EXHIBIT ____
ASSET PURCHASE AGREEMENT
AMONG
DELTA APPAREL, INC.,
JUNKFOOD CLOTHING COMPANY,
LIQUID BLAINO DESIGNS, INC.,
NATALIE GROF, AND BLAINE HALVORSON
DATED AS OF AUGUST 22, 2005
----------------------------------
Schedules
<Table>
Schedule 1.2(a) Excluded Leases and Material Agreements
Schedule 1.6(a) Prototype Working Capital Methodologies
Schedule 2.1.1(a) Foreign Qualification
Schedule 2.1.2(a) Conflicts - Company
Schedule 2.1.2(c) Consents
Schedule 2.1.3(a) Financial Statements
Schedule 2.1.3(b) Liabilities
Schedule 2.1.5 Accounts Receivable
Schedule 2.1.7 Tangible Personal Property
Schedule 2.1.8 Real Property Leases
Schedule 2.1.9 Intellectual Property
Schedule 2.1.10 Insurance
Schedule 2.1.11 Material Agreements
Schedule 2.1.12 Litigation
Schedule 2.1.14(a) Compliance with Laws
Schedule 2.1.14(b) Permits
Schedule 2.1.15 Tax Matters
Schedule 2.1.16 ERISA
Schedule 2.1.19 Certain Changes
Schedule 2.1.2(a) Foreign Qualification
Schedule 2.2.2(a) Conflicts - Purchaser and Delta
Schedule 2.2.2(b) Consents - Purchaser and Delta
</Table>
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into as of
August 22, 2005 by and among Delta Apparel, Inc., a Georgia corporation
("Delta"), Junkfood Clothing Company, a Georgia corporation ("Purchaser"),
Liquid Blaino Designs, Inc. d/b/a Junkfood Clothing, a California corporation
(the "Company"), Natalie Grof, an individual resident of the state of
California, and Blaine Halvorson, an individual resident of the state of
California. Natalie Grof and Blaine Halvorson are sometimes referred to herein
as the "Owners." The Company and the Owners are sometimes referred to herein as
the "Sellers."
WITNESSETH
WHEREAS, the Company is in the business of designing, manufacturing,
marketing, and selling licensed and branded apparel (the "Business"); and
WHEREAS, Purchaser desires to acquire, and the Company desires to sell,
assign, and transfer to Purchaser, substantially all of the assets and
properties of the Business, all upon the terms and subject to the conditions set
forth herein (the "Acquisition");
NOW, THEREFORE, in consideration of the mutual promises made herein and
of the mutual benefits to be derived herefrom, the parties hereto agree as
follows (certain capitalized terms used in this Agreement are defined in Section
5.15 hereof):
ARTICLE 1.
SALE AND PURCHASE OF ASSETS
1.1 Sale and Purchase of Assets. Subject to all of the terms and
conditions of this Agreement and in reliance upon the representations and
warranties contained herein, on the Closing Date, the Company shall sell,
transfer, assign, convey, and deliver to Purchaser, and Purchaser shall
purchase, free and clear of all Liens (other than Permitted Liens), all right,
title, and interest of the Company in and to all of the assets and properties of
every nature, kind, and description, tangible and intangible, whether real,
personal, or mixed, whether contingent or otherwise, whether now existing or
hereinafter acquired, whether or not reflected on the Company's books, of or
relating to the Business, excluding only the Excluded Assets, as the same may
exist on the Closing Date (collectively, the "Assets"), including, without
limitation, all right, title, and interest of the Company in, to, and under:
(a) By assignment of the Leases, all of the Company's right, title, and
interest pursuant to the Leases to buildings, fixtures, and improvements located
on the real property subject to such Leases, and any and all assignable
warranties of third parties with respect thereto;
(b) All tangible assets of the Company, including all fixed assets,
equipment, tools, computers, terminals, computer equipment, telephones,
telephone systems, furniture, office equipment, and furnishings, including,
without limitation, the personal property listed on Schedule 2.1.7;
(c) All inventories of raw materials, supplies, work-in-process,
finished products, goods, spare parts, replacement and component parts, office
supplies, packaging material, and similar items;
(d) All designs, artwork, and similar items;
(e) All Accounts Receivable and amounts characterized as "due from
factor," in each case to the extent included in Closing Date Working Capital;
(f) All Intellectual Property, including all right, title, and interest
in and to the name "Junkfood Clothing", "Sweet and Sour", "Junkfood Gourmet",
"Vitamin T", and "Special Sauce", all goodwill associated therewith, and all
telephone numbers, telecopy numbers, websites, and e-mail addresses;
(g) All hardware and software owned, used, or held for use in the
conduct of the Business and any and all files and data contained on such
software;
(h) All customer lists, customer data, e-mail directories, and other
customer information relating to the Business;
(i) Except as provided in Sections 1.2(a) and 1.2(e), all contracts,
arrangements, licenses, leases, and other agreements relating to the Business,
including, without limitation, any right to receive payment pursuant to such
contracts, arrangements, licenses, leases, and other agreements;
(j) To the extent transfer is permitted by Applicable Law, all
licenses, permits, and orders issued by any Governmental Authority with respect
to the conduct of the Business, including, without limitation, those listed on
Schedule 2.1.14(b);
(k) All credits, prepaid rentals, and other prepaid expenses, deferred
charges, advance payments, security deposits, and prepaid items, in each case to
the extent included in Closing Date Working Capital;
(l) All interests in any insurance claims or rights to indemnity with
respect to any of the Assets or any of the Assumed Liabilities;
(m) All choses in action, claims, and demands of any nature against
third parties, whether by way of counterclaim or otherwise, with respect to the
ownership, use, function, or value of any of the Assets or the Assumed
Liabilities, regardless of when such choses in action, claims, and demands
arise;
(n) All books, records, files, invoices, data bases, computer programs,
manuals, and other materials (in any form or medium), including, without
limitation, sales and promotional materials, personnel records, accounting
records, sales order files, and supplier lists; and
(o) All goodwill attributable to the operation of the Business.
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1.2 Excluded Assets. Notwithstanding the foregoing or any other
provision of this Agreement to the contrary, the Company will retain and not
transfer, and Purchaser will not purchase or acquire, the following
(collectively, the "Excluded Assets"):
(a) Any and all Leases and Material Agreements set forth on Schedule
1.2(a);
(b) The Plans, the assets related thereto, and any records related
thereto;
(c) All cash and cash equivalents of the Business;
(d) The minute books and corporate records of the Company;
(e) All vehicles owned by the Company and all rights in, to and under
vehicle leases to which the Company is a party;
(f) All choses in action, claims, and demands of any nature against
third parties, whether by way of counterclaim or otherwise, with respect to the
ownership, use, function, or value of any of the Excluded Assets or relating to
any of the Excluded Liabilities, regardless of when such choses in action,
claims, and demands arise;
(g) All contracts of insurance and all interests in any insurance,
insurance claims, refunds, escrows, reserves, or rights to indemnity with
respect to any of the Excluded Assets or any of the Excluded Liabilities.
(h) All of the Company's claims for and rights to receive refunds for
Taxes; and
(i) All rights of the Company under this Agreement.
1.3 Closing. The purchase and sale of the Assets and the assumption of
the Assumed Liabilities contemplated hereby (the "Closing") shall be consummated
at the offices of Wyche, Burgess, Freeman & Parham, P.A. in Greenville, South
Carolina on August 22, 2005 or at such other place, time, or date as the parties
hereto may agree in writing (the "Closing Date"), to be effective as of
12:01.a.m. (California time) on the Closing Date.
1.4 Purchase Price. The purchase price to be paid to the Company for
the sale, transfer, and conveyance of the Assets (the "Purchase Price") shall be
the sum of:
(a) $20,000,000 payable by Delta to the Company in cash, in
immediately available funds, at Closing (the "Cash Purchase
Price") (Sellers acknowledge that Delta, in its discretion,
may cause Purchaser to pay the Cash Purchase Price to the
Company);
(b) $2,500,000 payable to the Company by execution and delivery at
Closing of a promissory note of Purchaser in the form attached
as EXHIBIT A-1 (the "Note"), guaranteed by Delta, in the form
attached hereto as EXHIBIT A-2 (the "Guaranty");
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(c) the Earnout Amounts, if any, payable as described in Section
1.5, which shall be paid by Delta (Sellers acknowledge that
Delta, in its discretion, may cause Purchaser to pay the
Earnout Amounts to the Company); and
(d) the Working Capital Adjustment. By way of clarification, if
the Working Capital Adjustment is a Deficit Amount, such
Working Capital Adjustment shall be subtracted from the
foregoing components to calculate the Purchase Price.
1.5 Earnout Amounts.
(a) With respect to each of Period 1, Period 2, Period 3, and Period 4,
the "Low EBIT," "Base EBIT," and "High EBIT" shall mean the EBIT amounts set
forth below.
<Table>
<Caption>
Period Low EBIT Base EBIT High EBIT
---------------------- ---------------------- ---------------------- -----------------------
Period 1 $5,241,649 $5,824,055 $9,032,877
Period 2 $6,113,000 $8,151,000 $13,000,000
Period 3 $7,173,000 $9,564,000 $15,000,000
Period 4 $8,415,000 $11,220,000 $17,500,000
</Table>
Subject to the reduction described in Section 1.5(b), if the actual EBIT of the
Business for any Period exceeds the Low EBIT for such Period, Delta shall pay
(or cause Purchaser to pay) to the Company an amount equal to the sum of the
following (the "Preliminary Earnout Amount"): (a) 35% of the amount of the
actual EBIT of the Business for such Period up to and including the Base EBIT
for such Period; (b) 70% of the amount of the actual EBIT of the Business for
such Period that exceeds the Base EBIT for such Period but is not greater than
the High EBIT for such Period; and (c) 50% of the amount of the actual EBIT of
the Business for such Period that exceeds the High EBIT for such Period. For
example, if the actual EBIT of the Business for Period 2 is $15,000,000, the
Preliminary Earnout Amount for Period 2 shall be $7,247,150 -- in the other
words, the sum of the following: .35x$8,151,000 + .70x($13,000,000-$8,151,000) +
..50x(15,000,000-$13,000,000).
(b) The Preliminary Earnout Amount, if any, for a Period shall be
reduced as follows:
(i) If the Working Capital Amount for any Period is equal to or less
than the Working Capital Limit for such Period, the Preliminary Earnout
Amount (if any) for such Period shall not be reduced and the full
amount of the Preliminary Earnout Amount (if any) shall be payable by
Delta to the Company (and in Delta's discretion, Delta may cause
Purchaser to pay the Preliminary Earnout Amount to the Company).
(ii) If the Working Capital Amount is greater than the Working Capital
Limit for such Period, the Preliminary Earnout Amount (if any) for such
Period shall be reduced by a percentage equal to 1/2 of the Percentage
Excess. The "Percentage Excess" means, with respect to each Period, the
percentage by which the Working Capital Amount exceeds the Working
Capital Limit. For example, if the Working Capital Amount for Period 2
is $8,000,000 and the Working Capital Limit for Period 2 is $5,000,000,
the Percentage Excess for Period 2 is 60% ($3,000,000/$5,000,000 x
100), and the Preliminary Earnout
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Amount shall be reduced by 30% (1/2x60%). Therefore, if the Preliminary
Earnout Amount for Period 2 is $7,247,150 and the Percentage Excess for
Period 2 is 60%, the Preliminary Earnout Amount shall be reduced by
30%, and the Earnout Amount payable by Delta to the Company with
respect to Period 1 shall be $5,073,005 (and Delta, in its discretion,
may cause Purchaser to pay the Earnout Amount to the Company).
The Preliminary Earnout Amounts, after any applicable reductions, shall be
referred to herein as the "Earnout Amounts."
(c) Subject to Section 1.5(d), within forty-five (45) days of the end
of each Period (the "Earnout Due Date"), Delta shall (i) send written notice of
its calculation of the Earnout Amount, if any, for each of Period 1, Period 2,
Period 3, and Period 4, as applicable (the "Earnout Calculation") to the
Company; and (ii) pay such Earnout Amount, if any, to the Company; provided,
however, that if there is an Earnout Dispute, Delta shall pay (or cause
Purchaser to pay) the Earnout Amount within ten (10) days after the earlier of
the resolution thereof or the issuance of the Earnout Adjustment Report, with
interest thereon as provided in the next succeeding sentence. Delta shall pay
(or cause Purchaser to pay) to the Company interest at a rate of nine percent
(9%) per annum on any Earnout Amount paid after the applicable Earnout Due Date,
with such interest accruing from and after the forty-fifth day to and including
the date of payment.
(d) Delta and Purchaser shall have the right, but not the obligation,
to set off against the Earnout Amounts the amount of any claim made by Delta or
Purchaser against the Company pursuant to this Agreement in accordance with the
following provisions.
(i) If Delta or Purchaser elects to exercise its set off rights
hereunder, Delta or Purchaser, as the case may be, shall give the
Company written notice of such election ("Set Off Notice"), which Set
Off Notice shall include the amount proposed to be set off and shall
set forth, in reasonable detail, the basis of the claim and the
circumstances giving rise to the alleged entitlement to such set off.
(ii) The Company shall have thirty (30) days after receipt of a Set Off
Notice to review such Set Off Notice (the "Set Off Review Period"). In
the event the Company has any objections or challenges to the exercise
of the set off right of Delta or Purchaser, the Company shall submit a
written notice of set off dispute ("Notice of Set Off Dispute") to
Delta during the Set Off Review Period, specifying in reasonable detail
the nature of any asserted objections or challenges; provided, however,
that the failure of the Company to provide the Notice of Set Off
Dispute within the Set Off Review Period shall not prejudice the right
of the Company later to challenge the set off in arbitration pursuant
to Section 5.13 below. In the event of any such dispute, Delta and the
Company shall negotiate in good faith to resolve such dispute for
thirty (30) days after receipt by Delta of the Notice of Set Off
Dispute. If Delta and the Company are unable to resolve such dispute
within such thirty (30)-day period, then Delta or Purchaser, as the
case may be, may set off the amount set forth in the Set Off Notice
against Earnout Amounts otherwise due (as and when such amounts become
due), subject to the right of the Company to challenge the set off (and
the underlying claim which gave rise to the set off) in arbitration
pursuant to Section 5.13 below.
5
(iii) In the event that there is a final determination in arbitration
proceedings pursuant to Section 5.13 that Delta or Purchaser, as the
case may be, was not entitled to recovery from the Company on the claim
as to which the set off was taken, Delta shall promptly pay to the
Company all such Earnout Amounts that are so determined to have been
incorrectly set off, plus interest, calculated from the date on which
payment for such Earnout Amount was due until the date payment for such
Earnout Amount is made, at a per annum rate equal to eleven percent
(11%).
(e) Disputes with respect to the determination of any Earnout Amount
shall be resolved as follows:
(i) The Company shall have thirty (30) days after receipt of an Earnout
Calculation (the "Earnout Dispute Period") to assert that any of the
elements of or amounts reflected on the Earnout Calculation are not
correct or that the Earnout Amount was arrived at other than in
accordance with the provisions of this Section 1.5 (an "Earnout
Dispute"). If the Company desires to assert an Earnout Dispute, then
the Company shall give Delta written notice of such dispute (an
"Earnout Dispute Notice") within the Earnout Dispute Period, setting
forth in reasonable detail the items with which the Company disagrees,
together with supporting calculations.
