STOCK PURCHASE AGREEMENT
BY AND AMONG
▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, AS SELLERS' REPRESENTATIVE,
G-III LEATHER FASHIONS, INC.
AND
G-III APPAREL GROUP, LTD.
JULY 11, 2005
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS...................................................1
Section 1.1 Definitions.............................................1
ARTICLE II PURCHASE AND SALE.............................................8
Section 2.1 Purchase of the Purchased Shares and the Purchased
Interests...............................................8
Section 2.2 Purchase Price..........................................8
Section 2.3 EBITA Payment Procedures................................9
Section 2.4 Inspection Right; EBITA Payment Adjustment.............10
Section 2.5 Purchase Price Adjustment..............................10
Section 2.6 Allocation.............................................11
ARTICLE III CLOSING......................................................12
Section 3.1 Closing Time and Place.................................12
Section 3.2 Conditions to the Buyer's Obligation to Close..........12
Section 3.3 Conditions to the Sellers' Obligation to Close.........14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS CONCERNING
THE ACQUIRED COMPANIES.......................................14
Section 4.1 Organization and Standing..............................14
Section 4.2 Organizational Documents; Books and Records............15
Section 4.3 Directors; Officers; Managers..........................15
Section 4.4 Subsidiaries or Other Interests........................15
Section 4.5 Capitalization.........................................15
Section 4.6 No Contravention.......................................16
Section 4.7 Compliance with Laws...................................16
Section 4.8 Environmental and Safety Laws..........................17
Section 4.9 Taxes..................................................17
Section 4.10 Employee Benefit Plans and Employee Matters............20
Section 4.11 Insurance..............................................22
Section 4.12 Contracts..............................................22
Section 4.13 Litigation.............................................24
Section 4.14 Suppliers; Customers and Licensors.....................24
Section 4.15 Inventories............................................25
Section 4.16 Relationships with Related Persons.....................25
Section 4.17 Certain Payments.......................................25
Section 4.18 Proprietary Rights.....................................26
Section 4.19 Financial Statements...................................26
Section 4.20 Absence of Certain Changes.............................26
Section 4.21 No Undisclosed Liabilities.............................28
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TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 4.22 Accounts Receivable; Accounts Payable;
Orders-in-Process......................................28
Section 4.23 Title to and Condition of Property.....................29
Section 4.24 Brokers or Finders.....................................30
Section 4.25 Projections............................................30
Section 4.26 No Misleading Statements...............................30
ARTICLE V REPRESENTATIONS AND WARRANTIES OF AND CONCERNING THE
SELLERS......................................................30
Section 5.1 Binding Obligations....................................30
Section 5.2 Purchased Shares or Purchased Interests................30
Section 5.3 No Contravention.......................................31
Section 5.4 No Claims..............................................31
Section 5.5 Securities Act Matters.................................31
Section 5.6 Brokers or Finders.....................................32
Section 5.7 No Misleading Statements...............................32
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BUYER AND G-III........33
Section 6.1 Organization and Standing..............................33
Section 6.2 Authorization and Binding Obligations..................33
Section 6.3 No Contravention.......................................33
Section 6.4 Issuance of the G-III Shares...........................33
Section 6.5 SEC Filings............................................34
Section 6.6 Securities Act Matters.................................34
Section 6.7 Brokers or Finders.....................................34
Section 6.8 No Misleading Statements...............................34
ARTICLE VII ADDITIONAL AGREEMENTS........................................35
Section 7.1 Vesting Schedule and Conditions........................35
Section 7.2 Registration of the Registrable G-III Shares...........36
Section 7.3 Covenant Not to Compete; No Solicitation...............42
Section 7.4 Division Bonus Plan....................................44
Section 7.5 Confidentiality........................................44
Section 7.6 Public Disclosure......................................44
Section 7.7 Expenses...............................................44
Section 7.8 Tax Matters............................................44
Section 7.9 Use of Name............................................51
Section 7.10 Sellers' Representative................................51
Section 7.11 June 30, 2005 Financial Statements.....................52
Section 7.12 Cooperation of Independent Accountants.................52
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TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 7.13 G-III Guaranty.........................................52
Section 7.14 The Division...........................................52
Section 7.15 Fabio Operating Agreement Amendment....................52
ARTICLE VIII INDEMNIFICATION..............................................52
Section 8.1 Indemnification........................................52
ARTICLE IX GENERAL PROVISIONS...........................................56
Section 9.1 Notices................................................56
Section 9.2 Amendment..............................................57
Section 9.3 Extension; Waiver......................................57
Section 9.4 Further Assurances.....................................57
Section 9.5 Entire Agreement; Nonassignability; Parties in
Interest...............................................57
Section 9.6 Severability...........................................57
Section 9.7 Specific Performance...................................58
Section 9.8 Remedies Cumulative....................................58
Section 9.9 Governing Law..........................................58
Section 9.10 Jurisdiction...........................................58
Section 9.11 Rules of Construction..................................58
Section 9.12 Effect of Due Diligence................................59
Section 9.13 Counterparts...........................................59
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 11, 2005, by
and among the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholders (as hereinafter defined), the CK
Members (as hereinafter defined) and the Fabio Selling Members (as hereinafter
defined) (the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholders, the CK Members and the Fabio Selling
Members collectively, the "Sellers"), ▇▇▇▇▇ ▇▇▇▇▇, in his capacity as Sellers'
Representative pursuant to Section 7.10 hereof, G-III Leather Fashions, Inc., a
New York corporation (the "Buyer") and G-III Apparel Group, Ltd., a Delaware
corporation ("G-III").
RECITALS:
WHEREAS, the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholders collectively own all of the
outstanding capital stock of ▇. ▇▇▇▇▇ For ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Ltd., a New York
corporation ("▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇"), the CK Members collectively own all of the
outstanding membership interests of CK Outerwear, LLC, a New York limited
liability company ("CK", and together with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, the "Acquired
Companies"), and the Fabio Selling Members collectively own 50% of the
outstanding membership interests of Fabio Licensing, LLC, a New York limited
liability company ("Fabio");
WHEREAS, the Buyer desires to purchase from the Sellers, and the Sellers,
in aggregate, desire to sell all of the outstanding capital stock and membership
interests of the Acquired Companies and membership interests of Fabio owned by
them to the Buyer, on the terms and conditions set forth herein; and
WHEREAS, the Buyer intends to create a new division in which to operate the
Acquired Companies and the membership interests in Fabio in connection with its
business (the "Division").
NOW, THEREFORE, in consideration of the mutual covenants of the parties set
forth in this Agreement and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For purposes of this Agreement:
(a) "▇▇▇▇▇ Employment Agreement" has the meaning set forth in Section
3.2(l).
(b) "Accounting" has the meaning set forth in Section 2.3(a).
(c) "Accounts Receivable" has the meaning set forth in Section
4.22(a).
(d) "Acquired Companies" has the meaning set forth in the recitals.
(e) "Affiliate" means, with respect to any Person, another Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first Person.
(f) "Agreement" has the meaning set forth in the preamble.
(g) "Applicable Sellers" has the meaning set forth in Section
7.2(d)(i).
(h) "Audit" shall mean any audit, assessment, or other examination or
claim by any Taxing Authority and any judicial, administrative or other
proceeding or litigation (including any appeal of any such judicial,
administrative or other proceeding or litigation), relating to Taxes or Tax
Returns.
(i) "Authority" means any governmental, regulatory or administrative
body, agency or authority, or any court or judicial authority.
(j) "Balance Sheet Date" has the meaning set forth in Section 4.20(a).
(k) "Balance Sheets" has the meaning set forth in Section 4.21.
(l) "Business Day" means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.
(m) "Buyer" has the meaning set forth in the preamble.
(n) "Buyer Audit" has the meaning set forth in Section 7.8(e)(ii).
(o) "Buyer Group" has the meaning set forth in Section 7.3(a).
(p) "Buyer Indemnified Persons" has the meaning set forth in Section
8.1(b).
(q) "Buyer Statement" has the meaning set forth in Section 2.5(a).
(r) "Cash Consideration" has the meaning set forth in Section
2.2(a)(i).
(s) "CK" has the meaning set forth in the recitals.
(t) "CK Members" means ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇▇▇.
(u) "CK Operating Agreement Amendment" has the meaning set forth in
Section 3.2(i).
(v) "Closing" has the meaning set forth in Section 3.1.
(w) "Closing Date" has the meaning set forth in Section 3.1.
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(x) "Closing Price" means the price determined by the first of the
following clauses that applies: (i) if the Common Stock is then listed or quoted
on a national securities exchange or the Nasdaq Stock Market, the average
closing price per share of the Common Stock on such exchange or market on which
the Common Stock is then listed or quoted for a period of 20 consecutive days on
which such exchange or market is open for trading; (ii) if prices for the Common
Stock are then quoted on the OTC Bulletin Board, the average closing bid price
per share of the Common Stock so quoted on such OTC Bulletin Board for a period
of 20 consecutive days on which stock prices are quoted on such OTC Bulletin
Board; (iii) if prices for the Common Stock are then reported in the "Pink
Sheets" published by Pink Sheets LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the average closing bid price
per share of Common Stock so reported on such Pink Sheets for a period of 20
consecutive days on which stock prices are published on such Pink Sheets; or
(iv) in all other cases, the fair market value of a share of Common Stock for a
period of twenty consecutive Business Days as determined by an independent
appraiser selected in good faith by G-III's Board of Directors at the request of
the Sellers' Representative.
(y) "Code" means the Internal Revenue Code of 1986, as amended.
(z) "Common Stock" has the meaning set forth in Section 2.2(a)(ii).
(aa) "Confidential Information" has the meaning set forth in Section
7.3(a).
(bb) "Confidentiality Agreements" has the meaning set forth in Section
7.5.
(cc) "Damages" has the meaning set forth in Section 8.1(b).
(dd) "Division" has the meaning set forth in the recitals.
(ee) "EBITA" means the Division's earnings before interest and taxes
and amortization of intangibles, which shall be equal to the net sales of the
Division less (i) cost of sales, including royalties and license fees and (ii)
the expenses set forth on Schedule 1.1(ee) hereto (but only if and to the extent
that such expenses are actually incurred by the Division, other than expenses
allocated to the Division in accordance with Schedule 1.1(ee), all as determined
in accordance with the Buyer's accounting and allocation procedures outlined in
such Schedule and utilized in preparing internal financial statements for
Buyer's divisions.
(ff) "EBITA Payment" has the meaning set forth in Section 2.3(a).
(gg) "Employee" means any employee of any Acquired Company or Fabio.
(hh) "Employee Bonus Plan" has the meaning set forth in Section 7.4.
(ii) "Employee Bonus Plan Payments" has the meaning set forth in
Section 7.4.
(jj) "Employee Plan" means any plan, program, policy, practice,
contract, agreement or other material arrangement providing for compensation,
severance, change in control, retention, termination pay, incentive, bonus or
deferred compensation, performance
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awards, stock or stock-related awards, or other employee benefits or fringes,
including each "employee benefit plan," within the meaning of Section 3(3) of
ERISA which is maintained, contributed to, or required to be contributed to, by
an Acquired Company or any ERISA Affiliate for the benefit of any current or
former Employee (or beneficiary or dependent thereof), or with respect to which
any Acquired Company or any ERISA Affiliate has any liability or obligation.
(kk) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(ll) "ERISA Affiliate" means any person or entity under common control
with any Acquired Company within the meaning of Section 414(b), (c), (m) or (o)
of the Code, and the regulations issued thereunder.
(mm) "Escrow Agent" has the meaning set forth in Section 7.1(g).
(nn) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(oo) "Fabio" has the meaning set forth in the recitals.
(pp) "Fabio Selling Members" means ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇.
(qq) "Final Statement" has the meaning set forth in Section 2.5(a).
(rr) "Financial Statements" has the meaning set forth in Section 4.19.
(ss) "Fully Vested G-III Shares" has the meaning set forth in Section
2.2(a)(ii).
(tt) "G-III" has the meaning set forth in the preamble.
(uu) "G-III Shares" means the Fully Vested G-III Shares and the
Unvested G-III Shares, collectively.
(vv) "GAAP" means United States generally accepted accounting
principles, consistently applied throughout the periods involved.
(ww) "Indemnification Cap" has the meaning set forth in Section
8.1(d)(i)(B).
(xx) "Indemnified Party" has the meaning set forth in Section
8.1(e)(i).
(yy) "Indemnifying Party" has the meaning set forth in Section
8.1(e)(i).
(zz) "Indemnity Claim" means a claim made under Article VIII of this
Agreement.
(aaa) "Independent Firm" has the meaning set forth in Section 2.4.
(bbb) "IRS" means the United States Internal Revenue Service.
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(ccc) "knowledge" of a Person means such Person's actual knowledge
after diligent inquiry of all Persons who may reasonably be expected to have
knowledge of the matter at issue.
(ddd) "Licenses" has the meaning set forth in Section 4.7.
(eee) "Lien" means any lien, pledge, charge, claim, restriction on
transfer, mortgage, security interest or other encumbrance other than statutory
liens for liabilities not yet due and payable.
(fff) "Lipton Employment Agreement" has the meaning set forth in
Section 3.2(n).
(ggg) "▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇" has the meaning set forth in the recitals.
(hhh) "▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Common Stock" has the meaning set forth in
Section 4.5.
(iii) "▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholders" means ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇.
(jjj) "Material Adverse Effect" means, with respect to any Person, any
change, effect, event, occurrence or state of facts (or any development that has
had or is reasonably likely to have any change or effect) that is materially
adverse to the business, financial condition, results of operations or prospects
of such Person and its subsidiaries, taken as a whole.
(kkk) "Material Contracts" has the meaning set forth in Section
4.12(a).
(lll) "Net Assets" means the difference between (x) the sum of the
total assets of the Acquired Companies and half of the total assets of Fabio as
of May 31, 2005, minus (y) the sum of the total liabilities of the Acquired
Companies and half the total liabilities of Fabio as of May 31, 2005.
(mmm) "New Registrable G-III Shares" has the meaning set forth in
Section 7.2(d)(i).
(nnn) "Notice of Claim" has the meaning set forth in Section
8.1(e)(i).
(ooo) "Option Price" has the meaning set forth in Section 7.1(a).
(ppp) "Order-in-Process" has the meaning set forth in Section 4.22(c).
(qqq) "Organizational Documents" means, (i) with respect to ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, its certificate of incorporation and bylaws, as currently in force and
effect, or (ii) with respect to CK or Fabio, its articles of organization and
operating agreement, as currently in force and effect.
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(rrr) "Other Transaction Documents" means the documents, other than
this Agreement, to be executed by the parties hereto in connection with the
transactions contemplated hereby.
(sss) "Pension Plan" means an "employee pension benefit plan," within
the meaning of Section 3(2) of ERISA.
(ttt) "Permitted Liens" has the meaning set forth in Section 4.23(a).
(uuu) "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(vvv) "Post-Closing Tax Period" shall mean any Tax Period, or portion
thereof, beginning after the Closing Date.
(www) "Pre-Closing Tax Period" shall mean any Tax Period, or portion
thereof, ending on or before the Closing Date.
(xxx) "Pre-Closing Straddle Period" has the meaning set forth in
Section 7.8(c).
(yyy) "Pre-Closing Tax Return" has the meaning set forth in Section
7.8(d)(i).
(zzz) "Projections" has the meaning set forth in Section 4.25.
(aaaa) "Promissory Notes" has the meaning set forth in Section 2.2(a).
(bbbb) "Proprietary Rights" has the meaning set forth in Section 4.18.
(cccc) "Proprietary Rights Agreement" has the meaning set forth in
Section 4.10(h).
(dddd) "Purchase Option" has the meaning set forth in Section 7.1(a).
(eeee) "Purchase Price" has the meaning set forth in Section 2.2.
(ffff) "Purchased Interests" has the meaning set forth in Section
2.1(b).
(gggg) "Purchased Shares" has the meaning set forth in Section 2.1(a).
(hhhh) "Real Property" has the meaning set forth in Section 4.23(b).
(iiii) "Registrable G-III Shares" means the Fully Vested G-III Shares
and any Unvested G-III Shares that are no longer subject to the Purchase Option
set forth in Section 7.1 as of five (5) Business Days prior to the filing of the
Registration Statement.
(jjjj) "Registration Statement" has the meaning set forth in Section
7.2(a)(i).
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(kkkk) "▇▇▇▇ Employment Agreement" has the meaning set forth in
Section 3.2(m).
(llll) "Restricted Period" has the meaning set forth in Section
7.3(a).
(mmmm) "Restrictive Covenants" has the meaning set forth in Section
7.3(c).
(nnnn) "SEC" means the United States Securities and Exchange
Commission.
(oooo) "SEC Documents" has the meaning set forth in Section 6.5.
(pppp) "Section 338(h)(10) Election" has the meaning set forth in
7.8(g)(i).
(qqqq) "Securities Act" means the Securities Act of 1933, as amended.
(rrrr) "Sellers" has the meaning set forth in the preamble.
(ssss) "Sellers Audit" has the meaning set forth in Section 7.8(e)(i).
(tttt) "Sellers' Affiliated Companies" means ▇. ▇▇▇▇▇▇▇▇ Fur Co. LLC,
a New York limited liability company, ▇. ▇▇▇▇▇▇▇▇ Import Corp., a New York
corporation, and MR Apparel Group, Inc., a New York corporation.
(uuuu) "Sellers' Representative" has the meaning set forth in Section
7.10.
(vvvv) "Statement of Objection" has the meaning set forth in Section
2.5(a).
(wwww) "Straddle Period" shall mean any Tax period beginning before
and ending after the Closing Date.
(xxxx) "Straddle Return" has the meaning set forth in Section
7.8(d)(ii).
(yyyy) "subsidiary" means, with respect to any Person, any Person of
which such party or such other Person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
stock or other equity interests the holders of which are generally entitled to
more than 50% of the vote for the election of the board of directors or other
governing body of such Person.
(zzzz) "Tax" and "Taxes" includes (i) any U.S. federal, state, local
or foreign income, gross receipts, capital, franchise, import, goods and
services, value added, sales and use, estimated (to the extent required by law),
alternative minimum, add-on minimum, sales, use, transfer, registration, excise,
natural resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital stock,
social security, unemployment, disability, payroll, license, employee
withholding, unclaimed property, escheat or other tax of any kind whatsoever,
including any interest, penalties or additions to tax or additional amounts in
respect of the foregoing, (ii) any liability for the payment of any amounts of
the type described in (i) as a result of being a member of a consolidated,
combined,
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unitary or aggregate group for any Tax period, and (iii) any liability for the
payment of any amounts of the type described in (i) or (ii) as a result of being
a transferee or successor to any Person or as a result of any express or implied
obligation to indemnify any other Person.
