Ohio 0-21026 31-1364046
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identifycation No.)
39 East Canal Street, Nelsonville, Ohio 45764
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(Address of principal executive offices) (Zip Code)
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On December 6, 2004, Rocky Shoes & Boots, Inc. (the "Company") entered into a Purchase and Sale of Equity Interests Agreement, by and among SILLC Holdings LLC, Rocky Shoes & Boots, Inc., and solely for the purposes of Section 5.13, Section 5.14, Article VII, Article IX and Article X thereof, Strategic Industries LLC (the "Agreement"). Pursuant to the Agreement, the Company will acquire 100% of the issued and outstanding voting limited liability interests of EJ Footwear LLC, Georgia Boot LLC, and HM Lehigh Safety Shoe Co. LLC (the "EJ Footwear Group").
The aggregate purchase price for the interests will be $87.7 million in cash plus 484,261 shares of the Company's common stock, which were valued at $10 million on the date of signing of the Agreement. The EJ Footwear Group will have no debt and working capital of at least $53.1 million at closing. In connection with the transaction, the Company has negotiated a term sheet for credit facilities totaling $148 million with GMAC Commercial Finance LLC ("GMAC") and American Capital, to fund a portion of the transaction and replace its existing credit facility.
The transaction, which is expected to close in early January 2005, is subject to a number of closing conditions, including the Company's receipt of firm financing commitments from GMAC and American Capital by mid-December 2004, audited financial statements of the EJ Footwear Group for the prior three years, the funding of the credit facilities at the time of closing of the transaction, and other customary conditions including Hart-Scott-Rodino Act approval.
The foregoing description of the Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the complete text of the Agreement. A copy of the Agreement is attached hereto as Exhibit 2.1 and is incorporated herein by reference.
On December 6, 2004, the Company issued a press release announcing that it had entered into the Agreement. A copy of the press release is attached hereto as Exhibit 99 and is incorporated herein by reference.
The information contained or incorporated by reference in this Form 8-K contains forward-looking statements, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. A number of factors, including but not limited to those set forth under the heading "Business Risks" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003, and other factors described from time to time in the Company's other filings with the Securities and Exchange Commission, could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements. All forward-looking statements included in this Form 8-K are based on information available at the time of the report. The Company assumes no obligation to update any forward-looking statement.
(c) EXHIBITS.
Exhibit No. Description
2.1 Purchase and Sale of Equity Interests Agreement, by and
among SILLC Holdings LLC, Rocky Shoes & Boots, Inc., and
solely for the purposes of Section 5.13, Section 5.14,
Article VII, Article IX and Article X thereof, Strategic
Industries LLC, dated as of December 6, 2004.
99 Press Release, dated December 6, 2004, entitled "Rocky
Shoes & Boots Signs Definitive Agreement to Acquire EJ
Footwear Group"
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: December 8, 2004 By: /s/ James E. McDonald
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James E. McDonald, Vice President
and Chief Financial Officer
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Exhibit No. Description
2.1 Purchase and Sale of Equity Interests Agreement, by and
among SILLC Holdings LLC, Rocky Shoes & Boots, Inc., and
solely for the purposes of Section 5.13, Section 5.14,
Article VII, Article IX and Article X thereof, Strategic
Industries LLC, dated as of December 6, 2004.
99 Press Release, dated December 6, 2004, entitled "Rocky
Shoes & Boots Signs Definitive Agreement to Acquire EJ
Footwear Group"
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solely for purposes of Section 5.13, Section 5.14, Article
VII, Article IX and Article X hereof,
STRATEGIC INDUSTRIES LLC
PAGE
ARTICLE I DEFINITIONS.................................................... 1
Section 1.1. Definitions................................................ 1
ARTICLE II PURCHASE AND SALE OF EQUITY INTERESTS; CLOSING;
RELATED MATTERS................................................ 11
Section 2.1. Purchase and Sale of the Equity Interests.................. 11
Section 2.2. Closing; Delivery of the Equity Interests.................. 11
Section 2.3. Purchase Consideration..................................... 11
Section 2.4. Payment of Purchase Consideration.......................... 12
Section 2.5. Legend for Stock Consideration............................. 12
Section 2.6. Escrow Account............................................. 12
Section 2.7. Working Capital Estimate................................... 12
Section 2.8. Closing Statement; Adjustment to Net Purchase Price........ 12
Section 2.9. Adjustment to Purchase Consideration....................... 15
Section 2.10. Retained Liabilities....................................... 15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER....................... 15
Section 3.1. Organization............................................... 15
Section 3.2. Authority.................................................. 15
Section 3.3. Organization and Related Matters........................... 15
Section 3.4. Authority; No Violation; Consents.......................... 16
Section 3.5. Financial Statements....................................... 17
Section 3.6. Absence of Undisclosed Liabilities......................... 17
Section 3.7. Compliance with Applicable Laws............................ 17
Section 3.8. Assets and Real Property................................... 18
Section 3.9. Contracts.................................................. 19
Section 3.10. Intellectual Property...................................... 20
Section 3.11. Legal Proceedings.......................................... 21
Section 3.12. Tax Matters................................................ 21
Section 3.13. Insurance.................................................. 23
Section 3.14. Benefit Plans.............................................. 23
Section 3.15. Environmental Matters...................................... 25
Section 3.16. Employee Relations......................................... 26
Section 3.17. Bank Accounts and Letters of Credit........................ 26
Section 3.18. Absence of Changes......................................... 26
Section 3.19. No Brokers................................................. 28
Section 3.20. Compensation Arrangements; Officers and Directors.......... 28
Section 3.21. Customers and Suppliers.................................... 28
Section 3.22. Disclaimer of Other Representations and Warranties......... 28
Section 3.23. Inventory.................................................. 29
Section 3.24. Accounts Receivable........................................ 29
Section 3.25. Warranty and Other Claims.................................. 29
Section 3.26. Disclosure................................................. 29
Section 3.27. Investment Intent.......................................... 29
Section 3.28. Investigation.............................................. 29
Section 3.29. Employment Agreements...................................... 30
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER........................ 30
Section 4.1. Organization............................................... 30
Section 4.2. Authority.................................................. 30
Section 4.3. Organization and Related Matters........................... 30
Section 4.4. Authority; No Violation; Consents.......................... 31
Section 4.5. Compliance with Applicable Laws............................ 32
Section 4.6. Legal Proceedings.......................................... 32
Section 4.7. Absence of Changes......................................... 32
Section 4.8. Disclosure................................................. 32
Section 4.9. No Brokers................................................. 33
Section 4.10. Financing.................................................. 33
Section 4.11. Investment Intent.......................................... 33
Section 4.12. Investigation.............................................. 33
Section 4.13. SEC Reports................................................ 33
Section 4.14. Disclaimer of Other Representations and Warranties......... 34
Section 4.15. Taxes...................................................... 34
ARTICLE V COVENANTS...................................................... 34
Section 5.1. Conduct of Business of Companies and their Subsidiaries.... 34
Section 5.2. Conduct of Business of Buyer and its Subsidiaries.......... 35
Section 5.3. Governmental Consents and Filings.......................... 36
Section 5.4. Additional Agreements...................................... 36
Section 5.5. Expenses................................................... 37
Section 5.6. Access; Certain Communications............................. 37
Section 5.7. Confidentiality............................................ 38
Section 5.8. Financing.................................................. 38
Section 5.9. Tax Matters................................................ 38
Section 5.10. Employee Matters.......................................... 41
Section 5.11. Termination of Affiliate Relations......................... 43
Section 5.12. Directors and Officers; Other Relationships................ 43
Section 5.13. Non-Solicitation of Employees.............................. 43
Section 5.14. Covenant Not to Compete.................................... 43