(ii) Within fifteen (15) days after delivery of an Earnout Dispute
Notice, if Delta and the Company shall be unable despite their
reasonable efforts to resolve the dispute set forth in the Earnout
Dispute Notice, Delta and the Company shall jointly (and as promptly as
possible) retain a nationally recognized firm of independent public
accountants mutually acceptable to them, the cost of which shall be
borne equally by Delta and the Company (and which costs shall not be
deducted in any calculation of EBIT). Such independent firm shall
review the Earnout Calculation (and, if necessary or appropriate in its
judgment, any related work papers of Purchaser) and the Earnout Dispute
Notice, and shall, as promptly as practicable and in no event later
than thirty (30) days following the date of its engagement, deliver to
Delta and the Company a report (the "Earnout Adjustment Report")
setting forth, in reasonable detail, its determination with respect to
all of the disputed items or amounts specified in the Earnout Dispute
Notice, and the revisions, if any, to be made to the calculation of the
Earnout Amount to reflect such determination, together with supporting
calculations. The Earnout Adjustment Report shall be final and binding
upon Purchaser, Delta, and Sellers.
(iii) If the Company does not deliver an Earnout Dispute Notice to
Delta within the Earnout Dispute Period, the applicable Earnout
Calculation delivered by Delta shall be deemed to have been accepted by
the Company in the form in which it was delivered by Delta and shall be
final and binding upon Purchaser, Delta, and Sellers.
(f) Accelerated Earnout Amounts.
(i) Termination of Employment. In the event that the employment of
Natalie Grof or Blaine Halvorson is terminated by Purchaser without
Cause, or by either of them for Good Reason (a "Terminated Executive"),
the Company (or its assignee(s)) shall, at its election, by notice
given to Delta within six (6) months of such termination, have the
6
right to require Delta to pay an Accelerated Earnout Amount to the
Company (or to such assignee(s)) with respect to each such Terminated
Executive; provided, however, that if such termination occurs in
Periods 2, 3, or 4, such right shall be exerciseable only if the actual
EBIT of the Business during the immediately preceding Period was equal
to or exceeded the Low EBIT for such Period. Delta shall pay to the
Company (or its assignee(s)) by wire transfer of immediately available
funds the Accelerated Earnout Amount within ten (10) days after
delivery of written notice of exercise of the Company's election. If no
such election for an Accelerated Earnout Amount is made, Earnout
Amounts shall be paid as and when otherwise provided in Section 1.5 of
this Agreement.
(ii) Change of Control. Upon a Change of Control, the Company (or its
assignee(s)) shall, at its election, by notice given to Delta within
six (6) months of such Change of Control, have the right to require
Delta to pay an Accelerated Earnout Amount to the Company (or to such
assignee(s)); provided, however, that if such Change of Control occurs
in Periods 2, 3, or 4, such right shall be exerciseable only if the
actual EBIT of the Business during the immediately preceding Period was
equal to or exceeded the Low EBIT for such Period. Delta shall pay to
the Company (or its assignee(s)) by wire transfer of immediately
available funds the Accelerated Earnout Amount within ten (10) days
after delivery of written notice of exercise of the Company's election.
If no such election for an Accelerated Earnout Amount is made, Earnout
Amounts shall be paid as and when otherwise provided in Section 1.5 of
the Agreement.
(iii) Liquidation or Bankruptcy. Upon a liquidation, dissolution or
winding up of Delta or Purchaser, or a Bankruptcy of Delta or
Purchaser, Delta shall pay an Accelerated Earnout Amount to the Company
(or its assignee(s)); provided, however, that in the event of a
liquidation, dissolution, winding up or Bankruptcy of Purchaser in
Periods 2, 3, or 4 (otherwise than in connection with a Bankruptcy of
Delta), such right shall be exerciseable only if the actual EBIT of the
Business during the immediately preceding Period was equal to or
exceeded the Low EBIT for such Period. Delta shall pay to the Company
by wire transfer of immediately available funds the Accelerated Earnout
Amount within ten (10) days after the earlier of (A) the approval by
the Purchaser's board of directors or shareholders of a liquidation,
dissolution or winding up of Purchaser or (B) a Bankruptcy of Delta or
Purchaser.
(iv) Credit Against Earnout. The payment of any Accelerated Earnout
Amount shall be credited against any Earnout Amounts otherwise due
under Section 1.5 of this Agreement.
1.6 Closing Date Working Capital Adjustment.
(a) Set forth as Schedule 1.6(a) are the methodologies and assumptions
to be used in calculating Closing Date Working Capital (including reserves) (the
"Prototype Working Capital Methodologies"). No later than forty-five (45) days
after the Closing Date, the Company shall deliver to Delta a schedule of Closing
Date Working Capital of the Business as of the Closing Date (the "Closing Date
Balance Sheet"), determined in accordance with GAAP and without
7
giving effect to the Acquisition and otherwise consistently with the Prototype
Working Capital Methodologies.
(b) Disputes with respect to the Closing Date Working Capital shall be
resolved as follows:
(i) Delta shall have sixty (60) days after receipt of the Closing Date
Balance Sheet (the "Review Period") to assert that any of the elements
of or amounts reflected on the Closing Date Balance Sheet are not
correct or that the Closing Date Working Capital was arrived at other
than in accordance with the provisions of Section 1.6 (a "Working
Capital Dispute"). If Delta desires to assert a Working Capital
Dispute, then Delta shall give the Company written notice of such
dispute (a "Working Capital Dispute Notice") within the Review Period,
setting forth in reasonable detail the items with which Delta
disagrees, together with supporting calculations.
(ii) Within fifteen (15) days after delivery of the Working Capital
Dispute Notice (if any), if Delta and the Company shall be unable
despite their reasonable efforts to resolve the dispute set forth in
the Review Notice, Delta and the Company shall jointly (and as promptly
as possible) retain a nationally recognized firm of independent public
accountants mutually acceptable to them, the cost of which shall be
borne equally by Delta and the Company (and which costs shall not be
deducted in any calculation of EBIT). Such independent firm shall
review the Closing Date Working Capital calculation (and, if necessary
or appropriate in its judgment, any related work papers of the Company)
and the Working Capital Dispute Notice, and shall, as promptly as
practicable and in no event later than thirty (30) days following the
date of its engagement, deliver to Delta and the Company a report (the
"Working Capital Adjustment Report") setting forth, in reasonable
detail, its determination with respect to all of the disputed items or
amounts specified in the Working Capital Dispute Notice, and the
revisions, if any, to be made to the calculation of the Closing Date
Working Capital to reflect such determination, together with supporting
calculations. The Working Capital Adjustment Report shall be final and
binding upon Purchaser, Delta, and Sellers.
(iii) If Delta does not deliver a Working Capital Dispute Notice to the
Company within the Working Capital Dispute Period, the Closing Date
Balance Sheet delivered by the Company (and the calculation of the
Closing Date Working Capital) shall be deemed to have been accepted by
Delta in the form in which it was delivered by the Company and shall be
final and binding upon Purchaser, Delta, and Sellers.
(c) Upon final determination of the Closing Date Working Capital
pursuant to Sections 1.6(a) and (b), the Purchase Price shall be adjusted as
follows:
(i) In the event that the Closing Date Working Capital is greater than
$3,000,000, then the Purchase Price shall be increased by an amount
equal to the difference between the Closing Date Working Capital and
$3,000,000 (the "Excess Amount"). The Excess Amount, if any, shall be
paid by Delta to the Company by wire transfer of immediately available
funds within ten (10) days after the end of the Review Period;
provided, however, that if there is a Working Capital Dispute, then
Delta shall pay the Excess
8
Amount within ten (10) days after the earlier of the resolution thereof
or the issuance of the Working Capital Adjustment Report, with interest
thereon at a rate of six percent (6%) per annum on the Excess Amount,
with such interest accruing from and after the Closing Date to and
including the date of payment; or
(ii) In the event that the Closing Date Working Capital is less than
$3,000,000, then the Purchase Price shall be decreased by the
difference between $3,000,000 and the Closing Date Working Capital (the
"Deficit Amount"). The Deficit Amount, if any, shall be paid by the
Company to Delta by wire transfer of immediately available funds within
ten (10) days after the end of the Review Period; provided, however,
that if there is a Working Capital Dispute, then the Company shall pay
the Deficit Amount within ten (10) days after the earlier of the
resolution thereof or the issuance of the Working Capital Adjustment
Report, with interest thereon at a rate of six percent (6%) per annum
on the Deficit Amount, with such interest accruing from and after the
Closing Date to and including the date of payment.
1.7 Assumption of Liabilities.
(a) On the Closing Date, Purchaser shall assume and agree to discharge
from and after the Closing all of the following obligations with respect to the
Business in accordance with their respective terms, but only to the extent that
such obligations do not constitute Excluded Liabilities (the "Assumed
Liabilities"):
(i) Any and all liabilities, obligations, and commitments arising out
of all contracts, arrangements, licenses, leases, and other agreements
relating to the Business (other than Excluded Assets), excluding,
however, liabilities and obligations relating to any breach by the
Company thereof occurring prior to the Closing Date; and
(ii) The trade account payables and accrued liabilities set forth in
the calculation of the Closing Date Working Capital.
(b) Notwithstanding any provision of this Agreement to the contrary,
Purchaser shall not assume any liabilities, obligations, or commitments of the
Company other than the Assumed Liabilities, and all such other liabilities,
obligations, and commitments shall be retained by the Company (the "Excluded
Liabilities"). Without limiting the generality of the foregoing, none of the
following shall be Assumed Liabilities for purposes of this Agreement:
(i) Except as provided in Section 1.7(a)(ii), all trade accounts
payable, accrued payroll, accrued employee benefits, including accrued
vacation and sick leave and accrued post retirement and post employment
benefits, accrued taxes, and all other accrued expenses relating to the
Business;
(ii) Any liabilities or obligations for borrowed money or evidenced by
bonds, debentures, notes, drafts, or similar instruments;
(iii) Any and all liabilities, obligations, or commitments arising out
of any and all contracts, arrangements, licenses, leases, and other
agreements that are Excluded Assets;
9
(iv) Subject to Section 3.1, any and all Taxes (whether pursuant to
existing laws and regulations or laws and regulations subsequently
enacted by any Governmental Authority) which arise from (A) the
operation of the Business on or prior to the Closing Date; (B) the
ownership of the Assets on or prior to the Closing Date; or (C) the
consummation of the transactions contemplated herein;
(v) Any liabilities or obligations relating to employees of the
Business while employed by the Company, including all liabilities or
obligations relating to any claims by employees of the Business,
whether pending as of the Closing Date or arising after the Closing
Date, due to acts, alleged acts, or omissions of the Company under any
federal labor or employment laws or state laws relating to labor
relations, equal employment, fair employment practices, entitlements,
prohibited discrimination, or other employment practices or otherwise
relating to or arising out of the employment relationship with the
Company or the termination thereof;
(vi) All liabilities or obligations under any employment, severance,
retention, or termination agreement between the Company and any of its
employees;
(vii) Any liabilities or obligations relating to any of the Plans or
relating to payroll, vacation, sick leave, workers' compensation,
unemployment benefits, pension benefits, or any other employee benefits
of any kind for employees of the Company;
(viii) Except to the extent reserved for in the calculation of Closing
Date Working Capital, any liabilities or obligations with respect to
any actions, suits, proceedings, or possible claims, whether such
actions, suits, proceedings, or possible claims are currently pending,
threatened, contingent, subsequently arise, or otherwise, in any way
relating to the conduct of the Business on or prior to the Closing
Date, including, without limitation, any actions, suits, proceedings,
or possible claims relating to the use by the Company of the trademark
"Jem and the Holograms" prior to the Closing Date;
(ix) Except to the extent reserved for in the calculation of Closing
Date Working Capital, any and all liabilities or obligations arising
from or in connection with warranty claims or product liability claims
relating to products manufactured or sold by the Company prior to the
Closing Date;
(x) Any liabilities of the Company for Environmental Damages arising on
or prior to the Closing Date, whether or not disclosed in the schedules
to this Agreement or otherwise known to Sellers, Purchaser, or Delta;
(xi) All costs, expenses, liabilities, or obligations incurred by the
Company incident to the negotiation and preparation of this Agreement
and its performance and compliance with the agreements and conditions
contained herein;
(xii) All liabilities and obligations of the Company relating to use by
the Company of Intellectual Property prior to the Closing Date, which
Intellectual Property is not owned or licensed by the Company, relating
to any sales by the Company of licensed products prior to the Closing
Date in breach of the terms of the applicable license agreement, or
10
relating to any sales by the Company prior to the Closing Date in
territories for which the Company is not licensed; and
(xiii) Any liabilities or obligations relating to the Excluded Assets.
1.8 Concurrent Deliveries by Sellers. Concurrently herewith, Sellers
shall have delivered or cause to be delivered to Purchaser: (i) a Bill of Sale,
Assignment and Assumption Agreement, covering all of the Assets and the Assumed
Liabilities, in a form reasonably acceptable to the parties hereto; (ii) an
Assignment and Assumption of Lease Agreements with respect to each of the Leased
Properties, in a form reasonably acceptable to the parties hereto; (iii)
Employment Agreements between Purchaser and each of the Owners, in forms
reasonably acceptable to the parties hereto; (iv) a Trademark and Service Mark
Assignment with respect to each of the Trademarks, in a form reasonably
acceptable to the parties hereto; (v) an opinion of Morrison & Foerster LLP,
counsel to Sellers, in a form reasonably acceptable to Delta and Purchaser; (vi)
certified copies of the resolutions adopted by the Company's board of directors
and shareholders approving the Acquisition; and (vii) such other documents, all
in form and substance reasonably satisfactory to Purchaser and Delta, as
Purchaser and Delta may have reasonably requested for the purpose of (x)
evidencing the accuracy of any of the representations and warranties of any
Seller, (y) evidencing the performance by any Seller of, or the compliance by
any Seller with, any covenant or obligation required to be performed or complied
with by such Seller, or (z) otherwise facilitating the consummation or
performance of any of the transactions contemplated by this Agreement.
1.9 Concurrent Deliveries by Purchaser and Delta. Concurrently
herewith, Purchaser and Delta shall have delivered or cause to be delivered to
the applicable Seller the Cash Purchase Price and (i) the Note; (ii) the
Guaranty; (iii) a Bill of Sale, Assignment and Assumption Agreement, covering
all of the Assets and the Assumed Liabilities, in a form reasonably acceptable
to the parties hereto; (iv) an Assignment and Assumption of Lease Agreements
with respect to each of the Leased Properties, in a form reasonably acceptable
to the parties hereto; (v) Employment Agreements between Purchaser and each of
the Owners, in forms reasonably acceptable to the parties hereto; (vi) a
Trademark and Service Mark Assignment with respect to each of the Trademarks, in
a form reasonably acceptable to the parties hereto; (vii) an opinion of Wyche
Burgess Freeman & Parham, P.A., counsel to Delta and Purchaser, in a form
reasonably acceptable to the Sellers; (viii) certified copies of the resolutions
adopted by their respective boards of directors of Delta and Purchaser and the
sole shareholder of Purchaser approving the Acquisition; and (ix) such other
documents, all in form and substance reasonably satisfactory to Sellers, as
Sellers may have reasonably requested for the purpose of (x) evidencing the
accuracy of any of the representations and warranties of Purchaser or Delta, (y)
evidencing the performance by Purchaser or Delta of, or the compliance by
Purchaser or Delta with, any covenant or obligation required to be performed or
complied with by Purchaser or Delta, or (z) otherwise facilitating the
consummation or performance of any of the transactions contemplated by this
Agreement.
1.10 Further Assurances. From and after the Closing Date, Sellers shall
deliver to Purchaser and Delta such other bills of sale, deeds, endorsements,
assignments, consents and other good and sufficient instruments of conveyance
and transfer, in form reasonably satisfactory to Purchaser and Delta, as
Purchaser or Delta may reasonably request or as may be otherwise
11
reasonably necessary to vest in Purchaser all right, title, and interest of the
Company in, to, or under all of the Assets. If at any time following the
Closing, any party receives any payment, correspondence, or other property that
is intended for or belongs to another party or to which another party is legally
entitled, then the party receiving such payment, correspondence, or other
property shall promptly pay over such payment or deliver such correspondence or
other property to the other party. From and after the Closing Date, Sellers
shall take all steps as may be reasonably necessary to put Purchaser in actual
possession and control of all the Assets. From time to time following the
Closing, the parties shall execute and deliver to each other such other
instruments and documents as may be reasonably requested or as may be otherwise
reasonably necessary to consummate the transactions contemplated hereunder.
