SECURITIES PURCHASE AGREEMENT by and among BROWN SHOE COMPANY, INC. and HERITAGE FUND III, L.P., HERITAGE FUND IIIA, L.P., HERITAGE INVESTORS III, L.L.C., BICO BUSINESS TRUST, PENTLAND U.S.A., INC., DONNA SICILIANO, MICHAEL SMITH, BRUCE GINSBERG, HAL...
Exhibit
2.1
by and
among
XXXXX
SHOE COMPANY, INC.
and
HERITAGE
FUND III, L.P.,
HERITAGE
FUND IIIA, L.P.,
HERITAGE
INVESTORS III, L.L.C.,
BICO
BUSINESS TRUST,
PENTLAND
U.S.A., INC.,
XXXXX
XXXXXXXXX,
XXXXXXX
XXXXX,
XXXXX
XXXXXXXX,
XXX
XXXXXX,
XXXXX
XXXXXX,
XXXXXXX
FOOTWEAR HOLDINGS, LLC,
XXXXXXX
FOOTWEAR GROUP LLC,
XXXXXXX
FOOTWEAR ACQUISITION LLC,
XXXXXXX
FOOTWEAR RETAIL LLC, and
XXXXXXX
INVESTMENT CORPORATION
Dated as
of March 14, 2005
TABLE
OF CONTENTS
Table
of Contents
i
ii
ARTICLE VIII. ADDITIONAL COVENANTS OF THE PARTIES
8.5 Employee Severance Plan
9.1 Conditions to Each Party’s Obligations
9.2 Conditions to Obligations of the Sellers
9.3 Conditions to Obligations of Buyer
ARTICLE XI. MISCELLANEOUS PROVISIONS
11.5 Assignment; Binding Agreement
iii
INDEX
OF DEFINED TERMS
Page
Accountant
Accounts
Receivable
Action
Agreement
Assets
Balance
Sheet
Banc of
America
Bear
Xxxxxxx
Companies
BIC
BICO
BICO Owner
Bridge
Commitment Letter
Buyer
Buyer
Indemnified Persons
Cause
Closing
Closing
Balance Sheet
Closing
Date
COBRA
Code
Company
Company
Intellectual Property
Company
Intellectual Property License
Company
Material Adverse Change
Company
Material Adverse Effect
Company
Persons
Confidentiality
Agreement
Covered
Employee
Disability
Disclosure
Schedule
DOJ0
E&Y
Earnout
Agreement
Earnout
Amount
Effective
Time
Environmental
Law
Environmental
Permits
Environmental
Property
ERISA
Escrow
Escrow
Agent
Escrow
Agreements
Escrow
Deposits
Escrow
Funds
Event
i
Financial
Statements
Fraud
FTC
GAAP
Good
Reason
Government
Hazardous
Materials
Heritage
HIPAA
HSR
Act
Indebtedness
Indemnified
Executives
Indemnified
Losses
Indemnified
Party
Indemnifying
Party
Intellectual
Property
Interest
Rate
Internal
Revenue Service
Knowledge
Law
Licensed
Company Intellectual Property
Liens
LLC
Agreement
Losses
Material
Contracts
Net
Equity
Notice of
Dispute
off-balance
sheet arrangements
Order
Ordinary
Course of Business
Parties
Party
PBGC
Pentland
Escrow Agreement
Pentland
Escrow Deposit
Permitted
Liens
Plan
Plans
Post-Closing
Obligations
Pre-Closing
Periods
Pro Rata
Share
Proceeding
Property
Purchase
Price
Purchased
Securities
Real
Property
Registered
Company Intellectual Property
Related
Funds
Representative
Required
Financials
Required
Pro Forma Financials
Seller
Seller
Claims
ii
Seller
Escrow Agreement
Seller
Escrow Deposit
Seller
Indemnified Persons
Seller
Majority
Seller
Period
Sellers’
Expense Amount
Senior
Management
Social
Security Act
Special
Third Person Claim
Specified
Pre-Closing Covenants
Straddle
Period
Subsidiaries
Subsidiary
Tax
Tax
Returns
Taxes
Third
Person Claim
Units
Update
Schedule
iii
This
Securities Purchase Agreement (the “Agreement”) is entered into as of March 14,
2005, by and among Xxxxx Shoe Company, Inc. (“Buyer”); Heritage Fund III, L.P.,
Heritage Fund IIIA, L.P. and Heritage Investors III, L.L.C. (collectively,
“Heritage”), BICO Business Trust (“BICO”), Pentland U.S.A., Inc. (“Pentland”),
Xxxxx Xxxxxxxxx and Xxxxxxx Xxxxx (collectively, the “Sellers” and each, a
“Seller”); Xxxxx Xxxxxxxx, Xxx Xxxxxx and Xxxxx Xxxxxx (each a “BICO Owner” and
collectively, the “BICO Owners”); Xxxxxxx Investment Corporation (“BIC”); and
Xxxxxxx Footwear Holdings, LLC, Xxxxxxx Footwear Group LLC, Xxxxxxx Footwear
Acquisition LLC and Xxxxxxx Footwear Retail LLC (the “Xxxxxxx Companies”).
Heritage Partners Management Company, LLP is also a party to this Agreement as
the “Representative” pursuant to Section 1.8 and for no other purpose. Buyer,
each of the Sellers, BIC, and each of the Xxxxxxx Companies are referred to
herein each as a “Party” and together as the “Parties”.
RECITALS
A. Buyer
desires to purchase from Sellers, on the following terms and conditions, (a) all
of the outstanding Units (as defined in the LLC Agreement (as hereinafter
defined)) in Xxxxxxx Footwear Holdings, LLC (the “Company”) held by the Sellers,
except for the Units held by BIC, and (b) all of the outstanding shares of
capital stock of BIC held by Heritage (collectively, the “Purchased
Securities”).
X. Xxxxxxx
desire to sell to Buyer, on the following terms and conditions, the Purchased
Securities.
NOW,
THEREFORE, in consideration of the recitals and the mutual covenants,
representations, warranties, conditions, and agreements hereinafter expressed,
the Parties agree as follows:
PURCHASE
AND SALE
1.1 The Purchased Securities. Upon
the terms and subject to the conditions set forth in this Agreement, at Closing
(as hereinafter defined), Sellers shall sell and deliver to Buyer and Buyer
shall purchase and accept from Sellers, the Purchased Securities, free and clear
of any lien, claim, encumbrance, security interest, charge, pledge, or other
restriction (other than any restriction imposed by applicable securities laws)
(collectively, “Liens”).
1.2 Consideration. The
consideration that Buyer shall pay Sellers for the Purchased Securities and the
other rights of Buyer hereunder shall be:
(a) Two
Hundred Five Million Dollars ($205,000,000) in cash (the “Purchase Price”), less
any amounts paid by Buyer pursuant to Section 1.5(a) and subject to adjustment
as provided in Section 1.6 below; plus
1
(b) up to
Forty-Two Million Five Hundred Thousand Dollars ($42,500,000) in cash (the
“Earnout Amount”), to be earned and paid as set forth in the Earnout Agreement
(as defined herein).
1.3 Closing. The
consummation of the transactions contemplated hereby (the “Closing”) shall take
place at the offices of Xxxxx Xxxx LLP, One Metropolitan Square, St. Louis,
Missouri, at 10:00 a.m. local time on April 22, 2005 or, if the conditions
set forth in Article IX herein are not then satisfied or waived, at such later
date as is two (2) business days after satisfaction or waiver of such
conditions, or such other date as is agreed to in writing by the Parties (the
“Closing Date”), effective as of 12:01 a.m. on the Closing Date (the
“Effective Time”).
1.4 Deliveries
of Sellers at Closing. At or
before the Closing, Sellers shall deliver to Buyer:
(a) instruments
of transfer sufficient to transfer to Buyer all right title and interest in the
Purchased Securities;
(b) opinions
of (i) Xxxxxx, Xxxx & Xxxxxxx LLP, counsel to the Sellers (other than
Pentland), (ii) Seyfarth Xxxx LLP, counsel to the Company, and (iii) Xxxxx Xxxxx
Xxxx & Maw LLP, counsel to Pentland, addressed to Buyer and dated the
Closing Date, in the forms attached as Exhibit
X-0,
Xxxxxxx
X-0 and
Exhibit
A-3,
respectively;
(c) escrow
agreements with respect to (i) the Sellers other than Pentland (the “ Seller
Escrow Agreement”) duly executed by the Company and the Representative (as
hereinafter defined) and (ii) Pentland (the “Pentland Escrow Agreement” and,
together with the Seller Escrow Agreement, the “Escrow Agreements”) duly
executed by the Company and Pentland, in substantially the forms attached hereto
as Exhibit
B-1 and
Exhibit
B-2,
respectively;
(d) a payoff
letter from each holder of indebtedness for borrowed money of the Company or any
Subsidiary (as hereinafter defined) indicating the amount required to discharge
in full such indebtedness and including wire instructions;
(e) evidence
that the promissory notes to Heritage set forth on Part
4.6 of the
disclosure schedule dated as of the date hereof referring to the
representations, warranties and covenants contained in this Agreement (the
“Disclosure Schedule”) have been contributed to the capital of BIC;
(f) the
written releases by existing lienholders of all Liens, except for Permitted
Liens (as hereinafter defined) (other than those described in Items 1, 2 or 3 of
Part
3.9(a) of the
Disclosure Schedule, which will be released at Closing), relating to the
Purchased Securities, BIC, the Company or any of the Subsidiaries or the Assets
(as hereinafter defined) of any of BIC, the Company or any of the
Subsidiaries;
(g) non-competition
agreements in the form attached hereto as Exhibit
C,
effective the Closing Date, signed by each of Xxxxx Xxxxxxxx and Xxxxx
Xxxxxx;
2
(h) the
Earnout Agreement (the “Earnout Agreement”) in substantially the form attached
hereto as Exhibit
D duly
executed by the Sellers and the Representative;
(i) the
written resignations, effective the Closing Date, of each director, manager, and
officer, as applicable, of BIC, the Company and the Subsidiaries of the Company
designated by Buyer;
(j) the
certificates required to be delivered pursuant to Sections 9.3(a) and 9.3(b);
(k) all
consents and approvals relating to the Company and its Subsidiaries required to
be obtained from (A) Governments (as defined herein) listed and marked with an
asterisk on Part
3.4 of the
Disclosure Schedule and (B) third parties under Material Contracts (as defined
herein) listed and marked with an asterisk on Part
3.13 of the
Disclosure Schedule hereto; and
(l) an
affidavit from each of the Sellers, stating, under penalty of perjury, that the
interests of such person in the Company or BIC, as applicable, are not U.S. real
property interests as defined in Section 897(c) of the Internal Revenue Code of
1986, as amended (the “Code”).
1.5 Deliveries of Buyer at Closing. At or
before the Closing, Buyer shall:
(a) wire
transfer to each holder of indebtedness for borrowed money of the Company or any
Subsidiary the amount specified in the applicable payoff letter delivered
pursuant to Section 1.4(d);
(b) wire
transfer (i) Twelve Million Eight Hundred Forty Three Thousand One Hundred
Thirty-Five Dollars ($12,843,135) (the “Seller Escrow Deposit”) and (ii) Two
Million One Hundred Fifty-Six Thousand Eight Hundred Sixty-Five Dollars
($2,156,865) (the “Pentland Escrow Deposit” and, together with the Seller Escrow
Deposit, the “Escrow Deposits”) to Mellon Trust of New England, N.A. (the
“Escrow Agent”) to be held by the Escrow Agent in accordance with the terms of
the Escrow Agreements and Section 1.7;
(c) wire
transfer Seven Million Dollars ($7,000,000) (the “Sellers’ Expense Amount”) to
an account designated by the Representative, as agent for the Sellers (other
than Pentland), to (i) pay proper and reasonable expenses of the Sellers
relating to this Agreement and the agreements and the transactions contemplated
hereby including, without limitation, the reasonable fees and expenses of
Xxxxxx, Xxxx & Xxxxxxx LLP, Xxxxxxxx Xxxx LLP, Xxxxx Xxxxx Xxxx & Maw
LLP, Ernst & Young LLP (“E&Y”) and Bear, Xxxxxxx & Co. Inc.
(“Bear”), and (ii) provide for other expenses as contemplated by Section
1.9;
(d) wire
transfer an amount equal to the Purchase Price, less (i) the amount paid by
Buyer pursuant to Section 1.5(a), (ii) the Escrow Deposits and (iii) the
Sellers’ Expense Amount to the Sellers, to be divided amongst the Sellers as
provided on Schedule I;
(e) deliver
to the Sellers the Escrow Agreements duly executed by Buyer;
3
(f) deliver
to the Sellers an opinion of Xxxxx Xxxx LLP, counsel to Buyer, addressed to the
Sellers and dated the Closing Date, in the form attached as Exhibit
E;
(g) deliver
to the Sellers the certificate required to be delivered pursuant to Section
9.2(a); and
(h) take all
action necessary to cause the issuance of replacement or back-stop letters of
credit in respect of all letters of credit listed on Part 1.5(g) of the
Disclosure Schedule.
1.6 Post-Closing Adjustments to Purchase Price. The
Parties acknowledge that the adjustment provided for in this Section 1.6 shall
be determined separately for Pentland, on the one hand, and the Sellers other
than Pentland, on the other hand, as follows: (a) 14.3791% of any
adjustment based on Net Equity shall be
for the benefit of or borne by, as applicable, Pentland, and (b) 85.6209% of any
adjustment based on Net Equity shall be for the benefit of or borne by, as
applicable, the Sellers other than Pentland. For purposes of this Section 1.6
and the separate determinations provided for in the preceding sentence only, the
term “Representative” shall mean (A) Pentland, on behalf of Pentland, and (B)
the Representative, on behalf of the Sellers other than Pentland. Buyer agrees
to conduct the process of determining the Closing Balance Sheet and Net Equity
separately for Pentland and the other Sellers in order to effectuate the
purposes of this paragraph. In determining the separate adjustments described
above, the amount determined with respect to Pentland shall be calculated
without regard for any net cash and liabilities of BIC immediately prior to the
Effective Time, and the amount determined with respect to the Sellers other than
Pentland shall be calculated taking into account all net cash and liabilities of
BIC immediately prior to the Effective Time. The parties acknowledge that due to
the separate calculations of the Closing Balance Sheet and Net Equity provided
for herein, the determination of Net Equity may differ as between the Sellers
(other than Pentland), on the one hand, and Pentland, on the other hand; and,
therefore, the actual payments in respect of Net Equity hereunder may be made to
or from the Sellers (other than Pentland) and Pentland, respectively, in a ratio
other than 85.6209%:14.3791%.
(a) Within
ninety (90) calendar days after the Closing Date, Buyer shall prepare and
deliver to the Representative (i) a consolidated balance sheet of the Company
and its Subsidiaries combined with BIC as of immediately prior to the Effective
Time on the Closing Date, based on a review of the Company, its Subsidiaries and
BIC by Buyer, which shall include the results of a physical inventory conducted
by Buyer, as of such time and date (the “Closing Balance Sheet”) and (ii)
Buyer’s determination of Net Equity (as hereinafter defined). The Representative
and its accountants and representatives shall at all reasonable times (and upon
reasonable notice) be given full access to (and shall be allowed to make copies
of) such books and records as may be reasonably necessary to confirm the
preparation of the Closing Balance Sheet, and shall have the right to observe
the taking of the physical inventory. The Closing Balance Sheet shall be
prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) applied consistently with the Company’s past practices (prior to the
preparation of the Required Financial Statements pursuant to Section 6.5, and
excluding any requirements under SEC rules and regulations), and Net Equity will
be derived from the Closing Balance Sheet. In the event of any conflict between
the accounting principles used by the Company and the requirements of GAAP, the
Parties agree that the requirements of GAAP shall prevail. The parties
acknowledge that deferred tax assets, if any, and deferred tax liabilities, if
any, have been excluded from the target numbers set forth in Section 1.6(c)
below, and likewise will be excluded from the calculation of Net
Equity.
4
(b) If the
Representative disputes any amounts reflected on the Closing Balance Sheet as
delivered by Buyer, or Buyer’s determination of Net Equity based thereon, the
Representative shall so notify Buyer in writing (“Notice of Dispute”) not more
than 30 days after the date the Representative receives the Closing Balance
Sheet, specifying in reasonable detail any points of disagreement. If the
Representative fails to deliver a Notice of Dispute within such 30-day period,
the Representative shall be deemed to have accepted the Closing Balance Sheet
and Buyer’s determination of Net Equity delivered therewith. Upon receipt of the
Notice of Dispute, Buyer shall promptly consult with the Representative with
respect to such points of disagreement in an effort to resolve the dispute. If
any such dispute cannot be resolved by Buyer and the Representative within 20
business days after Buyer receives the Notice of Dispute, they shall refer the
dispute to a certified public accountant and partner at PricewaterhouseCoopers
(“Accountant”) as an arbitrator to finally determine, as
soon as practicable, and in any event within 30 calendar days after such
reference, (i) all points of disagreement with respect to the Closing Balance
Sheet and (ii) Net Equity. For purposes of such arbitration, each of Buyer and
the Representative shall submit a proposed Closing Balance Sheet and a
determination of Net Equity based thereon. The Accountant shall apply the
accounting and other principles set forth in this Section 1.6 and shall
otherwise conduct the arbitration under such procedures as Buyer and the
Representative may agree or, failing such agreement, under the Commercial
Arbitration Rules of the American Arbitration Association. The fees, costs and
expenses of the arbitration and of the Accountant incurred in connection with
the arbitration of the Closing Balance Sheet and final determination of Net
Equity will be borne by the party whose positions generally did not prevail in
such determination, or if the Accountant determines that neither party could be
fairly found to be the prevailing party, then such fees, costs and expenses will
be borne 50% by the Sellers and 50% by Buyer; provided, that such fees, costs
and expenses shall not include, so long as a Party complies with the procedures
of this Section 1.6, the other Party’s outside counsel, accounting or other
fees. All determinations by the Accountant shall be final, conclusive and
binding with respect to the Closing Balance Sheet and the allocation of
arbitration fees and expenses.
(c) Based on
the Closing Balance Sheet and Net Equity determined under Section 1.6(a) or, if
necessary, 1.6(b), the Purchase Price shall be increased or decreased, as the
case may be, on a dollar for dollar basis by the amount by which the Net Equity
reflected on the Closing Balance Sheet is greater or less than:
(i) $42,588,000
if the Closing occurs on or before April 30, 2005;
(ii) $42,197,000
if the Closing occurs after April 30, 2005 but on or before May 31,
2005;
(iii) $41,715,000
if the Closing occurs after May 31, 2005 but on or before June 30, 2005;
or
(iv) $41,665,000
if the Closing occurs after June 30, 2005 but on or before July 31,
2005.
5
For
purposes of this Agreement, the following terms shall have the meanings
indicated below:
“Indebtedness”
means, with respect to any person at any date, without duplication: (i) all
obligations of such person for borrowed money or in respect of loans including,
for purposes of this clause (i), amounts owed to 85 Industrial Park II, LLC in
respect of deferred build-out costs for the Company’s facility in Dover, New
Hampshire, (ii) all obligations of such person evidenced by bonds, debentures,
notes or other similar instruments or debt securities, (iii) all guaranties of
such person in connection with any of the foregoing, (iv) all capital lease
obligations, (v) all deferred compensation obligations, including, but not
limited to, certain bonus payments to Xxxxx Xxxxxxxx and Xxxxx Xxxxxx payable on
May 20, 2005 but specifically excluding the severance arrangements described in
Section 8.5 hereof and the employment, severance and retention agreements
entered into between Buyer and the individuals listed on Part
1.6(c) of the
Disclosure Schedule and (vi)
all accrued interest, prepayment premiums or penalties related to any of the
foregoing.
“Net
Equity” shall mean, as of immediately prior to the Effective Time, without
duplication: the consolidated inventory, accounts receivable, prepaid expenses
and other assets of the Company and its Subsidiaries combined with BIC
classified as current, in each case, net of all applicable valuation reserves
(such as reserves relating to inventory markdown and shrinkage, bad debts and
customer allowances), less the consolidated accounts payable, accrued expenses,
other liabilities of the Company and its Subsidiaries combined with BIC
classified as current, and less Indebtedness of the Company and its Subsidiaries
combined with BIC. Net Equity shall exclude (A) deferred tax assets, if any, and
deferred tax liabilities, if any, (B) all obligations to be paid pursuant to
Section 1.5(a) and (C) all costs and expenses to be paid by Sellers or Buyer
pursuant to Section 11.10 hereof. In determining Net Equity, no accrual or
reserve will be taken for any obligations or arrangements entered into or
created in connection with the transactions contemplated hereby including,
without limitation, the severance arrangements described in Section 8.5 hereof
and the employment, severance and retention agreements entered into between
Buyer and the individuals listed on Part
1.6(c) of the
Disclosure Schedule.
(d) In the
event the Purchase Price is increased as a result of the calculations described
in Section 1.6 above, the amount of such increase will be promptly paid to the
Representative in cash plus interest accrued since the Closing Date at the prime
lending rate of Bank of America, National Association (the “Interest Rate”). In
the event the Purchase Price is decreased as provided above, the Sellers shall
promptly pay Buyer an amount equal to the decrease of the Purchase Price, plus
interest accrued on such amount at the Interest Rate since the Closing
Date.
1.7 Escrow. On the Closing Date, Buyer will deposit into escrow (the “Escrow”)
in accordance with the Escrow Agreements the Escrow Deposits in payment of part
of the Purchase Price. The Escrow Deposits, together with any income earned
thereon (collectively, the “Escrow Funds”), shall be distributed to the Sellers
in accordance with the terms of such Escrow Agreements, subject to the right of
Buyer to have such Escrow Funds available to it on the terms and conditions set
forth herein and in the Escrow Agreements for the satisfaction of any
Indemnified Losses (as hereinafter defined) which the Buyer Indemnified Persons
(as hereinafter defined) are entitled to under Section 10.1 hereof.
6
1.8 Appointment
of Representative. Each
Seller (other than Pentland) hereby appoints Heritage Partners Management
Company, LLP, and Heritage Partners Management Company, LLP hereby accepts such
appointment, as the “Representative.” The Representative shall, and shall have
full power and authority to, act on behalf of the Sellers (other than Pentland)
in connection with all matters relating to this Agreement, including, without
limitation, to negotiate, execute and deliver all amendments, modifications and
waivers to this Agreement or any other agreement, document or instrument
contemplated by this Agreement except for those certificates required to be
delivered pursuant to Section 9.3(a), provided, however, that if the effect of
any such amendment, modification or waiver on the Sellers (other than Heritage)
is different in any material and adverse respect from the effect on Heritage,
then the prior written consent of a majority-in-interest of such adversely
affected Sellers, other than Pentland (determined based upon the number of Units
sold, directly or indirectly, by such Sellers to Buyer) shall also be required
for such amendment, modification or waiver. The Representative shall also be
authorized to take all actions on behalf of the Sellers in connection with any
claims under Article X of this Agreement (other than claims against Pentland, or
against an individual Seller), to initiate, prosecute, defend and/or settle such
claims, and to make or cause to be made payments in respect of any claims
brought against the Sellers (other than Pentland) from the Escrow Funds (to the
extent provided for in the Escrow Agreements) or from amounts retained by the
Representative under this Agreement. The Representative will not receive a fee
for serving as the agent of the Sellers (other than Pentland) hereunder. The
Representative shall be entitled to engage counsel and other advisors, and the
reasonable fees and expenses of such counsel and advisors may be paid from the
Escrow Funds (to the extent provided for in the Escrow Agreements) or from
amounts retained by it pursuant to this Agreement, provided, however, that
unless otherwise specifically provided for in this Agreement, Buyer shall not
have any obligation or liability for such fees and expenses, and provided
further, that such fees and expenses may not be paid from the portion of the
Escrow Funds representing amounts held to secure indemnification obligations of
Pentland. The Representative shall not be liable to any Seller for any action
taken by it pursuant to this Agreement, and the Sellers (other than Pentland)
shall jointly and severally indemnify and hold the Representative harmless from
any Losses (as hereinafter defined) arising out of it serving as agent
hereunder, except in each case if and to the extent the Representative has
engaged in bad faith or willful misconduct. The Parties acknowledge that the
Representative is serving in that capacity solely for purposes of administrative
convenience, and is not personally liable for any of the obligations of the
Sellers hereunder, and Buyer agrees that it will not look to the personal assets
of the Representative for the satisfaction of any obligations of the Sellers (or
any of them). By giving notice to the Representative in the manner provided by
Section 11.1, Buyer shall be deemed to have given notice to all of the Sellers
(other than Pentland) and any action taken by the Representative may be
considered and relied upon by Buyer to be the action of each Seller (other than
Pentland) for whom such action was taken for all purposes of this Agreement.
