EXHIBIT 10.72.1
FINAL ESCROW AGREEMENT
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THIS FINAL ESCROW AGREEMENT is made and effective as of the twenty-fourth
day of May, 1999, by and among TARRANT APPAREL GROUP, a California corporation
(the "Parent"), TARRANT MEXICO, S. de X.X. de C.V., a limited liability company
organized under the laws of the Republic of Mexico (the "Purchaser"), and JAMIL
TEXTIL, S.A. de C.V., and INMOBILIARIA XXXXXXX, X.X. de C.V., corporations
organized under the laws of the Republic of Mexico (collectively the "Sellers"),
with respect to the following facts:
A. Pursuant to that certain Final Agreement for Purchase of Assets dated
as of April 18, 1999 (the "Purchase Agreement"), by and among the Purchaser, the
Sellers, and Xxxxx Xxxxx and Xxxx Xxxxxxxxx Xxxxxx De Oca, the sole shareholders
of the Sellers (collectively, the "Shareholders"), the Purchaser, a wholly owned
subsidiary of the Parent, will purchase certain assets of the Sellers.
B. In partial consideration for the purchase of such assets, the
Purchaser will deliver to the Sellers an aggregate of 1,724,000 shares of the
Common Stock of the Parent.
C. The Sellers and the Shareholders have agreed, jointly and severally,
to indemnify, defend and hold harmless the Parent, the Purchaser and certain
associated persons from and against certain liabilities, all as more fully set
forth in the Purchase Agreement.
D. The Sellers desire to grant each such indemnified person a security
interest in such shares and all distributions thereon as security for the
performance of the obligations of the Sellers or the Shareholders under the
Purchase Agreement.
E. The Sellers desire to obtain from the Parent, and the Parent desires
to grant to the Sellers, certain rights to cause the Shares to be registered
under the Securities Act of 1933, as amended. The Parent shall have no
obligations under this Agreement, except as expressly set forth in Section 2.
ACCORDINGLY, subject to the terms and conditions of this Agreement, and
on the basis of the premises, covenants and undertakings contained herein, the
parties hereto agree as follows:
1. PLEDGE
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1.1 Pledge. The Sellers hereby deliver to the Purchaser, and
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authorize and direct the Purchaser to hold pursuant to the terms and conditions
of this Agreement, certificates representing 1,724,000 shares of the Common
Stock of the Parent (the "Shares"), together with a stock power duly executed in
blank, receipt of which hereby is acknowledged. The Shares and any other
property which may be delivered to the Purchaser under Section 1.2
hereof shall be held by the Purchaser as partial security for the performance of
the obligations of the Sellers and the Shareholders under the Purchase
Agreement, including, but not limited to, the obligation of the Sellers under
Section 4.3 of the Purchase Agreement with respect to certain breaches of
environmental laws.
1.2 Additional Collateral. The Sellers shall deliver or cause to be
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delivered to the Purchaser, and hereby authorize and direct the Purchaser to
hold pursuant to the terms and conditions of this Agreement, all distributions
made during the term hereof on the Shares, whether in the form of securities,
cash or other property, as additional collateral subject to this Agreement. The
Shares and all distributions on the Shares shall be referred to
herein as the "Escrow Fund."
1.3 Voting Rights and Distributions. During the term of this Agreement,
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the Sellers shall have the right (i) to vote the Shares and any additional
shares of the capital stock of the Company held by the Purchaser hereunder on
each issue presented to the shareholders of the Parent and (ii) to receive all
cash distributions thereon subject to the limitations set forth in Section 1.2.