1.11 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets in such manner as Delta may reasonably determine,
provided that Delta shall give written notice thereof to the Company within
ninety (90) days following the Closing Date and provided that (i) the amount of
$50,000 will be allocated to the covenants described in Section 3.3; and (ii)
the respective amounts set forth on the Closing Date Balance Sheet as Accounts
Receivable, inventory, and amounts "due from factor" will be allocated to
Accounts Receivable, inventory, and amounts "due from factor". The parties shall
file all applicable tax returns and reports (including IRS Form 8594 issued
pursuant to Section 1060 of the Code) in accordance with and based upon such
allocation and shall not take any position in any tax return or report, or any
tax proceeding or audit, that is inconsistent with such allocation unless
otherwise required pursuant to a "determination" within the meaning of Section
1313(a) of the Code.
1.12 Corporate Governance. Delta, Purchaser and Sellers agree that
through the expiration of Period 4, the following shall apply:
(a) Board of Directors.
(i) The board of directors of Purchaser shall consist of five (5)
persons. Delta shall vote all of Purchaser's capital stock owned by it
in favor of the election of (A) three (3) designees of Delta, (B) as
long as Natalie Grof is an employee of Purchaser (or an Affiliate of
Delta), one (1) designee of Ms. Grof and (C) as long as Blaine
Halvorson is an employee of Purchaser (or an Affiliate of Delta), one
(1) designee of Mr. Halvorson; provided, that during their respective
terms of employment with Purchaser (or an Affiliate of Delta), the
designees of Ms. Grof and Mr. Halvorson shall be themselves.
(ii) In the event Natalie Grof or Blaine Halvorson is no longer an
employee of Purchaser (or an Affiliate of Delta) but one of them
continues to be so employed, (i) the remaining employee may designate
an individual to replace the former employee on the board of directors
of Purchaser and (ii) after consulting with the remaining employee, the
board of directors of Purchaser may replace the former employee with a
new designee reasonably acceptable to the remaining employee who shall
thereafter co-manage the day-to-day operations of Purchaser with the
remaining employee.
(b) Working Capital. Delta will adequately fund (or arrange to fund)
the operations of Purchaser, on terms consistent with those that would result
from an arm's-length transaction.
12
(c) Transaction with Delta; Delta Services.
(i) Delta shall cause all transactions between Purchaser, on the one
hand, and Delta and its Affiliates, on the other hand, to be conducted
on terms and conditions at least as favorable to Purchaser as Purchaser
could obtain from an independent third party. For avoidance of doubt,
Delta and its Affiliates shall not make any use of Intellectual
Property purchased from Sellers or other proprietary rights or
information of Purchaser (including designs for t-shirts) without the
prior written consent of Purchaser, which may be withheld in
Purchaser's discretion, or if granted shall be pursuant to licenses or
other authorizations on terms and conditions at least as favorable to
Purchaser as Purchaser could obtain from an independent third party;
provided, however, that Delta shall be authorized to use Purchaser's
logo and name for purposes of identifying Purchaser in Delta's
corporate-level communications, and Delta shall be authorized to use
Purchaser's other proprietary rights (in compliance with Applicable Law
and any applicable license agreements) in its corporate-level marketing
and investor relations materials, including annual reports to
shareholders. Any decisions regarding such authorizations shall be made
only by the Chief Executive Officer or President of Purchaser as long
as either of them is employed by Purchaser.
(ii) Purchaser shall acquire the Delta Services from Delta at a cost of
one percent of Net Sales. In addition, Purchaser shall pay (or
reimburse Delta for) external audit fees not to exceed $75,000 for each
Period.
(iii) For purposes of this Agreement, "Delta Services" means the
following services, at a minimum, provided by or on behalf of Delta to
Purchaser, including the provision of any necessary personnel for such
services: (A) administrative, information technology and systems and
human resources advice and support; (B) financial advice; (C)
management oversight; (D) payroll processing; and (E) tax and
accounting advice and support. Without limiting the generality of the
foregoing, the parties expressly acknowledge and agree that Delta (and
not Purchaser) shall be responsible for all incremental costs and
expenses, including those for personnel, related to compliance by Delta
with the Sarbanes-Oxley Act of 2002, the reporting requirements under
the Exchange Act of 1934 and the rules and regulations thereunder, it
being understood that Purchaser shall be responsible for the costs and
expenses of maintaining its books and financial records in accordance
with GAAP and for maintaining internal financial controls for a
business of its size and scope.
(iv) Subject to the foregoing, the parties acknowledge and agree that
Delta shall not allocate to Purchaser (except through the fee for Delta
Services set forth in Section 1.12(c)(ii)) any salaries, compensation
or other corporate overhead or other expenses of Delta or any other
Person.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Sellers. Sellers, jointly and
severally, represent and warrant to Purchaser and Delta as of the date hereof:
13
2.1.1 Corporate Status; Authorization.
(a) Corporate Existence. The Company is a corporation duly
incorporated, validly existing, and in good standing under the laws of the State
of California and has all requisite corporate power and authority to own, lease,
and operate its properties and to carry on its business as presently conducted.
Except as set forth on Schedule 2.1.1(a), the Company is not qualified as a
foreign corporation to do business in any jurisdiction and is not required to be
so qualified in any jurisdiction. The Company does not have any subsidiaries,
does not own any shares, membership interests, or other equity interests of any
Person, and is not a party to any joint venture or other similar agreement or
arrangement.
(b) Authorization. The Company has full corporate power and authority
to execute, deliver, and perform this Agreement and the other agreements and
instruments executed and delivered by it at Closing, to consummate the
transactions contemplated hereby and thereby, and to perform its obligations
hereunder and thereunder. Each Owner has full power and authority to execute,
deliver, and perform this Agreement and the other agreements and instruments
executed and delivered by him or her at Closing, to consummate the transactions
contemplated hereby and thereby, and to perform his or her obligations hereunder
and thereunder. The execution and delivery of this Agreement and the other
agreements and instruments executed and delivered by the Company at Closing and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all requisite corporate action on the part of the Company.
This Agreement and the other agreements and instruments executed and delivered
by each Seller at Closing have been duly executed and delivered by each Seller
that is a party hereto and thereto, and this Agreement and the other agreements
and instruments executed and delivered by each Seller at Closing constitute the
legal, valid, and binding obligation of each Seller that is a party hereto and
thereto, enforceable against each of them in accordance with their respective
terms, except as such enforceability may be limited by laws affecting the rights
and remedies of creditors and applicable principles of equity (the
"Enforceability Exceptions").
2.1.2 Conflicts and Consents.
(a) Conflicts of the Company. Except as set forth on Schedule 2.1.2(a),
the execution and delivery of this Agreement and the other agreements and
instruments executed and delivered by the Company at Closing and the
consummation by the Company of the transactions contemplated hereby and thereby
in the manner contemplated hereby and thereby will not (y) result in the
creation of any Lien (other than Permitted Liens) upon any of the Assets, or (z)
conflict with or result in any violation of or default under (or any event that,
with notice or lapse of time or both, would constitute a default under), require
any consent under, or result in the acceleration or required prepayment of any
indebtedness pursuant to the terms of, any provision of (i) the Articles of
Incorporation or Bylaws of the Company, (ii) any mortgage, indenture, loan
agreement, note, bond, deed of trust, other agreement, commitment, or obligation
for the borrowing of money or the obtaining of credit, lease, or other
agreement, contract, license, franchise, permit, or instrument to which the
Company is a party or by which the Company may be bound, or (iii) any judgment,
order, decree, law, statute, rule, or regulation applicable to the Company.
14
(b) Conflicts of Owners. The execution and delivery of this Agreement
and the other agreements and instruments executed and delivered by each Owner at
Closing and the consummation by each Owner of the transactions contemplated
hereby and thereby in the manner contemplated hereby and thereby will not (y)
result in the creation of any Lien (other than Permitted Liens) upon any of the
Assets, or (z) conflict with or result in any violation of or default under (or
any event that, with notice or lapse of time or both, would constitute a default
under), require any consent under, or result in the acceleration or required
prepayment of any indebtedness pursuant to the terms of, any provision of (i)
any mortgage, indenture, loan agreement, note, bond, deed of trust, other
agreement, commitment, or obligation for the borrowing of money or the obtaining
of credit, lease, or other agreement, contract, license, franchise, permit, or
instrument to which any Owner is a party or by which any Owner may be bound, or
(iii) any judgment order, decree, law, statute, rule, or regulation applicable
to any Owner.
(c) Consents. No consent, approval, authorization, permit, order,
filing, registration, or qualification of or with any Governmental Authority or,
except as set forth on Schedule 2.1.2(c), third Person is required to be
obtained by any Seller in connection with the execution, delivery, and
performance of this Agreement or the consummation by the Sellers of the
transactions contemplated hereby in the manner contemplated hereby.
2.1.3 Financial Information; Undisclosed Liabilities.
(a) Financial Statements. Sellers have delivered to Purchaser and Delta
true and complete copies of the unaudited statement of operations of the Company
for the fiscal year ended December 31, 2004 and an unaudited balance sheet of
the Company as of such date (the "Annual Financials"), in each case prepared
from and in accordance with the books and records of the Company as of, and for
the period ended on, such date. Sellers also have delivered to Purchaser an
unaudited statement of operations of the Company for the six-month period ended
June 30, 2005 and an unaudited balance sheet of the Company as of June 30, 2005
(the "Interim Financials") prepared from and in accordance with the books and
records of the Company as of, and for the period ended on, such date. The Annual
Financials and Interim Financials are set forth on Schedule 2.1.3(a). The Annual
Financials and the Interim Financials have been prepared in accordance with GAAP
consistently applied throughout the periods indicated and present fairly the
financial condition of the Company at the respective dates indicated and the
results of operations of the Company for the respective periods indicated,
except that the Interim Financials are subject to year-end audit adjustments in
accordance with GAAP (none of which will be material). The accounting books and
records of the Company as of the date hereof are true, accurate, and complete in
all material respects.
(b) No Liabilities. Except (i) as and to the extent reflected in the
Interim Financials, (ii) for nonmaterial liabilities incurred since June 30,
2005 in the ordinary course of business consistent with past practice; (iii) as
arising under purchase orders and agreements to sell inventory in the ordinary
course of business consistent with past practice; (iv) for liabilities incurred
in connection with the preparation, execution and delivery of this Agreement and
the transaction contemplated hereby (including legal, accounting and investment
banking fees); (v) as and to the extent reflected in Closing Date Working
Capital; (vi) as arising under any agreements or leases that constitute Assets;
and (vii) as disclosed on Schedule 2.1.3(b), the
15
Company does not have any liabilities or obligations, secured or unsecured
(whether absolute, accrued, known or unknown, contingent or otherwise, and
whether due or to become due).
2.1.4 No Liens. The Company has good, exclusive, and marketable title
to the Assets, free and clear of all Liens of any nature whatsoever, except for
Permitted Liens.
2.1.5 Accounts Receivable. Schedule 2.1.5 contains a true and complete
list of all Accounts Receivable arising out of or relating to the Business in
excess of $100 and an aging of such accounts receivable as of the close of
business on June 30, 2005. Schedule 2.1.5 also contains a true and complete list
of all accounts receivable sold to a factor in excess of $100 as of June 30,
2005. Except as disclosed on Schedule 2.1.5, all Accounts Receivable of the
Company (i) arose from bona fide sales of goods or services in the ordinary
course of business consistent with past practice, (ii) are owned free and clear
of any Liens other than Permitted Liens, and (iii) are accurately and fairly
reflected on the Annual Financials and/or the Interim Financials.
2.1.6 Inventories. The inventories of the Company are fit and
sufficient for the purposes for which they were purchased or manufactured,
except for inventories for which adequate reserves have been provided and
reflected in the Annual Financials and/or the Interim Financials. The values at
which inventories are carried on the Annual Financials and/or the Interim
Financials reflect the normal inventory policy of the Company (including the
writing down or reserving of the value of slow-moving or obsolete inventory or
inventory of below-standard quality to estimated net realizable market value in
accordance with GAAP), at the lower of cost or market and are not in excess of
the value of such inventories computed in accordance with GAAP on a consistent
basis.
2.1.7 Tangible Personal Property. The tangible personal property (other
than inventories) and equipment owned, operated, or leased by the Company are in
good operating condition and repair, ordinary wear and tear excepted, are in
conformity in all material respects with all Applicable Law, and to the
Knowledge of Sellers, there are no facts or conditions affecting such tangible
personal property that could, individually or in the aggregate, interfere in any
material respect with the continued use thereof in the usual and normal conduct
of the operations of the Business consistent with past practice. Schedule 2.1.7
sets forth as of August 16, 2005 a list of all tangible personal property (other
than inventories) that constitute Assets with an initial book value in excess of
$500 utilized by the Company in connection with the Business and all leases and
agreements associated therewith. The tangible personal property listed on
Schedule 2.1.7 comprises all tangible personal property, other than inventories,
required for the continued conduct of the Business by Purchaser as presently
conducted. The Company has good and marketable title to, and owns free and clear
of any Liens (other than Permitted Liens), the tangible personal property listed
on Schedule 2.1.7 (except for tangible personal property that is leased pursuant
to leases set forth on Schedule 2.1.7).
2.1.8 Real Property. The Company does not own any real property.
Schedule 2.1.8 sets forth all leasehold interests in real property currently
held by the Company. The Company previously provided to Delta true and complete
copies of each lease agreement with respect to each such leasehold interest (the
"Leases," and the real property subject to such Leases, the "Leased
Properties"). The Leases are valid and in full force and effect. Neither the
Company nor, to the Knowledge of Sellers, any other party to any such Lease has
breached any material
16
provision of any such Lease or is in default in any material respect under the
terms of any such Lease. The Company possesses and quietly enjoys the premises
under such Leases, and such premises are not subject to any Liens (other than
Permitted Liens) of any nature whatsoever, encroachments, building or use
restrictions, exceptions, reservations, or limitations that interfere with or
impair the present and continued use thereof in the usual and normal conduct of
the business of the Company. To the Knowledge of Sellers, all buildings,
structures, fixtures, and improvements located on the Leased Properties are in
good repair and in good condition, ordinary wear and tear excepted. The Company
has not received notice of any violation of any applicable zoning regulation,
ordinance, or other Applicable Law relating to the Leased Properties or the
operations of the Leased Properties, and to the Knowledge of Sellers, no such
notice has been given, and no such violation has occurred. The Company has not
received notice of any pending or threatened condemnation proceeding relating to
any of the Leased Properties and, to the Knowledge of Sellers, there are no such
pending or threatened proceedings. To the Knowledge of Sellers, the structures,
material tangible properties, and equipment owned, operated, or leased by the
Company at the Leased Properties are in conformity in all material respects with
all Applicable Law. There are no (y) subleases, licenses, concessions, or other
agreements, written or oral, granting to any other Person the right to acquire,
use, or occupy any portion of, any of the Leased Properties, or (z) Persons
(other than the Company) in possession of any of the Leased Properties.
2.1.9 Intellectual Property.
(a) Schedule 2.1.9 contains a list of all trademarks, trade names,
copyrights and domain names that are registered with, or for which an
application for registration is pending with, any Governmental Authority in the
name of Company.
