EXHIBIT 10.2
EARN-OUT AGREEMENT
by and among
STEVEN MADDEN, LTD.,
DANIEL M. FRIEDMAN & ASSOCIATES, INC.,
DMF INTERNATIONAL, LTD.
and
DANIEL M. FRIEDMAN
Dated as of February 7, 2006
EARN-OUT AGREEMENT
This EARN-OUT AGREEMENT (this "Agreement"), dated as of
February 7, 2006 and effective as of the Closing Date (as defined below), if one
occurs, is by and among Steven Madden, Ltd., a Delaware corporation
("Purchaser"), Daniel M. Friedman, ("Friedman" or "Seller"), Daniel M. Friedman
& Associates, Inc. and DMF International, Ltd. (each a "Company," and together
the "Companies").
RECITALS
WHEREAS, concurrently herewith, Seller and Purchaser are
entering into that certain Stock Purchase Agreement, dated as of the date hereof
(as amended from time to time in accordance with its terms, the "Stock Purchase
Agreement"), pursuant to which Purchaser shall purchase all of the issued and
outstanding shares of each of the Companies from Seller; and
WHEREAS, pursuant to Section 2.2(a) of the Stock Purchase
Agreement, Seller shall be entitled to receive certain earn-out purchase price
payments, subject to the terms and conditions of this Agreement, in respect of
each of fiscal years 2008, 2009 and 2010.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the meanings indicated:
"2008 Contingent Purchase Price Payment" shall have the
meaning set forth in Section 2(a) hereof.
"2009 Contingent Purchase Price Payment" shall have the
meaning set forth in Section 2(b) hereof.
"2010 Contingent Purchase Price Payment" shall have the
meaning set forth in Section 2(c) hereof.
"AAA" shall mean the American Arbitration Association.
"Act" shall mean the United States Securities Act of 1933, as
amended.
"Affiliate" with respect to any Person shall mean any other
Person which, directly or indirectly, is in control of, is controlled by or is
under common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise. In
the case of any Person who is an individual, such Person's Affiliates shall
include such Person's spouse, siblings, parents, children, grandchildren, and
trusts for the benefit of any of the foregoing. For the avoidance of doubt,
Purchaser and its Affiliates shall be deemed to be Affiliates of each of the
Companies after the Closing Date.
"Agreement" shall have the meaning set forth in the preamble.
"Applicable Contingent Purchase Price Payment Date" shall have
the meaning set forth in Section 4(a) hereof.
"Board of Directors" shall have the meaning set forth in
Section 6(a) hereof.
"Business Day" means any day that is not a Saturday or Sunday
or a legal holiday on which banks are authorized or required by law to be closed
in New York, New York.
"Closing Date" shall have the meaning set forth in the Stock
Purchase Agreement.
"Company" or "Companies" shall have the meaning set forth in
the preamble.
"Contingent Purchase Price Payment" shall mean each of the
2008 Contingent Purchase Price Payment, the 2009 Contingent Purchase Price
Payment and the 2010 Contingent Purchase Price Payment.
"Contingent Purchase Price Statement" shall have the meaning
set forth in Section 3(a) hereof.
"Dispute" shall have the meaning set forth in Section 16
hereof.
"Dispute Notice" shall have the meaning set forth in Section
3(b) hereof.
"Disputing Party" shall have the meaning set forth in Section
16 hereof.
"Earn-Out Year" shall mean each of fiscal year 2008, fiscal
year 2009 and fiscal year 2010, which shall end on December 31, 2008, 2009 and
2010, respectively.
"Earn-Out Multiple" shall mean 4.64.