Section 5.15. Return of Documents........................................ 44
Section 5.16. Non-Solicitation of Buyers................................. 44
Section 5.17. Notification of Breach..................................... 44
Section 5.18. Audit...................................................... 45
Section 5.19. Monthly Financial Information Reporting.................... 45
Section 5.20. Debt Commitment Letter..................................... 45
Section 5.21. Payments................................................... 45
Section 5.22. Actions Subsequent to Closing.............................. 45
ARTICLE VI CONDITIONS TO CLOSING.......................................... 46
Section 6.1. Conditions to Buyer's Obligations.......................... 46
Section 6.2. Conditions to Seller's Obligations......................... 47
Section 6.3. Mutual Conditions.......................................... 48
ARTICLE VII SURVIVAL AND INDEMNIFICATION................................... 49
Section 7.1. Survival................................................... 49
Section 7.2. Indemnification............................................ 49
Section 7.3. Method of Asserting Claims, Etc............................ 49
Section 7.4. Indemnification Amounts.................................... 50
Section 7.5. Losses Net of Insurance, Etc............................... 51
Section 7.6. Satisfaction of Claims..................................... 52
Section 7.7. No Set-Off................................................. 52
Section 7.8. Losses for Environmental Liabilities....................... 52
Section 7.9. Sole Remedy................................................ 52
ARTICLE VIII TERMINATION.................................................... 53
Section 8.1. Termination................................................ 53
Section 8.2. Effect of Termination...................................... 54
ARTICLE IX PARENT GUARANTY................................................ 54
Section 9.1. Representations and Warranties of Parent.................. 54
Section 9.2. Guaranty.................................................. 55
ARTICLE X MISCELLANEOUS................................................. 56
Section 10.1. Amendments; Extension; Waiver............................. 56
Section 10.2. Entire Agreement.......................................... 56
Section 10.3. Interpretation............................................ 56
Section 10.4. Severability.............................................. 56
Section 10.5. Notices................................................... 56
Section 10.6. Binding Effect; Persons Benefiting; No Assignment......... 57
Section 10.7. Supplemental Disclosure................................... 57
Section 10.8. Counterparts.............................................. 58
Section 10.9. Governing Law............................................. 58
Section 10.10. Mutual Drafting........................................... 58
Section 10.11. Certain Understandings.................................... 58
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Exhibits
Exhibit A -- Escrow Agreement
Exhibit B -- Debt Commitment Letter
Exhibit C -- Termination Agreement
Exhibit D -- Opinion of Dechert LLP
Exhibit E -- Registration Rights Agreement
Exhibit F -- Opinion of Porter, Wright, Morris & Arthur LLP
Exhibit G -- Beacon Letter
Schedule 1.1 Definitions - Knowledge of Seller
Schedule 1.1 Definitions - Permitted Encumbrances
Schedule 3.3 Organization and Related Matters
Schedule 3.4 Authority; No Violation; Consents - Third Party Consents
Schedule 3.4 Authority; No Violation; Consents - Governmental Consents
Schedule 3.5 Financial Statements
Schedule 3.6 Absence of Undisclosed Liabilities
Schedule 3.7 Compliance with Applicable Laws
Schedule 3.8 Real Property
Schedule 3.9 Contracts
Schedule 3.10(a) Intellectual Property
Schedule 3.10(b) Intellectual Property
Schedule 3.10(c) Infringement
Schedule 3.11 Legal Proceedings
Schedule 3.12 Tax Matters
Schedule 3.13 Insurance
Schedule 3.14 Benefit Plans
Schedule 3.15 Environmental Matters
Schedule 3.16 Employee Relations
Schedule 3.17 Bank Accounts and Letters of Credit
Schedule 3.18 Absence of Changes
Schedule 3.20 Compensation Arrangements; Officers and Directors
Schedule 3.21 Customers and Suppliers
Schedule 3.23 Inventory
Schedule 3.24 Accounts Receivable
Schedule 3.25 Warranty and Other Claims
Schedule 5.1 Conduct of Business of Companies and their Subsidiaries
Schedule 5.11 Termination of Affiliate Relations
Schedule 5.12 Directors and Officers; Other Relationships
Schedule 5.14 Restricted Territory
Schedule 6.1(l)(i) Conditions to Buyer's Obligations-Third Party and
Governmental Consents
Schedule 6.1(l)(ii) Conditions to Buyer's Obligations-Third Party and
Governmental Consents
Schedule 6.1(l)(iii) Conditions to Buyer's Obligations-Third Party and
Governmental Consents
Schedule 9.1(e) Parent's Balance Sheet
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Buyer Disclosure Schedules
Schedule 1.1 Definitions - Knowledge of Buyer
PURCHASE AND SALE OF EQUITY INTERESTS AGREEMENT, dated as of December 6, 2004 (this "Agreement"), by and among ROCKY SHOES AND BOOTS, INC., an Ohio corporation ("Buyer") and SILLC HOLDINGS LLC, a Delaware limited liability company ("Seller"), and, solely for purposes of Section 5.13, Section 5.14, Article VII, Article IX and Article X hereof, STRATEGIC INDUSTRIES, LLC ("Parent").
WHEREAS, Seller owns beneficially and of record all of the outstanding limited liability interests (the "Equity Interests") of EJ Footwear LLC, a Delaware limited liability company ("EJ Footwear"), Georgia Boot LLC, a Delaware limited liability company ("Georgia Boot"), and HM Lehigh Safety Shoe Co. LLC, a Delaware limited liability company ("Lehigh Safety," and collectively with EJ Footwear and Georgia Boot, the "Companies");
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase the Equity Interests on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, Buyer and Seller desire to make certain representations, covenants and agreements in connection with the transactions contemplated by this Agreement; and
WHEREAS, as an inducement to Buyer to execute and deliver this Agreement, Parent desires to guarantee the payment when due of certain obligations and liabilities of Seller as provided herein.
NOW, THEREFORE, in consideration of and premised upon the various representations, warranties, covenants and other agreements and undertakings of the parties contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:
Section 1.1 Definitions.
(a) For all purposes in this Agreement, the following terms shall have the respective meanings set forth in this Section 1.1:
"Affiliate" means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such Person. For the purposes of this definition, "control," when used with respect to any specified Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Equity Interests, by Contract or otherwise; and the terms "controlling" and "controlled" have correlative meanings to the foregoing. For purposes of the definition of "control," a general partner or managing member of a Person shall always be considered to control such Person.
"Aggregate Cash Consideration" means the cash amount equal to the Cash Consideration plus (x) the amount, if any, by which Estimated Working Capital exceeds the Reference Amount, minus (y) the amount, if any, by which the Reference Amount exceeds Estimated Working Capital.
"Applicable Law" means any statute, law, ordinance, rule, public administrative interpretation, published policy statement, regulation, order, writ, injunction, directive, judgment, decree or other requirement of any Governmental Authority applicable to the Person or Persons referenced.
"Business Day" means any day other than a Saturday, Sunday or a day on which the New York Stock Exchange is closed for regular business.
"Buyer 401(k) Plan" means the Rocky Shoes & Boots Non-Union
Employees 401(k) Plan, a defined contribution pension plan which is qualified
under
Section 401 (a) of the Code and meets the requirements of Section 401(k) of
the Code and the regulations thereunder.
"Buyer Disclosure Schedule" means the disclosure schedule previously delivered by Buyer to Seller.
"Buyer Option Plans" means the Buyer's 1992 Stock Option Plan, Second Amended and Restated 1995 Stock Option Plan, and 2004 Stock Incentive Plan, in each case as amended and in effect on the date hereof.
"Buyer Rights Agreement" means the Rights Agreement, dated as of November 5, 1997, by and between Buyer and The Fifth Third Bank, as Rights Agent.
"Cash Consideration" means that component of the Purchase Consideration consisting of Eighty Seven Million Seven Hundred Thousand Dollars ($87,700,000).
"Closing" means the completion of the transactions contemplated by this Agreement.
"Closing Date" means the date of the Closing.
"COBRA" means Part 6 of Subtitle B of Title I of ERISA, Section 4980B of the Code and any similar state law.
"Code" means the Internal Revenue Code of 1986, as amended.
"Companies Disclosure Schedule" means the disclosure schedule previously delivered by Seller to Buyer.
"Contract" means with respect to any Person, any understanding or arrangement to the extent it is binding on such Person, and any agreement, indenture, debt instrument, contract, guarantee, loan, note, mortgage, license, lease or other binding commitment, oral or written, to which such Person is a party or by which it is bound or to which any of its assets or properties is subject.
"Credit Agreements" means: (i) the Loan and Security Agreement dated as of March 24, 2000 (as amended to date) among the financial institutions named therein, as lenders, Bank of America, N.A., as agent, the borrowers named therein and SILLC Holdings, LLC, as guarantor, and (ii) the First Amended and Restated Indenture dated as of August 18, 2000 (as amended and supplemented to date) by and between Strategic Finance Company, as agent and Wells Fargo Bank Minnesota, National Association, as trustee.