The
Representative may resign as agent of the Sellers hereunder upon at least ten
(10) days prior written notice to the Sellers. The Sellers (other than Pentland,
but including Heritage) who were the beneficial owners of a majority of the
Purchased Securities sold to Buyer may remove and replace the Representative
upon written notice to the Representative. In the event the Representative
resigns or is removed and replaced by such Sellers, such Sellers will promptly
notify Buyer in writing of the designation by them of a successor to act as
their Representative and the address to which notices hereunder shall be sent.
All rights of the Representative to indemnification hereunder shall survive the
termination of this Agreement or the resignation or removal of the
Representative.
7
1.9 Retention and Payment of Certain Amounts by
Representative.
Following payment of the expenses of the Sellers relating to the transactions
contemplated hereby including, without limitation, the reasonable fees and
expenses of Xxxxxx, Xxxx & Xxxxxxx LLP, Xxxxxxxx Xxxx LLP, Xxxxx Xxxxx Xxxx
& Maw LLP, E&Y and Bear as provided in Section 1.5(c), and in no event
later than five days after the Closing, the Representative will, unconditionally
and without any right of set off, deliver to Pentland by wire transfer 14.3791%
of the remaining balance of the Sellers Expense Amount. The Representative will
retain the balance of the Sellers’ Expense Amount as a reserve fund to cover any
potential obligations of the Sellers (other than Pentland) under this Agreement
(other than under Section 10.1 hereof), and all expenses relating thereto. All
such retained amounts will be applied by the Representative, as directed by any
two of BICO, Heritage and Pentland (hereinafter, a “Seller Majority”), to pay
such expenses or held or disbursed by the Representative, as directed by a
Seller Majority, to cover any such potential obligations which may arise in the
future in connection with this Agreement. At such time as the Representative
determines that no such further payments may be due, the Representative will
distribute any remaining amounts initially retained by it hereunder as provided
in Section 1.10. The retention by the Representative of a portion of the Closing
Purchase Price pursuant to this Section 1.9 shall not be evidence that the
Sellers have breached any provision of this Agreement or that the Sellers have
any indemnification obligation hereunder.
1.10 Distribution of Remaining Amounts. The
Sellers agree, amongst themselves, that (a) all amounts received hereunder by
the Representative and not retained or paid to Pentland or third parties
pursuant to Section 1.9, or which become eligible for distribution pursuant to
the penultimate sentence of Section 1.9 (together with any earnings thereon),
will be distributed by the Representative to the Sellers (other than Pentland)
in accordance with, and in the order of priority established by, Section 5.2 of
the LLC Agreement (disregarding any Units held by Pentland), and (b) for
purposes of this Agreement, it is understood that Heritage is selling its shares
of capital stock of BIC to Buyer, which represent an indirect interest in the
Units of the Company held by Heritage, and Heritage shall be entitled to receive
the same share of the consideration hereunder that it would have received if it
had transferred such Units directly to Buyer (plus any additional consideration
equal to (i) the net cash, if any, in BIC at the Effective Time and reduced by
the amount of any liabilities of BIC reflected in the Closing Balance Sheet and
taken into account in determining the Purchase Price under Section 1.6 (but only
to the extent that such liabilities actually reduce Net Equity) and (ii) amounts
received or receivable by BIC as a result of the taking by BIC of the actions
described in the final sentence of Subsection 8.4(e)).
REPRESENTATIONS
AND WARRANTIES OF SELLERS
Each
Seller hereby severally, but not jointly, makes the following representations
and warranties, with respect to such Seller only, to Buyer, each of which is
true and correct on the date hereof and, if the Closing occurs, as of the
Closing Date, and each of which shall survive the Closing as provided in Section
10.3.
8
2.1 Organization. In the
case of a Seller that is not an individual, such Seller is an entity duly
formed, validly existing and in good standing under the laws of the jurisdiction
of its formation.
2.2 Ownership of Units; Enforceability;
Noncontravention.
(a) Part
2.2(a) of the
Disclosure Schedule lists the number and class of Units owned by such Seller as
of the date hereof. Except as set forth on Part
2.2(a) of the
Disclosure Schedule, such Seller is the sole holder of record and beneficial
owner of all the Units attributed to such Seller on Part
2.2(a) of the
Disclosure Schedule. Such Seller owns such Units free and clear of any Liens.
Except as set forth on Part
2.2(a) of the
Disclosure Schedule, such Seller has the exclusive right, power and authority to
vote and transfer the Units owned by such Seller. Except as set forth on
Part
2.2(a) of the
Disclosure Schedule, there are no voting trusts, agreements, commitments,
undertakings, understandings, proxies or other restrictions to which such holder
is a party which directly or indirectly restrict or limit in any manner, or
otherwise relate to, the voting, sale or other disposition of any
Units.
(b) Such
Seller has full power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby, and this Agreement constitutes
the valid and binding obligation of such Seller, enforceable against such Seller
in accordance with its terms subject, however, to applicable bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors and to
general equitable principles.
(c) Except as
set forth on Part
2.2(c) of the
Disclosure Schedule, such Seller is not a party to, subject to or bound by any
note, bond, mortgage, indenture, deed of trust, agreement, lien, contract or any
statute, law, rule, regulation, judgment, order, writ, injunction, or decree of
any court, administrative or regulatory body, governmental agency, arbitrator,
mediator or similar body, franchise or license, which would (i) conflict
with or be breached or violated or the obligations thereunder accelerated or
increased (whether or not with notice or lapse of time or both) by the
execution, delivery or performance by it of this Agreement or (ii) with
respect to such Seller, prevent the carrying out of the transactions
contemplated hereby. Except as set forth on Part
2.2(c) of the
Disclosure Schedule, and except for the consents and approvals required to be
obtained in connection with filings required to be made pursuant to the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the “HSR
Act”), no waiver or consent under any agreement of the type described in the
first sentence of this Section 2.2(c) between such Seller and any third person
or governmental authority or any statute, law, rule, regulation, judgment,
order, writ, injunction, or decree by which such Seller is bound is required for
the execution by such Seller of this Agreement, or the consummation by such
Seller of the transactions contemplated hereby. The execution of this Agreement
and the consummation of the transactions contemplated hereby will not result in
the creation of any Liens against the Purchased Securities.
2.3 Amounts Owed to Sellers. Except
(a) as set forth on Part
2.3 of the
Disclosure Schedule, (b) pursuant to agreements or arrangements disclosed to
Buyer in this Agreement or in the Disclosure Schedule, and (c) for payments in
the Ordinary Course of Business (as hereinafter defined) relating to the
employment of such Seller by BIC, the Company or any Subsidiary, as of the
Effective Time none of BIC, the Company, or any Subsidiary is currently
obligated to pay such Seller any amount and such Seller has no current claim to
a payment of any kind against BIC, the Company, any Subsidiary or any officer,
director or manager of BIC, the Company or any Subsidiary.
9
2.4 Brokers or Finders. Except
as set forth in Part
2.4 of the
Disclosure Schedule, no finder, broker, agent, or other intermediary, acting on
behalf of such Seller, is entitled to a commission, fee, or other compensation
or obligation in connection with the negotiation or consummation of this
Agreement or any of the transactions contemplated hereby.
2.5 No other Representations and Warranties by Pentland. Except
as expressly set forth in this Article II, Pentland makes no representation or
warranty, express or implied, directly or indirectly, as to the Company or any
Sellers (other than Pentland) and each of Buyer and the Sellers (other than
Pentland) agrees and acknowledges that it has not relied upon any such
representations or warranties by Pentland, except as set forth in this Article
II.
REPRESENTATIONS
AND WARRANTIES RELATING
TO THE COMPANY
The
Company hereby makes the following representations and warranties to Buyer, each
of which is true and correct on the date hereof and, if the Closing occurs, as
of the Closing Date (except for any representation or warranty that expressly
relates to an earlier date, in which case such representation and warranty is
true and correct as of such date), and each of which shall survive the Closing
as provided in Section 10.3.
3.1 Organization, Qualification and Power. The
Company is a limited liability company duly formed, validly existing and in good
standing under the laws of the State of Delaware. The Company has all requisite
limited liability company power and authority to own, lease and use its assets
and properties and to conduct the business in which it is engaged and holds all
authorizations, licenses and permits necessary or required therefor. The Company
is duly licensed and qualified to do business as a foreign corporation and is in
good standing in the state(s), countries or other jurisdictions listed on
Part
3.1 of the
Disclosure Schedule. The Company is not required to be registered, licensed or
qualified to do business in any other jurisdiction.
3.2 Subsidiaries. Except as set forth on Part
3.2 of the
Disclosure Schedule, the Company does not, directly or indirectly, own or have
the right or the obligation to acquire any capital stock or other equity
interest in any other corporation, partnership, joint venture or other
entity. The
entities indicated on Part
3.2 of the
Disclosure Schedule are referred to herein as the “Subsidiaries” and each as a
“Subsidiary.” The record owners of all of the issued and outstanding securities
of each of the Company’s Subsidiaries is as listed on Part
3.2 of the
Disclosure Schedule. There are no outstanding rights or options to acquire
securities of any of the Subsidiaries, and none of the Subsidiaries is subject
to any obligation to issue, deliver, redeem, or otherwise acquire or retire any
of its equity interests. Each Subsidiary is duly formed, validly existing and in
good standing under the laws of the jurisdiction of its formation, as set forth
on Part
3.2 of the
Disclosure Schedule. Each of the Subsidiaries has all requisite power and
authority to own, lease and use its assets and properties and to conduct the
business in which it is engaged and holds all authorizations, licenses and
permits necessary or required therefor. Each Subsidiary is duly licensed and
qualified to do business as a foreign corporation and is in good standing in the
state(s), countries or other jurisdictions listed on Part
3.2 of the
Disclosure Schedule. Each Subsidiary is not required to be registered, licensed
or qualified to do business in any other jurisdiction. There are no outstanding
options, warrants, convertible or exchangeable securities or other rights that
would obligate any Subsidiary to issue additional equity
securities.
10
3.3 Capitalization and Related Matters. The
capitalization of the Company is set forth on Part
3.3 of the
Disclosure Schedule. There are no outstanding options, warrants convertible or
exchange securities or other rights that would obligate the Company to issue
additional limited liability company interests. Except for Buyer’s rights
hereunder and as set forth on Part
3.3 of the
Disclosure Schedule, there are no outstanding securities of the Company or
rights or options to acquire securities of the Company, and the Company is not
subject to any obligation to issue, deliver, redeem, or otherwise acquire or
retire the Units. No individual or entity is entitled to the payment of any
dividends or other distributions from the Company after the Closing Date on
account of such individual or entity’s ownership of Units on or before the
Closing Date. Upon the
consummation of the transactions contemplated by this Agreement, Buyer will
directly or indirectly own 100% of the issued and outstanding limited liability
company interests in the Company.
3.4 Non
Contravention. Except
as set forth on Part
3.4 or
Part
3.13 of the
Disclosure Schedule and except for the consents and approvals required to be
obtained in connection with (x) agreements and arrangements not required to be
disclosed on Part
3.13 of the
Disclosure Schedule due to the disclosure thresholds set forth in Section 3.12
and (y) filings required to be made pursuant to the HSR Act, neither the Company
nor any of its Subsidiaries is a party to, subject to or bound by any note,
bond, mortgage, indenture, deed of trust, agreement, lien, contract or any
statute, law, rule, regulation, judgment, order, writ, injunction, or decree of
any court, administrative or regulatory body, governmental agency, arbitrator,
mediator or similar body, franchise or license, which would (i) conflict with or
be breached or violated or the obligations thereunder accelerated or increased
(whether or not with notice or lapse of time or both) by the execution, delivery
or performance by it of this Agreement or (ii) prevent the carrying out of the
transactions contemplated hereby. Except as set forth on Part
3.4 or
Part
3.13 of the
Disclosure Schedule and except for the consents and approvals required to be
obtained in connection with (x) agreements and arrangements not required to be
disclosed on Part
3.13 of the
Disclosure Schedule due to the disclosure thresholds set forth in Section 3.12
and (y) filings required to be made pursuant to the HSR Act, no waiver or
consent of any third person or governmental authority is required for the
consummation by the Company and its Subsidiaries of the transactions
contemplated hereby. The execution of this Agreement and the consummation of the
transactions contemplated hereby will not result in the creation of any Liens
against the Company or any of its Subsidiaries or any of the properties or
assets of the Company or any of its Subsidiaries.
(a) The
Company has delivered to Buyer (i) the audited consolidated balance sheets
of the Company as of December 31, 2001, 2002 and 2003 and the related
audited consolidated statements of income, members’ equity and cash flows for
the fiscal years then ended, together with notes and schedules thereto, if any
and (ii) the unaudited consolidated balance sheet of the Company as of
December 31, 2004 and the related unaudited consolidated statements of
income, members’ equity and cash flows for the year then ended, together with
notes or schedules thereto, if any ((i) and (ii) together, the “Financial
Statements”). For purposes of this Agreement, the unaudited consolidated balance
sheet of the Company as of December 31, 2004 shall be considered the “Balance
Sheet.” Part
3.5 of the
Disclosure Schedule lists, and the Company has delivered to Buyer copies of the
documentation creating or governing, all securitization transactions and
“off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K
under the Securities Act of 1933, as amended) effected by the Company and its
Subsidiaries. Part
3.5(a) of the
Disclosure Schedule lists all non-audit services performed by E&Y for the
Company and its Subsidiaries during the past twelve (12) months.
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(b) The
Financial Statements, (i) present fairly the financial position, results of
operations, and cash flows of the Company and its Subsidiaries at the dates and
for the periods indicated, and (ii) have been prepared in accordance with
GAAP applied consistently with the Company’s past practices, except, in the case
of unaudited financial statements, for the omission of footnotes and subject to
normal, year-end adjustments.
3.6 Books
and Records. The books of account, minute books, bank accounts, and other
corporate records of the Company and its Subsidiaries are true, correct, and
complete in all material respects and have been maintained in accordance with
good business practices for a private company. True, complete and correct copies
of the Company’s Certificate of Formation and limited liability company
agreement, as currently in effect, (the “LLC Agreement”) have previously been
made available to Buyer.
3.7 No
Undisclosed Liabilities. Neither the Company nor any of its Subsidiaries has any
liabilities or obligations of a kind that would be required to be disclosed on a
balance sheet prepared in accordance with GAAP if known to the Company and
without regard to materiality, other than:
(a) to the
extent and for the amount reflected as a liability on the Balance
Sheet;
(b) accounts
payable, accrued expenses, and other liabilities or obligations incurred in the
Ordinary Course of Business since the date of the Balance Sheet;
and
(c) the
liabilities and obligations set forth on Part
3.7(c) of the
Disclosure Schedule.
“Ordinary
Course of Business” means, with respect to the Company or a Subsidiary, the
ordinary course of commercial and business operations customarily engaged in by
the Company or a Subsidiary, as applicable, consistent with past practices, and
specifically does not include activity (i) involving the purchase or sale of the
Company or Subsidiary, as applicable, or of any product line or business unit
thereof, (ii) that would be required to be disclosed on Parts
3.19(a) or
3.19(b) of the
Disclosure Schedule or (iii) that requires approval by the board of managers or
members of the Company or Subsidiary, as applicable.
12
(a) Except as
set forth on Part
3.8(a) of the
Disclosure Schedule, the Company and each Subsidiary has timely filed with the
appropriate Government (as hereinafter defined) entity all tax returns and
reports required to be filed, including all returns, reports, estimates,
declarations, claims for refund, information returns or statements relating to,
or required to be filed in connection with any Taxes (as hereinafter defined),
including any schedule or attachment thereto, and including any amendment or
supplement thereof (“Tax Returns”). All Tax Returns are true, correct, and
complete in all material respects.
(b) Except as
set forth on Part
3.8(a) of the
Disclosure Schedule, all Taxes (as hereinafter defined) (whether or not
reflected on any Tax Return) due and owing by the Company or any of its
Subsidiaries have been timely and fully paid or, if not yet due, accrued as
liabilities for purposes of paragraph (c) of this Section 3.8. Part
3.8(b) of the
Disclosure Schedule lists all jurisdictions where the Company and each of its
Subsidiaries files Tax Returns.
(c) The
unpaid Taxes of the Company and any of its Subsidiaries do not exceed the
accruals and reserves for Taxes as reflected on the Closing Balance Sheet as a
current liability and that are taken into account in determining the Purchase
Price under Section 1.6.
(d) There are
no Liens for Taxes (other than for current Taxes not yet due and payable) upon
the assets of the Company or any of its Subsidiaries.
(e) The
Company and each of its Subsidiaries has complied with all Laws (as hereinafter
defined) relating to the withholding of Taxes and the payment thereof
(including, without limitation, withholding of Taxes under Section 1441 and 1442
of the Code, or any similar provision under state, local, or foreign Law), and
has timely and properly withheld from the appropriate party and paid over to the
proper Government entity all amounts required to be withheld and paid over under
applicable Law, including any amounts paid or owing to any employee, independent
contractor, creditor, member or other third party.
(f) Except
for Section 5.1(a) of the LLC Agreement, neither the Company nor any of its
Subsidiaries is a party to or bound by any Tax indemnity, Tax sharing or Tax
allocation agreement or arrangement.
(g) Neither
the Company nor any of its Subsidiaries (i) has ever been a member of an
affiliated group of corporations, within the meaning of Section 1504 of the
Code, or (ii) has any liability for the Taxes of any Person under Treasury
regulation Section 1.1502-6 (or any similar provision of state, local or foreign
Law), as a transferee or successor, by contract or otherwise.
(h) There are
no Government audits, examinations or investigations or administrative or
judicial proceedings being conducted with respect to the Company or any of its
Subsidiaries related to Taxes. Neither the Company nor any of its Subsidiaries
has received for any open period from any Government Tax authority (including
jurisdictions where the Company and its Subsidiaries have not filed a Tax
Return) any (i) notice indicating an intent to open an audit or other review;
(ii) request for information related to Tax matters; or (iii) notice of
deficiency or proposed adjustment for any amount of Tax proposed, asserted, or
assessed by any Tax authority against the Company or any of its
Subsidiaries.
13
(i) There is
no waiver or tolling of any statute of limitations in effect with respect to any
Tax Returns nor has the Company or any of its Subsidiaries agreed to an
extension of time with respect to a Tax assessment or deficiency.
(j) None of
the assets of the Company or any of its Subsidiaries is a United States real
property interest within the meaning of Section 897 of the Code.
(k) True,
correct and complete copies of all Tax Returns, tax examination reports and
statements of deficiencies assessed against, or agreed to with respect to the
Company or any of its Subsidiaries with the Internal Revenue Service or any
taxing authority for any open period have been made available to Buyer. To the
extent required by law, the Company and its Subsidiaries have retained all
records or other information (including any tax work papers) used in the
preparation of any Tax Returns, audits or other examinations relating to
liability for Taxes (including the preparation of Tax Returns for Taxable
periods or portions thereof ending on or before the Closing Date).
(l) All
elections with respect to Taxes affecting the Company or any of its Subsidiaries
as of the date hereof that are not reflected on any Tax Return are set forth in
Part
3.8(l) of the
Disclosure Schedule. No new elections with respect to Taxes, or any changes in
current elections with respect to Taxes of the Company or any of its
Subsidiaries or affecting the Company or any of its Subsidiaries shall be made
after the date of this Agreement without the prior written consent of Buyer
(which consent shall not be unreasonably withheld or delayed).
(m) Part
3.8(m) of the
Disclosure Schedule lists all material Tax holidays, abatements, incentives and
similar grants made or awarded to the Company or any of its Subsidiaries by any
Government.
(n) Set forth
on Part
3.8(n) of the
Disclosure Schedule is a tax balance sheet for each of the Company and its
Subsidiaries as of December 31, 2003. Such Part is true, correct and complete in
all material respects.
(o) Neither
the Company nor any Subsidiary is a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in a payment that would not be fully deductible as a result of
Section 280G of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code.
(p) Neither
the Company nor any of its Subsidiaries has made any payment to any person or to
any entity described in Section 162(c) of the Code or any similar provision
under foreign Law. Neither the Internal Revenue Service nor, to the Company’s
knowledge, any other Government entity has initiated or threatened any
investigation of any payments made by the Company or any of its Subsidiaries
alleged to have been of the type covered by this Section 3.8(p).
(q) None of
the assets of the Company or any of its Subsidiaries is property that the
Company or its Subsidiary, as applicable, is required to treat as being a “safe
harbor lease” within the meaning of Section 168(f)(8) of the Code, as in effect
prior to amendment by the Tax Equity and Fiscal Responsibility Act of
1982.
14
(r) None of
the assets of the Company or any of its Subsidiaries directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code. Neither the Company nor any of its Subsidiaries is the borrower or the
guarantor of any outstanding industrial revenue bonds, and neither the Company
nor any of its Subsidiaries is a tenant, principal user or related person to any
principal user within the meaning of Section 144(a) of the Code of any property
that has been financed or improved with the proceeds of industrial revenue
bonds.
(s) None of
the assets of the Company or any of its Subsidiaries is “tax-exempt use
property” within the meaning of Section 168(h) of the Code.
(t) An
election under Section 754 of the Code is in effect with respect to the Company
and its Subsidiaries
(u) Neither
the Company nor any of its Subsidiaries has agreed to, or is required to make,
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method, other than a change required on account of the transactions
contemplated by this Agreement, and the Internal Revenue Service has not
proposed any such adjustment or change in accounting method. Neither the Company
nor any of its Subsidiaries has had any pending private letter ruling request
with the Internal Revenue Service.
(v) None of
the representations in Section 3.8 shall apply with respect to transactions
entered into by the Company or any of its Subsidiaries (or any election made
with respect to the Company or any of its Subsidiaries) after the Closing Date
or on account of any transactions entered into or election made by Buyer or its
affiliates after the Closing Date.
(w) As used
in this Agreement, “Taxes” means all taxes, charges, fees, levies, or other like
assessments, including without limitation income, gross receipts, ad valorem,
value added, premium, excise, real property, personal property, windfall profit,
sales, use, transfer, license, withholding, employment, payroll, social security
(or similar), unemployment, disability, franchise, severance, stamp, occupation,
environmental (including taxes under Section 59A of the Code), capital stock,
profits, registration, alternative or add-on minimum, estimated, or other tax of
any kind whatsoever (but specifically does not mean customs, duties or similar
obligations), imposed by: the United States or any other nation, state, or
bilateral or multilateral governmental authority, any local governmental unit or
subdivision thereof, or any branch, agency, or judicial body thereof
(“Government”); and shall include any interest, fines, penalties, assessments,
or additions to tax resulting from, attributable to, or incurred in connection
with any such Taxes, whether disputed or not, and including any obligations to
indemnify or otherwise assume or succeed to the Tax liability of any other
Person. Any one of the foregoing shall be referred to sometimes as a
“Tax.”