"EBITDA" shall mean the Companies' (a) net sales, less,
without duplication, the sum of (i) cost of sales (including, without
limitation, any amounts which, absent the transactions contemplated by the Stock
Purchase Agreement, would have been payable by Daniel M. Friedman & Associates,
Inc. to the Purchaser pursuant to the terms of the License Agreement (as
hereinafter defined) as if, with respect to such amounts, such License Agreement
is coterminous with this Agreement), (ii) selling and distribution expenses,
(iii) design and production expenses and (iv) general administrative expenses
(for the avoidance of doubt, including in each of the foregoing clauses the net
amount payable under the Services Agreement), plus (b) to the extent included in
expenses in clause (a) of this definition, the sum of (i) interest expense, (ii)
fees and expenses (including prepayment penalties) in connection with
financings, (iii) income tax expense (including payments in respect of any tax
sharing or other similar agreement) other than international VAT or other
similar tax, (iv) depreciation and amortization expense, (v) expenses resulting
from FAS 142 or FAS 144, (vi) amortized expenses related to the closing of the
transactions contemplated by the Stock Purchase Agreement and the 338(h)(10)
Election (as defined in the Stock Purchase Agreement), (vii) any allocation of
corporate overhead from Affiliates of either Company or allocation of profit,
loss or expenses from Affiliates of either Company, other than those allocations
specified in the Services Agreement, (viii) any Losses (as defined in the Stock
Purchase Agreement) of either of the Companies which give rise to an indemnity
obligation pursuant to the indemnification provisions of the Stock Purchase
Agreement, to the extent, and only to the extent, that such indemnity
obligations have been honored, and (ix) any amounts recovered or recoverable by
either Company from insurance, to the extent, and only to the extent, the Loss
attributable to such insurance arose in the same period, plus (c) the amount set
forth on Schedule A attached hereto for the applicable fiscal year; provided
that for purposes of the foregoing, all products of Purchaser sold by the
Companies to retail stores of Purchaser shall be sold at cost. Each figure in
clause (a) and clause (b) of this definition shall be determined on a
consolidated basis in accordance with GAAP consistently applied from the Closing
Date.
"Employment Agreement" shall mean the employment agreement,
dated as of the date hereof, between Daniel M. Friedman & Associates, Inc. and
Friedman, executed and delivered simultaneously with the execution and delivery
of this Agreement.
"Final Contingent Purchase Price Statement" shall have the
meaning set forth in Section 3(c) hereof.
"Final Financial Statements" shall have the meaning set forth
in Section 3(c) hereof.
"Financial Statements" means for any fiscal year, unaudited
consolidated financial statements for the Companies for such fiscal year, which
shall be prepared in accordance with GAAP.
"Friedman" means Daniel M. Friedman.
"GAAP" shall mean United States generally accepted accounting
principles, as in effect on the date of this Agreement, consistently applied.
"Independent Accounting Firm" shall have the meaning set forth
in Section 3(b) hereof.
"Intercompany Transaction" shall have the meaning set forth in
Section 7 hereof.
"License Agreement" shall mean that certain License Agreement,
dated as of July 14, 2005, between Purchaser and Daniel M. Friedman &
Associates, Inc.
"Notice of Set-Off Dispute" shall have the meaning set forth
in Section 5(b) hereof.
"Ordinary Course Operations of the Companies" shall mean the
ordinary course operations of the Companies consistent with past practice,
taking into account the provisions of Section 6 of this Agreement.
"Person" shall mean an individual, partnership, venture,
unincorporated association, organization, syndicate, corporation, limited
liability company, or other entity, trust, trustee, executor, administrator or
other legal or personal representative or any government or any agency or
political subdivision thereof.
"Prime Rate" shall mean the rate of interest that The JPMorgan
Chase Bank (or its successor and assign) announces from time to time as its
prime lending rate as then in effect, or if no such rate is announced by The
JPMorgan Chase Bank (or its successor or assign), the prime lending rate
announced by a New York City money center bank selected by Purchaser and
reasonably acceptable to the Seller.
"Purchaser" shall have the meaning set forth in the preamble.
"Quarterly Statement" shall have the meaning set forth in
Section 6(g) hereof.
"Quarterly Statement Due Date" shall have the meaning set
forth in Section 6(g) hereof.
"Revised Contingent Purchase Price Statement" shall have the
meaning set forth in Section 3(b) hereof.
"Revised Financial Statements" shall have the meaning set
forth in Section 3(b) hereof.
"Rules" shall have the meaning set forth in Section 16 hereof.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Seller" shall have the meaning set forth in the preamble.
"Services Agreement" shall mean that certain services
agreement, dated as of the date hereof, among Purchaser, Seller and the
Companies pursuant to which the Companies shall pay Purchaser certain
agreed-upon fees in respect of certain services provided for the Companies by
Purchaser.
"Set-Off Notice" shall have the meaning set forth in Section
5(b) hereof.
"Set-Off Review Period" shall have the meaning set forth in
Section 5(b) hereof.
"Stock Purchase Agreement" shall have the meaning set forth in
the recitals.
2. Contingent Purchase Price Calculation.
-------------------------------------
(a) 2008 Contingent Purchase Price Payment. The aggregate
amount of the contingent purchase price payment payable to Seller with respect
to fiscal year 2008 (the "2008 Contingent Purchase Price Payment") shall equal
10% of the product of (i) the EBITDA for fiscal year 2008 and (ii) the Earn-Out
Multiple.