"Debt" means all obligations of the Companies and their Subsidiaries for borrowed money evidenced by notes, bonds, debentures or similar instruments and all accrued but unpaid interest (or interest equivalent) to the date of determination, and all prepayment premiums or penalties, related to any items of Debt of the type referred to herein; provided, however, that Debt shall not include any Debt incurred in connection with the Financing.
"Dollar" or "Dollars" or "$" means United States dollar currency in all cases, unless otherwise specified.
"Employee Benefit Plan" means each "employee benefit plan" (as such term is defined in Section 3(3) of ERISA) and each other material employee benefit plan, program, contract, policy or arrangement, whether or not written and whether or not covered by ERISA, that is or was maintained, sponsored, administered or contributed to by any Company or any Subsidiaries or, where specified, Seller, any ERISA Affiliate of Seller, and any Company or any Subsidiary.
"Encumbrance" means any lien, pledge, security interest, charge, leases, levies, options, rights of first refusal, hypothecation, encumbrance, mortgage or adverse claims of any kind, except for restrictions constituting limits on transferability pursuant to applicable Securities Laws.
"Environmental Laws" means Applicable Laws relating to contamination of the environment (including ambient air, surface water, ground water, stream, river sediments, soil, land surface or subsurface strata) or the manufacture, distribution, treatment, storage, handling, disposal or management of Hazardous Substances including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act ("CERCLA"); the Resource Conservation and Recovery Act of 1976, as amended; the Federal Water Pollution Control Act, as amended; the Federal Clean Air Act, as amended; the Toxic Substances Control Act, as amended; the Safe Drinking Water Act, as amended; the Pollution Control Act of 1990, as amended; and comparable state and local laws, in all of the foregoing cases, as in effect on the date hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" means any entity that is considered a single employer with any Company under Section 414 of the Code.
"Escrow Letter of Credit" means an Irrevocable Letter of Credit, dated as of the Closing Date, issued by Bank of America, NA in favor of the Escrow Agent in the initial face amount of $2,000,000.
"Exchange Act" means the United States Securities Exchange Act of 1934, as amended.
"Exclusivity Agreement" means that letter agreement dated November 8, 2004, by and between Buyer and Seller.
"Final Closing Statement" shall mean (x) the Closing Statement if no Notice of Disagreement with respect thereto is duly and timely delivered pursuant to Section 2.8(c) or (y) if such a Notice of Disagreement is so delivered, the Closing Statement as agreed by Seller and Buyer pursuant to Section 2.8 or (z) if such Notice of Disagreement is so delivered and in the absence of such agreement, the Final Closing Date Statement as prepared by the Arbiter pursuant to Section 2.8.
"Final Working Capital" shall mean the Closing Date Working Capital as shown in the Final Closing Statement.
"Financial Releases" means the releases necessary to release the Companies and their Subsidiaries from the Encumbrances created as a result of any Debt, including the Credit Agreements.
"Financing Commitment Delivery Date" shall mean December 15, 2004.
"GAAP" means generally accepted accounting principles as used in the United States of America.
"GAAP Consistently Applied" means GAAP (A) using the same accounting methods, policies, practices, and procedures, with consistent classification, judgments, and estimation methodology, as were used by the Companies in preparing the Financial Information and (B) not taking into account any changes in circumstances or events occurring after the closing of business on the Closing Date.
"Governmental Authority" means any nation, state, territory, province, county, city or other unit or subdivision thereof or any entity, authority, agency, department, board, commission, instrumentality, court or other judicial body authorized on behalf of any of the foregoing to exercise legislative, judicial, regulatory or administrative functions of or pertaining to government, and any governmental or non-governmental self-regulatory organization.
"Hazardous Substances" shall mean any industrial, hazardous, toxic or polluting substance, chemicals, contaminants, material or waste, including petroleum or any derivative or by-products thereof, asbestos and asbestos-containing materials, radioactive materials, lead based paint, radon, urea formaldehyde, and polychlorinated biphenyls that are regulated by or for which standards of conduct are prescribed under or in included in the definition of "hazardous substances," "hazardous materials," "hazardous constituents," "toxic substances," "pollutants," "contaminants," or any similar denomination intended to classify or regulate carcinogenicity, ignitability, corrosivity or activity under Environmental Laws.
"Indemnified Party" shall mean the party entitled to indemnification pursuant to Article VII.
"Indemnifying Party" shall mean the party required to indemnify the other party pursuant to Article VII.
"IRS" means the Internal Revenue Service of the United States.
"Intellectual Property" means patents and patent applications; trademarks, service marks, trade dress, logos, trade names, Internet domain names, designs, slogans, tag lines and all registrations and applications for registrations of the foregoing; copyrights and all registrations and applications for registration of the foregoing; computer software (including source and object codes), computer programs, computer data bases, proprietary technology, trade secrets and confidential business information (including ideas, formulae, algorithms, models, methodologies, compositions, know-how, manufacturing and production processes and techniques, research and development information, drawings, designs, plans, proposals and technical data, financial, marketing and business data and pricing and cost information).
"Inventory" means all inventories of raw materials, works-in-process, finished goods, products under research and development which are held at the locations of the Companies or their Subsidiaries, or are in transit from suppliers to the Companies or their Subsidiaries or in transit from the Companies or their Subsidiaries to customers, or located at a location of a customer by consignment, in each case, which are used or held for use by the Companies or their Subsidiaries in the conduct of their respective businesses.
"Knowledge" means, with respect to a natural person, the actual knowledge of a particular fact or other matter by that person, and (A) with respect to Seller, the actual knowledge of a particular fact or other matter by any of the individuals set forth on Section 1.1 of the Companies Disclosure Schedule; provided, whenever Seller makes any representation, warranty or other statement to its Knowledge, Seller will be deemed to have made due inquiry into the subject matter of such representation, warranty or other statement and (B) with respect to the Buyer, the actual knowledge of a particular fact or other matter by any of the individuals set forth on Section 1.1 of the Buyer Disclosure Schedule; provided, whenever Buyer makes any representation, warranty or other statement to its Knowledge, Buyer will be deemed to have made due inquiry into the subject matter of such representation, warranty or other statement.
"Material Adverse Effect" means, with respect to any Person, any change, effect, event, occurrence, state of facts or development that is materially adverse to the business, financial condition or results of operations of such Person and its Subsidiaries (or, in the case of any Company or any Subsidiary of the Companies, the Companies and their Subsidiaries) taken together as a whole, or the ability of such Person to consummate the transactions contemplated hereby on or before the Drop Dead Date, provided, however, that none of the following shall be deemed in themselves, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Material Adverse Effect: (a) any adverse change, effect, event, occurrence, state of facts or development to the extent attributable to, resulting from or relating to (i) any adverse conditions affecting the footwear industries generally, declines in any securities market or segment thereof, general national, international or regional economic or financial conditions, or any outbreaks of hostilities or terrorism or escalation thereof or other calamity or crisis; (ii) compliance with the terms of, or the taking of any action required by or consented to by the other party to this Agreement, pursuant to, this Agreement; (iii) seasonal fluctuations in the business of such Person; or (iv) actions required to be taken under Applicable Law, or Contracts binding on such Person.
"Multiemployer Plan" has the meaning set forth in Section 3(37) of ERISA.
"Permitted Encumbrances" means with regards to any Person the following encumbrances: (i) exceptions, objections, agreements, claims, defects, easements, rights of way, encroachments, encumbrances, covenants, reservations, restrictions, conditions, leases, tenancies and the like of record, (ii) zoning, building, subdivision and other statutory or regulatory conditions and restrictions, (iii) liens for Taxes and assessments not yet due and payable, and for which reserves are reflected on the books and records of such Person, (iv) Encumbrances disclosed on Section 1.1 of the Companies Disclosure Schedule (in the case of the Companies and their Subsidiaries) and (v) other exceptions, restrictions or limitations which do not materially restrict or impair the use of such property for the business of such Person.
"Person" means any natural person, corporation, company, limited liability company, partnership (limited or general), joint venture, association, trust, unincorporated organization or other entity.