(aaaaa) "Tax Returns" means returns, declarations, reports, claims for
refund, information returns or other documents (including any related or
supporting schedules, statements or information) filed or required to be filed
in connection with the determination, assessment or collection of any Taxes of
any party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
(bbbbb) "Taxing Authority" shall mean any U.S. federal, national,
foreign, state, municipal or other local government, any subdivision, agency,
commission or authority thereof, or any quasi-governmental body or other
authority exercising any Taxing authority or regulatory authority over Taxes.
(ccccc) "Unvested G-III Shares" has the meaning set forth in Section
2.2(a)(iii).
ARTICLE II
PURCHASE AND SALE
Section 2.1 Purchase of the Purchased Shares and the Purchased Interests.
Subject to and upon the terms and conditions of this Agreement:
(a) The Buyer agrees to purchase from each ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Shareholder, and each ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholder agrees to sell to the Buyer,
all of his right, title and interest to his shares of the capital stock of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as set forth in Schedule 2.1(a) hereto (collectively, the
"Purchased Shares"); and
(b) The Buyer agrees to purchase from each CK Member and Fabio Selling
Member, and each CK Member and Fabio Selling Member agrees to sell to the Buyer,
all of his right, title and interest to his membership interests in CK and
Fabio, as set forth in Schedule 2.1(b) hereto (collectively, the "Purchased
Interests"),
in the case of each of paragraphs (a) and (b) above, free and clear of all
Liens, rights or claims of others or other encumbrances (other than restrictions
on transfer imposed by the Securities Act or state securities laws), for the
consideration specified in Section 2.2 below.
Section 2.2 Purchase Price. The consideration to be paid by the Buyer for
all of the Purchased Shares and the Purchased Interests (the "Purchase Price")
shall consist of:
(a) Promissory notes (the "Promissory Notes") in the form of Exhibit A
hereto payable three business days after the Closing Date, with aggregate
payments under the Promissory Notes consisting of:
(i) Nineteen million one hundred eighty five thousand dollars
($19,185,000) (the "Cash Consideration") apportioned among the Sellers as
set forth on Schedule 2.2(a)(i) hereto (which Schedule also sets forth the
address of each Seller);
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(ii) 466,666 shares of common stock, par value $0.01 per share,
of G-III ("Common Stock", and such 466,666 shares, the "Fully Vested G-III
Shares"), apportioned among the Sellers as set forth on Schedule 2.2(a)(ii)
hereto; and
(iii) 150,000 shares of Common Stock (the "Unvested G-III
Shares"), apportioned among the Sellers as set forth on Schedule
2.2(a)(iii) hereto, all of which Unvested G-III Shares shall be subject to
the Purchase Option (as hereinafter defined), vesting schedule and
conditions set forth in Section 7.1;
(b) For the period from the Closing Date to January 31, 2006, an
amount equal to the sum of (x) 100% of the Division's EBITA between $7,900,000
and $10,900,000 for such period, if the Division's EBITA for such period is at
least $8,900,000, and (y) 50% of the Division's EBITA above $10,900,000 for such
period; provided, however, that if the Division's EBITA for such period is less
than $7,000,000, then, for purposes of Sections 2.2(c) and 7.4, the Division's
EBITA for the one-year period ending on January 31, 2007 shall be reduced on a
dollar-for-dollar basis by the amount of such deficiency; and provided further,
however, that the EBITA Payment (as hereinafter defined) shall not exceed
$7,500,000 for the period from the Closing Date to January 31, 2006;
(c) Subject to the provisions of Section 2.2(d), for each of the
one-year periods ending on January 31, 2007, January 31, 2008 and January 31,
2009, an amount equal to 20% of the Division's EBITA for such one-year period
(subject, in the case of the Division's EBITA for the one-year period ending on
January 31, 2007, to reduction as provided in the proviso set forth at the end
of Section 2.2(b)), payable by the Buyer to the Sellers as provided in Section
2.3; provided, however, that the Division's EBITA for such one-year period is at
least $8,000,000 (taking into account the preceding parenthetical); and provided
further, however, that the sum of the EBITA Payment (as hereinafter defined) and
the Employee Bonus Plan Payments (as hereinafter defined) shall not exceed
$7,500,000 for each such one-year period; and
(d) (i) The amount payable with respect to the period ending January
31, 2008 shall be reduced by an amount equal to $195,000.
(i) The amount payable with respect to the period ending January
31, 2009 shall be reduced by an amount equal to the sum of (x) $195,000 and
(y) if the reduction pursuant to Section 2.2(d)(i) above was less than
$195,000, the amount by which such reduction was less than $195,000.
Section 2.3 EBITA Payment Procedures.
(a) Any payment required to be made by the Buyer pursuant to Section
2.2(b) or Section 2.2(c), as reduced in Section 2.2(d) (each, an "EBITA
Payment") shall be made within 90 days of the end of the period to which such
EBITA Payment relates and shall include an accounting of the amount of the EBITA
Payment due (the "Accounting"), if any, pursuant to Section 2.2(b) or Section
2.2(c), which Accounting shall be delivered to the Sellers' Representative.
(b) Any EBITA Payment payable by the Buyer to the Sellers pursuant to
Section 2.2(b) or Section 2.2(c) shall be apportioned among the Sellers
according to their
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respective payment percentages set forth on Schedule 2.2(a)(i), and the Buyer
shall deliver to each Seller a bank check or a wire transfer in the amount of
such Seller's proportionate share of the EBITA Payment.
Section 2.4 Inspection Right; EBITA Payment Adjustment. The Sellers'
Representative and his duly authorized representatives shall have the right,
during regular business hours, to inspect and/or audit the books of accounts and
records of the Division used by the Buyer in determining EBITA for purposes of
any EBITA Payment. As soon as reasonably practicable, but in any event within 30
days of delivery by the Buyer to the Sellers' Representative of the Accounting,
the Sellers' Representative shall inform the Buyer in writing that the
Accounting is acceptable or object to the Accounting, setting forth a specific
description of the Sellers' Representative's objection. If the Sellers'
Representative does not respond within such 30 day period, he will be deemed to
have accepted the Accounting. If the Buyer does not agree with the Sellers'
Representative's objections or such objections are not resolved on a mutually
agreeable basis within 30 days of the Buyer's receipt of the Sellers'
Representative's objections, any such disagreements shall be promptly submitted
to a independent certified public accounting firm mutually agreeable to the
Sellers' Representative and the Buyer (the "Independent Firm"). If the Sellers'
Representative and the Buyer cannot agree on the selection of the Independent
Firm, they shall request the American Arbitration Association in New York, New
York to select the Independent Firm. The Independent Firm shall resolve such
dispute within 30 days after submission of the dispute by the Sellers'
Representative and the Buyer. The decision of the Independent Firm shall be
final and binding upon the parties. If the Independent Firm shall determine that
the Buyer understated EBITA, the Buyer shall promptly pay, in accordance with
Section 2.3, the amount of any deficiency in the applicable EBITA Payment. If
the Independent Firm shall determine that the Buyer overstated EBITA, each
Seller shall promptly repay to the Buyer his proportionate share of the
overpayment, determined in accordance with the percentages set forth in Schedule
2.2(a)(i). The fees, costs and expenses of the Independent Firm shall be equally
borne by the Sellers, jointly and severally, and the Buyer; provided, however,
that if the Independent Firm determines that the Buyer understated EBITA by 5%
or more with respect to the EBITA Payment in dispute, the Buyer shall pay all of
the fees, costs and expenses of the Independent Firm.
Section 2.5 Purchase Price Adjustment.
(a) As promptly as practicable after the Closing Date, but in no event
more than forty-five (45) days following the Closing Date, the Buyer will in
good faith, with the reasonable cooperation of the Sellers, prepare and deliver
to the Sellers' Representative a reasonably detailed statement, prepared in
accordance with GAAP except as noted thereon, but including normal GAAP year-end
adjustments, of the Net Assets at May 31, 2005 (the "Buyer Statement"),
provided, however, that for the purposes of determining Net Assets, old season
inventory shall be valued as set forth in Schedules 2.5(a) and 2.5(b). Unless
within fifteen (15) days after its receipt of the Buyer Statement, the Sellers'
Representative shall deliver to the Buyer a reasonably detailed statement
describing the Sellers' objections to the Buyer Statement (a "Statement of
Objection"), the amount of Net Assets at May 31, 2005 as set forth on the Buyer
Statement shall be final and binding on the parties hereto and the Buyer
Statement shall be the final statement hereunder (the "Final Statement"). The
Sellers' Representative and his duly authorized representatives shall have the
right, during regular business hours, to inspect and/or
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audit the books of accounts and records of the Division used by the Buyer in
preparing the Buyer Statement.
(b) If Sellers' Representative delivers to the Buyer a timely
Statement of Objection, and the Buyer agrees with the Sellers' Representative's
objections, the Buyer shall promptly furnish written notice to the Sellers'
Representative of its agreement with such Statement of Objection and the Net
Assets at May 31, 2005 as reflected in such Statement of Objection shall be
final and binding on the parties hereto and shall constitute the Final
Statement. If the Buyer does not agree with the Sellers' Representative's
objections or such objections are not resolved on a mutually agreeable basis
within 30 days of the Buyer's receipt of the Sellers' Representative's
objections, any such disagreements shall be promptly submitted to an Independent
Firm. The Independent Firm shall resolve such dispute within 30 days after
submission of the dispute by the Sellers' Representative and the Buyer and shall
deliver to the Sellers' Representative and the Buyer a final statement of Net
Assets at May 31, 2005, which shall be final and binding on the parties hereto
and shall constitute the Final Statement. The fees, costs and expenses of the
Independent Firm shall be equally borne by the Sellers' Representative and the
Buyer.
(c) Upon completion of the Final Statement, the Cash Consideration
shall be adjusted as follows:
(i) if Net Assets reflected on the Final Statement are less than
$2,200,000, the Buyer shall deduct each Seller's proportionate share of
such deficiency, determined in accordance with the percentages set forth in
Schedule 2.5(c)(i), from one or more EBITA Payments due to the Sellers
pursuant to Section 2.2 or adjustments thereof in favor of the Sellers
pursuant to Section 2.4, until the amount of such deficiency has been
repaid to the Buyer in full; or
(ii) if Net Assets reflected on the Final Statement are greater
than $3,500,000, the Buyer shall promptly deliver to each Seller his
proportionate share of such excess, determined in accordance with the
percentages set forth in Schedule 2.5(c)(i).
Section 2.6 Allocation. The portion of the Purchase Price (and all other
capitalized costs) allocable to the purchase of (i) all of the outstanding
membership interests of CK shall be allocated among the assets of CK and (ii)
the Purchased Shares shall be allocated among the assets of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
pursuant to the Section 338(h)(10) Election, in each case as set forth on
Schedule 2.6 in accordance with Sections 338(b)(5) and 1060 of the Code and the
Treasury Regulations thereunder (and any similar provision of state, local or
foreign law, as appropriate), subject to any adjustment to the Purchase Price
pursuant to Section 2.5 or 8.2 (it being understood that the Cash Consideration,
the Fully Vested G-III Shares, any EBITA Payments that may be made or any
Unvested G-III Shares that may vest and cease to be subject to the Purchase
Option shall be allocated among the assets of CK and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in a manner
consistent with Schedule 2.6). The Buyer, the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholders and
the CK Members shall report, act and file Tax Returns (including, but not
limited to, IRS Forms 8594 and 8883, as applicable) in all respects and for all
purposes consistent with Schedule 2.6, unless required to do otherwise by
applicable law. Neither the Buyer, any ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholder
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nor any CK Member shall take any position (whether in an Audit, Tax Return or
otherwise) which is inconsistent with such allocations, unless required to do
otherwise by applicable law.
ARTICLE III
CLOSING
Section 3.1 Closing Time and Place. The closing of the purchase and sale of
the Purchased Shares and the Purchased Interests (the "Closing") shall take
place on the date hereof at 10:00 a.m., New York time, at the offices of
Fulbright & ▇▇▇▇▇▇▇▇ L.L.P., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at
such other time, place or date as the parties hereto agree. The date of Closing
is hereinafter referred to as the "Closing Date."
Section 3.2 Conditions to the Buyer's Obligation to Close. The obligations
of the Buyer to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction, at or prior to the
Closing, of each of the following conditions to the satisfaction of the Buyer:
(a) each Seller and the Sellers' Representative shall deliver to the
Buyer this Agreement, duly executed by such Seller and the Sellers'
Representative;
(b) each ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholder shall deliver to the Buyer a
certificate or certificates representing his portion of the Purchased Shares,
accompanied by a stock power or powers duly endorsed to the Buyer;
(c) the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholders shall deliver to the Buyer a copy
of the certificate of incorporation of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as in effect on the
Closing Date, certified by the Secretary of State of the State of New York as of
a recent date;
(d) the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholders shall deliver to the Buyer a copy
of the bylaws of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as in effect on the Closing Date, certified by
the Secretary of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇;
(e) the Sellers shall deliver to the Buyer certificates of good
standing of each of the Acquired Companies from the Secretary of State of the
State of New York, dated no more than three Business Days prior to the Closing
Date;
(f) the Sellers shall deliver to the Buyer certificates of good
standing or comparable certificates from the Secretary of State or equivalent
Person of each jurisdiction in which each Acquired Company is qualified or
licensed to do business as a foreign corporation or limited liability company,
dated no more than three Business Days prior to the Closing Date;
(g) the CK Members and the Fabio Selling Members shall deliver to the
Buyer copies of the articles of organization of CK and Fabio, respectively, each
as in effect on the Closing Date, certified by the Secretary of State of the
State of New York as of a recent date;
(h) the CK Members and the Fabio Selling Members shall deliver to the
Buyer copies of the operating agreements of CK and Fabio, respectively, each as
in effect
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immediately prior to the Closing, certified by the managing members of CK and
Fabio, respectively;
(i) the CK Members shall deliver to the Buyer an amendment to the
operating agreement of CK, in substantially the form attached hereto as Exhibit
B (the "CK Operating Agreement Amendment"), reflecting, among other things, the
substitution of the Buyer as a member of CK in the place and stead of the CK
Members, duly executed by the CK Members;
(j) the Fabio Selling Members shall deliver to the Buyer a copy of the
written waiver by FENX, Inc. of the notice and right of first refusal provisions
of Section 11.5 of the operating agreement of Fabio;
(k) ▇▇▇▇▇ ▇▇▇▇▇ shall deliver to the Buyer his employment agreement
with G-III (the "▇▇▇▇▇ Employment Agreement"), in substantially the form
attached hereto as Exhibit C, duly executed by him;
(l) ▇▇▇▇▇▇ ▇▇▇▇ shall deliver to the Buyer his employment agreement
with G-III (the "▇▇▇▇ Employment Agreement"), in substantially the form attached
hereto as Exhibit D, duly executed by him;
(m) ▇▇▇ ▇▇▇▇▇▇ shall deliver to the Buyer his employment agreement
with G-III (the "Lipton Employment Agreement"), in substantially the form
attached hereto as Exhibit E, duly executed by him;
(n) the Sellers shall cause to be delivered to the Buyer an opinion,
dated as of the Closing Date and addressed to the Buyer, of Wechsler & ▇▇▇▇▇,
LLP, counsel to the Acquired Companies, in substantially the form attached
hereto as Exhibit F;
(o) each Seller shall deliver to the Buyer any Other Transaction
Document to which it is a party, duly executed by such Seller;
(p) the Sellers shall cause all of the directors and officers of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, all of the managers of CK and all of the managers of Fabio
(other than ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇) to submit letters of resignation
to the Buyer, such resignations effective as of the Closing;
(q) each Seller shall deliver to the Buyer a duly executed FIRPTA
certificate in the form specified by Treasury Regulations Section
1.1445-2(b)(2);
(r) for purposes of making the Section 338(h)(10) Election (as
hereinafter defined), each ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholder shall have executed and
delivered to the Buyer two copies of IRS Form 8023 (or successor form) and any
applicable similar forms required by state or local law;
(s) the Buyer shall have received landlords' consents to the
assignment of and shall have entered into amendments of the leases for ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇' office space at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇' warehouse space at ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇;
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(t) the Buyer shall have entered into new license agreements or
assignments of the current license agreements with respect to ▇▇▇▇▇▇ ▇▇▇▇▇
ladies and men's outerwear, St. John's outerwear and ▇▇▇▇▇▇ ▇▇▇▇▇ women's suits,
in each case on terms and conditions satisfactory to the Buyer; and
(u) the Sellers or the Sellers' Representative shall deliver or cause
to be delivered to the Buyer such other documents as the Buyer or the Buyer's
counsel may reasonably request.
Section 3.3 Conditions to the Sellers' Obligation to Close. The obligations
of the Sellers to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction, at or prior to the
Closing, of each of the following conditions to the reasonable satisfaction of
the Sellers:
(a) the Buyer shall deliver to each Seller and the Sellers'
Representative this Agreement, duly executed by the Buyer;
(b) the Buyer shall deliver to each Seller his Promissory Note;
(c) the Buyer shall deliver to CK the CK Operating Agreement
Amendment, duly executed by the Buyer;
(d) the Buyer shall deliver to ▇▇▇▇▇ ▇▇▇▇▇ the ▇▇▇▇▇ Employment
Agreement, duly executed by G-III;
(e) the Buyer shall deliver to ▇▇▇▇▇▇ ▇▇▇▇ the ▇▇▇▇ Employment
Agreement, duly executed by G-III;
(f) the Buyer shall deliver to ▇▇▇ ▇▇▇▇▇▇ the Lipton Employment
Agreement, duly executed by G-III;
(g) for purposes of making the Section 338(h)(10) Election, the Buyer
shall have executed and delivered to the Sellers' Representative two copies of
IRS Form 8023 (or successor form) and any applicable similar forms required by
state or local law; and
(h) the Buyer shall cause to be delivered to the Sellers an opinion,
dated as of the Closing Date and addressed to the Sellers, of Fulbright &
▇▇▇▇▇▇▇▇ L.L.P., counsel to the Buyer, in substantially the form attached hereto
as Exhibit G.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS CONCERNING
THE ACQUIRED COMPANIES
Each of the Sellers, severally and jointly, represents and warrants to the
Buyer and G-III as follows:
Section 4.1 Organization and Standing. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of New York
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(except that its Biennial Statement is past due). The Biennial Statement of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ was mailed to the Department of State of the State of New York
on July 8, 2005. CK and Fabio are limited liability companies duly organized,
validly existing and in good standing under the laws of the State of New York.