(b) 2009 Contingent Purchase Price Payment. The aggregate
amount of the contingent purchase price payment payable to Seller with respect
to fiscal year
2009 (the "2009 Contingent Purchase Price Payment") shall equal 10% of the
product of (i) the EBITDA for fiscal year 2009 and (ii) the Earn-Out Multiple.
(c) 2010 Contingent Purchase Price Payment. The aggregate
amount of the contingent purchase price payment payable to Seller with respect
to fiscal year 2010 (the "2010 Contingent Purchase Price Payment") shall equal
20% of the product of (i) the EBITDA for fiscal year 2010 and (ii) the Earn-Out
Multiple.
(d) For the avoidance of doubt, the parties acknowledge that
no Contingent Purchase Price Payment shall ever be less than zero.
3. Contingent Purchase Price Statement; Dispute.
--------------------------------------------
(a) As promptly as practicable, but in any event within ninety
(90) days after the end of each Earn-Out Year, Purchaser shall prepare and
deliver to Seller (and the Companies shall provide Purchaser with all assistance
as may be reasonably requested by Purchaser in connection with such preparation)
(i) Financial Statements for such fiscal year, (ii) a statement of the
Contingent Purchase Price Payment for such fiscal year, which shall explain in
reasonable detail the calculations of EBITDA for such fiscal year (a "Contingent
Purchase Price Statement") and (iii) reasonable supporting documentation
sufficiently detailed to enable Seller to verify the amounts set forth in such
Financial Statements and Contingent Purchase Price Statement.
(b) Seller may dispute such Financial Statements and/or
Contingent Purchase Price Payment Statement for such fiscal year by sending a
written notice (a "Dispute Notice") to Purchaser within thirty (30) days of
Purchaser's delivery of all of the items specified in Section 3(a) to the
Seller. The Dispute Notice shall identify each disputed item on the Financial
Statements or Contingent Purchase Price Statement, specify the amount of such
dispute and set forth in reasonable detail the basis for such dispute. In the
event of any such disputes, Purchaser and Seller shall attempt, in good faith,
to reconcile their differences (including providing information that is
reasonably requested to the other party), and any resolution by them as to any
disputed items shall be final, binding and conclusive on the parties and shall
be evidenced by a writing signed by Purchaser and Seller, including, as
appropriate, revised Financial Statements ("Revised Financial Statements")
and/or a revised Contingent Purchase Price Statement (a "Revised Contingent
Purchase Price Statement") reflecting such resolution. If Purchaser and Seller
are unable to reach such resolution within twenty (20) days after the Seller's
delivery of the Dispute Notice to Purchaser, then Purchaser and Seller shall
promptly submit any remaining disputed items for final binding resolution to any
independent accounting firm mutually acceptable to Purchaser and Seller (which
accounting firm has not, within the prior twenty-four (24) months, provided
services to Purchaser, Seller or either Company or any Affiliate of any of
them). If Purchaser and Seller are unable to agree upon an independent
accounting firm within ten (10) days, an independent accounting firm selected by
Purchaser (which accounting firm has not, within the prior twenty-four (24)
months, provided services to Purchaser or either Company or any Affiliate of any
of them) and an independent accounting firm selected by Seller (which accounting
firm has not, within the prior twenty-four (24) months, provided services to
Seller or either Company or any Affiliate of any of them) shall select an
independent accounting firm that has not, within the prior twenty-four (24)
months, provided services to Purchaser, Seller or either Company or any
Affiliate of any of them. Such independent accounting firm mutually agreed upon
by Purchaser and Seller or selected by the procedure referenced in the
immediately preceding sentence, as the case may be, is hereinafter referred to
as the "Independent Accounting Firm." If any remaining disputed items are
submitted to an Independent Accounting Firm for resolution, (A) each party will
furnish to the Independent Accounting Firm such workpapers and other documents
and information relating to the remaining disputed items as the Independent
Accounting Firm may request and are available to such party, and each party will
be afforded the opportunity to present to the Independent Accounting Firm any
material relating to the disputed items and to discuss the resolution of the
disputed items with the Independent Accounting Firm; (B) each party will use its
good faith commercially reasonable efforts to cooperate with the resolution
process so that the disputed items can be resolved within forty-five (45) days
of submission of the disputed items to the Independent Accounting Firm; (C) the
determination by the Independent Accounting Firm, as set forth in a written
notice to Purchaser and Seller (which written notice shall include, as
appropriate, Revised Financial Statements and/or a Revised Contingent Purchase
Price Statement), shall be final, binding and conclusive on the parties; and (D)
the fees and disbursements of the Independent Accounting Firm shall be allocated
between Purchaser and Seller in the same proportion that the aggregate dollar
amount of the disputed items submitted to the Independent Accounting Firm that
are unsuccessfully disputed by Seller (as finally determined by the Independent
Accounting Firm) bears to the total amount of all disputed items submitted to
the Independent Accounting Firm. By way of illustration, if Seller disputes
$500,000 of items, and the Independent Accounting Firm determines that Seller's
position is correct as to $400,000 of the disputed items, then Purchaser would
bear 80 percent and Seller would bear 20 percent of such fees and disbursements.