(a) Except as
set forth on Part
3.9(a) of the
Disclosure Schedule,
(i) the
Company and its Subsidiaries are the sole owners of all right, title, and
interest in and to all assets reflected as being owned by the Company and its
Subsidiaries on the Balance Sheet and all other assets and property, real and
personal, tangible and intangible (it being understood that any representation
with respect to the Company’s or any Subsidiary’s title to, or valid leasehold
or license interest in, any Intellectual Property is being made only in Section
3.14), owned by the Company and its Subsidiaries (collectively, the “Assets”),
and together with all real and tangible personal property leased by the Company
or any of its Subsidiaries, “Property”);
15
(ii) there
exists no Order (as hereinafter defined), or agreement or arrangement between
the Company or any Subsidiary and any third party or any provision in the
governing documents of the Company or any Subsidiary, that imposes any
restriction on the use or transfer of the Property except for such restrictions
set forth in the lease governing any leased property;
(iii) no
Property is in the possession of others and neither the Company nor any of its
Subsidiaries hold any Property on consignment;
(iv) the
Company and its Subsidiaries have good and marketable title to, or a valid
leasehold interest in, all of the Property, free and clear of all Liens, except
for Permitted Liens.
As used
herein, “Permitted Liens” means (a) such easements, rights of way, encumbrances
or restrictions on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations, do not
materially detract from the value of the affected property or interfere with the
ordinary conduct of business of the Company or any Subsidiary and which do not
materially impair the current use of any such real property, (b) materialmen’s,
mechanics’, carriers’, workmen’s, warehousemen’s, repairmen’s and other like
Liens arising in the ordinary course of business and securing obligations that
are not overdue by more than thirty (30) days or the validity or amount thereof
are being contested in good faith by appropriate proceedings for which the
Company or such Subsidiary has set aside on its books appropriate reserves with
respect thereto in accordance with GAAP (which reserve is accrued as a current
liability on the Closing Balance Sheet and is taken into account in determining
the Purchase Price under Section 1.6(c)), and, provided further, that such
contest effectively suspends collection of the contested obligation and the
aggregate amount of such Liens as are being contested does not exceed $50,000,
(c) Liens for taxes not yet due and payable, or being contested and taken into
account in the manner described in clause (b) above, (d) landlords’ and lessors’
Liens arising by operation of law in respect of rent not in default, (e)
purchase money Liens incurred in the ordinary course of business in connection
with the financing of fixed or capital assets, including obligations in respect
of capital leases, provided that the aggregate amount of indebtedness secured
thereby shall not exceed $1,000,000 and such Liens do not apply to any other
property or assets of the Company or any Subsidiary, and (f) the Liens listed on
Part
3.9(a) of the
Disclosure Schedule.
(b) All of
the material tangible Property has been maintained in accordance with normal
industry practice, is in adequate operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it is
presently used.
16
(c) Neither
the Company nor any of its Subsidiaries owns any real property. Except as set
forth on Part
3.9(c) of the
Disclosure Schedule: (a) to the Company’s knowledge, there is no pending or
threatened condemnation proceeding, administrative action or judicial proceeding
of any type relating to that portion of any real property currently leased or
otherwise occupied by the Company or any of its Subsidiaries (the “Real
Property”); (b) to the Company’s knowledge, the Real Property does not
serve any adjoining property for any purpose inconsistent with the use of the
Real Property by the Company or any of its Subsidiaries, and the Real Property
is not located within any flood plain or subject to any similar type of
restriction for which any permits or licenses necessary to the use thereof have
not been obtained; (c) to the Company’s knowledge, there are no leases,
subleases, licenses, easements, concessions or other agreements, written or
oral, granting to any person or entity the right to use or occupy any portion of
the Real Property that are not listed on Part
3.9(c) of the
Disclosure Schedule; (d) no person or entity (other than the Company or any
of its Subsidiaries) is in possession of any of the Real Property; (e) to
the Company’s knowledge, neither the current use of the Real Property nor the
operation of the Company or any of its Subsidiaries violates any instrument of
record or agreement affecting the Real Property or any applicable legal
requirements; (f) to the Company’s knowledge, all water, gas, electrical,
steam, compressed air, telecommunication, sanitary and storm sewage lines and
other utilities and systems serving the Real Property are sufficient to enable
the continued operation of the Real Property as currently operated; (g) all
certificates of occupancy, permits, licenses, approvals and other authorizations
required to be obtained by the Company or any Subsidiary in connection with the
past and present operation of the Company or any of its Subsidiaries on the Real
Property have been lawfully issued to the Company or any of its Subsidiaries and
are, as of the date hereof, and will be following the consummation of the
transactions contemplated hereby, in full force and effect, and, to the
Company’s knowledge, the Company and its Subsidiaries and such Real Property are
in compliance in all material respects with all applicable zoning ordinances,
regulations and permits; and (h) all Real Property has adequate access to
public roads and utilities to enable the continued operation of the Real
Property as currently operated.
3.10 Necessary Property and Transfer of Assets. The
Property constitutes all assets and property (other than with respect to
Intellectual Property, and other than public property and property owned by
others and which is predominantly used by others) now used by the Company and
its Subsidiaries in the conduct of the business of the Company and its
Subsidiaries. To the Company’s knowledge, there exists no condition, restriction
or reservation affecting the title to or utility of the Property that would,
assuming the receipt of all consents and approvals relating to the Company
required to be obtained from Governments and from third parties, prevent the
Company or any of its Subsidiaries from enforcing their respective rights with
respect to the Property after the Effective Time to the same full extent that it
might continue to do so if the sale and transfer contemplated hereby did not
take place.
3.11 Accounts
Receivable. Set
forth on Part
3.11 of the
Disclosure Schedule are a list of all the accounts receivable of the Company and
its Subsidiaries and an aging schedule relating thereto, each as of February 28,
2005. Such accounts receivable and any accounts receivable arising between such
date and the Closing Date (collectively, the “Accounts Receivable”) are valid
and subsisting (unless collected or otherwise disposed of in the Ordinary Course
of Business prior to the Closing Date), and all such Accounts Receivable arose
in the Ordinary Course of Business of the Company and its Subsidiaries. No
Account Receivable is subject to any counterclaim, set-off or defense, other
than charge-backs, allowances, credits and the like made in the Ordinary Course
of Business. No agreement for deduction, free goods, discount or other deferred
price or quantity adjustment has been made with respect to any Account
Receivable, other than charge-backs, allowances, credits and the like made in
the Ordinary Course of Business.
17
3.12 Contracts and Commitments. Except
as set forth on Part
3.12 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party
to or otherwise obligated under any of the following, whether written or
oral:
(a) Any
single contract or purchase order, or any series of contracts or purchase orders
with the same or affiliated vendor(s), providing for an expenditure by the
Company or any of its Subsidiaries in excess of $100,000.
(b) Any
contract providing for an expenditure by the Company or any of its Subsidiaries
for the purchase of any real property.
(c) Any
contract, bid or offer to sell products or to provide services to third parties
which (i) the Company or any of its Subsidiaries knows or has reason to
believe is at a price which would result in a net loss to the Company or the
Subsidiaries which are party thereto on the sale of such products or provision
of such services or (ii) contains terms or conditions that the Company or
the Subsidiaries which are party thereto cannot reasonably expect to satisfy or
fulfill in whole or in part.
(d) Any
contract pursuant to which the Company or any of its Subsidiaries is the lessee
or sublessee of, or holds or operates, any personal property owned or leased by
any other person or entity (other than contracts entered in the Ordinary Course
of Business with annual lease payments no greater than $100,000).
(e) Any
contract pursuant to which the Company or any of its Subsidiaries is the lessor,
sublessor or lessee of, or permits any third party to operate, any real or
personal property owned or leased by a Seller or an affiliate
thereof.
(f) Any
revocable or irrevocable power of attorney granted to any person, firm or
corporation for any purpose whatsoever.
(g) Any loan
agreement, indenture, promissory note, conditional sales agreement, mortgage,
security agreement, letter of credit arrangement, guarantee, endorsement,
assumption, indemnity, surety, foreign exchange contract, accommodation or other
similar type of agreement.
(h) Any
arrangement or other agreement which involves (i) a sharing of profits,
(ii) future payments of $100,000 or more per annum to another person, or
(iii) any joint venture, partnership or similar contract or
arrangement.
(i) Any
buying or sales agency, sales representation, distributorship or franchise
agreement.
(j) Any
contract providing for the payment of any cash or other benefits upon the sale
or change of control of the Company or any of its Subsidiaries or a substantial
portion of the assets of the Company or any of its Subsidiaries in an amount or
with a value in excess of $20,000.
18
(k) Any
contract prohibiting the Company or any of its Subsidiaries, or the employees of
the Company or any of its Subsidiaries, from freely engaging in any business
anywhere in the world, or prohibiting the disclosure of trade secrets or other
confidential or proprietary information by the Company or any of its
Subsidiaries (other than confidentiality agreements entered into with
prospective acquirers of the Company and its Subsidiaries prior to October 28,
2004, which will be provided to Buyer on the Closing Date).
(l) Any
contract or commitment not made in the Ordinary Course of Business with respect
to which the Company has any stated liability or obligation involving more than
$100,000.
(m) Any
contract pursuant to which the Company or any of its Subsidiaries has acquired
or disposed of or has agreed to acquire or dispose of any securities or any
business, product line or the like.
3.13 Validity
of Contracts. Each
written or oral contract, agreement, commitment, license, lease, indenture, or
evidence of indebtedness required to be listed on Part
3.12 of the
Disclosure Schedule (collectively, the “Material Contracts”) is a valid, binding
and enforceable obligation of the Company, its Subsidiaries which are parties
thereto and, to the Company’s knowledge, the other parties thereto in accordance
with its terms subject, however, to applicable bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors and to general equitable
principles. Neither the Company, any of its Subsidiaries which are parties
thereto nor, to the Company’s knowledge, any other party to a Material Contract
is in default under or in violation of such Material Contract, and no such other
party to any Material Contract has notified the Company that it intends to
declare a default under or breach of such Material Contract. No event has
occurred which, with the passage of time or the giving of notice, or both, would
constitute, and, except as set forth on Part
3.13 of the
Disclosure Schedule, neither the execution of this Agreement nor the Closing
hereunder do or will constitute or result in, a default under or a violation of
any Material Contract by the Company or its Subsidiaries which are parties
thereto or, to the Company’s knowledge, any other party to such Material
Contract or would cause the acceleration of any obligation of any party thereto
or the creation of a Lien upon any Property or the Purchased Securities, or,
except as set forth on Part
3.13 of the
Disclosure Schedule, would require any consent thereunder. The Sellers have
delivered to Buyer a true, complete and accurate copy of each written Material
Contract required to be disclosed on Part
3.12 of the
Disclosure Schedule and an accurate description of each oral Material Contract
required to be disclosed on Part
3.12 of the
Disclosure Schedule, and none of such Material Contracts has been modified or
amended in any respect, except as reflected in such disclosure to
Buyer.
19
(a) For
purposes of this Agreement, “Intellectual Property” shall mean: (i) patents,
patent applications, including any and all provisional, divisional, continuing,
continuation, continuation-in-part, reissue, reexamination, and foreign
counterpart applications, renewals, extensions and the like; (ii) trademarks,
service marks, trade dress, trade names, corporate names, domain names, logos
any and all goodwill associated therewith, any and all applications and
registrations therefor, and any and all renewals and extensions thereof; (iii)
tangible works of authorship, copyrights, copyrighted works, mask works, and any
renewal rights, applications and registrations therefor; (iv) computer software,
programs, firmware and the like (including both source and object code form);
(v) each and every invention, conception, discovery, improvement, design,
process, method, formula, apparatus, schematic, item of technology, data
manufacturing process, trade secret and know-how; (vi) all license and other
rights in any third party product, intellectual property, proprietary or
personal rights, documentation, or tangible or intangible property, including,
without limitation, the types of intellectual property and tangible and
intangible proprietary information described above and (vii) all rights to any
and all income, royalties, damages and payments now or hereafter due and/or
payable under or with respect to any of the foregoing including, without
limitation, the right to xxx and the damages and payments for past, present and
future infringement, misappropriation and/or dilution of any of the foregoing.
“Company Intellectual Property” shall mean all Intellectual Property that is
currently used, owned or licensed by the Company or any of its Subsidiaries, or
that has been used or licensed by the Company or any of its Subsidiaries, in
connection with its business or operations, and all goodwill associated
therewith, but only to the extent that such Intellectual Property is owned or
used by the Company and its Subsidiaries. Notwithstanding anything to the
contrary contained in this Section 3.14, the Company makes no representation or
warranty with respect to any Company Intellectual Property, or any jurisdiction
or country of origin, not marked with an asterisk on Part
3.14 of the
Disclosure Schedule.
(b) Part
3.14(b) of the
Disclosure Schedule contains a true, complete and accurate list of each of the
following items of Company Intellectual Property that, as
of the date hereof, are registered in the name of the Company or any of its
Subsidiaries or for which an application in the name of the Company or any of
its Subsidiaries is currently pending:
patents, patent applications,
trademarks, service marks, trade dress, trade names, corporate names,
copyrights, and
domain names (“Registered Company Intellectual Property”), and
enumerates for each such item, as applicable, the patent
number, application number, registration number, filing date, date of issuance,
registration or grant, applicant, title, classification of goods or services
covered (for trademarks and service marks), xxxx or
name, owner, country
of origin and subject matter. Except
as set forth on Part
3.14(b) of the
Disclosure Schedule, all
Registered Company Intellectual Property is currently in compliance with formal
legal requirements (including payment of filing, examination and maintenance
fees and proofs of use) and no Registered Company Intellectual Property is
subject to any unpaid maintenance fees or taxes or actions due within 120 days
after the date hereof. There are no proceedings or actions before any court or
tribunal (including the United States Patent and Trademark Office or equivalent
authority anywhere in the world) related to any such Registered Company
Intellectual Property other than those set forth in Part 3.14(b) of the
Disclosure Schedule.
(c) Part
3.14(c) of the
Disclosure Schedule identifies each agreement (each a “Company Intellectual
Property License”) pursuant to which rights to any item of Company Intellectual
Property that is owned by a person or entity other than the Company or any of
its Subsidiaries is licensed to the Company or any of its Subsidiaries
(excluding off-the-shelf software programs licensed by the Company or any of its
Subsidiaries pursuant to “shrink wrap”, “click wrap” or similar licenses and all
software licensed by the Company or any of its Subsidiaries pursuant to open
source licenses, including without limitation the GNU general public license or
limited general public license) (“Licensed Company Intellectual Property”).
Part
3.14(c) of the
Disclosure Schedule accurately identifies, for each such agreement, the
licensor, licensee, license date and the Company Intellectual Property covered
by such agreement. In accordance with the terms and conditions, and subject to
the limitations, of the applicable Company Intellectual Property License, the
Company and its Subsidiaries have the right to exploit and use all or any part
of the Licensed Company Intellectual Property. No Company Intellectual Property
owned by the Company or any of its Subsidiaries is required under the terms of a
Company Intellectual Property License to be licensed at no charge to any third
party and neither the Company nor any of its Subsidiaries is required under the
terms of any Company Intellectual Property License to provide or to offer to any
third party a machine-readable copy of the source code for any Company
Intellectual Property owned by the Company or any of its
Subsidiaries.
20
(d) Except
with respect to Licensed Company Intellectual Property and any off-the-shelf
software programs licensed by the Company or any of its Subsidiaries pursuant to
“shrink wrap”, “click wrap” or similar licenses, or as set forth on Part
3.14(d) of the
Disclosure Schedule, the Company and its Subsidiaries (i) have good, valid and
legal title to, and are the sole and exclusive owners of all right, title and
interest in and to, the Registered Company Intellectual Property; (ii) to the
Company’s knowledge, have the right to exploit and use all or any part of the
Company Intellectual Property; (iii) have the right to transfer, convey, assign
and license any of the Company Intellectual Property, and (iv) except as set
forth on Part
3.14(d) of the
Disclosure Schedule, such Company Intellectual Property is free and clear of all
liens, security interests, encumbrances and the like. Except as set forth in
Part
3.14(d) of the
Disclosure Schedule, the Company or one if its Subsidiaries is recorded as the
owner and/or assignee of all items of Registered Company Intellectual
Property.
(e) Except
with respect to Licensed Company Intellectual Property and any off-the-shelf
software programs licensed by the Company or any of its Subsidiaries pursuant to
“shrink wrap”, “click wrap” or similar licenses, and except as set forth in
Part
3.14(e) of the
Disclosure Schedule, (i) there are no royalty or other obligations, covenants or
restrictions of any kind or nature from third parties or Orders affecting either
the use, disclosure, enforcement, transfer or licensing of the Company
Intellectual Property; (ii) to the Company’s knowledge, each item of Company
Intellectual Property is valid and enforceable and encompasses all proprietary
rights reasonably necessary for or used in the conduct of the business of the
Company and its Subsidiaries as presently conducted by the Company and its
Subsidiaries; (iii) to the Company’s knowledge, no entity other than the Company
or its Subsidiaries possesses any current or contingent rights to any of the
Company Intellectual Property (including, without limitation, through any escrow
account), except with respect to Company Intellectual Property used pursuant to
a Company Intellectual Property License; (iv) the Company and its Subsidiaries
have secured from all persons who have created or otherwise have any rights in
or to, any item of Registered Company Intellectual Property, valid enforceable
written assignments of, or licenses to, any such Registered Company Intellectual
Property; (v) neither the Company nor any of its Subsidiaries has transferred,
and the Company is not obligated to transfer, to any third party any Company
Intellectual Property; (vi) there is no action, suit, arbitration or other
proceeding pending or threatened, which involves any Company Intellectual
Property; and (vii) except with respect to Licensed Company Intellectual
Property, neither the Company nor any of its Subsidiaries is subject to any
Order and is not party to any Material Contract which restricts or impairs the
use of any Company Intellectual Property.
21
(f) Neither
the Company nor any of its Subsidiaries is in breach of any Company Intellectual
Property License.
(g) Except as
set forth on Part
3.14(g) of the
Disclosure Schedule, to the Company’s knowledge, there is not and has not been
any infringement, misappropriation or other violation of any Intellectual
Property of a third party by the Company or any of its Subsidiaries, and there
are no facts raising a likelihood of any such violation.
(h) Except as
set forth in Part
3.14(h) of the
Disclosure Schedule, there is not and has not been any infringement,
misappropriation or other violation of any of the Company Intellectual Property
owned by the Company or any of its Subsidiaries of which the Company is aware.
Except as set forth in Part
3.14(h) of the
Disclosure Schedule, there has been no claim made by the Company or any of its
Subsidiaries of any infringement, misappropriation or other violation of any of
the Company Intellectual Property owned by the Company or any of its
Subsidiaries.
(i) Except as
set forth in Part
3.14(i) of the
Disclosure Schedule, the Company Intellectual Property owned by the Company and
its Subsidiaries and the products or services of the Company and its
Subsidiaries have not been the subject of a claim of infringement, interference
or unfair competition or other claim. Except as set forth in Part
3.14(d) of the
Disclosure Schedule, there has been no claim made against the Company or any of
its Subsidiaries asserting the invalidity, misuse or unenforceability of any of
the Company Intellectual Property or challenging the right of the Company or any
of its Subsidiaries to use, transfer, or ownership of, any of the Company
Intellectual Property.
(j) Subject
to the Company obtaining the applicable consents, approvals and authorizations
set forth on Part
3.13 of the
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not impair or extinguish any of the Company Intellectual Property
or subject use of the Company Intellectual Property, including Licensed Company
Intellectual Property, by the Company or any of its Subsidiaries to restrictions
or limitations other than those to which the use thereof by the Company or any
of its Subsidiaries would be subject if the transactions contemplated hereby did
not occur.
3.15 Litigation. Except as set forth on Part
3.15 of the
Disclosure Schedule, (a) there is no, and since January 1, 2002 there has
not been any, suit, litigation, proceeding (administrative, judicial, or in
arbitration, mediation or alternative dispute resolution), Government or grand
jury investigation, or other action (any of the foregoing, “Action”) pending or, to the Company’s knowledge, threatened
against the Company or any of its Subsidiaries or involving the business or
products of the Company and its Subsidiaries, any of the Property of the Company
or any of its Subsidiaries, or, in connection with the business of the Company
and its Subsidiaries, any of its members, managers, officers, agents, or other
personnel, including without limitation any Action challenging, enjoining, or
preventing this Agreement or the consummation of the transactions contemplated
hereby and (b) neither the Company nor any of its Subsidiaries is or has
been subject to any judgment, order, writ, injunction, or decree of any court or
other Government entity (“Order”) other than Orders of general
applicability.
22
(a) Set forth
on Part
3.16(a) of the
Disclosure Schedule is a list of all insurance policies and bonds currently in
force covering or relating to the properties, operations or personnel of the
Company and its Subsidiaries and, with respect to insurance policies covering
product liability and similar occurrence based risks, such Part clearly
indicates which of such policies are claims made and which of such policies are
occurrence based. All of such insurance policies are in full force and effect
(with respect to the applicable coverage periods), and neither the Company nor
any of its Subsidiaries is in default with respect to any of its material
obligations under any of such insurance policies.
(b) The
Company and its Subsidiaries maintain insurance as required by law or under any
agreement to which the Company or any of its Subsidiaries is a party, including,
without limitation, unemployment and workers’ compensation
coverage.
3.17 Absence of Certain Changes. Since
the date of the Balance Sheet, except as set forth on Part
3.17 of the
Disclosure Schedule, there has not been:
(a) Any
material adverse change in the business, condition (financial or otherwise) or
operations of the Company and its Subsidiaries (excluding any such changes
arising out of general economic conditions or conditions affecting generally the
industry in which the Company and its Subsidiaries operate), or the condition of
the Property, and to the Company’s knowledge, no such change will arise from the
consummation of the transactions contemplated hereby;
(b) Any
increase in compensation or other remuneration payable to or for the benefit of
or committed to be paid to or for the benefit of any member, manager, officer or
employee of the Company or any of its Subsidiaries, or in any benefits granted
under any Plan with or for the benefit of any such member, manager, officer or
employee (other than increases in wages, salaries, bonuses or employee benefits
required under existing Material Contracts listed on Part
3.13 of the
Disclosure Schedule or otherwise not unusual in timing, character or amount made
in the Ordinary Course of Business to employees);
(c) Any
material transaction entered into or carried out by the Company or any of its
Subsidiaries other than in the Ordinary Course of Business;
(d) Any
termination of any Material Contract or any modification of any material term
thereof, or any termination or modification of any material Government license,
permit or other authorization other than in the Ordinary Course of
Business;
(e) Any
abandonment or lapse of any material Company Intellectual Property;
(f) Any
acquisition of or investment in (by merger, exchange, consolidation, purchase or
otherwise) any corporation or partnership or interest in any business
organization or entity;
23
(g) Any
acquisition of any assets (whether through capital spending or otherwise)
outside of the Ordinary Course of Business which are material, individually or
in the aggregate, to the Company and its Subsidiaries, taken as a
whole;
(h) Any
waiver by the Company or any Subsidiary of any material claims or
rights;
(i) Any
disclosure of any confidential or proprietary information to any person or
entity not in the Ordinary Course of Business, other than to Buyer and Buyer’s
representatives, agents, attorneys and accountants, to other prospective
acquirers of the Company and its Subsidiaries prior to October 28, 2004, and to
the Company’s advisors, provided that any such disclosure (A) in the Ordinary
Course of Business was made in accordance with commercially reasonable practices
and (B) to prospective acquirers was made pursuant to reasonable arrangements to
protect the confidentiality of such information;
(j) Any
material change in the conduct of the business of the Company and its
Subsidiaries, or any material change in its methods of purchase, sale, lease,
management, marketing, promotion or operation, or any unusual delay or
postponement of the payment of accounts payable or other
liabilities;
(k) Any
change in any method of accounting or accounting policies of the Company or any
of its Subsidiaries, other than those required by GAAP, or any write-down in the
accounts receivable or inventories of the Company or any of its Subsidiaries
other than in the Ordinary Course of Business;
(l) Any
action taken that will or may reasonably be expected to cause or constitute a
breach of any provision of this Agreement;
(m) Any
making or changing of material Tax elections; or
(n) Any
binding commitment or agreement by the Company or any of its Subsidiaries to do
any of the foregoing items (b) through (m).