(b) All trade names, trademarks and service marks listed on Schedule
2.1.9 that have been registered with the United States Patent and Trademark
Office or with similar foreign authorities (the "Trademarks") are currently
maintained in compliance with all Applicable Law (including the timely
post-registration filings of affidavits of use and incontestability and renewal
applications), are, to the Knowledge of Sellers, valid and enforceable, and
except as otherwise provided in Schedule 2.1.9, are not subject to any
maintenance fees or Taxes or actions due within ninety (90) days after the
Closing Date. No Trademark has been or is now involved in any opposition,
invalidation, or cancellation proceeding and, to the Knowledge of Sellers, no
such action has been threatened in writing against the Company. To the Knowledge
of Sellers, and except as set forth on Schedule 2.1.9, none of the Trademarks
infringes any trade name, trademark, or service mark of any third Person and the
Company has not received any written allegation of such infringement.
(c) There are no issued patents or patent applications registered or
filed in the name of Company anywhere in the world. To the Knowledge of Sellers,
and except as set forth on Schedule 2.1.9, none of the products manufactured or
sold, nor any process or know-how used, by the Company infringes any patent of
any Person and the Company has not received any written allegation of such
infringement.
(d) To the Knowledge of Sellers, and except as set forth in Schedule
2.1.9, no third Person is engaged in any activity that would constitute an
infringement of any Intellectual
17
Property owned by Company. Except as set forth on Schedule 2.1.9, there are no
claims or proceedings pending against the Company asserting that the Company
has, is, or was infringing any patent, trademark, trade name, or other
intellectual property right of any third Person and, to the Knowledge of
Sellers, the Company has not received any written threat of such infringement.
To the Knowledge of Sellers, and except as set forth on Schedule 2.1.9, the
Company owns, or by license or otherwise has the necessary right to use, all
Intellectual Property used in the conduct of the Business as currently
conducted. Except as set forth in Schedule 2.1.9, no application for
registration of any Intellectual Property by Company has been refused by any
Governmental Authority.
2.1.10 Insurance. The assets, properties, and business of the Company
are insured under the various policies of general liability and other forms of
insurance set forth on Schedule 2.1.10. No notice of cancellation or non-renewal
with respect to, or disallowance of any claim under, any of such policies has
been received by any Seller. Such insurance policies provide coverage against
risk of loss in such amounts as are customary for corporations of established
reputation engaged in similar businesses as the Company and similarly situated.
2.1.11 Material Agreements. Except for (i) Plans, (ii) the contracts,
franchises, agreements, plans, leases, and licenses described on Schedule 2.1.11
and (iii) purchase orders and agreements to sell inventory in the ordinary
course of business consistent with past practice, the Company is not a party to
or subject to:
(a) any employment contract or any other agreement (other than an
at-will arrangement) relating to compensation or severance payments with any
director, officer, employee, consultant, or agent;
(b) any contract or agreement with an agent, sales representative,
dealer, or distributor;
(c) any contract or agreement with any labor union;
(d) any lease (other than the Leases) involving payment of annual
rentals in excess of $15,000 or of more than one year in duration;
(e) any contract or agreement for the purchase of materials, services,
or supplies involving annual payments in excess of $15,000 or of more than one
year in duration;
(f) any contract or agreement for the purchase of equipment or any
construction involving annual payments in excess of $15,000 or of more than one
year in duration;
(g) any contract or agreement for the sale of products involving annual
payments to the Company in excess of $15,000 or of more than one year in
duration;
(h) any contract or agreement pursuant to which the Company has any
obligation to indemnify any Person (other than indemnification provided to the
directors, officers, employees and agents of the Company under the Articles of
Incorporation and/or Bylaws of the Company);
18
(i) any instrument evidencing or related to indebtedness for money
loaned or borrowed by the Company or indebtedness guaranteed by the Company;
(j) any contract or agreement containing covenants limiting the freedom
of the Company to compete in any line of business or with any Person;
(k) any license or franchise agreement in which the Company is the
licensor or franchisor;
(l) any license or franchise agreement in which the Company is the
licensee or franchisee (other than licenses for off-the-shelf computer software
and related services); or
(m) any contract or agreement, not covered by any of the other items of
this Section 2.1.11, which (i) involves the payment or receipt by the Company of
$15,000 or more; or (ii) does not terminate, or is not terminable, by and
without penalty to the Company prior to one year from the date hereof.
Except as set forth in Schedule 2.1.11, all contracts, franchises, agreements,
plans, leases, and licenses described on Schedule 2.1.11 (the "Material
Agreements") are valid and in full force and effect. Except as set forth in
Schedule 2.1.11, neither the Company nor, to the Knowledge of Sellers, any other
party to any such Material Agreement has breached any material provision of any
such Material Agreement or is in default in any material respect under the terms
of any such Material Agreement. Schedule 2.1.11 identifies each Material
Agreement that is or might be breached by, or terminable by any other party
upon, the sale of substantially all of the Assets or occurrence of any of the
other transactions contemplated by this Agreement.
2.1.12 Litigation. Except as set forth on Schedule 2.1.12, there are no
actions, suits, or proceedings pending or, to the Knowledge of Sellers,
threatened against or affecting the Company or its properties, assets, or
business or which would prevent the consummation of the transactions
contemplated hereby. None of the actions, suits, or proceedings set forth on
Schedule 2.1.12 will, individually or in the aggregate, if adversely decided
against the Company, result in liability to the Company in excess of $15,000 or
will prevent or hinder the consummation of the transactions contemplated hereby.
To the Knowledge of Sellers, there is no investigation pending or threatened by
any Governmental Authority with respect to the Business.
2.1.13 No Judgments or Orders. The Company is not a party to or subject
to any judgment, order, or decree entered in any action or proceeding brought by
any Governmental Authority or any other Person enjoining it in respect of any
business practice, the conduct of business in any area, the acquisition of any
property, or in any other respect.
2.1.14 Compliance with Laws; Permits.
(a) Compliance with Laws. Except as set forth on Schedule 2.1.14(a),
the Company is not in violation of any Applicable Law, which violation has had
or could reasonably be expected to have an adverse financial impact on the
Company in excess of $15,000. No Seller has received any notice to the effect
that, or otherwise been advised that, the Company is not in compliance with any
Applicable Law.
19
(b) Permits. All material licenses, permits, registrations, orders, and
other approvals of all Governmental Authorities and third Persons with respect
to the conduct of the business of the Company have been obtained by the Company,
are set forth on Schedule 2.1.14(b), and are in full force and effect, and no
proceeding is pending, or to the Knowledge of Sellers, threatened, seeking the
revocation or limitation of any of the foregoing.
2.1.15 Tax Matters. The Company is an S corporation as defined in
Section 1361 of the Code. The Company has correctly prepared and timely filed in
all material respects all foreign, federal, state, and local tax returns and
other tax reports required to be filed, and have paid, or set up an adequate
reserve in the Annual Financials and the Interim Financials for the payment of,
Taxes required to be paid with respect to the Assets and Assumed Liabilities and
in respect of the periods covered by such returns, and have set up an adequate
reserve in the Annual Financials and the Interim Financials for the payment of
all material Taxes anticipated to be payable by the Company with respect to the
Assets and Assumed Liabilities and in respect of the period subsequent to the
last of such periods and ending on the Closing Date in accordance with the past
custom and practice of the Company in filing its tax returns. The Company has
not waived any statute of limitations in respect of Taxes, and has not requested
or agreed to any extension of time within which to file any tax return or
report. No deficiencies for Taxes payable by the Company have been assessed or
asserted by a Governmental Authority. There is no pending or, to the Knowledge
of Sellers, threatened examination or audit by the Internal Revenue Service or
any foreign, state, or local taxing authority of such returns. No claim has ever
been made by any Governmental Authority in any jurisdiction where the Company
does not file tax returns that the Company is or may be subject to taxation by
that jurisdiction. Except as set forth on Schedule 2.1.15, all proper amounts
have been collected or withheld and paid by the Company to the relevant taxing
Governmental Authority for all Taxes payable with respect to the Business. No
Liens exist on the Assets that relate to or are attributable to any Taxes, other
than Permitted Liens.
2.1.16 Compliance with ERISA.
(a) Except as set forth on Schedule 2.1.16, the Company does not
maintain or contribute to any "employee benefit plan," as that term is defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") regardless of whether such plan is subject to ERISA, or any
bonus, deferred or incentive compensation, stock purchase, stock option,
severance, or termination pay plan or program for the benefit of any Company
Personnel (the "Plans"). With respect to each of the Plans, Sellers have made
available to Purchaser correct and complete copies of each of the following
documents: (i) the Plans and related trust or other funding documents (including
all amendments thereto); (ii) the most recent Form 5500 annual report, including
all attachments thereto, filed with the Internal Revenue Service, (iii) the most
recent trust report, if any; and (iv) the summary plan description.
(b) Each Plan has been administered and operated in material compliance
with its terms and the applicable requirements of ERISA and the Code, including
the requirement to file an annual report (if applicable). No Plan is a "multiple
employer plan" (within the meaning of Section 3(37) of ERISA) or a "multiple
employer" plan (within the meaning of Section 4063 or 4064 of ERISA). None of
the Plans is intended to be qualified under Section 401(a) of the Code.
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(c) There are no pending or, to the Knowledge of Sellers, threatened
claims of any Company Personnel against or otherwise involving any of the Plans
(other than routine claims for benefits).
(d) There are no Company Personnel who are entitled to (i) any pension
benefit that is unfunded or (ii) any benefit to be paid after termination of
employment other than required by Section 601 of ERISA or pursuant to a Plan
intending to be qualified under Section 401(a) of the Code. Each Plan that is an
employee welfare benefit plan as defined in Section 3(1) of ERISA is either
unfunded or funded through an insurance company contract. There is no liability
in the nature of a retroactive rate adjustment or loss-sharing or similar
arrangement with respect to any Plan.
(e) None of the assets of the Plans is invested in any property
constituting employer real property or any employer security within the meaning
of Section 407(d) of ERISA. Neither the Company nor any other Person, including
any fiduciary, has engaged in any "prohibited transaction" (as defined in
Section 4975 of the Code or Section 406 of ERISA) that could subject the Company
or any Person whom the Company has an obligation to indemnify to any material
tax or penalty imposed under Section 4975 of the Code or Section 502 of ERISA.
(f) The Company has not at any time (x) maintained, contributed to, or
been required to contribute to, any plan subject to Title IV of ERISA (including
a "multiemployer plan" (within the meaning of Section 3(37) of ERISA)), (y)
incurred or expected to incur any liability to the Pension Benefit Guaranty
Corporation or otherwise under Title IV of ERISA, or (z) incurred or expected to
incur liability in connection with an "accumulated funding deficiency" within
the meaning of Section 412 of the Code, whether or not waived.
(g) Except for the payment of accrued vacation and other paid time off
in connection with termination of employment, and except for the possible
payment of severance in accordance with past practice in connection with
termination of employment, the transactions contemplated by this Agreement
(either alone or together with any other transaction) will not (w) entitle any
Company Personnel to severance pay, unemployment compensation, or other similar
payments under any Plan or agreement, (x) accelerate the time of payment or
vesting or increase the amount of benefits due under any Plan or agreement or
increase the compensation of Company Personnel, (y) result in any payments
(including parachute payments) under any Plan or agreement becoming due to any
Company Personnel, or (z) terminate or modify or give a third Person a right to
terminate or modify the provisions or terms of any Plan or any employment
agreement.
2.1.17 Labor Matters. There has been no work stoppage or slowdown or
other labor difficulties relating to the Company that has or could reasonably be
expected to result in an adverse financial impact on the Company in excess of
$15,000. The Company is not a party to any collective bargaining agreement with
any labor union or similar organization, nor does any Seller know of any such
organization that represents or claims to represent the Company's employees or
is currently seeking to represent or organize the employees at any of the Leased
Properties. There are no labor disputes currently subject to any pending
grievance procedure, arbitration, or litigation, and there is no representation
petition pending or, to the Knowledge of Sellers, threatened with respect to any
employee of the Company. The Company has complied
21
in all material respects with all Applicable Law pertaining to the employment of
its employees, including, without limitation, all laws relating to labor
relations, equal employment, fair employment practices, entitlements, prohibited
discrimination, and other similar employment practices and acts.
2.1.18 Environmental. Except as would not reasonably be expected to
result in an adverse financial impact on the Company in excess of $15,000, to
the Knowledge of Sellers:
(a) The Company complies, and the Company at all times has complied
with, all Environmental, Health or Safety Requirements of Law applicable to the
Business or the Leased Properties, including, without limitation, the use,
maintenance, and operation of the Leased Properties and all activities and
conduct of Business related thereto, including, without limitation, the
treatment, remediation, removal, transport, storage, and/or disposal of any
Contaminant;
(b) The Company has obtained or has taken appropriate steps, as
required by Environmental, Health or Safety Requirements of Law, to obtain all
environmental, health, and safety permits, consents, licenses, and other
authorizations (collectively, "EHS Permits") necessary for the operation of its
business and the operation of the Leased Properties, copies of which have been
previously provided to Delta, all such EHS Permits are in good standing, and the
Company is currently in compliance in all material respects with all terms and
conditions of such EHS Permits. No material change in the facts or circumstances
reported or assumed in the applications for or the granting of such EHS Permits
exists. There are no proceedings pending or threatened that would jeopardize the
validity of any such EHS Permit;
(c) The Company is not subject to any judicial or administrative
proceeding, notice, order, judgment, decree, or settlement, or any
investigation, alleging or addressing in connection with the business of the
Company or the Leased Properties (i) any violation of any Environmental, Health
or Safety Requirements of Law; (ii) any Remedial Action; or (iii) any claims,
liabilities, or costs arising from the Release or threatened Release of any
Contaminant;
(d) No Environmental Lien has attached to any of the personal property
owned by the Company or any of the Leased Properties;
(e) None of the Sellers has received, and none of the Sellers is
otherwise aware of, any notice, claim, or other communication concerning (i) any
investigation or alleged violation of any Environmental, Health or Safety
Requirements of Law at the Leased Properties, whether or not corrected to the
satisfaction of the appropriate authority, (ii) any investigation or alleged
liability of the Company for Environmental Damages arising out of or related to
the business of the Company or any of the Leased Properties, or (iii) any
investigation or alleged liability of the Company arising out of or related to
the business of the Company or any of the Leased Properties for the Release or
threatened Release of a Contaminant at any location, and there exists no writ,
injunction, decree, order, judgment, lawsuit, claim, proceeding, citation,
directive, or summons relating to the actual or suspected presence or removal of
Contaminants on any of the Leased Properties or from any of the Leased
Properties, nor is any Seller aware of any basis for any such writ, injunction,
decree, order, judgment, lawsuit, claim, proceeding, citation, directive,
summons, or investigation being instituted or filed;
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(f) There has been no Release of any Contaminants, nor is there any
threatened release of any Contaminants, at, to, or from any of the Leased
Properties;
(g) None of the Leased Properties is listed or proposed for listing on
the National Priorities List ("NPL") pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act, as amended ("CERCLA"), or listed on
the Comprehensive Environmental Response Compensation Liability Information
System List ("CERCLIS") or any similar state list of sites, and none of the
Sellers is aware of any conditions at any of the Leased Properties which, if
known to a Governmental Authority, would qualify any of the Leased Properties
for inclusion on any such list;
(h) No Seller has disposed (as such term is defined in the Federal
Resource Conservation and Recovery Act ("RCRA")) of any hazardous waste (as such
term is defined in RCRA) at any of the Leased Properties;
(i) The Company has not transported or arranged for the transport of
any Contaminant to any site, other than amounts and types of Contaminants not
subject to regulation as hazardous waste under Environmental, Health and Safety
Requirements of Law;
(j) The Company has not transported or arranged for the transport of
any Contaminant to any facility or site for the purpose of treatment or disposal
that (i) is included on the NPL or CERCLIS, (ii) is or was, at the time of
disposal, subject to a Remedial Action requirement issued under RCRA or any
state or local solid or hazardous waste regulatory law, or (iii) at the time of
the disposal had received a notice of violation with respect to alleged
violations of any Environmental, Health and Safety Requirements of Law;
(k) There is not constructed, placed, deposited, stored, disposed, or
located on any of the Leased Properties any friable asbestos;
(l) The Company is unaware of any notice, claim, or other communication
alleging liability on the part of the Company, for the violation of any
Environmental, Health or Safety Requirements of Law, for Environmental Damages,
or for the Release or threatened Release of any Contaminant in connection with
the business of the Company or any of the Leased Properties;
(m) The Company has not been required by any Governmental Authority to
perform any investigation, Remedial Action, or other response action in
connection with any actual or alleged Contaminant; and
(n) Sellers have made available to Purchaser all environmental studies,
reports, and other documents in their possession, custody, or control relating
to any of the Leased Properties, the Assets, or the Business.
