Exhibit 10.1
AMENDMENT
TO
EARN-OUT AGREEMENT
THIS AMENDMENT TO EARN-OUT AGREEMENT (this "Amendment") is made as of
April 10, 2007 by and among ▇▇▇▇▇▇ ▇▇▇▇▇▇, Ltd., a Delaware corporation, ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ & Associates, Inc. and DMF International, Ltd
(each a "Company," and together the "Companies").
RECITALS
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WHEREAS, the parties hereto entered into that certain Earn-Out
Agreement (the "Earn-Out Agreement"), dated as of February 7, 2006, and;
WHEREAS, ▇▇▇▇▇▇ ▇▇▇▇▇▇, Ltd., a Delaware corporation and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ wish to shorten the term of the Earn-Out Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and in the Earn-Out Agreement, the parties hereby agree as
follows:
1. Section 1 Definitions of the Earn-Out Agreement are hereby
amended as follows:
The foregoing definition of "2007 Contingent Purchase Price Payment" is
added before the first definition. The "2007 Contingent Purchase Price
Payment" is defined to say:
"2007 Contingent Purchase Price Payment" shall have the
meaning set forth in section 2(a) hereof.
The definition of "2008 Contingent Purchase Price Payment" is hereby
deleted in its entirety and replaced as follows:
"2008 Contingent Purchase Price Payment" shall have the
meaning set forth in section 2(b) hereof.
The definitions of "2009 Contingent Purchase Price Payment" and "2010
Contingent Purchase Price Payment" are hereby deleted in their
entirety.
The definition of "Contingent Purchase Price Payment" is hereby deleted
in its entirety and replaced as follows:
"Contingent Purchase Price Payment" shall mean each of the
2007 Contingent Purchase Price Payment and the 2008 Contingent
Purchase Price Payment.
The definition of "Earn-Out Year" is hereby deleted in its entirety and
replaced as follows:
"Earn-Out Year" shall mean each of fiscal year 2007 and fiscal
year 2008, which shall end on December 31, 2007 and 2008,
respectively.
The definition of "Earn-Out Multiple" is hereby deleted in its entirety
and replaced as follows:
"Earn-Out Multiple" shall mean 3.64.
The definition of "EBITDA" is hereby deleted in its entirety and
replaced as follows:
"EBITDA" shall mean the Companies' (a) net sales, less,
without duplication, the sum of (i) cost of sales (including,
without limitation, any amounts which, absent the transactions
contemplated by the Stock Purchase Agreement, would have been
payable by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ & Associates, Inc. to the
Purchaser pursuant to the terms of the License Agreement (as
hereinafter defined) as if, with respect to such amounts, such
License Agreement is coterminous with this Agreement;
provided, that no royalty shall be payable for the sale of
▇▇▇▇▇▇ products in fiscal year 2007 and a 5% royalty shall be
payable for ▇▇▇▇▇▇ products for fiscal year 2008 and,
therefore, in determining the royalty payable pursuant to the
License Agreement, Madden shall, (x) in 2007, subtract 10%
multiplied by the amount of any ▇▇▇▇▇▇ product sold and (y) in
2008, subtract 5% multiplied by the amount of any ▇▇▇▇▇▇
product sold in order to effectuate the agreed upon royalty
amount, (ii) selling and distribution expenses, (iii) design
and production expenses and (iv) general administrative
expenses (for the avoidance of doubt, including in each of the
foregoing clauses the net amount payable under the Services
Agreement), plus (b) to the extent included in expenses in
clause (a) of this definition, the sum of (i) interest
expense, (ii) fees and expenses (including prepayment
penalties) in connection with financings, (iii) income tax
expense (including payments in respect of any tax sharing or
other similar agreement) other than international VAT or other
similar tax, (iv) depreciation and amortization expense, (v)
expenses resulting from FAS 142 or FAS 144, (vi) amortized
expenses related to the closing of the transactions
contemplated by the Stock Purchase Agreement and the
338(h)(10) Election (as defined in the Stock Purchase
Agreement), (vii) any allocation of corporate overhead from
Affiliates of either Company or allocation of profit, loss or
expenses from Affiliates of either Company, other than those
allocations specified in the Services Agreement, (viii) any
Losses (as defined in the Stock Purchase Agreement) of either
of the Companies which give rise to an indemnity obligation
pursuant to the indemnification provisions of the Stock
Purchase Agreement, to the extent, and only to the extent,
that such indemnity obligations have been honored, and (ix)
any amounts recovered or recoverable by either Company from
insurance, to the extent, and only to the extent, the Loss
attributable to such insurance arose in the same period, plus
(c) the amount set forth on Schedule A attached hereto for the
applicable fiscal year; provided, that for purposes of the
foregoing, (i) all products of Purchaser sold by the Companies
to retail stores of Purchaser shall be transferred at actual
LDP cost, and (ii) any product sold by the Companies' to
Purchaser's or the Companies' international distributors shall
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be deemed to be sold at a price based on the following: (x)
products shipped from the Companies' (or Purchaser's) U.S.
