockholder or
Affiliate, except Accounts Payable and Accrued Expenses included in the Closing
Working Capital Statement, as adjusted by the Final Working Capital Statement,
for products sold or shipped to Seller by Chambers de Mexico or services
performed by Serma Marketing on or prior to the Closing Date;
(xiv) any Liability of Seller to any broker, finder or agent
for any brokerage fees, finder's fees or commissions with respect to the
transactions contemplated hereby;
(xv) any Liability of Seller for costs and expenses incurred
in connection with this Agreement or any of the Ancillary Agreements and the
transactions contemplated hereby and thereby except as otherwise provided
herein; and
(xvi) all other Liability of Seller relating to the Business
that arises as a result of any actions or events occurring before the Closing
Date other than the Assumed Liabilities.
The Parties hereto acknowledge that Buyer is not and will not be a
successor-in-interest to Seller.
SECTION 2.03 PURCHASE PRICE.
(a) The aggregate consideration payable to Seller for the Acquired
Assets (collectively, the "PURCHASE PRICE") shall be as follows: (i)
$21,500,000; (ii) the assumption of the Assumed Liabilities by Buyer at the
Closing; and (iii) the Contingent Additional Consideration as provided in
Section 2.05 below.
(b) At the Closing, Buyer shall pay the portion of the Purchase
Price provided for in Section 2.03(a)(i) by:
(i) paying off by wire transfer or delivery of other
immediately available funds, all Seller Debt,
(ii) paying by wire transfer or delivery of other immediately
available funds to an account designated by Seller's Agent at Closing an
aggregate amount equal to (A) $19,500,000, (B) minus the amount (if any) of
Seller Debt paid by Buyer, and (C) minus (or plus) the amount (if any) by which
the Closing Working Capital is less than (or greater than) the Minimum Target
Working Capital (as provided in Section 2.04(a)), but only if such deficit or
excess is greater than $350,000 and then only to the extent such deficit or
excess is greater than $350,000, and
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(iii) issuing and delivering to the Escrow Agent pursuant to
the Escrow Agreement the number of shares of Phoenix common stock (the "CLOSING
PHOENIX SHARES") equal to $2,000,000, divided by the average closing price per
share of Phoenix common stock on the American Stock Exchange over the twenty
(20) day trading period ending on the third to last day prior to the Closing
Date (rounded up to the next whole share). The Closing Phoenix Shares together
with all dividends thereon and other amounts distributed with respect thereto
held by the Escrow Agent shall be available as a non-exclusive source of
recovery for amounts owing to Buyer pursuant to this Agreement subject to the
limitations provided elsewhere in this Agreement.
(c) Real and personal property Taxes relating to the Acquired
Assets, utility charges, rentals and similar charges relating to the Business as
of the Closing Date and that cover or are attributable to periods that straddle
the Closing Date, including, but not limited to, any such charges that are
reflected on invoices received after the Closing Date and that were not reserved
for in the Closing Working Capital Statement, as adjusted by the Final Working
Capital Statement, shall be pro rated between the Parties on a per diem basis as
of the Closing Date, and the Parties shall make such payments to one another as
shall be appropriate to reflect such proration. In the event of any dispute
under this Section 2.03(c), Buyer or Seller's Agent may by notice to other
require such dispute to be resolved pursuant to Section 2.06 below.
SECTION 2.04 DELIVERY OF MINIMUM TARGET WORKING CAPITAL.
(a) Seller shall prepare, at its cost and expense, and deliver to
Buyer at Closing a certificate executed by an officer of Seller to which there
shall be attached a statement ("CLOSING WORKING CAPITAL STATEMENT"), in the form
of EXHIBIT K, setting forth the Working Capital (determined in accordance with
the terms of this Agreement) which will be acquired by Buyer from Seller on the
Closing Date (the "CLOSING WORKING CAPITAL"). Seller shall attach to the Closing
Working Capital Statement a list of Accounts Payable and Accrued Expenses and
accounts, notes and other receivables, in each case identifying each payable,
expense and account, note and other receivables and the amount thereof. Seller
shall afford Buyer the opportunity to observe the test counts of the physical
inventory taken in connection with the preparation of the Closing Working
Capital Statement prior to the Closing Date. If the Closing Working Capital is
less than the Minimum Target Working Capital, then Buyer shall receive a credit
against the cash portion of the Purchase Price due at Closing equal to the
difference between the Minimum Target Working Capital and the Closing Working
Capital. If the Closing Working Capital is greater than the Minimum Target
Working Capital, then Buyer shall pay Seller at Closing an amount equal to the
difference between the Closing Working Capital and the Minimum Target Working
Capital. Notwithstanding the foregoing, there shall be no credits or payments
due under this Section 2.04(a) unless such deficit or excess is greater than
$350,000 and then only to the extent such deficit or excess is greater than
$350,000.
(b) Buyer and its accountants shall have sixty (60) days after the
delivery of Closing Working Capital Statement to review Closing Working Capital
Statement. If Buyer determines that the Closing Working Capital has not been
properly determined in accordance with the terms of this Agreement, Buyer shall
inform Seller's Agent in writing (a "SECTION 2.04 DISPUTE NOTICE"), setting
forth reasons therefor and the adjustments to the amount of Closing
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Working Capital which Buyer believes should be made thereto. The Section 2.04
Dispute Notice must be delivered to Seller on or before the last day of such
sixty (60) day period. Seller's Agent shall have thirty (30) days after delivery
of the Section 2.04 Dispute Notice to review and respond thereto. In reviewing
any Section 2.04 Dispute Notice, Seller's Agent and his Representatives shall
have access to the work papers of Buyer and its accountants. Seller's Agent and
Buyer shall attempt in good faith to reach an agreement with respect to any
matters in dispute. If such Parties are unable to resolve their disagreements
with respect to the determination of the foregoing items within thirty (30) days
following the delivery of Seller's Agent response to the Section 2.04 Dispute
Notice to Buyer, their remaining differences shall be determined in accordance
with Section 2.06 below. The "FINAL WORKING CAPITAL STATEMENT" shall be (i) the
Closing Working Capital Statement if no Section 2.04 Dispute Notice is delivered
by Buyer during the sixty (60) day period specified above, (ii) the Closing
Working Capital Statement, as adjusted in accordance with the Section 2.04
Dispute Notice if Seller has not responded to such Section 2.04 Dispute Notice
during the thirty (30) day period specified above, or (iii), the Closing Working
Capital Statement, as adjusted by either (A) the written agreement of Seller and
Buyer or (B) the Accounting Firm pursuant to Section 2.06 below, if a Section
2.04 Dispute Notice is delivered by Buyer and Seller's Agent responds within the
thirty (30) day period specified above. The amount of the Closing Working
Capital set forth on the Final Working Capital Statement is hereinafter referred
to as the "FINAL CLOSING WORKING CAPITAL" and shall be final, binding and
conclusive on the Parties.
(c) If the Final Closing Working Capital is less than the Minimum
Target Working Capital, then, within fifteen (15) days following the Final
Working Capital Statement becoming final, binding and conclusive on the Parties,
Seller and Stockholders, jointly and severally, agree to make a payment in
immediately available funds to Buyer equal to the difference between the Minimum
Target Working Capital and the Final Closing Working Capital less the credit, if
any, received by Buyer at the Closing pursuant to Section 2.04(a) based on the
Closing Working Capital Statement. If the Final Closing Working Capital is
greater than the Minimum Target Working Capital, then, within fifteen (15) days
following the determination of the Final Working Capital Statement, Buyer agrees
to make a payment in immediately available funds to Seller equal to the
difference between the Final Closing Working Capital and the Minimum Target
Working Capital less the amount, if any, received by Seller at the Closing
pursuant to Section 2.04(a) based on the Closing Working Capital Statement. Any
payments made pursuant to this Section 2.04(c) shall be accompanied by an
interest payment on the amount being paid from the date of Closing to the date
of payment, at the Applicable Rate. Notwithstanding the foregoing, there shall
be no payments due under this Section 2.04(c) unless such deficit or excess is
greater than $350,000 and then only to the extent such deficit or excess is
greater than $350,000.
SECTION 2.05 CONTINGENT ADDITIONAL CONSIDERATION.
(a) As part of the Purchase Price, Buyer shall pay or cause to be
paid to Seller (i) fifty percent (50%) of the Net Contribution of the Business
for the first full twelve (12) month period after the Closing Date (the "FIRST
CONTINGENT EARN-OUT PERIOD") if the Net Contribution of the Business for the
First Contingent Earn-Out Period is at least $5,000,000 and (ii) fifty percent
(50%) of the Net Contribution of the Business for the first full twelve (12)
month period after the end of the First Contingent Earn-Out Period (the "SECOND
CONTINGENT EARN-OUT
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PERIOD") if the Net Contribution of the Business is at least $6,000,000 for the
Second Contingent Earn-Out Period. The Net Contribution for each such period
shall be determined independent of the Net Contribution for the other period.
The First Contingent Earn-Out Period shall commence on the first day of the
first month that immediately follows the Closing Date. The amounts payable to
Seller under this Section 2.05, if any, are referred to herein as "CONTINGENT
ADDITIONAL CONSIDERATION".
(b) Subject to Buyer's right of set off as provided in Section 9.08,
Buyer shall pay or cause to be paid any Contingent Additional Consideration that
may be due hereunder, which, at the election of Buyer in its sole discretion,
shall be either (i) by wire transfer of immediately available funds to an
account specified to Buyer by Seller's Agent or (ii) 50% by wire transfer of
immediately available funds to an account specified to Buyer by Seller's Agent
and the balance by causing Phoenix to deliver the number of shares of Phoenix
common stock (the "ADDITIONAL PHOENIX SHARES") equal to 50% of the Contingent
Additional Consideration that is so due, divided by the average closing price
per share of the Phoenix common stock on the American Stock Exchange over the
ten (10) day trading period ending on the third to last trading day prior to the
date on which such payment is made (rounded up to next whole share). The
Additional Phoenix Shares shall be unregistered and subject to Seller's written
confirmation to Buyer that the representations in Section 3.31 below continue to
be true, accurate and correct in all respects.
(c) Within sixty (60) days of the end of the First Contingent
Earn-Out Period and the Second Contingent Earn-Out Period under Section 2.05(a),
Buyer shall deliver to Seller's Agent a statement in the form of EXHIBIT H
attached hereto (the "CONTINGENT ADDITIONAL CONSIDERATION STATEMENT") setting
forth the computation of the applicable Contingent Additional Consideration for
each such period, together with the financial information used in making such
computations.
(d) Buyer's computation of any Contingent Additional Consideration
payment under this Section 2.05 shall be final, conclusive and binding upon the
Parties unless, within sixty (60) days following receipt by Seller's Agent of
the Contingent Additional Consideration Statement, Seller's Agent determines
that Buyer has not properly determined the Contingent Additional Consideration
in accordance with the terms of this Agreement and so notifies Buyer in writing
(the "SECTION 2.05 DISPUTE NOTICE") setting forth the reasons therefor and the
adjustments to the Contingent Additional Consideration which Seller believes
should be made. During the sixty (60) day period set forth above, upon
reasonable advance written request by Seller's Agent, Seller's Agent shall be
given reasonable access to Buyer's books and records to the extent necessary to
enable Seller to verify the information and computations in the Contingent
Additional Consideration Statement. Seller's Agent and Buyer shall attempt in
good faith to reach agreement with respect to any manner in dispute during the
thirty (30) days following delivery of the Section 2.05 Dispute Notice. Unless
within thirty (30) days following Buyer's receipt of the Section 2.05 Dispute
Notice, Buyer notifies Seller's Agent in writing that it agrees with the
computations of Seller's Agent therein, Buyer and Seller's Agent shall follow
the dispute resolution mechanism set forth in Section 2.06 below.
(e) Payments by Buyer to Seller of Contingent Additional
Consideration that may be due under this Section 2.05 shall be made on or before
the fifteenth (15th) business day
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after the amount, if any, of the Contingent Additional Consideration which is
due has become final, conclusive and binding on the Parties in accordance with
the terms of this Agreement and shall be subject to Phoenix's receipt of a
written confirmation from Seller that the representations and warranties in
Section 3.31 continue to be true, accurate and correct in all respects.
SECTION 2.06 WORKING CAPITAL AND CONTINGENT ADDITIONAL CONSIDERATION
DISPUTES. In the event that a dispute as to the determination of the Closing
Working Capital, the amount of Contingent Additional Consideration or the
Closing pro rations in accordance with Section 2.03(c) is to be determined
pursuant to this Section 2.06, then Seller's Agent and Buyer shall request a
national or regional firm of independent certified public accountants mutually
agreeable to Buyer and Seller's Agent to determine the dispute, as promptly as
possible, which computation shall be final, conclusive and binding upon the
Parties. In the event that Buyer and Seller's Agent cannot agree on such a
national or regionally recognized firm of independent certified public
accountant, the names of the national or regionally recognized accounting firms,
exclusive of any such firm which is rendering or has in the past two (2) years
rendered services to Buyer or Seller, Stockholders or their Affiliates, shall be
selected by lottery until one such firm is willing to compute the disputed
payments for purposes of this Agreement. The accounting firm which is eventually
selected in accordance with the foregoing procedures (the "ACCOUNTING FIRM")
shall determine the dispute in accordance with the terms of this Agreement and
only with respect to any remaining differences so submitted. Seller's Agent and
Buyer shall direct the Accounting Firm to use its best efforts to render its
determination within thirty (30) days after such submission. The Accounting
Firm's determination shall be conclusive and binding upon the Parties hereto.
The expenses of the Accounting Firm shall be paid one-half by Buyer, on the one
hand, and one-half by Seller and Stockholders, jointly and severally, on the
other hand. Buyer and Seller shall make readily available to the Accounting Firm
all relevant books and records and any work papers (including those of the
parties' respective accountants) relating to the Closing Working Capital
Statement or the Contingent Additional Consideration Statement, as applicable,
and all other items reasonably requested by the Accounting Firm.
SECTION 2.07 CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the law offices of Osborn Maledon,
P.A. at 10:00 a.m. local time on the third day (excluding federal holidays)
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Parties may mutually determine. The
date of the Closing is referred to as the "CLOSING DATE." All events occurring
at the Closing shall be deemed to occur simultaneously.
SECTION 2.08 DELIVERIES AT CLOSING. At the Closing, the Parties shall make
the following deliveries:
(a) Seller will deliver or cause to be delivered to Buyer;
(i) the Bill of Sale, the Assignment and Assumption of
Contracts, the Assignment and Assumption of Leases and the Assignment of
Intellectual Property and such other instruments of sale, transfer, conveyance,
and assignment as Buyer and its counsel may reasonably request, in each case
duly executed by Seller;
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(ii) the Escrow Agreement, duly executed by Seller;
(iii) a certificate duly signed by an officer of Seller with
the Closing Working Capital Statement attached thereto;
(iv) the consents, documents, certificates, opinion letter and
other items specified in Section 6.01 below;
(v) copies of the articles of incorporation of Seller,
certified on or soon before the Closing Date by the Arizona Corporation
Commission and copies of the certificate of good standing of Seller issued on or
soon before the Closing Date by the Secretary of State (or comparable officer)
of each jurisdiction in which Seller is qualified to do business; and
(vi) a certificate of the secretary of Seller, dated the
Closing Date, in form and substance reasonably satisfactory to Buyer, as to: (A)
no amendments to the articles of incorporation of Seller since the date
specified above; (B) the bylaws of Seller; (C) the resolutions of the board of
directors and stockholders of Seller authorizing the execution, delivery, and
performance of this Agreement and the Ancillary Agreements to which Seller will
be a party and the transactions contemplated hereby and thereby; and (D)
incumbency and signatures of the officers of Seller executing this Agreement or
any Ancillary Agreement to which Seller will be a party.
(b) Buyer will deliver:
(i) to Seller and the holders of Seller Debt, the cash portion
of the Purchase Price as provided in Section 2.03(b) and to Stockholders
entering into Non-Competition Agreements the first quarterly cash payments
required thereunder;
(ii) to Seller or Stockholders, as appropriate, each of the
Ancillary Agreements, each duly executed by Buyer;
(iii) to Seller and Stockholders a copy of the certificate of
incorporation of Buyer, certified on or soon before the Closing Date by the
Secretary of State of Delaware and copies of the certificate of good standing of
Buyer issued on or soon before the Closing Date by the Secretary of State (or
comparable officer) of each jurisdiction in which Buyer is qualified to do
business;
(iv) to Seller and Stockholders the documents, certificates,
opinion letter and other items specified in Section 6.02 below; and
(v) to Seller and Stockholders a certificate of the secretary
of Buyer dated the Closing Date, in form and substance reasonably satisfactory
to Buyer, as to: (A) no amendments to the certificate of incorporation of Buyer
since the date specified above; (B) the bylaws of Buyer; (C) the resolutions of
the board of directors of Buyer authorizing the execution, delivery, and
performance of this Agreement and the Ancillary Agreements to which it will be a
party and the transactions contemplated hereby and thereby; and (D) incumbency
and signatures
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of the officers of Buyer executing this Agreement or any Ancillary Agreement to
which Buyer will be a party.
(c) Buyer shall cause Phoenix to deliver:
(i) to Escrow Agent a share certificate, duly executed by
officers of Phoenix, representing the Closing Phoenix Shares which shall contain
the restrictive legends specified in Section 8.08(b);
(ii) to Seller, the Registration Rights Agreement, duly
executed by Phoenix;
(iii) to Seller and Stockholders a copy of the certificate of
incorporation of Phoenix, certified on or soon before the Closing Date by the
Secretary of State of Delaware;
(iv) to Seller a certificate of the secretary or an assistant
secretary of Phoenix dated the Closing Date, in form and substance reasonably
satisfactory to Seller, as to: (A) no amendments to the certificate of
incorporation of Phoenix since the date specified above; (B) the bylaws of
Phoenix; (C) the resolutions of the board of directors of Phoenix authorizing
the issuance of the Phoenix Shares and authorizing the execution, delivery, and
performance of the Phoenix Guaranty and the Ancillary Agreements to which it
will be a party and the transactions contemplated hereby and thereby; and (D)
incumbency and signatures of the officers of Phoenix executing the Registration
Rights Agreement and the Phoenix Guaranty; and
(v) to Charles Stewart, Kelly Green and Dave Matheson the
Stock Option Agreements provided for in their respective Employment Agreements.
(d) Charles Stewart, Kelly Green and Dave Matheson shall each
execute and deliver to Buyer an Employment Agreement and Charles Stewart, Kelly
Green, Dave Matheson and Gary Edman shall each execute and deliver to Buyer and
Phoenix a Non-Competition Agreement.