"Reference Amount" shall mean $53,100,000.
"Retained Liabilities" means any indebtedness, obligations, and other liabilities of Seller, any Affiliates of Seller, the Companies or their Subsidiaries of any kind, character or description whatsoever with respect to:
(a) all liabilities associated with the Strategic Industries, LLC Group Pension Plan maintained by Seller (the "Seller's Pension Plan"), including without limitation, any claim with respect to the accrued benefits under the Seller's Pension Plan;
(b) except as expressly assumed by Buyer pursuant to Section 5.10(c) hereto, all liabilities associated with Seller's 401(k) Plan, including without limitation, any claim with respect to the accrued benefits under Seller's 401(k) Plan;
(c) all liabilities for any deferred compensation, phantom unit plans, or supplemental employee retirement income, including any requirements pursuant to any individual agreements;
(d) all liabilities associated with the employment and severance from employment of Gerald M. Cohn, including but not limited to, any executive deferred compensation, severance or bonus payment; and
(e) all liabilities to the extent arising from the conduct of the business of any of the Companies or any of their Subsidiaries, or any predecessor in interest thereto, on or before the Closing Date, arising from or otherwise relating to Environmental Laws or Environmental Permits; provided, Seller shall be entitled to any insurance, indemnity or other third party recoveries related to any actions undertaken to comply with Environmental Laws or Environmental Permits, whether or not such recoveries are sought before or after the Closing Date, so long as such insurance, indemnity or other third party recoveries relate to a Retained Liability hereunder.
"SEC" means the United States Securities and Exchange Commission.
"Securities" means: (a) capital stock, partnership interests, membership interests, beneficial interests or any other equity or ownership interests in the Person referenced; (b) any instruments convertible into or exchangeable for, or whose value is determined by reference to, any such interests; or (c) any other rights, warrants or options to acquire or dispose of any of the foregoing.
"Securities Act" means the United States Securities Act of 1933, as amended.
"Securities Laws" means the Securities Act; the Exchange Act; the published rules and regulations of the SEC promulgated thereunder; the securities or "blue sky" laws of any state or territory of the United States and the comparable laws, rules and regulations in effect in any other country.
"Seller 401(k) Plan" means the Strategic Industries, LLC Retirement Savings and Investment Plan.
"Stock Consideration" means 484,261 shares of common stock of Buyer ("Buyer Common Stock") (plus any additional shares as may be issued upon any stock split, stock dividend or recapitalization effected by Buyer after the date hereof with respect to the Stock Consideration).
"Subsidiary," and "Subsidiaries" of any Person means any entity or entities of which more than 50% of the effective voting power or Securities of such entity or entities is directly or indirectly owned by such Person.
"Tax" or "Taxes" means (i) any taxes, assessments, fees and other governmental charges imposed by any Governmental Authority, including without limitation income, profits, gross receipts, net proceeds, alternative or add-on minimum, ad valorem, value added, turnover, sales, use, property, personal property (tangible and intangible), environmental, stamp, leasing, lease, user, excise, duty, franchise, capital, capital stock, transfer, registration, license, withholding, social security (or similar), unemployment, disability, payroll, employment, fuel, excess profits, occupational, premium, windfall profit, severance, estimated, or other charge of any kind whatsoever, (ii) any liability for payment of any amounts of the type described in (i) as a result of being a member of an affiliated, combined, consolidated, or unitary group for any period prior to the Closing, and (iii) any interest, penalty, or addition imposed in connection with any of the amounts described in (i) or (ii).
"Working Capital" means an amount equal to all "current assets" minus all "current liabilities," in each case as such "current assets" and "current liabilities" are accrued and reflected on the books and records of the Companies in accordance with GAAP Consistently Applied; provided, that (A) "current assets" shall not include (i) cash and cash equivalents of the Companies and their Subsidiaries, (ii) short-term deferred Taxes, or (iii) Inventory and Accounts Receivable in respect of Hummer-branded footwear, and (B) "current liabilities" shall not include (i) Debt or interest accrued in respect of Debt, (ii) income Taxes payable, (iii) accrued management fees payable to Seller, (iv) Retained Liabilities, (v) any out-of-pocket liabilities incurred in respect of the Financing, (vi) any accounts payable for which checks are outstanding as of the Closing and (vii) accrued professional fees relating to the transactions contemplated by this Agreement. Notwithstanding the foregoing, all Tax assets and Tax liabilities shall be disregarded for purposes of determining "Working Capital."
The following terms shall have the meaning specified on the indicated page of this Agreement:
Section 2.1. Purchase and Sale of the Equity Interests. Upon the terms and
subject to the conditions set forth in this Agreement, at the Closing, Seller
shall sell, convey, transfer and deliver to Buyer, and Buyer shall purchase,
acquire and accept from Seller, all right, title and interest in and to the
Equity Interests, free and clear of any Encumbrances. The consideration to
be paid by Buyer for the Equity Interests is set forth in Section 2.3 hereof,
subject to the adjustments set forth in Section 2.8.
Section 2.2. Closing; Delivery of the Equity Interests. The Closing shall
take place (a) at the offices of Dechert LLP, 4000 Bell Atlantic Tower, 1717
Arch Street, Philadelphia, PA, at 10:00 a.m. on the second Business Day following
the date on which the last of the conditions set forth in Article VI (other
than conditions in respect of documents or agreements to be delivered at Closing)
are fulfilled or waived in accordance with this Agreement or (b) at such other
place, time or date as Buyer and Seller may agree. At the Closing, Seller
will deliver to Buyer one or more certificates representing all of the Equity
Interests, duly endorsed in blank or accompanied by instruments of transfer
duly executed in blank, in appropriate form and sufficient to transfer the
Equity Interests to Buyer, free and clear of any Encumbrances, other than
those Encumbrances created as a result of the transactions contemplated hereby.
Section 2.3. Purchase Consideration. The aggregate amount payable by Buyer
to Seller in respect of the Equity Interests (the "Purchase Consideration")
shall consist of (i) cash in an amount equal to the Cash Consideration, subject
to adjustment as contemplated by Section 2.8 hereof, and (ii) the Stock Consideration.
Section 2.4. Payment of Purchase Consideration. In consideration of the sale
of the Equity Interests to Buyer, the Purchase Consideration will be paid at
the Closing as follows:
(i) the Aggregate Cash Consideration shall be paid to Seller by wire transfer
of immediately available funds to an account designated in writing by Seller
to Buyer prior to the Closing; and
(ii) the Stock Consideration shall be delivered to Seller.
Section 2.5. Legend for Stock Consideration. The certificate(s) evidencing
the shares of Buyer Common Stock delivered to Seller as Stock Consideration
shall bear the following legend in conspicuous type:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY
STATE SECURITIES LAWS. THE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION WITHOUT AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION OR QUALIFICATION
IS NOT REQUIRED.
Section 2.6. Escrow Account.
(a) On or prior to the Closing Date, Buyer and Seller shall establish an
escrow (the "Escrow Account") with PNC Bank, N.A. (the "Escrow
Agent"), by the execution and delivery of an Escrow Agreement substantially
in the form attached as Exhibit A hereto (the "Escrow Agreement").
(b) On or prior to Closing, Seller shall deliver to the Escrow Agent the
Escrow Letter of Credit. The Escrow Letter of Credit shall, on the terms set
forth in the Escrow Agreement, secure the performance of Seller's indemnity
obligations under Section 7.2(a) hereof, including but not limited to, payments
or other funding made with respect to the Retained Liabilities, and the Escrow
Agent shall be entitled to draw on the Escrow Letter of Credit to fund the
Escrow Account in accordance with the terms and subject to the conditions
set forth in the Escrow Agreement.
Section 2.7. Working Capital Estimate. No less than three (3) days prior
to the anticipated Closing Date, Seller shall deliver to Buyer a good faith
estimate of Working Capital as of the close of business on the Closing Date
("Estimated Working Capital") together with a statement of the calculation
of the Estimated Working Capital.
Section 2.8. Closing Statement; Adjustment to Net Purchase Price.