(c) The Financial Statements for such fiscal year and the
Contingent Purchase Price Statement or, if either have been adopted pursuant to
Section 3(b), the Revised Financial Statements and/or the Revised Contingent
Purchase Price Statement, shall be deemed to be final, binding and conclusive on
Purchaser and Seller ("Final Financial Statements" and "Final Contingent
Purchase Price Statement") upon the earliest of (A) the failure of Seller to
deliver to Purchaser the Dispute Notice within thirty (30) days of Purchaser's
delivery to Seller of all of the items specified in Section 3(a) for such fiscal
year; (B) the resolution by Purchaser and Seller of all disputes, as evidenced
by, as appropriate, Revised Financial Statements and/or a Revised Contingent
Purchase Price Statement; and (C) the resolution by the Independent Accounting
Firm of all disputes, as evidenced by, as appropriate, Revised Financial
Statements and/or a Revised Contingent Purchase Price Statement. Any Contingent
Purchase Price Payment based on Final Financial Statements and a Final
Contingent Purchase Price Statement shall be made in accordance with Section 4
hereof.
4. Contingent Purchase Price Payments.
----------------------------------
(a) Each Contingent Purchase Price Payment shall be paid and
payable by Purchaser or the Companies to Seller with respect to each Earn-Out
Year and shall be paid on a date or dates selected by Purchaser that results in
the payment of such Contingent Purchase Price Payment to Seller in full on or
before the tenth Business Day after the later of (x) the date on which the Final
Financial Statements and Final Contingent Purchase Price Statement are deemed
final, binding and conclusive for such Earn-Out Year pursuant to Section 3(c)
and (y) the conclusion of the negotiation period with respect to any set-off
pursuant to Section 5 (such date, the "Applicable Contingent Purchase Price
Payment Date"). Notwithstanding the foregoing, in the event that Seller timely
delivers a Dispute Notice to Purchaser pursuant to Section 3(b), the Applicable
Contingent Purchase Price Payment Date with respect to the portion of the
Contingent Purchase Price Payment that would otherwise be payable to Seller if
Seller had not delivered such Dispute Notice shall be on or before the tenth
Business Day after the later of (1) the delivery date of such Dispute Notice and
(2) the conclusion of the negotiation period with respect to any set-off
pursuant to Section 5. In the event that any amounts due under this Section 4
shall not be paid to Seller on or before the Applicable Contingent Purchase
Price Payment Date, such amounts shall bear interest, calculated from the
Applicable Contingent Purchase Price Payment Date until the date such amounts
are paid to Seller, at a rate per annum equal to the Prime Rate, calculated and
payable monthly, compounded monthly. Each Contingent Purchase Price Payment
shall be paid in cash and shall be made by wire transfer of immediately
available funds to an account or accounts designated at least two (2) Business
Days prior to the applicable payment date by Seller in writing. The Contingent
Purchase Price Payments are not subject to or contingent on Seller's employment
status with the Companies or Purchaser.
5. Set-Off Rights.
--------------
(a) Notwithstanding any provision of this Agreement to the
contrary, the parties hereby acknowledge and agree that, in addition to any
other right hereunder, Purchaser shall have the right, but not the obligation,
from time to time to set off against any Contingent Purchase Price Payment
required to be paid by Purchaser to Seller pursuant to this Agreement any
amounts owed at such time by Seller to either Company or to Purchaser (or any of
its Affiliates) hereunder or pursuant to the Stock Purchase Agreement.