(e) At the Closing, Seller will deliver to Buyer physical possession
of or control over the Acquired Assets. The Parties agree that the transfer and
delivery of title to any of the Acquired Assets presently located in Mexico may
occur, to the extent permitted by applicable law, either in the United States or
in Mexico. In addition, on the Closing Date, Seller will prepare and mail such
notices to any third party under each of the Assigned Contracts assigned by
Seller and assumed by Buyer as are necessary or may be reasonably requested by
Buyer advising such third party or parties that such agreements have been
assigned and directing such party or parties to send to Buyer all future
notices, correspondence and payments relating to such agreements. Seller will
promptly forward to Buyer all correspondence received by Seller after the
Closing Date that relates to the Acquired Assets, the Assumed Liabilities or the
Business (excluding any items relating to the Excluded Assets or the Excluded
Contracts).
SECTION 2.09 ALLOCATION. Buyer shall prepare an allocation of the Purchase
Price (and all other capitalized costs) among the Acquired Assets in accordance
with Code Section 1060 and the Treasury regulations thereunder (and any similar
provision of state, local or foreign law, as
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appropriate), which allocation shall be binding upon Buyer and Seller. Buyer
shall not allocate more than $1,000,000 to property, plant and equipment in such
allocation. Buyer shall deliver such allocation to Seller's Agent within sixty
(60) days after the Closing Date. Buyer and Seller shall report, act and file
Tax Returns (including, but not limited to, Internal Revenue Service Form 8594)
in all respects and for all purposes consistent with such allocation prepared by
Buyer. Seller shall timely and properly prepare, execute, file and deliver all
such documents, forms and other information as Buyer may reasonably request to
prepare such allocation. Neither Buyer nor Seller shall take any position
(whether in audits, tax returns or otherwise) that is inconsistent with such
allocation unless required to do so by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
BY SELLER AND STOCKHOLDERS
Each Stockholder represents and warrants solely with respect to
himself or herself that he or she has the authority and capacity to execute,
deliver and perform this Agreement and the Ancillary Agreements to which he or
she will become a party, that his or her execution and delivery of this
Agreement and the Ancillary Agreements to which he or she will become a party
and his or her performance thereunder will not violate, conflict with or breach
any other agreement or instrument to which he or she is a party or give rise to
any Lien or claim with respect to the shares of Class A common stock of Seller
held by him or her. Each Stockholder further represents and warrants to Buyer
that he or she owns the shares of Seller's Class A common stock, free and clear
of all Liens, set forth on SCHEDULE 3.01(b) opposite his or her respective name,
and has the full right and authority to vote the shares with respect to all
matters, including the approval of the transactions contemplated hereunder, and
he or she has done so.
Seller represents and warrants to Buyer that the statements
contained in this Article III are correct and complete as of the date of this
Agreement and will be true, correct and complete in all material respects
(except to the extent that such representations and warranties are qualified by
the terms "material", "Material Adverse Effect" or "Material Adverse Change", in
which case such representations and warranties (as so written, including the
term "material", "Material Adverse Effect" or "Material Adverse Change") shall
be true, correct and complete in all respects) as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article III).
SECTION 3.01 ORGANIZATION AND AUTHORITY OF SELLER.
(a) Seller is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Arizona. Seller is duly authorized
to conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Seller has all power and authority and all
licenses, permits, and authorizations necessary to carry on the Business as it
currently exist and in which it is proposed to be carried on and to own and use
the Acquired Assets. Seller does not conduct the Business in any jurisdiction
where it must qualify to do business other than its jurisdiction of formation
and the jurisdictions set forth on SCHEDULE 3.01(a).
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(b) Seller has delivered to Buyer correct and complete copies of the
articles of incorporation and bylaws of Seller and all minutes of Seller's Board
of Directors and stockholders. The duly elected officers and directors of Seller
are set forth on SCHEDULE 3.01(b). Stockholders are the sole record and
beneficial holders of all the issued and outstanding capital stock of Seller set
forth on SCHEDULE 3.01(b), free and clear of all Liens, and Seller has no other
outstanding capital stock of any kind. There are no subscriptions, options,
warrants, calls, contracts, demands, commitments, convertible securities,
shareholders, employment, stock option, buy-sell or other disposition of any
shares of capital stock of Seller or any securities convertible into, or other
rights to acquire, any shares of capital stock of Seller or relate to the voting
or control of such capital stock, securities or rights (other than the
shareholders agreement of Seller dated June 30, 1999, a true and complete copy
of which Seller has delivered to Buyer).
SECTION 3.02 AUTHORIZATION OF TRANSACTION. Seller has full corporate power
and authority to execute and deliver this Agreement and the Ancillary Agreements
to which it will be a party and to perform its obligations hereunder and
thereunder. Without limiting the generality of the foregoing, Seller's board of
directors and stockholders have duly authorized the execution, delivery, and
performance of this Agreement and the Ancillary Agreements by Seller. This
Agreement and, when executed and delivered by Seller or the Stockholder, the
Ancillary Agreements to which it is a party, and, assuming the due execution and
delivery by the other parties hereto and thereto, constitute or will constitute,
the valid and legally binding obligation of Seller and Stockholders, enforceable
in accordance with its terms and conditions.
SECTION 3.03 NON-CONTRAVENTION.
(a) Neither the execution and delivery of this Agreement nor the
Ancillary Documents, nor the consummation of the transactions contemplated
hereby nor thereby (including the assignments and assumptions referred to in
Article II above), will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
Governmental Authority (including any court) to which Seller is subject or any
provision of the articles of incorporation or bylaws of Seller or (ii) except as
set forth in SCHEDULE 3.03(a), conflict with, result in a breach of, constitute
a default under, result in the acceleration of or adverse consequences
(including any increase in rentals, royalties or license or other fees), create
in any party the right to accelerate, terminate, modify, impose adverse
consequences (including any increase in rentals, royalties or license or other
fees) or cancel, or require any notice under any Contract to which Seller is a
party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Lien upon any of its assets).
(b) Except as set forth in SCHEDULE 3.03(b), Seller need not give
any notice to, make any filing with, or obtain any Governmental Authorizations
in order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in Article II
above).
SECTION 3.04 BROKERS' FEES. Seller has no Liability to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement and the Ancillary Agreements for which Buyer
could become liable or obligated.
SECTION 3.05 ASSETS.
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(a) Seller owns outright and has good and marketable title to, or a
valid leasehold interest in, all of the Acquired Assets, free and clear of any
Liens or restriction on transfer other than as set forth in SCHEDULE 3.05(a)
(the "EXISTING LIENS"). Seller has the complete and unrestricted power and
unqualified right to sell, assign, transfer and deliver the Acquired Assets to
Buyer at Closing without penalty or adverse consequences. Following the transfer
of the Acquired Assets as contemplated by Article II, Buyer will own, with good
and marketable title, the Acquired Assets, free and clear of all Liens (other
than Permitted Liens) without incurring any penalty or adverse consequences,
including any increase in rentals, royalties or license or other fees imposed as
a result of, or arising from, the consummation of the transactions contemplated
hereunder. The Acquired Assets (together with the New Maquila Contract)
constitute all of the assets, properties, permits, rights, agreements and other
Contract rights and interests which are necessary to enable Buyer after the
Closing to operate the Business in a manner consistent with the manner in which
such Business is currently being operated by Seller and as contemplated to be
conducted.
(b) The schedule of booked and confirmed orders from customers of
Seller attached as SCHEDULE 3.05(b), which Schedule shall be updated two (2)
business days prior to the Closing Date, is true and correct and such orders
represent bona fide third party arms' length transactions. Seller is not a party
to any blanket orders or long-term requirements or supply Contracts (i.e., in
excess of one hundred eighty (180) days) and does not have any Contracts with
customers for whom it provides private label manufacturing capabilities and
sales other than purchase orders. Seller has not granted to any customer
(whether under oral or written agreement or understanding or custom or practice)
barter credits or other adjustments enabling any customer to pay Seller
consideration other than cash on standard 30-90 day terms for products ordered.
Seller has not granted to any supplier or vendor any exclusive supply
relationship or Contract with respect to any products of Seller.
SECTION 3.06 NO SUBSIDIARIES. In February, 2002, Seller's former
subsidiary, Prestige Leather, Inc., effectively revoked its dissolution
proceeding under the laws of the State of Arizona and merged under the laws of
the State of Arizona with and into Seller and Seller succeeded to all of
Prestige Leather Inc.'s assets and liabilities. Since February 14, 2002, Seller
has not had and it does not have any Subsidiaries and does not own or have any
right to acquire, directly or indirectly, any outstanding capital stock of, or
other equity interests in, any Person.
SECTION 3.07 FINANCIAL INFORMATION.
(a) Seller has made available to Seller true, correct and complete
copies of the following financial statements of Seller (collectively the
"FINANCIAL STATEMENTS"): audited balance sheet as of December 31, 2001, December
31, 2002, December 31, 2003 and December 31, 2004 and the related statements of
earnings, stockholders' equity, and cash flows as of and for the fiscal years
then ended together with the reports thereon of each of KPMG, Inc. and Clifton
Gunderson, LLP, respectively, on such balance sheet and statements. The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP consistently applied throughout the periods covered
thereby, present fairly the financial position of Seller as of such dates and
the results of operations and cash flows of Seller for such periods, are correct
and complete, and are consistent with the books and records of Seller (which
books and records are
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correct and complete). Seller is not considering any amendment or restatement of
its Financial Statements. Since December 31, 2003, there has been no change in
any accounting principles, policies, methods of application thereof by Seller
(including any reserving and depreciation methodologies, practices and
policies). The Most Recent Financial Statements use the same accounting
principles, policies, and methods of application thereof as did the last draft
of the unaudited balance sheet as of December 31, 2004 and the related
statements of earnings, stockholders' equity, and cash flows for the fiscal year
then ended delivered to Buyer prior to the date hereof. Since the Most Recent
Balance Sheet Date, Seller has not released any material non-cash reserves.
(b) The books of account and other financial records of Seller, all
of which have been made available to Buyer, are complete and correct and
represent actual, bona fide transactions and reflect all income, expenses,
assets and liabilities of Seller. Seller maintains internal accounting controls
which provide reasonable assurances that: (i) transactions are executed in
accordance with the general or specific authorization of the respective boards
of directors and executive officers of Seller, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with GAAP
and to maintain accountability for assets (C) access to its assets is permitted
only in accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at reasonable
intervals.
(c) Seller's revised budgets for the fiscal years ending December
31, 2005 (the "REVISED FISCAL 2005 BUDGET"), December 31, 2006 and December 31,
2007 (collectively, the "REVISED FISCAL 2005, 2006 AND 2007 BUDGETS") are
attached as SCHEDULE 3.07. The Revised Fiscal 2005, 2006 and 2007 Budgets were
prepare in good faith by Seller and are based on reasonable assumptions. To
Seller's Knowledge, there are no facts or circumstances that could reasonably be
expected to result in an inability of Buyer to achieve the financial projections
contained in the Revised Fiscal 2005, 2006 and 2007 Budgets (other than matters
of a general economic or political nature with do not affect Seller uniquely).
Notwithstanding the foregoing, Seller does not guarantee the performance or
results (financial or otherwise) of the Business following the Closing.
SECTION 3.08 EVENTS SUBSEQUENT TO MOST RECENT BALANCE SHEET DATE. Since
the Most Recent Balance Sheet Date, there has not been any Material Adverse
Change and Seller has no Knowledge of any Basis that could result in a Material
Adverse Change, nor has there been any damage, destruction or loss materially
affecting the assets, properties, business or condition of Seller used in
connection with the conduct of the Business, whether or not covered by
insurance. Without limiting the generality of the foregoing, since that date
Seller has not:
(i) modified, changed or otherwise altered the fundamental
nature of the Business;
(ii) made any material change in any respect of Seller's
policies or practices with respect to the Business, including advertising,
marketing, taking customer orders, pricing, purchasing, personal, sales,
returns, or budget or production policies,
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(iii) sold, leased, transferred or assigned any of its assets,
tangible or intangible, other than the sale of inventory in the Ordinary Course
of Business through regular trade channels and sales of receivables to CIT under
the CIT Factoring Agreements and the disposition of equipment that is obsolete
or no longer useful in the Business for fair consideration;
(iv) other than accepting customer orders and issuing purchase
orders in the Ordinary Course of Business, entered into any Contract (or series
of Contracts) involving payments of more than $25,000 after the
date hereof;
(v) accelerated, terminated, cancelled, permitted to expire,
modified or amended any Contract (or series of related Contracts) involving
payments of more than $25,000 after the date hereof;
(vi) imposed or permitted to exist any Lien upon any of its
assets, tangible or intangible other than the Existing Liens;
(vii) made any capital expenditure (or series of related
capital expenditures) not contemplated by the Revised Fiscal 2005 Budget;
(viii) made any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other Person (or series of
related capital investments, loans, and acquisitions) other than capital
expenditures for equipment contemplated by the Revised Fiscal 2005 Budget;
(ix) collected its accounts and notes receivable and other
payment rights from customers other than in the Ordinary Course of Business;
(x) incurred any debt or issued any note, bond, or other debt
security or created, incurred assumed, or guaranteed any indebtedness or Capital
Lease obligations except for advances under the FNBA Line of Credit in the
Ordinary Course of Business and Accounts Payable and Accrued Expenses;
(xi) cancelled compromised, waived, or released any right or
claim (or series of related rights and claims) involving more than $25,000;
(xii) transferred, assigned, or granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
(xiii) declared, set aside, or paid any dividend or made any
distribution with respect to its capital stock (whether in cash or in kind) or
redeemed, purchased, or otherwise acquired any of its capital stock, except for
dividends and distributions contemplated by the Revised Fiscal 2005 Budget;
(xiv) made any changes in the terms of employment of any
Person or terms of engagement of any sales representative, including granting
any increase in the
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compensation of any Person outside the Ordinary Course of Business, or adopted
amended, modified or terminated any Compensation and Benefits Plan;
(xv) made or pledged to make any charitable or other capital
contribution outside the Ordinary Course of Business;
(xvi) paid or discharged any Liability other than Accounts
Payable and Accrued Expenses and Seller Debt in the Ordinary Course of Business;
(xvii) made any loans or advances of money to any Person
outside the Ordinary Course of Business;
(xviii) made any change in any method of accounting or
auditing practice;
(xix) intentionally disclosed any Confidential Information or
(xx) committed to any of the foregoing.
SECTION 3.09 UNDISCLOSED LIABILITIES. Seller does not have any Liability
(and there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability), except for (a) Liabilities set forth on the face
of the Most Recent Balance Sheet, (b) Liabilities that have arisen after Most
Recent Balance Sheet Date in the Ordinary Course of Business (none of that
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law) and (c) Liabilities under the Contracts disclosed in SCHEDULE 3.17.
SECTION 3.10 LEGAL COMPLIANCE. Seller has complied with all applicable
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder of all Governmental Authorities
(and all agencies thereof), including the immigration, anti-competitive
practices, advertising and labeling rules, customs, tariff and importation
rules, registration of trade names used in textile and apparel merchandising,
the Flammable Fabrics Act, the Fair Packaging and Labeling Act, the
Magnuson-Moss Warranty Act, the Consumer Product Safety Act, the Textile Fiber
Products Identification Act, the Fur Products Labeling Act, the Wool Products
Labeling Act, and the Federal Trade Commission's Care Labeling Rule, and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been delivered to Seller or filed or commenced against it
alleging any failure so to comply. Seller has all Governmental Authority
licenses and permits necessary for the conduct of its Business, all of which are
in full force and effect and listed on SCHEDULE 3.10.
SECTION 3.11 TAX MATTERS.
(a) Income Taxes.
(i) Seller is an S corporation as defined in Code Section
1361, and Seller is not and has not been subject to either the built-in-gains
tax under Code Section 1374 or the passive income tax under Code Section 1375.
Seller has been treated as a pass-through entity
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for federal income Tax purposes and for purposes of all applicable state and
local income Taxes for all times and therefore has not had and will not have any
Liability for any income Taxes.
(ii) None of the Acquired Assets constitutes "tax exempt use
property" within the meaning of Section 168(h)(1) of the Code.
(iii) None of the Acquired Assets is property required to be
treated as being owned by another person pursuant to the provisions of Section
168(f)(8) of Internal Revenue Code of 1954, as amended and in effect immediately
prior to the enactment of the Tax Reform Act of 1986.
(b) Other Taxes. With respect to all Taxes other than income taxes
("OTHER TAXES"):
(i) Seller has timely filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in all respects
and were prepared in compliance with all applicable Legal Requirements. All
Taxes owed by Seller (whether or not shown or required to be shown on any Tax
Return) have been paid. Except for an extension filed by Seller with the
Internal Revenue Service for its federal tax returns which were required to be
filed on March 15, 2005, Seller is not the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an authority
in a jurisdiction where Seller does not file Tax Returns that Seller is or may
be subject to taxation by that jurisdiction. There are no Liens on any of the
assets of Seller that arose in connection with any failure (or alleged failure)
to pay any Tax.
(ii) Seller has 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 other third party,
and all Forms W-2 and 1099 required with respect thereto have been properly
completed and timely filed.
(iii) To Seller's Knowledge, there is no Basis for any
authority to assess any additional Taxes for any period for which Tax Returns
have been filed. There is no dispute or claim concerning any Tax Liability of
Seller either (i) claimed or raised by any authority in writing or (ii) as to
which any of Stockholders and the directors and officers (and employees
responsible for Tax matters) of Seller has Knowledge based upon personal contact
with any agent of such authority.
(iv) SCHEDULE 3.11 lists all federal, state, local, and
foreign income Tax Returns filed with respect to Seller for taxable periods
ended on or after January 1, 2002, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
audit. Seller has delivered to Buyer correct and complete copies of all income
Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by Seller January 1, 2002. No audit or other proceeding by
any Governmental Authority is pending or, to the Knowledge of Seller, threatened
with respect to any Other Taxes due from or with respect to Seller, or any Tax
Return of Seller.
(v) No Governmental Authority has given notice of any
intention to
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assert any deficiency or claim for additional Other Taxes against Seller, and no
claim in writing has been made by any Governmental Authority in a jurisdiction
where Seller does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction, and all deficiencies for Other Taxes asserted or assessed
against Seller have been fully and timely paid, settled or properly reflected in
the Financial Statements.
(vi) Seller has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(vii) Seller is not a party to any Tax allocation or sharing
agreement. Seller (i) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return and (ii) has no Liability for the Taxes
of any Person under Reg. Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.