2.1.19 Absence of Certain Changes. Except as set forth on Schedule
2.1.19 and to the extent reflected in Closing Date Working Capital, and except
for such actions that have been taken in connection with the preparation,
execution and delivery of this Agreement and the transactions contemplated
hereby (including the solicitation of consents from landlords and
23
licensors and the incurrence of legal, investment banking and accounting fees
and expenses), since June 30, 2005, the Company has not:
(a) mortgaged, pledged, or subjected to any Lien (other than Permitted
Liens) any of its assets, tangible or intangible;
(b) entered into, amended, or terminated any Lease or Material
Agreement;
(c) acquired or disposed of any assets or properties, or entered into
any agreement or other arrangement for any such acquisition or disposition,
except acquisitions and sales of inventory in the ordinary course of business
and sales of accounts receivable to a factor;
(d) (i) increased the wages, salaries, compensation, pension, or other
benefits payable or to become payable to any Company Personnel other than in
accordance with the normal compensation and benefit policies of the Company or
in accordance with pre-existing pension or other benefit plans, (ii) granted any
severance or termination pay, (iii) entered into any employment, severance, or
consulting agreement or arrangement with any Company Personnel, (iv) granted,
made, or accrued, contingently or otherwise, any bonus, incentive compensation,
service award, or other like benefit to the credit of any Company Personnel; or
(v) made any addition to or modification of any Plan;
(e) forgiven or canceled any material debts or claims or waived any
material rights of value;
(f) suffered any damage, destruction, or loss (whether or not covered
by insurance) adversely affecting its properties, business, operations, or
financial condition;
(g) suffered any labor trouble affecting its business or operations
that could reasonably be expected to result in an adverse financial impact on
the Company in excess of $15,000;
(h) suffered or experienced any loss of or, to the Knowledge of
Sellers, suffered or experienced any change in relations with, any Company
Personnel, suppliers, or customers that could reasonably be expected to result
in an adverse financial impact on the Company in excess of $15,000;
(i) incurred any indebtedness for borrowed money (or guaranteed any
indebtedness of others) other than trade indebtedness incurred in the ordinary
course of business;
(j) changed any method of accounting or accounting practice or policy,
except for changes made with the knowledge of Delta in connection with the
consummation of the transactions contemplated by this Agreement;
(k) conducted its business other than in the ordinary course so as to
preserve the business intact and to preserve for Purchaser the goodwill of the
employees, suppliers, customers, and other Persons having business relations
with the Company, except as required by this Agreement;
24
(l) settled or compromised any claim, suit, or cause of action
involving more than $25,000;
(m) altered its terms and conditions of sale or its collection
practices with respect to Accounts Receivable, including any practice which has
had the effect of accelerating the recording and billing of Accounts Receivable;
(n) altered its payment practices with respect to accounts payable,
including any practice which has had the effect of delaying the payment of
expenses and other reserves;
(o) made any capital expenditures or commitments therefor involving
payments in excess of $25,000 in the aggregate; or
(p) made any agreement to do any of the foregoing.
2.1.20 Customers and Suppliers. No Seller has received notice from any
Significant Customer or Significant Supplier that (i) it intends to terminate
any existing contractual relationship with the Company, other than commitments
or relationships that expire or terminate by their terms; (ii) in the case of a
Significant Customer, that the Significant Customer will not purchase goods or
services from the Company or that the Company will in the future be disqualified
from submitting bids in response to requests for proposals from such Significant
Customer; or (iii) in the case of a Significant Supplier, that such Significant
Supplier will no longer provide products or services to the Company.
2.1.21 Product Warranty. Except for such warranties as are implied at
law, no product manufactured, sold, or delivered by the Company is subject to
any guaranty, warranty, or indemnity.
2.1.22 Product Liability. No claim is pending, or to the Knowledge of
Sellers, threatened, 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 the Company.
2.1.23 Brokers, Finders. Except for the Sage Group, LLC, the fees of
which will be paid by Sellers, Sellers have not retained any broker or finder in
connection with the transactions contemplated hereby so as to give rise to any
claim against Purchaser or Delta for any brokerage or finder's commission, fee,
or similar compensation.
2.1.24 Disclosure. This Agreement, the Schedules hereto, and the
certificates and other documents furnished by Sellers to Purchaser and Delta
pursuant hereto, taken as a whole, do not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
2.2 Representations and Warranties of Purchaser and Delta. Purchaser
and Delta, jointly and severally, represent and warrant to Sellers as of the
date hereof as follows:
2.2.1 Corporate Status; Authorization.
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(a) Corporate Existence. Each of Purchaser and Delta is a corporation
duly incorporated, validly existing, and in good standing under the laws of the
State of Georgia and has all requisite corporate power and authority to own,
lease, and operate its respective properties and to carry on its respective
business as presently conducted. Except as set forth on Schedule 2.2.1(a), each
of Purchaser and Delta is duly qualified and in good standing as a foreign
corporation duly authorized to do business in all jurisdictions in which the
failure to be so qualified would have a Material Adverse Effect.
(b) Authorization. Each of Purchaser and Delta has full corporate power
and authority to execute, deliver, and perform this Agreement and the other
agreements and instruments executed and delivered to Sellers by it at Closing,
to consummate the transactions contemplated hereby and thereby, and to perform
its obligations hereunder and thereunder. The execution and delivery of this
Agreement and the other agreements and instruments executed and delivered to
Sellers by each of Purchaser and Delta at Closing and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite corporate action on the part of Purchaser and Delta, as applicable.
This Agreement and the other agreements and instruments executed and delivered
to Sellers by each of Purchaser and Delta at Closing have been duly executed and
delivered by each of Purchaser and Delta, as applicable, and this Agreement and
the other agreements and instruments executed and delivered to Sellers by each
of Purchaser and Delta at Closing constitute the legal, valid, and binding
obligation of each of Purchaser and Delta, as applicable, enforceable against
each of them in accordance with their respective terms, subject to the
Enforceability Exceptions.
2.2.2 Conflicts and Consents.
(a) Conflicts. Except as set forth on Schedule 2.2.2(a), the execution
and delivery of this Agreement and the other agreements and instruments executed
and delivered to Sellers by each of Purchaser and Delta at Closing and the
consummation by each of Purchaser and Delta of the transactions contemplated
hereby and thereby in the manner contemplated hereby and thereby will not (y)
result in the creation of any Lien upon any of the Assets, or (z) conflict with
or result in any violation of or default under (or any event that, with notice
or lapse of time or both, would constitute a default under), require any consent
under, or result in the acceleration or required prepayment of any indebtedness
pursuant to the terms of, any provision of (i) the Articles of Incorporation or
Bylaws of Purchaser or Delta, (ii) any mortgage, indenture, loan agreement,
note, bond, deed of trust, other agreement, commitment, or obligation for the
borrowing of money or the obtaining of credit, lease, or other agreement,
contract, license, franchise, permit, or instrument to which Purchaser or Delta
is a party or by which Purchaser or Delta may be bound, or (iii) any judgment,
order, decree, law, statute, rule, or regulation applicable to Purchaser or
Delta.
(b) Consents. Except as set forth on Schedule 2.2.2(b), no consent,
approval, authorization, permit, order, filing, registration, or qualification
of or with any Governmental Authority or third Person is required to be obtained
by Purchaser or Delta in connection with the execution, delivery, and
performance of this Agreement or the consummation by Purchaser and Delta of the
transactions contemplated hereby in the manner contemplated hereby.
26
2.2.3 Brokers, Finders. Neither Purchaser nor Delta has retained any
broker or finder in connection with the transactions contemplated hereby so as
to give rise to any claim against any Seller for any brokerage or finder's
commission, fee, or similar compensation.
2.2.4 SEC Reports.
(a) Delta has filed with the SEC all reports, schedules, forms,
statements and other documents (including all exhibits thereto) required by the
Exchange Act of 1934, as amended, to be filed with the SEC since June 30, 2002
(the "Delta SEC Documents"). The Delta SEC Documents (i) were prepared, as of
their respective dates, in all material respects in accordance with the
applicable requirements of the Exchange Act of 1934, as amended, and (ii) did
not at the time they were filed (or, if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which and at the time they were made, not
misleading.
(b) The consolidated financial statements of Delta (including, in each
case, any related notes thereto) contained in the Delta SEC Documents complied
as to form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements, were prepared in accordance
with GAAP applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto), and fairly presented, in all material
respects, the financial position of Delta and its consolidated subsidiaries at
the respective dates thereof and the consolidated results of operations and cash
flows for the periods indicated, except that the unaudited financial statements
were or are subject to year-end adjustments which were not or are not expected
to be material in amount.
ARTICLE 3.
CERTAIN COVENANTS
3.1 Tax Matters.
(a) Sellers, Purchaser, and Delta shall (i) provide each other with
such assistance as may be reasonably requested in connection with the
preparation of any tax return, audit, or other examination by any taxing
Governmental Authority or judicial or administrative proceedings relating to
liability for Taxes relating to the Business until the applicable statute of
limitations shall have expired, and (ii) retain any records or other information
that may be relevant to such tax return, audit, examination, or proceeding until
the applicable statute of limitations shall have expired. Except as otherwise
agreed in writing, each party shall reimburse the other for reasonable
out-of-pocket costs and expenses incurred in assisting the other pursuant to
this Section 3.1(a).
(b) Notwithstanding any provision of Applicable Law or this Agreement
to the contrary, the Company will pay all sales, use, transfer, stamp,
documentary, and similar Taxes and recording and filing fees (and file any tax
returns relating to such Taxes) applicable to the transactions contemplated by
this Agreement.
(c) Personal property taxes and real property taxes and assessments
with respect to the Assets shall be prorated as of the Closing Date on the basis
of the calendar year in which the
27
Closing occurs, regardless of when such taxes become a lien or are payable, and
shall be accrued in Closing Date Working Capital. If the rate of any such taxes
is not fixed prior to the Closing Date, the proration thereof at the Closing
shall be upon the basis of the rate for the preceding calendar year applied to
the latest assessed valuation.
(d) The parties hereto shall cooperate to make any necessary filings
and to furnish any required supplemental information to any taxing Governmental
Authority resulting from the consummation of the transactions contemplated by
this Agreement.
3.2 Confidentiality.
(a) Each of the parties agrees to treat in confidence all documents,
materials, and other information obtained from any other party in connection
with the Acquisition or in connection with any investigation or examination
relating thereto, regardless of whether such materials and information were
obtained before the signing of this Agreement (collectively, "Acquisition
Information"). All Acquisition Information will be kept confidential by the
receiving party and its respective officers, directors, employees,
representatives, agents, and advisors; provided, that (i) Purchaser and Delta
shall have no obligation to keep Acquisition Information received by them from
Sellers confidential so long as their disclosure of such Acquisition Information
is related to the operation of the Business or is for a legitimate purpose; and
(ii) Acquisition Information may be disclosed if so required by law (including
securities laws).
(b) Any public announcement relating to the execution of this Agreement
shall be reasonably acceptable to Purchaser, Delta, and Sellers and may be made
only if agreed to by Purchaser, Delta, and Sellers, except that any party may
make a public announcement to the extent required by law (including securities
laws).
(c) Notwithstanding anything herein to the contrary, none of the
parties shall have any obligation to preserve the confidentiality of any
Acquisition Information that (i) prior to disclosure to the receiving party was
already rightfully in such receiving party's possession, (ii) is or becomes
publicly available, other than by unauthorized disclosure, or (iii) is received
from a third party who is rightfully in possession of such Acquisition
Information and has the authority to disclose it and who does not require the
receiving party, in connection with disclosing such Acquisition Information to
the receiving party, to refrain from disclosing such Acquisition Information to
others.
(d) Each Seller hereby agrees that it, he, or she shall keep
confidential and shall not (except as reasonably necessary to perform his or her
duties as an employee of Purchaser) disclose to any Person, appropriate, or make
use of for himself or herself or any other Person any Business Information. For
purposes of this Agreement, "Business Information" means all information
regarding the Business or its customers (i) that is not generally known to
persons not employed by the Business, (ii) that is not generally disclosed by
the Business to persons not employed by it, and (iii) as to which, prior to
Closing, the Company made reasonable efforts to keep confidential or after
Closing, Purchaser makes reasonable efforts to keep confidential. Business
Information includes, but is not limited to, information regarding the products
or services of the Business, product or service cost, product or service
pricing, research and
28
development, inventions, discoveries, improvements, marketing, business strategy
and plans, and non-public information concerning the legal or financial affairs
of the Business.
3.3 Noncompetition and Nonsolicitation.
(a) Each Seller agrees that during the period beginning on the Closing
Date and ending on the fifth anniversary of the Closing Date (the "Restricted
Period"), it, he, or she will not (other than pursuant to his or her employment
with Purchaser), directly or indirectly (on behalf of itself, himself, or
herself or as principal, agent, joint venture partner, employee, consultant,
director, or officer of any Person), engage in a Competitive Business in the
Territory or own any stock or equity or other securities of any Person that
engages in a Competitive Business in the Territory. "Competitive Business" means
the business of designing, manufacturing, marketing, or selling branded or
licensed apparel. "Territory" means:
(i) The United States of America, Canada and Japan; or
(ii) If Section 3.3(a)(i) is too broad, the United States of America.
Notwithstanding the foregoing, any Seller may own stock or other securities of
any publicly-traded Person if such ownership interest is not greater than five
percent (5%) of the outstanding stock or securities of such entity.
(b) Each Seller agrees that during the Restricted Period, it, he, or
she will not, directly or indirectly, interfere with, or seek to interfere with:
(i) the relationship between Purchaser and any customer of Purchaser, or (ii)
the relationship between Purchaser and any supplier of Purchaser. Each Seller
further agrees that (other than pursuant to his or her employment with
Purchaser) during the Restricted Period, it, he, or she will not, directly or
indirectly, induce or attempt to induce any of Purchaser's customers to limit,
reduce, or discontinue purchasing branded or licensed apparel from Purchaser.
(c) Each Seller agrees that (other than pursuant to his or her
employment with Purchaser) during the Restricted Period, it, he, or she will
not, directly or indirectly, solicit, recommend for employment, induce, or
attempt to induce any Person who is an employee, agent, or representative of
Purchaser to terminate his, her, or its employment or relationship with
Purchaser.
(d) The parties agree that, in the event of breach or threatened breach
of Sellers' covenants under this Section 3.3, the damage or imminent damage to
Purchaser and to the value and goodwill of the Business may be irreparable and
extremely difficult to estimate, making any remedy at law or in damages
inadequate. Accordingly, each Seller agrees that in the event of a breach by it,
him, or her of the covenants contained in this Section 3.3, Purchaser shall be
entitled, if it so elects, to institute and prosecute proceedings in any court
of competent jurisdiction to specifically enforce the performance by Sellers of
such covenants during the Restricted Period, provided that such remedy will not
be deemed to be exclusive of any other remedies available to Purchaser, by
judicial proceedings or otherwise, to enforce the performance of such covenants,
and each Seller hereby waives any requirement that Purchaser post bond or any
similar security in connection with any such proceedings.