warehouses will be sold at actual LDP cost (excluding kitty)
plus 15% of such LDP cost; and (y) products shipped from
overseas factories will be sold at first cost (FOB factory)
plus a commission of fifteen percent (15%). Each figure in
clause (a) and clause (b) of this definition shall be
determined on a consolidated basis in accordance with GAAP
consistently applied from the Closing Date.
2. Section 2(a) of the Earn-Out Agreement is hereby deleted in
its entirety and replaced as follows:
(a) 2007 Contingent Purchase Price Payment. The aggregate
amount of the contingent purchase price payment
payable to Seller with respect to fiscal year 2007
(the "2007 Contingent Purchase Price Payment") shall
equal 20% of the product of (i) the EBITDA for fiscal
year 2007 and (ii) the Earn-Out Multiple.
3. Section 2(b) of the Earn-Out Agreement is hereby deleted in
its entirety and replaced as follows:
(b) 2008 Contingent Purchase Price Payment. The aggregate
amount of the contingent purchase price payment
payable to Seller with respect to fiscal year 2008
(the "2008 Contingent Purchase Price Payment") shall
equal 20% of the product of (i) the EBITDA for fiscal
year 2008 and (ii) the Earn-Out Multiple.
4. Section 2(c) of the Earn-Out Agreement is hereby deleted in
its entirety.
5. The preamble to Section 6 of the Earn-Out Agreement is hereby
deleted in its entirety and replaced as follows:
Corporate Governance During Earn-Out Period. Seller and
Purchaser agree that until the earlier of the termination of
this Agreement or the end of fiscal year 2008, the Companies
shall be managed in accordance with the following provisions:
The subsections of Section 6 remain in their entirety.
6. Section 7 of the Earn-Out Agreement is hereby deleted in its
entirety and replaced as follows:
Intercompany Transactions and Other Activities During Earn-Out
Period. For purposes of determining any Contingent Purchase
Price Payment payable under this Agreement, Seller and
Purchaser agree that until the earlier of the termination of
this Agreement or the end of fiscal year 2008, all
transactions between the Companies, on the one hand, and
Purchaser or any of its Affiliates (excluding the Companies
and their subsidiaries), on the other hand (each an
"Intercompany Transaction"), shall be at cost or shall be
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adjusted to be upon fair and reasonable terms no less
favorable to either party than would be obtained in a
comparable arm's-length transaction with an unaffiliated third
Person. The parties acknowledge and agree that the Services
Agreement is or will be on arm's-length terms.
Except as specifically amended hereby, each provision of the Earn-Out
Agreement shall continue in full force and effect in accordance with its terms.
Any capitalized term used in this Amendment and not herein defined shall have
the meaning ascribed to it in the Earn-Out Agreement.
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IN WITNESS WHEREOF, the parties to this Amendment have caused this
Amendment to be duly executed and delivered by their respective duly authorized
representatives as of the date first written above.
COMPANIES:
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ & ASSOCIATES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
DMF INTERNATIONAL, LTD.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
PURCHASER:
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▇▇▇▇▇▇ ▇▇▇▇▇▇, LTD.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman and Chief Executive Officer
SELLER:
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/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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