(viii) There are no Other Tax deficiencies or claims
(including penalties and interest) of any kind asserted, assessed or to Seller's
Knowledge, that could be asserted or assessed against or relating to Seller with
respect to any taxable periods ending on or before, or including, the Closing
Date of a character or nature that would result in any Lien on any of the
Acquired Assets or on Buyer's right, title or use of the Acquired Assets or that
would result in any claim against Buyer.
SECTION 3.12 LEASED REAL PROPERTY.
(a) Seller does not own any real property of any kind and Seller
is not a party to any agreement or option to purchase any real property or
interest therein.
(b) SCHEDULE 3.12(b) sets forth the address of each parcel of
Leased Real Property, and a true and complete list of all Leases for each such
Leased Real Property (including the date and name of the parties to such Lease
document and a list of each amendment thereto). Seller has delivered to Buyer a
true and complete copy of each such Lease (including all amendments thereto).
With respect to each Leased Real Property:
(i) such Lease is legal, valid, binding, enforceable and in
full force and effect and Seller has a valid and subsisting leasehold estate in
and the right to non-disturbance and quiet enjoyment of the Real Property
subject to the Lease for the full term thereof;
(ii) except for the consents listed in SCHEDULE 3.03(a), the
transactions contemplated by this Agreement do not require the consent of any
other party to such Lease, will not result in a breach of or default under such
Lease, and will not otherwise cause such Lease to cease to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the Closing;
(iii) Seller's possession and quiet enjoyment of the Leased
Real Property under such Lease has not been disturbed, there are no disputes
with respect to such Lease and no event has occurred and no condition exists
that would interfere with the Buyer's
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quiet enjoyment and use of the Leased Real Property following the Closing in the
manner that it is currently used in the Business;
(iv) Neither Seller nor, to Seller's Knowledge, any other
party to the Lease is in breach of or default under such Lease, and no event has
occurred or circumstance exists that, with the delivery of notice, the passage
of time or both, would constitute such a breach or default, or permit the
termination, modification or acceleration of rent under such Lease;
(v) no security deposit or portion thereof deposited with
respect to such Lease has been applied in respect of a breach of or default
under such Lease that has not been redeposited in full;
(vi) Seller does not owe, and will not owe in the future, any
brokerage commissions or finder's fees with respect to such Lease;
(vii) the other party to such Lease is not an Affiliate of,
and otherwise does not have any economic interest in, Seller;
(viii) Seller has not assigned, subleased, licensed or
otherwise granted any Person the right to use or occupy the Leased Real Property
or any portion thereof;
(ix) Seller has not collaterally assigned or granted any other
Lien in such Lease or any interest therein; and
(x) there are no Liens on the estate or interest created by
such Lease other than Permitted Liens.
(c) Except for the Mexican Facilities, the Leased Real Property
comprise all of the real property used or intended to be used in, or otherwise
related to, the Business.
(d) To the Knowledge of Seller, all buildings, structures, fixtures,
building systems and equipment, and all components thereof, including but not
limited to the roof, foundation, load-bearing walls, and other structural
elements thereof, heating, ventilation, air conditioning, mechanical,
electrical, plumbing and other building systems, environmental control,
remediation and abatement systems, sewer, storm, and waste water systems,
irrigation and other water distribution systems, parking facilities, fire
protection, security and surveillance systems, and telecommunications, computer,
wiring, and cable installations, included in the Leased Real Property (the
"IMPROVEMENTS") are in good condition and repair (subject to normal wear and
tear) and sufficient for the operation of Seller's Business as currently
conducted and as proposed to be conducted. To the Knowledge of Seller, all
Improvements have been maintained periodically and regularly in compliance with
manufacturer's recommendations, and in compliance with the standards of the
trade and industry pertaining thereto. To the Knowledge of Seller, there are no
structural deficiencies, patent defects or latent defects affecting any of the
Improvements and there are no facts or conditions affecting any of the
Improvements which would, individually or in the aggregate, interfere in any
respect with the use or occupancy of the Improvements or any portion thereof in
the operation of Seller's Business as currently conducted
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thereon or as proposed to be conducted.
(e) There is no condemnation, expropriation or other proceeding in
eminent domain, pending or, to the Knowledge of Seller, threatened, affecting
any parcel of Leased Real Property or any portion thereof or interest therein.
There is no injunction, decree, order, writ or judgment outstanding, or any
claim, litigation, administrative action or similar proceeding, pending or, to
the Knowledge of Seller, threatened, relating to the ownership, lease, use or
occupancy of the Leased Real Property or any portion thereof, or the operation
of the Business as currently conducted thereon.
(f) To the Knowledge of Seller, the Leased Real Property is in
compliance with all applicable building, zoning, subdivision, health and safety
and other land use laws, including but not limited to the Americans with
Disabilities Act of 1990, as amended, Environmental, Health, and Safety
Requirements, and all insurance requirements affecting the Leased Real Property
(collectively, the "REAL PROPERTY LAWS"), and the current use and occupancy of
the Leased Real Property and operation of Seller's business thereon do not
violate any Real Property Laws. Seller has not received any notice of violation
of any Real Property Law and, to the Knowledge of Seller, there is no Basis for
the issuance of any such notice or the taking of any action for such violation.
To the Knowledge of Seller, there is no pending or anticipated change in any
Real Property Law that will materially impair the ownership, lease, use or
occupancy of any Leased Real Property or any portion thereof in the continued
operation of Seller's Business as currently conducted thereon.
(g) To Seller's Knowledge, all water, oil, gas, electrical, steam,
compressed air, telecommunications, sewer, storm and waste water systems and
other utility services or systems for the Commerce City Facilities have been
installed and are operational and sufficient for the operation of the Business
as currently conducted thereon and as contemplated to be conducted. To Seller's
Knowledge, each such utility service enters the Commerce City Facilities from an
adjoining public street or valid private easement in favor of the supplier of
such utility service or appurtenant to the Commerce City Facilities, and is not
dependent for its access, use or operation on any land, building, improvement or
other real property interest that is not included in the Commerce City
Facilities.
(h) All certificates of occupancy, permits, licenses, franchises,
approvals and authorizations (collectively, the "REAL PROPERTY PERMITS") of all
Governmental Authorities, board of fire underwriters, association or any other
entity having jurisdiction over the Commerce City Facilities that are required
or appropriate to use or occupy the Commerce City Facilities or for Seller's
operation of the Business as currently conducted thereon have been issued and
are in full force and effect. SCHEDULE 3.12(i) lists all Real Property Permits
held by Seller with respect to the Commerce City Facilities. Seller has
delivered to Buyer a true and complete copy of all Real Property Permits. Seller
has not received any notice from any Governmental Authority threatening a
suspension, revocation, modification or cancellation of any Real Property Permit
and, to the Knowledge of Seller, there is no Basis for the issuance of any such
notice or the taking of any such action. The Real Property Permits are
transferable to Buyer without the consent or approval of the issuing
Governmental Authority or entity; no disclosure, filing or other action by
Seller is required in connection with such transfer; and Buyer shall not be
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required to assume any additional liabilities or obligations under the Real
Property Permits as a result of such transfer.
(i) To Seller's Knowledge, none of the Leased Real Property or any
portion thereof is located in a flood hazard area (as defined by the Federal
Emergency Management Agency).
SECTION 3.13 INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.13(a) identifies each patent or patent registration
that has been issued to Seller or used by Seller and each pending patent
application or application for patent registration that Seller has made with
respect to any of its Intellectual Property. Seller has not granted any license,
sublicense, agreement, or other permission to any third party with respect to
any of its patents, patent registrations, and patent applications. Seller has
delivered to Buyer correct and complete copies (including all amendments) of all
such patents, registrations, and applications and has made available to Buyer
correct and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item.
(b) SCHEDULE 3.13(b) identifies each trademark, service mark, trade
name, corporate name or Internet domain name, owned or claimed by Seller.
(c) SCHEDULE 3.13(c) identifies each registered copyright owned or
claimed by Seller in connection with its Business.
(d) With respect to each item of Intellectual Property required to
be identified in SCHEDULES 3.13(a), (b) AND (c):
(i) Seller exclusively owns and possesses, without any breaks in the
chain of title, all right, title, and interest in and to the item, free and
clear of any Lien, license, or other restriction or limitation regarding use or
disclosure (excluding computer software items described in Section 3.13(e));
(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of Seller, is
threatened that challenges the legality, validity, enforceability, use, or
ownership of the item, and, to the Knowledge of Seller, there is no Basis for
the same;
(iv) except as set forth in the IP Licenses or the IP Documents,
Seller has never agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to the item; and
(v) no loss or expiration of the item is threatened or pending, (by
means of any opposition, invalidation, or cancellation proceeding, or
otherwise), except for (i) patents and copyrights expiring after the date hereof
at the end of their statutory terms (and not as
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a result of any act or omission by Seller, including without limitation, a
failure by Seller to pay any required registration, maintenance, or renewal
fees) and (ii) trademarks requiring after the date hereof declarations of
continued use, incontestability or renewal (all of which Seller could file as of
the date hereof if such date was the required filing date therefore), and, to
the Knowledge of Seller, no such action is threatened with respect to the item.
(e) SCHEDULE 3.13(e) identifies each item of Intellectual Property
that any third party owns and that Seller uses pursuant to license agreements
(other than Commercial Software) (the "IP LICENSES"), and, except as set forth
therein, Seller is not a party to any sublicense, other type of agreement, or
permission with respect to any items of Intellectual Property that any third
party owns and Seller uses. Except as required by the IP Licenses and the IP
Documents, Seller has the right to use without payment to a third party all of
the Intellectual Property used in the Business. Seller has delivered to Buyer
correct and complete copies of all IP Licenses, including all amendments
thereto, whether formal or by way of letter agreement. With respect to each IP
License:
(i) the IP License covering the item is legal, valid,
binding, enforceable, and in full force and effect;
(ii) the IP License will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
consummation of the transactions contemplated hereby (including the Assignments
and Assumptions contemplated in Article II);
(iii) neither it nor to Seller's Knowledge, the other party to
the IP License, is in breach or default, and no event has occurred that with
notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(iv) without limiting the foregoing, Seller has for all prior
periods, duly paid to the licensors of each IP License all royalties payments
and made all advertising expenditures required to be made by the terms of each
IP License, whether characterized as percentage of royalties, guaranteed minimum
royalties, percentage advertising payments, minimum guaranteed advertising
payments, and all other royalties, fees and penalties, interests, charges due,
owing or accrued to the licensors under the IP Licenses, and has properly
accrued in its books and records in accordance with GAAP used in the Most Recent
Financial Statements all such payments which have not been made which are not
required as of the date of this Agreement by the terms of the IP Licenses and
will do so in the Closing Working Capital Statement;
(v) no party to any IP License has repudiated any provision
thereof; and
(vi) to Seller's Knowledge, the underlying item of
Intellectual Property is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
(vii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge of Seller is
threatened that
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challenges the legality, validity, enforceability or Seller's use of the
underlying item of Intellectual Property, seeks to restrict Seller's use of the
underlying item of Intellectual Property, or alleging that Seller's use of the
underlying Intellectual Property constitutes infringement and, to the Knowledge
of Seller , there is no Basis for the same; and
(viii) Seller has not granted any sublicense, assignment,
distributorship or similar right with respect to the license, sublicense,
agreement, or permission and has at all times directly and exclusively conducted
the marketing, sale and distribution of products authorized by the IP License.
(f) SCHEDULE 3.13(f)(i) contains a brief description of the computer
system utilized in the Business, specifying the components of the hardware and
software computer (other than commercially available off-the-shelf software
purchased or licensed for less than a cost of $1,000 individually or $10,000 in
the aggregate (collectively, the "COMMERCIAL SOFTWARE") comprising such system
which are respectively owned, leased or licensed by Seller. SCHEDULE 3.13(f)(ii)
lists all Commercial Software licensed or used by Seller, indicating which is
transferable and non-transferable. SCHEDULE 3.13(f)(iii) hereto lists all
material contracts, licenses, agreements and other instruments, to which Seller
is a party or which otherwise govern Seller's actions with respect to the
Intellectual Property (other than the IP Licenses, Commercial Software and those
items of Intellectual Property required to be identified in SCHEDULES 3.13(a),
(b) AND (c)), that are currently in effect with respect to any of Seller's
Intellectual Property (collectively, the "IP DOCUMENTS"). The IP Documents are
in full force and effect. The consummation of the transactions contemplated by
this Agreement will not violate or result in the breach, modification,
cancellation, termination, or suspension of the IP Documents and will not cause
the forfeiture or termination or give rise to a right of forfeiture or
termination of any rights of Seller to any of its Intellectual Property. Upon
the consummation of the transactions contemplated hereby on the Closing Date,
Buyer will have the legal right and be able to continue to utilize Seller's
existing computer systems without interruption. Seller is in material compliance
with, and has not materially breached any term of any IP Document and, to the
Knowledge of Seller, all other parties to the IP Documents are in compliance
with, and have not breached any term of, such IP Documents.
(g) The Intellectual Property listed in SCHEDULES 3.13(a), (b) AND
(c) and the IP Licenses constitutes all the Intellectual Property necessary for
the operation of the Business by Seller as presently conducted and as presently
proposed to be conducted. Each such item of Intellectual Property will be owned
or available for use by Buyer on identical terms and conditions immediately
subsequent to the Closing hereunder. Seller has taken all necessary action to
maintain and protect each item of Intellectual Property that it owns or uses.
(h) No product made or sold by Seller interferes with, infringes
upon, or misappropriates any Intellectual Property rights of third parties, and
Seller has not received any charge, complaint, claim, demand, or notice alleging
any such interference, infringement, misappropriation, or violation (including
any claim that Seller must license or refrain from using any Intellectual
Property rights of any third party). To the Knowledge of Seller, no third party
has interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of Seller.
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(i) Seller has taken all necessary actions to maintain and protect
all of the Intellectual Property of Seller in accordance with Legal Requirements
and will continue to maintain and protect all of the Intellectual Property of
Seller prior to Closing so as not to adversely affect the validity or
enforceability thereof. To the Knowledge of Seller, the owners of any of the
Intellectual Property licensed to Seller pursuant to the IP Licenses have taken
all necessary actions to maintain and protect the Intellectual Property covered
by such license. All products and materials containing any of the registered
marks set forth in SCHEDULE 3.13(b) bear the proper federal registration notice
where permitted by law. All works encompassed by the copyrights set forth in
SCHEDULE 3.13(c) have been marked with the proper copyright notice.
(j) Seller has not developed proprietary productivity tools
belonging to customers of the Business including, any molds, dies, processes,
equipment and technology used in connection with the Business, and Seller is not
in possession or control of any raw materials owned by any of its customers for
use in connection with the Business.
(k) Seller has all right, title and interest in and to all of its
client information and related client or user data, and all proprietary
databases and data collections (collectively, "PROPRIETARY INFORMATION"), and
the Proprietary Information has been obtained and maintained in accordance with
all applicable laws, including without limitation, all consumer protection and
privacy laws. Any use or transfer of the Proprietary Information as contemplated
under this Agreement will not violate the rights of any third party or result in
the breach of any agreement to which Seller is a party or which otherwise
governs Seller's actions with respect thereto. Seller has disclosed accurately
and completely to Buyer all restrictions on Seller's use of the Proprietary
Information, including any restrictions imposed by agreement, privacy policies,
or applicable law.
(l) To Seller's Knowledge, neither Seller nor any of its employees
or agents has permitted any confidential information or trade secrets of Seller
to be used, divulged or appropriated for the benefit of persons to the material
detriment of Seller.
(m) No Intellectual Property currently used in the Business has been
developed or created by a third party for Seller.
SECTION 3.14 TANGIBLE ASSETS. Each of the tangible assets included in the
Acquired Assets which is currently used in the Business is in good operating
condition and repair (subject to normal wear and tear) and is suitable for the
purposes for which it presently is used and presently is proposed to be used.
SECTION 3.15 INVENTORY.
(a) SCHEDULE 3.15(a) contains a complete and accurate list of each
address at which Seller maintains inventory. Seller's inventory consists of raw
materials and supplies, manufactured and purchased parts, goods in process, and
finished goods, all of which (a) is merchantable and fit for the purpose for
which it was procured or manufactured, (b) is not slow-moving, obsolete,
damaged, below standard quality, irregulars, seconds, clearance, defective,
chargebacks or returns, subject only to the reserve for inventory writedown set
forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of
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time through the Closing Date in accordance with the past custom and practice of
Seller, which shall be set forth in the Closing Working Capital Statement, (c)
to the extent it uses any Intellectual Property licensed under any IP License,
it meets all of the requirements of such IP License and (d) are carried at
amounts which reflect valuations at the lower of cost, determined on a first-in
first-out basis or market in accordance with GAAP used in the Most Recent
Financial Statements. The quantities of Seller's inventory are reasonable in the
present circumstances of Seller's Business, including being sufficient to
satisfy, on a timely basis, all open purchase orders from customers. Seller has
and, after the Closing, Buyer will have, no Liability for any refunds,
allowances or returns in respect of products sold or services provided prior to
the Closing Date or in respect of products included in the inventories of Seller
on the Closing Date and distributed, shipped or sold by or for the account of
Buyer after the Closing Date, except to the extent of the reserves therefor
reflected in the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of Seller, which amount shall be set forth in the
Closing Working Capital Statement. All inventories disposed of subsequent to the
date of the Most Recent Balance Sheet Date have been disposed of only in the
Ordinary Course of Business and at prices and under terms that are normal and
consistent with past practices.
(b) SCHEDULE 3.15 (b) contains a complete and correct list of all
product types and product lines comprising the Business. Seller has never been
the subject of any product safety or false or deceptive or misleading
advertising claims and has never been the subject of any investigation,
proceeding, warning, citation or other claim by any Governmental Authority.
Seller has not engaged in any advertising practices which are deceptive,
misleading or otherwise in violation of any laws or regulations.
SECTION 3.16 MEXICAN OPERATIONS. The property included in the Acquired
Assets which is located at the Mexican Facilities has been properly imported in
accordance with Mexican custom laws and under a current and valid Maquiladora
program held by Chambers de Mexico, as the importer of record. None of the
Mexican Facilities is owned or operated by Seller. No employees of Seller are
also employees of Chambers de Mexico. To the Knowledge of Seller, no event has
occurred and no circumstances exist which could reasonably be expected to permit
state, local or federal Mexican Governmental Authorities to seize, put a Lien
on, or otherwise obtain control of any of the Acquired Assets located at the
Mexican Facilities. Seller has not taken any action that may adversely affect
any of the Acquired Assets located at the Mexican Facilities.
SECTION 3.17 CONTRACTS.