Each of the Acquired Companies and Fabio (a) has full right, power and authority
to own and lease its properties and to carry on and operate its business and
operations as now being conducted and proposed to be conducted by it under
existing agreements, (b) is duly qualified or licensed to do business and is in
good standing as a foreign corporation or limited liability company in every
jurisdiction (which jurisdictions are set forth in Schedule 4.1) in which the
character of its properties or nature of its business requires such
qualification, and (c) does not own any of its properties, and does not conduct
any of its business, through any other Person, including, without limitation,
any of the Sellers' Affiliated Companies, each of which is inactive and owns no
assets used in the business of the Acquired Companies and Fabio and otherwise
owns only insignificant assets.
Section 4.2 Organizational Documents; Books and Records.
(a) The copies of the Organizational Documents of each of the Acquired
Companies and Fabio delivered to the Buyer are complete and correct and
represent the presently effective Organizational Documents of the Acquired
Companies and Fabio. Neither of the Acquired Companies or Fabio is in violation
of its respective Organizational Documents.
(b) The books of account, minute books, share record books, and other
records of the Acquired Companies and Fabio, all of which have been made
available to the Buyer, are complete and correct in all material respects and
have been maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The Acquired Companies
and Fabio have adopted resolutions ratifying and confirming all prior actions
taken prior to the Closing Date, which are contained in their respective minute
books. No meeting of such shareholders, members, boards of directors or managers
or committees of the boards of directors or managers of the Acquired Companies
or Fabio has been held authorizing any material commitment or transaction
outside the normal course of business that is not reflected in the Material
Contracts listed in Schedule 4.12(a) or in the Financial Statements or the notes
thereto for which minutes have not been prepared and are not contained in such
minute books. At the Closing, all those books and records will be in the
possession of the Acquired Companies and Fabio.
Section 4.3 Directors; Officers; Managers. Schedule 4.3 sets forth a
complete list of the officers and directors of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and of the
managers and officers of CK and Fabio.
Section 4.4 Subsidiaries or Other Interests. Neither of the Acquired
Companies nor Fabio has any subsidiaries. No Acquired Company or Fabio directly
or indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for any equity or similar
interest in, any Person.
Section 4.5 Capitalization. The authorized capital stock of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
consists of 200 shares of common stock, no par value, of which 15 shares are
issued and outstanding and 15 shares are issued and held by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in
its treasury as of the date hereof ("▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Common Stock"). All of the
issued and outstanding shares of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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Common Stock are owned, of record and beneficially, by the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Shareholders in the amounts set forth in Schedule 2.1(a) hereto. All of the
membership interests of CK are, on the date hereof, owned by the CK Members in
the percentages set forth in Schedule 2.1(b) hereto. All of the membership
interests of Fabio are, on the date hereof, owned by the Fabio Selling Members
in the percentages set forth in Section 2.1(b) hereto, and 50% by FENX, Inc.
Except as set forth on Schedule 4.5, there are no outstanding or authorized
subscriptions, options, warrants, calls, rights, commitments or agreements of
any character to which any Acquired Company or Fabio is a party or by which it
is bound obligating such Acquired Company or Fabio to issue, deliver, sell,
repurchase or redeem or cause to be issued, delivered, sold, repurchased or
redeemed any shares in the authorized capital of the Acquired Company or
membership interests in the Acquired Company or Fabio or any securities
convertible into or exchangeable for shares in the authorized capital of the
Acquired Company or membership interests in the Acquired Company or Fabio or
obligating the Acquired Company or Fabio to grant or enter into any such
subscription, option, warrant, call, right, commitment or agreement. All
outstanding shares of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Common Stock are duly authorized, validly
issued, fully paid and non-assessable. Except as set forth in the respective
Organizational Documents or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, CK or Fabio, or as disclosed in
Schedule 4.5, all outstanding shares of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Common Stock, membership
interests of CK, and membership interests of Fabio held by the Fabio Selling
Members are free of any Liens, and are not subject to preemptive rights or
rights of first refusal created by statute, the Organizational Documents of the
applicable Acquired Company or Fabio or any agreement to which such Acquired
Company or Fabio is a party. There are no bonds, debentures, notes or other
indebtedness of any Acquired Company or Fabio having the right to vote (or
convertible into securities having the right to vote) on any matters on which
shareholders or members of such Acquired Company or Fabio may vote. There are no
other contracts, commitments, powers of attorney or agreements that will survive
the Closing relating to voting, purchase or sale of, or in any other way
affecting, the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Common Stock or membership interests in CK or
Fabio (except, in the cases of CK and Fabio, for the operating agreements of CK
and Fabio). All outstanding shares of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Common Stock and
membership interests of CK and Fabio were issued in compliance with the
Securities Act and all applicable state securities laws. All dividends and
distributions by each of the Acquired Companies have been made in compliance
with their respective Organizational Documents and all legal requirements
applicable thereto.
Section 4.6 No Contravention. The execution, delivery and performance of
this Agreement and the Other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby do not, directly or indirectly, (a)
violate any provision of the Organizational Documents of any Acquired Company or
Fabio or any resolution adopted by the board of directors, shareholders,
managers or members of any Acquired Company or Fabio, (b) except as listed on
Schedule 4.12(a) hereto, conflict with, result in the breach of, or constitute a
default under, or require any authorization, consent, approval, exemption or
other action by or notice to any third party or any Authority, under the
provisions of any agreement or other instrument to which any Acquired Company or
Fabio is a party or by which the property of any Acquired Company or Fabio is
bound or affected, or (c) violate any laws, regulations, orders or judgments
applicable to any Acquired Company or Fabio.
Section 4.7 Compliance with Laws. To the knowledge of the Sellers, each
Acquired Company and Fabio has complied in all material respects with, and is
now in compliance in all
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material respects with, all laws, rules, regulations, orders, judgments and
decrees of any Authority applicable to it. Each Acquired Company and Fabio
possesses each franchise, license, permit, authorization, certification,
consent, variance, permission, order or approval of or from any Authority, and
has filed all filings, notices or recordings with any such Authority
(collectively, "Licenses") material to, or necessary for the conduct of, its
business as now conducted or proposed to be conducted, and is now and, has at
all times in the past, been in compliance in all material respects with each
such License. Each such License is in full force and effect and is identified on
Schedule 4.7. No proceeding or other action is pending or, to the best knowledge
of the Sellers, threatened, to revoke, amend, or limit any License, and no
Seller has any basis to believe that any such proceeding or action would result
from the consummation of the transactions contemplated by this Agreement or by
the Other Transaction Documents, or that any such License would not be renewed
in the ordinary course.
Section 4.8 Environmental and Safety Laws. To the knowledge of the Sellers,
none of the Acquired Companies or Fabio is in violation of any applicable law
relating to the environment or occupational health and safety which violation
would have a Material Adverse Effect on such Acquired Company or Fabio, and, to
the knowledge of the Sellers, no material expenditures are or will be required
by any Acquired Company or Fabio in order to comply with any such existing law.
Section 4.9 Taxes.
(a) Each Acquired Company and Fabio have properly prepared and timely
filed all Tax Returns required by applicable law to have been filed with any
Taxing Authority on or prior to the date hereof, or have obtained a valid filing
extension from the appropriate Taxing Authority, and such Tax Returns were true,
correct and complete in all material respects and were completed in accordance
with applicable law. Each Acquired Company and Fabio have made available to the
Buyer copies of all Tax Returns filed for all Tax periods since January 1, 2001.
(b) All Taxes (whether or not shown on any Tax Return) required to
have been paid by any Acquired Company or Fabio on or prior to the date hereof
have been fully and timely paid. The cash reserves or accruals for Taxes
provided in the books and records of each Acquired Company and Fabio with
respect to any Tax period for which a Tax Return has not yet been filed or for
which Taxes are not yet due and owing have been established in accordance with
GAAP and, to the Sellers' knowledge, are, or prior to the Closing Date, will be,
sufficient to pay all unpaid Taxes of such Acquired Company or Fabio through and
including the Closing Date (including, without limitation, with respect to any
Taxes resulting from the transactions contemplated by this Agreement).
(c) Except as set forth on Schedule 4.9(c), no agreement or waiver
extending any statute of limitations on or extending the period for the
assessment or collection of any Tax has been executed or filed on behalf of or
with respect to any Acquired Company or Fabio. No power of attorney on behalf of
any Acquired Company or Fabio with respect to any Tax matter is currently in
force.
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(d) No Acquired Company is, and Fabio is not, a party to any
Tax-sharing agreement or similar arrangement with any other party (whether or
not written) pursuant to which it will have any actual or potential obligation
to make any payments after the Closing Date, and no Acquired Company has, and
Fabio has not, assumed any Tax obligations of, or with respect to any
transaction relating to, any other Person or agreed to indemnify any other
Person with respect to any Tax pursuant to which it will have any actual or
potential obligation to make any payments after the Closing Date.
(e) Except as set forth on Schedule 4.9(e), no Tax Return of any
Acquired Company or Fabio has been audited by a Taxing Authority, no audit is in
process or pending, and no Acquired Company or Fabio has been notified of any
request for such an audit or other examination. No claim has been made in
writing by a Taxing Authority in a jurisdiction where Tax Returns concerning or
relating to any Acquired Company or Fabio have not been filed that it is or may
be subject to Taxation by that jurisdiction.
(f) Each Acquired Company and Fabio have complied in all material
respects with all applicable laws relating to the payment and withholding of
Taxes and has duly and timely withheld from employee salaries, wages and other
compensation and has either paid over to the appropriate Taxing Authorities, set
aside in accounts for such purpose, or accrued and reserved against and entered
upon the books and records of any Acquired Company or Fabio all amounts required
to be so withheld and paid over for all periods under all applicable laws.
(g) Except as set forth in Schedule 4.9(g), no request for an
extension of time within which to file any Tax Return concerning or relating to
any Acquired Company or Fabio or its respective operations has been made on
behalf of or with respect to any Acquired Company or Fabio, which Tax Return has
not since been filed when due.
(h) No Acquired Company is and Fabio is not subject to any private
letter ruling of the IRS or comparable rulings of another Taxing Authority.
(i) None of the Sellers is a foreign person within the meaning of
Section 1445 of the Code or any other laws requiring withholding of amounts paid
to foreign persons.
(j) Except as set forth in their previously filed Tax Returns, no
Acquired Company has any and Fabio has no affirmative elections in effect for
U.S. federal income Tax purposes under Section 108, 168, 441, 472, 1017, 1033 or
4977 of the Code.
(k) No Acquired Company has ever been and Fabio has never been
included in any consolidated, combined, or unitary Tax Return (other than a
consolidated, combined or unitary income Tax Return or for which such Acquired
Company or Fabio was the common parent).
(l) Neither Fabio nor any Acquired Company or any other Person on
behalf of and with respect to Fabio or an Acquired Company has (i) agreed to or
is required to make any adjustments pursuant to Section 481(a) of the Code or
any similar provision of state, local or foreign law by reason of a change in
accounting method initiated by Fabio or an Acquired Company, and the Sellers
have no knowledge that the IRS has proposed any such adjustment or change in
accounting method, or (ii) any application pending with any Taxing Authority
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requesting permission for any change in accounting method that relates to the
business or operations of Fabio or an Acquired Company or (iii) executed or
entered into a closing agreement pursuant to Section 7121 of the Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law with respect to Fabio or an Acquired Company.
(m) No property owned by any of Fabio or the Acquired Companies is (i)
property required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Reform Act of 1986,
(ii) constitutes "tax-exempt use property" within the meaning of Section
168(h)(1) of the Code or (iii) is "tax-exempt bond financed property" within the
meaning of Section 168(g) of the Code.
(n) Neither Fabio nor any Acquired Company owns any interest in any
entity that is treated as a partnership for U.S. federal income Tax purposes or
would be treated as a pass-through or disregarded entity for any Tax purpose.
(o) Neither Fabio nor any Acquired Company has constituted either a
"distributing corporation" or a "controlled corporation" within the meaning of
Section 355(a)(1)(A) of the Code in a distribution qualifying for Tax-free
treatment under Section 355 of the Code (i) in the two years prior to the date
of this Agreement or (ii) in a distribution that could otherwise constitute part
of a "plan" or "series of transactions" (within the meaning of Section 355(e) of
the Code) in conjunction with this Agreement.
(p) Neither any Acquired Company nor Fabio (i) has "participated" in a
"reportable transaction" within the meaning of Treasury Regulations Section
1.6011-4 or (ii) has taken any reporting position on a Tax Return, which
reporting position (1) if not sustained, would be reasonably likely, absent
disclosure, to give rise to a penalty for substantial understatement of U.S.
federal income Tax under Section 6662 of the Code (or any predecessor statute or
any corresponding provision of any such statute or state, local or foreign Tax
law), and (2) has not adequately been disclosed on such Tax Return in accordance
with Section 6662(d)(2)(B) of the Code (or corresponding provision of any such
predecessor statute or state, local or foreign Tax law).
(q) Each of CK and Fabio has been treated as a partnership and not as
an association taxable as a corporation for U.S. federal income Tax purposes
since its inception. Except for purposes of the New York City Unincorporated
Business Tax, neither CK nor Fabio is subject to any entity-level U.S. federal,
state or local income Taxes.
(r) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ is a small business corporation as defined in
Section 1361 of the Code and has had in effect for each Tax year that it has
been in existence a valid election to be treated as an "S" corporation for U.S.
federal income Tax purposes under Section 1362 of the Code and under each
analogous or similar provision of state or local law in each jurisdiction where
it is required to file a Tax Return. There has been no voluntary or involuntary
termination or revocation of any such election. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ is not subject
to any entity-level U.S. federal, state or local income Taxes, except for New
Jersey, New York State and New York City corporation Taxes.
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Section 4.10 Employee Benefit Plans and Employee Matters.
(a) Schedule 4.10(a) contains an accurate and complete list of each
Employee Plan. No Acquired Company has made any plan or commitment to establish
any new Employee Plan, to modify any Employee Plan (except to the extent
required by law), or to enter into any Employee Plan.
(b) The Sellers have delivered to the Buyer (i) correct and complete
copies of all documents embodying each Employee Plan, including all amendments
thereto and all related trust documents, (ii) the most recent annual report
(Form Series 5500 and all schedules and financial statements attached thereto),
if any, required under ERISA or the Code in connection with each Employee Plan,
(iii) the most recent summary plan description together with any summaries of
material modifications thereto, if any, required under ERISA with respect to
each Employee Plan, and (iv) the most recent IRS determination or opinion letter
issued with respect to each Employee Plan that is intended to be qualified under
Section 401(a) of the Code.
(c) Each Acquired Company has performed in all material respects all
obligations required to be performed by it under any Employee Plan, and each
Employee Plan has been maintained and administered in accordance with its terms
and in compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA and the Code. Each Employee Plan
intended to be qualified under Section 401(a) of the Code and is so qualified
and has obtained a favorable determination or opinion letter as to its qualified
status under the Code. No "prohibited transaction," within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise
exempt under Section 408 of ERISA, has occurred with respect to any Employee
Plan. There are no actions, suits or claims pending or, to the knowledge of the
Sellers, threatened (other than routine claims for benefits) against any
Employee Plan or against the assets of any Employee Plan. There are no audits,
inquiries or proceedings pending or threatened by the IRS, United States
Department of Labor or any other Authority with respect to any Employee Plan.
The Acquired Companies have timely made all contributions and other payments
required by and due under the terms of each Employee Plan. No Employee Plan is
subject to Section 409A of the Code. Each Employee Plan may be unilaterally
amended and/or terminated at any time by the Acquired Company or the ERISA
Affiliate that sponsors such plan without damage or penalty. Neither the
Acquired Companies nor any of their ERISA Affiliates maintains, contributes to
or is obligated under any plan, contract, policy or arrangement providing health
or death benefits (whether or not insured) to any current or former employee or
other personnel (or beneficiary or dependent thereof) beyond the termination of
their employment or other services.
(d) None of the Acquired Companies or their ERISA Affiliates maintain,
sponsor, participate in or contribute to (or have an obligation to contribute
to) any (i) Pension Plan subject to Title IV of ERISA, or (ii) "multiemployer
plan" within the meaning of Section (3)(37) of ERISA. The execution of this
Agreement and the consummation of the transactions contemplated hereby will not
constitute an event that will result (either alone or in conjunction with any
other event, such as termination of employment) in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits to or with
respect to any Employee.
-20-
(e) To the knowledge of Sellers, each of the Acquired Companies and
Fabio: (i) is in compliance in all material respects with all applicable
federal, state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours, in
each case, with respect to Employees, (ii) has withheld and reported all amounts
required by law or by agreement to be withheld and reported with respect to
wages, salaries and other payments to Employees, (iii) is not liable for any
arrears of wages or any Taxes or any penalty for failure to comply with any of
the foregoing, and (iv) is not liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any Authority with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no pending, or
to the knowledge of the Sellers, threatened claims or actions against any
Acquired Company or Fabio under any worker's compensation policy.
(f) No work stoppage or labor strike against any Acquired Company or
Fabio is pending, or to the knowledge of the Sellers, threatened. Neither any
Acquired Company nor Fabio knows of any activities or proceedings of any labor
union to organize any Employees. There are no actions, suits, claims, labor
disputes or grievances pending or, to the knowledge of the Sellers, threatened
relating to any labor, safety or discrimination matters involving any Employee,
including charges of unfair labor practices or discrimination complaints. None
of the Acquired Companies or Fabio has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act. No Acquired Company or
Fabio currently is a party to, or bound by, any collective bargaining agreement
or union contract with respect to Employees and no collective bargaining
agreement is being negotiated by any Acquired Company or Fabio.
(g) Schedule 4.10(g) contains a complete and accurate list of the
following information for each employee, director or manager of each Acquired
Company and Fabio, including each employee on leave of absence or layoff status:
name, job title; current compensation paid or payable and any change in
compensation since January 2003; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under the Employee Plans.
(h) No employee, director or manager of any Acquired Company and none
of the Fabio Selling Members is a party to, or is otherwise bound by, any
agreement or arrangement, including any confidentiality, non-competition, or
proprietary rights agreement, between such employee, director or manager and any
other Person ("Proprietary Rights Agreement") that in any way adversely affects
or will affect (i) the performance of his duties as an employee, director or
manager of any Acquired Company or Fabio, or (ii) the ability of such Acquired
Company or Fabio to conduct its business, including any Proprietary Rights
Agreement with Sellers or any Acquired Company or Fabio by any such employee,
director or manager. To the knowledge of the Sellers, no director, officer,
manager or other key employee of any Acquired Company or Fabio intends to
terminate his employment with such Acquired Company or Fabio.
(i) Other than the Sellers, all employees of the Acquired Companies
and Fabio are employed by the Acquired Companies or Fabio on an "at will" basis
and may be terminated at any time without notice or payment of consideration or
penalty by any Acquired
-21-
Company or Fabio, except as set forth in the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Employee Manual, a
true and correct copy of which has been furnished to the Buyer.