1.4 Notice of Claims.
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(a) The Company shall give prompt written notice (a "Demand Notice")
to the Sellers of any claim against the Sellers or the Shareholders under the
Purchase Agreement by the Company or any other person entitled to
indemnification or contribution under Section 6.2 of the Purchase Agreement (an
"Indemnified Person"), including, but not limited to, any claim that (i) any
representation or warranty of the Sellers or the Shareholders made in the
Purchase Agreement was not true and complete in all respects when made, (ii) the
Sellers or the Shareholders have failed to timely perform any obligation to be
performed by any of them under the Purchase Agreement or (iii) any Indemnified
Person is entitled to indemnification under Section 6.2 of the Purchase
Agreement. The Demand Notice shall include a summary description of the factual
and legal bases for the claim and an estimate of the amount of the claim. The
Sellers shall have the right to contest any claim described in a Demand Notice
by giving written notice (a "Dispute Notice") to the Company within ten (10)
calendar days of the Demand Notice. In the event the Sellers do not give a
Dispute Notice within such ten (10) day period, the description of the claim
contained in the Demand Notice (including, but not limited to, the factual and
legal bases therefor and the estimate of the amount of the claim) shall be
deemed conclusively to be true and complete; provided, however, that the Company
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shall be entitled thereafter to submit additional Demand Notices pursuant to
this Section 1.4 with respect to the same claims as were described in such
initial Demand Notice and the Sellers shall have the right to contest any such
additional demand Notice, all as set forth above.
(b) In the event the Sellers shall timely deliver a Dispute Notice
with respect to any claim (other than a claim based upon the demand of a person
other than an Indemnified Person (a "third party claim")) and such claim shall
not have been conclusively resolved on or before September 30, 2002, the parties
shall attempt to resolve the dispute through
mediation. In the event such mediation shall not resolve the claim, either the
Indemnified Party or the Sellers may require binding arbitration of the claim
pursuant to Section 3.12 of this Agreement.
1.5 Distribution of Escrow Fund.
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(a) The Purchaser shall distribute to the Sellers the Escrow Fund in
three equal installments on April 1, 2000, 2001 and 2002 (a "Distribution
Date"); provided, however, that no portion of the Escrow Fund shall be to the
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Sellers until the Sellers have complied in full with its obligations under
Section 4.3 of the Purchase Agreement. Notwithstanding the foregoing, any
portion of the Escrow Fund to be distributed to the Sellers on a Distribution
Date shall be reduced by (i) that portion of the Escrow Fund which previously
had been distributed pursuant hereto to an Indemnified Party, (ii) that portion
of such distribution which has a value, determined pursuant to Section 1.6,
equal as nearly as practicable to the aggregate claims set forth in any
unresolved Demand Notice, and (iii) that portion of such distribution
(determined before any reduction required by clause (i) or (ii)) which is
determined by multiplying (x) the amount of such distribution (before any such
reduction) by the quotient the numerator of which is (y) the difference between
15,000,000 square yards and the number of square yards of denim of marketable
quality actually produced by the Plant (as defined in the Purchase Agreement)
and the denominator of which is (z) 15,000,000 square yards. Upon the later to
occur of October 1, 2002, and the resolution of all claims (including third
party claims) set forth in all Demand Notices delivered hereunder on or prior to
October 1, 2002, the Purchaser shall distribute to the Sellers the Escrow Fund
as the same has been reduced by that portion of the Escrow Fund which previously
had been distributed to an Indemnified Party.
(b) In the event the Sellers shall fail to timely deliver a Dispute
Notice with respect to any claim set forth in a Demand Notice (other than a
third party claim), or such claim is resolved by the agreement of the parties or
by arbitration as set forth in Section 3.12, the Purchaser, promptly after the
last day on which such Dispute Notice could have been timely given or after
receipt by the Purchaser of a written notice of such agreement signed by the
Purchaser and the Sellers or of such arbitration decision, the Purchaser shall
deliver to the Indemnified Party, on the one hand, or to the Sellers, on the
other hand, that portion of the Escrow Fund which has a value, determined
pursuant to Section 1.6, equal as nearly as practicable to the value of the
claim as set forth in the Demand Notice, if a Dispute Notice with respect
thereto was not timely delivered, or as determined by the agreement of the
parties or the arbitration, as the case may be.