(a) SCHEDULE 3.17 lists the following Contracts to which Seller is a
party:
(i) any Contract for the lease of personal property to or
from any Person providing for lease payments after the date hereof in excess of
$25,000;
(ii) any Contract for the purchase or sale of raw materials,
commodities, supplies, products, or other personal property, or for the
furnishing or receipt of services, the performance;
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(iii) any Contract involving fixed price or fixed volume
arrangements;
(iv) any Contract concerning joint venture, partnership,
manufacturer, development or supply or which involves royalty payments or a
sharing of revenues, profits, losses, costs or Liabilities by Seller;
(v) any Contract under which Seller has created, incurred,
assumed, or guaranteed any indebtedness for borrowed money or factored any
receivables, any Capital Lease or under which Seller has imposed a Lien on any
of its assets, tangible or intangible;
(vi) any Contract concerning any acquisition, merger or
similar type of transaction entered into by Seller during the six years prior to
the date hereof,
(vii) any Contract concerning collective bargaining terms or
arrangements with any labor union or other employee representative of a group of
employees,
(viii) any Contract with any Governmental Authority,
(ix) any Contract concerning confidentiality,
non-competition or restrictions on the manner in which the Business may be
conducted;
(x) any Contract involving any of Stockholder or any of
their Affiliates (other than Seller);
(xi) any Compensation and Benefits Plan;
(xii) any Contract involving the employment of any Person on
a full-time, part-time, consulting, or other basis or providing severance
benefits;
(xiii) any Contract under which Seller has advanced or loaned
any amount to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xiv) any Contract under which the consequences of a default
or termination could involve a Material Adverse Effect;
(xv) any settlement, conciliation or similar Contract, the
performance of which will involve payment after the date hereof in excess of
$25,000;
(xvi) any Contract under which Seller has advanced or loaned
any other Person amounts in the aggregate exceeding $25,000; or
(xvii) any Contract, the performance of which involves
consideration in excess of $25,000.
(b) Seller has delivered to Buyer a correct and complete copy of
each written Contract listed in SCHEDULE 3.17 (as amended to date) and a written
summary setting forth the terms and conditions of each oral agreement referred
to in SCHEDULE 3.17. With respect to each
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such Contract: (A) the Contract is legal, valid, binding, enforceable, and in
full force and effect; (B) the Contract will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby (including the
assignments and assumptions referred to in Article II above); (C) neither Seller
nor, to the Knowledge of Seller, any other party to such Contract is in breach
or default, and, to the Knowledge of Seller, no event has occurred that with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the Contract; and (D) no party
has repudiated any provision of the Contract.
SECTION 3.18 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Seller, whether reflected in the Most Recent Balance Sheet, the
books and records of Seller or the Closing Working Capital Statement (except for
any notes included in the Excluded Assets) (a) have arisen solely out of bona
fide sales and deliveries of goods, performance of services and other business
transactions in the ordinary course of business consistent with past practice,
(b) are reflected properly on its books and records, (c) are valid receivables
subject to no setoffs or counterclaims, are current and collectible within
ninety (90) days of the invoice date, and (d) will be collected in accordance
with their terms at their recorded amounts, subject only to the reserve for bad
debts set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Seller, which amount shall be
set forth in the Closing Working Capital Statement. Except as reflected in set
forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Seller, which amount set forth
in the Closing Working Capital Statement, Seller has not incurred any
Liabilities to customers for discounts, refunds or returns. Buyer has no
obligation pursuant to any Legal Requirements (whether in bankruptcy or
insolvency proceedings or otherwise) to repay, return, refund or forfeit any
receivables collected by Seller prior to the Closing Date and will not have any
such Liability for any receivables reflected on the Closing Working Capital
Statement.
SECTION 3.19 POWERS OF ATTORNEY AND BANK ACCOUNTS. Except for powers of
attorney granted by Seller to its attorneys with respect to its trademarks
(which will be terminated as of the Closing), there are no outstanding powers of
attorney executed on behalf of Seller. SCHEDULE 3.19 sets forth the name,
account number, signatories, financial institution (which branch, address and
contact person) of all banking or financial institution accounts, deposit or
concentration accounts, safety deposit boxes, money market accounts, brokerage
accounts, investment accounts maintained by Seller.
SECTION 3.20 INSURANCE.
(a)SCHEDULE 3.20 sets forth the following information with respect
to each insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage, product liability and bond and
surety arrangements) to which Seller or any of its former Subsidiaries has been
a party, a named insured, or otherwise the beneficiary of coverage at any time
within the past five (5) years:
(i) the name, address, and telephone number of the agent;
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(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount (including
a description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
(b) With respect to each such insurance policy: (i) the policy is
legal, valid, binding, enforceable, and in full force and effect; (ii) the
policy will continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the transactions
contemplated hereby (including the assignments and assumptions referred to in
Article II above); (iii) neither Seller nor, to the Knowledge of Seller, any
other party to the policy is in breach or default (including with respect to the
payment of premiums or the giving of notices), and, to the Knowledge of Seller,
no event has occurred that, with notice or the lapse of time, would constitute
such a breach or default, or permit termination, modification, or acceleration,
under the policy; and (iv) no party to the policy has repudiated any provision
thereof. Each of Seller and its former Subsidiaries has been covered during the
past six years by insurance in scope and amount customary and reasonable for the
business in which it has engaged during the aforementioned period. SCHEDULE 3.20
describes any self-insurance arrangements affecting Seller.
SECTION 3.21 LITIGATION. Seller is not (a) subject to any outstanding
injunction, judgment, order, decree, ruling, or charge and (b) is not a party
or, to the Knowledge of Seller, threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any Governmental Authority or before
any arbitrator. To Seller's Knowledge, there is no Basis for an action, suit,
proceeding, hearing, or investigation to be brought or threatened against
Seller.
SECTION 3.22 PRODUCT WARRANTY. Each product manufactured, sold, leased, or
delivered by Seller has been in conformity with all applicable contractual
commitments and all express and implied warranties, and Seller does not have any
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) for replacement thereof or other
damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of Seller, which
shall be set forth in the Closing Working Capital Statement. SCHEDULE 3.22 sets
forth the standard terms and conditions of sale for Seller (containing
applicable guaranty, warranty, and indemnity provisions). No product
manufactured or sold, delivered by Seller is subject to any guaranty, warranty,
or other indemnity beyond the applicable standard terms and conditions of sale
or lease set forth in SCHEDULE 3.22.
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SECTION 3.23 PRODUCT LIABILITY. Seller does not have any Liability (and,
to Seller's Knowledge, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, sold, or delivered by Seller.
SECTION 3.24 EMPLOYEES.
(a) With respect to the Business :
(i) there is no collective bargaining agreement or
relationship with any labor organization;
(ii) to the Knowledge of Seller, no executive or manager of
Seller (A) has any present intention to terminate his or her employment, or (B)
is a party to any confidentiality, non-competition, proprietary rights or other
such agreement between such employee and any Person besides such entity that
would be material to the performance of such employee's employment duties, or
the ability of such entity or Buyer to conduct the Business of such entity;
(iii) no labor organization or group of employees has filed
any representation petition or made any written or oral demand for recognition;
(iv) to the Knowledge of Seller, no union organizing or
decertification efforts are underway or threatened and no other question
concerning representation exists;
(v) no labor strike, work stoppage, slowdown, or other
material labor dispute has occurred, and none is underway or, to the Knowledge
of Seller, threatened;
(vi) there is no workmens' compensation liability,
experience, or matter that could have a Material Adverse Effect;
(vii) there is no employment-related charge, complaint,
grievance, investigation, inquiry, or obligation of any kind, pending or, to the
Knowledge of Seller, threatened in any forum, relating to an alleged violation
or breach by Seller (or its or their officers or directors) of any law,
regulation, or contract; and
(viii) to the Knowledge of Seller, no employee or agent of
Seller has committed any act or omission giving rise to material liability for
any violation or breach identified in subsection (vii) above.
(b) There are no employment contracts or severance agreements with
any employees of Seller. Seller has provided Buyer with true, correct and
complete copies of all personnel policies, rules, or procedures applicable to
employees of Seller.
(c) Within the past three (3) years, Seller has not implemented any
plant closing or layoff of employees that could implicate the WARN Act, and no
such action will be
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implemented without advance notification to Buyer other than the termination of
employees by Seller at the time of Closing in connection with the transactions
contemplated by this Agreement.
SECTION 3.25 EMPLOYEE BENEFITS.
(a) SCHEDULE 3.25(a) lists each Employee Benefit Plan that Seller
maintains, to which Seller contributes or has any obligation to contribute, or
with respect to which Seller has any Liability.
(i) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) has been maintained, funded and administered in
accordance with the terms of such Employee Benefit Plan and the terms of any
applicable collective bargaining agreement and complies in form and in operation
in all material respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(ii) All required reports and descriptions (including Form
5500 annual reports, summary annual reports, and summary plan descriptions) have
been timely filed and/or distributed in accordance with the applicable
requirements of ERISA and the Code with respect to each such Employee Benefit
Plan. The requirements of COBRA have been met with respect to each such Employee
Benefit Plan and each Employee Benefit Plan maintained by an ERISA Affiliate
that is an Employee Welfare Benefit Plan subject to COBRA.
(iii) All contributions (including all employer contributions
and employee salary reduction contributions) that are due have been made within
the time periods prescribed by ERISA and the Code to each such Employee Benefit
Plan that is an Employee Pension Benefit Plan and all contributions for any
period ending on or before the Closing Date that are not yet due have been made
to each such Employee Pension Benefit Plan or accrued in accordance with the
past custom and practice of Seller. All premiums or other payments for all
periods ending on or before the Closing Date have been paid with respect to each
such Employee Benefit Plan that is an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan that is intended to meet
the requirements of a "qualified plan" under Code Section 401(a) has received a
determination from the Internal Revenue Service that such Employee Benefit Plan
is so qualified, and nothing has occurred since the date of such determination
that could adversely affect the qualified status of any such Employee Benefit
Plan. All such Employee Benefit Plans have been timely amended for the
requirements of the Tax legislation commonly known as "GUST" and "EGTRRA" and
have been submitted to the Internal Revenue Service for a favorable
determination letter on the GUST requirements within the remedial amendment
period prescribed by GUST.
(v) There have been no Prohibited Transactions with respect
to any such Employee Benefit Plan or any Employee Benefit Plan maintained by an
ERISA Affiliate. No Person who is a fiduciary under ERISA has any Liability for
breach of his or her fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation
with respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is pending or,
to the Knowledge
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of Seller, threatened. Seller has no Knowledge of any Basis for any such action,
suit, proceeding, hearing, or investigation.
(vi) Seller has delivered to Buyer correct and complete copies
of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most recent
annual report (Form 5500, with all applicable attachments), and all related
trust agreements, insurance contracts, and other funding arrangements that
implement each such Employee Benefit Plan.
(b) Neither Seller nor any ERISA Affiliate contributes to, has any
obligation to contribute to, or has any Liability under or with respect to any
Employee Pension Benefit Plan that is a "defined benefit plan" (as defined in
ERISA Section (35)). No asset of Seller is subject to any Lien under ERISA or
the Code.
(c) Neither Seller nor any ERISA Affiliate contributes to, has any
obligation to contribute to, or has any Liability (including withdrawal
liability as defined in ERISA Section 4201) under or with respect to any
Multiemployer Plan.
SECTION 3.26 GUARANTIES. Seller is not a guarantor or otherwise is liable
for any Liability (including indebtedness) of any other Person.
SECTION 3.27 ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(a) Seller has complied and is in compliance with all Environmental,
Health, and Safety Requirements.
(b) Without limiting the generality of the foregoing, Seller has
obtained and complied with, and is in compliance with, all permits, licenses and
other authorizations that are required pursuant to Environmental, Health, and
Safety Requirements for the occupation of its facilities (including but not
limited to the Commerce City Facilities) and the operation of its Business; and
a list of all such Governmental Authorizations is set forth on SCHEDULE 3.27(b).
(c) Seller has not received any written or oral notice, report or
other information regarding any actual or alleged violation of Environmental,
Health, and Safety Requirements, or any Liabilities, including any
investigatory, remedial or corrective obligations, relating to Seller or its
facilities arising under Environmental, Health, and Safety Requirements.
(d) To the Knowledge of Seller, none of the following exists at any
property or facility owned or operated by Seller: (i) underground storage tanks,
(ii) asbestos-containing material in any form or condition, (iii) materials or
equipment containing polychlorinated biphenyls, or (iv) landfills, surface
impoundments, or disposal areas.
(e) Neither Seller nor its predecessors or Affiliates has treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled, manufactured, distributed, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) so as to give rise to any current or future Liabilities, including
any Liability
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for fines, penalties, response costs, corrective action costs, personal injury,
property damage, natural resources damages or attorneys' fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Solid Waste Disposal Act, as amended, or any other
Environmental, Health, and Safety Requirements.
(f) Neither Seller nor its predecessors or Affiliates has designed,
manufactured, sold, marketed, installed, or distributed products or other items
containing asbestos, and none of such entities is or will become subject to any
Asbestos Liabilities.
(g) Neither Seller nor its predecessors or Affiliates has assumed,
undertaken or otherwise become subject to any Liability, including without
limitation any obligation for corrective or remedial action, of any other Person
relating to Environmental, Health, and Safety Requirements.
(h) To Seller's Knowledge, no facts, events or conditions relating
to the past or present facilities, properties or operations of Seller, its
former Subsidiaries, or any of their respective predecessors or Affiliates will
give rise to any Liabilities pursuant to Environmental, Health, and Safety
Requirements, including without limitation any relating to on-site or off-site
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
(i) Seller has furnished to Buyer all environmental audits, reports
and other material environmental documents relating to its predecessors' or
Affiliates' past or current properties, facilities, or operations that are in
its possession or under its control.
SECTION 3.28 RELATIONSHIPS WITH RELATED PARTIES.
(a) Except as described on SCHEDULE 3.28(a), neither Stockholders
nor any of nor any of the directors, officers, employees of Seller, nor any
family members or Affiliates of any of the foregoing Persons has been involved
in any business arrangement or relationship with Seller within the past
twenty-four (24) months, and none of the foregoing Persons owns any asset,
tangible or intangible, that is used in the business of Seller.
(b) Except as described on SCHEDULE 3.28(b),Seller is not indebted
to any Stockholder or any of the directors, officers, employees of Seller, or
any of their respective family members or Affiliates, except for amounts due as
normal salaries, wages, benefits or reimbursement of ordinary business expenses.
No such Person is now, or on the Closing Date will be, indebted to Seller,
except for ordinary business expense advances due from employees of Seller.
SECTION 3.29 LICENSORS, MANUFACTURERS, CUSTOMERS AND SUPPLIERS. No
licensor under an IP License has indicated that it intends not to renew or
otherwise terminate the IP License Agreement between such licensor and Seller.
No manufacturer, supplier or service provider of Seller has indicated nor does
Seller have any Knowledge that any such manufacturer, supplier or service
provider that it has any intention that it shall stop, or decrease the rate of,
producing or supplying materials, products or services to Seller, and no
customer has indicated nor does Seller have any Knowledge that any customer has
any intention to stop, or decrease the rate of, buying
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products from Seller or of returning any products or goods of the Business,
other than returns in the Ordinary Course of Business, whether as a result of
the transactions contemplated hereunder or otherwise. Without limiting the
foregoing, except for anticipated changes with respect to the sales of Seller's
Rider brand products to the extent reflected in the Revised Fiscal 2005, 2006
and 2007 Budgets, no licensor under any IP License Agreement, manufacturer,
supplier, service provider or customer has indicated that it intends to
materially adversely change any aspect of its business relationship with Seller.
SECTION 3.30 COMPLIANCE WITH THE FOREIGN CORRUPT PRACTICES ACT AND EXPORT
CONTROL AND ANTIBOYCOTT LAWS
(a) Neither Seller nor any of its officers, directors, nor, to the
Knowledge of Seller, any employees or agents (or stockholders), representatives
or other persons acting on the express, implied or apparent authority of any
Seller, have paid, given or received or have offered or promised to pay, give or
receive, any bribe or other unlawful payment of money or other thing of value,
any unlawful discount, or any other unlawful inducement, to or from any person
or Governmental Authority in the United States or elsewhere in connection with
or in furtherance of the business of Seller (including, without limitation, any
unlawful offer, payment or promise to pay money or other thing of value (i) to
any foreign official, political party (or official thereof) or candidate for
political office for the purposes of influencing any act, decision or omission
in order to assist Seller in obtaining business for or with, or directing
business to, any person, or (ii) to any person, while knowing that all or a
portion of such money or other thing of value will be offered, given or promised
unlawfully to any such official or party for such purposes). The Business is not
in any manner dependent upon the making or receipt of such unlawful payments,
discounts or other inducements. Seller has not otherwise taken any action that
could cause Seller to be in violation of the Foreign Corrupt Practices Act of
1977, as amended, the regulations thereunder, or any applicable Legal
Requirements of similar effect.
(b) Seller has made all payments to third parties by check mailed to
such third parties' principal place of business or by wire transfer to a bank
located in the same jurisdiction as such party's principal place of business.
(c) Seller has at all times been in compliance with all Legal
Requirements relating to export control and trade embargoes. No product sold or
service provided by Seller during the last five (5) years has been, directly or
indirectly, sold to or performed on behalf of Cuba, Iraq, Iran, Libya or North
Korea.
(d) Seller has not violated the antiboycott prohibitions contained
in 50 U.S.C. sect. 2401 et seq. or taken any action that can be penalized under
Section 999 of the Code. During the last five (5) years, Seller has not been a
party to, is not a beneficiary under and has not performed any service or sold
any product under any Contract under which a product has been sold to customers
in Bahrain, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia,
Sudan, Syria, United Arab Emirates or the Republic of Yemen.
SECTION 3.31 INVESTMENT REPRESENTATIONS.
(a) Seller is acquiring the Phoenix Shares for its own account and
not with a
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view to, or for resale in connection with, the distribution thereof
in contravention of securities laws.
(b)Seller has received (whether via EDGAR, the Internet or
otherwise) and read the SEC Documents and has had an opportunity to discuss
Phoenix 's business, management and financial affairs with officers and
management of Phoenix and has had the opportunity to review Buyer's operations
and facilities. Seller has also had the opportunity to ask questions of and
receive answers from Buyer and its management regarding the terms and conditions
of this investment.
(c) Seller is an "accredited investor" as defined in Rule 501 under
the Securities Act.
(d) Seller understands that the Phoenix Shares it is acquiring are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired in a transaction not involving a public
offering and that under such laws and applicable regulations such Phoenix Shares
may be resold without registration under the Securities Act only in limited
circumstances. In the absence of an effective registration statement covering
the Phoenix Shares or an available exemption from registration under the
Securities Act, the Shares must be held indefinitely.