(j) Schedule 4.10(j) sets forth all consulting arrangements between
any Acquired Company or Fabio and any Person. The Acquired Companies and Fabio
are in compliance in all material respects with all laws applicable to such
consulting arrangements.
Section 4.11 Insurance. Schedule 4.11 is a correct and complete
description, including policy numbers, of all insurance policies owned or held
by the Acquired Companies and Fabio or otherwise covering the Acquired Companies
and Fabio or their assets or employees, as well as any self-insurance
arrangement by or affecting the Acquired Companies or Fabio, including any
reserves established thereunder. Such policies are in full force and effect, are
issued by insurers that are financially sound and reputable, and will continue
in force and effect following the consummation of the transactions contemplated
by this Agreement. No Acquired Company or Fabio is in default under any of such
policies. No Acquired Company or Fabio has received any notice of non-renewal,
cancellation or intent to cancel, not renew or increase premiums or deductibles
with respect to such insurance policies nor, to the knowledge of Sellers, is
there any basis for such action. Schedule 4.11 also contains a list of all
pending claims with any insurance company (other than health, medical and dental
insurance claims of employees), as well as a summary or loss experience under
each policy or under any self-insurance arrangement.
Section 4.12 Contracts. (a) Schedule 4.12(a) contains a true and complete
list of all currently effective:
(i) agreements pursuant to which any Person has purchased or has
the right to purchase securities of any of the Acquired Companies or Fabio;
(ii) agreements under which any Person has registration rights,
preemptive rights or rights of first refusal for shares or other equity
interests of any of the Acquired Companies or Fabio;
(iii) share option, warrant or other agreements granting the
right to purchase any securities of any Acquired Company or Fabio;
(iv) stockholders' agreements, voting trusts or other agreements
affecting, pertaining to, or restricting the sale, transfer or voting of,
shares or other equity interests of any Acquired Company or Fabio;
(v) agreements pertaining to material transactions involving any
Acquired Company or Fabio and any stockholder, director or officer thereof,
including any share purchase agreements, lease agreements, management
agreements, indemnity agreements and loans to or by any such officer,
stockholder or director;
(vi) employment and consulting agreements to which any Acquired
Company or Fabio is a party;
(vii) collective bargaining or other labor agreements, share
option, profit sharing, pension, bonus, incentive or other similar
compensation, employee benefit
-22-
or retirement plan or arrangements to which any Acquired Company or Fabio
is a party or is obligated under;
(viii) loan agreements, security agreements, line of credit
agreements, indentures, mortgages or other debt instruments or arrangements
(including, without limitation, any guarantees or obligations of other
Persons) in an amount or value greater than $10,000 to which any Acquired
Company or Fabio is a party;
(ix) agreements involving the pledge, hypothecation or giving of
any security interest in any assets or property or equipment leases of any
Acquired Company or Fabio;
(x) leases and related agreements pertaining to real property,
equipment or other property, products or services of any Acquired Company
or Fabio;
(xi) marketing, sales or distribution agreements relating to the
provision or acquisition of products or services to which any Acquired
Company or Fabio is a party;
(xii) service contracts, research contracts, product development
contracts and consulting agreements in connection with the development of
any products or services of any Acquired Company or Fabio;
(xiii) franchise, joint venture, partnership, operating or
limited liability company agreements to which any Acquired Company or Fabio
is a party;
(xiv) agreements of any Acquired Company or Fabio for mergers,
consolidations, reorganizations or the purchase or sale of material assets;
(xv) trade secret, confidentiality agreements or non-competition
agreements to which any Acquired Company or Fabio is a party;
(xvi) license agreements, assignments and royalty agreements to
which any Acquired Company or Fabio is a party, including, without
limitation, any such agreements relating to apparel, products, know-how,
patents, trademarks, trade names and copyrights;
(xvii) contracts or arrangements (other than the Organizational
Documents) under which any director or officer of any Acquired Company or
Fabio is insured or indemnified in any manner against liability which he
may incur in his capacity as such;
(xviii) agreements with finders, brokers or underwriters;
(xix) others contracts that involve the performance of services
or the delivery of goods or materials by or to the Acquired Companies or
Fabio in an amount or value greater than $25,000; and
-23-
(xx) all material contracts as defined in Item 601(b)(10) of
Regulation S-K of the SEC, and not otherwise covered above.
The contracts, leases, agreements and commitments set forth on Schedule
4.12(a) (other than those included in the open order report) are referred to
herein as the "Material Contracts."
(b) Each Material Contract is valid, binding and enforceable against
the Acquired Company that is a party thereto or Fabio and in full force and
effect with respect to such Acquired Company or Fabio, and to the knowledge of
the Sellers is valid, binding, and enforceable against and in full force and
effect with respect to each other party thereto, in either case except as its
enforceability may be limited by bankruptcy, insolvency, moratorium or other
laws relating to or affecting creditors' rights generally and the exercise of
judicial discretion in accordance with general equitable principles. To the
knowledge of the Sellers, except as set forth in Schedule 4.12(b), each Material
Contract will continue to be valid, binding and enforceable and in full force
and effect immediately following the Closing in accordance with the terms
thereof as in effect prior to the Closing, except as its enforceability may be
limited by bankruptcy, insolvency, moratorium or other laws relating to or
affecting creditors' rights generally and the exercise of judicial discretion in
accordance with general equitable principles. Fabio or the Acquired Company that
is a party to each Material Contract has performed in all material respects all
the obligations required to be performed by it and is entitled to all benefits
thereunder. Except as disclosed in Schedule 4.12(b), neither Fabio nor the
Acquired Company that is a party to any Material Contract, nor, to the knowledge
of the Sellers, any other party thereto, is in breach or default in any material
respect and no event has occurred which with notice or lapse of time would
constitute a breach or default in any material respect by the Acquired Company
or Fabio that is a party to such Material Contract or, to the knowledge of the
Sellers, by any such other party, or permit termination, modification or
acceleration, under such Material Contract.
Section 4.13 Litigation. Except as set forth in Schedule 4.13, (i) there
are no actions, suits, proceedings or investigations of any nature at law or in
equity, pending or, to the best of Sellers' knowledge, threatened against or
relating to any Acquired Company or Fabio before any Authority; (ii) no
unsatisfied judgment, award, order or decree has been rendered against any
Acquired Company or Fabio by any Authority; and (iii) no Authority has indicated
in any writing received by any Acquired Company or Fabio an intention to conduct
any audit, investigation or other review with respect to any Acquired Company or
Fabio.
Section 4.14 Suppliers; Customers and Licensors.
(a) Schedule 4.14(a) sets forth, for the years ended December 31, 2003
and 2004 and for the five months ended May 31, 2005, the names of (i) the top 20
customers, as determined by revenue, of the Acquired Companies and Fabio and the
amount of revenues generated by each such customer in each such period and (ii)
each supplier that accounted for more than $100,000 of the operating expenses of
the Acquired Companies and Fabio during any such period.
(b) Except as set forth in Schedule 4.14(b), to the knowledge of the
Sellers, the Acquired Companies and Fabio have good relations with all their
customers, suppliers,
-24-
licensors and others having a business relationship with them and each Person
expected to be a customer, supplier or licensor. No customer or supplier
identified on Schedule 4.14(a) has canceled or otherwise terminated, or
threatened to cancel or terminate, its relationship with any Acquired Company or
Fabio, or decreased or limited materially, or threatened to decrease or limit
materially, its business done with any Acquired Company or Fabio, and no Seller
has any reason to believe that any such customer or supplier would not continue
its business relationship with the Buyer following the Closing on substantially
the same terms as such customer or supplier has heretofore done business with
the applicable Acquired Company or Fabio. Schedule 4.14(b) sets forth all
existing disputes between any Acquired Company or Fabio and any customer where
the customer alleges it received defective goods or is entitled to any
chargebacks or markdowns against Acquired Company or Fabio invoices.
Section 4.15 Inventories. Except as set forth on Schedule 2.5(a) and 2.5(b)
hereto, the inventory of the Acquired Companies and Fabio does not include any
items below standard quality, damaged or spoiled, obsolete or of a quality or
quantity not usable or saleable in the normal course of the business and
operations of the Acquired Companies or Fabio. All inventory of the Acquired
Companies and Fabio that consists of items that are below standard quality,
damaged or spoiled, obsolete or of a quality or quantity not usable or saleable
in the normal course of the business and operations of the Acquired Companies
and Fabio has been written off or written down to net realizable value in the
Financial Statements (as hereinafter defined) and such Schedules, and the Buyer
and Sellers have agreed as to the correctness of such values.
Section 4.16 Relationships with Related Persons. No Seller, Affiliate of
any Seller, or, to the knowledge of the Sellers, any relative or spouse of any
Seller, (a) owns, directly or indirectly, any interest in (other than the record
or beneficial ownership of less than (i) $400,000 or (ii) one percent (1%) of
the shares of any Person whose shares or interests are publicly traded on a
national securities exchange, the Nasdaq Stock Market or the OTC Bulletin
Board), or is an officer, director, employee or consultant of, any Person which
is, or is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, subcontractor, customer or client of any Acquired Company or Fabio,
(b) owns, directly or indirectly, in whole or in part, any interest in any
property (whether real, personal, or mixed and whether tangible or intangible),
used in or pertaining to the business of any Acquired Company or Fabio, or (c)
has or may acquire rights under, or has or may become subject to any obligation
under, any agreement that relates to the business of, or any of the assets owned
or used by, any Acquired Company or Fabio.
Section 4.17 Certain Payments. No Acquired Company or Fabio nor any
director, officer, agent, or employee of any Acquired Company or Fabio, or, to
the knowledge of the Sellers, any other Person associated with our acting for or
on behalf of any Acquired Company or Fabio, has directly or indirectly (a) made
any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or
other payment to any Person, private or public, regardless of form, whether in
money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured or (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect of any Acquired Company or Fabio or any Affiliate of any Acquired
Company or Fabio, in violation of any legal requirement, or (b) established or
maintained any fund or asset of any Acquired Company or Fabio that has not been
recorded in the books and records of such Acquired Company or Fabio.
-25-
Section 4.18 Proprietary Rights. Schedule 4.18 describes all franchises,
trademarks, trade names, service marks, copyrights, licenses, privileges and
other proprietary rights held by the Acquired Companies and Fabio (collectively,
the "Proprietary Rights"). Except as set forth in Schedule 4.18, all of the
Proprietary Rights are owned by an Acquired Company or Fabio or licensed for its
use and are valid and in good standing, free and clear of all Liens or other
encumbrances whatsoever. The Acquired Companies and Fabio have taken all
necessary action to protect such Proprietary Rights. No other trademarks, trade
names, service marks, copyrights, licenses, privileges and other proprietary
rights are necessary for the conduct of the business or operations of the
Acquired Companies and Fabio. To the knowledge of the Sellers, the operations
and business conducted by the Acquired Companies and Fabio do not infringe upon
or conflict with any patent, trademark, trade name, service ▇▇▇▇, copyright,
license or other proprietary right of any third party. No Acquired Company or
Fabio has received any notice of infringement upon or conflict with the asserted
rights of others.
Section 4.19 Financial Statements. Sellers have delivered to the Buyer
complete and correct copies of the following: (a) audited financial statements
of the Acquired Companies, including balance sheets and statements of income,
retained earnings and cash flows as of, and for the years ended, December 31,
2002, 2003 and 2004, (b) unaudited financial statements of the Acquired
Companies, including balance sheets and statements of income for the five month
period ended May 31, 2005 and (c) unaudited financial statements of the Acquired
Companies, including balance sheets and statements of income, for each of the
four quarters in 2004 (collectively, the "Financial Statements"). Each of the
Financial Statements is true, complete and correct in all material respects, and
fairly presents the results of operations, financial condition, assets,
liabilities and cash flows of the Acquired Companies for the periods specified.
The Financial Statements have been prepared in accordance with GAAP, except as
may be expressly stated in the related notes thereto. The unaudited Financial
Statements reflect all adjustments, consisting of normally recurring
adjustments, necessary to present fairly the financial condition of the Acquired
Companies at May 31, 2005, December 31, 2004, September 30, 2004, June 30, 2004
and March 31, 2004, and the results of operations for each of the three month
periods then ended (or five month period then ended, in the case of the
unaudited Financial Statements at May 31, 2005). All material liabilities and
obligations, whether accrued, absolute, contingent, direct or indirect,
perfected, inchoate, unliquidated or otherwise and whether due or to become due
have been disclosed in the Financial Statements or in the notes thereto or in
one or more Schedules to this Agreement. Except as noted in the Financial
Statements, the statements of income included in the Financial Statements do not
contain any material items of special or non-recurring income or other income
not earned in the ordinary course of business.
Section 4.20 Absence of Certain Changes.
(a) Except as set forth on Schedule 4.20(a), since December 31, 2004
(the "Balance Sheet Date"), each Acquired Company and Fabio has conducted its
businesses in the ordinary course of business consistent with past practice, and
has not:
(i) except as described in the May 31, 2005 Financial Statements,
suffered any change, event or condition that, individually or in the
aggregate, has had or
-26-
could reasonably be expected to have a Material Adverse Effect upon such
Acquired Company or Fabio;
(ii) incurred damage or destruction or loss of any asset or
property, whether or not covered by insurance, in an amount in excess,
individually or in the aggregate, of $25,000;
(iii) changed its authorized or issued capital stock or the terms
of its membership interests;
(iv) granted any stock option or right to purchase shares of
capital stock or membership interests;
(v) granted any phantom or similar rights which give any Person
any interest in any portion of revenue or earnings;
(vi) issued any security convertible into capital stock or
membership interests;
(vii) declared or paid any dividend or other distribution in
respect of shares of capital stock or membership interests, except for a
distribution to the Sellers of approximately $2,000,000 in January 2005;
(viii) entered into any transaction, contract or commitment
individually involving payments in excess of $25,000 (other than this
Agreement or as disclosed in Schedule 4.12(a));
(ix) except in the ordinary course of business consistent with
past practice, including as to quantity and frequency, incurred or paid any
liability or obligation, incurred any indebtedness for borrowed money or
assumed, guaranteed, endorsed or otherwise become responsible for the
obligations of any other Person;
(x) entered into or amended any employment, consulting or other
agreement with, increased any compensation payable to, awarded any bonus
to, made any loan to, paid any expense or contribution on behalf of, given
any gift to, or otherwise conferred any benefit (directly or indirectly)
upon, any of its officers, employees, shareholders, managers, members or
consultants, except for salary increases and bonuses to employees disclosed
in Schedule 4.10(g);
(xi) made any capital expenditures in excess of $25,000 other
than those made the ordinary course of business, consistent with past
practice;
(xii) sold, transferred, leased, assigned or otherwise disposed
of any asset or properties, except in the ordinary course of business,
consistent with past practice;
(xiii) made any Tax election or settled or compromised any
federal, state, local or other Tax liability either not in accordance with
past practice, or which has
-27-
had or could reasonably be expected to have a Material Adverse Effect upon
such Acquired Company or Fabio;
(xiv) taken any action that was intended or may reasonably be
expected to result in any of the representations and warranties set forth
in Article IV of this Agreement being or becoming untrue;
(xv) made a material change in the methods of accounting in
effect at the Balance Sheet Date, except as required by GAAP;
(xvi) except in the ordinary course of business consistent with
past practice, created, renewed, amended or terminated or given notice of a
proposed renewal, amendment of termination of, any material contract,
agreement or lease for goods or services to which such Acquired Company or
Fabio is a party; or
(xvii) agreed to do any of the foregoing.
Section 4.21 No Undisclosed Liabilities. No Acquired Company or Fabio has
any material obligations or liabilities (whether pursuant to contracts or
otherwise) of any nature (accrued, absolute, contingent, direct or indirect,
perfected, inchoate, unliquidated or otherwise) other than (i) those set forth
or adequately provided for in the balance sheets of the Acquired Companies or
Fabio as of the Balance Sheet Date (the "Balance Sheets"), (ii) those incurred
in the ordinary course of business and not required to be set forth in the
Balance Sheets under GAAP, and (iii) those incurred in the ordinary course of
business since the Balance Sheet Date and consistent with past practice.
Section 4.22 Accounts Receivable; Accounts Payable; Orders-in-Process.
(a) The Sellers have provided the Buyer with an accurate and complete
breakdown and aging of all accounts receivable and other receivables of the
Acquired Companies and Fabio as of the Balance Sheet Date and as of May 31,
2005. All accounts receivable of the Acquired Companies and Fabio are reflected
on the Financial Statements or on the accounting records of the Acquired
Companies and Fabio as of the date hereof (collectively, the "Accounts
Receivable") and (i) have arisen only from bona fide transactions in the
ordinary course of business consistent with past practice, (ii) to the knowledge
of the Sellers, represent valid obligations and (iii) are owned by an Acquired
Company or Fabio free of all Liens or other encumbrances whatsoever, except
pursuant to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇' secured financing facility disclosed on Schedule
4.12(a). The respective reserves, if any, shown on the Financial Statements or
on the accounting records of the Acquired Companies and Fabio as of the date
hereof are adequate and calculated consistent with past practice. Except as set
forth in Schedule 4.22(a), no Seller has received any notice of any contest,
claim, or right of set-off, other than returns in the ordinary course of
business, under any agreement with any obligor of an Accounts Receivable
relating to the amount or validity of such Accounts Receivable.
(b) All accounts payable of the Acquired Companies and Fabio reflected
on the Balance Sheets arose, and all accounts payable of the Acquired Companies
and Fabio arising after the dates thereof have arisen, from bona fide
transactions.
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(c) Schedule 4.22(c) lists all purchase and sales orders in process on
the Closing Date to the extent merchandise thereunder has not been shipped to
customers of the Acquired Companies and Fabio and which are not, therefore,
accounts receivable (each, an "Order-in-Process"). To the knowledge of the
Sellers, each Order-in-Process is valid, binding and enforceable against the
Acquired Company that is a party thereto or Fabio, as the case may be, and in
full force and effect with respect to such Acquired Company or Fabio, and, to
the knowledge of the Sellers, is valid, binding, and enforceable against and in
full force and effect with respect to each other party thereto, in either case
except as its enforceability may be limited by bankruptcy, insolvency,
moratorium or other laws relating to or affecting creditors' rights generally
and the exercise of judicial discretion in accordance with general equitable
principles. Provided that the financial condition and reputation of the Buyer is
satisfactory to the other parties thereto, each Order-in-Process will continue
to be valid, binding and enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect prior to
the Closing, except as its enforceability may be limited by bankruptcy,
insolvency, moratorium or other laws relating to or affecting creditors' rights
generally and the exercise of judicial discretion in accordance with general
equitable principles and except as the Division may elect to compromise or
adjust the Orders-in-Process after the Closing in accordance with past practice
and the business judgment of its management.