3.18 No Breach of Law or Governing Document; Licenses and
Permits.
(a) Except as
set forth on Part
3.18(a) of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries is or has
been in default under or in breach or violation of any material statute, law,
treaty, convention, ordinance, decree, order, injunction, rule, directive, or
regulation of any Government applicable to it (“Law”) or the material provisions
of any Government permit, franchise, or license, or any material provision of
its constituent documents. Neither the Company nor any of its Subsidiaries has
ever received any notice alleging such default, breach or violation. Neither the
execution of this Agreement nor the Closing do or will constitute or result in
any such default, breach or violation.
(b) The
Company and its Subsidiaries hold all material licenses and permits required to
conduct the business as presently conducted by the Company and its Subsidiaries,
and each such license or permit is valid, in full force and effect, and listed
on Part
3.18(b) of the
Disclosure Schedule. Neither the execution of this Agreement nor the Closing do
or will constitute or result in a default under or violation of any such permit
or license.
24
3.19 Transactions with Related Persons; Outside
Interests.
(a) To the
Company’s knowledge, no member, manager, officer or affiliate of the Company or
any of its Subsidiaries or any individual related by blood, marriage or adoption
to any such individual or any entity in which any such individual or entity owns
any beneficial interest (collectively, the “Company Persons”), is a party to any
agreement, contract, commitment or other form of transaction or arrangement with
the Company or any of its Subsidiaries, written or oral, or has any interest in
any of the Property, except as specifically disclosed on Part
3.19(a) of the
Disclosure Schedule.
(b) To the
Company’s knowledge, other than Pentland, no member, manager, officer or
affiliate of the Company or any of its Subsidiaries has any direct or indirect
financial interest in any competitor with or supplier or customer of the Company
or any of its Subsidiaries; provided, however, that for this purpose ownership
of corporate securities having no more than 5% of the outstanding voting power
of any competitor, supplier or customer, which securities are listed on any
national securities exchange or authorized for quotation on the Nasdaq National
Market, shall not be deemed to be such a financial interest, provided that such
person has no other connection or relationship with such competitor, supplier or
customer, except as specifically disclosed on Part
3.19(b) of the
Disclosure Schedule.
3.20 Bank
Accounts. Set forth on Part
3.20 of the
Disclosure Schedule is a list of the locations and numbers of all bank accounts,
investment accounts and safe deposit boxes maintained by the Company or any of
its Subsidiaries, together with the names of all persons who are authorized
signatories or have access thereto or control thereunder.
(a) Except as
set forth on Part
3.21 of the
Disclosure Schedule, the use, ownership and operation of (i) all property
currently owned, leased or operated by the Company or any of its Subsidiaries
and (ii) all property previously owned, leased or operated by the Company or any
of its Subsidiaries (clauses (i) and (ii) collectively, the “Environmental
Property”), all current and previous conditions on and uses of the Environmental
Property, and all current and previous ownership and operations of the
Environmental Property by the Company and its Subsidiaries (including without
limitation transportation, arrangements for disposal, treatment, storage and
disposal of Hazardous Materials (as hereinafter defined) by or for the Company
or any of its Subsidiaries) comply and have at all times complied, and do not
cause, have not caused and will not cause liability to be incurred by the
Company or any of its Subsidiaries under any current or past Law relating to the
protection of health, welfare or the environment, including without limitation:
the Clean Air Act, the Federal Water Pollution Control Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act (including without limitation liability for
response actions, response costs, contribution and natural resource damages),
the Toxic Substance Control Act, the Emergency Planning and Community Right to
Know Act, the Safe Drinking Water Act, the Hazardous Materials Transportation
Act, the Oil Pollution Act of 1990, all as amended, their implementing
regulations, and any comparable local, state or foreign law, regulation or
ordinance, and the common law relating to Hazardous Materials, including the law
of nuisance, negligence, trespass, contribution, and strict liability
(collectively, “Environmental Law”). Neither the Company nor any of its
Subsidiaries is in violation of or has violated any Environmental Law or has
engaged in acts or omissions that would give rise to liability under any
Environmental Law. The Company and each of its Subsidiaries has properly
obtained and is in material compliance with all necessary environmental permits,
orders, decrees, agreements, authorizations, registrations, approvals, and
licenses (“Environmental Permits”), and has properly made all filings with and
notifications and submissions to any Government or other authority required by
any Environmental Law. No deficiencies have been asserted by any such Government
or authority with respect to such items.
25
(b) Except as
set forth on Part
3.21 of the
Disclosure Schedule, there has been no spill, discharge, leak, leaching,
emission, migration, injection, disposal, escape, dumping, exacerbation or
release by or resulting from any acts or omissions by the Company or any
Subsidiary of any kind at, on, about, beneath, above, into or from the
Environmental Property or into the environment surrounding the Environmental
Property of any (i) pollutants or contaminants, (ii) hazardous, toxic,
infectious or radioactive substances, chemicals, products, materials or wastes
(including without limitation those defined as hazardous wastes, hazardous
substances or hazardous materials under any Environmental Law), (iii) petroleum
including crude oil or any derivative or fraction thereof, (iv) asbestos,
including asbestos fibers or (v) solid wastes ((i)-(v), collectively, “Hazardous
Materials”) in concentrations or quantities that would violate or give rise to
liability under any Environmental Law or that has not been fully abated such
that no further action is required in compliance with Environmental
Law.
(c) Except as
set forth on Part
3.21 of the
Disclosure Schedule, during the operation, use, ownership or occupancy by the
Company or any Subsidiary of the Environmental Property, except in compliance
with and so as not to give rise to any liability under any Environmental Law,
there are and have been no (i) Hazardous Materials stored, disposed of,
generated, manufactured, refined, transported, produced, or treated at, on,
about, beneath, above, or from the Environmental Property; (ii) ceramic or
asbestos fibers or materials or polychlorinated biphenyls at, on, about or
beneath the Environmental Property, (iii) underground storage tanks on or
beneath the Environmental Property or (iv) vapor degreasers at, on or about the
Environmental Property.
(d) The
Company has made available to Buyer, prior to the execution and delivery of this
Agreement, complete copies of any and all (i) documents in its possession
received by the Company or any of its Subsidiaries from, or submitted by the
Company or any of its Subsidiaries to, the Environmental Protection Agency
and/or any state, county or municipal environmental or health agency concerning
the environmental condition of the Environmental Property, the effect of the
operations of the Company and/or its Subsidiaries on the environmental condition
of the Environmental Property, and/or the presence or release of any Hazardous
Materials at, on, about, beneath, above, into or from the Environmental Property
and (ii) reviews, audits, reports, assessments, data or other analyses in
its possession concerning the Environmental Property. The Company makes no
representation or warranty with respect to the accuracy or completeness of
documents prepared by outside consultants and made available to Buyer. The
Company has not destroyed or removed any such documents from its files within
the past eighteen (18) months.
26
(e) Except as
set forth on Part
3.21 of the
Disclosure Schedule, since January 1, 2002 there has not been pending or, to the
Company’s knowledge, threatened against the Company or any of its Subsidiaries
in connection with the Environmental Property, any civil, criminal or
administrative action, suit, summons, citation, complaint, claim, notice,
demand, request, information request, judgment, order, lien, proceeding,
hearing, study, inquiry or investigation based on, related to or arising from
any Environmental Permits, any Environmental Law, or the presence or release of
any Hazardous Materials at, on, about, beneath, above, into or from the
Environmental Property.
(f) Except as
set forth on Part
3.21 of the
Disclosure Schedule, the Company has no knowledge of any actions or omissions by
the Company or any of its Subsidiaries or conditions that would:
(i) interfere with or prevent continued compliance by the Company and its
Subsidiaries with any Environmental Permits or any renewal or transfer thereof,
or of any Environmental Law or (ii) make more stringent any restriction,
limitation, requirement or condition under any Environmental Law or any
Environmental Permits in connection with the operations of the Company and its
Subsidiaries on the Environmental Property.
(g) The
Company has no knowledge of, nor has it received written notice of, any civil,
criminal or administrative action, suit, summons, citation, complaint, claim,
notice, demand, information request, judgment, order, lien, proceeding, study or
investigation against or involving the Company or any of its Subsidiaries based
on, related to or arising under or from any Environmental Permits, Environmental
Law or the presence or release of Hazardous Materials at any site, facility or
location where Hazardous Materials have been sent or currently are being sent by
the Company or its Subsidiaries for disposal, treatment, recycling or
storage.
3.22 Officers, Managers, Employees, Consultants and Agents;
Compensation.
(a) Set forth
on Part
3.22(a) of the
Disclosure Schedule is a complete list of: (i) all current managers of the
Company and each of its Subsidiaries, if any, (ii) all current officers
(with office held) of the Company and each of its Subsidiaries and
(iii) all current employees (active or other) of the Company and each of
its Subsidiaries; together, in each case, with the current rate of compensation
(if any) payable to each and any paid vacation time owing to such person, any
incentive or bonus payments, the date of employment of each such person and, if
known, whether such person is a foreign national or expatriate.
(b) Except as
set forth on Part
3.22(b) of the
Disclosure Schedule: (i) neither the Company nor any of its Subsidiaries is
indebted to any of its officers, managers, employees or consultants except for
amounts due as normal salaries, wages, employee benefits and bonuses and in
reimbursement of ordinary business expenses on a basis consistent with past
practices; and (ii) no officer, manager, employee or consultant of the
Company or any of its Subsidiaries is indebted to the Company or any of its
Subsidiaries except for advances for ordinary business expenses in the Ordinary
Course of Business.
27
(c) To the
Company’s knowledge, all payments to agents, consultants and others made by the
Company or any of its Subsidiaries or by a member in connection with the Company
and its Subsidiaries have been in payment of bona fide fees, commissions and
expenses and not as bribes or as otherwise illegal payments. All such payments
have been made directly to the parties providing the services for which such
payments were made, and no such payment has been paid in a manner intended by
the Company or any Subsidiary to avoid currency controls or any party’s tax
reporting or payment obligations.
3.23 Labor
Matters. Set forth on Part
3.23 of the
Disclosure Schedule is each collective bargaining, works council, union
representation or similar agreement or arrangement to which the Company or any
of its Subsidiaries is or has been a party or by which it is or has been bound
since January 1, 2002. Except as set forth on Part
3.23 of the
Disclosure Schedule:
(a) There is
no labor strike, dispute, slowdown, or stoppage pending or threatened against
the Company or any of its Subsidiaries;
(b) No union
or other labor organization currently represents or has been elected to
represent the employees of the Company or any of its Subsidiaries;
(c) No
collective bargaining agreement is currently being negotiated and, to the
Company’s knowledge, no organizing effort is currently being made with respect
to the employees of the Company or any of its Subsidiaries; and
(d) Neither
the Company nor any of its Subsidiaries, nor any of their respective agents,
representatives or employees is now or, since January 1, 2002, has engaged in
any unfair labor practice, as defined in the National Labor Relations Act of
1947, as amended. There is not now pending or, to the Company’s knowledge,
threatened any charge or complaint against the Company or any of its
Subsidiaries by the National Labor Relations Board, any state or local labor or
employment agency or any representative thereof.
(a) Except as
set forth on Part
3.24 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries has
outstanding or is a party to or subject to liability under: (i) any
agreement, arrangement, plan, or policy, whether or not written and whether or
not considered legally binding, that involves (A) any pension, retirement,
profit sharing, deferred compensation, bonus, stock option, stock purchase,
phantom stock, health, welfare, or incentive plan; or (B) welfare or
“fringe” benefits, including without limitation vacation, severance, disability,
medical, hospitalization, dental, life and other insurance, tuition, company
car, club dues, sick leave, maternity, paternity or family leave, or other
benefits; or (ii) any employment, consulting, engagement, or retainer
agreement or arrangement ((i) and (ii) together the “Plans” and each item
thereunder a “Plan”). True, correct, and complete copies of all documents
creating or evidencing any Plan listed on Part
3.24 of the
Disclosure Schedule have been delivered to Buyer, including without limitation
plan amendments, current summary plan descriptions and any summaries of material
modifications.
28
(b) Each Plan
and related trust agreement, annuity contract or other funding instrument
complies in all material respects with, has been administered, operated and
maintained in all material respects in compliance with, its terms and in
compliance with, and neither the Company nor any of its Subsidiaries has any
direct or indirect liability under, the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”), the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended (“COBRA”), the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”), the Code or any other Law applicable to
any Plan. To the extent applicable with respect to each Plan, true, correct and
complete copies of Forms 5500 for the three most recent plan years, including
without limitation all schedules thereto, all financial statements with attached
opinions of independent accountants and all actuarial reports, trust agreements,
annuity contracts and other funding instruments have been delivered to Buyer.
Each Plan that is intended to qualify under Section 401(a) and Section 501(a) of
the Code has received a favorable determination letter from the Internal Revenue
Service (a copy of which has been made available to Buyer) and related trusts
have been determined to be exempt from taxation or is a prototype plan which has
received a favorable opinion letter from the Internal Revenue Service. Nothing
has occurred that would cause, and no Action is pending or threatened, which
could result in the loss of such exemption or qualification. Any employee
training and participant or other notices required by ERISA, HIPAA, COBRA, the
Code or any other Law with respect to each Plan have been timely
given.
(c) Neither
the Company nor any of its Subsidiaries (i) has made any contributions to
any multi-employer plan (as defined in ERISA) or to any pension plan subject to
the minimum funding standards of ERISA or Title IV of ERISA, (ii) has ever
been a member of a controlled group which contributed to any such plans and
(iii) has ever been under common control with an employer which contributed
to any such plans.
(d) Except as
set forth on Part
3.24 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries has
terminated or taken action to terminate (in whole or in part) any employee
benefit plans (as defined in ERISA) within the past three (3) years. All
employee benefit plan terminations have been carried out in accordance with all
provisions of the law and any rulings or regulations of any administrative
agency, including, without limitation, all applicable reporting and other
provisions of the Code and ERISA and with respect to the PBGC. Neither the
Company nor any of its Subsidiaries has any liability to or has received notice
alleging liability from any person or entity, including without limitation the
PBGC, any other government agency or any participant in or beneficiary of any
employee benefit plan, nor is the Company or any of its Subsidiaries liable for
any excise, income or other tax or penalty as a result of or in connection with
such termination. The Company and its Subsidiaries have obtained a favorable
determination letter from the Internal Revenue Services and, with respect to
each employee pension benefit plan subject to the jurisdiction of the PBGC, has
not received a notice of non-compliance from the PBGC with respect to the
termination of each of such pension plans as defined in ERISA Section 3(2),
true, complete and correct copies of which have been delivered to Buyer. The
favorable determination letters and PBGC approval were received after full and
accurate disclosure by the Company and its Subsidiaries of all material facts to
the appropriate government agencies. No “prohibited transaction” (as defined in
the Code or ERISA) has occurred or is threatened to occur with respect to any
Plan as to which the Company or any of its Subsidiaries, or the Plan, would be
liable or damaged in any material respect.
29
(e) Each of
the Plans which is a group health plan (as defined in Code Section 5001(b)) is
in compliance with the continuation of health benefit provisions contained in
COBRA, and with Section 1862(b)(4)(A)(i) of the Social Security Act, and such
other applicable provisions thereunder, and neither the Company nor any of its
Subsidiaries has any liability for any excise tax imposed by Code Section 5000.
Except as set forth on Part
3.24 of the
Disclosure Schedule or as required by COBRA, neither the Company nor any of its
Subsidiaries has any liability or obligation to provide life, medical or other
welfare benefits to former or retired employees.
(f) Each Plan
which is a welfare plan as defined in Section 3(1) of ERISA which is intended to
meet the requirements for tax-favored treatment under Subchapter B of Chapter 1
of the Code meets such requirements.
(g) Full
payment has been made of all amounts due under each of the Plans to each person
employed or formerly employed by the Company or any of its Subsidiaries that are
required under the terms of the Plans, and full payment will be made or accrued
on the Closing Balance Sheet of all amounts that are required to be so paid
through the Closing Date.
(h) All
contributions with respect to the Plans have been made on a timely basis in
accordance with ERISA and the Code, to the extent applicable, and, for all
periods ending prior to the Closing Date (including periods from the first day
of the current plan year to the Closing Date) will be made prior to the Closing
Date by the Company or its Subsidiaries and all members of the controlled group
in accordance with past practice.
(i) There
will be no incidence of severance payments or any other termination benefits,
including without limitation any acceleration of the time of payment or vesting
or increase in the amount of any compensation due or payment of any amount that
would not be deductible pursuant to Section 280G of the Code, for which Buyer or
the Company or any of its Subsidiaries will be responsible as a consequence of
the transactions contemplated hereby. Neither the Company nor any of its
Subsidiaries, nor any of their directors or officers or any Plan fiduciary has
any material liability for failure to comply with ERISA, HIPAA, COBRA or the
Code or for any action or failure to act in connection with the administration
or investment of any Plan. The Company and its Subsidiaries do not have any
liability by virtue of being a member of a controlled group with a person who
has liability under the Code or ERISA.
(j) There is
no pending or threatened legal action, proceeding, investigation or claim
against or involving any Plan described in Part
3.24 of the
Disclosure Schedule and (i) there is no basis for any legal action, proceeding
or investigation or other manner of litigation or claim and (ii) there are no
facts which could give rise to any legal action, proceeding or
investigation.
(k) All
expenses and liabilities relating to all of the Plans described on Part
3.24 of the
Disclosure Schedule have been, and will be on the Closing Date, fully and
properly accrued on the books and records of the Company and its Subsidiaries
and the Financial Statements reflect all of such liabilities in a manner
satisfying the requirements of Financial Accounting Standards 87 and
88.
30
(l) None of
the rights of the Company or any of its Subsidiaries under any Plan or related
trust agreement, annuity contract or other funding instrument will be impaired
by the consummation of the transactions contemplated by this Agreement and all
of the rights of the Company and its Subsidiaries thereunder will be enforceable
by Buyer at or after the Closing without the consent or agreement of any other
party. Except as set forth on Part
3.24 of the
Disclosure Schedule, each Plan (including any Plan covering former employees of
the Company or any of its Subsidiaries) may be unilaterally amended, varied,
modified or terminated in whole or in part by the Company or any of its
Subsidiaries or Buyer on or at any time after the Closing Date.
(m) Neither
the Company nor any of its Subsidiaries maintains any Plan or other benefit
arrangement covering any employee or former employee outside of the United
States and has never been obligated to contribute to any such plan.
(n) Set forth
on Part
3.24 of the
Disclosure Schedule are all nonqualified deferred compensation plans, within the
meaning of Code Section 409A(d)(1), in connection with which the Company or any
Subsidiary is a party or may have any liability. No obligation under any such
plan accrued to date will be subject to a gross income inclusion by reason of
Code Section 409A(a)(1) of the Code. No such plan has assets set aside directly
or indirectly in the manner described in Code Section 409A(b)(1) or contains a
provision that would be subject to Code Section 409A(b)(2).
3.25 Overtime, Back Wages, Vacation and Minimum. Except
as set forth on Part
3.25 of the
Disclosure Schedule, no present or former employee of the Company or any of its
Subsidiaries has given notice to the Company or any of its Subsidiaries of, and
there is no valid basis for, any claim against the Company or any of its
Subsidiaries (whether under Law, any employment agreement or otherwise) on
account of or for (a) overtime pay, other than overtime pay for the current
payroll period, (b) wages or salary (excluding current bonus, accruals and
amounts accruing under “employee benefit plans,” as defined in Section 3(3) of
ERISA) for any period other than the current payroll period, (c) vacation,
time off or pay in lieu of vacation or time off, other than that earned in
respect of the current fiscal year, or (d) any violation of any Law
relating to minimum wages.
3.26 Discrimination and Occupational Safety and Health. No
person or party (including, but not limited to, Government agencies of any kind)
has any valid claim, or valid basis for any action or proceeding, against the
Company or any of its Subsidiaries arising out of any Law relating to
discrimination in employment, employment practices (including wrongful
termination), family leave, or occupational safety and health standards. Neither
the Company nor any of its Subsidiaries has received any written notice from any
Government entity alleging a violation of occupational safety or health
standards. Except as set forth on Part
3.26 of the
Disclosure Schedule, there are no pending workers compensation claims involving
the Company or any of its Subsidiaries and there have never been any workers
compensation claims against the Company or any of its Subsidiaries relating to
the use or existence of asbestos in any of the products or facilities of the
Company or any of its Subsidiaries. The Company has delivered to Buyer a true,
correct and complete list of all workers compensation claims against the Company
or any of its Subsidiaries made since January 1, 2004.
3.27 Customers
and Suppliers.
Part
3.27 of the
Disclosure Schedule sets forth a true, complete and correct list of the 10
largest customers and the 10 largest suppliers of the Company and its
Subsidiaries, taken as a whole, by dollar volume of revenues and purchases,
respectively for the year ended December 31, 2004 and the 10 largest
customers of the Company and its Subsidiaries of buying agency services (by
commission income) for the year ended December 31, 2004. No supplier of the
Company or any of its Subsidiaries listed on Part
3.27 of the
Disclosure Schedule has notified the Company that it intends to stop or
materially decrease the rate of supplying materials, products or services to the
Company or any of its Subsidiaries. No customer of the Company or any of its
Subsidiaries listed on Part
3.27 of the
Disclosure Schedule has notified the Company that it intends to stop or
materially decrease the rate of buying products from the Company or any of its
Subsidiaries.
31
3.28 Product and Service Warranties. Except
as set forth on Part
3.28 of the
Disclosure Schedule, neither the Company nor its Subsidiaries gives product and
service warranties and guarantees. The aggregate loss and expense (including
out-of-pocket expenses) attributable to all product and service warranties and
guarantees and similar claims now pending against the Company or any of its
Subsidiaries with respect to products manufactured or services rendered on or
prior to the Effective Time will not exceed the amount of aggregate product and
service warranty reserves set forth on the Closing Balance Sheet.
3.29 Product
Liability Claims.
The
aggregate loss and expense (including out-of-pocket expenses) attributable to
all product liability and similar claims now pending against the Company or any
of its Subsidiaries with respect to products manufactured on or prior to the
Effective Time will not exceed the amount of the aggregate product liability
reserves set forth on the Closing Balance Sheet.
3.30 Escheat. Except as set forth on Part
3.30 of the
Disclosure Schedule, there is no property or obligation of the Company or any of
its Subsidiaries, including but not limited to uncashed checks to vendors,
customers, or employees, non-refunded overpayments, or unclaimed subscription
balances, that is escheatable to any state or municipality under any applicable
escheatment laws as of the date hereof or, to the Company’s knowledge, that may
at any time after the date hereof become escheatable to any state or
municipality under any applicable escheatment laws.
3.31 Product Safety Authorities. Since
January 1, 2002, neither the Company nor any Subsidiary has been required to
file any notification or other report with or provide information to any
Government or product safety standards group concerning actual or potential
defects or hazards with respect to any product manufactured, sold, distributed
or put in commerce by the Company or any of its Subsidiaries and, to the
Company’s knowledge, there exist no grounds for the recall of any such
product.
3.32 Foreign Operations and Export Control. At all
times the Company and each of its Subsidiaries has acted:
(a) pursuant
to valid qualifications to do business in all jurisdictions outside the United
States where such qualification is required by local Law;
32
(b) in
compliance with all material foreign Laws applicable to it, including without
limitation Laws relating to foreign investment, foreign exchange control,
immigration, employment and taxation;
(c) without
notice of violation of and in compliance with all relevant anti-boycott laws,
regulations and guidelines, including without limitation Section 999 of the Code
and regulations and guidelines issued pursuant thereto and the Export
Administration Regulations administered by the U.S. Department of Commerce, as
amended from time to time, including all reporting requirements;
(d) without
violation of any export control or sanctions laws, orders or regulations,
including without limitation the Export Administration Regulation administrated
by the U.S. Department of Commerce and sanctions and embargo executive orders
and regulations administered by the Office of Foreign Assets Control of the U.S.