29
(e) Sellers agree that the geographical, time, and subject matter
limitations of the covenants contained in this Section 3.3 are necessary for the
adequate protection of Purchaser and the goodwill of the Business and are fair
and reasonable in light of Purchaser's acquisition of the Business, including
the goodwill thereof, and Purchaser's legitimate interest in its relationship
with customers and suppliers of the Business. The parties hereto agree that the
time period, geographical area, and scope set forth in this Section 3.3 specify
the fair, appropriate, minimum and reasonable time, geographic area, and scope
necessary to protect Purchaser and its Affiliates, in the full use of the assets
and goodwill of the Business. If any provision of this Section 3.3 or the
application of any such provision shall be held by a court of competent
jurisdiction to be prohibited or unenforceable in any jurisdiction, such
provision shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability. The remaining provisions of this Section 3.3
shall otherwise remain in full force and effect and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without limiting the
generality of the foregoing, the parties intend that the covenants contained in
this Section 3.3 be enforced to the greatest extent in time, area, and
activities covered as is permitted by Applicable Law. The parties intend that
the unenforceability or invalidity of any term or provision of this Section 3.3
shall not render any other term or provision contained in this Section 3.3 or
this Agreement unenforceable or invalid. If the business activities, period of
time, or geographical area covered by this Section 3.3 should be deemed too
extensive, then the parties intend that this Section 3.3 be construed to cover
the maximum scope of business activities, period of time, and geographical area
(not exceeding those specifically set forth herein), if any, as may be
permissible under Applicable Law.
3.4 Accounts Receivable. In the event that any Seller receives any
payment relating to an Account Receivable or amounts "due from factor," in each
case constituting part of Closing Date Working Capital, such payment shall be
the property of, and shall be immediately forwarded to, Purchaser. Each Seller
will promptly endorse and deliver to Purchaser any cash, checks, or other
documents received by such Seller after the Closing Date relating to any Account
Receivable of the Business.
3.5 Use of Assumed Name. From and after the Closing Date, the Company
will cease to do business as "Junkfood Clothing" or any derivative thereof, will
refrain from using the name "Junkfood Clothing" or any derivative thereof
(including, without limitation, using any letterhead, business cards,
stationary, or other items that contain the name "Junkfood Clothing" or any
derivative thereof), and will terminate any non-transferable assumed name
filings made by it with Governmental Authorities with respect to the use of the
name "Junkfood Clothing" or any derivative thereof.
3.6 Employee Matters.
(a) On or prior to the Closing Date, Purchaser shall make offers of
employment to all employees of the Company on terms comparable in the aggregate
to the compensation and benefit levels provided to such employees by the Company
immediately prior to the Closing; provided, however, that nothing herein shall
limit Delta's or Purchaser's ability to amend or terminate its employee welfare
benefit plans after the Closing Date. Effective as of the Closing Date, all
employees hired by Purchaser (the "Hired Employees") shall cease to be active
participants in the Plans, in accordance with the terms of the Plans and
Applicable Law, including ERISA and
30
the Code. The Company shall retain liability for all claims incurred by its
employees (and their enrolled dependents) under the Plans on or prior to the
Closing Date. Purchaser shall be liable for all claims incurred by Hired
Employees (and their enrolled dependents) under the employee welfare benefit
plans of Purchaser or its Affiliates after the Closing Date.
(b) Effective as of the Closing Date, with respect to all of its plans
and arrangements other than 401(k), vision, life insurance and disability, and
to the extent permissible under its 401(k), vision, life insurance and
disability plans, Delta shall, or shall cause Purchaser to: (i) provide credit
under its compensation and employee benefit plans and arrangements for Hired
Employees' employment service with the Company prior to the Closing Date; (ii)
provide coverage for the Hired Employees under its medical, dental, and health
plans or under such other comparable plans or arrangements as are mutually
agreed upon by the parties; (iii) secure the waiver of any preexisting condition
limitations, waiting periods, or actively-at-work requirements imposed by such
plans; and (iv) cause such plans to honor any expenses incurred by the Hired
Employees and their beneficiaries under the Plans during the portion of the
calendar year prior to the Closing Date for the purposes of satisfying
applicable deductible, co-payment, and maximum out-of-pocket expenses under such
plans; provided, however, that, with respect to its 401(k), vision, life
insurance and disability plans, Delta shall use its best efforts to (x) cause
any and all pre-existing condition (or actively-at-work or similar) limitations,
eligibility waiting periods and evidence of insurability requirements to be
waived and (y) provide such Hired Employees with credit for any co-payments,
deductibles and any offsets (or similar payments) prior to the Closing Date for
purposes of satisfying any applicable deductible, out-of-pocket or similar
requirement. With respect to all "M&A Qualified Beneficiaries" (as defined in
Section 54.4980B-9 Q&A-4(a) of the Treasury regulations), Purchaser shall
provide the notice required by Section 4980B(f)(6) of the Code and shall make
available to such individuals continuation coverage under a group health plan
maintained by Purchaser, as provided by Section 54.4980B-9 Q&A-7 of the Treasury
regulations.
(c) As to any Hired Employee, the Company agrees to cause the release
of such Hired Employee from any contractual provision with the Company that
would impair the utility of such Hired Employee's services to Purchaser or that
would impose upon such Hired Employee any monetary or other obligation to the
Company that otherwise would be occasioned by the transfer of such Hired
Employee's employment to Purchaser including, without limitation, any agreements
of noncompetition or confidentiality owed to the Company.
(d) The Company and Purchaser hereby acknowledge that for Federal
Insurance Contribution Act and Federal Unemployment Tax Act purposes, Purchaser
qualifies as a successor employer with respect to any Hired Employees. In
connection with the foregoing (i) the parties agree to follow the "alternative
procedures" set forth in Section 5 of Revenue Procedure 2004-53, I.R.B. 2004-34,
and (ii) the Company and Purchaser understand that Purchaser shall assume
Company's entire obligation to furnish an Internal Revenue Service Form W-2,
Wage and Tax Statement, to each Hired Employee.
3.7 Key Person Insurance. Owners acknowledge that Delta and Purchaser
intend to obtain key person insurance following the Closing Date with respect to
each Owner, and each Owner hereby agrees to provide all assistance reasonably
requested by Delta or Purchaser
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(including making himself or herself reasonably available for any required,
customary physical examination) to obtain such insurance.
3.8 Insurance. The Company shall pay all premiums payable with respect
to the pre-Closing period under its general liability policy described on
Schedule 2.1.10.
ARTICLE 4.
INDEMNIFICATION
4.1 Indemnification by Sellers. Sellers agree to jointly and severally
indemnify and hold harmless Purchaser and Delta and their respective officers,
directors, shareholders, agents, employees, Affiliates, and their
representatives, successors, and assigns from and against any and all
liabilities, losses, claims, costs, and damages ("Loss") and reasonable
attorneys' and accountants' fees and expenses, court costs, and all other
reasonable expenses, including expenses of investigation ("Expense") suffered or
incurred by any of them in connection with or arising from:
(i) any breach by any Seller of any warranty or the inaccuracy of any
representation of any Seller contained in this Agreement or in any
agreement or instrument contemplated by this Agreement (including any
Schedule or Exhibit hereto);
(ii) any breach by any Seller of any of its, his, or her obligations or
covenants contained in this Agreement or in any agreement or instrument
contemplated by this Agreement (including any Schedule or Exhibit
hereto);
(iii) any noncompliance by Sellers with respect to any applicable bulk
sales law; and
(iv) the Excluded Liabilities;
provided, however, that (1) Sellers shall have no liability with respect to the
indemnification described in Section 4.1(i) until the total of all Loss and
Expense with respect to such indemnification exceeds One Hundred Thousand
Dollars ($100,000) (the "Threshold Limitation"), at which time Sellers shall be
liable for all Loss and Expense in excess of the Threshold Limitation; (2) the
aggregate liability of Sellers for Loss and Expense with respect to the
indemnification described in Section 4.1(i) shall not exceed, on an aggregate
basis, Five Million Dollars ($5,000,000) (the "Amount Limitation"); (3) the
aggregate liability of Natalie Grof for Loss and Expense with respect to the
indemnification described in Sections 4.1(i), 4.1(iii) and 4.1(iv) shall not
exceed an amount equal to one-half (1/2) of the Purchase Price (the "Owner
Amount Limitation"); and (4) the aggregate liability of Blaine Halvorson with
respect to the indemnification described in Sections 4.1(i), 4.1(iii) and
4.1(iv) shall not exceed the Owner Amount Limitation. Notwithstanding the
foregoing, the Amount Limitation shall not apply to the indemnification
described in Section 4.1(i) with respect to the representations and warranties
of Sellers under Sections 2.1.1(b) (Authorization); 2.1.15 (Tax Matters), 2.1.16
(Compliance with ERISA), and 2.1.18 (Environmental) or to those representation
and warranties of Sellers in Article 2 regarding title to and encumbrances
against the Assets.
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4.2 Indemnification by Purchaser and Delta. Purchaser and Delta agree
to jointly and severally indemnify and hold harmless Sellers and their
respective officers, directors, shareholders, agents, employees, Affiliates, and
their representatives, successors, and assigns from and against any and all Loss
and Expense incurred by any of them in connection with or arising from:
(i) any breach by Purchaser or Delta of any warranty or the inaccuracy
of any representation of Purchaser or Delta contained in this Agreement
or in any agreement or instrument contemplated by this Agreement
(including any Schedule or Exhibit hereto);
(ii) any breach by Purchaser or Delta of any of its obligations or
covenants contained in this Agreement or in any agreement or instrument
contemplated by this Agreement (including any Schedule or Exhibit
hereto); and
(iii) the Assumed Liabilities;
provided, however, that (1) neither Purchaser nor Delta shall have any liability
with respect to the indemnification described in Section 4.2(i) until the total
of all Loss and Expense with respect to such indemnification exceeds the
Threshold Limitation, at which time Purchaser and Delta shall be liable for all
Loss and Expense in excess of the Threshold Limitation; and (2) the aggregate
liability of Purchaser and Delta for Loss and Expense with respect to the
indemnification described in Section 4.2(i) shall not exceed, on an aggregate
basis, the Amount Limitation.
4.3 Survival Period. The indemnification provided for in Sections
4.1(i) and 4.2(i) shall terminate eighteen (18) months after the Closing Date,
provided that (1) the representations and warranties of Sellers under Section
2.1.15 (Tax Matters), 2.1.16 (Compliance with ERISA), and 2.1.18 (Environmental)
and the indemnification contained in Section 4.1(i) with respect thereto shall
terminate forty-eight (48) months after the Closing Date, and (2) the
representations and warranties of Sellers under Section 2.1.1(b) (Authorization)
and those representations and warranties of Sellers in Article 2 regarding title
to and encumbrances against the Assets and the indemnification contained in
Section 4.1(i) with respect thereto shall terminate seventy-two (72) months
after the Closing Date (as the case may be, the "Survival Period"). Such
indemnification obligation shall continue after the Closing Date, without regard
to any investigation made at any time by the indemnified persons, as to any Loss
or Expense of which the indemnified persons has notified the indemnifying party
in accordance with the requirements of Section 4.4 on or prior to the expiration
of the applicable Survival Period, as to which the obligation of the
indemnifying party shall then continue until the liability of the indemnifying
party shall have been determined pursuant to this Article 4, and the
indemnifying party shall have reimbursed the indemnified persons for the full
amount of such Loss and Expense in accordance with this Article 4.
4.4 Notice of Claims. If Purchaser, Delta, or any Seller believes that
any of the Persons indemnified under this Article 4 has suffered or incurred any
Loss or Expense, Purchaser, Delta, or such Seller shall so notify the other
parties promptly in writing describing such Loss or Expense, the amount thereof,
if known, and the method of computation of such Loss or Expense, all with
reasonable particularity and containing a reference to the provisions of
33
this Agreement or other agreement, instrument, or certificate delivered pursuant
hereto in respect of which such Loss or Expense shall have occurred, except that
the failure to so notify shall not relieve a party of its obligations to
indemnify except to the extent that its, his, or her rights hereunder are
materially prejudiced. If any action at law or suit in equity is instituted by a
third party with respect to which any of the indemnified persons intends to
claim any liability or expense as Loss or Expense under this Article 4, such
indemnified person shall promptly notify the indemnifying party of such action
or suit.
4.5 Third Party Claims. In the event of a third party claim giving rise
to indemnification hereunder, the indemnifying party shall have thirty (30) days
after receipt of the notice referred to in Section 4.4 to notify the indemnified
persons that it elects to conduct and control such action or suit with counsel
reasonably satisfactory to the indemnified persons. If the indemnifying party
does not give the foregoing notice, the indemnified persons shall have the right
to defend and contest such action or suit in any manner the indemnified persons
reasonably deem appropriate; provided, however, that the indemnified persons
shall not consent to the entry of any judgment or to any settlement of such
claim without the prior written consent of the indemnifying party, not to be
unreasonably withheld or delayed. If the indemnifying party gives the foregoing
notice, the indemnifying party shall have the right to undertake, conduct, and
control, through counsel of its own choosing and at the sole expense of the
indemnifying party, the conduct and settlement of such action or suit, and the
indemnified persons shall cooperate with the indemnifying party in connection
therewith; provided that (w) the indemnifying party shall not settle or
compromise any such action or suit without the indemnified persons' prior
written consent (not to be unreasonably withheld or delayed), unless the terms
of such settlement or compromise release the indemnified persons from any and
all liability with respect to such action or suit at no cost to the indemnified
persons, (x) the indemnifying party shall not thereby permit to exist any Lien
upon any asset of any indemnified person or permit the issuance of an injunction
or other equitable relief against the indemnified persons, (y) the indemnifying
party shall permit the indemnified persons to participate in such conduct or
settlement through one counsel chosen by the indemnified persons, and the fees
and expenses of such counsel shall be borne by the indemnified persons (unless
the named parties to any such action or suit include one or more indemnified
persons who have been advised by counsel that there may be a conflict of
interest between the indemnifying party and such indemnified person or persons;
in which case the reasonable fees and expenses of one counsel for the
indemnified person or persons will be borne by the indemnifying party), and (z)
the indemnifying party shall agree promptly to reimburse to the extent required
under this Article 4 the indemnified persons for the full amount of any Loss
resulting from such action or suit and all related Expense incurred by the
indemnified persons, except fees and expenses of counsel for the indemnified
persons incurred after the assumption of the conduct and control of such action
or suit by the indemnifying party (unless the named parties to any such action
or suit include one or more indemnified persons who have been advised by counsel
that there may be a conflict of interest between the indemnifying party and such
indemnified person or persons; in which case the reasonable fees and expenses of
one counsel for the indemnified person or persons will be borne by the
indemnifying party). So long as the indemnifying party is contesting any such
action or suit in good faith, the indemnified persons shall not pay or settle
any such action or suit. Notwithstanding the foregoing, the indemnified persons
shall have the right to pay or settle any such action or suit, provided that in
such event the indemnified persons shall waive the right to
34
indemnity therefor by the indemnifying party, and no amount in respect thereof
shall be claimed as Loss or Expense under this Article 4.