Section 4.23 Title to and Condition of Property.
(a) The Acquired Companies and Fabio have good and marketable title to
all of their properties, interests in properties and assets, real and personal,
or with respect to leased properties and assets, valid leasehold or subleasehold
interests therein, free and clear of all Liens, except for the following: (i)
the Lien of current Taxes not yet due and payable or for Taxes which are being
contested in good faith and by appropriate proceedings and which are reserved
against in accordance with GAAP, (ii) such imperfections of title, Liens and
easements, restrictive covenants and rights of way as do not and will not
materially detract from or interfere with the use of the properties subject
thereto or affected thereby, or otherwise materially impair business operations
involving such properties, (iii) mechanics', materialmens', carriers',
workmens', warehousemens', repairmens', landlords' or other like Liens securing
obligations that are not yet delinquent, (iv) purchase money Liens securing the
purchase price of the related personal property, and (v) platting, subdivision,
zoning, building and other similar legal requirements which are not violated by
the building, structures and other improvements located on any real property,
whether or not of record ("Permitted Liens"). The property and equipment of the
Acquired Companies or Fabio that are used in the operation of their respective
businesses are in good operating condition and repair, subject to normal wear
and tear, are adequate and suitable in all material respects for the uses to
which they are being put and the operation of such businesses. All properties
used in the operations of the Acquired Companies or Fabio are reflected in the
Financial Statements, to the extent GAAP requires the same to be reflected.
(b) Schedule 4.23(b) identifies all real property owned, leased or
subleased by each Acquired Company and Fabio (the "Real Property"). The Real
Property is all of the real property necessary for the conduct of the businesses
of the Acquired Companies and Fabio as presently conducted and all operations
necessary for the conduct of the businesses of the Acquired Companies and Fabio
as presently conducted are located on the Real Property. No title, lease or
subleases with respect to such Real Property is subject to any Lien, except
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Permitted Liens. Each Acquired Company's and Fabio's occupation, possession and
use of the Real Property has not been disturbed and no claim has been asserted
or threatened adverse to the rights of any Acquired Company or Fabio to the
continued occupation, possession and use of any of the Real Property.
Section 4.24 Brokers or Finders. Except as set forth in Schedule 4.24,
neither of the Acquired Companies or Fabio has incurred, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement, the Other Transaction
Documents or any transaction contemplated hereby or thereby. The Sellers shall,
jointly and severally, indemnify and hold the Buyer and G-III harmless with
respect to any claim by any broker, agent, or finder claiming to have acted on
behalf of any Acquired Company or Fabio respecting the subject matter hereof.
Section 4.25 Projections. The Sellers have provided the Buyer with
projections for the Acquired Companies and Fabio through December 31, 2005 which
are attached hereto as Schedule 4.25 (the "Projections"). The Projections were
prepared in good faith and are based upon assumptions and estimates that the
Sellers believed to be reasonable at the time of preparation; it being
understood by the Buyer that projections such as the Projections are inherently
subject to risks, uncertainties and other factors that may cause actual results
to differ from those stated in such Projections.
Section 4.26 No Misleading Statements. No information furnished by or on
behalf of any Seller to the Buyer concerning any Acquired Company contains any
untrue statement of a material fact or omits to state a material fact necessary
to make such statement, in the light of the circumstances under which it was
made, not misleading. All written information, in whatever form, furnished by
any Seller concerning any Acquired Company to the Buyer was true and correct in
all material respects as of the date so furnished and, except as the accuracy
thereof is affected by the passage of time, remains true and correct in all
material respects as of the date hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AND CONCERNING THE SELLERS
Each Seller, severally and not jointly, represents and warrants to the
Buyer and G-III as follows:
Section 5.1 Binding Obligations. This Agreement and the Other Transaction
Documents to which such Seller is a party have been duly executed and delivered
by such Seller and constitute valid and binding agreements of such Seller,
enforceable in accordance with their respective terms, except as their
enforceability may be limited by bankruptcy, insolvency, moratorium or other
laws relating to or affecting creditors' rights generally and the exercise of
judicial discretion in accordance with general equitable principles, and except
to the extent that rights to indemnification or contribution may be prohibited
by public policy or Federal securities laws.
Section 5.2 Purchased Shares or Purchased Interests. Subject to the waiver
of any rights of first refusal by the holders thereof, which waivers have been
obtained, such Seller has
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full right, power and authority to sell, transfer, assign and deliver the
Purchased Shares or Purchased Interests being sold by him hereunder. Such Seller
is the sole registered and beneficial owner of the Purchased Shares or Purchased
Interests being sold by him hereunder and has good and valid title to such
Purchased Shares or Purchased Interests, free and clear of all Liens, rights or
claims of others and other encumbrances (other than restrictions on transfer
imposed by the Securities Act or state securities laws). Such Seller is not a
party to any voting trust agreement or other contract, agreement, arrangement,
commitment, plan or understanding restricting or otherwise relating to voting,
dividend or other rights with respect to the Purchased Shares or Purchased
Interests (other than, in the case of the Purchased Interests, the operating
agreement of CK or Fabio).
Section 5.3 No Contravention. The execution, delivery and performance of
this Agreement and the Other Transaction Documents to which such Seller is a
party, the consummation of the transactions contemplated hereby and thereby and
the compliance with the provisions hereof and thereof by such Seller do not (a)
conflict with, result in the breach of, or constitute a default under, or
require any authorization, consent, approval, exemption or other action by or
notice to any third party or Authority, under the provisions of any agreement or
other instrument to which such Seller is a party or by which the property of
such Seller is bound or affected or (b) violate any laws, regulations, orders or
judgments applicable to such Seller.
Section 5.4 No Claims. Such Seller has no claims against any Acquired
Company or Fabio, for whatever reason, either as a shareholder, director,
officer, member, manager or otherwise, other than claims relating to employment
benefits and reimbursement of expenses provided in the ordinary course of
business and, after the Closing, the Acquired Companies, Fabio and the Buyer
shall have no further obligation to such Seller except to the extent expressly
provided in this Agreement.
Section 5.5 Securities Act Matters.
(a) Such Seller acknowledges that his representations and warranties
contained herein are being relied upon by G-III and Buyer as a basis for the
exemption of the issuance of G-III Shares hereunder from the registration
requirements of the Securities Act and any applicable state securities laws.
(b) Such Seller understands that (i) G-III Shares are not registered
under the Securities Act or any state securities laws by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act and applicable state securities laws and (ii) G-III Shares must
be held indefinitely unless a subsequent disposition thereof is registered under
the Securities Act and applicable state securities laws or is exempt from such
registration.
(c) Such Seller is acquiring the G-III Shares for his own account and
not with a view to, or for sale in connection with, directly or indirectly, any
distribution thereof that would require registration under the Securities Act or
applicable state securities laws or would otherwise violate the Securities Act
or such state securities laws.
(d) Such Seller has relied upon independent investigations made by him
or his representatives and is fully familiar with the business, results of
operations, financial condition,
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prospects and other affairs of G-III and realizes that G-III Shares are a
speculative investment involving a high degree of risk for which there is no
assurance of any return.
(e) Such Seller has such knowledge and experience in financial and
business affairs, including investing in companies similar to G-III, and is
capable of determining the information necessary to make an informed investment
decision, of requesting such information from G-III, and of utilizing the
information that it has received from G-III to evaluate the merits and risks of
his or investment in the G-III Shares and is able to bear the economic risk of
his investment in the G-III Shares, and understands that he must do so for an
indefinite period of time.
(f) Such Seller and his attorneys, accountants, investment and
financial advisors, if any, have been provided access to such information about
G-III as he or his advisors, if any, have requested.
(g) Such Seller is an "accredited investor" as defined in Regulation D
under the Securities Act.
(h) Such Seller understands that, until the G-III Shares are
registered pursuant to Section 7.2 or until a sale pursuant to the provisions of
Rule 144 under the Securities Act, the G-III Shares will bear the following
legend (or a substantially similar legend):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE COMPANY OF AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED."
Section 5.6 Brokers or Finders. Except as set forth on Schedule 4.24, such
Seller has not incurred, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement, the Other Transaction Documents or any transaction contemplated
hereby or thereby. Such Seller shall indemnify and hold the Buyer and G-III
harmless with respect to any claim by any broker, agent, or finder claiming to
have acted on behalf of such Seller respecting the subject matter hereof.
Section 5.7 No Misleading Statements. No information furnished by or on
behalf of such Seller to the Buyer concerning such Seller contains any untrue
statement of a material fact or omits to state a material fact necessary to make
such statement, in the light of the circumstances under which it was made, not
misleading. All written information, in whatever form, furnished by such Seller
to the Buyer concerning such Seller was true and correct in all material
respects as of the date so furnished and, except as the accuracy thereof is
affected by the passage of time, remains true and correct in all material
respects as of the date hereof.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND G-III
The Buyer and G-III represent and warrant to the Sellers as follows:
Section 6.1 Organization and Standing. The Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of New York, with full corporate right, power and authority to enter into and
perform and do all things contemplated under this Agreement and the Other
Transaction Documents to which it is a party necessary to give effect to the
provisions of this Agreement and such Other Transaction Documents. G-III is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with full corporate right, power and authority to
enter into and perform and do all things contemplated under this Agreement and
the Other Transaction Documents to which it is a party necessary to give effect
to the provisions of this Agreement and such Other Transaction Documents.
Section 6.2 Authorization and Binding Obligations. The execution, delivery
and performance by the Buyer and G-III of this Agreement and the Other
Transaction Documents to which either the Buyer or G-III is a party have been
duly and validly authorized by all necessary corporate action, including
approval of the entire transaction by the requisite vote of the board of
directors of the Buyer or G-III. This Agreement and the Other Transaction
Documents to which the Buyer or G-III is a party have been duly executed and
delivered by the Buyer or G-III, as the case may be, and constitute valid and
binding agreements of the Buyer or G-III, enforceable in accordance with their
respective terms, except as their enforceability may be limited by bankruptcy,
insolvency, moratorium or other laws relating to or affecting creditors' rights
generally and the exercise of judicial discretion in accordance with general
equitable principles, and except to the extent that rights to indemnification or
contribution may be prohibited by public policy or Federal securities laws.
Section 6.3 No Contravention. The execution, delivery and performance of
this Agreement and the Other Transaction Documents to which the Buyer or G-III
is a party, the consummation of the transactions contemplated hereby and thereby
and the compliance with the provisions hereof and thereof by the Buyer or G-III
do not (a) violate any provision of the certificate of incorporation or bylaws
of the Buyer or G-III, (b) conflict with, result in the breach of, or constitute
a default under, or require any authorization, consent, approval, exemption or
other action by or notice to any third party or Authority, under the provisions
of any agreement or other instrument to which the Buyer or G-III is a party or
by which the property of the Buyer is bound or affected that has not been
obtained, or (c) violate any laws, regulations, orders or judgments applicable
to the Buyer or G-III.
Section 6.4 Issuance of the G-III Shares. Upon issuance hereunder, the
G-III Shares shall be validly issued, fully paid and non-assessable and shall be
free and clear of any Liens, except that the Unvested G-III Shares shall be
subject to the vesting schedule and conditions set forth in Section 7.1.
Promptly after the issuance of the G-III Shares, G-III will file all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC or any self-regulatory organization under the Securities Act or the
Exchange Act with respect to the issuance of the G-III Shares.
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Section 6.5 SEC Filings. The Common Stock is registered pursuant to Section
12(g) of the Exchange Act, and G-III has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Exchange Act, including material filed
pursuant to Section 13(a) or 15(d) thereof. G-III has delivered or made
available to the Sellers true and complete copies of the following documents
(the "SEC Documents") filed with the SEC:
(a) G-III's Annual Report on Form 10-K for the fiscal year ended
January 31, 2005;
(b) G-III's Quarterly Report on Form 10-Q for the quarterly period
ended April 31, 2005; and
(c) G-III's proxy statement and proxy statement supplement in
connection with its Annual Meeting of Stockholders held on June 9, 2005.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC promulgated thereunder and other federal, state and local laws, rules
and regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The SEC Documents contain all material information concerning G-III,
and no event or circumstance has occurred, other than the execution of this
Agreement and other transactions occurring on the date hereof, which would
require G-III to disclose such event or circumstance in order to make the
statements in the SEC Documents not misleading on the date hereof but which has
not been so disclosed.
Section 6.6 Securities Act Matters. The Buyer is an "accredited investor"
as defined in Regulation D under the Securities Act and is not acquiring the
Purchased Shares or the Purchased Interests with a view to or in connection with
any distribution thereof in violation of the Securities Act or applicable state
securities laws.
Section 6.7 Brokers or Finders. Neither Buyer nor G-III has incurred,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement, the Other
Transaction Documents or any transaction contemplated hereby or thereby. The
Buyer and G-III shall indemnify and hold the Sellers harmless with respect to
any claim by any broker, agent, or finder claiming to have acted on behalf of
the Buyer or G-III respecting the subject matter hereof.
Section 6.8 No Misleading Statements. No information furnished by or on
behalf of the Buyer to any Seller contains any untrue statement of a material
fact or omits to state a material fact necessary to make such statement, in the
light of the circumstances under which it was made, not misleading. All written
information, in whatever form, furnished by the Buyer to the Sellers was true
and correct as of the date so furnished and, except as the accuracy thereof is
affected by the passage of time, remains true and correct in all material
respects as of the date hereof.
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ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Vesting Schedule and Conditions.
(a) All of the Unvested G-III Shares shall be subject to an option as
to the Unvested G-III Shares (the "Purchase Option") set forth in this Section
7.1. From and after the date that any vesting condition described in Section
7.1(b) is no longer capable of being satisfied, G-III shall have the right to
exercise the Purchase Option, which consists of the right to purchase from the
Sellers, at the purchase price of $0.01 per share (the "Option Price"), up to
but not exceeding the number of Unvested G-III Shares specified in the
applicable subsection of Section 7.1(b).
(b) (i) 50,000 of the Unvested G-III Shares shall vest and cease to be
subject to the Purchase Option if, at any time between the Closing Date and
January 31, 2009, the Closing Price is $20.00 or greater.
(i) 25,000 of the Unvested G-III Shares shall vest and cease to
be subject to the Purchase Option if, at any time between the Closing Date
and January 31, 2007, the Closing Price is $10.00 or greater.
(ii) 25,000 of the Unvested G-III Shares shall vest and cease to
be subject to the Purchase Option if, at any time between February 1, 2006
and January 31, 2008, the Closing Price is $11.00 or greater.
(iii) 25,000 of the Unvested G-III Shares shall vest and cease to
be subject to the Purchase Option if, at any time between February 1, 2007
and January 31, 2008, the Closing Price is $12.00 or greater.
(iv) 25,000 of the Unvested G-III Shares shall vest and cease to
be subject to the Purchase Option if, at any time between February 1, 2008
and January 31, 2009, the Closing Price is $13.00 or greater.
(v) Notwithstanding the limitations set forth in Sections
7.1(b)(i) through 7.1(b)(v) above, all of the Unvested G-III Shares shall
vest and cease to be subject to the Purchase Option if, at any time between
the Closing Date and January 31, 2007, the Closing Price is $20.00 or
greater.
(c) The Purchase Option shall be exercised by written notice signed by
an officer of G-III and given as provided in Section 9.1 below. The Option Price
shall be payable by G-III in cash or by check.
(d) If from time to time from the Closing Date until such date on
which Purchase Option is no longer exercisable as to any of the Unvested G-III
Shares there is any stock dividend or liquidating dividend of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of G-III, then, in such event, any and all new,
substituted or additional securities or other property to which the Sellers are
entitled by reason of their ownership of the Unvested G-III Shares shall be
immediately subject to the
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Purchase Option, be included in the word "Unvested G-III Shares" for all
purposes of the Purchase Option with the same force and effect as Unvested G-III
Shares subject to the Purchase Option under the terms of this Section 7.1 and
automatically be deposited with the Escrow Agent (as hereinafter defined) to be
held as security in accordance with Section 7.1(g). The numbers of Unvested
G-III Shares and the target Closing Prices set forth in Section 7.1(b) shall be
appropriately adjusted by G-III upon the occurrence of any such event.
(e) All certificates representing any Unvested G-III Shares subject to
the Purchase Option shall have endorsed thereon the following legend (in
addition to the legend set forth in Section 5.5(h)):
"ANY DISPOSITION OF ANY INTEREST IN THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS, AND THE SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO A PURCHASE OPTION, CONTAINED IN A
CERTAIN AGREEMENT BY AND BETWEEN THE RECORD HOLDER HEREOF AND THE
CORPORATION, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE WITHIN FIVE (5) DAYS OF RECEIPT BY THE
CORPORATION OF A WRITTEN REQUEST THEREFOR."
(f) No Seller shall sell or transfer any Unvested G-III Shares then
subject to the Purchase Option. Any attempted transfer in violation of the terms
of this Agreement shall be ineffective to vest in any transferee any interest
held by such Seller, and any purported transfer in violation hereof shall be
ineffective as against G-III. G-III shall not be required (i) to transfer on its
books or the books of its transfer agent any Unvested G-III Shares which shall
have been sold or transferred in violation of any of the provisions set forth in
this Agreement or (ii) to treat as owner of such Unvested G-III Shares or to
accord the right to vote as such owner or to pay dividends to any transferee to
whom such Unvested G-III Shares shall have been so transferred.
(g) As security for the faithful performance of the terms of this
Section 7.1, and to insure that the Unvested G-III Shares subject to the
Purchase Option will be available for delivery upon exercise of the Purchase
Option as herein provided, each Seller agrees to deliver to and deposit with the
Secretary of G-III, as escrow agent (the "Escrow Agent"), the certificate(s)
representing the Unvested G-III Shares, together with an Assignment, which shall
be in the form attached hereto as Exhibit H and which shall be duly endorsed
with the date and number of Unvested G-III Shares left blank. The certificate(s)
representing the Unvested G-III Shares and all such assignments will be held by
the Escrow Agent until the Unvested G-III Shares no longer remain subject to the
Purchase Option. In the event that any of the vesting conditions set forth in
Section 7.1(b) is satisfied such that a portion of the Unvested G-III Shares in
no longer subject to the Purchase Option, G-III shall promptly furnish to the
Sellers certificates representing the Unvested G-III Shares no longer subject to
the Purchase Option, and shall promptly furnish to the Escrow Agent certificates
representing the remainder of the Unvested G-III Shares.