(e) Seller acknowledges that Phoenix and its advisors will rely on
the representations and warranties of Seller contained in this Section 3.31 for
purposes of determining whether the issuance of the Phoenix Shares is exempt
from registration under the Securities Act and other applicable securities laws.
SECTION 3.32 DISCLOSURE.
(a) All documents referred to in this Agreement, including in the
Schedules or Exhibits, and the corporate minute books of Seller to the extent
relevant to the transactions contemplated by the Agreement have been delivered
or made available to Buyer to the extent requested by Buyer. Such corporate
minute books contain all of the minutes of meetings of stockholders, board of
directors, and any committees of the board of directors that have been held
preceding the date hereof relating to the Business and all of the written
consents to action executed in lieu thereof.
(b) None of the representations, warranties or statements of Seller
and/or Stockholders contained in this Agreement, in the Schedules or Exhibits
hereto, or in any other agreement, instrument or document executed or delivered
by or on behalf of such Person in connection with the transactions contemplated
by this Agreement contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
representations, warranties or statements made therein in light of the
circumstances under which they were made, not false or misleading. Seller
acknowledges that the statements contained in this Section shall not be deemed
to limit or qualify any of the other representations or warranties contained in
this Agreement, in the Schedules or Exhibits hereto or in any agreement
delivered in connection herewith.
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ARTICLE IV
BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to Seller that the statements contained in
this Article IV are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date in all material respects
(except to the extent that such representations and warranties are qualified by
the terms "material", "Material Adverse Effect" or "Material Adverse Change", in
which case such representations and warranties (as so written, including the
term "material", "Material Adverse Effect" or "Material Adverse Change") shall
be true, correct and complete in all respects) (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article IV).
SECTION 4.01 ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
Buyer is duly authorized to conduct business and is in good standing under the
laws of each jurisdiction where such qualification is required. Buyer has full
corporate power and authority and all licenses, permits, and authorizations
necessary to carry on the Business as it currently exist and in which it is
proposed to be carried on and to own and use the Acquired Assets.
SECTION 4.02 AUTHORIZATION OF TRANSACTION. Buyer has full corporate power
and authority to execute and deliver this Agreement and the Ancillary Agreements
to which it will be a party and to perform its obligations hereunder and
thereunder. This Agreement and, when executed by Buyer, the Ancillary Agreements
to which it is a party will, constitute the valid and legally binding obligation
of Buyer, enforceable in accordance with its terms and conditions. The
execution, delivery and performance of this Agreement and the Ancillary
Agreements to which Buyer will be a party have been duly authorized by Buyer.
Phoenix has full corporate power and authority to execute and deliver the
Phoenix Guaranty. The Phoenix Guaranty constitutes the valid and legally binding
obligation of Phoenix, enforceable in accordance with its terms and conditions.
The execution, delivery and performance of the Phoenix Guaranty has been duly
authorized by Phoenix.
SECTION 4.03 NON-CONTRAVENTION. Neither the execution and delivery of this
Agreement nor the Ancillary Agreements nor the Phoenix Guaranty, nor the
consummation of the transactions contemplated hereby or thereby (including the
assignments and assumptions referred to in Article II above), will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any Governmental Authority or
court to which Buyer or Phoenix is subject or any provision of their respective
charters, bylaws, or other governing documents or (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, Contract, lease, license, instrument, or other
arrangement to which Buyer or Phoenix is a party or by which Buyer or Phoenix is
bound or to which any of their assets are subject. Neither Buyer nor Phoenix
needs to give any notice to, make any filing with, or obtain Governmental
Authorization in order for the Parties to consummate the transactions
contemplated by this Agreement (including the assignments and assumptions
referred to in Article II above and the execution and delivery of the Phoenix
Guaranty).
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SECTION 4.04 SEC DOCUMENTS. Buyer has made available to Seller or its
counsel through EDGAR a true and complete copy of Phoenix's Annual Report on
Form 10-K for the fiscal year ended January 1, 2005 and Buyer will have made
available to Seller or its counsel through EDGAR true and complete copies of
any, Quarterly Reports on Form 10-Q and Current Report on Form 8-K filed with
the Commission filed with the Commission by Phoenix prior to the Closing Date
(collectively, the "SEC DOCUMENTS"). As of the respective filing dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Exchange Act and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed SEC Document prior to the date hereof.
SECTION 4.05 BROKERS' FEES. Neither Buyer nor Phoenix has any Liability to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Seller could become liable
or obligated.
ARTICLE V
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and earlier to occur of (i) the Closing or (ii) the
termination of this Agreement pursuant to Section 7.01:
SECTION 5.01 GENERAL. Each of the Parties will use his, her, or its
commercially reasonable efforts to take all actions and to do all things
necessary, proper, or advisable to satisfy the other Parties' Closing conditions
set forth in Article VI below.
SECTION 5.02 CERTAIN CONSENTS AND NOTICES. Without limiting the generality
of Section 5.01, prior to Closing
(a) Seller shall use its commercially reasonable efforts to obtain
from each of the licensors under the IP Licenses (the "IP LICENSORS") a consent
and estoppel certificate in form and substance satisfactory to Buyer, dated the
Closing Date and duly executed by the IP Licensors, evidencing, among other
things, their consent to Seller's assignment of the IP Licenses pursuant to the
terms hereof.
(b) Seller shall use its commercially reasonable efforts to enter
into the agreements or to assist Buyer in entering into the agreements described
in Section 6.01(m) below.
(c) Seller will give notice to third parties and exercise its
commercially reasonable efforts to obtain, at its expense, all waivers, consents
or approvals required from third parties referred to in SCHEDULE 3.03(a) other
than the IP Licensors.
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(d) Seller will give any notices to, make any filings with, and use
its commercially reasonable efforts to obtain, at its expense, any Governmental
Authorizations in connection with the matters referred to in SCHEDULE 3.03(b)
above.
(d) Buyer shall exercise commercially reasonable efforts to cause
Phoenix, at its expense, to have the Closing Phoenix Shares listed on the AMEX.
On or before the date of issuance of any Additional Phoenix Shares, Buyer shall
exercise commercially reasonable efforts to cause Phoenix, at its expense, to
have the Additional Phoenix Shares listed on the AMEX.
SECTION 5.03 LEASED REAL PROPERTY. Without limiting the generality of
Section 5.01,
(a) Seller shall use its commercially reasonable efforts to obtain,
at its sole cost and expense from the landlords under the Leases for the Leased
Real Property other than the Phoenix AZ Facility and the Commerce City
Facilities, to the assignment of such Leases pursuant to the terms hereof.
(b) Seller shall use its commercially reasonable efforts to obtain,
at its sole cost and expense, from the landlord or other party whose consent
thereto under the Leases for the Phoenix AZ Facility and the Commerce City
Facilities (i) a waiver of landlord liens and collateral assignment of lease or
leasehold mortgage in form and substance satisfactory to Buyer and Buyer's
lenders (the "LANDLORD CONSENTS") (ii) estoppel certificate with respect to each
such Lease, dated no more than thirty (30) days prior to the Closing Date in
form and substance satisfactory to Buyer (the "ESTOPPEL CERTIFICATES"); and
(iii) a non-disturbance agreement with respect to each such Lease, in form and
substance satisfactory to Buyer, from each lender encumbering any real property
underlying the Leased Real Property for such Lease (the "NON-DISTURBANCE
AGREEMENT")
(c) Seller shall, at its sole cost and expense, provide Buyer with a
Phase I Environmental Report (prepared in accordance with ASTM standards) for
the Commerce City Facilities ("COMMERCE CITY PHASE I") which shall be certified
to Buyer and prepared by independent consultants approved by Buyer.
(d) Seller shall use its commercially reasonable efforts to assist
Buyer in obtaining the documents from the landlord under the Commerce City
Facilities and from Governmental Authorities to the extent necessary to satisfy
Buyer with respect thereto.
SECTION 5.04 PRESERVATION AND OPERATION OF BUSINESS.
(a) Seller shall: (i) keep the Business and properties substantially
intact, including its present operations, physical facilities, working
conditions, insurance policies, and maintain its relationships and goodwill with
landlords, lessors, licensors, manufacturers, suppliers, customers, employees
and others having business relationships with it; (ii) maintain and purchase
adequate levels of inventories to carry on the Business in the Ordinary Course
of Business; (iii) maintain the Acquired Assets in a state of repair and
condition that complies with Legal Requirements in all material respects and is
consistent with the requirements and normal conduct of the Business; (iv) make
the capital expenditures contemplated by the Revised Fiscal 2005 Budget during
such period, if any; (v) pay its accounts payables, Seller Debt and Capital
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Leases in accordance with their terms when due; (vi) keep in full force and
effect, without amendment, all material rights relating to the Business; and
(vii) comply with all Legal Requirements in all material respects and
contractual obligations applicable to the operations of the Business.
(b) Seller will operate the Business in the Ordinary Course of
Business and not take or engage in any practice, take any action, or enter into
any transaction contrary thereto. Without limiting the generality of the
foregoing, Seller will not:
(i) modify, change or otherwise alter the fundamental nature
of the Business, except for changes relating to Chambers de Mexico to the extent
contemplated by the New Maquila Contract;
(ii) make any material change in any respect of Seller's
policies or practices with respect to the Business, including advertising,
marketing, taking customer orders, pricing, purchasing, personal, sales, returns
or budget or production policies;
(iii) sell, lease, transfer or assign any of its assets,
tangible or intangible, other than for inventory in the Ordinary Course of
Business through regular trade channels and sales of receivables to CIT under
the CIT Factoring Agreements and the disposition of equipment that is obsolete
or no longer useful in the Business for fair consideration;
(iv) other than accepting customer orders and issuing purchase
orders in the Ordinary Course of Business, enter into any Contract (or series of
Contracts) involving payments of more than $25,000 after the date hereof other
than new license agreements for the Wrangler/Riders Licensed Marks that are on
terms and conditions no less favorable to than the last license agreements
entered into by the Seller with Wrangler Apparel Corp. and The H.D. Lee Company,
Inc. with respect to the Wrangler/Riders Licensed Marks, except that there shall
be no minimum royalty payments or minimum sales for the license agreement for
the Riders marks;
(v) accelerate, terminate, cancel, permit to expire, modify or
amend any Contract (or series of related Contracts) involving payments of more
than $25,000 after the date hereof other than the existing license agreements
with Wrangler Apparel Corp. and The H.D. Lee Company, Inc. with respect to the
VF Licensed Marks which extend the term of the licenses on terms and conditions
no less favorable than existed prior to December 31, 2004, except that there
shall be no minimum royalty payments or minimum sales for the license agreement
for the Riders marks;
(vi) impose or permit to exist any Lien upon any of its
assets, tangible or intangible other than the Existing Liens;
(vii) make any capital expenditure (or series of related
capital expenditures) not contemplated by the Revised Fiscal 2005 Budget;
(viii) make any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other Person (or series of
related capital investments, loans, and acquisitions) not contemplated by the
Revised Fiscal 2005 Budget;
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(ix) collect its accounts and notes receivable and other
payment rights from customers other than in the Ordinary Course of Business;
(x) incur and debt or issue any note, bond, or other debt
security or create, incur assume, or guaranty any indebtedness or Capital Lease
obligations except for advances under the FNBA Line of Credit and accounts
payable in the Ordinary Course of Business;
(xi) cancel compromise, waive, or release any right or
claim (or series of related rights and claims) involving more than $25,000;
(xii) transfer, assign, or grant any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xiii) change the articles of incorporation or bylaws of
Seller;
(xiv) issue, sell, or otherwise dispose of any of capital
stock, or grant any options, warrants, or other rights to purchase or obtain
(including upon conversion, exchange, or exercise) any of its capital stock;
(xv) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock (whether in cash or in kind) or
redeem, purchase, or otherwise acquire any of its capital stock except dividends
and distributions to the extent contemplated by the Revised Fiscal 2005 Budget;
(xvi) enter into any other transaction with, any of its
directors, officers, or employees or any of their respective Affiliates other
than with Serma Marketing or Chambers de Mexico in the Ordinary Course of
Business;
(xvii) enter into any Contract involving employment or
collective bargaining or modify the terms of any such existing Contract;
(xviii) make any changes in the terms of employment of any
Person, including granting any increase in the compensation of any Person
outside the Ordinary Course of Business, or adopt amend modify, or terminate any
Compensation and Benefits Plan;
(xix) make or pledge to make any charitable or other capital
contribution outside the Ordinary Course of Business;
(xx) pay or discharge any Liability other than accounts
payable in the Ordinary Course of Business and the Seller Debt;
(xxi) make any loans or advances of money to any Person
other than in the Ordinary Course of Business;
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(xxii) take any action which would (A) adversely affect the
ability of any Party to obtain any consents required for the transactions
contemplated hereby, or (B) adversely affect the ability of any Party to perform
it covenants herein;
(xxiii) make any change in any method of accounting, auditing
practice or internal controls; or
(xxiv) commit to any of the foregoing.
SECTION 5.05 EMPLOYEES.
(a) Seller has previously delivered to Buyer a list of all of the
employees of Seller who are employed by Seller as of the most recent date for
which such information is available. At least three (3) days prior to the
Closing, Seller shall provide Buyer with update of this information to reflect
all new hires, terminations or other changes of any kind. This information shall
include the ages, dates of hire, compensation and job description of Seller's
employees. Buyer shall obtain Seller's prior written consent before contacting
any employees of Seller other than a Stockholder.
(b) Buyer shall hire, effective as of the Closing Date, on an "at
will" basis, at least the minimum number of active employees of Seller on the
day immediately prior to the Closing Date required to avoid liability under the
WARN Act (the "MINIMUM HIRED EMPLOYEES") on terms and conditions determined by
Buyer. Buyer shall have no obligation of any kind to offer employment or hire
any employee of the Business who is not actively at work on the Closing Date, or
any other employees beyond the Minimum Hired Employees. Any employee of Seller
who does not receive an offer of employment from Buyer or who does not accept an
offer of employment from Buyer shall remain an employee of Seller unless
otherwise agreed in writing by Buyer and Buyer shall have no Liability therefor;
provided, however, that Seller shall have the rights to terminates any such
employee in its sole discretion. Seller will not take any action which would
impede, hinder, interfere or otherwise compete with Buyer's effort to hire
Seller's employees. Buyer shall not assume responsibility for any employee of
Seller until such employee commences employment with Buyer (such employees being
hereafter referred to as the "TRANSFERRED EMPLOYEES"). For these purposes
"actively at work" will mean: (i) any employee who has averaged a minimum of
thirty (30) hours per week in a permanent position in the last three months
prior to the Closing Date; (ii) any employee absent on the Closing Date due to
the FMLA or similar state laws; (iii) any employee absent on the Closing Date
due to maternity leave under the Seller's maternity leave policy; (iv) any
employee absent on the Closing Date due to military duty; (v) any employee
absent on the Closing Date due to jury duty; and (vi) any employee absent on the
Closing Date due to vacation. Buyer shall determine in its sole discretion what
benefits to provide the Transferred Employees, provided, however, Buyer will
grant no service credit with respect to participation or eligibility in any
employee pension benefit or 401(k) plan. Buyer shall not be in breach of this
Section 5.05 to the extent that the information provided under Section 5.05(a)
is not true, correct and complete.
(c) Following the Closing, except for wages of the Transferred
Employees for Seller's last pay period ending immediately prior Closing, Seller
shall pay in full all wages, salaries, commissions, bonuses, vacation pay, sick
pay and other direct and indirect
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compensation and benefits earned by all employees, representatives, contractors
and agents of Seller as well as all payroll and withholding taxes.
(d) No provision of this Section 5.05 shall create any third party
beneficiary or other rights in any employee or former employee (including any
beneficiary or dependent thereof) of Seller in respect of continued employment
(or resumed employment) with either the Buyer or the Business or Phoenix or any
of its subsidiaries and no provision of this Section 5.05 shall create any such
rights in any such Persons in respect of any benefits that may be provided,
directly or indirectly, under any Compensation and Benefit Plans or any plan or
arrangement which may be established by the Buyer or Phoenix or any of its
subsidiaries. No provision of this Agreement shall constitute a limitation on
rights to amend, modify or terminate after the Closing Date any such plans or
arrangements of the Buyer or Phoenix or any of its subsidiaries.
SECTION 5.06 FULL ACCESS AND COOPERATION. Seller shall (a) afford Buyer
and its Representatives and prospective lenders and their representatives
(collectively, "BUYER GROUP") full and free access, during regular business
hours, to Seller's personnel, properties, Contracts, Governmental
Authorizations, books and records and other documents and data, customers,
licensors, vendors, suppliers and sales representatives; (b) furnish Buyer Group
with copies of all such Contracts, Governmental Authorizations, books and
records and other existing documents and data as Buyer may reasonably request;
(c) furnish Buyer Group with such additional financial, operating and other
relevant data and information as Buyer may reasonably request; and (d) otherwise
cooperate and assist, to the extent reasonably requested by Buyer, with Buyer's
investigation of the properties, assets, condition (financial or otherwise),
prospects and results of operation of Seller. In addition, Buyer shall have the
right to have the tangible personal property and all Leased Real Property
inspected by Buyer Group, at Buyer's sole cost and expense, for purposes of
determining the physical condition and legal characteristics of the tangible
personal property and Leased Real Property. No investigation by Buyer or anyone
in Buyer Group shall diminish or obviate in any way any of the representations,
warranties, covenants or agreements of Seller and Stockholders under this
Agreement or any of the Ancillary Agreements or the right of any of Buyer
Indemnitees to seek indemnification under this Agreement or any other legal
rights available to any of them.
SECTION 5.07 INTERNAL FINANCIAL STATEMENTS. Seller shall provide to Buyer
internally prepared monthly balance sheets and statements of, income, changes in
stockholders' equity, and cash flows within fifteen (15) days after the end of
each month and a comparison of actual financial statements to the Revised Fiscal
2005 Budget.
SECTION 5.08 CONTINUED EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES.
From and after the date hereof, Seller shall use its commercially reasonable
efforts to conduct the Business in such a manner so that the representations and
warranties contained in Article III shall continue to be true and correct in all
material respects (except for representations and warranties qualified by the
term "material" or contain such terms as "Material Adverse Effect" or "Material
Adverse Change", in which case such representations and warranties (as so
written, including the terms "material" or "Material ") shall continue to be
true and correct in all respects). From and after the date hereof, Buyer shall
use its commercially reasonable efforts to conduct its business in such a manner
so that the representations and warranties contained in Article IV (excluding
Section 4.04) shall continue to be true and correct in all material respects.