Treasury Department, as amended from time to time, and without violation and in
compliance with any required export or reexport licenses or authorizations
granted under such laws, regulations or orders; and
(e) without
violation of the Foreign Corrupt Practices Act of 1977, as amended.
3.33 Customs. Except
as set forth on Part 3.33 of the Disclosure Schedule, since January 1, 1999,
each of the Company and its Subsidiaries (a) has acted without violation and in
compliance in all material respects with all customs Laws, including without
limitation the Tariff Act of 1930, as amended, (b) has not received any notice
alleging a violation and (c) has not been and is not currently the subject of a
focused assessment or other audit conducted by U.S. Customs and Border
Protection. No penalty or liquidated damages claims have been initiated by U.S.
Customs and Border Protection (formerly U.S. Customs Service) against the
Company and its Subsidiaries. The Company has no material liability in
connection with its customs compliance and buying agency practices.
3.34 Brokers
or Finders. Except
for Bear, no finder, broker, agent, or other intermediary, acting on behalf of
the Company or any of its Subsidiaries, is entitled to a commission, fee, or
other compensation or obligation in connection with the negotiation or
consummation of this Agreement or any of the transactions contemplated hereby.
None of the Company Persons is subject to any letter of intent, agreement,
understanding or commitment with any third party (other than Buyer) or its
agents representatives, written or unwritten, regarding any offer, proposal, or
indication of interest involving the purchase, sale or transfer (including but
not limited to, by means of a merger, recapitalization, joint venture or the
like) of all or a controlling portion of the equity interests of the Company or
any of its Subsidiaries or all or a material portion of the business or assets
of the Company or any of its Subsidiaries, and the Company Persons have
discontinued any negotiations with and furnishing of information to any such
third party or its agents or representatives.
33
REPRESENTATIONS
AND WARRANTIES RELATING TO BIC
Heritage
hereby makes the following representations and warranties to Buyer, each of
which is true and correct on the date hereof and, if the Closing occurs, on the
Closing Date (except for any representation or warranty that expressly relates
to an earlier date, in which case such representation and warranty is true and
correct as of such date), and each of which shall survive the Closing as
provided in Section 10.3.
4.1 Organization and Power. BIC is
a corporation duly formed, validly existing and in good standing under the laws
of the State of Delaware. BIC has all requisite corporate power and authority to
own, lease and use its assets and properties and to conduct the business in
which it is engaged and holds all authorizations, licenses and permits necessary
and required therefor.
4.2 Capitalization and Related Matters. The
capitalization of BIC is set forth on Part
4.2 of the
Disclosure Schedule. There are no outstanding options, warrants convertible or
exchange securities or other rights that would obligate BIC to issue additional
shares of capital stock. Except for Buyer’s rights hereunder and as set forth on
Part
4.2 of the
Disclosure Schedule, there are no outstanding securities of BIC or rights or
options to acquire securities of BIC, and BIC is not subject to any obligation
to issue, deliver, redeem, or otherwise acquire or retire the outstanding
securities. No individual or entity is entitled to the payment of any dividends
or other distributions from BIC after the date hereof on account of such
individual or entity’s ownership of securities on or before the date
hereof.
4.3 Non
Contravention. BIC is not a party to, subject to or bound by any note, bond,
mortgage, indenture, deed of trust, agreement, lien, contract or other
instrument or obligation or any statute, law, rule, regulation, judgment, order,
writ, injunction, or decree of any court, administrative or regulatory body,
governmental agency, arbitrator, mediator or similar body, franchise or license,
which would (i) conflict with or be breached or violated or the obligations
thereunder accelerated or increased (whether or not with notice or lapse of time
or both) by the execution, delivery or performance by it of this Agreement or
(ii) prevent the carrying out of the transactions contemplated hereby. The
execution of this Agreement and the consummation of the transactions
contemplated hereby will not result in the creation of any Liens against the
outstanding securities of BIC, BIC or any of its subsidiaries or any of the
properties or assets of BIC or any of its subsidiaries.
(a) BIC has
timely filed with the appropriate Government entity all Tax Returns. All Tax
Returns are true, correct, and complete in all material respects.
(b) All Taxes
(whether or not reflected on any Tax Return) due and owing by BIC have been
timely and fully paid or, if not yet due, accrued as liabilities for purposes of
paragraph (c) of this Section 4.4. Part
4.4(b) of the
Disclosure Schedule lists all jurisdictions where BIC files Tax
Returns.
34
(c) The
unpaid Taxes of BIC do not exceed the reserves and accruals for Taxes reflected
on the Closing Balance Sheet as a current liability and that are taken into
account in the adjusting the Purchase Price under Section 1.6.
(d) There are
no Liens for Taxes (other than for current Taxes not yet due and payable) upon
the assets of BIC.
(e) BIC has
complied with all Laws (as hereinafter defined) relating to the withholding of
Taxes and the payment thereof (including, without limitation, withholding of
Taxes under Section 1441 and 1442 of the Code, or any similar provision under
state, local, or foreign Law), and has timely and properly withheld from the
appropriate party and paid over to the proper Government entity all amounts
required to be withheld and paid over under applicable Law, including any
amounts paid or owing to any employee, independent contractor, creditor, member
or other third party.
(f) Except
for Section 5.1(a) of the LLC Agreement, BIC is not a party to or bound by any
Tax indemnity, Tax sharing or Tax allocation agreement or
arrangement.
(g) BIC (i)
has never been a member of an affiliated group of corporations, within the
meaning of Section 1504 of the Code, or (ii) does not have any liability for the
Taxes of any Person under Treasury regulation Section 1.1502-6 (or any similar
provision of state, local or foreign Law), as a transferee or successor, by
contract or otherwise.
(h) There are
no Government audits, examinations or investigations or administrative or
judicial proceedings being conducted with respect to BIC related to Taxes. BIC
has not received for any open period from any Government Tax authority
(including jurisdictions where BIC has not filed a Tax Return) any (i) notice
indicating an intent to open an audit or other review; (ii) request for
information related to Tax matters; or (iii) notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted, or assessed by any Tax
authority against BIC.
(i) There is
no waiver or tolling of any statute of limitations in effect with respect to any
Tax Returns nor has BIC agreed to an extension of time with respect to a Tax
assessment or deficiency.
(j) None of
the assets of BIC is a United States real property interest within the meaning
of Section 897 of the Code.
(k) True,
correct and complete copies of all Tax Returns, tax examination reports and
statements of deficiencies assessed against, or agreed to with respect to BIC
with the Internal Revenue Service or any taxing authority for any open period
have been made available to Buyer. To the extent required by law, BIC has
retained all records or other information (including any tax work papers) used
in the preparation of any Tax Returns, audits or other examinations relating to
liability for Taxes (including the preparation of Tax Returns for Taxable
periods or portions thereof ending on or before the Closing Date).
(l) Except as
a result of the sale of the shares of capital stock of BIC, no net operating
losses, net capital losses, built-in losses, built-in deductions (within the
meaning of Section 382(h)(6) of the Code), unused foreign tax credits or unused
investment or other credits of BIC and carryovers with respect to the foregoing
items are or have been subject to any limitations under Section 382, Section 383
or Section 384 Section of the Code or any Treasury regulation promulgated
thereunder (or any similar provision of state, local or foreign
Law).
35
(m) All
elections with respect to Taxes affecting BIC as of the date hereof that are not
reflected on any Tax Return are set forth in Part
4.4(m) of the
Disclosure Schedule. No new elections with respect to Taxes, or any changes in
current elections with respect to Taxes of BIC or affecting BIC shall be made
after the date of this Agreement without the prior written consent of Buyer
(which consent shall not be unreasonably withheld or delayed).
(n) Part
4.4(n) of the
Disclosure Schedule lists all material Tax holidays, abatements, incentives and
similar grants made or awarded to BIC by any Government.
(o) Set forth
on Part
4.4(o) of the
Disclosure Schedule is a tax balance sheet for BIC as of December 31, 2003. Such
Part is true, correct and complete in all material respects.
(p) BIC is
not a party to any agreement, contract, arrangement or plan that has resulted or
would result, separately or in the aggregate, in a payment that would not be
fully deductible as a result of Section 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code.
(q) BIC has
not made any payment to any person or to any entity described in Section 162(c)
of the Code or any similar provision under foreign Law. Neither the Internal
Revenue Service nor, to BIC’s knowledge, any other Government entity has
initiated or threatened any investigation of any payments made by BIC alleged to
have been of the type covered by this Section 4.4(q).
(r) None of
the assets of BIC is property that BIC is required to treat as being a “safe
harbor lease” within the meaning of Section 168(f)(8) of the Code, as in effect
prior to amendment by the Tax Equity and Fiscal Responsibility Act of
1982.
(s) None of
the assets of BIC directly or indirectly secures any debt the interest on which
is tax exempt under Section 103(a) of the Code. BIC is not the borrower or the
guarantor of any outstanding industrial revenue bonds, and BIC is not a tenant,
principal user or related person to any principal user within the meaning of
Section 144(a) of the Code of any property that has been financed or improved
with the proceeds of industrial revenue bonds.
(t) None of
the assets of BIC is “tax-exempt use property” within the meaning of Section
168(h) of the Code.
(u) BIC has
not agreed to, or is required to make, any adjustment under Section 481(a) of
the Code by reason of a change in accounting method, other than a change
required on account of the transactions contemplated by this Agreement, and the
Internal Revenue Service has not proposed any such adjustment or change in
accounting method. BIC has no pending private letter ruling request with the
Internal Revenue Service.
36
(v) BIC is
not, nor has ever been, a U.S. real property holding corporation within the
meaning of Section 897(c)(1)(A)(ii) of the Code, and BIC shall so certify upon
Buyer’s request.
(w) BIC does
not have an “overall foreign loss” within the meaning of Section 904(f) of the
Code.
(x) An
election under Section 754 of the Code was in effect when BIC acquired its
interest in the Company. BIC has not contributed any assets to the Company with
any variation between its value and its adjusted tax basis.
(y) Each
promissory note of BIC held by Heritage and listed on Part
4.6 of the
Disclosure Schedule has, and at the time of contribution by Heritage of such
promissory note to the capital of BIC will have, an adjusted tax basis equal to
its adjusted issue price.
(z) Except
for transactions contemplated by this Agreement, none of the representations in
this Section 4.4 shall apply with respect to transactions entered into by BIC
(or any election made with respect to BIC) after the Effective Time or on
account of any transactions entered into or election made by Buyer or its
affiliates after the Effective Time.
4.5 No
Business Activities. Except
for matters related to its formation, BIC has never conducted any business and
has never owned, leased or used any asset other than the Units held by
BIC.
4.6 Liabilities. BIC does not have any liabilities or obligations whatsoever,
whether known or unknown, accrued, absolute, contingent, unliquidated or
otherwise, and there is no basis for any such liability or obligation or any
claim in respect thereof, except under those certain promissory notes to
Heritage set forth on Part
4.6 of the
Disclosure Schedule which will, immediately prior to the Effective Time, be
contributed by Heritage to the capital of BIC.
4.7 Brokers,
Finders, Other Offers. Except for Bear, no finder, broker, agent, or other intermediary,
acting on behalf of BIC or any of its subsidiaries, is entitled to a commission,
fee, or other compensation or obligation in connection with the negotiation or
consummation of this Agreement or any of the transactions contemplated
hereby.
REPRESENTATIONS
AND WARRANTIES OF BUYER
Buyer
hereby makes the following representations and warranties to Sellers, each of
which is true and correct on the date hereof and, if the Closing occurs, on the
Closing Date, and each of which shall survive the Closing as provided in Section
10.3.
5.1 Authorization. Buyer is a corporation, duly organized, validly existing and in
good standing under the laws of the State of New York. Buyer has all requisite
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder, and to consummate the transactions contemplated hereby
and the execution, delivery and performance of this Agreement by Buyer has been
duly authorized by all requisite corporate action of Buyer. This Agreement
constitutes a valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms.
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5.2 Consents.
Except for the consents and approvals required to be obtained in
connection with filings required to be made pursuant to the HSR Act, no waiver
or consent of any third person or governmental authority is required for the
execution by Buyer of this Agreement, or the consummation by Buyer of the
transactions contemplated hereby.
5.3 Bridge
Financing. Buyer has received a commitment letter (the “Bridge Commitment
Letter”), dated as of March 14, 2005, from Banc of America Securities LLC and
Banc of America Bridge LLC (collectively, “Banc of America”), pursuant to which
Banc of America has committed, subject to the terms and conditions set forth
therein, to provide Buyer with bridge financing in connection with the
transactions contemplated by this Agreement, a copy of which has been provided
to the Company and the Sellers. Buyer has no current actual knowledge of any
circumstances that would cause a condition to not be satisfied under the Bridge
Commitment Letter at or prior to funding thereunder. Nothing contained in the
foregoing is intended to, or does, in any manner modify, alter, expand or
otherwise affect the requirements set forth in Section 8.6 of this
Agreement.
5.4 Brokers
or Finders. Except for Banc of America, no finder, broker, agent, or other
intermediary acting on behalf of Buyer is entitled to a commission, fee, or
other compensation or obligation in connection with the negotiation or
consummation of this Agreement or any of the transactions contemplated
hereby.
5.5 Securities
Laws. Buyer understands that the Purchased Securities are not
registered under the Securities Act of 1933, as amended, or any applicable state
securities laws and that any sale, transfer or other disposition of the
Purchased Securities by Buyer must be made only pursuant to an effective
registration under applicable federal and state securities laws or an available
exemption therefrom. Buyer has had such opportunity as it has deemed adequate to
obtain from Senior Management (as hereinafter defined) such information about
the business and affairs of the Company and its Subsidiaries as is necessary to
permit Buyer to evaluate the merits and risks of its investment in the Company.
Buyer has sufficient experience in business, financial and investment matters to
be able to evaluate the merits and risks involved in the purchase of the
Purchased Securities and to make an informed investment decision with respect to
such purchase. Buyer is an “accredited investor” as defined in Rule 501 of the
Securities Act of 1933, as amended. The Purchased Securities to be acquired by
Buyer pursuant to this Agreement will be acquired for Buyer’s own account for
investment purposes only and without any plans or intention to resell, transfer
or otherwise dispose of the Purchased Securities.
5.6 Other Arrangements with Sellers. Buyer
has delivered or will at the Closing deliver to the Sellers true, complete and
accurate copies of all written agreements and arrangements, and an accurate
description of each oral agreement or arrangement, currently existing or to be
entered into at or before the Closing between Buyer and Pentland, Fashion Shoe
Licensing, LLC or any of their respective Affiliates relating to the Xxxxxxx
Companies.
5.7 No Other Representations or Warranties of Sellers or the
Company. Buyer
acknowledges that none of the Company, the Sellers or any of their respective
Affiliates, directors, officers, managers, members, employees, consultants,
agents or advisors makes or has made any representation or warranty to Buyer or
its Affiliates regarding the Sellers, the Company or its Subsidiaries or any of
their respective businesses, except for the representations and warranties of
the Sellers and the Company expressly set forth in this Agreement and in the
documents and agreements being delivered to Buyer pursuant to Section 1.4 of
this Agreement.
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CERTAIN
COVENANTS REGARDING THE XXXXXXX COMPANIES
6.1 Conduct of Business of the Company. Except
as set forth in Part
6.1 of the
Disclosure Schedule or as otherwise expressly permitted by this Agreement or as
Buyer may otherwise consent to or approve in writing on and after the date
hereof and prior to the Closing Date, during the period from the date of this
Agreement to the Effective Time, each of the Xxxxxxx Companies shall operate in
the Ordinary Course of Business and in compliance in all material respects with
all Laws applicable to each and, to the extent consistent therewith, use
commercially reasonable efforts to preserve intact its current business
organization, to keep available the services of its current officers and other
key employees and to preserve its relationships with those persons having
business dealings with it to the end that its goodwill and ongoing business
shall be unimpaired at the Effective Time. Furthermore, unless Buyer shall
otherwise expressly consent in writing, each of the Xxxxxxx Companies shall use
its reasonable best efforts to: (i) keep in full force and effect insurance
comparable in amount and scope of coverage to insurance now carried by it; (ii)
pay all accounts payable and other obligations, when they become due and
payable, in the Ordinary Course of Business consistent with the past practices
and the provisions of this Agreement, except if the same are contested in good
faith, and, in the case of the failure to pay any material accounts payable or
other obligations which are contested in good faith, only after consultation
with Buyer. Without limiting the generality of the foregoing (but subject to the
above exceptions), during the period from the date of this Agreement to the
Effective Time, each of the Xxxxxxx Companies shall not:
(a) (i)
declare, set aside or pay any non-cash dividends on, or make any other
distributions in respect of, any of its securities, (ii) declare, set aside or
pay any cash dividends on any of its securities without notifying Buyer prior to
paying such dividends (iii) split, combine or reclassify any of its securities
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for its securities, (iv) purchase, redeem or
otherwise acquire any securities of BIC or the Xxxxxxx Companies or any rights,
warrants or options to acquire any such securities or (iv) make any other
actual, constructive or deemed non-cash distribution in respect of any
securities or otherwise make any non-cash payments to stockholders or members in
their capacity as such;
(b) issue,
deliver, sell, pledge or otherwise encumber or subject to any Lien, other than
any Permitted Lien, any limited liability company interests, any other
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such limited liability company interests, securities or
convertible securities;
(c) amend its
charter documents;
39
(d) acquire
or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the stock or assets of, or by any other manner, any
business or any person;
(e) sell,
lease, license, mortgage or otherwise encumber or subject to any Lien, other
than any Permitted Lien, or otherwise dispose of any of its material properties
or assets (including securitizations), other than in the Ordinary Course of
Business (but in no event to any Company Persons);
(f) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise become responsible for the obligations of any
person, or make any loans, advances or capital contributions to, or investments
in, any person, except in the Ordinary Course of Business;
(g) take, or
agree to commit to take, any action that would or is reasonably likely to result
in any of the conditions to the Closing set forth in Article IX not being
satisfied, or that would impair the ability of the Xxxxxxx Companies, Buyer, BIC
or the Sellers to consummate the transactions contemplated by this Agreement in
accordance with the terms hereof or delay such consummation;
(h) make any
individual capital expenditure in excess of $25,000, or expenditures that exceed
$100,000 in the aggregate, excluding capital expenditures relating to the
relocation of the Company’s principal offices to Needham,
Massachusetts;
(i) make or
revoke any Tax election, settle or compromise any Tax liability material to BIC
or to any of the Xxxxxxx Companies, or change (or make a request to any taxing
authority to change) its Tax or accounting methods, policies, practice or
procedures, except in each case as required by applicable law or generally
accepted accounting principles;
(j) except as
required under an existing Plan, (i) grant or commit to grant any employee,
member, director, officer, manager or agent of BIC or any of the Xxxxxxx
Companies, any increase in wages, bonus, severance, profit sharing, retirement,
insurance or other compensation or benefits (other than an increase in wages,
salaries, bonuses or employee benefits in the Ordinary Course of Business), (ii)
amend or terminate any Plan, except to the extent necessary to comply with
applicable law, (iii) establish any new compensation or benefit plan or
arrangement, or (iv) enter into any employment, consulting, retention,
termination, severance or collective bargaining agreement;
(k) revalue
any of its assets, including, without limitation, writing down the value of
inventory or writing-off notes or accounts receivable other than in the Ordinary
Course of Business or as required by GAAP;
(l) (i) enter
into any contract or agreement, other than in the Ordinary Course of Business,
or amend in any material respect any of the Material Contracts listed on
Part
3.12 of the
Disclosure Schedule other than in the Ordinary Course of Business; or (ii) enter
into any contract, agreement, commitment or arrangement providing for, or amend
any contract, agreement, commitment or arrangement to provide for, the taking of
any action that would be prohibited hereunder;
40
(m) pay,
discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the Ordinary Course of Business of liabilities
reflected or reserved against in the Balance Sheet or incurred in the Ordinary
Course of Business;
(n) settle or
compromise any pending or threatened suit, action or claim relating to the
transactions contemplated hereby;
(o) enter
into any agreement or arrangement that would limit or restrict the Company and
its affiliates or any successor thereto (including Buyer), from engaging or
competing in any line of business or in any geographic area; or
(p) authorize,
or commit or agree to take, any of the foregoing actions.
6.2 Notification of Certain Matters.
(a) The
Xxxxxxx Companies shall give prompt notice to Buyer if any of the following
occur after the date of this Agreement: (i) any written notice of a default or
event, occurrence, fact, condition, change, development or effect (“Event”)
which, with notice or lapse of time or both, would become a default under any
Material Contract listed on Part
3.12 of the
Disclosure Schedule; (ii) receipt of any written notice from any third party
alleging that the consent, approval, waiver or authorization of, notice to or
declaration or filing with, such third party is or may be required in connection
with the transactions contemplated by this Agreement; (iii) receipt of any
material written notice from any Government authority in connection with the
transactions contemplated by this Agreement; (iv) the occurrence of an event
which would have a Company Material Adverse Effect (as hereinafter defined) or
Company Material Adverse Change (as hereinafter defined); (v) the commencement
or threat of any Action involving or affecting BIC or the Xxxxxxx Companies, or
any of its property or assets which, if pending on the date hereof, would have
been required to have been disclosed in or pursuant to this Agreement or which
relates to the consummation of the transactions contemplated by this Agreement
or any material development in connection with any Action disclosed in or
pursuant to this Agreement; (vi) the occurrence of any Event after the date
hereof that would cause a breach by the Sellers of any provision of this
Agreement, including such a breach that would occur if such Event had taken
place on or prior to the date of this Agreement and (vii) the discovery by the
Sellers that any of their representations and warranties contained herein were
inaccurate in any material respect on the date hereof. “Company Material Adverse
Change” and “Company Material Adverse Effect” mean, respectively, any change or
effect that is or could reasonably be expected to be materially adverse to the
business, operations, assets, liabilities, or the business condition (financial
or otherwise) of the Company and its Subsidiaries, provided, that in no event
shall any of the following constitute a Company Material Adverse Change or a
Company Material Adverse Effect: (i) any change or effect resulting from
conditions affecting the industry in which the Company or any Subsidiary
operates or from changes in general business or economic conditions or (ii) any
change or effect resulting from the announcement or pendency of the transactions
contemplated by this Agreement.
41
(b) In
addition to, and not in lieu of, the foregoing, the Company may deliver to Buyer
no later than the end of the second (2nd) business day prior to the Closing Date
a true and complete schedule of changes (the “Update Schedule”) to any of the
information contained in the Disclosure Schedule (including changes to any other
representations or warranties relating to the Company in Article III hereof as
to which no Part of the Disclosure Schedule has been created as of the date
hereof but as to which a Part of the Disclosure Schedule would have been
required hereunder to have been created on or before the date hereof if such
changes had existed on the date hereof), which changes are required as a result
of events or circumstances occurring subsequent to the date hereof which would
render any representation or warranty inaccurate or incomplete at any time after
the date of this Agreement until the Closing Date, which Update Schedule shall
be dated as of the Closing Date; provided that, unless expressly consented to in
writing by Buyer, no such supplemental information to the Disclosure Schedule or
any delivery of an Update Schedule after the date hereof shall be deemed to cure
any breach of any representation or warranty made in this Agreement, or modify,
affect or diminish Buyer’s right to terminate this Agreement pursuant to 11.2,
and provided further that if such supplemental information relates to an event
or circumstance occurring subsequent to the date hereof (other than events or
circumstances which arise from a violation of Section 6.1) and if Buyer would
have the right to not consummate the transactions contemplated by this Agreement
as a result of the failure of the condition contained in Section 9.3(b) on the
basis of the information so disclosed and it does not exercise such right prior
to the Closing, then such supplemental information shall constitute an amendment
of the representation, warranty or statement to which it relates for purposes of
Article X of this Agreement. The final proviso of the foregoing sentence shall
not apply unless the Company has indicated in the Update Schedule that the
additions or changes appearing on the Update Schedule, individually or in the
aggregate, constitute a Company Material Adverse Effect or Company Material
Adverse Change that would entitle Buyer not to consummate the transactions
contemplated by this Agreement pursuant to Section 9.3(b), provided that nothing
herein shall obligate the Company to include such indication in the Update
Schedule.