(c) In the event a third party claim set forth in a Demand Notice is
finally determined by a decision from which no appeal may be taken, the
Purchaser shall distribute to the Indemnified Party, on the one hand, or to the
Sellers, on the other hand, that portion of the Escrow Fund which has a value,
determined pursuant to Section 1.6, equal as nearly as practicable to the value
of the claim as so finally determined.
1.6 Valuation of Escrow Fund. The fair market value of a share of the
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Common Stock of the Parent shall be determined for purposes of this Agreement by
an investment banker of national reputation mutually acceptable to the Purchaser
and the Sellers. In the event the Purchaser and the Sellers cannot agree on such
investment banker, each party shall select an investment banker and the two
investment bankers so selected shall select a third investment banker of
national reputation who shall determine the fair market value of a share of the
Common Stock of the Parent. In the event either the Purchaser or the Sellers
shall fail to select an investment banker as aforesaid within five days of the
written request therefor by the other, the investment banker selected by the
requesting party shall make the determination of value required by this Section
1.6. Any such determination shall be made by reference to the price which the
Purchaser would realize, net of all costs and expenses, from the sale of such
shares in the open market, taking into account the effect of such sale on the
market price of the Common Stock of the Parent, together with such other factors
as such investment banker may deem appropriate.
1.7 Use of Shares as Collateral. Pursuant to that certain Facility
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Development Agreement dated December 11, 1998, between the Purchaser
and Tex Transas, S.A. de C.V., a corporation under common control with the
Purchaser (the "Developer"), the Developer has agreed to develop and construct
a turn-key facility for the production of twill fabric (the "Facility"), and the
Purchaser shall have the right, but not the obligation, to purchase or lease the
Facility. The Purchaser and the Sellers jointly may agree, from time to time,
that the Sellers may pledge the Shares to secure any indebtedness incurred by
the Sellers or the Developer in developing or constructing the Facility or
purchasing equipment for use in the Facility, all on such further terms and
conditions as may be mutually acceptable to the Purchaser and the Sellers.
2. REGISTRATION RIGHTS
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2.1 Piggy-Back Registration Rights.
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(a) In the event that after April 1, 2001, the Parent proposes
to register any of its securities under the Securities Act of 1933, as amended
(the "Securities Act"), and the registration form to be used therefor may be
used for the registration of the Common Stock of the Parent (other than Forms S-
8 or S-4 or any successor thereto), the Parent shall give prompt written notice
to all holders of the Shares of its intention to effect such a registration and,
subject to the terms and conditions contained in this Section 2, shall include
in such registration all Shares with respect to which the Company has received
written requests for inclusion therein within fifteen (15) days after the giving
of the Parent's notice; provided, however, that in no event shall the Parent be
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required to register any Shares which then are held by the Purchaser pursuant to
Section 1 of this Agreement.
(b) If a registration subject to subparagraph (a) above is an
underwritten registration, and the managing underwriters advise the Parent in
writing that in their opinion the number of securities to be included in such
registration exceeds the number which can be sold in such offering, the Parent
shall include in such registration (i) first, the securities
the Parent proposes to sell and (ii) second, such number of the Shares and other
securities requested to be included in such registration as the managing
underwriters believe can be sold in such offering, pro rata among the holders of
such Shares and other securities on the basis of the number of shares of the
Common Stock of the Parent owned by each such holder, and those Shares which are
excluded from the registration shall be withheld from the market by the holders
thereof for such period, not to exceed 180 days, which the managing underwriters
reasonably determine to be necessary in order to effect the registration.
2.2 General. If any registration subject to this Section 2 is an
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underwritten offering, the selection of the investment bankers and managers for
the offering shall be made by the Parent in its sole and absolute discretion.
(a) The holders of any Shares included in any registration statement
pursuant to this Section 2 shall enter into such customary agreements (including
an underwriting agreement in customary form) and use their best efforts to take
all such other actions as the Parent or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Shares.