Each Party will give prompt
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written notice to the other Party of any development causing a breach of any of
its own representations and warranties in Article III and Article IV above, as
applicable, in any material respect (except for representations and warranties
qualified by the term "material" or contain such terms as "Material Adverse
Effect" or "Material Adverse Change", in which case a breach of such
representations and warranties (as so written, including the terms "material" or
"Material " in any respect). No disclosure by any Party pursuant to this Section
5.08, however, shall be deemed to amend or supplement any Schedules or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
SECTION 5.09 EXCLUSIVITY. Neither Stockholders nor Seller will (and
Stockholders will not cause or permit Seller to) (a) enter into any Contract
with respect to, or solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any of the assets of Seller other than the
sale of inventory in the Ordinary Course of Business (including any acquisition
structured as a merger, consolidation, or share exchange) or (b) participate in
any discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. Stockholders and
Seller will notify Buyer immediately if any Person makes any proposal, offer,
inquiry, or contact with respect to any of the foregoing. Stockholders will not
sell, assign, transfer or grant any Lien with respect to any shares of Seller's
capital stock owned by them.
SECTION 5.10 MEXICAN OPERATIONS.
(a) Stockholders shall cause (i) Chambers de Mexico and Seller to
terminate the Existing Export Maquila Contract effective as of the Closing Date
and to record the fact of such termination in the Public Registry of Property of
the Domicile of Chambers de Mexico in the State of Sonora, Mexico and (ii)
Chambers de Mexico to enter into with Buyer the New Maquila Contract effective
as of the Closing Date and such Contract shall be duly recorded in the Public
Registry of Property of the Domicile of Chambers de Mexico in the State of
Sonora, Mexico.
(b) Seller shall obtain and provide to Buyer assurances reasonably
satisfactory to Buyer that (i) Buyer will not be liable for any employee-related
liabilities for the employees of the Mexican Facilities, upon their termination
or otherwise, and (ii) that the tangible personal property included in the
Acquired Assets which is located at the Mexican Facilities has been properly
imported in accordance with Mexican custom laws and under a current and valid
Maquiladora program held by Chambers de Mexico, as the importer of record.
SECTION 5.11 PAY-OFF LETTER. Seller shall cause the FNBA and any other
holder of Seller Debt to provide Buyer at the Closing with a letter (the
"PAY-OFF LETTER") (a) stating the aggregate amount of all the outstanding Seller
Debt outstanding, as of the Closing Date, and (b) agreeing that on such payment
of Seller Debt, the Liens on the Acquired Assets securing Seller Debt shall be
terminated. The Pay-Off Letter shall specifically provide that any of Buyer's
lenders may rely thereon
SECTION 5.12 PREPAYMENT; RELEASES. On or prior to the Closing, Seller
shall pay in full Seller Debt or shall instruct Buyer to pay from the cash
portion of the Purchase Price the Seller
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Debt as provided in Section 2.01. As of the Closing Seller shall obtain a full
release of each of the Liens granted in the Acquired Assets other than the
Permitted Liens.
SECTION 5.13 SALES TAX COMPLIANCE CERTIFICATES. Seller shall take such
actions as may be necessary to provide Buyer at Closing with (a) a certificate
from the Arizona Department of Revenue pursuant to Arizona Revised Statutes
Section 42-110B that Seller has paid all sales taxes due under Titles 42 and 43
of the Arizona Revised Statutes and (b) a certificate of receipt of payment of
all sales and use taxes from the California State Board of Equalization as
authorized in and pursuant to California Revenue and Taxation Code Sections 6811
through and including 6814 (collectively the "SALES TAX COMPLIANCE
CERTIFICATES").
SECTION 5.14 FINANCING Buyer shall use commercially reasonable efforts to
assist Phoenix in obtaining the financing on terms and conditions satisfactory
to Phoenix's Board of Directors in its sole and absolute discretion to the
extent necessary to consummate the transactions contemplated hereby.
SECTION 5.15 CONVEYANCE TAXES. Seller shall be responsible for all
documentary, sales, use, registration, value added, transfer, stamp, recording,
registration and similar Taxes, fees and costs incurred in connection with the
transactions contemplated by this Agreement.
SECTION 5.16 STOCKHOLDER VOTING OBLIGATIONS. Each Stockholder agrees to
vote his or her shares of Seller to cause Seller to take each of the actions and
to observe each of the undertakings that Seller has agreed to in this Agreement,
including all pre-Closing and post-Closing covenants and undertakings.
ARTICLE VI
CONDITIONS TO OBLIGATION TO CLOSE
SECTION 6.01 CONDITIONS TO BUYER'S OBLIGATION. Buyer's obligation to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction or waiver by Buyer of the following conditions:
(a) Representations and Warranties. The representations and
warranties set forth in Article III above shall be true and correct in all
material respects at and as of the Closing Date, except to the extent that such
representations and warranties are qualified by the term "material," or contain
terms such as, "Material Adverse Effect" or "Material Adverse Change", in which
case such representations and warranties (as so written, including the term
"material" or "Material") shall be true and correct in all respects at and as of
the Closing Date.
(b) Performance of Covenants. Seller and Stockholders shall have
performed and complied with all of their respective covenants hereunder in all
material respects except to the extent that such covenants are qualified by the
term "material" or contain terms such as "Material Adverse Effect" or "Material
Adverse Change", in which case such covenants as so written (including the terms
"material" or "Material" shall be performed in all respects) through the
Closing.
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(c) Consents. Seller shall have procured all of the third-party
consents, authorizations and approvals specified in Sections 5.02 and 5.03
above.
(d) No Litigation. No action, suit, or proceeding shall be pending
or threatened before any Governmental Authority or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, or (iii) adversely affect the right of Buyer
to own the Acquired Assets or to operate the Business.
(e) No Material Adverse Change. Since the Most Recent Balance Sheet
Date, there shall not have been any Material Adverse Change.
(f) No Real Property Damage. No damage or destruction or other
change has occurred with respect to Commerce City Facilities or the Mexican
Facilities or any portion thereof that, individually or in the aggregate, would
materially impair the operation of the Business as currently conducted thereon
or the use thereof.
(g) Closing Certificate. Seller shall have delivered to Buyer a
certificate executed by an officer of Seller to the effect that each of the
conditions specified above in Section 6.01(a) - (f) is satisfied in all
respects.
(h) Governmental Authorizations. Buyer shall have received all
Governmental Authorizations (including any required filings or notices) ,
referred to in Sections 3.03(b) and Section 4.03(b) above and Buyer shall have
been presented evidence thereof with respect to Section 3.03(b) satisfactory to
Buyer.
(i) Ancillary Agreements. Other than Buyer and Phoenix, each of the
Ancillary Agreements shall have been executed by the Parties thereto.
(j) Mexican Contracts. Buyer shall have received evidence that the
Existing Maquila Contract and the Existing Mexican Administration Contract have
been fully terminated and are no longer in existence and Chambers de Mexico
shall have executed the New Maquila Contract.
(k) Termination of Liens. Buyer shall have received evidence
satisfactory to Buyer of the repayment and discharge of all Seller Debt and the
release of all Liens encumbering the Acquired Assets other than Permitted Liens,
including Pay-Off Letters and copies of such UCC-1 terminations under the
Uniform Commercial Code and any other similar applicable regulation of any
financing or similar statements filed against any of the Acquired Assets in all
applicable jurisdictions or Seller shall otherwise satisfy Buyer that all such
Liens are no longer effective.
(l) Termination of CIT Factoring Agreements. Prior to Closing,
Seller have terminated the CIT Factoring Agreements and CIT shall have conveyed
to Seller all right, title and interest in and to all accounts and notes
receivable and other assets and rights previously conveyed by Seller to CIT
under the CIT Factoring Agreements, free and clear of all Liens, and
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Buyer shall have received a written confirmation from CIT that it has no right,
title or interest in or to any of Seller's accounts receivable or the proceeds
thereof and that title thereto is fully vested in Seller.
(m) Wrangler/Riders Licensed Marks. Either (i) the Seller and
Wrangler Apparel Corp. and The H.D. Lee Company, Inc shall have entered into
license agreements which extend the term of the licenses and grant other rights
sufficient for Seller (and upon assignment thereof, Buyer) to achieve the
forecasted sales in the Revised Fiscal 2005, 2006 and 2007 Budgets with respect
to the Wrangler/Riders Marks and are otherwise satisfactory to Buyer in all
respects, as evidenced by its written consent thereto, or (ii) Buyer and
Wrangler Apparel Corp. and The H.D. Lee Company, Inc. shall have entered into
license agreements with Wrangler Apparel Corp. and The H.D. Lee Company, Inc for
a license term and with rights sufficient for Buyer to achieve the forecasted
sales in the Revised Fiscal 2005, 2006 and 2007 Budgets with respect to the
Wrangler/Riders Marks and which are otherwise satisfactory to Buyer in all
respects.
(n) Commerce City Phase I. The Commerce City Phase I shall have been
performed and a copy of the report constituting the report of the findings of
the engineer who conduct the Commerce City Phase I shall been delivered, and be
satisfactory to Buyer.
(o) Sales Tax Compliance Certificates. Buyer shall have received the
Sales Tax Compliance Certificates showing no Taxes due from Seller.
(p) Leased Real Property Matters. Buyer shall have received the
Landlord Consents, Estoppel Certificates, and Non-Disturbance Agreements, all of
which shall be. satisfactory in form and substance satisfactory to Buyer and the
term of the Lease for Commerce City Facilities shall have been extended on terms
and conditions and for a period satisfactory to Buyer.
(q) Financing. Phoenix and Buyer shall have obtained on terms and
conditions satisfactory to Phoenix's Board of Directors the financing that Buyer
needs in order to consummate the transactions contemplated hereby.
(r) Opinion Letter. Buyer shall have received from counsel to Seller
an opinion in form and substance as set forth in EXHIBIT I attached hereto,
addressed to Phoenix and Buyer, and dated as of the Closing Date.
(s) Discontinuance of Name. Buyer shall have received from Seller
fully executed articles of amendment changing Seller's corporate name from
"Chambers Belt Company" to another dissimilar name, which articles shall be in a
form acceptable for filing with the Arizona Corporation Commission.
(t) All Proceedings Satisfactory. All actions to be taken by Seller
and Stockholders in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby shall be
satisfactory in form and substance to Buyer.
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Buyer may waive any condition specified in this Section 6.01 if it
executes a writing so stating at or prior to the Closing and delivers such
writing to Seller and Stockholders.
SECTION 6.02 CONDITIONS TO SELLER'S OBLIGATION. Seller's obligation to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction or waiver by Seller's Agent of the following
conditions:
(a) Representations and Warranties. The representations and
warranties set forth in Article IV above shall be true and correct in all
material respects at and as of the Closing Date, except to the extent that such
representations and warranties are qualified by the term "material," or contain
terms such as "Material Adverse Effect" or "Material Adverse Change," in which
case such representations and warranties (as so written, including the term
"material", "Material Adverse Effect" or "Material Adverse Change") shall be
true and correct in all respects at and as of the Closing Date.
(b) Performance of Covenants. Buyer shall have performed and
complied with all of its covenants hereunder in all material respects except to
the extent that such covenants are qualified by the terms "material" or contain
such terms as "Material Adverse Effect" or "Material Adverse Change,", in which
case such covenants as so written (including the terms "material" or "Material"
shall be performed in all respects) through the Closing.
(c) No Litigation. No action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or Governmental Authority or
before any arbitrator wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (i) prevent consummation of any of the
transactions contemplated by this Agreement or (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect.
(d) Closing Certificate. Buyer shall have delivered to Seller a
certificate to the effect that each of the conditions specified above in
Sections 6.02(a) - (c) is satisfied in all respects.
(e) Governmental Authorizations. Seller shall have received all
Governmental Authorizations referred to in Section 3.03(b) and Section 4.03(b)
above and Seller shall have been presented evidence thereof with respect to
Section 4.03(b) satisfactory to Seller.
(f) Ancillary Agreements. Buyer and Phoenix shall have entered into
the Ancillary Agreements to which they are parties.
(g) Opinion Letter. Seller shall have received from counsel to Buyer
an opinion in form and substance as set forth in EXHIBIT J attached hereto,
addressed to Seller, and dated as of the Closing Date.
(h) Satisfactory Proceedings. All actions to be taken by Buyer in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to Seller's Agent.
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Seller's Agent may waive any condition specified in this Section 6.02 if
he executes a writing so stating at or prior to the Closing and delivers the
writing to Buyer.
ARTICLE VII.
TERMINATION
SECTION 7.01 TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated as follows:
(i) Buyer and Seller's Agent may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving written
notice to Seller's Agent at any time prior to the Closing (A) in the event
Seller or any Stockholder breaches any representation, warranty, or covenant
contained in this Agreement in any material respect, Buyer has notified Seller's
Agent of the breach, and the breach has continued without cure for a period of
ten (10) days after the notice of breach or (B) if the Closing shall not have
occurred on or before June 18, 2005, by reason of the failure of any condition
precedent under Section 6.01 hereof (unless the failure results primarily from
Buyer breaching any representation, warranty, or covenant contained in this
Agreement);
(iii) Seller's Agent may terminate this Agreement by giving
written notice to Buyer at any time prior to the Closing (A) in the event Buyer
has breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, Seller's Agent has notified Buyer of the
breach, and the breach has continued without cure for a period of ten (10) days
after the notice of breach or (B) if the Closing shall not have occurred on or
before June 18, 2005, by reason of the failure of any condition precedent under
Section 6.02 hereof (unless the failure results primarily from Seller or any
Stockholder breaching any representation, warranty, or covenant contained in
this Agreement); and
(iv) Buyer or Seller's Agent may terminate this Agreement if
the Closing has not occurred on or prior to July 31, 2005 for any reason other
than delay or nonperformance of the Party seeking such termination.
SECTION 7.02 EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 7.01 above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other Party
(except for any Liability of any Party then in breach of this Agreement).
ARTICLE VIII
POST-CLOSING COVENANTS
SECTION 8.01 COLLECTION OF ACCOUNTS. If, after the Closing Date, Seller
shall receive any payment on any accounts or notes receivables acquired by Buyer
hereunder or any rebate or other amounts under agreements with customers,
licensors suppliers or others ("REBATES"), it shall, and
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Stockholders shall cause Seller to, forward such payment to Buyer within five
(5) business days after receipt thereof, together with any endorsement required
so as to permit Buyer to collect such receivables or Rebates. Buyer or its
designees shall have full power and authority to collect all receivables and
Rebates acquired by Buyer hereunder and to endorse, in the name of Seller, any
checks or other instruments of payment received on account of payment of such
receivables or Rebates.
SECTION 8.02 AFTER-ACQUIRED ASSETS. Seller shall, and Stockholders shall
cause Seller to, assign, transfer and deliver to Buyer all assets, properties,
rights and interests of whatever kind and nature, real and personal, tangible
and intangible, included within the definition of Acquired Assets relating to
the Business and received, held or acquired by Seller from and after the Closing
Date.
SECTION 8.03 INTELLECTUAL PROPERTY RIGHTS. From and after the Closing
Date, Seller shall, and Stockholder shall cause Seller to, cease using the
Intellectual Property conveyed by Seller to Buyer at Closing.
SECTION 8.04 RETURNED INVENTORY. During the first one-hundred eighty (180)
days after the Closing, the following subsections shall apply:
(a) If a customer of the Business returns any item sold by Seller
prior to the Closing and takes, or requests that Buyer grant such customer, a
credit therefor, then to the extent the return is reserved for in the Closing
Working Capital Statement, as adjusted by the Final Working Capital Statement,
Buyer shall do so and Buyer shall provide Seller with prompt written notice
thereof. In this case, neither Seller nor Stockholders shall have any obligation
to Buyer for the amount of any such credit. If the item was returned to Seller
rather than to Buyer, Seller shall promptly send such item to Buyer.
(b) If a customer of the Business returns any item sold by Seller
prior to the Closing and takes, or requests that Buyer grant such customer, a
credit therefor, then to the extent the return is not reserved for in the
Closing Working Capital Statement, as adjusted by the Final Working Capital
Statement, Buyer shall provide written notice to Seller (accompanied by the
customer's request or demand for a credit). In such event, Buyer may grant such
customer a credit and Seller and Stockholders shall, within five (5) days of
demand therefor from Buyer (which demand shall be accompanied by the customer's
request or demand for a credit) pay to Buyer an amount in immediately available
funds equal to the cost of the item credited by Buyer to the customer.
SECTION 8.05 FURTHER ASSURANCES; COOPERATION AND ASSISTANCE.
(a) From time to time, at Buyer's reasonable request, Seller will,
and Stockholders shall cause Seller to, execute and deliver such other
instruments of conveyance and transfer and take such other actions as Buyer may
reasonably request in order to (i) perfect and record, if necessary, the sale,
assignment, conveyance, transfer, and delivery to Buyer of the Acquired Assets,
and (ii) convey, transfer to and vest in Buyer and to put Buyer in possession
and operating control of all or any part of the Acquired Assets, including,
without limitation, cooperating with and assisting Buyer in the prosecution of
any claims and in the collection or
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reduction to possession of accounts or notes receivable and all the other
Acquired Assets. Seller and Stockholders hereby agree that all out-of-pocket
expenses incurred in connection with the matters contemplated by this Section
8.05(a) shall be borne by Seller and Stockholders severally on a Pro Rata Share
basis.
(b) Notwithstanding anything to the contrary in this Agreement, this
Agreement shall not constitute an agreement to assign any Assigned Contract or
any claim, right or benefit arising thereunder or resulting therefrom, if a
consent has not been obtained or if an attempted assignment thereof would be
ineffective. If any such consent has not been obtained as of the Closing Date,
or if an attempted assignment of any such Assigned Contract would be
ineffective, (i) Seller shall so advise Buyer prior to Closing and (ii) if Buyer
elects to waive the condition that such consent be received prior to Closing and
to proceed with Closing, then Seller shall, and Stockholders shall cause Seller
to, cooperate with Buyer in any reasonable arrangement designed to provide for
Buyer the benefits under such Contract, including enforcement for the benefit of
Buyer of any and all rights of Seller against a third party arising out of any
breach or cancellation by such third party or otherwise.
(c) Seller and Stockholders shall continue to cooperate with Buyer's
accountants before and after the Closing in connection with all financial
reviews and audits relating to the Business (including any certifications) and
shall deliver any necessary management representations letters and exercise
commercially reasonable efforts to obtain the consent of Seller's accountants to
the inclusion of their report on Seller's financial statements which must be
filed with Phoenix's registration statements, reports or other filings with the
Commission. All out-of-pocket expenses incurred by Seller and Stockholder in
connection with the matters contemplated by this Section 8.05(c) shall be borne
by Buyer.