(a) Within 45 days after the Closing Date, Buyer shall cause to be prepared
and shall deliver to Seller a statement (the "Closing Statement"),
which shall include (i) a combined balance sheet (the "Closing Date Balance
Sheet") of the Companies and their Subsidiaries as of the Closing Date
prepared in accordance with GAAP Consistently Applied and (ii) a statement
based on such Closing Date Balance Sheet setting forth in reasonable detail
a calculation of the Working Capital as of the close of business on the Closing
Date ("Closing Date Working Capital").
(b) Each of Seller and Buyer agrees that it will, and it will use reasonable
efforts to cause its respective agents and representatives to, cooperate and
assist in the preparation of the Closing Statement and the calculation of
the Closing Date Working Capital and in the conduct of the reviews and dispute
resolution process referred to in this Section 2.8. Prior to the delivery
of the Closing Statement, Buyer shall afford Seller and its representatives
the ability to observe the preparation of the Closing Statement and shall
make Buyer's financial officers reasonably available to answer any questions
regarding such calculations and preparation of the Closing Statement.
(c) During the 30-day period following Seller's receipt of the Closing Statement,
Seller and its independent accountants shall at Seller's expense be permitted
to review, and Buyer shall make available to Seller, the supporting schedules,
analyses, working papers and other documentation of Buyer relating to the
Closing Statement and to ask questions, receive answers and request such other
data and information from each of them as shall be reasonable under the circumstances.
The Closing Statement shall become final and binding upon the parties on the
Business Day following the 30th day following delivery thereof (and the Working
Capital amounts reflected therein shall be deemed to be the Closing Date Working
Capital, unless Seller gives written notice of its disagreement with the Closing
Statement ("Notice of Disagreement") to Buyer prior to such date).
Any Notice of Disagreement shall specify in reasonable detail the nature of
any disagreement so asserted and only include disagreements based upon Closing
Date Working Capital not being calculated in accordance with this Section
2.8. Seller shall make available all supporting schedules, analyses, working
papers and other documentation with respect to the disputed items in the Notice
of Disagreement. Seller shall be deemed to have agreed with all items and
amounts included in the calculation of Closing Date Working Capital delivered
pursuant to Section 2.8(a) except such items that are specifically disputed
in the Notice of Disagreement.
During the 15-day period following the delivery of a Notice of Disagreement
that complies with the preceding paragraph or such longer period as Seller
and Buyer shall mutually agree, Seller and Buyer shall seek in good faith
to resolve in writing any differences that they may have with respect to the
matters specified in the Notice of Disagreement, and in the event Seller and
Buyer are able to reach such resolution then the amount so agreed by them
in writing shall be deemed to be the Closing Date Working Capital. If, at
the end of such 15-day period (or such longer period as mutually agreed between
Seller and Buyer), Seller and Buyer have not so resolved such differences,
Seller and Buyer shall submit the dispute for resolution to an independent
accounting firm (the "Arbiter") for review and resolution of any
and all matters which remain in dispute and which were properly included in
the Notice of Disagreement in accordance with this Section 2.8. The Arbiter
shall be a mutually acceptable independent public accounting firm of national
repute agreed upon by Seller and Buyer in writing; provided, that in the event
the parties are not able to mutually agree on an accounting firm, the Arbiter
shall be KPMG LLP. Seller and Buyer shall use reasonable efforts to cause
the Arbiter to render a decision resolving the matters in dispute within 30
days following the submission of such matters to the Arbiter, or such longer
period as Seller and Buyer shall mutually agree. Seller and Buyer agree that
the determination of the Arbiter shall be final and binding upon the parties
and that judgment may be entered upon the determination of the Arbiter in
any court having jurisdiction over the party against which such determination
is to be enforced; provided, that the scope of the disputes to be resolved
by the Arbiter is limited to only such items included in the Closing Statement
that Seller has disputed in the Notice of Disagreement based upon Closing
Date Working Capital not being calculated in accordance with this Section
2.8. The Arbiter shall determine, based solely on presentations by Buyer and
Seller and their respective representatives, and not by independent review,
only those issues in dispute specifically set forth on the Notice of Disagreement
and shall prepare the Final Closing Statement and render a written report
as to the dispute and the resulting calculation of Closing Date Working Capital,
which shall be conclusive and binding upon the parties. In resolving any disputed
item, the Arbiter: (i) shall be bound by the principles set forth in Section
2.8 hereof, (d) Upon determination of the Final Working Capital, the Cash Consideration
component of the Purchase Consideration shall be further adjusted as follows:
(i) In the event Final Working Capital exceeds the Estimated Working Capital,
the aggregate Cash Consideration shall be increased dollar for dollar by the
amount of such difference.
(ii) In the event the Final Working Capital is less than the Estimated Working
Capital, the aggregate Cash Consideration shall be decreased dollar for dollar
by the amount of such difference.
(e) The net adjustment to the Cash Consideration component of the Purchase
Consideration pursuant to Section 2.8(d) above, whether positive or negative,
is the "Final Adjustment Amount." Within 10 business days after
the Closing Statement becomes final and binding upon the parties (i) if the
net effect pursuant to this Section 2.8 is an increase in the Cash Consideration
component of the Purchase Consideration, Buyer shall make a cash payment to
Seller to an account designated in writing by Seller, by wire transfer of
immediately available funds, of the amount of such Final Adjustment Amount
and (ii) if the net effect pursuant hereto is a decrease in the Cash Consideration
component of the Purchase Consideration, Seller shall make a cash payment
to Buyer to an account designated in writing by Buyer, by wire transfer of
immediately available funds, of the amount of such Final Adjustment Amount,
in either case under clause (i) or (ii) of this Section 2.8(e), together with
interest thereon from the Closing Date to the date of actual payment at a
variable rate equal to the prime rate (as reported in the Wall Street Journal
"Money Rates") from and including the Closing Date to, but not including,
the date of payment.
Section 2.9. Adjustment to Purchase Consideration. Amounts paid or payable
pursuant to Section 2.8 shall be treated by the parties for Tax purposes as
adjustments to the Purchase Consideration.
Section 2.10. Retained Liabilities. Except by operation of law, Buyer shall
not be responsible by virtue of this Agreement or the transactions contemplated
hereby for any Retained Liabilities. Notwithstanding the immediately preceding
sentence, Seller shall be responsible for promptly paying or discharging such
Retained Liabilities on behalf of Buyer in a timely manner when due and shall
make adequate provision for all Retained Liabilities. Seller shall have the
right to contest, in good faith, any such claim for liability asserted in
respect thereof by any Person.
Seller represents and warrants to Buyer as follows:
Section 3.1. Organization. Seller is a limited liability company duly organized,
validly existing and in good standing under the laws of Delaware. Seller has
the power and authority to carry on its business as it is now conducted and
to own, lease and operate all of its properties and assets, and is duly licensed
or qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned, leased or operated by it makes such qualification or licensing
necessary, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on the Seller.
Section 3.2. Authority. Seller has all requisite limited liability company
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized by all necessary limited liability
company action on the part of Seller and has been duly and validly executed
and delivered by Seller. Assuming the due authorization, execution and delivery
of this Agreement by Buyer, this Agreement constitutes the legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with
its terms.
Section 3.3. Organization and Related Matters.
(a) Each of the Companies and their Subsidiaries is a limited liability
company or corporation duly organized, validly existing and, with respect
to jurisdictions in which such concept is recognized, and is in good standing
under the laws of its respective jurisdiction of organization. Copies of the
organizational documents of each of the Companies and their Subsidiaries,
with all amendments thereto to the date hereof, have been furnished to Buyer
or its representatives, and such copies are accurate and complete as of the
date hereof. Each of the Companies and their Subsidiaries has the requisite
power and authority to carry on its business as it is now being conducted
and to own, lease and operate all of its properties and assets. Each of the
Companies and their Subsidiaries is duly licensed or qualified to do business
in each jurisdiction in which the nature of the business conducted by it or
the character or location of the properties and assets owned, leased or operated
by it makes such qualification or licensing necessary, except where the failure
to be so licensed or qualified would not have a Material Adverse Effect on
the Companies.