(b) Each holder of Shares included in any registration statement
pursuant to this Section 2 shall indemnify, to the extent permitted by law, the
Parent, its officers and directors and each person who controls the Parent
(within the meaning of the Securities Act of 1933, as amended) against all
losses, claims damages, liabilities and expenses caused by any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, to the extent the same are caused by or
contained in any information furnished in writing to the Parent by such holder
expressly for use therein or by such holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Parent has furnished such holder with a sufficient number of copies of
the same. In connection with an underwritten offering, such holder shall
indemnify the underwriters, their officers and directors and each person who
controls such underwriters (within the meaning of the Securities Act of 1933, as
amended) to the same extent as provided above with respect to the
indemnification of the Parent.
(c) With respect to each inclusion of Shares in a registration
statement pursuant to this Section 2, all fees, costs and expenses of and
incidental to such registration and public offering in connection therewith
shall be borne by the Parent; provided, however, that the holders of Shares
included in any such registration statement shall bear their pro rata share of
the underwriting discount and commissions and shall bear their own legal and
accounting expenses incurred in reviewing independently of the Parent the
registration statement or prospectus.
(d) Any Shares which are included in an underwritten registration pursuant
to this Section 2 shall be sold by the holder thereof pursuant to the terms of
the underwriting agreement among the Parent, the managing underwriters and the
holders of the securities included in such registration.
3. MISCELLANEOUS
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3.1 Notices. Any notice or other communication required or
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permitted hereunder shall be in writing in the English language and shall be
deemed to have been given (i) if personally delivered, when so delivered, (ii)
if mailed, one (1) week after being placed in the United States mail, registered
or certified, postage prepaid, addressed to the party to whom it is directed at
the address set forth on the signature page hereof, or (iii) if given by
telecopier, when such notice or communication is transmitted to the telecopier
number set forth on the signature page hereof and written confirmation of
receipt is received. Each of the parties shall be entitled to specify a
different address by giving the other parties notice as aforesaid.
3.2 Entire Agreement. This Agreement constitutes the entire
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agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, relating to the subject matter of this Agreement. No
supplement, modification, waiver or termination of this Agreement shall be valid
unless executed by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver, unless otherwise expressly provided.
3.3 Headings. Section and subsection headings are not to be
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considered part of this Agreement and are included solely for convenience and
reference and in no way define, limit or describe the scope of this Agreement or
the intent of any provisions hereof.
3.4 Successors and Assigns. All of the terms, provisions and
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obligations of this Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, representatives, successors
and assigns.
3.5 Governing Law. The validity, construction and interpretation
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of this Agreement shall be governed in all respects by the laws of the State of
California applicable to contracts made and to be performed wholly within that
State.
3.6 Counterparts. This Agreement may be executed simultaneously
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in two or more counterparts, each one of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
3.7 Third Parties. Nothing in this Agreement, expressed or implied,
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is intended to confer upon any person other than the parties hereto and
their respective heirs, representatives, successors and assigns any rights or
remedies under or by reason of this Agreement.
3.8 Attorney's Fees. In the event any party takes legal action to
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enforce any of the terms of this Agreement, the unsuccessful party to such
action shall pay the successful party's expenses (including, but not limited to,
attorneys' fees and costs) incurred in such action.
3.9 Further Assurances. Each party hereto shall, from time to time
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at and after the date hereof, execute and deliver such instruments, documents
and assurances and take such further actions as the other parties reasonably may
request to carry out the purpose and intent of this Agreement.
3.10 Injunctive Relief. Each of the parties hereto acknowledges and
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agrees that it would be difficult to fully compensate the other parties for
damages resulting from the breach or threatened breach of any provision of this
Agreement and, accordingly, that each party shall be entitled to temporary and
injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, to enforce such provisions without the
necessity of proving actual damages or being required to post any bond or
undertaking in connection with any such action. This provision with respect to
injunctive relief shall not diminish, however, the right of any party to any
other relief or to claim and recover damages.