6.3 Access
to Information; Confidentiality. To the
extent permitted by applicable law and subject to the Confidentiality Agreement
dated June 21, 2004, between Buyer and the Company (the “Confidentiality
Agreement”), the Xxxxxxx Companies shall afford to Buyer and to the officers,
employees, accountants, counsel, financial advisors and other representatives of
Buyer, reasonable access during normal business hours during the period prior to
the Effective Time to the Xxxxxxx Companies’ properties, books, contracts,
commitments, personnel and records and, during such period, the Xxxxxxx
Companies shall furnish promptly to Buyer all other information concerning its
business, properties and personnel as Buyer may reasonably request, provided
that no investigation pursuant to this Section 6.3 shall affect or modify any
representation or warranty given by the Sellers hereunder. Buyer agrees that it
shall coordinate its contacts with the Xxxxxxx Companies’ personnel (other than
the Senior Management) with a member of Senior Management or their designee, but
in any event such personnel shall be made available for such contacts at
reasonable times as requested by Buyer prior to the Effective Time. Buyer shall
hold, and shall cause its respective officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreement. For
purposes of this Agreement, “Senior Management” shall mean Xxxxx Xxxxxxxx, Xxxxx
Xxxxxx and Xxxxxxx Xxxxx.
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6.4 Commercially Reasonable Efforts; Cooperation. Upon
the terms and subject to the conditions set forth in this Agreement, BIC and the
Xxxxxxx Companies shall use commercially reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with Buyer in doing, all things reasonably necessary, proper or
advisable to consummate the transactions contemplated hereby, including, but not
limited to, (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Government authorities and the making of all
necessary registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Government authority, (ii) timely making all necessary
filings and responding to any request for additional information and documentary
materials issued under the HSR Act, (iii) the obtaining of all reasonably
necessary consents, approvals or waivers from third parties, (iv) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental authority vacated or reversed, and
(v) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated hereby and to fully carry out the
purposes of this Agreement.
(a) The
Xxxxxxx Companies shall (i) use commercially reasonable efforts to deliver to
Buyer (1) audited consolidated balance sheets of the Xxxxxxx Companies for the
fiscal years ended December 31, 2004 and December 31, 2003 and (2) audited
consolidated statements of earnings and of cash flows of the Xxxxxxx Companies
for the fiscal years ended December 31, 2004, December 31, 2003 and December 31,
2002, which, in each case, shall meet the requirements of Regulation S-X under
the Securities Act of 1933, as amended, and all other accounting rules and
regulations of the SEC promulgated thereunder applicable to a registration
statement of the Xxxxxxx Companies under such Act on Form S-1 (the “Required
Financials”); (ii) use commercially reasonable efforts to cause E&Y to
deliver such representations, reports, and consents related to the Required
Financials as are reasonably requested by Buyer in order to comply with the
rules and regulations of the SEC and other Laws applicable to Buyer and (iii) if
any pro forma financial statements are required by such SEC rules and
regulations or other Laws (the “Required Pro Forma Financials”), use
commercially reasonable efforts to, and use commercially reasonable efforts to
cause E&Y to, assist with and facilitate the completion of such Required Pro
Forma Financials. The Parties agree that the Xxxxxxx Companies’ obligations
under this Section 6.5(a) shall not include any payment to E&Y in respect of
any fees, costs or expenses associated with the preparation of the Required
Financials or the Required Pro Forma Financials to the extent that such fees,
costs or expenses are greater than the amount budgeted by the Xxxxxxx Companies
for completion of the audit of the Xxxxxxx Companies’ financial statements for
the year ended December 31, 2004, all of which shall be borne by Buyer. In the
event that the Closing does not occur on or before May 10, 2005, then the
Required Financials will also include (x) an unaudited consolidated balance
sheet of the Xxxxxxx Companies for the fiscal quarter ended March 31, 2005 and
(y) unaudited consolidated statements of earnings and of cash flows of the
Xxxxxxx Companies for the three-month period ended March 31, 2005.
43
(b) During
the period prior to the Closing Date, the Xxxxxxx Companies shall provide to
Buyer monthly consolidated balance sheets, statements of income, members’ equity
and cash flows as soon as practicable, but in no event later thirty (30) days
after the end of each month. Further, the Xxxxxxx Companies shall cooperate in
connection with the arrangement of Buyer’s financing including, without
limitation, (i) promptly providing to Buyer’s financing sources copies of the
Financial Statements and the Required Financials, (ii) providing access, upon
reasonable notice and during normal business hours, to Senior Management, (iii)
reasonably assisting in the preparation of one or more appropriate offering
documents, including causing E&Y to deliver customary comfort letters to
Buyer’s financing sources with respect to such offering documents, and assisting
Buyer’s financing sources in preparing other appropriate marketing materials, in
each case to be used in connection with such financing and (iv) using
commercially reasonable efforts to obtain such consents and approvals reasonably
requested by Buyer’s financing sources. The Parties agree that the Xxxxxxx
Companies’ obligations under this Section 6.5(b) shall not include any payment
to E&Y in respect of any fees, costs or expenses associated with the
preparation of the Required Financials, or to Buyer’s financing sources in
respect of any fees, costs or expenses associated with such financing, all of
which (in each case) shall be borne by Buyer.
6.6 Compliance. In consummating the transactions contemplated hereby, the Xxxxxxx
Companies shall comply in all material respects with all Laws applicable to
each.
6.7 No
Solicitation. Prior to
the Closing Date or the earlier termination of this Agreement, none of the
Sellers, BIC, the Xxxxxxx Companies or the officers, managers, employees,
representatives and agents of BIC or the Xxxxxxx Companies will, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information) or take any other action designed or reasonably likely to
facilitate, any inquiries or competing offers for the acquisition of the
Purchased Securities, or the sale of all or substantially all of the assets or
business of BIC or of any of the Xxxxxxx Companies, (ii) discuss or negotiate
with respect to any unsolicited offer or indication of interest with respect to
any such acquisition or sale or (iii) enter into any agreement or agreement in
principle with respect to any such acquisition or sale.
COVENANTS
OF THE SELLERS
7.1 Covenant Not to Disclose or Hire. In
consideration of the Purchase Price and the consummation of the transactions
contemplated hereby:
(a) Each
Seller (except, in the case of the succeeding clause (ii)(B), Pentland and
Xxxxxxx Xxxxx, as to which such clause shall have no applicability) agrees that
he or she shall not:
(i) Use or
disclose to anyone except authorized personnel of the Company, whether or not
for such Seller’s benefit or otherwise, any trade secrets or confidential
matters concerning the Company, including, without limitation, secrets, customer
lists and credit records, employee data, sales representatives and their
territories, mailing lists, consultant arrangements, pricing policies,
operational methods, marketing plans or strategies, product development and
techniques or plans, research and development programs and plans, business
acquisition plans, new personnel acquisition plans, designs and design projects,
any Company Intellectual Property (unless previously publicly disclosed in a
manner which would not and does not constitute a breach of this Agreement or any
other relevant agreement) and any other research or business information
concerning the Company which the Company currently deems to be confidential
(whether or not a trade secret under applicable law); provided, that nothing
contained in this clause (i) shall be deemed to have altered or modified any of
the rights granted to, or obligations of, Pentland under or relating to any
agreement(s) by and between the Company or any of its Subsidiaries and Pentland
listed on Part
3.19(a) of the
Disclosure Schedule; and, provided further, that nothing contained in this
clause (i) shall prohibit any Seller from making such disclosure as (x) is
required by law (in which case, prior to such disclosure the Seller required to
make such disclosure shall give the Company notice and an opportunity to obtain
a protective order against such disclosure), (y) is required (and then only to
the extent necessary) to enforce such Seller’s rights under this Agreement, the
Earnout Agreement or the Escrow Agreements or (z) to which the Company consents
in writing; or
44
(ii) (A)
Directly or indirectly during the two year period following from the Closing
Date solicit, encourage to leave employment, or hire any officer or any sales
management, line-builder or product design employee
of the Company or any of its Subsidiaries or any person who at the time of
proposed hire by such Seller had been an officer or a sales management,
line-builder or product design employee of the Company or any of its
Subsidiaries within the previous twelve (12) months (a “Covered Employee”);
provided, however, that no Seller will be restricted from making any general
solicitation for employees or engaging in public advertising of employment
opportunities (including through the use of employment agencies) not
specifically directed to any of the Covered Employees and, provided further,
that no Seller shall be restricted from hiring any person whose employment with
the Company or any of its Subsidiaries is terminated by Buyer, the Company or
any of its Subsidiaries, other than for cause (as reasonably determined by
Buyer), following the Closing Date, or (B) directly or indirectly during the two
year period following the Closing Date induce or attempt to induce, or assist
anyone else to induce or attempt to induce, any customer of the Company to
reduce or discontinue its business with the Company or disclose to anyone else
the name and/or requirements of any such customer. Notwithstanding anything to
the contrary contained in this Subsection 7.1(a)(ii), with respect to Heritage
or any investment funds under common management with Heritage (the “Related
Funds”), (x) ownership in a competing business, (y) providing funded
indebtedness to a competing business, or (z) service as a director or in a
similar role with respect to any such investment by representatives of Heritage
or the Related Funds shall not be a breach of the covenants contained in this
Subsection 7.1(a)(ii).
(b) Each
Seller acknowledges that the foregoing restrictions (except, in the case of the
foregoing clause (ii)(B), Pentland and Xxxxxxx Xxxxx, as to which such clause
shall have no applicability) are reasonable and agrees that in the event of any
breach thereof the harm to Buyer and the Company will be irreparable and without
adequate remedy at law and therefore that injunctive relief with respect thereto
will be appropriate. In the event that a court of competent jurisdiction
determines, in an action brought by or on behalf of Buyer or the Company, that
any of the foregoing provisions are unenforceable as stated, the Parties intend
that such restrictions be modified to permit the maximum enforceable restriction
on each Seller’s competition with the Company.
45
(a) Except as
provided in Section 8.3, after the Effective Time, each Seller and BICO
Owner hereby agrees that it, he or she shall not make any claim for
indemnification against Buyer, BIC, the Company, any of the Subsidiaries of the
Company or any of their respective affiliates by reason of the fact that such
Seller or BICO Owner is or was a shareholder, member, director, manager,
officer, employee or agent of the such entities or is or was serving at the
request of any such entity or any of its affiliates as a partner, manager,
trustee, director, officer, employee or agent of another entity (whether such
claim is for judgments, damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses or otherwise and whether such claim is pursuant to
any statute, charter document, bylaw, agreement or otherwise) with respect to
any action, suit, proceeding, complaint, claim or demand brought against any
Seller or BICO Owner pursuant to this Agreement or otherwise, and each Seller
and BICO Owner hereby acknowledges and agrees that it or he shall not have any
claim or right to contribution or indemnity from any of BIC, the Company, any of
the Subsidiaries of the Company or any of their respective affiliates with
respect to any amounts paid by it or him pursuant to Article X of this
Agreement. Effective upon the Closing, each Seller and BICO Owner hereby
irrevocably waives, releases and discharges BIC, the Company, any of the
Subsidiaries of the Company or any of their respective affiliates from any and
all liabilities and obligations to it or him of any kind or nature whatsoever,
whether in its or his capacity as a shareholder, manager, member, officer or
director of BIC, the Company or any of the Subsidiaries of the Company or
otherwise, in each case whether absolute or contingent, liquidated or
unliquidated, known or unknown, and whether arising under any agreement or
understanding (other than this Agreement and any of the other agreements
executed and delivered by Buyer in connection herewith) or otherwise at law or
equity, and each Seller or BICO Owner agrees that it or he shall not seek to
recover any amounts in connection therewith or thereunder from any of BIC, the
Company, any of the Subsidiaries of the Company or any of their respective
affiliates; provided, that the waivers contained in this Section 7.2(a) shall
not apply to (i) claims against Buyer under this Agreement, the Earnout
Agreement or the Escrow Agreements, (ii) with respect to Pentland, any
agreement(s) by and between the Company or any of its Subsidiaries and Pentland
listed on Part
3.19(a) of the
Disclosure Schedule, or (iii) liabilities relating to the employment by the
Company of any Seller or BICO Owner pursuant to the agreements listed on
Part
3.19(a) or
otherwise relating to the payment or provisions of wages, salaries, bonuses,
benefits, expense reimbursements and perquisites due to such employees incurred
in the Ordinary Course of Business prior to Closing, or (iv) any claims first
arising following Closing.
(b) As a
material inducement to the Sellers to enter into this Agreement, as of the
Effective Time, each Seller does hereby fully and unconditionally release and
forever discharge each other Seller and, as applicable, its present and former
officers, directors, employees, stockholders, managers, partners, principals,
agents, attorneys, representatives, predecessors, successors and assigns, and
all other persons acting by, through, under or on behalf of any of the
foregoing, from and against any and all actions, causes of action, proceedings,
agreements, contracts, torts, obligations, debts, liens, liabilities, claims,
demands, costs and expenses of every kind, whether in law, equity or otherwise,
whether known or unknown, whether fixed or contingent (the “Seller Claims”),
which such Seller ever had, has or may have, existing on or before the execution
of this Agreement from the beginning of time to the Effective Time, which arise
from or relate in any way to the Xxxxxxx Companies or such Seller’s ownership of
the portion of the Purchased Securities held by him, her or it. This general
release of Seller Claims includes, without implication of limitation, (i) all
Seller Claims based upon actions or omissions (or alleged actions or omissions)
that have occurred up to the Effective Time, regardless of ripeness or other
limitations on immediate pursuit of any such Seller Claim in the absence of this
Agreement, (ii) all Seller Claims relating to the transactions contemplated
hereby, and (iii) all Seller Claims for breach of fiduciary duty against any
Seller relating to or arising out of the aforementioned matters. Nothing
contained in this Section 7.2(b) shall be construed (i) to impair any party’s
right to enforce the terms of this Agreement, the Earnout Agreement or the
Escrow Agreements, or (ii) to affect in any manner any rights or obligations of
Buyer or the Xxxxxxx Companies. For the avoidance of doubt, if the Closing does
not occur, the releases provided for in this Section 7.2(b) shall be of no
effect.
46
(c) Effective
upon the Closing, Buyer hereby irrevocably waives, releases and discharges
Pentland from any and all liabilities and obligations of the Xxxxxxx Companies,
whether in its capacity as a member, controlling person or otherwise, and Buyer
agrees that it shall not seek to recover any amounts in connection therewith
from Pentland. Further, effective upon the Closing, Buyer hereby irrevocably
waives, releases and discharges Pentland from any and all liabilities and
obligations owed to the Xxxxxxx Companies arising at any time prior to the
Closing, except for (i) breaches by Pentland of (A) this Agreement, (B) the
License Agreement between Fashion Shoe Licensing, LLC and Xxxxxxx Footwear Group
LLC effective as of November 13, 1998, as amended, or (C) any other contractual
obligations or commitments of Pentland to any of the Xxxxxxx Companies, (ii) any
action or inaction by Pentland that breaches any duty or obligation owed to any
of the Xxxxxxx Companies or (iii) any intentional misconduct, fraudulent conduct
or act of bad faith on the part of Pentland.
ADDITIONAL
COVENANTS OF THE PARTIES
8.1 Confidentiality. Buyer shall not issue a press release or make any public
disclosure of the terms hereof or the transactions contemplated hereby without
the prior written consent of a Seller Majority, except for the filing of any
current or periodic report with the SEC announcing the signing of this
Agreement, the consummation of the transactions contemplated by this Agreement
or including this Agreement, the Required Financial Statements or the Required
Pro Forma Financial Statements in, or as an exhibit to, any such report and as
otherwise required by Law, in which case a Seller Majority shall have the
opportunity to review and comment prior to disclosure. None of the Sellers shall
issue a press release or make any public disclosure of the terms hereof or the
transactions contemplated hereby without the prior written consent of Buyer,
except as required by Law, in which case Buyer shall have the opportunity to
review and comment prior to disclosure.
8.2 Further
Assurances. From and after the Closing, the Parties shall do such acts and
execute such documents and instruments as may be reasonably required to make
effective the transactions contemplated hereby; provided, that Pentland shall be
bound by the foregoing covenant only insofar as it relates to actions taken by
Pentland its capacity as a Seller, and not to actions taken by Pentland while
acting in any other capacity.
8.3 Directors’ and Officers’ Indemnification.
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(a) In the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative (each, a “Proceeding”),
in which any person who is now, or has been at any time prior to the Closing, a
manager, director or officer of BIC, the Company or any Subsidiary (the
“Indemnified Executives”) is, or is threatened to be, made a party thereto by
reason of the fact that such person was a manager, director or officer of BIC,
the Company or any Subsidiary, or acting in such capacity as the trustee or
administrator of any Plan, the Company shall indemnify and hold harmless such
person from and against any and all losses, claims, damages, liabilities, costs,
expenses (including reasonable attorney’s fees and expenses in advance of the
final disposition of any Proceeding to each Indemnified Executive to the fullest
extent permitted by law), judgments, fines and amounts paid in settlement
incurred in connection with or arising out of any Proceeding as provided in this
Section 8.3; provided, that such indemnification shall not apply to any
Proceeding (a) brought by any Seller or BICO Owner or (b) brought by a Buyer
Indemnified Person pursuant to Article X hereof; and, provided further, that if
it is finally judicially determined that any liability of the Company or a
Subsidiary in a Proceeding arose out of the Indemnified Executive’s gross
negligence, willful misconduct or failure to act in good faith in the belief
that such person’s actions were in or not inconsistent with the best interests
of BIC, the Company or Subsidiary, as applicable, the Indemnified Executive will
reimburse the Company for all amounts reasonably paid or incurred in the defense
of the Indemnified Executive in connection with such Proceeding.
(b) An
Indemnified Executive shall notify the Company of the existence of a Proceeding
for which such Indemnified Executive is entitled to indemnification hereunder as
promptly as reasonably practicable after such Indemnified Executive learns of
such Proceeding; provided that the
failure to so notify shall not affect the obligations of the Company under this
Section 8.3 except to the extent such failure to notify actually prejudices the
Company. The Company, at its expense, shall control the defense of the
Proceeding with counsel selected by the Company. The Indemnified Executive and
the Company shall cooperate fully with each other in connection with the defense
of any Proceeding. No settlement of a Proceeding may be made by the Company
without the Indemnified Executive’s consent, except for a settlement which
requires no more than a monetary payment for which the Indemnified Executive is
fully indemnified, and which does not require the admission of
liability.
(c) The
provisions of this Section 8.3 are intended to be for the benefit of, and
enforceable by, each Indemnified Executive and such Indemnified Executive’s
estate, administrators, executors, heirs and representatives, and shall
constitute the sole source of indemnification rights that any such person may
have against BIC, the Company or any Subsidiary.
(d) The
obligations of the Company under this Section 8.3 shall continue in full force
and effect for a period commencing as of the Effective Time and ending as of the
date that all applicable statute of limitation periods have expired for any
matter for which an Indemnified Executive may be entitled to indemnification
under this Section 8.3; provided,
however, that all rights to indemnification in respect of any matter for which
indemnification under this Section 8.3 has been asserted or made within such
period shall continue until the final disposition of such matter.
48
(a) All
transfer, documentary, sales, use, stamp, registration and other such Taxes and
all conveyance fees, recording charges and other fees and charges (including any
penalties and interest) incurred in connection with consummation of the
transactions contemplated by this Agreement shall be paid equally by the
Sellers, on the one hand, and the Buyer, on the other hand, when due, and the
Sellers will, at their own expense, file all necessary Tax Returns and other
documentation with respect to all such Taxes, fees and charges, and if required
by applicable law, Buyer will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation.
(b) The
Representative, on behalf of the Sellers, shall prepare or cause to be prepared,
and file or cause to be filed, all Tax Returns of the Xxxxxxx Companies for any
Taxable period ending on or before the Closing Date (“Pre-Closing Periods”)
based on closing the books with respect to the Xxxxxxx Companies as of the
Closing Date. Such Tax Returns will be prepared in a manner consistent with
prior Tax Returns of the Xxxxxxx Companies to the extent permitted by applicable
law. Buyer shall approve such Tax Returns prior to filing, which approval shall
not be unreasonably withheld or delayed. All Taxes payable with respect to these
Pre-Closing Period Tax Returns, except to the extent paid prior to the Closing
Date (including estimated tax payments) or included in the Closing Balance Sheet
as a current liability on the Closing Balance Sheet that is taken into account
in determining the Purchase Price under Section 1.6 hereof shall be borne by the
Sellers (other than Pentland). No Xxxxxxx Company shall file any amended Tax
Return or claim for refund with respect to any Pre-Closing Period without the
consent of the Representative, which consent shall not be unreasonably withheld
or delayed. The Representative only may file an amended return or claim for
refund on behalf a Xxxxxxx Company for any Pre-Closing Period, and may do so
only with the consent of Buyer, which consent shall not be unreasonably withheld
or delayed. The Xxxxxxx Company in question shall execute any document
reasonably necessary to file and prosecute such amended return or claim for
refund. Except to the extent any refund is reflected as an asset on the Closing
Balance Sheet and is taken into account in determining the Purchase Price in
Section 1.6, any refund of Taxes paid with respect to any Pre-Closing Period of
a Xxxxxxx Company shall belong to the Sellers (other than Pentland) entirely,
and the Xxxxxxx Company shall promptly pay over to the Representative, for the
benefit of the Sellers (other than Pentland), any such refund for distribution
pursuant to Section 1.10(a) hereof.
(c) Buyer
shall prepare or cause to be prepared, and file or cause to be filed, all Tax
Returns (including any and all schedules which comprise such return) of the
Xxxxxxx Companies for Taxable periods commencing on or before the Closing Date
and ending after the Closing Date (a “Straddle Period”). Sellers (other than
Pentland) shall pay (or cause to be paid from the Escrow Funds) to the affected
Xxxxxxx Company within fifteen (15) days after the date on which Taxes are paid
with respect to such Straddle Periods an amount equal to the portion of such
Taxes that relates to the Taxable period ending on the Closing Date (“Seller
Period”), except to the extent such Taxes are paid by the Xxxxxxx Companies or
Sellers prior to Closing, including amounts paid in respect of estimated Taxes
relating to the Seller Period, or are included in the Closing Balance Sheet as a
current liability on the Closing Balance Sheet that is taken into account in the
Purchase Price adjustment under Section 1.6 hereof. For the purposes of this
Section 8.4(c), in the case of any Taxes that are imposed on a periodic basis
and are payable for a Straddle Period, the portion of such Tax that relates to
the Seller Period shall (i) in the case of any Taxes other than Taxes imposed
upon or related to income or receipts, be deemed to be the amount of such Tax
for the entire Taxable period multiplied by a fraction, the numerator of which
is the number of days in the Taxable period up to and including the Closing
Date, and the denominator of which is the number of days in the entire Taxable
period, and (ii) in the case of any Tax based upon or related to income or
receipts, be deemed to be equal to the amount that would be payable if the
relevant Taxable period ended at the end of the Closing Date. Any credits
relating to a Straddle Period shall be taken into account as though the relevant
Taxable period ended at the end of the Closing Date. Notwithstanding the
foregoing, the Tax consequences of any transaction occurring on the Closing Date
that are caused to occur by Buyer and not incurred in the Ordinary Course of
Business with respect to a Straddle Period shall not be treated as occurring
during the Seller Period. All determinations necessary to give effect to the
allocations described in this Section 8.4(c) shall be made in a manner
consistent with the prior practice of the Xxxxxxx Companies, except for changes
required by law or fact. No Xxxxxxx Company shall file any amended return or
claim for refund with respect to any Straddle Period without the prior written
consent of the Representative, which consent shall not be unreasonably withheld.