SECTION 8.06 NONDISCLOSURE. From and after the date hereof, except in the
Ordinary Course of Business to the extent necessary to continue the Business
through the Closing Date so long as it does not have a Material Adverse Effect
on the Business, Seller and Stockholders will not use, divulge, furnish or make
accessible to anyone any knowledge or information with respect to confidential
or secret processes, inventions, discoveries, improvements, formulae, plans,
material, devices or ideas or know-how, whether patentable or not, with respect
to any proprietary, material non-public, confidential or secret aspects of the
Business (including, without limitation, customer lists, supplier, vendor,
manufacturer and sourcing lists and pricing and marketing arrangements with
customers, licensors or suppliers) and Seller and Stockholders will cooperate
reasonably with Buyer in preserving such proprietary, confidential or secret
aspects of the Business; provided, however, that nothing herein shall prohibit
Seller or a Stockholder from complying with any order or decree of any court of
competent jurisdiction or Governmental Authority, but the disclosing Party will
give Buyer timely notice of the receipt of any such order or decree.
SECTION 8.07 NON-COMPETITION.
(a) Seller agrees that for five (5) years from and after the Closing
Date, it shall not, anywhere in the United States, Canada, Mexico or elsewhere
in the World where the Business is conducted, directly or indirectly, as a
partner, joint venturer, investor, lender, manager, licensor, manufacturer,
retailer or otherwise, engage in any business that is the same as,
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similar to or competitive with the Business, or own stock or otherwise have an
interest in or be affiliated with any person, corporation, firm, partnership or
other entity engaged in any such business.
(b) Seller will not, for a period of four (4) years from the Closing
Date: (i) hire or offer to hire (as an employee, independent contractor or
otherwise) any of the directors, officers or employees of Phoenix or any of its
Subsidiaries, including Buyer, (ii) interfere with, entice away or in any other
manner persuade or attempt to have the licensors who have licensed Intellectual
Property to Phoenix or any of its Subsidiaries, including Buyer, to discontinue
or adversely modify their license relationships with Phoenix or any of its
Subsidiaries, including Buyer; (iii) contract, solicit, divert, or attempt to
divert from Phoenix or any of its Subsidiaries, including Buyer, any business
whatsoever by influencing or attempting to influence any customer of Phoenix or
any of its Subsidiaries, including Buyer, or any prospective client or customer
with whom Phoenix or any of its Subsidiaries, including Buyer, has engaged in
sales discussions; or (iv) contract, solicit, divert, or attempt to divert from
Phoenix or any of its Subsidiaries, including Buyer, any supplier, licensor,
vendor, manufacturer, sales representative or distributor.
(c) Seller and Stockholders agree that a violation of Sections 8.06,
8.07(a) or 8.07(b) will cause irreparable injury to Buyer, and Buyer will be
entitled, in addition to any other rights and remedies it may have at law or in
equity, to apply for an injunction enjoining and restraining Seller from doing
or continuing to do any such act and any other violations or threatened
violations of Sections 8.06 or 8.07 hereof without the necessity of posting a
bond or undertaking.
(d) Seller and Stockholders acknowledge and agree that the covenants
set forth in Sections 8.06 and 8.07 are reasonable and valid in geographical and
temporal scope and in all other respects. If any of such covenants are found to
be invalid or unenforceable by a final determination of a court of competent
jurisdiction (i) the remaining terms and provisions hereof shall be unimpaired
and (ii) the invalid or unenforceable term or provision shall be deemed replaced
by a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision. In
the event that, notwithstanding the first sentence of this Section 8.07(d), any
of the provisions of this Section 8.07 relating to the geographic or temporal
scope of the covenants contained therein or the nature of the business
restricted thereby shall be declared by a court of competent jurisdiction to
exceed the maximum restrictiveness such court deems enforceable, such provision
shall be deemed to be replaced herein by the maximum restriction deemed
enforceable by such court.
SECTION 8.08 SECURITIES LAW RESTRICTIONS.
(a) Until after the Phoenix Closing Shares have been released by the
Escrow Agent from escrow under the terms of the Escrow Agreement, Seller agrees
not to make any disposition of all or any portion of the Closing Phoenix Shares
unless all of the proceeds therefrom are deposited with the Escrow Agent to be
held pursuant to the terms of the Escrow Agreement. Further, Seller agrees not
to make any disposition of all or any portion of the Phoenix Shares unless and
until: (i) there is then in effect a registration statement under the Securities
Act covering such proposed
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disposition and such disposition is made in accordance with such registration
statement; or (ii) Seller shall have notified Buyer of the proposed disposition
and shall have furnished Buyer with a statement of the circumstances surrounding
the proposed disposition and unless waived by Buyer, Seller shall have received
an opinion of counsel acceptable to Buyer providing that such disposition will
not require registration of such securities under the Securities Act or any
other applicable securities laws and the transferee agrees to be bound by the
restrictions herein with respect to the Phoenix Shares.
(b) Seller acknowledges and agrees that the certificates
representing the Phoenix Shares shall bear substantially the following legend:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"),
or under any other applicable securities laws in reliance upon
various exemptions therefrom. These shares have been acquired for
investment and may not be offered for sale, sold, transferred, or
otherwise disposed of, nor will any assignee or transferee thereof
be recognized by the Company as having any interest in such shares,
in the absence of (i) an effective registration statement with
respect to the shares under the Securities Act, or (ii) an opinion
of counsel to the effect that the transaction by which such shares
will be offered for sale, sold, transferred, or otherwise disposed
of, is exempt from or otherwise in compliance with the registration
requirements of the Securities Act and any other applicable
securities laws. The shares represented by this certificate may not
be sold, transferred, or otherwise disposed of, nor will any
assignee or transferee thereof be recognized by the Company as
having any interest in such shares, unless such sale, transfer or
disposition is otherwise in accordance with the terms of an Asset
Purchase Agreement dated April 18, 2005 among the Company and
certain others and a Registration Rights Agreement, dated as of
April 18, 2005 among the Company and certain others.
SECTION 8.09 OPERATIONS DURING CONTINGENT EARN-OUT PERIODS.
(a) During the Contingent Earn-Out Periods, Buyer shall: (i) operate
the Business to the extent consistent with orders received from its customers,
(ii) maintain in full force and effect policies of insurance with respect to the
Business and the assets used in such business; and (iii) make expenditures in
connection with the Business in conformity with the Revised Fiscal 2005, 2006
and 2007 Budgets to the extent the revenues for the Business are consistent with
those set forth in such budgets. Subject to the foregoing, Seller and the
Stockholders specifically agree that from and after the Closing, Buyer may
operate the Business as Buyer shall determine in its sole discretion and shall
be entitled to change the business plans and practices of the Business as Buyer
determines in its sole discretion. Accordingly, Seller and Stockholders further
acknowledge and agree that Seller's right to receive the Contingent Additional
Consideration does not create in Seller or Stockholders any right to control or
direct the management of the Business following the Closing. Seller and
Stockholders acknowledge and agree that, so long as Buyer observes Section
8.09(a) and (c), neither Seller nor the Stockholders will have any claim or
legal rights or remedies against Phoenix or Buyer, and
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neither Phoenix nor Buyer will have any Liabilities with respect to the amount
of the Additional Contingent Consideration that is determined to be due and
payable under this Agreement (except for claims that such determination is not
made in accordance with Section 2.05 of this Agreement), regardless of the basis
or legal theory therefor. Seller's claims with respect to Section 8.09(c) shall
be limited to specific performance and equitable relief under Section 8.09(c).
(b) If Buyer breaches its obligations under Section 8.09(a), then
the sole and exclusive remedy of Seller and Stockholders for such breach shall
be for Seller's Agent to provide Buyer with written notice thereof (which notice
shall set forth in reasonable detail the nature of the breach) within one
hundred twenty (120) days after such breach or if earlier the last day of the
Second Contingent Earn-Out Period and if Buyer fails to cure such breach within
thirty (30) days after receipt of such written notice, then for purposes of
determining the Net Contribution of the Business for the remaining Contingent
Earn-Out Periods, there shall be added to the Net Contributions the additional
operating earnings to the extent that the breach caused the Business not to
recognize operating earnings during such Contingent Earn-Out Period.
(c) Buyer and Phoenix shall keep complete and accurate books and
records that are sufficient to determine the amounts payable as Contingent
Additional Consideration and Buyer's and Phoenix's compliance with the terms and
conditions of this Agreement. Buyer and Phoenix shall maintain such books and
records through the Second Contingent Earn-Out Period and for three (3) years
thereafter. Seller's Agent and his Representatives shall have the right, at
Seller's expense, to inspect and audit Buyer's and Phoenix's books and records
for the purpose of verifying that Buyer and Phoenix have complied with the terms
and conditions of this Agreement including the amounts due hereunder. Such
audits will be made not more than quarterly, on not less than fifteen (15) days
prior written notice to Buyer and Phoenix, during regular business hours.
ARTICLE IX
SURVIVAL; INDEMNIFICATION
SECTION 9.01 EXPIRATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in this Agreement (other than the representations
and warranties contained in Sections 3.01, 3.02, 3.03, 3.04, 3.05(a), 3.06, 3.11
and 3.31) shall survive the Closing until the last day of the 18th month after
the Closing Date, at which time they shall terminate; provided that (i) the
representations and warranties contained in Sections 3.01, 3.02, 3.03, 3.04,
3.05(a), 3.06, and 3.31 shall survive the Closing indefinitely and (ii) the
representations and warranties contained in Section 3.11 shall survive the
Closing until ninety (90) days after the expiration of the statute of
limitations with respect to which claims can be made by third parties with
respect to the matters set forth therein. Notwithstanding the foregoing if prior
to the stated expiration of any representation and warranty there shall have
been given notice of indemnification claim by a Person, such Person shall
continue to have the right to such indemnification with respect to such noticed
claim notwithstanding such expiration.
SECTION 9.02 INDEMNIFICATION BY SELLER AND STOCKHOLDERS.
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(a) From and after the Closing Date, Seller shall indemnify, save
and hold harmless Phoenix and Buyer, and their respective directors, officers
and stockholder and Representatives of any of them (collectively, "BUYER
INDEMNITEES") from and against any and all Losses asserted against, resulting
to, imposed on, sustained, incurred or suffered by any of them (except to the
extent included in the Assumed Liabilities) based upon, arising out of, related
to or otherwise in respect of any of the following:
(i) subject to the limitations set forth in Section 9.06,
(A) the inaccuracy in or breach of any representation or warranty of Seller or
any Stockholder (or any allegation by any third party which if true would
constitute such a breach) contained in this Agreement or any certificate
delivered by Seller in connection with this Agreement, and (B) any action, suit
or proceeding based upon, arising out of, related to or otherwise in respect of
any thereof;
(ii) subject to the limitations set forth in Section 9.06
with respect only to a breach of Section 5.08 to the extent based on the
inaccuracy or breach of any representations or warranties of Seller, (A) any
failure to perform or observe or any breach of any covenant or agreement made by
Seller or any Stockholder or any of their respective Affiliates in or pursuant
to this Agreement or any Ancillary Agreement (other than the Employment
Agreements and the Non-Competition Agreements) and (B) any action, suit or
proceeding based upon, arising out of, related to or otherwise in respect of any
thereof;
(iii) (A) any failure by Seller to pay, perform or discharge
when due any Liability of Seller not constituting Assumed Liabilities and (B)
any action, suit or proceeding based upon, arising out of, related to or
otherwise in respect of any thereof; or
(iv) Taxes assessed on, or expenses attributable to, any of
the Leases included in the Assigned Contracts for the period prior to the
Closing Date (such that Seller shall have borne all real property Taxes and all
expenses attributable thereto allocable to the period prior to the Closing
Date), in each case net of any amount previously paid under Section 2.03(c).
(b) Subject only to the limitations set forth in Section 9.06(b) and
(c), from and after the Closing Date each Stockholder shall indemnify, save and
hold harmless the Buyer Indemnitees from and against any and all Losses asserted
against, resulting to, imposed on, sustained, incurred or suffered by any of
them based upon, arising out of, related to or otherwise in respect of the
inaccuracy in or breach of any representation or warranty of such Stockholder
contained in the first paragraph of Article III and any action, suit or
proceeding based upon, arising out of, related to or otherwise in respect of any
breach of any such representation or warranty of such Stockholder. From and
after the Closing Date, each Stockholder severally agrees on a Pro Rata Share
basis amongst themselves to indemnify, save and hold harmless the Buyer
Indemnitees from and against any and all Losses asserted against, resulting to,
imposed on, sustained, incurred or suffered by any them based upon, arising out
of, related to or otherwise in respect of any of the following:
(i) subject to the limitations set forth in Section 9.06, (A)
the inaccuracy in or breach of any representation or warranty of Seller
contained in this Agreement (or any allegation by any third party which if true
would constitute such a breach) or any
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certificate delivered by Seller in connection with this Agreement, and (B) any
action, suit or proceeding based upon, arising out of, related to or otherwise
in respect of any thereof;
(ii) subject to the limitations set forth in Section 9.06
solely with respect to any breach of Section 5.08 based on the inaccuracy or
breach of any representations or warranties of Seller, (A) any failure to
perform or observe or breach any covenant or agreement made by Seller or any
Stockholder or any of their respective Affiliates in or pursuant to this
Agreement or any Ancillary Agreement (other than the Employment Agreements and
the Non-Competition Agreements) and (B) any action, suit or proceeding based
upon, arising out of, related to or otherwise in respect of any thereof;
(iii) (A) any failure by Seller to pay, perform or discharge
when due any Liability of Seller not constituting Assumed Liabilities and (B)
any action, suit or proceeding based upon, arising out of, related to or
otherwise in respect of any thereof; or
(iv) Taxes assessed on, or expenses attributable to, any of
the Leases included in the Assigned Contracts for the period prior to the
Closing Date (such that Seller shall have borne all real property Taxes and all
expenses attributable thereto allocable to the period prior to the Closing
Date), in each case net of any amount previously paid under Section 2.03(c).
(c) Without limiting the generality of the foregoing, from and after
the Closing and subject to the limitations set forth in Section 9.06(b) and (c),
Seller and, on a several basis amongst themselves based on their respective Pro
Rata Shares, the Stockholders agree to indemnify and hold harmless Buyer
Indemnitees from and against all Losses asserted against, resulting to, imposed
on, sustained, incurred or suffered by any of Buyer Indemnitees, directly or
indirectly (except to the extent included in the Assumed Liabilities), by reason
of or resulting from (i) any Liability of Buyer Indemnitees arising from the
non-compliance with any applicable bulk transfer laws or Article 6 of the
Uniform Commercial Code, (ii) any claim relating to any failure to comply with
Environmental, Health and Safety Requirements, or pollution or threat to human
health or the environment that is related in any way to the management, use,
control, ownership or operation of the Business, including all on-site and
off-site activities, and that occurred, existed, arises out of conditions or
circumstances that occurred or existed, or was caused, on or before the Closing
Date, regardless of whether learned or disclosed to Buyer, (iii) any and all
Liabilities relating to employment of persons by Seller or for wages, salary,
bonuses, commissions, fees, vacation or sick pay and payroll overheads except
for wages of any Transferred Employees for the last pay period immediately prior
to Closing to the extent accrued for and disclosed in the Closing Working
Capital Statement, (iv) any and all Taxes of Seller for all taxable periods,
whether before, on or after the Closing Date (except to the extent allocated to
Buyer with respect to the Leased Real Property or the Leases pursuant to
Sections 2.03(c) of this Agreement), (v) any and all Liability relating to any
Benefit and Compensation Plans sponsored, maintained or contributed to or
required to be contributed to by Seller, (vi) any conflict, violation, breach or
default by Seller described in Section 3.03(a) or 3.03(b) and (vii) any
unauthorized use, misappropriation, dilution or infringement of any trademarks
by Seller at any time.
(d) The liquidation or dissolution of Seller shall not terminate or
adversely modify or affect the rights of Buyer against any Stockholder under
this Agreement, including
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pursuant to this Article IX. Notwithstanding anything herein to the contrary, it
shall be a condition to the dissolution of Seller, that the Stockholders (i)
jointly and severally assume Seller's liability under this Article IX to the
extent of the Phoenix Closing Shares and other assets held by the Escrow Agent
and (ii) severally on a Pro Rata Share basis amongst themselves with respect to
all other assets (including the Phoenix Closing Shares and other assets held by
the Escrow Agent following their release by Escrow Agent), in each case limited
to the extent such assets or rights thereto are distributed by Seller to the
Stockholders. Subject to the aggregate dollar limitations in Section 9.06, the
obligations of Seller, on the one hand, and the obligations of the Stockholders,
on the other hand, as set forth herein are independent of one another and Buyer
shall not be limited as to which Party it may pursue for any obligations of
Seller and Stockholders hereunder.
SECTION 9.03 INDEMNIFICATION BY BUYER. From and after the Closing, Buyer
shall indemnify, save and hold harmless Seller and its officers, directors and
stockholders and Representatives of any of them (collectively, "SELLER
INDEMNITEES") from and against any and all Losses asserted against, resulting
to, imposed on, sustained, incurred or suffered by any them based upon, arising
out of, related to or otherwise in respect of any of the following:
(a) (A) subject to the limitations set forth in Section 9.07, any
inaccuracy or breach of any representation or warranty by Buyer contained in
this Agreement or any certificate delivered by Buyer in connection with this
Agreement and (B) any action, suit or proceeding based upon, arising out of,
related to or otherwise in respect of any thereof;
(b) subject to the limitations set forth in Section 9.07 solely with
respect to any breach of Section 5.08 based on the inaccuracy or breach of any
representations or warranties of Buyer, any failure to perform or observe or any
breach of any covenant or agreement made by Buyer in or pursuant to this
Agreement (excluding, however, Section 8.09) or by Buyer or Phoenix in any
Ancillary Agreement, including but not limited to any Liability of Seller under
the WARN Act, but solely to the extent caused by Buyer's breach of Section 5.05,
and (B) any action, suit or proceeding based upon, arising out of, related to or
otherwise in respect of any thereof;
(c) (A) any failure to pay, perform or discharge when due any of the
Assumed Liabilities (for avoidance of doubt, except for Losses to the extent
attributable to a breach by Seller of any Assigned Contract prior to Closing)
and (B) any action, suit or proceeding based upon, arising out of, related to or
otherwise in respect of any thereof; or
(d) Taxes assessed on, or expenses attributable to, any of the
Leases included in the Assigned Contracts for the period after the Closing Date
(such that Buyer shall have borne all real property Taxes and all expenses
attributable thereto allocable to the period after the Closing Date), in each
case net of any amount previously paid under Section 2.03(c).