(b) If Purchaser elects to exercise its set-off rights
hereunder against any amounts otherwise required to be paid by Purchaser to
Seller pursuant to this Agreement, it shall give Seller written notice of such
election (the "Set-Off Notice"), which Set-Off Notice shall include the amount
to be set off and a reasonable description of the circumstances giving rise to
Purchaser's entitlement to such set-off. Seller shall have ten (10) days after
receipt of such Set-Off Notice to review such Set-Off Notice (the "Set-Off
Review Period"), and in the event that Seller has any objections or challenges
to the exercise of the set-off right of Purchaser, Seller shall submit a single
written notice of set-off dispute ("Notice of Set-Off Dispute") to Purchaser
during such Set-Off Review Period, specifying in reasonable detail the nature of
any asserted objections or challenges. In the event of any such dispute, Seller
and Purchaser shall negotiate in good faith to resolve such dispute for thirty
(30) days after receipt by Purchaser of the Notice of Set-Off Dispute. If Seller
and Purchaser are unable to resolve such dispute within such 30-day period, the
amount payable by Purchaser to Seller shall automatically be reduced by the
amount set forth in the Set-Off Notice. In the event that there is a final
determination that Seller did not owe either Company or Purchaser (or any of its
Affiliates) the amount that has been set off, Purchaser shall promptly repay to
Seller all such amounts that are so determined to have been incorrectly set off,
plus interest, calculated from the date of set-off until the date such amount is
paid to Seller, at a rate per annum equal to the Prime Rate, calculated and
payable monthly, compounded monthly. For purposes of this Section 5, a
determination shall be final if any and all appeals therefrom shall have been
resolved or if thirty (30) days shall have passed from the rendering of such
determination (or of any determination of appeal therefrom) and no party shall
have commenced any appeal therefrom.
(c) In the case of any such set-off by Purchaser pursuant to
this Section 5, Seller's obligation to make such payment (or any portion
thereof) shall be deemed satisfied and discharged to the extent of such set-off.
The exercise of such right of set-off by Purchaser in good faith, whether or not
finally determined to be justified, will not constitute a breach under this
Agreement or the Stock Purchase Agreement.
6. Corporate Governance During Earn-Out Period. Seller and
Purchaser agree that until the earlier of the termination of this Agreement or
the end of fiscal year 2010, the Companies shall be managed in accordance with
the following provisions:
(a) The Board of Directors of each Company (the "Board of
Directors") shall consist of the same three (3) persons, and Purchaser will vote
the Companies' common stock owned by it in favor of the election of two (2)
designees of Purchaser and one (1) designee of Friedman, provided that during
his term of employment with Daniel M. Friedman & Associates, Inc., the designee
of Friedman shall be himself.
(b) Friedman shall, subject to Purchaser's then existing
policies, practices and procedures consistently applied to Purchaser and to all
domestic subsidiaries of Purchaser, have authority to control, in reasonable
consultation with Purchaser, the Ordinary Course Operations of the Companies,
including, without limitation, the following: (i) accepting new customers and
terminating existing customers, (ii) hiring or promoting design, merchandising,
sales, marketing and advertising employees of the Companies, (iii) firing
design, merchandising, sales, marketing and advertising employees of the
Companies below the Vice President level, (iv) selling, marketing or otherwise
distributing products to historical and prospective customers of the Companies,
and (v) terminating existing suppliers or engaging new suppliers that, in each
case, are not also suppliers of Purchaser. Notwithstanding the foregoing,
Friedman shall not, without the prior written consent of the Board of Directors,
enter into any contract that would impose any obligation or negative covenant
(e.g., a most favored nations provision or a restriction on the ability to
conduct business) on Purchaser or any of its subsidiaries (other than either of
the Companies).
(c) Notwithstanding the provisions of Section 6(b), the Board
of Directors or its designee shall have authority to control, in reasonable
consultation with Friedman, the following matters: (i) hiring or promoting
finance and other back office employees of the Companies, (ii) firing finance
and other back office employees of the Companies, (iii) firing design,
merchandising, sales, marketing and advertising employees of the Companies at
the Vice President or higher level, (iv) the declaring, authorizing or paying by
the Companies of any dividend or distribution, (v) determining the compensation
and benefits of employees, (vi) expanding the channels of sales or distribution
of the Companies' products from that existing on the Closing Date, (vii) the
termination of existing license agreements and the entering into of new license
agreements by the Companies, and (viii) the products covered by the Companies'
new license agreements and any amendments or renewals of existing license
agreements; provided that Purchaser shall not, and shall cause its Affiliates
not to, take any action that is primarily intended to adversely impact the
Ordinary Course Operations of the Companies. Furthermore, neither Purchaser nor
the Companies may (A) take any action that is expressly controlled by Friedman
pursuant to Section 6(b) hereunder or (B) take any action or enter into any
transaction that is primarily intended to adversely affect any of the Contingent
Purchase Price Payments payable under this Agreement.