Any refund of Taxes paid with respect to any Straddle Period shall be allocated
among the Sellers (other than Pentland) and Buyer in the same proportions as
their shares of Taxes (allocated separately in the same manner as Taxes are
allocated pursuant to this Section 8.4(c)). Each Xxxxxxx Company shall promptly
pay over to the Representative, for the benefit of the Sellers (other than
Pentland), any refund that such Xxxxxxx Company may receive of any Taxes paid
with respect to any Straddle Period.
49
(d) Buyer and
the Sellers (other than Pentland) agree to furnish or cause to be furnished to
each other, upon request, as promptly as practical, such information (including
reasonable access to books and records, Tax Returns and Tax filings) and
assistance as is reasonably necessary for the filing of any Tax Return, the
conduct of any Tax audit, and for the prosecution or defense of any claim, suit
or proceeding relating to any Tax matter. Buyer and the Sellers (other than
Pentland) shall cooperate with each other in the conduct of any Tax audit or
other Tax proceedings and each shall execute and deliver such powers of attorney
and other documents as are reasonably necessary to carry out the intent of this
Section 8.4. Any Tax audit or other Tax proceeding shall be deemed to be a Third
Person claim subject to the procedures set forth in Article X of this
Agreement.
(e) For the
avoidance of doubt, the Parties confirm that Pentland has no rights, liabilities
or obligations under the provisions of Section 8.4(b), (c) or (d) and that the
rights, liabilities or obligations under such Sections shall be exclusively for
the benefit of, or borne by, the Sellers other than Pentland.
(f) The
provisions of Section 8.4(b), (c) and (d) shall apply to BIC in the same manner
as to the Xxxxxxx Companies, except that, (i) in each place in which it appears,
the words “Sellers” and “Representative” shall be deleted and the word
“Heritage” shall be inserted in lieu thereof, (ii) the words “Xxxxxxx Companies”
shall be deleted and the word “BIC” shall be inserted in lieu thereof, and (iii)
any modifiers of any of the foregoing words shall be omitted or changed as the
context may require to indicate that the affected company is solely BIC. The
parties acknowledge and agree that, among other things, BIC will amend its
income tax returns to take account of certain deductions available to it for
Pre-Closing Periods and not previously claimed, and will seek refunds of prior
overpayments of income taxes during such periods.
50
8.5 Employee Severance Plan. In
order to induce the employees of the Company and the Subsidiaries to remain
employed, the parties agree that the Company may establish a severance plan
consistent with the following terms and such other terms to be mutually agreed
upon by Buyer and the Company:
(a) The plan
will provide that if the employment of an employee is terminated (other than as
a result of death or Disability) (i) by the Company or a Subsidiary without
Cause or (ii) by the employee for Good Reason, in either case within one year
after the Closing, the Company will pay the employee on the Company’s regularly
scheduled payroll dates, payments equal to the greater of (A) two weeks’ base
salary for each full year (not to exceed 26 years) that the employee was
employed by the Company or a Subsidiary and (B) four weeks’ base salary;
provided that, an employee who is entitled to severance or salary continuation
benefits of any kind pursuant to a separate written agreement, plan or
arrangement with the Company or a Subsidiary shall not be entitled to a benefit
under this severance plan.
(b) For
purposes of such severance plan, “Cause” shall mean that the employee (i)
committed an act of fraud, embezzlement or breach of fiduciary duty, or any
material act of dishonesty or misappropriation relating to the Company or its
affiliates, (ii) was convicted of, or pleaded guilty or nolo
contendere to any
felony or any other crime involving moral turpitude, (iii) engaged in gross or
persistent misconduct relative to the affairs of the Company or a Subsidiary or
(iv) repeatedly failed to follow the reasonable direction of the Company
regarding the employee’s duties.
(c) For
purposes of such severance plan, “Disability” shall mean illness (mental or
physical) or accident which results in the employee being unable to perform such
employee’s normal duties as an employee of the Company for three
months.
(d) For
purposes of such severance plan, “Good Reason” shall mean (i) a material
diminution in the employee’s job duties, (ii) a reduction in the employee’s base
salary, (iii) a material reduction in the employee’s benefits, relative to
similarly situated employees of the Company, or (iv) the Company requiring the
employee to be based at any office or location that is more than 30 miles from
the Company’s office at which the employee is employed as of the
Closing.
(e) Such
severance plan shall provide that the Company’s obligation to make payments is
subject to receipt from the employee of a release relating to the termination of
the employee’s employment in a form reasonably acceptable to the
Company.
(f) Such
severance plan shall be drafted to be an “employee welfare benefit plan” as
defined in Section 3(1) of ERISA.
(g) The
Parties agree that Buyer shall have no liabilities or obligations under this
Section 8.5 in the event that the Closing does not occur, and that Pentland
shall have no liabilities or obligations under this Section 8.5 regardless of
whether the Closing occurs or does not occur.
51
8.6 Reasonable Efforts. All
Parties agree to act in good faith and to use commercially reasonable efforts to
obtain the satisfaction of the conditions specified in this Agreement necessary
to consummate the transactions contemplated hereby.
8.7 Bridge
Funding. Buyer agrees that if all other conditions to its obligations to
consummate the transactions contemplated hereby are satisfied other than the
condition set forth in Section 9.3(e), Buyer will request that Banc of America
fund the bridge financing under the Bridge Commitment Letter pursuant to the
terms thereof.
CONDITIONS
PRECEDENT
9.1 Conditions to Each Party’s Obligations. The
respective obligations of each party to effect the transactions contemplated
hereby shall be subject to the fulfillment or waiver at or prior to the
Effective Time of the following conditions:
(a) No
Injunction or Action. No
order, statute, rule, regulation, executive order, stay, decree, judgment or
injunction shall have been enacted, entered, promulgated or enforced by any
court or other Government authority, which prohibits or prevents the
consummation of the transactions contemplated hereby and which has not been
vacated, dismissed or withdrawn by the Effective Time. The Company and Buyer
shall use their commercially reasonable efforts to have any of the foregoing
vacated, dismissed or withdrawn by the Effective Time.
(b) Governmental
Approvals. All
consents listed and marked with an asterisk on Part
3.4 of the
Disclosure Schedule shall have been obtained.
(c) HSR
Act. Any
waiting period applicable to the transactions contemplated by this Agreement
under the HSR Act shall have expired or earlier termination thereof shall have
been granted and no action shall have been instituted by either the United
States Department of Justice (“DOJ”) or the Federal Trade Commission (“FTC”)to
prevent the consummation of the transactions contemplated by this Agreement or
to modify or amend such transactions in any material manner, or if any such
action shall have been instituted, it shall have been withdrawn or a final
judgment shall have been entered against such DOJ or FTC, as the case may
be.
9.2 Conditions to Obligations of the Sellers. The
obligation of the Sellers to effect the transactions contemplated hereby shall
be subject to the fulfillment at or prior to the Effective Time of the following
additional conditions, any one or more of which may be waived by a Seller
Majority:
(a) Performance
of Obligations; Representations and Warranties. Buyer
shall have performed in all material respects each of its agreements contained
in this Agreement and the Escrow Agreements required to be performed on or prior
to the Closing Date; unless the failure to perform any such obligation on or
prior to the Closing Date would not have, individually or in the aggregate, a
material adverse effect on Buyer; each of the representations and warranties of
Buyer contained in this Agreement shall be true and correct on and as of the
Closing Date as if made on and as of such date (other than representations and
warranties which address matters only as of a certain date which shall be true
and correct as of such certain date), unless the failure to be true and correct
on and as of the Closing Date or such other date would not have, individually or
in the aggregate, a material adverse effect on Buyer, in each case except as
contemplated or permitted by this Agreement, and the Company shall have received
a certificate, dated the Closing Date, from Buyer, signed on behalf of Buyer, by
a duly authorized officer of Buyer, to such effect.
52
(b) Deliveries. Buyer
shall have made and tendered, or caused to be made and tendered, delivery of all
of the items required by Section 1.5 and such other customary documents,
instruments or certificates as shall be reasonably requested by the Company and
as shall be consistent with the terms of this Agreement.
9.3 Conditions to Obligations of Buyer. The
obligations of Buyer to effect the transactions contemplated hereby shall be
subject to the fulfillment at or prior to the Effective Time of the following
additional conditions, any one or more of which may be waived by
Buyer:
(a) Performance
of Obligations; Representations and Warranties. Each of
the Parties hereto other than Buyer shall have performed in all material
respects each of its agreements contained in this Agreement required to be
performed on or prior to the Closing Date, unless the failure to perform any
such obligation on or prior to the Closing Date would not have, individually or
in the aggregate, a Company Material Adverse Effect; each of the representations
and warranties of each of such other Parties hereto contained in this Agreement
shall be true and correct on and as of the Closing Date as if made on and as of
such date (other than representations and warranties which address matters only
as of a certain date which shall be true and correct as of such certain date),
unless the failure to be true and correct on and as of the Closing Date or such
other date would not have, individually or in the aggregate, a Company Material
Adverse Effect; in each case except as contemplated or permitted by this
Agreement, and Buyer shall have received certificates, dated the Closing Date,
from (i) each of such other Parties hereto, signed on behalf of each such other
Party, by such Party or a duly authorized officer of such other Party, and (ii)
each of the President and Chief Executive Officer and the Chief Financial
Officer of the Company, to such effect.
(b) No
Material Adverse Change. Since
the date of this Agreement, there shall have been no Company Material Adverse
Change, and Buyer shall have received a certificate dated the Closing Date,
signed on behalf of the Company by each of the President and Chief Executive
Officer and the Chief Financial Officer of the Company that, to the knowledge of
such officers, there has been no Company Material Adverse Change.
(c) Required
Consents. All
consents and approvals relating to the Company required to be obtained from
third parties under Material Contracts listed and marked with an asterisk on
Part
3.13 of the
Disclosure Schedule shall have been obtained and be in full force and effect.
Buyer shall have received a copy of all such consents and
approvals.
(d) No
Pending Action. There
shall not be instituted, pending or threatened any action, investigation or
proceeding by any Government authority, and there shall not be instituted,
pending or threatened any action or proceeding by any other person, domestic or
foreign, before any Government authority, which is reasonably likely to be
determined adversely to Buyer, (A) challenging or seeking to make illegal, to
delay materially or otherwise, directly or indirectly, to restrain or prohibit
the consummation of the transactions contemplated hereby, seeking to obtain
material damages or imposing any material adverse conditions in connection
therewith or otherwise, directly or indirectly relating to the transactions
contemplated hereby, (B) seeking to restrain, prohibit or delay the exercise of
full rights of ownership or operation by Buyer or its affiliates of all or any
portion of the business or assets of Company and its Subsidiaries, taken as a
whole, or of Buyer or any of its affiliates, or to compel Buyer or any of its
affiliates to dispose of or hold separate all or any material portion of the
business or assets of Company, or of Buyer or any of its affiliates, (C) seeking
to impose or confirm material limitations on the ability of Buyer or any of its
affiliates to exercise full rights of the ownership of the limited liability
company interests of the Company, (D) seeking to require divestiture by Buyer or
any of its affiliates of the limited liability company interests of the Company,
or (E) that otherwise would reasonably be expected to have a Company Material
Adverse Effect.
53
(e) Financing. Banc of
America shall have funded under the Bridge Commitment Letter.
(f) Receipt
of Required Financials. Buyer
shall have received the Required Financials.
(g) Deliveries. The
Sellers shall have made and tendered, or caused to be made and tendered,
delivery of all of the items required by Section 1.4 and such other customary
documents, instruments or certificates as shall be reasonably requested by Buyer
and as shall be consistent with the terms of this Agreement.
INDEMNIFICATION
10.1 Indemnification of Buyer.
(a) Each
Seller shall severally, and not jointly, hold Buyer, BIC, the Xxxxxxx Companies,
and the shareholders, directors, members, managers, officers, successors,
assigns, and agents of each of them (excluding the Sellers) (the “Buyer
Indemnified Persons”), harmless and each shall severally, and not jointly,
indemnify each of them from and against and, except pursuant to Section 8.3,
each Seller hereby waives any claim for contribution or indemnity from any of
the Buyer Indemnified Persons with respect to, any and all claims, losses,
damages, liabilities, expenses or costs (“Losses”), plus reasonable attorneys’
fees and expenses incurred in connection with Losses (in all, “Indemnified
Losses”) incurred or to be incurred by any of them resulting from or arising out
of (i) any breach or violation of the representations and warranties
contained in Articles II, III and IV of this Agreement or (ii) any breach or
violation of such Seller’s or the Xxxxxxx Companies’ covenants or agreements
contained in this Agreement or any document delivered pursuant hereto, including
the provisions of this Article X; provided that Pentland shall not be obligated
to indemnify the Buyer Indemnified Persons with respect to breaches of Article
III or breaches by the Xxxxxxx Companies’ of their covenants and agreements
contained in this Agreement or any document delivered pursuant
hereto.
54
(b) Each
Seller (other than Pentland) shall severally, and not jointly, hold the Buyer
Indemnified Persons harmless and each shall severally, and not jointly,
indemnify each of them from and against liabilities of the Company or any of its
Subsidiaries for the Taxes of the Company or any of its Subsidiaries or the
liability of the Company or any of its Subsidiaries, if any (for example, by
reason of transferee liability, application of Section 1374 of the Code, Treas.
Reg. Section 1.1502-6 or any other provision of Law) for Taxes of others,
including, but not limited to, the Sellers or any affiliate of any of the
Sellers, or damage or Indemnified Losses payable with respect to Taxes claimed
or assessed against the Company or any of its Subsidiaries (i) for any taxable
period (or portion thereof) ending on or before the Closing Date or as a result
of this transaction except to the extent and in such amount as such Taxes (x)
have been paid prior to the Closing Date by a Seller, the Company or any
Subsidiary or (y) are reflected as a liability in the Closing Balance Sheet and
taken into account in determining the Purchase Price under Section 1.6, or (ii)
for any taxable period resulting from a breach by any of the Sellers of any of
the representations or warranties contained in Sections 3.8 (Taxes) or 4.4
(Taxes) hereof.
(c) Heritage
shall severally, and not jointly, hold the Buyer Indemnified Persons harmless
and indemnify each of them from and against liabilities of BIC for BIC’s Taxes
or the liability of BIC, if any (for example, by reason of transferee liability,
application of Section 1374 of the Code, Treas. Reg. Section 1.1502-6 or any
other provision of Law) for Taxes of others, including, but not limited to,
Heritage or any affiliate of Heritage, or damage or Indemnified Losses payable
with respect to Taxes claimed or assessed against BIC (i) for any taxable period
(or portion thereof) ending on or before the Closing Date or as a result of this
transaction except to the extent and in such amount as such Taxes (x) have been
paid prior to the Closing Date by a Seller, the Company or any Subsidiary or (y)
are reflected as a liability in the Closing Balance Sheet and taken into account
in determining the Purchase Price under Section 1.6, or (ii) for any taxable
period resulting from a breach by Heritage of any of the representations or
warranties contained in Section 4.4 hereof.
(d) Each
Seller (other than Pentland) shall severally, and not jointly, hold the Buyer
Indemnified Persons harmless and each shall severally, and not jointly,
indemnify each of them from and against liabilities of BIC, the Xxxxxxx
Companies, Buyer and its affiliates for Indemnified Losses arising from or
related to the presence, manufacture, generation, refining, processing,
distribution, use, sale, treatment, recycling, receipt, storage, disposal,
transport, handling, emission, leak, dumping, discharge, release or threatened
release of Hazardous Materials at, on, about, beneath, above, to, into, or from
the Environmental Property prior to the Closing Date, including, without
limitation, (i) the migration offsite of Hazardous Materials that are present
prior to the Closing Date from the Environmental Property and (ii) any liability
or obligation under Environmental Laws arising as a result of events occurring
or conditions existing prior to the Closing Date with respect to, or arising out
of, the Environmental Property. Notwithstanding anything to the contrary
contained in this Article X, the Sellers shall not be obligated to indemnify or
hold harmless Buyer with respect to Indemnified Losses under this Section
10.1(d) or for a breach of the representations and warranties contained in
Section 3.21 except to the extent that such Indemnified Losses represent amounts
actually incurred by the Company, any Subsidiary, or Buyer for: (A) the
performance of any remedial, removal or other response or restoration action,
the payment of any fine, penalty, expenses, costs, or damages ordered,
determined or awarded by any court or governmental agency, and/or a reasonable
settlement of a claim of noncompliance with or liability under any Environmental
Laws asserted by any governmental agency or any third party against the Company,
any Subsidiary or Buyer or its affiliates; or (B) the performance of remedial,
removal, restoration or response action in connection with the Environmental
Property required by law and customarily taken in the exercise of sound
management practices by businesses that are similar to Buyer.
55
(e) With
respect to any indemnity payment under this Section 10.1, the Parties agree to
treat, to the extent permitted by Law, all such payments as an adjustment to the
consideration paid for the sale and transfer of the Purchased
Securities.
(f) In the
event any Seller breaches such Seller’s obligations under this Article X, Buyer
shall have the right to offset any amounts owed to Buyer under this Article X
against any Earnout Amounts due and payable to such Seller, or which become due
and payable to such Seller pursuant to the Earnout Agreement hereto; provided,
that pending the resolution of any disputes regarding whether or not any such
breach has occurred, Buyer shall pay into escrow any Earnout Amounts otherwise
due and payable to such Seller that Buyer would have the right to offset
pursuant to this subparagraph (f) if such dispute is resolved in its
favor.
(g) All
materiality qualifications contained in the representations and warranties set
forth in this Agreement, and in the initial paragraph of Section 6.1, including,
without limitation, the terms “Company Material Adverse Effect” and “Company
Material Adverse Change” shall be ignored and not given effect for purposes of
determining whether the thresholds in Sections 10.4(a) and (b) have been
surpassed, or determining the amount of any Indemnified Losses, provided that
the foregoing shall not apply to the terms “Material Contract” and “Permitted
Liens” and any materiality standard or qualification contained in Sections 3.6,
3.7, 3.9(b), 3.17, 3.27 and 3.34.
10.2 Indemnification of Sellers. Buyer
shall hold each Seller and each Seller’s heirs, devisees, legatees, legal
representatives, shareholders, directors, members, managers, officers,
successors, assigns, and agents of each of them (the “Seller Indemnified
Persons”), harmless and indemnify each of them from and against any and all
Indemnified Losses incurred or to be incurred by any of them resulting from or
arising out of any breach or violation of Buyer’s representations, warranties,
covenants and agreements contained in this Agreement or any documents delivered
pursuant hereto, including the provisions of this Article X. With respect to any
indemnity payment under this Section 10.2, the Parties agree to treat, to the
extent permitted by Law, all such payments as an adjustment to the consideration
paid for the sale and transfer of the Purchased Securities.
10.3 Survival. The respective representations and warranties of, and any claim
arising out of the covenants (other than the Specified Pre-Closing Covenants (as
hereinafter defined)) to be performed prior to the Closing Date by, the Parties
contained in this Agreement shall survive the Closing Date but shall expire at
11:59 p.m. on the later of (a) the first anniversary of the Closing Date
and (b) the date that is fifteen business days following the completion of the
audit of the Buyer’s consolidated financial statements including the Company and
its Subsidiaries, for the fiscal year ended February 3, 2006 (but in no event
later than May 31, 2006), except that (A) any claim with respect thereto that
shall have been made pursuant to Section 10.5 (Notice of Claim; Satisfaction of
Claim) or Section 10.6 (Right to Contest Claims of Third Persons) prior to such
date against the Party or Parties responsible for indemnification hereunder
(collectively, the “Indemnifying Party”), shall survive until resolved, and (B)
(i) the representations and warranties under Articles II and IV and
Sections 3.3 (Capitalization and Related Matters), 3.8 (Taxes), 3.9(a)(iv)
(subsection of section entitled Assets and Real Property), 3.13(Validity of
Contracts) but only with respect to those agreements set forth on Part
10.3 of the
Disclosure Schedule, 3.14(d)(i) (subsection of section entitled Intellectual
Property), 3.21 (Environmental Matters), 3.24 (Employee Benefit Matters), 3.33
(Customs) and 3.34 (Brokers or Finders) shall survive until the expiration of
the applicable statutes of limitation, including any suspensions, tollings or
extensions thereof, and except that no claim may be brought for a breach of the
covenants contained in Section 6.5 after the Closing Date. As used
herein, “Specified Pre-Closing Covenants” means the pre-closing covenants to be
performed by the Sellers and the Xxxxxxx Companies contained in (x) clauses (a),
(b), (c), (d), (h), (i), (j), (n) and (o) of Section 6.1 and (y) Section
6.7.
56
(a) The Buyer
Indemnified Persons shall not be entitled to indemnification for any single Loss
(or series of related Losses) which is less than $30,000; provided, that (i)
claims arising out of Sections 10.1(b) or (c) with respect to income Taxes and
(ii) Losses arising out of (A) breaches of the representations and warranties
under Articles II and IV and Sections 3.3 (Capitalization and Related Matters,
3.8 (Taxes) (with respect to income Taxes only), 3.9(a)(iv) (subsection of
section entitled Assets and Real Property), 3.13(Validity of Contracts) but only
with respect to those agreements set forth on Part
10.3 of the
Disclosure Schedule, 3.14(d)(i) (subsection of section entitled Intellectual
Property), 3.33 (Customs) and 3.34 (Brokers or Finders), (B) breaches of the
Specified Pre-Closing Covenants and (C) breaches of covenants to be performed
after the Closing, shall not be subject to the preceding $30,000 threshold
limitation. For purposes of this Section, Losses shall not be treated as
unrelated solely because the Losses relate to Taxes with respect to more than
one jurisdiction.
(b) The Buyer
Indemnified Persons shall not be entitled to indemnification for Losses unless
such Losses (excluding Losses for which indemnification would not be available
as a result of clause (a) above) exceed $1,000,000 in the aggregate, but then to
the full extent of such Losses (including the first $1,000,000 of such Losses);
provided, that (i) claims arising out of Sections 10.1(b) or (c) and (ii) Losses
arising out of (A) breaches of the representations and warranties under Articles
II and IV and Sections 3.3 (Capitalization and Related Matters), 3.8 (Taxes),
3.9(a)(iv) (subsection of section entitled Assets and Real Property),
3.13(Validity of Contracts) but only with respect to those agreements set forth
on Part
10.3 of the
Disclosure Schedule, 3.14(d)(i) (subsection of section entitled Intellectual
Property), 3.33 (Customs) and 3.34 (Brokers or Finders), (B) breaches of the
Specified Pre-Closing Covenants and (C) breaches of covenants to be performed
after the Closing, shall not be subject to the preceding $1,000,000 threshold
limitation.
(c) The Buyer
Indemnified Persons shall not be entitled to indemnification for Indemnified
Losses under Section 10.1(a)(i) for breaches of the representations or
warranties made in Articles II, III and IV, under Section 10.1(a)(ii) for
breaches of covenants or agreements to be performed prior to the Closing Date
(other than the Specified Pre-Closing Covenants) or under Section 10.1(d) of
this Agreement to the extent such Indemnified Losses, together with all other
Indemnified Losses recovered by Buyer Indemnified Persons under such Sections
exceed $21,000,000. Without limiting the generality of the foregoing, the
Parties hereto agree and acknowledge that Indemnified Losses for breaches of
Sellers’ representations and warranties contained in Articles II and IV and
Sections 3.3 (Capitalization and Related Matters), 3.8 (Taxes), 3.9(a)(iv)
(subsection of section entitled Assets and Real Property), 3.13(Validity of
Contracts) but only with respect to those agreements set forth on Part
10.3 of the
Disclosure Schedule, 3.14(d)(i) (subsection of section entitled Intellectual
Property), 3.24 (Employee Benefit Matters), 3.33 (Customs) and 3.34 (Brokers or
Finders) shall not be subject to the preceding limitation; provided, that the
maximum liability of any Seller under this Article X (other than with respect to
breaches of covenants to be performed following the Closing) or otherwise shall
in no event exceed such Seller’s Pro Rata Share of the Purchase Price plus such
Seller’s Pro Rata Share of the Earnout Amount earned pursuant to the Earnout
Agreement.