3.11 Consent To Jurisdiction. Subject to Section 3.12, each party
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hereto, to the fullest extent it may effectively do so under applicable law,
irrevocably (i) submits to the exclusive jurisdiction of any court of the State
of California or the United States of America sitting in the City of Los Angeles
over any suit, action or proceeding arising out of or relating to this
Agreement, (ii) waives and agrees not to assert, by way of motion, as a defense
or otherwise, any claim that it is not subject to the jurisdiction of any such
court, any objection that it may now or hereafter have to the establishment of
the venue of any such suit, action or proceeding brought in any such court and
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum, (iii) agrees that a judgment in any such
suit, action or proceeding brought in any such court shall be conclusive and
binding upon such party and may be enforced in the courts of the United States
of America, the State of California or the Republic of Mexico (or any other
courts to the jurisdiction of which such party is or may be subject) by a suit
upon such judgment and (iv) consents to process being served in any such suit,
action or proceeding by mailing a copy thereof by United States mail, registered
or certified, postage prepaid, return receipt requested, to CT Corporation at
000 Xxxx Xxxxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000 (and each party hereby
irrevocably appoints CT Corporation as its lawful agent to accept such service
of process on behalf of such party). Each party agrees that such service (i)
shall be deemed in every respect effective service of process upon such party in
any such suit, action or proceeding and (ii) shall, to the fullest extent
permitted by law, be taken and held to be valid personal service upon and
personal delivery to such party.
3.12 Arbitration. Any controversy arising out of or relating to this
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Agreement or the transactions contemplated hereby shall be referred to
arbitration before the American Arbitration Association strictly in accordance
with the terms of this Agreement and the substantive law of the State of
California. The board of arbitrators shall convene at a place mutually
acceptable to the parties in the State of California and, if the place of
arbitration cannot be agreed upon, arbitration shall be conducted in Los
Angeles. The parties hereto agree to accept the decision of the board of
arbitrators, and judgment upon any award rendered hereunder may be entered in
any court having jurisdiction thereof. No party shall institute a proceeding
hereunder until that party has furnished to the other party, by registered mail,
at least thirty (30) days prior written notice of its intent to do so. This
Section 3.12 shall not limit the right of any party to seek injunctive relief in
the courts of the State of California or the United States of America.
3.13 Construction. This Agreement was reviewed by legal counsel for
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each party hereto and is the product of informed negotiations between the
parties hereto. If any part of this Agreement is deemed to be unclear or
ambiguous, it shall be construed as if it were drafted jointly by the parties.
Each party hereto acknowledges that no party was in a superior bargaining
position regarding the substantive terms of this Agreement.
3.14 Legend. The Sellers understand and agree that the following
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legend will be placed on the certificates evidencing the Shares:
THIS CERTIFICATE AND THE SHARES EVIDENCED HEREBY MAY BE SOLD, TRANSFERRED,
ASSIGNED, HYPOTHECATED, PLEDGED OR OTHERWISE ALIENATED ONLY IN ACCORDANCE
WITH AND SUBJECT TO THE PROVISIONS OF THAT CERTAIN ESCROW AGREEMENT DATED
AS OF MAY 24, 1999. A COPY OF WHICH IS ON FILE AT THE CORPORATION'S
PRINCIPAL OFFICE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first set forth above.
Parent: TARRANT APPAREL GROUP
By /s/ Xxxxxx Xxxx
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Authorized Representative
0000 Xxxx Xxxxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000
Purchaser: TARRANT MEXICO, S. de R.I. de C.V.
By /s/ Xxxxxx Xxxx
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Authorized Representative
0000 Xxxx Xxxxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000
Sellers: JAMIL TEXTIL, S.A. de C.V.
By /s/ Xxxxx Xxxxx
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Authorized Representative
Xxxxx Xxxxx Xxx #231
Col. Xxxxxxx, X.X. 00000
Xxxxxx, D.F.
Telecopier: (000) 000-0000
INMOBILIARIA XXXXXXX, X.X. de C.V.
By /s/ Xxxxx Xxxxx
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Authorized Representative
Xxxxx Xxxxx Xxx #231
Col. Xxxxxxx, X.X. 00000
Xxxxxx, D.F.
Telecopier: (000) 000-0000