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Section 7.2 Registration of the Registrable G-III Shares. (a) G-III shall:
(i) as promptly as practicable after the Closing (and in no event
more than 60 days), prepare and file with the SEC a registration statement
on Form S-3 or other appropriate form (the "Registration Statement")
relating to the resale of the Registrable G-III Shares by the Sellers;
(ii) use its reasonable efforts, subject to receipt of necessary
information from the Sellers, to cause the SEC to declare the Registration
Statement effective as promptly as practicable after the Registration
Statement is filed by G-III;
(iii) promptly prepare and file with the SEC (and provide notice
to the Sellers of any such filing) such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith as
may be necessary to keep the Registration Statement effective until the
earlier of (A) the date all of the Registrable G-III Shares covered by the
Registration Statement have been sold by the Sellers, or (B) the date that
is the first anniversary of the Closing Date;
(iv) furnish to each Seller such number of copies of prospectuses
as such Seller may reasonably request in order to facilitate the public
sale or other disposition by such Seller pursuant to the Registration
Statement of all or any of the Registrable G-III Shares owned by such
Seller;
(v) notify each holder of Registrable G-III Shares covered by
such Registration Statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing. G-III will use reasonable efforts to amend or
supplement such prospectus in order to cause such prospectus not to include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; provided,
however, that G-III, in good faith, may delay the filing of any such
amendment or supplement for a reasonable period of time in order to permit
G-III (A) to effect disclosure or disposition or consummation of any
transaction requiring confidential treatment which is being actively
pursued at such time and which would require disclosure in the Registration
Statement or (B) to negotiate, effect or complete any transaction which
G-III reasonably believes might be jeopardized, delayed or made more costly
to G-III by disclosure in the Registration Statement; and
(vi) bear all expenses in connection with the procedures set
forth in this Section 7.2(a) and the registration of the Registrable G-III
Shares pursuant to the Registration Statement, other than fees and
expenses, if any, of counsel and other advisers to the Sellers or
underwriting discounts, brokerage fees and commissions incurred by the
Sellers, if any.
(b) (i) Notwithstanding the generality of the foregoing clauses, each
Seller agrees that upon notice from G-III at any time or from time to time
during the time the
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prospectus relating to the Registrable G-III Shares covered by the Registration
Statement and proposed to be sold by such Seller is required to be delivered
under the Securities Act of the happening of any event as a result of which, in
G-III's opinion after consultation with its counsel, the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, such Seller will forthwith discontinue such
Seller's disposition of such Registrable G-III Shares pursuant to the
Registration Statement until the time of such Seller's receipt of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchaser of such Registrable G-III Shares, such prospectus
shall not include, in G-III's opinion after consultation with its counsel, an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
(i) Each Seller shall furnish G-III such information regarding
such Seller and the distribution of the Registrable G-III Shares covered by
the Registration Statement as G-III may from time to time reasonably
request in writing.
(ii) Each Seller agrees to give at least five (5) Business Days'
prior written notice to G-III of any proposed sale of the Registrable G-III
Shares covered by the Registration Statement pursuant to the Registration
Statement and not to make such sale (A) unless such five (5) Business Days
elapse without response from G-III, or (B) in the event G-III sends such
Seller written notice stating that an amendment to the Registration
Statement or supplement to the prospectus must be filed in accordance with
the second sentence of Section 7.2(a)(v), until G-III notifies the Sellers
that the Registration Statement has been amended or the prospectus
supplemented as required; provided, however, that G-III agrees to file such
amendment or supplement promptly upon the resolution of the disclosure
issue necessitating such delay.
(c) G-III will use reasonable efforts to cause the Registrable G-III
Shares covered by and to be sold pursuant to the Registration Statement to be
eligible for quotation on the Nasdaq Stock Market or listed on any national
securities exchange on which shares of Common Stock are then quoted or listed.
(d) (i) From and after the first anniversary of the Closing Date and
continuing until January 31, 2010 or such earlier date upon which all of the
Unvested G-III Shares shall either have vested and ceased to be subject to the
Purchase Option and been resold pursuant to the Registration Statement, another
effective registration statement of G-III under the Securities Act or Rule 144
under the Securities Act, or been repurchased by G-III by its exercise of the
Purchase Option or otherwise, if G-III proposes to register (including for this
purpose a registration effected by G-III for stockholders other than the
Sellers) any of its stock or other securities under the Securities Act in
connection with a public offering of such securities (other than a registration
relating solely to the sale of securities to participants in a stock or option
plan or arrangement of G-III or a registration relating to a corporate
reorganization or other transaction under Rule 145 under the Securities Act),
G-III shall, at such time, promptly give each Seller then holding Unvested G-III
Shares that have vested and ceased to be subject to the Purchase Option (such
shares, the "New Registrable G-III Shares", and such Sellers, the
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"Applicable Sellers") written notice of such registration. Upon the written
request of any of such Applicable Sellers given within 20 days after the mailing
of such notice by G-III, G-III shall, subject to the provisions of Section
7.2(d)(ii), cause to be registered under the Securities Act all of the New
Registrable G-III Shares held by such Applicable Seller that such Applicable
Seller has requested to be registered.
(i) In connection with any offering involving an underwriting of
shares of G-III's capital stock, G-III shall not be required under this
Section 7.2(d) to include any Applicable Seller's New Registrable G-III
Shares in such underwriting unless such Applicable Seller accepts the terms
of the underwriting as agreed upon between G-III and the underwriters
selected by G-III (or by other Persons entitled to select the underwriters)
and enter into an underwriting agreement in customary form with such
underwriters, and then only in such quantity as the underwriters determine
in their sole discretion will not jeopardize the success of the offering by
G-III. If the total amount of New Registrable G-III Shares requested by the
Applicable Sellers to be included in such offering exceeds the amount of
securities sold other than by G-III that the underwriters determine in
their sole discretion is compatible with the success of the offering in
view of market conditions, then G-III shall be required to include in the
offering only that number of such securities, including New Registrable
G-III Shares, that the underwriters determine in their sole discretion will
not jeopardize the success of the offering (the securities so included to
be apportioned pro rata among the selling stockholders, including the
Applicable Sellers, according to the total amount of securities entitled to
be included therein owned by each selling stockholder or in such other
proportions as shall mutually be agreed to by such selling stockholders).
(ii) G-III's agreements set forth in Sections 7.2(a), 7.2(c) and
7.2(e) and the Sellers' agreements set forth in Section 7.2(b) and 7.2(e),
shall apply, mutatis mutandis, to any registration statement that may be
filed with the SEC by G-III as provided in Section 7.2(d)(i) that includes
New Registrable G-III Shares; provided, however, that to the extent that
such registration statement relates to an underwritten public offering,
G-III may at any time, in its sole discretion or upon consultation with the
underwriters, determine not to proceed with or to delay such underwritten
public offering; and provided, further, however, that if the provisions of
Section 7.2(e) conflict with the indemnification and contribution rights
and obligations of the parties set forth in the underwriting agreement and
any ancillary agreements relating to such registration statement and
underwritten public offering, the latter shall control.
(e) (i) In the event of a registration of any of the Shares under the
Securities Act pursuant to this Section 7.2, G-III will, to the extent permitted
by applicable law, indemnify and hold harmless each Seller against all losses,
claims, damages or liabilities, joint or several, to which such Seller may
become subject under the Securities Act, the Exchange Act or any other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of G-III), insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, including the prospectus, financial statements and schedules, and all
other documents filed as a part thereof, as amended at the time of effectiveness
of the
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Registration Statement, including any information deemed to be a part thereof as
of the time of effectiveness pursuant to paragraph (b) of SEC Rule 430A, or
pursuant to SEC Rule 434, or the prospectus, in the form first filed with the
SEC pursuant to SEC Rule 424(b), or filed as part of the Registration Statement
at the time of effectiveness if no Rule 424(b) filing is required, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each such Seller for any legal or other expenses reasonably incurred
by such Seller in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability or action;
provided, however, that G-III will not be liable in any such case if and to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished in writing by such
Seller specifically for use in such Registration Statement. For purposes of this
Section 7.2(e), the term "Registration Statement" shall include any final
prospectus, exhibit, supplement or amendment included in or relating to, and any
document incorporated by reference in, the Registration Statement referred to in
Section 7.2(a).
(i) Each Seller, severally and not jointly, will, to the extent
permitted by applicable law, indemnify and hold harmless G-III, each
Person, if any, who controls G-III within the meaning of the Securities
Act, each officer of G-III who signs the Registration Statement and each
director of G-III, against all losses, claims, damages or liabilities,
joint or several, to which G-III or such officer or director may become
subject under the Securities Act, the Exchange Act or any other federal or
state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the
written consent of the Sellers), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and will reimburse G-III and
each such officer, director or controlling Person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that such Seller will be liable hereunder in any such case if and
only to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement of
a material fact or omission or alleged omission of a material fact made in
reliance upon and in conformity with information pertaining to such Seller
furnished in writing to G-III by such Seller specifically for use in the
Registration Statement; and provided further, however, that the liability
of each Seller hereunder shall not in any event exceed the proceeds
received from the sale of such Seller's Registrable G-III Shares covered by
such Registration Statement.
(ii) Promptly after receipt by an indemnified party under this
Section 7.2(e) of notice of the threat or commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party under this Section 7.2(e), promptly notify the
indemnifying party in writing thereof, but the omission to so notify the
indemnifying party will not relieve it from any liability which it
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may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7.2(e) to the extent it
is not prejudiced as a result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may
wish, jointly with all other indemnifying parties similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a
conflict between the positions of the indemnifying party and the
indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right
to select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party under this Section
7.2(e) for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (A) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the
preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate
counsel, approved by such indemnifying party in the case of Section
7(d)(i), representing all of the indemnified parties who are parties to
such action) or (B) the indemnified party shall not have employed counsel
reasonably satisfactory to the indemnifying party to represent the
indemnified party within a reasonable time after notice of commencement of
action, in each of which cases the reasonable fees and expenses of counsel
shall be at the expense of the indemnifying party.
(iii) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (A)
any indemnified party exercising rights under this Agreement makes a claim
for indemnification pursuant to this Section 7.2(e) but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced
in such case notwithstanding the fact that this Section 7.2 provides for
indemnification in such case, (B) contribution under the Securities Act may
be required on the part of any such indemnified party in circumstances for
which indemnification is provided under this Section 7.2, or (C) the
indemnification provided for by this Section 7.2 is insufficient to hold
harmless an indemnified party, other than by reason of the exceptions
provided therein, then, and in each such case, G-III and the Sellers will
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) (x) in such proportion
as is appropriate to reflect the relative fault of the indemnifying party
on the one hand and the indemnified party on the other or (y) if the
allocation provided by clause (x) above is not permitted by applicable law,
or provides a lesser sum to the indemnified party than the amount
hereinafter calculated, in such
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proportion as is appropriate to reflect not only the relative fault
referred to in clause (x) above but also the relative benefits received by
the indemnifying party and the indemnified party from the registration of
the Registrable G-III Shares as well as the statements or omissions which
resulted in such losses, claims, damages or liabilities and any other
relevant equitable considerations. No Seller will be required to contribute
any amount in excess of the proceeds received from the sale of its
Registrable G-III Shares covered by such Registration Statement and no
person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
(iv) The obligations of G-III and the Sellers under this Section
7.2(e) shall survive completion of any offering of Registrable G-III Shares
pursuant to a Registration Statement and the termination of G-III's
obligations under Section 7.2(a). No indemnifying party, in the defense of
any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release
from all liability in respect to such claim or litigation.
Section 7.3 Covenant Not to Compete; No Solicitation.
(a) Each Seller acknowledges that he has extensive knowledge and a
unique understanding of the businesses of the Acquired Companies and Fabio, has
been directly involved with the establishment and continued development of the
customer relations of such businesses and has had access to all of the
proprietary and Confidential Information (as hereinafter defined) used in such
businesses. Each Seller further acknowledges that if he were to compete with the
Buyer, G-III or its or their subsidiaries, including the Division (the "Buyer
Group") in such businesses following the Closing, great harm would come to the
Buyer Group, thereby destroying any value associated with the purchase of the
Acquired Companies and the Fabio Selling Members' interests in Fabio and the
goodwill of the businesses of the Acquired Companies and Fabio. In furtherance
of the sale of the Purchased Shares and the Purchased Interests to the Buyer
hereunder by virtue of the transactions contemplated hereby and to more
effectively protect the value of the businesses so sold, each Seller covenants
and agrees that, for a period (the "Restricted Period") commencing on the
Closing Date and continuing through January 31, 2009, he shall not, whether for
compensation or without compensation, directly or indirectly, as an owner,
principal, partner, member, shareholder, independent contractor, consultant,
joint venturer, investor, licensor, lender or in any other capacity whatsoever,
alone, or in association with any other Person, carry on, be engaged or take
part in, or render services (other than services which are generally offered to
third parties) or advice to, own, share in the earnings of, invest in the
stocks, bonds or other securities of, or otherwise become financially interested
in, any Person engaged in the business of designing or manufacturing men's
outerwear, women's outerwear or women's suits anywhere in the United States. The
record or beneficial ownership by a Seller of less than (i) $400,000 or (ii) one
percent (1%) of the shares of any Person whose shares or interests are publicly
traded on a national securities exchange, the Nasdaq Stock Market or the OTC
Bulletin Board shall not of itself constitute a breach hereunder. For purposes
hereof, "Confidential Information" shall mean any information concerning the
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businesses and affairs of the Acquired Companies or Fabio that is not already
generally available to the public. The Restricted Period shall immediately
terminate with respect to a Seller upon any failure by the Buyer to make any
payment to such Seller under Section 2.3 or 2.5 of this Agreement within thirty
days of the date specified therein.
(b) During the Restricted Period, the Sellers shall not, whether for
their own account or for the account of any Person, directly or indirectly,
solicit to terminate the relationship, or otherwise interfere with the
relationship of the Buyer Group with, any Person that, (i) during the Restricted
Period, is employed by or otherwise engaged to perform services for the Buyer
Group or (ii) during the Restricted Period, is, or, during the one-year period
preceding the Closing, was, a customer or client of, or subcontractor for,
either Acquired Company or Fabio.
(c) The restrictive covenants set forth in this Section 7.3 (the
"Restrictive Covenants") have been separately bargained for to protect the
business or interest therein, including goodwill, of the Acquired Companies and
Fabio being acquired by the Buyer hereunder and to ensure that the Buyer Group
shall have the full benefit of the value thereof. The Sellers recognize and
acknowledge that the business and markets of the Buyer Group are national in
scope, and that the Buyer Group is investing substantial sums in purchasing the
Acquired Companies and the Fabio Selling Members' interests in Fabio and in
consideration for the Restrictive Covenants, that such Restrictive Covenants are
necessary in order to protect and maintain the legitimate business interests of
the Buyer Group and are reasonable in all respects, and that the Buyer Group
would not consummate the transactions contemplated hereby but for such
Restrictive Covenants. Each Seller hereby waives any and all right to contest
the validity of the Restrictive Covenants on the ground of the breadth of their
geographic or product coverage or the length of their term.
(d) If any Seller breaches, or threatens to commit a breach of, any of
the Restrictive Covenants, the Buyer shall have, in addition to, and not in lieu
of, any other rights and remedies available to it under law or in equity, the
right to have the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to the Buyer Group and
that money damages would not provide an adequate remedy. Each Seller covenants
and agrees not to oppose any demand for specific performance and injunctive and
other equitable relief in case of any such breach or attempted breach.
(e) The existence of any claim or cause of action by any Seller
against the Buyer shall not constitute a defense to the enforcement by the Buyer
of the Restrictive Covenants (subject to the early termination of the Restricted
Period as set forth in the last sentence of Section 7.3(a) hereof), and any such
claim or cause of action shall be litigated separately.
(f) In addition to the remedies the Buyer may seek and obtain pursuant
to Section 7.3(d) hereof, the Restricted Period shall be extended by any and all
periods during which any Seller shall be found by a final non-appealable
judgment of a court possessing personal jurisdiction over him to have been in
violation of any Restrictive Covenant.
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(g) Whenever possible, each provision of this Section 7.3 shall be
interpreted in such manner as to be effective and valid under applicable law but
if any provision of this Section 7.3 shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Section 7.3. If any provision of this
Section 7.3 shall, for any reason, be judged by any court of competent
jurisdiction to be invalid or unenforceable, such judgment shall not affect,
impair or invalidate the remainder of this Section 7.3 but shall be confined in
its operation to the provision of this Section 7.3 directly involved in the
controversy in which such judgment shall have been rendered. In the event that
the provisions of this Section 7.3 should ever be deemed to exceed the time or
geographic limitations permitted by applicable law, then such provision shall be
reformed to the maximum time or geographic limitations permitted by applicable
law.
Section 7.4 Division Bonus Plan. As soon as practicable after the
Closing, the Buyer shall adopt a bonus plan for the benefit of the employees of
the Division (the "Employee Bonus Plan"). The Employee Bonus Plan shall provide
for aggregate payments to the employees of the Division (the "Employee Bonus
Plan Payments") for each of the one-year periods ending on January 31, 2007,
January 31, 2008 and January 31, 2009, in an amount equal to 5% of the
Division's EBITA for each such one-year period; provided, however, that the
Division's EBITA for such one-year period is at least $8,000,000 (in the case of
the one-year period ending January 31, 2007, after giving effect to any
reduction of the Division's EBITA for such one-year period to the extent that
the proviso set forth at the end of Section 2.2(d) is applicable); and provided
further, however, that the sum of the EBITA Payments and the Employee Bonus Plan
Payments shall not exceed $7,500,000 for each such one-year period. The Employee
Bonus Plan Payments shall be distributed to the employees of the Division in
accordance with the terms and conditions of the Employee Bonus Plan.
Section 7.5 Confidentiality. The parties acknowledge that G-III and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ have previously executed confidentiality agreements dated April 12,
2005 and April 20, 2005 (the "Confidentiality Agreements"), the terms of which
are incorporated herein by reference, which Confidentiality Agreements shall
continue in full force and effect in accordance with their terms.
Section 7.6 Public Disclosure. No party hereto shall issue any press
release or otherwise make any public statement or make any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
without the prior approval of the other parties hereto, except as may be
required by applicable law.
Section 7.7 Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense, it being
understood that ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ has been paying and shall pay the reasonable and
documented expenses of the Sellers in connection with the transactions
contemplated by this Agreement.
Section 7.8 Tax Matters.
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(a) Sales and Transfer Taxes. All sales and transfer Taxes (including
stock transfer Taxes, if any) incurred in connection with this Agreement and the
transactions contemplated hereby shall be borne equally by the Sellers, on the
one hand, and the Buyer, on the other hand, and the Sellers and the Buyer shall
cooperate in timely preparing and filing all Tax Returns and paying all such
Taxes as may be required to comply with the laws governing such Taxes.