(d) Notwithstanding the provisions of Sections 6(b) and 6(c),
the following actions shall not be taken without the mutual consent of Friedman,
on the one hand, and Purchaser or the Board of Directors, on the other hand: (i)
terminating existing suppliers or engaging new suppliers that, in either case,
are also suppliers of Purchaser, (ii) entering into any transaction with any
Affiliate of either Company or any officer or director of either Company or its
Affiliates (including family members), other than compensation arrangements in
the Ordinary Course Operations of the Companies or as provided in the Services
Agreement, (iii) voluntarily liquidating or dissolving either Company, (iv)
filing of a petition under bankruptcy or other insolvency laws, or admitting in
writing that either Company is bankrupt, insolvent or generally unable to pay
its debts as they become due, (v) issuing any capital stock or other securities
of either Company or granting any option or other right to acquire any capital
stock or other securities of either Company, (vi) engaging in any line of
business other than the business in which the Companies are engaged as of the
Closing Date, (vii) Purchaser's suffering or permitting any third person, firm
or corporation (including Purchaser) other than Daniel M. Friedman & Associates,
Inc. to be a licensee of Purchaser, or otherwise giving permission to any other
entity to use any trademarks of Purchaser or any of its Affiliates, with respect
to any category of "Products" covered by the License Agreement, notwithstanding
the termination of such License Agreement pursuant to the Stock Purchase
Agreement, provided, however, that the rights reserved by Purchaser pursuant to
Section 1.3 of such License Agreement will survive the termination of such
License Agreement, or (viii) selling stock or assets of either Company to a
third party that is not a one-hundred percent (100%)-owned subsidiary of
Purchaser or Purchaser itself (other than sales of inventory in the ordinary
course of business consistent with the Companies' past practices) or engaging in
a merger transaction (other than mergers solely for the purpose of
reincorporating the Companies in the state of Delaware). For the avoidance of
doubt, it is acknowledged and agreed among the parties hereto that the
restrictions set forth in clause (vi) above shall not apply to a sale of all or
substantially all of the stock or assets of Purchaser or any Affiliate of
Purchaser (other than the Companies) or the engagement by Purchaser or any
Affiliate of Purchaser (other than the Companies) in any merger transaction.
(e) Notwithstanding the provisions of Sections 6(b), 6(c) and
6(d), the Board of Directors or its designee shall have authority to control the
following matters: (i) capital expenditures, (ii) the incurrence of
indebtedness, (iii) selecting legal counsel and auditors for the Companies, and
(iv) mergers solely for the purpose of reincorporating the Companies in the
state of Delaware; provided that neither Purchaser nor the Companies may take
any action or enter into any transaction that is primarily intended to adversely
affect any of the Contingent Purchase Price Payments payable under this
Agreement. Notwithstanding any other provision of this Agreement to the
contrary, the Board of Directors of each of the Companies shall have the
authority, in their sole discretion, to veto, modify or change any action taken
or to be taken by the Companies with respect to any matter; provided, however,
that, to the extent any such veto, modification or change (i) relates to a
matter that would have been subject to Friedman's control under Section 6(b)
hereunder or Friedman's consent under Section 6(d) hereunder, and (ii) is
reasonably objected to by Friedman as evidenced in a writing setting forth such
objections in reasonable detail, then any significant adverse effect on the
Companies' EBITDA (taking into account the effect on EBITDA of the action or
proposed action to which the veto, modification or change related) directly
resulting from such veto, modification or change shall be disregarded for
purposes of calculating EBITDA pursuant to this Agreement. For purpose of
clarity, the preceding sentence shall be construed to override any other
contrary provision of this Agreement.
(f) Friedman and designees of Purchaser shall consult
regularly (but in any event at least quarterly) with each other regarding the
strategic direction of the Companies, the sales and merchandising functions of
the Companies (including the hiring and firing of sales and merchandising
employees), and to mutually agree on EBITDA and revenue goals. In addition,
Purchaser shall have prompt access to all properties, records, financial
information or other data concerning the Companies that Purchaser may request,
and the Companies shall prepare and provide to Purchaser all financial
statements, reports and analyses required by Purchaser within a reasonable
period after any request therefor.
(g) No later than fifteen (15) days after the end of each
quarterly period (beginning with the quarter beginning April 1, 2006) (each, a
"Quarterly Statement Due Date") the Companies shall submit a statement (a
"Quarterly Statement") to Purchaser setting forth the Companies' actual EBITDA
for such quarterly period, and the Companies' projected revenue and EBITDA for
the prospective four fiscal quarter period following such completed fiscal
quarter. In addition, the Companies shall provide reasonable supporting
documentation sufficiently detailed to enable Purchaser (i) to verify the actual
amounts set forth in the Companies' Quarterly Statement and (ii) to verify that
the assumptions underlying the projected amounts set forth in the Companies'
Quarterly Statement are reasonable.