(b) All of the Equity Interests and the Securities of the Companies' Subsidiaries
are (i) duly authorized, validly issued, fully paid and nonassessable, (ii)
not subject to preemptive rights, (iii) not issued in violation of any preemptive
rights to which any Company or its Subsidiaries is subject, (iv) issued and
sold in compliance with Securities Laws, and (v) owned of record and beneficially
as set forth on Section 3.3 of the Companies Disclosure Schedule, and those
Equity Interests described on Section 3.3 of the Companies Disclosure Schedule
owned by Seller, a Company or a Company's Subsidiary, are free and clear of
any Encumbrances except as described on Section 3.3 of the Companies Disclosure
Schedule. None of the Companies or any of their Subsidiaries owns any Securities
(other than Securities issued by their Subsidiaries).
(c) Except as set forth on Section 3.3 of the Companies Disclosure Schedule,
there is no (i) outstanding option, subscription, "phantom" stock
right, put, call, commitment, preemptive right, warrant, conversion rights,
or agreement that is binding on any of the Companies or any of their Subsidiaries
for the purchase or acquisition from any of the Companies or any of their
Subsidiaries of any Equity Interests of such Company or such Subsidiary, or
(ii) contract, commitment or agreement that is binding on any of the Companies
or any of their Subsidiaries relating to the issuance of Equity Interests
of any of the Companies or any of their Subsidiaries, convertible or exchangeable
securities, or any subscriptions, options, warrants, or similar rights of
the any of the Companies or any of their Subsidiaries or granting to any Person
any right to participate in the equity or income of the any of the Companies
or any of their Subsidiaries or to participate in or direct the election of
any managing member of any of the Companies or any of their Subsidiaries or
the manner in which the Equity Interests of any of the Companies or any of
their Subsidiaries are voted.
Section 3.4. Authority; No Violation; Consents.
(a) Neither the execution and delivery of this Agreement by Seller, nor
the consummation of the transactions contemplated hereby and the performance
of this Agreement by Seller, assuming that the Governmental Consents have
been obtained prior to the Closing, will (i) (x) violate, conflict with, or
result in a breach of, or constitute a default (or in the event that, with
notice or lapse of time or both, would constitute a default) under, any provision
of the organizational documents or operating agreement of Seller or the limited
liability company agreement or other organizational documents of any of the
Companies or any of their Subsidiaries or (y) require consent under, violate,
conflict with, or result in a breach, in any material respect, of any provision
of, or constitute a default (or an event that, with notice or lapse of time
or both, would constitute a default) under, or result in the termination of,
or accelerate or modify the performance or payment required by, or result
in a right of termination, acceleration or modification under, or result in
the creation of any Encumbrance upon any of the properties or assets of Seller,
any of the Companies or any of their Subsidiaries under any of the terms,
conditions or provisions of any Contract to which Seller, any of the Companies
or any of their Subsidiaries is a party or to which any of the Companies'
or any of their Subsidiaries' properties or assets may be subject, except
as set forth on Section 3.4 of the Companies Disclosure Schedule, or (ii)
violate any Applicable Law or conflict with any of the Seller's, Companies'
or their Subsidiaries' respective right to fully own and use its properties
or assets, except, with respect to clause (ii), for such violations which
would not have a Material Adverse Effect on Seller or the Companies.
(b) Except as set forth on Section 3.4 of the Companies Disclosure Schedule
(the "Governmental Consents"), no material notice to, filing with,
waiver from, authorization of, exemption by, or consent or approval of, registration,
declaration or filing with, or termination or expiration of waiting period
with respect to, any Governmental Authority is necessary for the sale of the
Equity Interests contemplated hereby.
Section 3.5. Financial Statements. Section 3.5 of the Companies Disclosure
Schedule sets forth the following financial statements of the Companies: (i)
the unaudited, combined balance sheet (the "Unaudited Balance Sheet"),
income statement, statements of cash flows and owner's equity of the Companies
and their Subsidiaries as of September 30, 2004 (the "Financial Information").
The Financial Information was derived from the internal books and records
of the Companies and has been prepared in a manner consistent with GAAP, and
fairly presents, in all material respects, the financial position of the Companies
and their Subsidiaries as of such dates and the results of operations of the
Companies and their Subsidiaries for the periods covered thereby, in each
case on a combined basis, and subject to the absence of footnotes and other
presentation items. The Financial Information was prepared solely for the
purpose of this Agreement and for the internal management purposes of the
Companies. None of the Companies was conducted on a stand-alone basis as a
separate entity during the periods indicated in the Financial Information
and the allocations and estimates included in the Financial Information are
not necessarily indicative of the costs that would have resulted if each of
the Companies had been operated and conducted on a stand-alone basis as a
separate entity during such periods.
Section 3.6. Absence of Undisclosed Liabilities. There exist no liabilities,
losses or obligations of the Companies or their Subsidiaries of any kind,
whether accrued, absolute, contingent, known or unknown, fixed, liquidated,
unliquidated, due or to become due, threatened or otherwise, which would be
required to be reflected, reserved for or disclosed under GAAP on a balance
sheet except (i) as and to the extent disclosed, reflected or reserved against
in the Financial Information, (ii) as disclosed on Section 3.6 of the Companies
Disclosure Schedule, or (iii) for liabilities and obligations incurred in
the ordinary course of business consistent with past practice since September
30, 2004.
Section 3.7. Compliance with Applicable Laws. Except as set forth on Section
3.7 of the Companies Disclosure Schedule, the Companies and each of their
Subsidiaries is duly complying and has duly complied since March 24, 2000,
with Applicable Law relating to their respective business, operations and
properties, except where the failure to be in compliance would not be expected
to have a Material Adverse Effect on the Companies or where such noncompliance
has been cured and is reasonably expected to have no material impact on the
future business or operations of the Companies and their Subsidiaries taken
as a whole. Except as set forth on Section 3.7 of the Companies Disclosure
Schedule, to Seller's Knowledge, there exists no present failure and no failure
since March 24, 2000 to comply, in any material respect, with Applicable Laws,
including the improper acceptance of corporate funds and the making of unlawful
payments or bribes to any Governmental Authority to obtain special treatment
by any Person acting on behalf of a Company or one of the Companies' Subsidiaries,
except where such noncompliance would not result in a Material Adverse Effect
on the Companies. Except as set forth on Section 3.7 of the Companies Disclosure
Schedule, all governmental approvals, permits and licenses required to conduct
the business of the Companies and each of their Subsidiaries have been duly
and lawfully obtained and are in full force and effect and are being complied
with in all respects, except for such failures to obtain, maintain or comply
with approvals, permits and licenses which would not have a Material Adverse
Effect on the Companies. No notice, citation, summons or order has been issued,
no complaint has been filed and served, no penalty has been assessed and notice
thereof given, and no investigation or review is pending or, to the Knowledge
of Seller, threatened, by a Governmental Authority with respect to any alleged
(i) violation by any of the Companies or any of their Subsidiaries of any
Applicable Law, or (ii) failure by any of the Companies or any of their Subsidiaries
to have any permit, license, or authorization required in connection with
the conduct of or otherwise applicable to the business conducted by each,
except where such violation or failure would not have a Material Adverse Effect
on the Companies. Each of the Companies and their Subsidiaries has duly obtained
all permits, concessions, grants, franchises, licenses and other authorizations
from Governmental Authorities, consents and approvals for the conduct of its
business, except where the failure to have the same would not result in a
Material Adverse Effect on the Companies.
Section 3.8. Assets and Real Property.
(a) Except as set forth on Section 3.8 of the Companies Disclosure Schedule,
neither any Company nor any Subsidiary of a Company owns any real property.
Section 3.8 of the Companies Disclosure Schedule sets forth all the material
real property leased by the Companies and their Subsidiaries (the "Leased
Real Property"). Either one of the Companies or their Subsidiaries has
a valid leasehold interest and is in possession of the Leased Real Property.
All Contracts governing the Leased Real Property (the "Real Property
Leases") are valid, binding and enforceable in accordance with their
terms and are in full force and effect, except where the failure to be valid,
binding and enforceable would not result in a Material Adverse Effect on the
Companies. Seller has provided to Buyer a copy of each Real Property Lease
that is complete and correct in all material respects. Except as set forth
on Section 3.8 of the Companies Disclosure Schedule and except as would not
have a Material Adverse Effect on the Companies, the Companies and their Subsidiaries
have valid and legal title to, a valid leasehold interest in, or rights to
the, assets and properties necessary to operate the business of the Companies
and their Subsidiaries in the ordinary course of business and consistent with
past practice. To Seller's Knowledge, except for Permitted Encumbrances of
the Companies and their Subsidiaries, the Leased Real Property is not subject
to any rights of way, building use restrictions, easements, reservations or
limitations which would restrict the Companies or their Subsidiaries from
conducting their business after the Closing consistent with past practice.