(b) Tax Indemnification. Each of the Sellers hereby agrees, jointly
and severally to be responsible for and to indemnify and hold the Buyer
Indemnified Persons harmless from and against any and all Taxes (or asserted
deficiency, claim, demand, action, suit, proceeding, judgment or assessment,
including the defense or settlement thereof, relating to such Taxes) imposed or
assessed against any of the Acquired Companies and Fabio or the assets of any of
them:
(i) with respect to all Tax periods, or portions thereof, ending
on or prior to the Closing Date, except as reserved for in the Financial
Statements;
(ii) with respect to any and all Taxes of the Acquired Companies
and Fabio allocated to the Sellers pursuant to Section 7.8(c);
(iii) with respect to any additional Tax liability resulting from
the Section 338(h)(10) Election being defective by reason of (i) ▇▇▇▇▇▇
▇▇▇▇▇▇▇'▇ S corporation status being deemed invalid or having terminated on
or prior to Closing or (ii) the failure by Sellers to deliver a properly
executed IRS Form 8023 to the Buyer;
(iv) by reason of being a successor-in-interest or transferee of
another Person; and
(v) with respect to any and all Taxes of any member of a
consolidated, combined or unitary group of which any Acquired Company or
Fabio is or was a member on or prior to the Closing Date for which such
Acquired Company or Fabio is liable pursuant to Treasury Regulations
Section 1.1502-6(a) or any analogous or similar state, local or foreign law
or regulation.
The Sellers shall also pay and shall indemnify and hold the Buyer
Indemnified Persons harmless from and against any Damages incurred in connection
with an Audit relating to the determination of the Buyer's liability for Taxes
for which the Sellers are responsible to indemnify the Buyer Indemnified Persons
pursuant to this Section 7.8(b) or the enforcement of this Section 7.8(b),
including, without limitation, any Damages incurred in connection with an
attempt to cure an inadvertent invalid election or termination of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇' S corporation status pursuant to Section 7.8(i). Notwithstanding the
foregoing, the Buyer Indemnified Persons shall not be entitled to recover from
the Sellers under Section 7.8(b)(iii) an amount in excess of the portion of the
Purchase Price allocable to the purchase of the Purchased Shares.
(c) Straddle Periods. For U.S. federal income Tax purposes, the Tax
year of each of the Acquired Companies and Fabio shall end as of the close of
the Closing Date and, with respect to all other Taxes, the Sellers and Buyer
will, unless prohibited by applicable law, close the Tax period of the Acquired
Companies and Fabio as of the close of the Closing Date.
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Neither the Sellers nor the Buyer shall take any position inconsistent with the
preceding sentence on any Tax Return. In any case where applicable law does not
permit an Acquired Company or Fabio to close its Tax year as of the close of the
Closing Date or in any case in which a Tax is assessed with respect to a Tax
period which includes the Closing Date (but does not begin or end on that day),
then Taxes, if any, attributable to the Tax period of an Acquired Company or
Fabio beginning before and ending after the Closing Date shall be allocated to
and be payable by (i) the Sellers for the period up to and including the Closing
Date (the "Pre-Closing Straddle Period") and (ii) the Buyer for the period after
the Closing Date. Any allocation of income or deductions required to determine
any Taxes attributable to any period beginning before and ending after the
Closing Date shall be made by means of a closing of the books and records of
such Acquired Company or Fabio as of the close of the Closing Date, provided
that exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on the Closing Date and the period after
the Closing Date in proportion to the number of days in each such period.
(d) Tax Returns.
(i) Sellers' Representative shall prepare (or cause to be
prepared) and timely file (or cause to be timely filed), including all
applicable extensions, all Tax Returns of the Acquired Companies and Fabio
required to be filed for all Tax periods ending on or prior to the Closing
Date (including, but not limited to, final U.S. federal, state and local
income Tax Returns and reports for the period beginning on January 1, 2005
and ending on the Closing Date) and any amended Tax Return or report for
any such Tax period (any such Tax Return or report or amended Tax Return or
report, a "Pre-Closing Tax Return"). All Pre-Closing Tax Returns shall be
prepared in a manner consistent with prior practice, unless otherwise
required by applicable laws. The Buyer shall, and shall cause the Acquired
Companies and Fabio to, reasonably cooperate with Sellers' Representative
in connection with any Pre-Closing Tax Return. Such cooperation shall
include, but shall not be limited to, the prompt furnishing by Buyer, the
Acquired Companies and Fabio of: (A) a limited power of attorney (and/or
such other authorization) as shall be reasonably necessary to enable
Sellers and/or Sellers' Representative to execute and file any Pre-Closing
Tax Return, subject to the provisions of this Section 7.8(d); and (B) any
and all records, documents, consents, certificates, workpapers and other
information as may be necessary for the Sellers and/or its representatives
to prepare and timely file a Pre-Closing Tax Return. Sellers'
Representative shall provide the Buyer with a complete copy of each such
Pre-Closing Tax Return at least thirty (30) days prior to the due date for
filing such Tax Return, including applicable filing extensions. To the
extent that any position taken on such Pre-Closing Tax Return or any item
thereon is inconsistent with the manner in which a prior Tax Return was
prepared (or such item was not previously reported or such position was not
previously taken) and such position or treatment of an item is reasonably
expected to (A) materially affect the Tax liability of an Acquired Company,
Fabio or the Buyer in a Post-Closing Tax Period, (B) affect the
determination of useful life, basis or method of depreciation, amortization
or accounting of any of the assets or properties of an Acquired Company,
Fabio, or the Buyer, (C) accelerate the time at which any Tax must be paid
by an Acquired Company, Fabio or the Buyer, or (D) relate to the Section
338(h)(10) Election, the Buyer shall have the right to object to the filing
of such Pre-Closing Tax
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Return by delivery of a written notice to Sellers' Representative within
fifteen (15) days following the receipt thereof. The failure of the Buyer
to object to the filing of any such Pre-Closing Tax Return within such
fifteen-day period shall constitute approval thereof. The Sellers'
Representative and the Buyer shall attempt in good faith to resolve any
disagreements regarding such Pre-Closing Tax Return prior to the due date
for filing thereof. Any disagreements regarding such Pre-Closing Tax Return
which are not resolved prior to the filing thereof shall be promptly
resolved pursuant to Section 7.8(k) which shall be binding on all the
parties.
(ii) The Buyer shall prepare (or cause to be prepared) and timely
file (or cause to be timely filed), including applicable filing extensions,
all Tax Returns of the Acquired Companies and Fabio required to be filed by
or with respect to the Acquired Companies and Fabio for all Tax periods
beginning prior to, and ending after, the Closing Date (excluding the final
U.S. federal, state and local income Tax Returns or reports, for the period
beginning January 1, 2005 and ending on the Closing Date), as well as any
amended Tax Return or report for any such Tax period (any such return and
report or amended return or report, a "Straddle Return"). All Straddle
Returns shall be prepared in a manner consistent with prior practice unless
otherwise required by applicable laws. The Buyer shall provide the Sellers'
Representative with a complete copy of each such Straddle Return at least
thirty (30) days prior to the due date for filing such Straddle Return,
including applicable filing extensions. The Sellers' Representative shall
have the right to object to the filing of such Straddle Return by delivery
of a written notice to the Buyer within fifteen (15) days following the
receipt thereof. The failure of the Sellers' Representative to object to
the filing of any such Straddle Return within such fifteen-day period shall
constitute approval thereof. The Sellers' Representative and the Buyer
shall attempt in good faith to resolve any disagreements regarding such
Straddle Return prior to the due date for filing thereof. Any disagreements
regarding such Straddle Return which are not resolved prior to the filing
thereof shall be promptly resolved pursuant to Section 7.8(k) which shall
be binding on all the parties. Not later than ten (10) days before the due
date for payment of Taxes with respect to any such Straddle Return, the
Sellers shall pay to the Buyer an amount equal to that portion of the Taxes
shown on such Straddle Return for which the Sellers have an obligation to
indemnify the Buyer Indemnified Persons (as hereinafter defined) pursuant
to Section 7.8(b); provided, however, that if the Sellers' Representative
has given written notice of an objection to the filing of such Straddle
Return pursuant to this Section 7.8(d)(ii), to the extent of such
objection, the Sellers shall not be required to make any payment for Taxes
relating to such Straddle Return until the resolution of the disagreement.
Notwithstanding anything to the contrary contained in this Agreement, to
the extent any amounts owed to the Buyer pursuant to this Section
7.8(d)(ii) remain unpaid after taking into account any reserve for Taxes in
the Financial Statements, the Buyer shall have the right, without notice,
to set-off and apply against any EBITA Payment under Section 2.2 such
unpaid amounts owed to the Buyer; provided, however, that if the Sellers'
Representative has given written notice of an objection pursuant to this
Section 7.8(d)(ii), to the extent of such objection, the Buyer shall not
exercise any right to set-off for any unpaid amounts until the resolution
of the disagreement.
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(e) Tax Audits.
(i) The Sellers shall control any Audit in respect of any Tax
period ending on or prior to the Closing Date, except to the extent that
such Audit relates to the Section 338(h)(10) Election (any such Audit, a
"Sellers Audit") and, in connection therewith, shall be authorized to take
any action with respect to any Sellers Audit in its sole discretion unless
such action would reasonably be expected to result in a material adverse
Tax effect or a liability or increase in liability hereunder to Buyer for
any Tax period, in which case such action may not be taken without Buyer's
consent. The Buyer shall, and shall cause the Acquired Companies and Fabio
to, reasonably cooperate with Sellers and/or its representatives in
connection with any Sellers Audit. Such cooperation shall include, but
shall not be limited to, the prompt furnishing by Buyer, the Acquired
Companies and Fabio of: (A) a limited power of attorney (and/or such other
authorization) as reasonably necessary to enable Sellers and/or its
representatives to directly control any Sellers Audit; and (B) any and all
records, documents, consents, certificates, workpapers and other
information as may be necessary for the Sellers and/or its representatives
to control and defend a Sellers Audit. Sellers' Representative shall keep
the Buyer fully and contemporaneously apprised of all material aspects of
any Sellers Audit and shall promptly furnish or cause to be promptly
furnished to the Buyer any and all material documents, reports,
correspondence and other written materials pertaining to any Sellers Audit.
(ii) The Buyer shall control and defend or shall cause the
Acquired Companies and Fabio to control and defend any Audit in respect of
any Straddle Return and any Audit which relates to the Section 338(h)(10)
Election (each such Audit, a "Buyer Audit"); provided, however that,
without Sellers' Representative's prior written consent and unless
otherwise required by applicable laws, Buyer may not take (or cause or
permit to be taken by an Acquired Company or Fabio), any action or decline
(or cause or permit an Acquired Company or Fabio to decline) to take any
action with respect to any Buyer Audit that would reasonably be expected to
result in a material adverse Tax effect to, or liability or increase in
liability hereunder for, Sellers. Buyer shall keep Sellers' Representative
fully and contemporaneously apprised of all material aspects of any Buyer
Audit and shall promptly furnish or cause to be promptly furnished to the
Sellers' Representative any and all material documents, reports,
correspondence and other written materials pertaining to any Buyer Audit.
(f) Mutual Cooperation. From and after the Closing, the parties shall
provide each other with such assistance as may reasonably be requested by any of
them in connection with (i) the preparation of any Tax Return, election, consent
or certificate required to be prepared by any party hereto or (ii) any Audit.
Such assistance shall include making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder and shall include providing copies of any relevant
Tax Returns and supporting work schedules. Notwithstanding anything to the
contrary in Section 8.1(a) or any other provision of this Agreement, the Buyer
shall not dispose of any records or documents relevant to any Taxes or any
Pre-Closing Tax Returns or Straddle Returns prior to the later of six (6) months
after the expiration of the applicable limitations period on assessment with
respect to any such Taxes or Tax Returns, or the final resolution of any Sellers
Audit or Buyer Audit initiated prior to the expiration of the applicable
limitations period.
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(g) Section 338(h)(10) Election.
(i) Each ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholder shall join with the Buyer in
making a timely election pursuant to Section 338(h)(10) of the Code and the
Treasury Regulations thereunder and any corresponding or similar elections
under state, local or foreign Tax law (collectively, the "Section
338(h)(10) Election") with respect to the purchase and sale of the ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ Common Stock hereunder.
(ii) The Buyer shall be responsible for the preparation and
timely filing of all forms and documents required in connection with the
Section 338(h)(10) Election. Each of the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholders shall
execute and deliver to the Buyer such documents or forms (in addition to
those referred to in Section 3.2(v)) as are reasonably requested to
complete properly the Section 338(h)(10) Election at least forty-five (45)
days prior to the date such Section 338(h)(10) Election is required to be
filed.
(iii) The Buyer and each ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholder shall file
all Tax Returns and statements, forms and schedules in connection therewith
in a manner consistent with the Section 338(h)(10) Election and shall take
no position contrary thereto unless required to do so by applicable tax
laws.
(iv) The ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholders shall be responsible for
and shall pay any and all U.S. federal, state, local or foreign income,
franchise or similar Taxes arising as a result of the Section 338(h)(10)
Election, including, but not limited to, (A) any income or franchise Taxes
imposed on ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (including, but not limited to, (1) any Tax
imposed under Code ss.1374, (2) any Tax imposed under Treasury Regulations
Section 1.338(h)(10)-1(e)(5), and (3) any state, local or foreign Tax
imposed on ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇' gain attributable to the making of the
338(h)(10) Election) and (B) any income, franchise or similar taxes imposed
by any state or local Taxing Authority as a result of any election under
Section 338(g) of the Code (or any comparable election under state law) if
such state or local Taxing Authority does not allow or respect a Section
338(h)(10) Election (or any comparable or resulting election under state
law) with respect to the purchase and sale of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Common Stock
contemplated hereby.
(h) Procedure for Indemnification. Any claim for indemnification under
Section 7.8(b) may be made at any time prior to ninety (90) days after the
expiration of the applicable statute of limitation with respect to the relevant
Tax period (including all periods of extension, whether automatic or
permissive). Payment by the Sellers of any indemnification payment due to the
Buyer Indemnified Persons pursuant to Section 7.8(b) shall be made within ten
(10) days following written request by a Buyer Indemnified Person.
(i) Inadvertent Invalid Election or Termination of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇' S
Corporation Status. Each ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholder hereby agrees that if the S
corporation status of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ is deemed to be invalid or to have
terminated under any of the circumstances described in Section 1362(f) of the
Code, such ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Shareholder shall provide ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and the
Buyer with such assistance as may be requested of such ▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇ Shareholder by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or the Buyer in connection with its
attempt to cure such invalid election or termination in accordance with Section
1362(f) of the Code.
(j) Refunds and Carrybacks.
(i) Subject to the Buyer's good faith determination, any Tax
refunds or credits received by any Acquired Company or Fabio that are
attributable to any Pre-Closing Tax Period shall be for the account of the
Sellers; provided that the Sellers shall return to such Acquired Company or
Fabio the amount, if any, by which the amount of such Tax refund or credit
is thereafter reduced pursuant to a final determination. Any such payment
shall be treated as an adjustment to the Purchase Price. Any payments made
under this Section 7.8(j)(i) shall be net of any Taxes payable with respect
to such refund or credit (taking into account any actual reduction in Tax
liability realized upon the payment pursuant to this Section 7.8(j)(i)).
The Sellers and Buyer shall, and Buyer shall cause the Acquired Companies
and Fabio to, fully cooperate in the obtaining of any refund or credit;
provided, however, no party shall be required to cooperate to the extent
such party determines in its reasonable judgment that such refund or credit
is unavailable.
(ii) Notwithstanding the provisions of Section 7.8(j)(i), any Tax
refunds or credits (including any interest thereon) realized by an Acquired
Company or Fabio as a result of the carryback of any Tax loss, deduction or
credit of any such Acquired Company or Fabio from any Post-Closing Tax
Period to a Pre-Closing Tax Period shall not be for the account of the
Sellers and shall be retained by such Acquired Company or Fabio.
(k) Dispute Resolution. Any dispute as to any matter covered in this
Section 7.8 shall be resolved by an independent accounting firm mutually
acceptable to the Sellers' Representative and the Buyer. The fees and expenses
of such accounting firm shall be borne equally by the Sellers and the Buyer.
(l) Buyer's Tax Indemnity. Notwithstanding anything to the contrary
contained herein, the Buyer hereby agrees to promptly indemnify and hold each
Seller harmless from and against any and all additional U.S. federal, state,
local or foreign income Tax cost actually incurred by such Seller solely as a
result of either or both of the following:
(i) the Section 338(h)(10) Election; or
(ii) treatment as ordinary income for U.S. federal, state, local
or foreign income tax purposes, rather than capital gain, of any taxable
income recognized by such Seller as a result of any of the transactions
contemplated herein.
For purposes hereof, a Seller will be deemed to have actually incurred an
additional income Tax cost solely as a result of the Section 338(h)(10) Election
for any Tax year of such Seller during the period commencing as of the Closing
Date and ending December 31 of the year in which the final EBITA Payment is made
(the "EBITA Period") only if the net U.S. federal, state, local and foreign
income Tax liability of such Seller for such Tax year (and after taking into
account, among other things, all EBITA Payments received pursuant to Section 2.2
for such Tax year and prior Tax years) is greater solely by reason of the
Section 338(h)(10) Election than
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the amount of such Seller's net U.S. federal, state, local and foreign income
Tax liability for such Tax year computed as if the Section 338(h)(10) Election
had not been made; provided, however, that if the net U.S. federal, state, local
and foreign income Tax liability of such Seller for any Tax year during the
EBITA Period is lower solely by reason of the Section 338(h)(10) Election than
the amount of such Seller's net U.S. federal, state, local and foreign income
Tax liability for such Tax year computed as if the Section 338(h)(10) Election
had not been made, then such Seller shall promptly pay to the Buyer an amount
equal to the amount by which such Seller's net U.S. federal, state, local and
foreign income Tax liability for such Tax year is lower solely by reason of the
Section 338(h)(10) Election. Notwithstanding anything to the contrary contained
in this Agreement, to the extent any amounts owed to Buyer pursuant to this
Section 7.8(l) remain unpaid, the Buyer shall have the right, without notice, to
set-off and apply against any EBITA Payment under Section 2.2 such unpaid
amounts owed to Buyer.
The Buyer shall also pay and shall indemnify and hold each Seller harmless
from and against any Damages (as defined in Section 8.1(b)) incurred in
connection with an Audit relating to the determination of such Seller's
liability for Taxes for which the Buyer is responsible to indemnify such Seller
pursuant to this Section 7.8(l) or in connection with the enforcement of this
Section 7.8(l).