SECTION 9.04 NOTICE OF CLAIMS. Except as provided in Section 9.05, if any
Buyer Indemnitee or Seller Indemnitee (an "INDEMNIFIED PARTY") believes that it
has suffered or incurred any Losses for which it is entitled to indemnification
under this Article IX, such Indemnified Party shall so notify the Party from
whom indemnification is being claimed (the "INDEMNIFYING PARTY") with reasonable
promptness and reasonable particularity in light of the
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circumstances then existing. If any claim is instituted by or against a third
party with respect to which any Indemnified Party intends to claim
indemnification under this Article IX, such Indemnified Party shall promptly
notify the Indemnifying Party of such claim. The notice provided by the
Indemnified Party to the Indemnifying Party shall describe the claim (the
"ASSERTED LIABILITY") in reasonable detail and shall indicate the amount (or an
estimate) of the Losses that have been or may be suffered by the Indemnified
Party. The failure of an Indemnified Party to give any notice required by this
Section 9.04 shall not affect any of the Indemnified Party's rights under this
Article IX or otherwise except and to the extent that such failure is
prejudicial to the rights or obligations of the Indemnifying Party.
SECTION 9.05 OPPORTUNITY TO DEFEND THIRD PARTY CLAIMS.
(a) Any Indemnifying Party will have the right to defend the
Indemnified Party against any third party claim for which it is entitled to
indemnification from such Indemnifying Party under this Article IX with counsel
reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying
Parties notifies the Indemnified Party in writing within fifteen (15) days after
the Indemnified Party has given notice of the third party claim that all of the
Indemnifying Parties will indemnify the Indemnified Party from and against the
entirety of Losses the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the third party claim, subject,
however, to the limitations set forth in Section 9.06(b) and (c) ,(ii) the
Indemnifying Parties provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Parties will have the
financial resources to defend against the third party claim and fulfill their
indemnification obligations hereunder, (iii) the third party claim involves only
money damages and does not seek an injunction or other equitable relief, (iv)
settlement of, or an adverse judgment with respect to, the third party claim is
not, in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of the Indemnified Party, and (v) the Indemnifying Parties diligently
conducts the defense of the third party claim.
(b) Notwithstanding the foregoing, the Indemnifying Parties shall
not settle or compromise any third party claim or consent to the entry of a
judgment in connection therewith that: (i) does not provide for the claimant to
give an unconditional release to the Indemnified Party in respect of the
Asserted Liability; (ii) involves relief other than monetary damages; (iii)
places restrictions or conditions on the operation of the business of the
Indemnified Party or any of its Affiliates; or (iv) involves any finding or
admission of liability or of any Legal Requirements.
(c) So long as the Indemnifying Party has undertaken to conduct the
defense of the third party claim in accordance with Section 9.05(a), (i) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the third party claim, (ii) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the third party claim without the prior written consent of the
Indemnifying Party, and (iii) the Indemnifying Party shall keep the Indemnified
Party informed as to the status of the claim for which it is providing a
defense. Notwithstanding the foregoing or Section 9.05(a), in the event that (w)
any of the conditions in Section 9.05(a)(i) is or becomes unsatisfied or; (x)
the Indemnifying Party shall not have employed counsel reasonably
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satisfactory to the Indemnified Party to defend such action within thirty (30)
days after the Indemnifying Party received notice of the Asserted Liability; (y)
the Indemnified Party shall have reasonably concluded, based upon written advice
of counsel, that it has defenses available to it that are different from or
additional to those available to the Indemnifying Party (in which case the
Indemnifying Party shall not have the right to direct the defense of such action
on behalf of the Indemnified Party with respect to such different defenses); or
(z) representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding, then the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the third party claim in any manner it may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith) and, the Indemnifying Parties will
be responsible for the Indemnified Party's costs of defending against the third
party claim (including reasonable attorneys' fees and expenses), and the
Indemnifying Parties will remain responsible for the entirety of the Losses the
Indemnified Party may suffer resulting from, arising out of, relating to, in the
nature of, or caused by the third party claim, subject, however, to the
limitations set forth in Section 9.06(b) and (c).
SECTION 9.06 LIMITATION OF LIABILITY OF SELLER AND STOCKHOLDERS.
(a) Seller and Stockholders shall not be obligated to provide any
indemnification under Sections 9.02(a)(i) and (ii) and 9.02(b) (i) and (ii) with
respect to any inaccuracy or breach of Seller's representations and warranties
except to the extent the aggregate amount the Losses for which indemnification
otherwise be due thereunder with respect thereto exceeds the sum of $200,000,
provided that in the event that the amount of such Losses incurred by Buyer
Indemnitees exceeds $200,000, then Seller and Stockholders shall be obligated to
provide such indemnification from the first dollar of the Losses of the Buyer
Indemnitees; provided, further, that in the case of any indemnification under
Sections 9.02(a)(i) or (ii) and 9.02(b)(i) or (ii) based on any inaccuracy or
breach of Seller's representations or warranties under Sections 3.01, 3.02,
3.03, 3.04, 3.05(a), 3.06, 3.11 and 3.31, respectively, the indemnification
obligation of Seller and Stockholders shall not be subject to $200,000 threshold
and shall instead begin with the first dollar of Losses incurred by the Buyer
Indemnitees. Notwithstanding anything herein to the contrary, in no event shall
Seller and Stockholders be obligated to make indemnification payments under
Sections 9.02(a)(i) and (ii) and 9.02(b)(i) and (b)(ii) solely with respect to
the inaccuracy or breach of Seller's representations and warranties if such
payments would exceed $4,000,000 in the aggregate other than for indemnification
claims based, arising out of, related to or otherwise in respect of the
inaccuracy or breach of any representations or warranties contained in Sections
3.01, 3.02, 3.03, 3.04, 3.05(a), 3.06, 3.11 and 3.31, as to which Seller's and
Stockholders' obligations to make indemnification payments shall not exceed the
Purchase Price.
(b) In no event shall (i) the maximum aggregate liability of Seller
to Buyer under this Agreement exceed the Purchase Price, (ii) the maximum
aggregate liability of Stockholders to Buyer under this Agreement exceed the
Purchase Price (and the maximum liability of each Stockholder shall be such
Stockholder's Pro Rata Share of such amount), and (iii) the aggregate liability
of Seller and the Stockholders under (i) and (ii) exceed the Purchase
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Price. The second sentence of Section 9.09 shall not apply solely for purposes
of determining the limitation under this Section 9.06.
(c) Notwithstanding anything herein or elsewhere to the contrary,
the limitations in this Section 9.06 shall not apply respect to claims involving
intentional misrepresentation, fraud, or willful misconduct by Seller or any
Stockholder, including any indemnification by Stockholder of any intentional
misrepresentations, fraud or willful misconduct by Seller.
SECTION 9.07 LIMITATION OF LIABILITY OF BUYER.
(a) Buyer shall not be obligated to provide any indemnification
under Section 9.03(a) and (b) with respect to Buyer's representations and
warranties except to the extent the aggregate amount of the Losses for which
indemnification would otherwise be due thereunder exceeds the sum of $200,000,
after which Buyer shall be obligated to provide such indemnification from the
first dollar of the Losses; provided, further, that in the case of any
indemnification claim based on, arising out of, related to or otherwise in
respect of any inaccuracy or a breach of any representation or warranty under
Sections 4.01, 4.02 and 4.05, respectively, Buyer's indemnification obligation
shall not be subject to the $200,000 threshold and shall instead begin with the
first dollar of Loss. Notwithstanding anything herein to the contrary, in no
event shall the aggregate liability of Buyer under this Agreement exceed
$2,000,000, excluding, however, any payments of the Purchase Price and
Contingent Additional Consideration pursuant to Section 2.05 above, if any, and
all Liability for the Assumed Liabilities.
(b) The limitations in this Section 9.07 shall not apply respect to
claims involving intentional misrepresentation, fraud, or willful misconduct by
Buyer.
SECTION 9.08 RIGHT OF SET-OFF.
(a) Each of Seller and Stockholders agree and acknowledge that Buyer
shall have the right in accordance with the terms of this Section 9.08, but not
the obligation, to set-off against all or any portion of the Contingent
Additional Consideration payable pursuant to Section 2.05 and against any
payments due under a Stockholder's Non-Competition Agreement any Losses claimed
by a Buyer Indemnitee pursuant to this Article IX or any damages or payment
obligations based upon, arising out of, related to or otherwise in respect of
this Agreement or any of the Ancillary Agreements (other than the Employment
Agreements and the Non-Competition Agreements except that a set-off shall be
available with respect to any breach thereof).
(b) If a Buyer Indemnitee has previously delivered one or more
notices of claims to indemnification in accordance with Section 9.04 of this
Agreement or notice of a claim payment hereunder or under any of the Ancillary
Agreements (other than the Employment Agreements and the Non-Competition
Agreements except that a set-off shall be available with respect to any breach
thereof) prior to the time that any Contingent
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Additional Consideration is due from Buyer, Buyer may give written notice to
Seller of its election to exercise its set-off rights under this Section 9.08,
which notice shall include a calculation of the set-off-amount. With respect to
unresolved claims, Buyer shall be entitled to withhold from any Contingent
Additional Consideration then due and owing an amount equal to the amount of the
Losses set forth in the indemnification notice for the unresolved claims set
forth therein and in any other case the amount determined by Buyer to be a
reasonable damage amount for such claim for purposes of determining the set-off
amount. Any portion of the Contingent Additional Consideration that is withheld
on the basis of an unresolved claim shall become due and payable with fifteen
(15) business days after the claim has been fully and finally resolved by a
binding agreement among the Parties or a final, non-appealable decision of a
court of competent jurisdiction. The procedures for set-off under the
Non-Competition Agreements shall be as set forth therein.
SECTION 9.09 INDEMNITY PAYMENTS, ETC. Indemnity payments shall be due upon
demand. Interest shall accrue on any indemnity payments from the date of demand
until paid in full at the Applicable Rate. Any indemnification payment made
pursuant to this Article IX shall be treated, to the extent permitted or
required by law, by all Parties as an adjustment to the Purchase Price.
SECTION 9.10 ESCROW. The Closing Phoenix Shares shall be retained by the
Escrow Agent in accordance with the terms of the Escrow Agreement, and the
Closing Phoenix Shares shall secure Seller's indemnification obligations under
Section 9.02 and or any damages or payment obligations based upon, arising out
of, related to or otherwise in respect of this Agreement or any of the Ancillary
Agreements (other than the Employment Agreements and the Non-Competition
Agreements). After the Closing, the Phoenix Closing Shares shall be released
from escrow to Seller and Buyer in accordance with the terms of the Escrow
Agreement.
SECTION 9.11 EXCLUSIVITY. From and after the Closing, any claim or cause
of action (whether such claim sounds in tort, contract or otherwise and
including statutory rights and remedies) based upon, relating to or arising out
of the representations and warranties in this Agreement must be brought by a
party in accordance with the provisions and applicable limitations of this
Article IX, which in the absence of intentional misrepresentation, fraud or
willful misconduct, shall constitute the sole and exclusive remedy with respect
to such representations and warranties for all Parties, their affiliates,
successors and assigns and all Persons who may claim any rights through them,
for any such claim or cause of action This Section 9.11 and the other
limitations of this Article IX shall not apply to any claims based on
intentional misrepresentation, fraud or willful misconduct by a Party.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written approval
of the other Party; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Party prior to making the disclosure).
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SECTION 10.02 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
SECTION 10.03 ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) together with a Confidentiality Agreement executed
concurrently herewith constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they relate in any way to
the subject matter hereof.
SECTION 10.04 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party; provided, however, that Buyer may assign any or all
of its rights and interests hereunder to anyone who purchases substantially all
of the Business after the date hereof or to any corporation controlling,
controlled by, or under common control with Phoenix, or who provides financing
to Buyer and/or Phoenix and the covenants and provisions of this Agreement shall
continue and inure to the benefit of such assignees. Neither Seller nor
Stockholders may assign any of its or their rights or obligations under this
Agreement; provided however, that upon the final liquidation and dissolution of
Seller (as evidenced by documentation delivered to Buyer and Phoenix), Seller
shall be permitted to assign its rights and obligations under this Agreement and
the Registration Rights Agreement to Stockholders, subject to all liabilities
and obligations of Seller to Buyer and Phoenix pursuant to documentation
delivered to and satisfactory to Buyer and Phoenix; but such assignment shall
not modify, reduce, or release any obligation of Seller or Stockholders under
this Agreement (and any documents or instruments delivered hereunder) or the
Registration Rights Agreement, all of which shall remain in full force and
effect and enforceable against Stockholders, notwithstanding the liquidation and
dissolution of Seller and the assignment to the Stockholders.
SECTION 10.05 COUNTERPARTS. This Agreement may be executed in one or more
counterparts (including by means of facsimile), each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
SECTION 10.06 HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.07 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) when
delivered personally to the recipient, (ii) one (1) business day after being
sent to the recipient by reputable overnight courier service (charges prepaid),
(iii) one (1) business day after being sent to the recipient by facsimile
transmission or electronic mail, or (iv) four (4) business days after being
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid, and addressed to the intended recipient as set
forth below:
If to Seller:
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Chambers Belt Company
3230 East Broadway
Suite A-200
Phoenix, Arizona 85040
Attention: Charles Stewart, President
With Copy to:
Osborn Maledon, P.A.
The Phoenix Plaza
2929 North Central Avenue
Twenty-First Floor
Phoenix, AZ 85012-2794
Attention: Thomas H. Curzon, Esq.
If to Stockholders, to the addresses set forth on EXHIBIT L.
If to Buyer:
Chambers Delaware Acquisition Company
c/o Phoenix Footwear Group, Inc.
5759 Fleet Street, Suite 220
Carlsbad, California 92008
Attention: James Riedman, Chairman of the Board
With a copy to:
Woods Oviatt Gilman LLP
700 Crossroads Building
2 State Street
Rochester, New York 14614
Attn: Gordon E. Forth, Esq.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
SECTION 10.08 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
SECTION 10.09 AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Buyer and Seller. No
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waiver by any Party of any provision of this Agreement or any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be valid unless the same shall be in writing and
signed by the Party making such waiver nor shall such waiver be deemed to extend
to any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such default, misrepresentation, or breach of warranty or
covenant.
SECTION 10.10 SEVERABILITY. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
SECTION 10.11 EXPENSES. Each Party will bear his, her, or its own costs
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the Ancillary Agreements and the transactions contemplated
hereby and thereby. Without limiting the generality of the foregoing, all
transfer, documentary, sales, use, stamp, registration and other such Taxes, and
all conveyance fees, recording charges and other fees and charges (including any
penalties and interest) incurred in connection with the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements shall
be paid by Seller when due, and Seller will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such Taxes,
fees and charges, and, if required by applicable law, the Parties will, and will
cause their Affiliates to, join in the execution of any such Tax Returns and
other documentation.
SECTION 10.12 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) that the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
SECTION 10.13 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
SECTION 10.14 SPECIFIC PERFORMANCE. Each Party acknowledges and agrees
that the other Party would be damaged irreparably in the event any provision of
this Agreement is not performed in accordance with its specific terms or
otherwise is breached, so that a Party shall be
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entitled to injunctive relief to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in addition to any other remedy to which such Party may be
entitled, at law or in equity. In particular, the Parties acknowledge that the
business of Seller is unique and recognize and affirm that in the event Seller
and/or Stockholders breach this Agreement, money damages would be inadequate and
Buyer would have no adequate remedy at law, so that Buyer shall have the right,
in addition to any other rights and remedies existing in its favor, to enforce
its rights and the other Parties' obligations hereunder not only by action for
damages but also by action for specific performance, injunctive, and/or other
equitable relief.
SECTION 10.15 SUBMISSION TO JURISDICTION. Each of the Parties submits to
the jurisdiction of any state or federal court sitting in the State of Delaware,
in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto.
SECTION 10.16.SELLERS' AGENT. Sellers' Agent shall act for and on behalf
of Seller and Stockholders to make all decisions, determinations and agreements
with respect to the Final Working Capital Statement, the Contingent Additional
Consideration and any post-closing payments provided for under Article II, and
to make claims for indemnification on behalf of the Seller and Stockholders or
to accept responsibility for claims for indemnification made against Seller and
Stockholders pursuant to this Agreement, to release Closing Phoenix Shares or
other assets held in escrow pursuant to the Escrow Agreement, to give and
receive notices and communications on behalf of Seller and Stockholders as set
forth in this Agreement, to waive conditions to Closing and to terminate this
Agreement and to otherwise take all actions necessary or appropriate in the
judgment of Sellers' Agent for the accomplishment of the foregoing. No bond
shall be required of the Sellers' Agent. Notices or communications to or from
Sellers' Agent shall constitute notice to or from each of Seller and each
Stockholder. Sellers' Agent shall not be liable to Seller or Stockholders for
any act done or omitted hereunder as Sellers' Agent while acting in good faith
and in the exercise of reasonable judgment, and any act done or omitted pursuant
to the advice of counsel shall be conclusive evidence of such good faith. Seller
and Stockholders shall severally indemnify Sellers' Agent and hold him harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on the part of the Sellers' Agent and arising out of or in connection with
the acceptance or administration of his duties hereunder. A decision, act,
consent or instruction of the Sellers' Agent shall constitute a decision of
Seller and all Stockholders and shall be final, binding and conclusive upon
Seller and each Stockholders, and Buyer and Phoenix may rely upon any decision,
act, consent or instruction of Seller's Agent as being the decision, act,
consent or instruction of each and every such Seller. Sellers' Agent shall have
the right to assign his rights, powers and obligations hereunder to such other
Person as shall be acceptable to Seller and all Stockholders. Buyer is hereby
relieved from any liability to any person for any acts done by it in accordance
with such decision, act, consent or instruction of Sellers' Agent.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
CHAMBERS BELT COMPANY
By: /s/ Charles Stewart
--------------------------------------
Name: Charles Stewart
Title: President
CHAMBERS DELAWARE ACQUISITION COMPANY
By: /s/ James R. Riedman
--------------------------------------
Name: James R. Riedman
Title: Chairman
/s/ Charles Stewart
------------------------------------------
Charles Stewart
/s/ Gary Edman
------------------------------------------
Gary Edman
/s/ Kelly Green
------------------------------------------
Kelly Green
/s/ Scott Robinson
------------------------------------------
Scott Robinson
/s/ Dave Matheson
------------------------------------------
Dave Matheson
/s/ Scott Adelson
------------------------------------------
Scott Adelson
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