57
(d) The
Sellers shall not be obligated to indemnify or hold harmless the Buyer
Indemnified Persons with respect to any Losses to the extent that a reserve
corresponding to such Losses has been included on the Closing Balance Sheet as a
liability and taken into account in determining the Purchase Price under Section
1.6.
(e) The
Sellers shall have no obligation to indemnify or hold harmless the Buyer
Indemnified Persons for consequential damages, punitive damages or other similar
items, it being agreed that the prohibition on consequential damages (i) shall
not preclude damages taking into account that the Purchase Price was in part
determined using a multiplier of the Company’s cash flows and (ii) shall
preclude damages arising after the Closing Date as a result of changes in
Buyer’s or the Xxxxxxx Companies’ relationships with, or purchasing habits of,
any current customer or supplier of the Company and its Subsidiaries (whether or
not listed on Part 3.27 of the Disclosure Schedule).
(f) No Seller
shall be liable for any Indemnified Loss (other than with respect to a breach by
such Seller of the representations and warranties contained in Article II or IV
or a breach or violation of covenants or agreements contained in Article VII, as
applicable) under Section 10.1 in excess of such Seller’s Pro Rata Share of each
such Indemnified Loss. For purposes of the Sellers’ indemnification obligations
in Section 10.1, a Seller’s “Pro Rata Share” shall be determined in proportion
to the number of Common Units sold (directly or indirectly) by such Seller to
Buyer, and a BICO Owner’s “Pro Rata Share” shall be determined as provided in
Section 11.3; provided, that, with respect to indemnification obligations with
respect to breaches of Article III or breaches by the Xxxxxxx Companies’ of
their covenants and agreements contained in this Agreement or any document
delivered pursuant hereto, the calculation of any Seller’s Pro Rata Share shall
exclude from the denominator thereof the number of Common Units sold by Pentland
to Buyer. For purposes of this Agreement, it is understood that Heritage is
selling its shares of capital stock of BIC to Buyer, which represent an indirect
interest in the Preferred and Common Units of the Company held by Heritage, and
Heritage’s Pro Rata Share shall be determined as if it had transferred Units
directly to Buyer.
(g) In
determining the foregoing thresholds and in otherwise determining the amount of
any Indemnified Loss for which a Buyer Indemnified Person is entitled to assert
a claim for indemnification hereunder, the amount of any such Indemnified Loss
shall be determined (A) by deducting the amount of any insurance proceeds and
other third party recoveries actually received by any Buyer Indemnified Person
in respect of such Indemnified Loss (which recoveries the Buyer Indemnified
Persons agree to use, or to cause the Company or any such Subsidiary to use,
commercially reasonable efforts to obtain) and (B) as being net of the present
value of any tax benefit realized by any Buyer Indemnified Person and to include
the amount of the present value of any tax detriment incurred by any Buyer
Indemnified Person arising as a result of such Indemnified Loss. For purposes of
calculating the net present value of any tax benefit or tax detriment, the
marginal combined income tax rate shall be 41% and the discount rate shall be
10%. If an indemnification payment is received by any Buyer Indemnified Person,
and any Buyer Indemnified Person later receives insurance proceeds, other third
party recoveries in respect of the related Indemnified Losses, the Buyer
Indemnified Parties shall promptly refund any such amounts (net of reasonable
expenses incurred by the Buyer Indemnified Person in collecting the same) to the
extent that (and then only to the extent that) the Buyer Indemnified Person has
received benefits from both sources (i.e., payments of indemnity damages from
the Sellers and such insurance proceeds) in excess of the amount of Indemnified
Losses incurred by or asserted against the Sellers. Nothing herein shall require
a Buyer Indemnified Person to pursue the obtaining of any insurance proceeds
prior to seeking and/or obtaining the indemnification for Indemnified Losses
pursuant to the terms of this Article X.
58
10.5 Notice of Claim; Satisfaction of Claim.
(a) In the
event that a Buyer Indemnified Person or a Seller Indemnified Person seeks
indemnification hereunder, such person seeking indemnification (the “Indemnified
Party”) shall give written notice to the Indemnifying Party specifying the facts
constituting the basis for such claim and the amount, to the extent known, of
the claim asserted. The Indemnifying Party shall respond to each such claim
within fifteen (15) business days after the Indemnified Party provides notice to
the Indemnifying Party of such claim.
(b) If the
Indemnifying Party disputes the validity or amount of any such claim, the
Indemnifying Party shall so notify the Indemnified Party in writing within
fifteen (15 business days after the Indemnified Party provides notice to the
Indemnifying Party of such claim, specifying in reasonable detail the points of
disagreement. Upon receipt of such notice of dispute, the Indemnified Party
shall promptly consult with the Indemnifying Party with respect to such points
of disagreement in an effort to resolve the dispute. If any such dispute cannot
be resolved by the Indemnified Party and Indemnifying Party within 30 calendar
days after the Indemnified Party receives the notice of dispute, then either of
such parties can xxx the other party in a court of competent jurisdiction in
accordance with Section 11.13 hereof.
59
10.6 Right to Contest Claims of Third Persons. If an
Indemnified Party believes that it is entitled to indemnification hereunder
because of a claim (a “Third Person Claim”) asserted by any claimant other than
an Indemnified Party (a “Third Person”), the Indemnified Party shall give the
Indemnifying Party prompt notice thereof after such assertion is actually known
to the Indemnified Party; provided, however, that the right of a person to be
indemnified hereunder in respect of Third Person Claims shall not be adversely
affected by a failure to give such notice unless, and then only to the extent
that, an Indemnifying Party is prejudiced thereby. In the event that the Third
Person Claim seeks recovery of damages in an amount which either (i) is less
than one hundred fifty percent (150%) of the maximum remaining amount of
Indemnified Losses for which Sellers may be liable to indemnify the Buyer
Indemnified Persons hereunder or (ii) could result in Indemnified Losses of at
least $150,000 for which Sellers may be liable to indemnify the Buyer
Indemnified Persons hereunder (in either case, a “Special Third Person Claim”),
then the Indemnifying Party shall have the right, upon written notice to the
Indemnified Party, to assume the defense of such Special Third Person Claim
provided that the Indemnifying Party has unconditionally acknowledged to the
Indemnified Party in writing its obligation to indemnify the persons to be
indemnified hereunder with respect to such Special Third Person Claim, subject
to the applicable limitations on indemnification contained herein. Thereafter,
the Indemnified Party may participate in (but not control) the defense of any
Special Third Person Claim with its own counsel at its own expense; provided,
however, that if separate representation of the Indemnified Party in connection
with such Special Third Person Claim is necessary to avoid a conflict of
interest, and the Indemnified Party is so advised, in writing, by counsel, such
representation shall be at the expense of the Indemnifying Party; provided
further, that if injunctive relief is being sought by the Third Person against
the Indemnified Party in connection with such Special Third Person Claim, then
that portion of the Special Third Person Claim for which injunctive relief is
being sought shall, at the option of the Indemnified Party, be controlled by the
Indemnified Party at the expense of the Indemnifying Party. If the Indemnifying
Party is obligated hereunder to pay the fees and expenses of counsel for the
Indemnified Party, in no event will the Indemnifying Party be liable for the
fees and expenses of more than one counsel (and local counsel) for all
Indemnified Parties. To the extent the proposed settlement of any Special Third
Person Claim involves amounts in excess of the Sellers’ indemnification
obligation hereunder, such settlement shall be subject to the written consent of
Buyer, unless such consent is unreasonably withheld or delayed. The failure of
the Indemnifying Party to respond in writing to the aforesaid notice of the
Indemnified Party with respect to any Special Third Person Claim within twenty
business days after receipt thereof shall be deemed an election not to defend
the same. If the Indemnifying Party does not so acknowledge its obligation to
indemnify and assume the defense of any such Special Third Person Claim, and
with respect to all Third Person Claims which are not Special Third Person
Claims, (a) the Indemnified Party may assume and control the defense of
such claim by appropriate means, including, but not limited to, settling such
claim (subject to the written consent of the Indemnifying Party, unless such
consent is unreasonably withheld or delayed), on such terms as the Indemnified
Party may reasonably deem appropriate, provided and, subject to the
60
10.7 Remedies
Exclusive. Except
for covenants and agreements contained herein to be performed after the Closing
(the “Post-Closing Obligations”), and except in the case of Fraud by a Party,
the remedies provided in this Article X shall be the exclusive remedies of the
Parties after the Closing in connection with the transactions contemplated by
this Agreement, including without limitation any breach or non-performance of
any representation, warranty, covenant or agreement contained herein. Except in
the event of Fraud, no Party may commence any suit, action or proceeding against
any other Party with respect to the subject matter of this Agreement or the
transactions contemplated hereby, whether in contract, tort or otherwise, except
to enforce such Party’s rights under Post-Closing Obligations or this Article X,
or equitable and specific performance remedies. As used herein, “Fraud” means
knowing misrepresentation made with the intention of causing material harm to
the other party. Any party alleging Fraud shall bear the burden of proving the
existence of Fraud.
10.8 Contribution
Among Sellers. The
Sellers (other than Pentland), amongst themselves, agree that (a) all
indemnification obligations of the Sellers (other than Pentland) hereunder in
respect of breaches of representations and warranties (other than under Articles
II or IV) or of covenants of the Xxxxxxx Companies to be performed prior to the
Closing shall be borne by them in proportion to their Pro Rata Shares and (b) in
the event that Buyer makes an indemnification claim under the provisions of this
Agreement referred to in the preceding sentence against fewer than all of the
Sellers, and the Seller or Sellers against which a claim is made are obligated
to make indemnification payments in respect of such claim, the Sellers (other
than Pentland) agree to make such payments among themselves as are necessary to
cause all such indemnification obligations of the Sellers (other than Pentland),
and reasonable expenses incurred to defend such claims, to be borne by the
Sellers (other than Pentland) in proportion to their Pro Rata Shares. Any Seller
required to make payment in accordance with the foregoing sentence will also
bear the reasonable costs incurred by any other Seller in collecting such
amounts (including attorney’s fees and disbursements).
MISCELLANEOUS
PROVISIONS
11.1 Notice. All notices, requests, demands, and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given and made upon being delivered either by courier
or fax delivery to the Party for whom it is intended, provided that a copy
thereof is deposited, postage prepaid, certified or registered mail, return
receipt requested, in the United States mail, bearing the address shown in this
Section 11.1 for, or such other address as may be designated in writing
hereafter by, such Party:
If to
Buyer:
Xxxxx
Shoe Company, Inc.
0000
Xxxxxxxx Xxxxxx
Xx.
Xxxxx, Xxxxxxxx 00000
Attention:
Xxxxxxx X. Xxxxxxxxxx, Esq.
Facsimile:
(000) 000-0000
With a
copy to:
00
Xxxxx
Xxxx XXX
Xxx
Xxxxxxxxxxxx Xxxxxx, Xxxxx 0000
000 Xxxxx
Xxxxxxxx
Xx.
Xxxxx, Xxxxxxxx 00000
Attention:
Xxxxxxx X. Xxxxxxxx, Esq.
Facsimile:
(000) 000-0000
If to
Representative or Heritage:
c/o
Heritage Partners Management Company, LLP
00 Xxxxx
Xxxxx, Xxxxx 000
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attention:
Xxxxx X. Xxxxxxx
Facsimile:
(000) 000-0000
With a
copy to:
Xxxxxx,
Xxxx & Xxxxxxx LLP
Exchange
Place
00 Xxxxx
Xxxxxx
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attention:
Xxxxxxx X. X. Xxxxx, P.C.
Facsimile:
(000) 000-0000
If to
Pentland:
Pentland
U.S.A., Inc.
0000 Xxx
Xxxx Xxxx Xxxx
Xxxxx
X0X
Xxx Xxxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxxx X. Shar
Facsimile:
(000) 000-0000
With a
copy to:
Xxxxx
Xxxxx Xxxx & Maw LLP
0000
Xxxxxxxx
Xxx Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxx X. Xxxxxxx, Esq.
Facsimile:
(000) 000-0000
62
If to
BICO or any BICO Owner:
c/o BICO
Business Trust
000
Xxxxxxxx Xxxxxx
Xxxxxxx,
Xxxxxxxxxxxxx 00000
Attention:
Xxxxx Xxxxxx
Facsimile:
(000) 000-0000
With a
copy to:
Seyfarth
Xxxx LLP
World
Trade Center Xxxx
Xxx
Xxxxxxx Xxxx, Xxxxx 000
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attention:
Xxxxxxx X. Xxxxx, Esq.
Facsimile:
(000) 000-0000
By giving
notice to the Representative in the manner provided by this Section 11.1, Buyer
shall be deemed to have given notice to all of the Sellers (other than
Pentland)for all purposes of this Agreement. If to any particular Seller, to
such Seller’s address as set forth above, or if not set forth above, to the most
recent address for such Seller as set forth on the Company’s books and
records.
11.2 Termination.
Prior to Closing this Agreement may only be terminated by (a)
mutual written consent of all of the Parties hereto; or (b) the Representative,
at the direction of a Seller Majority, on the one hand or Buyer on the other
hand, by written notice, if (i) the Closing shall not have occurred on or before
June 30, 2005, other than as a result of the breach of this Agreement by the
Party seeking to so terminate this Agreement, or (ii) the other Party shall have
committed a material breach of a covenant contained in this Agreement which
prevents the satisfaction of the conditions to the Closing set forth in Article
IX, or (iii) a court of competent jurisdiction or governmental authority shall
have issued an order, decree or ruling or taken any other action (which order,
decree or ruling the Parties hereto shall use their best efforts to lift) in
each case restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby, and such order, decree, ruling or other action shall have
become final and nonappealable. In the event of any termination of the Agreement
as provided in this Section 11.2, this Agreement shall forthwith become wholly
void and of no further force and effect and there shall be no liability on the
part of Buyer or Sellers, except with respect to any breach of this Agreement
occurring prior to termination and except that the penultimate sentence of
Section 6.3 and the Confidentiality Agreement referred to in Section 6.3 shall
survive any such termination of this Agreement.
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11.3 Guarantee. Each BICO Owner hereby severally, and not jointly, guarantees
that BICO will fully perform all of its obligations under the Agreement. It is
the intention of this guarantee that each BICO Owner be severally, and not
jointly, liable for the payment when due of the amounts payable by BICO under
this Agreement and the timely performance of the obligations of BICO under this
Agreement, severally, and not jointly, with BICO and as if each BICO Owner were
BICO, provided, that no BICO Owner shall be liable for any amount in excess of
such BICO Owner’s Pro Rata Share of such amount. A BICO Owner’s “Pro Rata Share”
shall be determined in proportion to the number of shares of BICO held (directly
or indirectly) by such BICO Owner to the number of shares of BICO issued and
outstanding. This guarantee may be enforced against each BICO Owner
independently, and without need for any demand upon or exercise of any remedies
against BICO, any requirement for which is hereby expressly waived by each BICO
Owner; provided, that no claim against any BICO Owner shall be brought under
this Section 11.3 unless such claim is brought against all BICO Owners, and no
offer of settlement with respect to any such claim shall be made to any BICO
Owner unless the same offer is made to all BICO Owners.
11.4 Entire
Agreement. This Agreement, the Disclosure Schedule, the Escrow Agreements,
the Earnout Agreement, the Exhibits hereto and the other documents and
certificates delivered in connection herewith embody the entire agreement and
understanding of the Parties with respect to the subject matter hereof, and
supersede all prior agreements and understandings relative to such subject
matter. Unless expressly provided otherwise, information set forth on any
Schedule to this Agreement shall be deemed to qualify the other sections of this
Agreement to which such information is applicable (regardless of whether or not
such other section is qualified by reference to a Schedule) so long as
application to such section is readily apparent from such disclosure. The
inclusion of any item by the Sellers or the Company on a Part of the Disclosure
Schedule is not evidence of the materiality of such item for purposes of the
Agreement, or that such item is a disclosure required under the Agreement. Any
descriptions of any agreement, document, instrument, plan, arrangement or other
item set forth on any Part of the Disclosure Schedule provided by the Sellers
are summaries only and are qualified in their entirety by the terms of such
agreements, documents, instruments, plans, arrangements or items, copies of
which have been made available to Buyer.
11.5 Assignment; Binding Agreement. This
Agreement and the various rights and obligations arising hereunder shall inure
to the benefit of and be binding upon the Parties and their respective
successors and permitted assigns. Neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be transferred, delegated, or assigned
(by operation of Law or otherwise) by Buyer without the prior written consent of
the Representative and Pentland (which consents shall not be unreasonably
withheld) or by any of the Sellers without the prior written consent of Buyer
(which consent shall not be unreasonably withheld); provided, however, that
Buyer shall have the right to transfer and assign their rights hereunder to
purchase the Purchased Securities and any other rights or benefits afforded to
it by this Agreement to any entity which at the time of such transfer and
assignment is controlled by Buyer, in which event Buyer shall remain liable for
the performance of each and every Post-Closing Obligation of Buyer contained
herein.
11.6 Counterparts. This Agreement may be executed simultaneously in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
11.7 No Third-Party Beneficiaries. Except
as otherwise expressly set forth in this Agreement, nothing in this Agreement
will be construed as giving any person, other than the Parties and the Buyer
Indemnified Parties and Seller Indemnified Parties, to the extent specifically
set forth herein, any right, remedy or claim under or in respect of this
Agreement or any provision hereof.
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11.8 “Knowledge”
Defined. As used
herein, “to the knowledge of the Company”, “to the Company’s knowledge” or any
other similar phrase shall mean (a) with respect to Xxxxx Xxxxxxxx, Xxxxx Xxxxxx
or Xxxxxxx Xxxxx, the actual knowledge of such individuals, and (b) with respect
to Xxxxxxx Xxxxx, Xxx Xxxxxx or Xxxxx Xxxxxxxxx, the actual knowledge of such
person solely within the ambit of each such person’s individual job functions.
As used herein, with respect to any particular Seller, “to the knowledge of the
Seller”, “to the Seller’s knowledge” or any other similar phrase shall mean the
actual knowledge of the Seller.
11.9 Headings;
Interpretation. The Article and Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of the Agreement. Each reference in this Agreement to an Article,
Section, Part or Exhibit, unless otherwise indicated, shall mean an Article or a
Section of this Agreement, a Part of the Disclosure Schedule or an Exhibit
attached to this Agreement, respectively. References herein to “days,” unless
otherwise indicated, are to consecutive calendar days. Each Party hereto has
participated substantially in the negotiation and drafting of this Agreement and
each Party agrees that any ambiguity herein should not be construed against the
draftsman.
11.10 Expenses. Sellers
(and not the Company) shall pay all costs and expenses incurred by or on behalf
of Sellers or the Company in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, the fees and expenses of
their attorneys, accountants, investment bankers, advisors and other
representatives, whether in connection with consultation or communication with,
or other assistance to, Buyer or its advisors or representatives or otherwise;
provided, that Buyer shall pay all fees, costs or expenses associated with the
preparation of the Required Financials or the Required Pro Forma Financials as
provided in Section 6.5. Buyer shall pay all costs and expenses incurred on its
behalf in connection with the negotiation, preparation and execution of this
Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, the fees and expenses of its attorneys,
accountants, financial advisors and financing sources.
Notwithstanding anything to the contrary contained in this Section 11.10,
Pentland shall not be responsible for the payment of any costs or expenses
hereunder other than (i) its share of the fees, costs and expenses included in
the Sellers’ Expense Amount and disbursed pursuant to Section 1.9, (ii) fees and
expenses of its own counsel incurred after the Effective Time and (iii) fees
payable to Bear in respect of any portion of the Earnout Amount paid to
Pentland.
11.11 Remedies Cumulative. All
rights and remedies of the Parties under this Agreement are cumulative and
without prejudice to any other rights or remedies under Law.
11.12 Governing
Law. This Agreement shall in all respects be construed in accordance
with and governed by the substantive laws of The Commonwealth of Massachusetts,
without reference to its choice of law rules.
65
11.13 Submission to Jurisdiction; Waivers. Each of
the Sellers and Buyer irrevocably agree that any legal action or proceeding with
respect to this Agreement or for recognition and enforcement of any judgment in
respect hereof brought by a Party hereto or its successors or assigns must be
brought and determined in the State courts of New York or the federal courts
located in New York, and each of the Sellers and Buyer hereby irrevocably
submits with regard to any such action or proceeding for itself and in respect
to its property, generally and unconditionally, to the exclusive jurisdiction of
the aforesaid court. Each of the Sellers and Buyer hereby irrevocably waives,
and agrees not to assert, by way of motion, as a defense, counterclaim, or
otherwise, in any action or proceeding with respect to this Agreement, (a) any
claim that it is not personally subject to the jurisdiction of the above named
court for any reason other than the failure to serve process in accordance with
this Section 11.13, (b) that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such court
(whether through judgment or otherwise), and (c) to the fullest extent permitted
by applicable law that (i) the suit, action or proceeding in any such court is
brought in an inconvenient forum, (ii) the venue of such suit, action or
proceeding is improper and (iii) this Agreement, or the subject matter hereof,
may not be enforced in or by such court. Each Party hereto waives all personal
service of any and all process upon such Party related to this Agreement and
consents that all service of process upon such Party shall be made by hand
delivery, certified mail or confirmed telecopy directed to such Party at the
address specified in Section 11.1 hereof; and service made by certified mail
shall be complete seven days after the same shall have been posted.
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66
IN
WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to be
executed as of the date first above written.
THIS
CONTRACT CONTAINS BINDING ARBITRATION PROVISIONS WHICH MAY BE ENFORCED BY THE
PARTIES.
BUYER:
XXXXX
SHOE COMPANY, INC.
By:_______________________________________
Name:
Title:
SELLERS:
HERITAGE
FUND III, L.P.
By: HF
Partners III, L.L.C.,
Its
General Partner
By:
_____________________________________
Name:
Title:
HERITAGE
FUND IIIA, L.P.
By: HF
Partners III, L.L.C.,
Its
General Partner
By:
_____________________________________
Name:
Title:
HERITAGE
INVESTORS III, L.L.C.
By:
_____________________________________
Name:
Title:
67
BICO
BUSINESS TRUST
By:
_____________________________________
Name:
Title:
PENTLAND
U.S.A., INC.
By:
_____________________________________
Name:
Title:
__________________________________________
Xxxxx
Xxxxxxxxx
__________________________________________
Xxxxxxx
Xxxxx
BICO
OWNERS:
__________________________________________
Xxxxx
Xxxxxxxx
__________________________________________
Xxx
Xxxxxx
__________________________________________
Xxxxx
Xxxxxx
68
BIC:
XXXXXXX
INVESTMENT CORPORATION
By:
_____________________________________
Name:
Title:
XXXXXXX
COMPANIES:
XXXXXXX
FOOTWEAR HOLDINGS, LLC
By:
_____________________________________
Name:
Title:
XXXXXXX
FOOTWEAR GROUP LLC
By:
_____________________________________
Name:
Title:
XXXXXXX
FOOTWEAR ACQUISITION LLC
By:
_____________________________________
Name:
Title:
XXXXXXX
FOOTWEAR RETAIL LLC
By:
_____________________________________
Name:
Title:
69
REPRESENTATIVE:
HERITAGE
PARTNERS
MANAGEMENT
COMPANY, LLP
By:
_____________________________________
Name:
Title:
70