To Seller's Knowledge, neither the whole nor any portion of the Leased Real
Property is subject to any governmental decree or order to be sold or is being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor has any such condemnation, expropriation
or taken been proposed.
(b) Either one of the Companies or their Subsidiaries has good and valid
title to all personal property assets (tangible and intangible) owned by one
or more of the Companies or any of their Subsidiaries, free and clear of all
Encumbrances, except for Permitted Encumbrances of the Companies and their
Subsidiaries.
Section 3.9. Contracts. Section 3.9 of the Companies Disclosure Schedule
sets forth a complete and correct list as of the date of this Agreement of
all of the following Contracts to which any of the Companies or any of their
Subsidiaries is a party or under which any of the Companies or any of their
Subsidiaries may be liable:
(a) any Contract with any director, officer or employee of any of the Companies
or any of their Subsidiaries, including any employment bonus agreements, employee
non-competition agreements, or agreements or policies that contain any severance
or termination pay liabilities or obligations;
(b) any Contract that, after the Closing, will restrict the conduct of any
line of business by any of the Companies or any of their Subsidiaries in any
material respect or upon consummation of the transactions contemplated hereby,
will restrict the ability of the Companies and any of their Subsidiaries from
engaging in any line of business in which they may lawfully engage;
(c) each real estate lease or sublease with respect to each Leased Real
Property;
(d) any Contract with a labor union (including any collective bargaining
agreement);
(e) any Contract (other than Employee Benefit Plans) not otherwise disclosed
pursuant to this Section 3.9 calling for annual payments aggregating more
than $100,000, whether payable by or to any of the Companies or any of their
Subsidiaries;
(f) any Contract which includes or constitutes a power of attorney or any
obligations or liabilities as guarantor, surety, co-signor, endorser, or co-maker;
(g) any partnership, joint venture or other similar contract involving a
sharing of revenue, profits, losses, costs or liabilities by any of the Companies
or any of their Subsidiaries with any other Person;
(h) any Contract for financing or funding relating to the securing or borrowing
of money in an amount in excess of $100,000 pursuant to which any of the Companies
or any of their Subsidiaries is the obligor or guarantor;
(i) any Contract for the sale or purchase of footwear for which any of the
Companies or any of their Subsidiaries will be responsible after the Closing,
and having an unexpired term in excess of six (6) months;
(j) any distributorship agreement for which the distributor purchases more than
$100,000 in any calendar year, or any consignment, dealership, or sales representative
agreement between any of the Companies or any of their Subsidiaries and any
third party;
(k) any Contract for the performance of warehousing and fulfillment functions
for any Company or any Subsidiary of a Company; and
(l) any license or other agreement granting any Company or any Subsidiary
of a Company rights in, or to the use of, Intellectual Property.
All of the foregoing are collectively referred to in this Agreement as the
"Material Contracts." Each Material Contract is in full force and
effect and constitutes the legal, valid and binding obligation of each Company
and Subsidiary of a Company that is a party thereto, enforceable against each
Company and Subsidiary of a Company that is a party thereto in accordance
with its terms. Seller has provided to Buyer a complete and correct copy of
each Material Contract. There does not exist under any Material Contract any
violation, breach, default or condition or event that, after notice or lapse
of time or both, would constitute a violation, breach or default on the part
of any of the Companies or any of their Subsidiaries or, to the Knowledge
of Seller, on the part of any other parties to such Material Contracts, except
for such violations, breaches, defaults, conditions or events that would not
have a Material Adverse Effect on the Companies. Neither Seller nor any of
the Companies or their Subsidiaries has received from any other party to a
Material Contract any written notice of termination or intention to terminate
or not to honor the terms of such Material Contract, or to the Knowledge of
the Seller, any oral notice of termination or intention to terminate or not
to honor the terms of such Material Contract. The Material Contracts set forth
on Section 3.9 of the Companies Disclosure Schedule for which the failure
to obtain consent or approval for the transactions contemplated by this Agreement
would constitute a default by a Company or a Subsidiary of a Company are designated
with an asterisk.
Section 3.10. Intellectual Property.
(a) Set forth on Section 3.10(a) of the Companies Disclosure Schedule is
a list of all material Intellectual Property that is owned by or licensed
to any of the Companies or any of their Subsidiaries. Except as set forth
on Section 3.10(b) of the Companies Disclosure Schedule, no Company or any
Subsidiary of the Companies has any pending written, or, to the Knowledge
of Seller, oral notice from any other Person challenging or questioning the
right of such Company or Subsidiary to use in its business any of the items
of Intellectual Property listed on the Section 3.10(a) of the Companies Disclosure
Schedule.
(b) Except as set forth on Section 3.10(b) of the Companies Disclosure Schedule,
one of the Companies or their Subsidiaries owns or is licensed to use the
Intellectual Property set forth on Section 3.10(a) of the Companies Disclosure
Schedule, free and clear of all Encumbrances, other than Permitted Encumbrances
of the Companies and their Subsidiaries. Except as set forth on Section 3.10(b)
of the Companies Disclosure Schedule, the items of Intellectual Property set
forth on Section 3.10(a) of the Companies Disclosure Schedule are subsisting
and in good standing and are not subject to any proceeding challenging their
extent or validity, except as would not have a Material Adverse Effect on
the Companies.
(c) Except as set forth on Section 3.10(c) of the Companies Disclosure Schedule,
to the Knowledge of Seller (i) there is no existing or since March 24, 2000
has there been infringement by others of any of the material Intellectual Property
that is owned by or licensed to any Company or Subsidiary, (ii) the business
operations of the Companies and their Subsidiaries do not infringe, misappropriate
or otherwise violate, nor since March 24, 2000 have they infringed, misappropriated
or otherwise violated the Intellectual Property rights of any other Person,
and (iii) the Intellectual Property is adequate for the purposes for which it
is currently being used.
(d) To the Knowledge of Seller, there is no subsisting material breach nor
is there any fact or matter which would create a material breach by any of
the Companies or any of their Subsidiaries of any licenses or other agreements,
consents or undertakings which have been granted to or granted by such Company
or a Subsidiary of a Company in relation to Intellectual Property that is
used in the operation of the business of the Companies and any Subsidiary
of the Companies, other than that which would not have a Material Adverse
Effect on the Companies.
(e) That certain GMNAO License Agreement between General Motors Corporation
and Georgia Boot dated February 7, 2003, has been terminated pursuant to Agreement
to Terminate License Agreements ("GMNAO Termination Agreement")
dated effective May 17, 2004, and all obligations of Georgia Boot pursuant
to Paragraph 2 of the GMNAO Termination Agreement have been satisfied.
(f) The representations and warranties in this Section 3.10 are the sole
and exclusive representations and warranties of Seller concerning Intellectual
Property matters.
Section 3.11. Legal Proceedings. Except as set forth on Section 3.11 of
the Companies Disclosure Schedule, for the thirty six (36) months prior to
the date hereof there has not been, and as of the date hereof, there is no,
litigation, claim, action, suit, review, proceeding or investigation or any
other claim pending or, to the Knowledge of Seller, threatened against any
of the Companies or any of their Subsidiaries, at law, in equity or otherwise,
in, before, or by, any court or Governmental Authority that would, individually
or in the aggregate, have a Material Adverse Effect on the Companies or a
Material Adverse Effect on Seller or challenge the validity of this Agreement
or any action taken or to be taken by Seller pursuant to this Agreement or
in connection with the transactions contemplated hereby. Except as set forth
on Section 3.11 of the Companies Disclosure Schedule, there are no material
unsatisfied judgments or outstanding orders, rulings, judgments, decisions,
writs, injunctions, decrees, stipulations or awards (whether rendered by a
court, an administrative agency or by an arbitrator) against any of the Companies
or any of their Subsidiaries other than that which would not have a Material
Adverse Effect on the Companies.