Section 7.9 Use of Name. Each Seller hereby agrees that from and after the
Closing, the Buyer shall have the sole ownership of, and right to use, the names
"▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇," "▇. ▇▇▇▇▇," "▇. ▇▇▇▇▇ for ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇," "MR Apparel,"
"Alorna" and "▇. ▇▇▇▇▇ Sport," and through its membership interests in Fabio
will have the right to use the name "Fabio," to the extent provided in the
Operating Agreement of Fabio and no Seller shall use or permit any Affiliate of
such Seller to use, any such name or any variation thereof in the business of
designing or manufacturing men's outerwear, women's outerwear or women's suits.
Section 7.10 Sellers' Representative. ▇▇▇▇▇ ▇▇▇▇▇ shall act, and the
Sellers hereby make, constitute and appoint ▇▇▇▇▇ ▇▇▇▇▇, as the representative
of the Sellers under this Agreement (in such capacity, the "Sellers'
Representative"). By his execution of this Agreement, each Seller hereby makes,
constitutes and appoints the Sellers' Representative as his attorney-in-fact and
authorizes and empowers the Sellers' Representative to act as such Seller's
representative with full authority, in the sole discretion of the Sellers'
Representative, to (a) receive each Accounting provided for in Section 2.3 and
to exercise the rights set forth in Section 2.4 with respect to the EBITA
Payments, (b) receive the Buyer Statement provided for in Section 2.5(b) and to
exercise the rights set forth in Section 2.5(c) with respect thereto, (c) cause
to be prepared all Tax Returns with respect to all Tax periods ending on or
before the Closing Date as provided in Section 7.8(b), and (d) take any other
action that may be necessary or desirable on behalf of the Sellers in connection
with this Agreement. Any group of Sellers entitled to receive a majority of the
Cash Consideration shall have the right at any time to appoint a new Sellers'
Representative (who shall be a Seller) for such purposes by giving at least 10
Business Days' written notice thereof and simultaneously furnishing a copy of a
written instrument executed by such Sellers and appointing a new Sellers'
Representative to the Buyer and the Sellers' Representative then so acting. The
Sellers' Representative shall have no duties or obligations other than those set
forth above and will incur no liability with respect to any action or inaction
taken by the Sellers' Representative except with respect to his own gross
negligence, bad faith or willful misconduct. Each Seller shall reimburse the
Sellers' Representative for his proportionate
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share, determined in accordance with the percentages set forth in Schedule
2.2(a), of the Sellers' Representatives reasonable and documented expenses in
carrying out his duties or obligations hereunder.
Section 7.11 June 30, 2005 Financial Statements. From and after the
Closing, the Sellers shall use their best efforts to assist the Buyer in the
prompt preparation of financial statements of the Acquired Companies and Fabio
for the quarter and the six months ended June 30, 2005, which financial
statements shall conform to the representations and warranties set forth in
Section 4.19 with respect to unaudited Financial Statements.
Section 7.12 Cooperation of Independent Accountants. From and after the
Closing, the Sellers shall use their best efforts to cause ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇,
independent accountants for the Acquired Companies and Fabio, to cooperate at
the Buyer's expense with the Buyer and the Buyer's accountants in the
preparation of (a) financial statements of the Acquired Companies and Fabio for
the quarter and the six months ended June 30, 2005, and (b) such financial
statements and schedules of the Acquired Companies and Fabio with respect to
periods prior to the Closing Date as the Buyer may reasonably require in
connection with the satisfaction of its SEC disclosure requirements.
Section 7.13 G-III Guaranty. G-III hereby jointly and severally with Buyer
undertakes all of Buyer's payment obligations under this Agreement and
guaranties the payment and performance of the Buyer's obligations under this
Agreement.
Section 7.14 The Division. Without the Sellers' prior written consent, the
Division shall consist solely of the Acquired Companies and the membership
interests in Fabio acquired by Buyer under this Agreement.
Section 7.15 Fabio Operating Agreement Amendment. Within 20 days after the
Closing Date, the Fabio Selling Members shall deliver to the Buyer an amendment
to the operating agreement of Fabio, in substantially the form attached hereto
as Exhibit I, reflecting, among other things, the substitution of the Buyer as a
member of Fabio in the place and stead of the Fabio Selling Members, duly
executed by the Fabio Selling Members and FENX, Inc.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification.
(a) Survival. All representations, warranties and covenants or other
agreements made by the parties herein shall survive the Closing and continue in
full force and effect until the second anniversary of the date of this
Agreement, regardless of any investigation made by the Buyer or the Sellers or
on their behalf, except (i) for the representations and warranties set forth in
Sections 4.5, 4.8, 4.9, 4.10, 4.24, 5.1, 5.2, 5.6, 6.2, 6.4 and 6.7, which shall
survive until 90 days after the expiration of the statute of limitations
applicable to the matters covered thereby (giving effect to any waiver,
mitigation or extension thereof, whether automatic or permissive), (ii) as to
the matters set forth in Section 7.2, with respect to which the survival
provision set forth in Section 7.2(e)(v) shall apply, and (iii) as to any
matters with respect to which a bona fide written claim shall have been made or
action at law or in equity shall have
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been commenced before such date, in which event survival shall continue (but
only with respect to, and to the extent of, such claim).
(b) Indemnification by the Sellers. Each of the Sellers hereby agrees,
jointly and severally (except with respect to the breaches of the
representations and warranties set forth in Article V, with respect to which
each Seller agrees severally), to indemnify and hold harmless the Buyer, G-III
and the Acquired Companies and their respective officers, directors, agents and
employees, and each Person, if any, who controls or may control the Buyer, G-III
or the Acquired Companies within the meaning of the Securities Act (hereinafter
"Buyer Indemnified Persons") from and against any and all losses, costs,
damages, penalties, fines, liabilities and expenses (including without
limitation all reasonable legal or other professional fees and expenses) arising
from claims, demands, actions, causes of action, injunctions, judgments, orders
or rulings (collectively, "Damages") incurred or sustained by Buyer Indemnified
Persons as a result of:
(i) any inaccuracy or breach of any representation or warranty by
any Seller contained herein, in any Other Transaction Document to which any
Seller is a party or in any certificate delivered by any Seller hereunder
or thereunder (without regard to any materiality qualifier contained in
such representation or warranty), provided, however, that for the purposes
of this Section 8.1(b), the phrase "To the knowledge of Sellers" in Section
4.10(e) shall be ignored;
(ii) a breach by any Seller of any covenant or other agreement
contained herein or in any Other Transaction Document to which such Seller
is a party (other than the covenants and agreements set forth in Section
7.2, as to which the indemnification provisions set forth in Section 7.2(e)
shall apply);
(iii) the failure of the minute books of the Acquired Companies
and Fabio to contain accurate and complete records of all meetings held of,
and corporate action taken by, the shareholders, members, boards of
directors or managers and committees of the boards of directors or managers
of the Acquired Companies and Fabio or if any meeting of such shareholders,
members, boards of directors or managers or committees of the boards of
directors or managers of the Acquired Companies or Fabio has been held for
which minutes have not been prepared and are not contained in such minute
books; or
(iv) all proceedings, including settlements, satisfactions or
judgments, interests, fees and penalties, incident to any of the foregoing.
(c) Indemnification by the Buyer. The Buyer hereby agrees to indemnify
and hold harmless the Sellers from and against any and all Damages incurred or
sustained by the Sellers as a result of:
(i) any inaccuracy or breach of any representation or warranty by
the Buyer or G-III contained herein, in any Other Transaction Document to
which the Buyer or G-III is a party or in any certificate delivered by the
Buyer hereunder or thereunder (without regard to any materiality qualifier
contained in such representation or warranty);
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(ii) a breach by the Buyer or G-III of any covenant or other
agreement contained herein or in any Other Transaction Document to which
the Buyer or G-III is a party (other than the covenants and agreements set
forth in Section 7.2, as to which the indemnification provisions set forth
in Section 7.2(e) shall apply); or
(iii) all proceedings, including settlements, satisfactions or
judgments, interests, fees and penalties, incident to any of the foregoing.
(d) Limitations on Indemnification.
(i) The joint and several obligations of the Sellers pursuant to
the provisions of Section 8.1(b) are subject to the following limitations:
(A) The Sellers shall not be liable to the Buyer Indemnified
Persons under Section 8.1(b) until Damages incurred or sustained by
the Buyer Indemnified Persons exceed $250,000 in the aggregate, and
then only to the extent of such excess;
(B) the Buyer Indemnified Persons shall not be entitled to
recover from the Sellers under Section 8.1(b) in excess of an amount
equal, in the aggregate, to the sum of (x) $3,500,000 and (y) the
lesser of (I) the sum of all EBITA Payments payable by the Buyer to
the Sellers pursuant to Sections 2.2(b) and 2.2(c), as adjusted
pursuant to Section 2.4, if applicable, and (II) $3,500,000 (the sum
of (x) and (y), the "Indemnification Cap"). If the Sellers shall fail
to fully indemnify the Buyer Indemnified Persons because the
Indemnification Cap is less than the Damages and if the
Indemnification Cap would subsequently increase as a result of a
payment to be made by the Buyer to the Sellers, the Buyer shall be
entitled to apply any such payment that would otherwise have been made
to the Sellers to the unfulfilled indemnification obligations of the
Sellers until the Sellers' full liability under this Section 8.1(d)(i)
has been satisfied; and
(C) the limitations of the liability of the Sellers set
forth in clauses (A) and (B) above shall not be applicable to (I) any
claims determined by a court of competent jurisdiction to arise from
fraud by any of the Sellers, (II) any amounts required to be repaid by
the Sellers pursuant to Section 2.4 or Section 2.5, (III) the several
obligations of each Seller pursuant to Sections 5.6, 7.2(e)(ii) or
8.1(b), (IV) any inaccuracy or breach of any representation or
warranty set forth in Section 5.2 by any Seller, (V) the joint and
several obligations of the Sellers pursuant to Section 4.24 and 7.8(b)
or (VI) any amounts required to be paid by the Sellers in connection
with the audit by the New York State Department of Taxation and
Finance of the withholding Tax Returns of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ for 2002,
2003 and 2004, of which ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ was notified by letter from
the New York State Department of Taxation and Finance dated June 7,
2005.
(ii) The Buyer's obligations pursuant to the provisions of
Section 8.1(c) are subject to the following limitations:
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(A) the Buyer shall not be liable to the Sellers under
Section 8.1(c) until Damages incurred or sustained by the Sellers
exceed $250,000 in the aggregate, and then only to the extent of such
excess;
(B) the Sellers shall not be entitled to recover from the
Buyer under Section 8.1(c) in excess of an amount equal, in the
aggregate, to the Indemnification Cap; and
(C) the limitations of the Buyer's liability set forth in
clauses (A) and (B) above shall not be applicable to (I) any claims
determined by a court of competent jurisdiction to arise from fraud by
the Buyer, (II) any amounts required to paid by the Buyer pursuant to
Section 2.4 or Section 2.5, or (III) the obligations of the Buyer
pursuant to Sections 6.7, 7.2(e)(i) or (iv).
(e) Procedure for Indemnification. The procedure to be followed in
connection with any claim for indemnification by Buyer Indemnified Persons under
Section 8.1(b) or by the Sellers under Section 8.1(c) is set forth below:
(i) A Person that may be entitled to indemnification pursuant to
Section 8.1(b) or 8.1(c) (the "Indemnified Party") shall promptly give
written notice (a "Notice of Claim") to the party liable for such
indemnification (the "Indemnifying Party"). A Notice of Claim shall set
forth (A) a description, in reasonable detail, of the facts and
circumstances with respect to the subject matter of such Indemnity Claim or
potential Indemnity Claim, and (B) the anticipated total amount of the
Indemnity Claim (including any costs or expenses which have been or may be
reasonably incurred in connection therewith). Upon receipt of a Notice of
Claim, the Indemnifying Party may elect to cure the circumstances giving
rise to the Indemnity Claim within thirty (30) days after the date of
receipt of the Notice of Claim. If such cure cannot be effected within such
30-day period, payment of the amount of Damages due to the Indemnified
Party as set forth in the Notice of Claim shall be made by Indemnifying
Party no later than the thirtieth (30th) day after the date of the Notice
of Claim (or such later date as the Indemnifying Party receives written
notice that the Indemnified Party has suffered Damages). The Indemnified
Party's failure to give prompt notice or to provide copies of documents or
to furnish relevant data shall not constitute a defense (in whole or in
part) to any Indemnity Claim by the Indemnified Party against the
Indemnifying Party, except and only to the extent that such failure shall
have caused or increased such liability or adversely affected the ability
of the Indemnifying Party to defend against or reduce its liability.
(ii) If the Indemnifying Party shall reject any Damages as to
which a Notice of Claim is sent by the Indemnified Party, the Indemnifying
Party shall give written notice of such rejection to the Indemnified Party
within thirty (30) days after the date of receipt of the Notice of Claim.
(iii) If any Notice of Claim relates to any claim made against an
Indemnified Party by a third Person, the Notice of Claim shall state the
nature, basis and amount of such claim. The Indemnifying Party shall have
the right, at its election, by
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written notice to the Indemnified Party, to assume the defense of the claim
as to which such notice has been given. Except as provided in the next
sentence, if the Indemnifying Party so elects to assume such defense, it
shall diligently and in good faith defend such claim and shall keep the
Indemnified Party reasonably informed of the status of such defense, and
the Indemnified Party shall cooperate fully with the Indemnifying Party in
the defense of such claim, provided that in the case of any settlement
providing for remedies other than monetary damages for which
indemnification is provided, the Indemnified Party shall have the right to
approve the settlement, which approval shall not be unreasonably withheld
or delayed. If the Indemnifying Party does not so elect to defend any claim
as aforesaid or shall fail to defend any claim diligently and in good faith
(after having so elected), the Indemnified Party may assume the defense of
such claim and take such other action as it may elect to defend or settle
such claim as it may determine in its reasonable discretion, provided that
the Indemnifying Party shall have the right to approve any settlement,
which approval will not be unreasonably withheld or delayed.
Section 8.2 Tax Treatment of Indemnification Payments. The Sellers and the
Buyer agree to treat any payment made pursuant to this Article VIII or pursuant
to Sections 7.8(b) or 7.8(l) as an adjustment to the Purchase Price for U.S.
federal, state and local income Tax purposes. Notwithstanding the foregoing, if
any payment made pursuant to this Article VIII (including, without limitation,
this Section 8.2) or pursuant to Sections 7.8(b) or 7.8(l) is determined by any
Taxing Authority to be taxable to the party receiving such payment, the paying
party shall also indemnify the party receiving such payment for any Taxes
incurred by reason of receipt of such payment in excess of any Tax deductions
previously taken by such Person by reason of such Taxes or Damages in connection
with such Taxes (or any asserted deficiency, claim, demand, action, suit,
proceeding, judgment or assessment, including the defense or settlement thereof,
relating to such Taxes).
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed duly delivered if delivered personally (upon
receipt), or three (3) Business Days after being mailed by registered or
certified mail, postage prepaid (return receipt requested), or one (1) Business
Day after it is sent by commercial overnight courier service, or upon
transmission, if sent via facsimile (with confirmation of receipt) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to the Buyer or G-III:
G-III Apparel Group, Ltd.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy (which shall not constitute notice) to:
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Fulbright & ▇▇▇▇▇▇▇▇ L.L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to any Seller or the Sellers' Representative, his address set
forth on Schedule 2.2(a) hereto, with a copy (which shall not constitute notice)
to:
Wechsler & ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇--▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Section 9.2 Amendment. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by all parties
hereto.
Section 9.3 Extension; Waiver. No waiver by any party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend any prior or subsequent default,
misrepresentation or breach of warranty or covenant hereunder or affect in any
way any rights rising by virtue of any prior or subsequent such occurrence.
Section 9.4 Further Assurances. Each party hereto, at the request of
another party hereto, shall execute and deliver such instruments and do and
perform such other acts and things as may be reasonably necessary or desirable
to effect the consummation of the transactions contemplated hereby.
Section 9.5 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement, the Other Transaction Documents and the documents and instruments
specifically referred to herein or therein or delivered pursuant hereto or
thereto, including the Schedules hereto, (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof, (b) are not intended to confer upon
any other Person any rights or remedies hereunder, and (c) shall not be assigned
by any party without the written consent of the other parties; provided,
however, that Buyer shall be permitted to collaterally assign its rights under
this Agreement to The CIT Group/Commercial Securities, Inc., as Agent, in
connection with the financing agreement being entered into simultaneously with
this Agreement. Subject to the foregoing, this Agreement will apply to, be
binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties.
Section 9.6 Severability. In the event that any provision of this
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other Persons or circumstances will be interpreted so as
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reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
Section 9.7 Specific Performance. Each of the parties hereto acknowledges
and agrees that the other parties hereto would be damaged irreparably in the
event that the transactions contemplated by this Agreement are not consummated
in accordance with the terms hereof. Accordingly, each of the parties agrees
that the other parties shall be entitled to enforce specifically this Agreement
and each other party's obligation to consummate the transactions contemplated by
this Agreement in accordance with the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
Section 9.8 Remedies Cumulative. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
Section 9.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York without
regard to applicable principles of conflicts of law.
Section 9.10 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby shall be brought
exclusively in a New York State or United States Federal court sitting in New
York County, and each of the parties hereby expressly submits to such
jurisdiction and venue of such court (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and irrevocably waives, to the
fullest extent permitted by law, any objection that it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding in any such
court or that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
Section 9.11 Rules of Construction. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Any reference in this
Agreement to a "day" or number of "days" (other than a "Business Day") shall be
interpreted as a reference to a calendar day or number of calendar days. If any
action or notice is to be taken or given on or by a particular calendar day, and
such calendar day is not a Business Day, then such action or notice shall be
deferred until, or may be taken or given on, the next Business Day. The
disclosure of any matter in the Schedules hereto shall expressly not be deemed
to constitute an admission by the Buyer or the Sellers, or to otherwise imply,
that any such matter is material for the purposes of this Agreement. The parties
have participated jointly, and have been represented by counsel, in the
negotiation and drafting of this Agreement. In the
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event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. The parties
intend that each representation, warranty and covenant contained herein shall
have independent significance. If any party has breached any representation,
warranty or covenant contained herein in any respect, the fact that there exists
another representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
Section 9.12 Effect of Due Diligence. No investigation by or on behalf of
the Buyer or G-III into the business, operations, prospects, assets or condition
(financial or otherwise) of the Acquired Companies shall diminish in any way the
effect of any representations or warranties made by the Sellers in this
Agreement or shall relieve the Sellers of any of their respective obligations
under this Agreement.
Section 9.13 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of
the date set forth above.
/s/ ▇▇▇▇▇ ▇▇▇▇▇
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/s/ ▇▇▇▇▇▇ ▇▇▇▇
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/s/ ▇▇▇ ▇▇▇▇▇▇
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/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇, as Sellers' Representative
G-III LEATHER FASHIONS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President
G-III APPAREL GROUP, LTD.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President