(h) In the event that the employment of Seller is terminated
by the Companies for "Cause" or by Seller without "Good Reason" (as such terms
are defined in the Employment Agreement) or due to his death or disability, (i)
he may be removed from the Board of Directors and (ii) the management of the
Companies shall be at the sole discretion of Purchaser or its designees and the
Companies shall thereafter be operated by Purchaser. In the event that the
employment of Seller is terminated by the Companies without "Cause" or by Seller
with "Good Reason" and the Companies employ another executive or executives to
replace Seller, then any excess of the compensation, benefits and expenses of
the executive(s) employed to replace Seller over the amounts that would have
been payable to Seller pursuant to the Employment Agreement had Seller remained
employed with the Companies shall be disregarded for purposes of the calculation
of EBITDA pursuant to this Agreement, regardless of the actual amount of such
compensation, benefits and expenses. In the event that the employment of any of
Steven Lloyd, Kenneth Horowitz or Renee Cohen (each, a "Specified Employee") is
terminated by the Companies without "Cause" (as such term is defined in such
Specified Employee's employment agreement with the Companies) and the Companies
employ another executive or executives to replace such Specified Employee, any
excess of the sum of (1) any compensation or other payments made to such
Specified Employee after his or her termination pursuant to the terms of such
Specified Employee's employment agreement with the Companies plus (2) the
compensation, benefits and expenses of the executive(s) employed to replace such
Specified Employee, over the amounts that would have been payable to such
Specified Employee pursuant to such Specified Employee's employment agreement
with the Companies had such Specified Employee remained employed with the
Companies, shall be disregarded for purposes of the calculation of EBITDA
pursuant to this Agreement, regardless of the actual amount of such
compensation, benefits and expenses.
7. Intercompany Transactions and Other Activities During Earn-Out
Period. For purposes of determining any Contingent Purchase Price Payment
payable under this Agreement, Seller and Purchaser agree that until the earlier
of the termination of this Agreement or the end of fiscal year 2010, all
transactions between the Companies, on the one hand, and Purchaser or any of its
Affiliates (excluding the Companies and their subsidiaries), on the other hand
(each an "Intercompany Transaction"), shall be at cost or shall be adjusted to
be upon fair and reasonable terms no less favorable to either party than would
be obtained in a comparable arm's-length transaction with an unaffiliated third
Person. The parties acknowledge and agree that the Services Agreement is or will
be on arm's-length terms.
8. Term. This Agreement shall be effective on the Closing Date, if
one occurs, and shall continue until the payment of all Contingent Purchase
Price Payments pursuant to Section 4.
9. Assignment; Binding Nature. Neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by Seller.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the parties hereto and their respective
heirs, personal representatives, legatees, successors and permitted assigns.
10. Amendment. This Agreement may be modified or amended only by
an instrument in writing, duly executed by Purchaser, on the one hand, and
Seller, on the other hand.
11. Notices. All notices, demands and communications of any kind
which any party hereto may be required or desires to serve upon another party
under the terms of this Agreement shall be in writing and shall be given by: (a)
personal service upon such other party; (b) mailing a copy thereof by certified
or registered mail, postage prepaid, with return receipt requested; (c) sending
a copy thereof by Federal Express or equivalent courier service; or (d) sending
a copy thereof by facsimile, in each case addressed as required for notices
pursuant to Section 13.3 of the Stock Purchase Agreement. In case of service by
Federal Express or equivalent courier service or by facsimile or by personal
service, such service shall be deemed complete upon delivery or transmission, as
applicable. In the case of service by mail, such service shall be deemed
complete on the fifth Business Day after mailing. The addresses and facsimile
numbers to which, and persons to whose attention, notices and demands shall be
delivered or sent may be changed from time to time by notice served as
hereinabove provided by any party upon any other party.
12. Governing Law; Jurisdiction. This Agreement and all the
transactions contemplated hereby, and all disputes between the parties under or
related to the Agreement or the facts and circumstances leading to its
execution, whether in contract, tort or otherwise, shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York
including, without limitation, Section 5-1401 of the New York General
Obligations Law and New York Civil Practice Laws and Rules 327.
13. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any arbitrator to be invalid or unenforceable to any extent, the
remainder of this Agreement, or the application of such provision to such person
or circumstances other than those to which it is so determined to be invalid or
unenforceable, shall not be affected thereby, and each provision hereof shall be
enforced to the fullest extent permitted by law. If the final determination of
an arbitrator declares that any item or provision hereof is invalid or
unenforceable, the parties hereto agree that the arbitrator making the
determination of invalidity or unenforceability shall have the power, and is
hereby directed, to reduce the scope, duration or area of the term or provision,
to delete specific words or phrases and to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified.
14. Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
15. Counterparts; Facsimile. For the convenience of the parties, any
number of counterparts hereof may be executed, each such executed counterpart
shall be deemed an original, and all such counterparts together shall constitute
one and the same instrument. Facsimile transmission of any signed original
counterpart and/or retransmission of any signed facsimile transmission shall be
deemed the same as the delivery of an original.
16. Arbitration. Except as otherwise set forth in Section 3(b) hereof,
if any dispute or difference of any kind whatsoever shall arise between the
parties to this Agreement (each a "Disputing Party") in connection with or
arising out of this Agreement, or the breach, termination or validity thereof (a
"Dispute"), then, on the demand of any Disputing Party, the Dispute shall be
finally and exclusively resolved by arbitration in accordance with the
Commercial Arbitration Rules of the AAA (the "Rules") then in effect, except as
modified herein. The arbitration shall be held, and the award shall be issued
in, the City of New York. There shall be one neutral arbitrator appointed by
agreement of the Disputing Parties within thirty (30) days of receipt by
respondent of the demand for arbitration. If such arbitrator is not appointed
within the time limit provided herein, on the request of any Disputing Party, an
arbitrator shall be appointed by the AAA by using a list striking and ranking
procedure in accordance with the Rules. Any arbitrator appointed by the AAA
shall be a retired judge or a practicing attorney with no less than fifteen
years of experience and an experienced arbitrator. By agreeing to arbitration,
the Disputing Parties do not intend to deprive any court of its jurisdiction to
issue a pre arbitral injunction, pre arbitral attachment, or other order in aid
of arbitration proceedings and the enforcement of any award. Without prejudice
to such provisional remedies as may be available under the jurisdiction of a
court, the arbitrator shall have full authority to grant provisional remedies
and to direct the Disputing Parties to request that any court modify or vacate
any temporary or preliminary relief issued by such court, and to award damages
for the failure of any Disputing Party to respect the arbitrator's orders to
that effect. Any arbitration proceedings, decisions or awards rendered hereunder
and the validity, effect and interpretation of this arbitration agreement shall
be governed by the Federal Arbitration Act, 9 U.S.C. et seq. In arriving at a
decision, the arbitrator shall be bound by the terms and conditions of this
Agreement and shall apply the governing law of this Agreement as designated in
Section 12. The arbitrator is not empowered to award damages in excess of
compensatory damages, and each Disputing Party hereby irrevocably waives any
right to recover punitive, exemplary or similar damages with respect to any
Dispute. The award shall provide that the fees and expenses of the arbitration
(including the fees of the AAA, the fees and expenses of the arbitrator and
attorneys' fees) shall be allocated based on the proportion that the aggregate
amount of disputed items submitted to arbitration that are unsuccessfully
disputed by each Disputed Party (as finally determined by the arbitrator) bears
to the total amount of all disputed items submitted to arbitration. The award,
which shall be in writing and shall, on the written request of any Disputing
Party, state the findings of fact and conclusions of law upon which it is based,
shall be final and binding on the Disputing Parties and shall be the sole and
the exclusive remedy between the Disputing Parties regarding any claims,
counterclaims, issues or accountings presented to the arbitral tribunal.
Judgment upon any award may be entered in any court of competent jurisdiction
located in the State of New York, and the parties hereby consent to the
exclusive jurisdiction of the courts located in the State of New York.
17. Entire Agreement. This Agreement, the Stock Purchase
Agreement, the Services Agreement and the Employment Agreement, including all
schedules and exhibits hereto and thereto, contain the entire understanding of
the parties hereto with respect to the subject matter hereof.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANIES:
---------
DANIEL M. FRIEDMAN & ASSOCIATES, INC.
By: /s/ DANIEL M. FRIEDMAN
-------------------------------------------
Name: Daniel M. Friedman
Title: President
DMF INTERNATIONAL, LTD.
By: /s/ DANIEL M. FRIEDMAN
-------------------------------------------
Name: Daniel M. Friedman
Title: President
PURCHASER:
---------
STEVEN MADDEN, LTD.
By: /s/ JAMIESON A. KARSON
-------------------------------------------
Name: Jamieson A. Karson
Title: Chairman and Chief Executive Officer
SELLER:
/s/ DANIEL M. FRIEDMAN
----------------------------------------------
Daniel M. Friedman
SCHEDULE A
----------
2008 $446,000
2009 $492,000
2010 $521,000