4.6 Exclusions from Indemnification. Required payments by an
indemnifying party pursuant to Sections 4.1 or 4.2 shall be limited to the
amount of any Loss or Expense remaining after deducting therefrom (i) any
insurance proceeds recoverable by the indemnified person on account of the Loss
or Expense, and (ii) any indemnity, contribution, or other similar payment
recoverable by any indemnified person from any third party, in each case with
respect to such Loss or Expense. The indemnified person shall use commercially
reasonable efforts to collect all such indemnity, contribution, or other similar
payments. If an indemnified person receives any payment from an indemnifying
party in respect of Losses indemnifiable under this Agreement and the
indemnified person could have recovered all or a part of such Loss or Expense
from a third party based on the underlying claim or demand asserted against such
indemnifying party, then such indemnified person shall transfer its right to
recover from such third party to such indemnifying party.
4.7 Exclusive Remedy. The parties expressly acknowledge that the
provisions of this Article 4 shall be the sole and exclusive remedy for damages
caused as a result of breaches of the representations, warranties and agreements
contained in this Agreement and any certificate furnished or to be furnished
hereunder, except that the remedies of injunction and specific performance shall
remain available to the parties hereto, and no indemnifying party shall be
liable or responsible to any other party hereto and the other indemnified
persons for punitive, incidental and consequential or multiplied damages or for
lost profits.
ARTICLE 5.
MISCELLANEOUS
5.1 Survival. Notwithstanding any otherwise applicable statute of
limitations or presumption, all agreements, covenants, representations, and
warranties of Purchaser, Delta, and Sellers in this Agreement and in any other
agreement, instrument, or document delivered in connection herewith shall
survive Closing in accordance with their terms.
5.2 Expenses. Each party shall be solely responsible for and bear all
of its, his, or her own expenses incurred at any time in connection with
pursuing or consummating this Agreement and the transactions contemplated
herein.
5.3 Assignment; Successors; Parties in Interest. This Agreement shall
not be assigned by any party hereto without the prior written consent of the
other parties (which consent shall not be unreasonably withheld) and any attempt
to assign this Agreement without such consent shall be void and of no effect,
except that (i) Purchaser and Delta may collaterally assign this Agreement to
any lender of Purchaser or Delta; and (2) Purchaser and Delta may assign this
Agreement in connection with the sale of all or substantially all of the assets
of Purchaser or Delta provided that Delta remains liable for its guaranty of the
payment of the Note and any obligations under this Agreement. This Agreement
shall inure to the benefit of, and be binding on and enforceable against, each
party hereto and the successors and permitted assigns of the respective parties
hereto, and nothing in this Agreement, express or implied, is intended to confer
35
upon any other Person any rights or remedies of any nature whatsoever under this
Agreement. It is expressly understood that the Owners may choose to liquidate
the Company after the Closing, in which case the Company may assign this
Agreement to the Owners and the Owners shall be deemed to be the successors of
the Company (and upon such assignment, the Owners shall assume all rights and
obligations of the Company hereunder subject, however, in the case of each Owner
with respect to the indemnification obligations of the Company, to the Owner
Amount Limitation).
5.4 Performance Guaranty by Delta.
(a) Delta hereby guarantees for the benefit of Sellers the full,
faithful and punctual performance of all obligations and covenants made and
undertaken by Purchaser under this Agreement and under any agreement delivered
in connection herewith in accordance with their terms.
(b) The obligations of Delta under this Section 5.4 are independent of
the obligations of Purchaser under this Agreement and shall survive the Closing,
and a separate action or actions may be brought and prosecuted against Delta
whether or not an action is brought against Purchaser or whether or not
Purchaser is joined in any such action or actions. Delta agrees that any
circumstance which operates to toll the statute of limitations as to Purchaser
shall also operate to toll the statute of limitations as to Delta.
(c) Delta authorizes the Sellers, without affecting or impairing the
liability of Delta under this Section 5.4, from time to time to amend this
Agreement in accordance with Section 5.5 or any related agreements (but only in
accordance with the terms of such applicable document) to release Purchaser from
any of its obligations hereunder or under any related agreement or waive any of
the conditions hereof or thereof.
(d) The Sellers may, without notice to or the further consent of
Purchaser or Delta, assign their rights hereunder in whole or in part to any
permitted assignee of this Agreement in accordance with Section 5.3.
(e) Delta waives any right it may have to require the Sellers to (i)
proceed against Purchaser or any other Person (ii) proceed against or exhaust
any security or other monies held on behalf of Purchaser, (iii) marshall assets
in favor of any Person or (iv) pursue any other remedy in the power of the
Sellers whatsoever prior to enforcing the obligations of Delta under this
Section 5.4. Except to the extent expressly provided in this Agreement, with
respect to its obligations under this Section 5.4, Delta waives all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance of this
Agreement or any other related agreement.
(f) To the fullest extent permitted by applicable law, Delta expressly
waives any defenses or benefits that may be derived from California Civil Code
Sections 2809, 2810, 2819, 2839, 2849, 2899 or 3433, or from comparable
provisions of the laws of any other jurisdiction, and all other suretyship
defenses it otherwise might or would have under California law or other
applicable law.
36
5.5 Amendment and Modification. Neither this Agreement nor any term
hereof may be changed, waived, discharged, or terminated orally, but only with
the written consent signed by the party against which such change, waiver,
discharge, or termination is sought to be enforced. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent or other breach, whether similar or not.
5.6 Access After Closing. The parties shall retain for a period of six
(6) years following Closing all books and records within their possession or
control that they are permitted hereby to retain and that relate to the
operation and conduct of the Business prior to Closing. The parties shall
provide to the other parties and their representatives reasonable access during
normal business hours to copies of all such books and records upon request.
5.7 Bulk Sales Law. Purchaser and Delta hereby waive compliance by
Sellers with any applicable bulk sales law, subject to Sellers' obligations
under Section 4.1(iii).
5.8 Notices. All notices, consents, requests, instructions, approvals,
and other communications provided for herein and all legal processes in regard
hereto shall be validly given, made, or served, if in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
commercial courier or by telecopy (promptly confirmed in writing) to the
following addresses (or at such other addresses for such parties as shall be
specified by like notice):
To Purchaser:
Junkfood Clothing Company
2750 Premiere Parkway, Suite 100
Duluth, GA 30097
Attention: Deborah Merrill, Vice President
Telecopy: 678-775-6999
Telephone: 678-775-6914
With a copy to:
(which copy shall not constitute notice)
Wyche, Burgess, Freeman & Parham, P.A.
44 East Camperdown Way
Greenville, SC 29601
Post Office Box 728
Greenville, SC 29602-0728
Attention: Eric B. Amstutz, Esq. and Melinda Davis Lux, Esq.
Telecopy: 864-235-8900
Telephone: 864-242-8200
To Delta:
Delta Apparel, Inc.
2750 Premiere Parkway, Suite 100
37
Duluth, GA 30097
Attention: Robert W. Humphreys, President and CEO
Telecopy: 678-775-6999
Telephone: 678-775-6914
With a copy to:
(which copy shall not constitute notice)
Wyche, Burgess, Freeman & Parham, P.A.
44 East Camperdown Way
Greenville, SC 29601
Post Office Box 728
Greenville, SC 29602-0728
Attention: Eric B. Amstutz, Esq. and Melinda Davis Lux, Esq.
Telecopy: 864-235-8900
Telephone: 864-242-8200
To the Company:
Liquid Blaino Designs, Inc.
1430 Abbot Kinney Boulevard
Venice, California 90291
Attention: Blaine Halvorson
Telephone: (310) 621-8920
With a copy to:
(which copy shall not constitute notice)
Morrison & Foerster LLP
555 West Fifth Street, Suite 3500
Los Angeles, California 90013-1024
Attention: Henry M. Fields, Esq.
Telecopy: 213-892-5454
Telephone: 213-892-5200
To Natalie Grof:
Natalie Grof
551 26th Street
Santa Monica, California 90402
Telephone: (310) 621-8921
With a copy to:
(which copy shall not constitute notice)
38
Morrison & Foerster LLP
555 West Fifth Street, Suite 3500
Los Angeles, California 90013-1024
Attention: Henry M. Fields, Esq.
Telecopy: 213-892-5454
Telephone: 213-892-5200
To Blaine Halvorson:
Blaine Halvorson
1430 Abbot Kinney Boulevard
Venice, California 90291
Attention: Blaine Halvorson
Telephone: (310) 621-8920
With a copy to:
(which copy shall not constitute notice)
Morrison & Foerster LLP
555 West Fifth Street, Suite 3500
Los Angeles, California 90013-1024
Attention: Henry M. Fields, Esq.
Telecopy: 213-892-5454
Telephone: 213-892-5200
5.9 Captions. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
5.10 Entire Agreement. This Agreement (including the Schedules and
Exhibits) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral (including, without limitation, that
certain confidentiality agreement dated as of March 10, 2005 and that certain
letter of intent dated as of June 27, 2005), among the parties with respect to
the subject matter hereof.
5.11 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute one and the same instrument.
5.12 Severability. If any term or provision of this Agreement is held
by a court or other authority of competent jurisdiction to be invalid, void, or
unenforceable, the remaining terms and provisions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired, or
invalidated.
5.13 Arbitration. Except for (i) matters relating to specific
performance, injunctive relief, or other equitable remedies, and (ii)
indemnifiable third party claims pursuant to Article 4, the parties hereto agree
to submit to arbitration any and all matters in dispute or in controversy among
them concerning the terms and provisions of this Agreement. All such disputes
and controversies shall be determined and adjudged by a single arbitrator, and
the hearing shall be held in New York, New York. The selection of the arbitrator
and the procedure shall be in
39
accordance with the commercial arbitration rules then in effect of the American
Arbitration Association. Any award rendered shall be final and conclusive upon
the parties and a judgment thereon may be entered in the highest court of the
forum, state or federal, having jurisdiction. The expenses of the arbitration
shall be borne equally by the parties to the arbitration, provided that each
party shall pay for and bear the costs of its own experts, evidence, and
counsel's fees, and provided further that in the discretion of the arbitrator,
any award may include the costs of a party's counsel if the arbitrator expressly
determines that the party against whom such award is entered has caused the
dispute, controversy, or claim to be submitted to arbitration in bad faith.
5.14 Schedules and Exhibits. The Schedules and Exhibits are a part of
this Agreement as if fully set forth herein. All references to Sections,
subsections, Schedules and Exhibits shall be deemed references to such parts of
this Agreement, unless the context shall otherwise require.
5.15 Definitions. Used in this Agreement, the following terms have the
meanings specified or referred to in this Section 5.15:
(a) "Accelerated Earnout Amount" means:
(i) with respect to a termination of the Terminated Executive
as set forth subparagraph 1.5(f)(i), the sum of (x) one-half
of the amounts payable (but not yet paid) in respect of each
Period completed prior to such termination, as determined in
accordance with Section 1.5, plus (y) one-half of the Earnout
Amounts with respect to each Period not completed prior to
such termination, calculated pursuant to Section 1.5(a) as if
the actual EBIT for the Business with respect to Periods 1, 2,
3 and 4 were equal to the Base EBIT, Base EBIT, High EBIT and
High EBIT, respectively, for each such Period and without any
reduction pursuant to Section 1.5(b).
(ii) with respect to a Change of Control, Bankruptcy or other
triggering event as set forth in subparagraph 1.5(f)(ii) or
(iii), an amount equal to the sum of (x) the amounts payable
(but not yet paid) in respect of each Period completed prior
to such triggering event as determined in accordance with
Section 1.5, plus (y) the Earnout Amounts with respect to each
Period not completed prior to such event, calculated pursuant
to Section 1.5(a) as if the actual EBIT with respect to each
such Period were equal to the Base EBIT for each such Period
and without any reduction pursuant to Section 1.5(b).
(b) "Accounts Receivable" means, as of a given date, all accounts
receivable that are required to be reflected on a balance sheet of the Company
as of such date and shall not include any accounts receivable sold to a factor
and which, in accordance with GAAP, are not required to be reflected as assets
of the Company on its financial statements.
(c) "Acquisition" shall have the meaning set forth in the recitals to
this Agreement
(d) "Acquisition Information" shall have the meaning set forth in
Section 3.2(a).
40
(e) "Affiliate" means, with respect to any Person, any Person directly
or indirectly controlling, controlled by, or under common control with such
Person. For purposes of this definition, the term "controls," "is controlled
by," or "is under common control with" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise.
(f) "Agreement" shall have the meaning set forth in the first paragraph
of this Agreement.
(g) "Annual Financials" shall have the meaning set forth in Section
2.1.3(a).
(h) "Amount Limitation" shall have the meaning set forth in Section
4.1.
(i) "Applicable Law" means all applicable provisions of (i)
constitutions, treaties, statutes, laws (including common law), rules,
regulations, ordinances, codes, and orders of any Governmental Authority, (ii)
consents of, with, or to any Governmental Authority, and (iii) orders,
decisions, injunctions, writs, judgments, awards, decrees of, and agreements
with any Governmental Authority.
(j) "Assets" shall have the meaning set forth in Section 1.1.
(k) "Assumed Liabilities" shall have the meaning set forth in Section
1.7(a).
(l) "Bankruptcy" means the (i) filing of a petition by or against
Purchaser or Delta under any provision of the Bankruptcy Reform Act, Title 11 of
the United States Code, as amended or recodified from time to time, or under any
similar law relating to bankruptcy, insolvency or other relief for debtors; (ii)
appointment of a receiver, assignee, trustee, custodian, liquidator (or similar
official) of or for all or any part of the assets or property of Purchaser or
Delta; or (iii) insolvency of Purchaser or Delta; (iv) making of a general
assignment for the benefit of creditors by Purchaser or Delta; or (v) admission
in writing by either Purchaser or Delta of its inability to pay its debts as
they become due.
(m) "Base EBIT" shall have the meaning set forth in Section 1.5(a).
(n) "Board-Approved Director" means any director who is elected or
appointed to the board of directors of Purchaser and whose election or
appointment is approved by a majority of the directors then in office.
(o) "Business" shall have the meaning set forth in the recitals to this
Agreement.
(p) "Business Information" shall have the meaning set forth in Section
3.2(d).
(q) "Cash Purchase Price" shall have the meaning set forth in Section
1.4(a).
(r) "Cause" shall have the meaning ascribed to such term in the
employment agreements dated as of the date hereof between Purchaser and each of
the Owners.
41
(s) "CERCLA" shall have the meaning set forth in Section 2.1.18(g).
(t) "CERCLIS" shall have the meaning set forth in Section 2.1.18(g).
(u) "Change of Control" means, with respect to Purchaser, (i) any
transaction or series of related transactions pursuant to which any Person or
group of Persons (other than Delta or an Affiliate of Delta) becomes, after the
Closing Date, the beneficial owner of more than 50% of Purchaser's then
outstanding voting securities; (ii) individuals who on the Closing Date
constitute Purchaser's board of directors and any Board-Approved Directors cease
to constitute a majority of Purchaser's board of directors; (iii) the sale or
disposition of all or substantially all of Purchaser's assets (other than to
Delta or an Affiliate of Delta); (iv) the acquisition of Purchaser by another
Person (other than Delta or an Affiliate of Delta) by means of any
reorganization, merger or consolidation (but excluding any reorganization,
merger or consolidation effected exclusively for the purpose of changing the
domicile of Purchaser), or any transaction or series of related transactions in
which Purchaser's shareholders of record as constituted immediately prior to
such transaction or series of related transactions will, immediately after such
transaction or series of related transactions (by virtue of securities issued in
such transaction or series of related transactions) fail to hold at least 50% of
the voting power of the resulting or surviving corporation following such
transaction or series of related transactions.
(v) "Closing" shall have the meaning set forth in Section 1.3.
(w) "Closing Date" shall have the meaning set forth in Section 1.3.
(x) "Closing Date Balance Sheet" shall have the meaning set forth in
Section 1.6(a).
(y) "Closing Date Working Capital" means the following with respect to
assets and liabilities of the Business as of the Closing Date: the sum of
Accounts Receivable (net of reserves), due from factor (net of reserves),
inventory (net of reserves), prepaid expenses (such prepaid expenses shall not
exceed $100,000), plant, property, and equipment and deposits; minus, trade
payables and accrued liabilities (excluding accrued income taxes). For purposes
of the definition of Closing Date Working Capital, (y) the assets enumerated in
such definition shall include only those items and amounts included in the
Assets pursuant to Section 1.1 (including all related reserves) and shall be
calculated consistently with the methodologies and assumptions set forth on
Schedule 1.6(a), and (z) the liabilities enumerated in such definition shall
include only those items and amounts included in Assumed Liabilities pursuant to
Section 1.7 and shall be calculated consistently with the methodologies and
assumptions set forth on Schedule 1.6(a).
(z) "Code" means the Internal Revenue Code of 1986, as amended.
(aa) "Company" shall have the meaning set forth in the first paragraph
of this Agreement.
(bb) "Company Personnel" means the current and former officers,
directors, employees, and agents of the Company.
(cc) "Competitive Business" shall have the meaning set forth in Section
3.3(a).
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(dd) "Contaminant" means any pollutant, hazardous substance,
radioactive substance, toxic substance, hazardous waste, medical waste,
radioactive waste, special waste, petroleum or petroleum waste, asbestos, PCBs,
or any hazardous or toxic constituent thereof and includes, but is not limited
to, any hazardous substance defined in or regulated under Environmental, Health
or Safety Requirements of Law.
(ee) "Deficit Amount" shall have the meaning set forth in Section
1.6(c)(ii).
(ff) "Delta" shall have the meaning set forth in the first paragraph of
this Agreement.
(gg) "Delta SEC Documents" shall have the meaning set forth in Section
2.2.4(a).
(hh) "Delta Services" shall have the meaning set forth in Section
1.12(c)(iii).
(ii) "Earnout Adjustment Report" shall have the meaning set forth in
Section 1.5(e)(ii).
(jj) "Earnout Amounts" shall have the meaning set forth in Section
1.5(b).
(kk) "Earnout Calculation" shall have the meaning set forth in Section
1.5(c).
(ll) "Earnout Dispute" shall have the meaning set forth in Section
1.5(e)(i).
(mm) "Earnout Dispute Notice" shall have the meaning set forth in
Section 1.5(e)(i).
(nn) "Earnout Dispute Period" shall have the meaning set forth in
Section 1.5(e)(i).
(oo) "Earnout Due Date" shall have the meaning set forth in Section
1.5(c).
(pp) "EBIT" means the earnings of the Business (calculated on a
stand-alone basis) before interest expense and income Taxes, determined in
accordance with GAAP and with the following adjustments and exclusions: (x)
there shall be included in expenses a corporate overhead charge equal to one
percent of Net Sales plus external audit fees not to exceed $75,000 each Period,
in consideration of which Delta shall provide (or arrange to provide) the Delta
Services; (y) no transactional expenses of the Acquisition (including legal and
accounting fees, whether expensed or capitalized and thereafter amortized) shall
be included in the calculation of EBIT and no amortization of any goodwill
arising from the Acquisition shall be included in the calculation of EBIT; and
(z) no losses shall be included to the extent covered by insurance or to the
extent indemnified by the Sellers.
(qq) "EHS Permits" shall have the meaning set forth in Section
2.1.18(b).
(rr) "Enforceability Exceptions" shall have meaning set forth in
Section 2.1.1(b).
(ss) "Environmental Damages" means all claims, judgments, damages
(including punitive damages), losses, penalties, fines, interest, fees,
liabilities (including strict liability), encumbrances, liens, costs, response
costs, and other expenses of investigation and Remedial Action and defense of
any claim, whether or not such claim is ultimately defeated, and of any
43
good faith settlement or judgment, of whatever kind or nature, contingent or
otherwise, matured or unmatured, foreseeable or unforeseeable, including,
without limitation, reasonable attorneys' fees and disbursements and
consultants' fees, any of which are incurred at any time as a result of the
existence of Contaminants or noncompliance with Environmental, Health or Safety
Requirements of Law with respect to the period prior to the Closing, including
without limitation:
(i) Damages for personal injury (including sickness, disease, or
death), or injury to property or natural resources, foreseeable or
unforeseeable, including, without limitation, the cost of demolition
and rebuilding of any improvements on real property;
(ii) Reasonable fees incurred for the services of attorneys,
consultants, contractors, doctors, experts, laboratories, and all other
reasonable costs incurred in connection with any damages described in
subparagraph (i) of this definition, and the investigation or
remediation of Contaminants or the suspected presence of Contaminants
required by any foreign, federal, state, or local governmental agency
or political subdivision, or the violation or threatened violation of
Environmental, Health or Safety Requirements of Law including, but not
limited to, the preparation of any feasibility studies or reports or
the performance of any investigations, cleanup, treatment, remediation,
removal, response, abatement, containment, closure, storage, disposal,
transport, restoration, or monitoring work required by any foreign,
federal, state, or local governmental agency or political subdivision,
or otherwise expended in connection with such conditions; and
(iii) Liability to any third Person or Governmental Authority to
indemnify such Person or Governmental Authority for costs expended in
connection with the items referenced in subparagraphs (i) and (ii) of
this definition.
(tt) "Environmental, Health or Safety Requirements of Law" means all
foreign, federal, state, and local laws, statutes, codes, ordinances, rules,
regulations, EHS Permits, and orders relating to or addressing the environment,
health, or safety, including, but not limited to, any law, statute, code,
ordinance, rule, regulation, EHS Permit, or order relating to (x) the use,
handling, or disposal of any Contaminant, or (y) workplace or worker safety and
health, as such requirements are promulgated by the specifically authorized
Governmental Authority responsible for administering such requirements.
(uu) "Environmental Lien" means a lien in favor of any Governmental
Authority for any (a) liability under any Environmental, Health or Safety
Requirement of Law, or (b) damages arising from, or costs incurred by, such
Governmental Authority in response to a Release or threatened Release of a
Contaminant into the environment.
(vv) "ERISA" shall have the meaning set forth in Section 2.1.16(a).
(ww) "Excess Amount" shall have the meaning set forth in Section
1.6(c)(i).
(xx) "Excluded Assets" shall have the meaning set forth in Section 1.2.
(yy) "Excluded Liabilities" shall have the meaning set forth in Section
1.7(b).
44
(zz) "Expense" shall have the meaning set forth in Section 4.1.
(aaa) "GAAP" means generally accepted accounting principles.
(bbb) "Good Reason" shall have the meaning ascribed to such term in the
employment agreements dated as of the date hereof between Purchaser and each of
the Owners.
(ccc) "Governmental Authority" means any agency, department, court, or
other administrative, legislative, or regulatory authority of any foreign,
federal, state, or local governmental body.
(ddd) "Guaranty" shall have the meaning set forth in Section 1.4(b).
(eee) "High EBIT" shall have the meaning set forth in Section 1.5(a).
(fff) "Hired Employees" shall have the meaning set forth in Section
3.6(a).
(ggg) "Intellectual Property" means (i) all logos, trade styles, trade
names, trademarks, service marks (and applications therefor) owned by or
assigned to the Company or in which the Company has an interest by license,
agreement, shop right, common law, or otherwise relating to the Business, (ii)
all patents, patent applications, and inventions and discoveries that may be
patentable owned by or assigned to the Company or in which the Company has an
interest by license, agreement, shop right, common law, or otherwise relating to
the Business; (iii) all copyrights (and applications therefor), whether
registered or not, owned by or assigned to the Company or in which the Company
has an interest by license, agreement, shop right, common law, or otherwise
relating to the Business, (iv) all websites, web pages and applications, and
domain names owned by or assigned to the Company or in which the Company has an
interest by license, agreement, shop right, common law, or otherwise relating to
the Business, and (v) all processes, inventions, trade secrets, know-how, ideas
and concepts relating to the Business.
(hhh) "Interim Financials" shall have the meaning set forth in Section
2.1.3(a).
(iii) "Knowledge" means both (i) the actual Knowledge of any Owner and
(ii) the Knowledge a prudent person could be expected to discover or otherwise
acquire in the course of conducting a reasonably comprehensive investigation
concerning the existence of facts or other matters.
(jjj) "Leases" shall have the meaning set forth in Section 2.1.8.
(kkk) "Leased Properties" shall have the meaning set forth in Section
2.1.8.
(lll) "Liens" means, with respect to any assets or properties (whether
real, personal, or mixed, or tangible or intangible), any mortgage, pledge,
option, escrow, hypothecation, lien, pledge, security interest, financing
statement, lease, charge, preemptive subscription, encumbrance, easement,
option, conditional sale, or other title retention or security agreement or any
other similar restriction, claim, or right of others, on, in, or with respect to
such assets or properties, whether arising by contract, operation of law, or
otherwise.
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(mmm) "Loss" shall have the meaning set forth in Section 4.1.
(nnn) "Low EBIT" shall have the meaning set forth in Section 1.5(a).
(ooo) "Material Adverse Effect" means a material adverse effect on the
properties, assets (tangible and intangible), liabilities, condition (financial
or otherwise), or results of operations of the Business, including, but not
limited to, any material casualty, loss, theft, or damage to the Assets to the
extent uninsured.
(ppp) "Material Agreements" shall have the meaning set forth in Section
2.1.11.
(qqq) "Net Sales" means gross sales of the Business minus returns,
discounts, and allowances.
(rrr) "Note" shall have the meaning set forth in Section 1.4(b).
(sss) "Notice of Set Off Dispute" shall have the meaning set forth in
Section 1.5(d)(ii).
(ttt) "NPL" shall have the meaning set forth in Section 2.1.18(g).
(uuu) "Owner Amount Limitation" shall have the meaning set forth in
Section 4.1.
(vvv) "Owners" shall have the meaning set forth in the first paragraph
of this Agreement.
(www) "PCBs" shall have the meaning set forth in Section 2.1.18(m).
(xxx) "Percentage Excess" shall have the meaning set forth in Section
1.5(b)(ii).
(yyy) "Period" means each of Period 1, Period 2, Period 3, and Period
4.
(zzz) "Period 1" means August 22, 2005 to July 1, 2006.
(aaaa) "Period 2" means July 2, 2006 to June 30, 2007.
(bbbb) "Period 3" means July 1, 2007 to June 28, 2008.
(cccc) "Period 4" means June 29, 2008 to June 27, 2009.
(dddd) "Permitted Liens" means Liens, as to any asset, means each of
the following: (i) Liens for Taxes, assessments and governmental charges or
levies not yet due and payable or which are being contested in good faith; (ii)
purchase money or vendor's Liens or security interests (including, without
limitation, finance leases); (iii) Liens consented to by Purchaser or Delta;
(iv) materialmen's, mechanics', carriers', workmen's and repairmen's Liens that
do not individually or in the aggregate adversely affect in any material respect
the use and enjoyment of a particular asset; and (v) Liens arising under the
Factoring Agreement, dated as of March 16, 2001, between the Company and
Continental Business Credit, Inc., as amended, which Liens exist as of the date
hereof and are not released by Continental Business Credit, Inc. as of the date
hereof.
46
(eeee) "Person" means any individual, partnership, limited liability
company, corporation, trust, unincorporated organization, or any other form of
legal entity.
(ffff) "Plans" shall have the meaning set forth in Section 2.1.16(a).
(gggg) "Preliminary Earnout Amount" shall have the meaning set forth in
Section 1.5(a).
(hhhh) "Prototype Working Capital Methodologies" shall have the meaning
set forth in Section 1.6(a).
(iiii) "Purchase Price" shall have the meaning set forth in Section
1.4.
(jjjj) "Purchaser" shall have the meaning set forth in the first
paragraph of this Agreement.
(kkkk) "RCRA" shall have the meaning set forth in Section 2.1.18(h).
(llll) "Release" means the release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching, or migrating into
the indoor or outdoor environment of any Contaminant through or in the air,
soil, surface water, groundwater, or any of the Leased Properties in a manner
prohibited by any foreign, federal, state, or local governmental agency or
political subdivision.
(mmmm) "Remedial Action" means actions required by any foreign,
federal, state, or local governmental agency or political subdivision, to (i)
clean up, remove, treat, or in any other way address Contaminants in the indoor
or outdoor environment; (ii) prevent the Release or threat of Release or
minimize the further Release of Contaminants; or (iii) investigate and determine
if a remedial response is needed, design such a response, and perform
post-remedial investigation, monitoring, operation, maintenance, and care.
(nnnn) "Restricted Period" shall have the meaning set forth in Section
3.3(a).
(oooo) "Review Period" shall have the meaning set forth in Section
1.6(b)(i).
(pppp) "SEC" mean the Securities and Exchange Commission.
(qqqq) "Sellers" shall have the meaning set forth in the first
paragraph of this Agreement.
(rrrr) "Set Off Notice" shall have the meaning set forth in Section
1.5(d)(i).
(ssss) "Set Off Review Period" shall have the meaning set forth in
Section 1.5(d)(ii).
(tttt) "Significant Customer" means any of the ten largest customers of
the Company measured in terms of dollar sales volume for the one year period
ended June 30, 2005.
(uuuu) "Significant Supplier" means any of the ten largest suppliers of
the Company (measured by dollar value of goods purchased) for the one year
period ended June 30, 2005.
(vvvv) "Survival Period" shall have the meaning set forth in Section
4.3.
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(wwww) "Taxes" means all foreign, federal, state, and local income
taxes and other taxes, including, without limitation, all franchise, property,
sales, use, excise, intangible, and employment taxes.
(xxxx) "Terminated Executive" shall have the meaning set forth in
Section 1.5(f)(i).
(yyyy) "Territory" shall have the meaning set forth in Section 3.3(a).
(zzzz) "Threshold Limitation" shall have the meaning set forth in
Section 4.1.
(aaaaa) "Trademarks" shall have the meaning set forth in Section
2.1.9(b).
(bbbbb) "Working Capital Adjustment" means the Excess Amount or the
Deficit Amount, as the case may be, as determined in accordance with Section
1.6.
(ccccc) "Working Capital Adjustment Report" shall have the meaning set
forth in Section 1.6(b)(ii).
(ddddd) "Working Capital Amount" means, with respect to a Period, the
sum of inventory, Accounts Receivable and amounts due from factor for such
Period (calculated as the average of the Working Capital Amount of the Business
as of the end of each of Purchaser's fiscal quarters during such Period). By way
of clarification, "Working Capital Amount" is not intended to include any other
current assets normally associated with the accounting term "working capital."
(eeeee) "Working Capital Dispute" shall have the meaning set forth in
Section 1.6(b)(i).
(fffff) "Working Capital Dispute Notice" shall have the meaning set
forth in Section 1.6(b)(i).
(ggggg) "Working Capital Limit" means, with respect to each Period, an
amount equal to 35% of the Net Sales of the Business for such Period.
5.16 Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation, and effect, by the laws of the State of New
York, without giving effect to the conflict of laws rules thereof. Subject to
the provisions of Section 5.13, Purchaser, Delta, and Sellers hereby consent to
the jurisdiction of any state or federal court located within the State of New
York, County of New York and each irrevocably agrees that all actions or
proceedings relating to this Agreement may be litigated in such courts and
hereby waive any objection that each may have based on improper venue or forum
non conveniens to the conduct of any proceeding in any such court.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
JUNKFOOD CLOTHING COMPANY
By: /s/ Martha Watson
-----------------------------------------
Name:
Title: VP and Secretary
DELTA APPAREL, INC.
By: /s/ Robert W. Humphreys
-----------------------------------------
Name:
Title: CEO and President
LIQUID BLAINO DESIGNS, INC.
By: /s/ Natalie Grof
-----------------------------------------
Name:
Title: CEO
/s/ Natalie Grof
--------------------------------------------
Natalie Grof
/s/ Blaine Halvorson
--------------------------------------------
Blaine Halvorson
49