Section 3.12. Tax Matters. Except as disclosed on Section 3.12 of the Companies
Disclosure Schedule:
(a) Each of the Companies and their Subsidiaries has filed or caused to
be filed in a timely manner (within any applicable extension periods) all
Tax returns, reports, statements, schedules, notices, forms and other documents
required to have been filed with or submitted to any Governmental Authority
by the Code or by applicable state, local or foreign Tax laws (collectively,
"Returns"); all Taxes shown to be due on such Returns have been
timely paid in full; and no tax liens have been filed and no material claims
are being asserted in writing with respect to any Taxes; in each case except
where the failure to file any such Return or pay any such tax would not have
a Material Adverse Effect on the Companies. All such Returns were correct
and complete in all material respects. Neither Seller, any Affiliate of Seller,
nor any of the Companies or any of their Subsidiaries is the beneficiary of
an extension of time within which to file any Return.
(b) No presently effective waivers or extensions of statutes of limitation
with respect to Taxes have been given by any of the Companies or any of their
Subsidiaries for any taxable years.
(c) As of the date of this Agreement, to the Knowledge of Seller, the Returns
filed by, or with respect to, the Companies and their Subsidiaries are not
being examined by, and no written notification of intention to examine has
been received from the IRS or any other taxing authority with respect to Taxes.
(d) None of the Companies nor their Subsidiaries has been a "member"
(as that term is defined in Reg. Section 1.1502-1(b)) of a group that filed
a consolidated federal income Tax Return.
(e) All amounts required to be withheld by any of the Companies or any of
their Subsidiaries from customers or from or on behalf of employees for income,
social security and unemployment insurance Taxes have been collected or withheld
and either paid to the appropriate Governmental Authority or set aside and,
to the extent required by Applicable Law, held in accounts for such purpose.
(f) Other than as reflected in the Financial Information or in the ordinary
course of business and consistent with past practice, neither a Company, any
Subsidiary of the Companies, nor Seller has taken any action that would have
the effect of deferring any Tax liability of any of the Companies or any of
their Subsidiaries with respect to the sales, income, business or operations
of any of the Companies or any of their Subsidiaries from a period ending
on or prior to the Closing Date to a period ending after the Closing Date.
Other than as reflected on the most recent Financial Information, there are
no deferred Taxes payable by any of the Companies or any of their Subsidiaries
as of the Closing Date.
(g) No material differences exist between the amounts of the book basis
and the Tax basis of assets that are not accounted for by an accrual or a
deferred Tax asset or a deferred Tax liability on the books of any of the
Companies or any of their Subsidiaries for federal income Tax purposes. Neither
any of the Companies nor any of their Subsidiaries will be required to recognize
for income Tax purposes in a taxable year beginning on or after the Closing
Date any amount of income or gain which it would have been required to recognize
under the accrual method of accounting for Tax purposes in a Tax period ending
on or before the Closing Date as a result of the installment method of accounting,
the completed contract method of accounting, the cash method of accounting
or a change in method of accounting.
(h) None of the Companies nor their Subsidiaries has received a tax opinion
with respect to any transaction other than in connection with (i) the formation
of the Companies, (ii) any election by each Company pursuant to Reg. Section
301.7701-3, or (iii) any transaction in the ordinary course of business.
Section 3.13. Insurance. The Companies and their Subsidiaries have in force
policies of fire, liability, property and casualty, workers compensation,
directors and officers liability, surety bonds, vehicular and other forms
of insurance with reputable insurance companies or associations in amounts
and with retentions and deductibles and covering such risks as are in accordance
with reasonable business practices and will continue in force to the Closing
Date policies of insurance of substantially the same character and coverage.
Set forth on Section 3.13 of the Companies Disclosure Schedule is a true and
complete list of such insurance policies (the "Insurance Policies"),
indicating the type of coverage, name of the policy holder, the insurer, the
amount of coverage, the deductibles, the premium, the expiration date. Section
3.13 of the Companies Disclosure Schedule also identifies the workers' compensation
and unemployment insurance ratings of the Companies and their Subsidiaries.
Set forth on Section 3.13 of the Companies Disclosure Schedule is a summary
of the paid, incurred and outstanding claims under each Insurance Policy,
as of the date hereof. All of the Insurance Policies are in full force and
effect, all premiums due with respect thereto covering all periods up to and
including the date of this Agreement have been paid current as of the date
hereof and will be paid current through the Closing Date prior to the Closing.
As of the date of this Agreement, none of the Companies or their Subsidiaries
has received any written notice of cancellation of any insurance policy maintained
in favor of such Companies or their Subsidiaries or been denied insurance
coverage, which, in either case, would have a Material Adverse Effect on the
Companies.
Section 3.14. Benefit Plans.
(a) Section 3.14 of the Companies Disclosure Schedule lists (i) all Employee
Benefit Plans of the Companies and their Subsidiaries and (ii) all Employee
Benefit Plans maintained by any ERISA Affiliate in which Employees of the
Companies participate.
(b) Except as set forth on Section 3.14 of the Companies Disclosure Schedule
no Employee Benefit Plan of any Company or any Subsidiary of the Companies
is a Multiemployer Plan or a plan that is subject to Title IV of ERISA, and
no Employee Benefit Plan of any Company or any Subsidiary of the Companies
provides health or other welfare benefits to former employees of any Company
or any Subsidiary of the Companies other than as required by COBRA.
(c) Except as set forth on Section 3.14 of the Companies Disclosure Schedule,
each Employee Benefit Plan is maintained and administered in compliance in
all material respects with the applicable requirements of the applicable plan
document, ERISA, the Code and any other applicable laws. Each Employee Benefit
Plan that is intended to be qualified under Section 401(a) of the Code has
received a determination from the IRS within the last three years that it
is so qualified and, to the Seller's Knowledge, there are no facts or circumstances
that will adversely affect the qualified status of any such Employee Benefit
Plan.
(d) Except as set forth on Section 3.14 of the Companies Disclosure Schedule,
no material liability under Title IV of ERISA, excluding for this purpose, liability
for benefits accrued by or for the Employees of the Companies under any Employee
Benefit Plan subject to Title IV of ERISA in which a Company or any Subsidiary
of a Company participates, has been, or will be incurred by any ERISA Affiliate
that will become a liability of any of the Companies or any of their Subsidiaries.
Except as set forth on Section 3.14 of the Companies Disclosure Schedule, after
the Closing Date, no material liability under an Employee Benefit Plan of an
ERISA Affiliate of Seller under which no Employee of the Companies or any of
their Subsidiaries participates or has participated, has been, or will be incurred
by any ERISA Affiliate that will become a liability of any of the Companies
or any of their Subsidiaries.
(e) The Companies, their Subsidiaries and the ERISA Affiliates have complied
with the requirements of COBRA.
(f) Except as set forth on Section 3.14 of the Companies Disclosure Schedule,
none of the Companies, their Subsidiaries or, to the Seller's Knowledge, any
other Person has engaged in any transaction with respect to any Employee Benefit
Plan that will subject the Companies or any of their Subsidiaries to any material
liability, tax or penalty (civil or otherwise) imposed by ERISA, the Code
or other Applicable Law. Payment has been made of all amounts which any Company
or any Subsidiary of a Company is required to have paid as contributions to
or benefits under any Employee Benefit Plan as of the end of the most recent
plan year thereof, and as of the end of the most recent plan year thereof,
there are no unfunded obligations under any Employee Benefit Plan that have
not been disclosed to Buyer in writing prior to the Closing. Except as set
forth on Section 3.14 of the Companies Disclosure Schedule, Seller, the Companies,
and the Subsidiaries of the Companies have complied with all reporting and
disclosure obligations to all Governmental Authorities and all participants
and beneficiaries with respect to each Employee Benefit Plan required by the
terms of such Employee Benefit Plan or Applicable Law. There is no pending
or threatened litigation, arbitration, disputed claim, adjudication, audit,
investigation, examination or other proceeding with respect to any Employee
Benefit Plan or any fiduciary or administrator thereof in their capacities
as such. No "reportable event," within the meaning of Section 4043
of ERISA, and no event described in Section 4041, 4042, 4062 or 4063 of ERISA
has occurred in connection with any Employee Benefit Plan.
(g) With respect to each Employee Benefit Plan, Seller has made available
to Buyer true, complete and correct copies, to the extent applicable, of (i)
the plan and trust documents, including all amendments, and the most recent
summary plan description, (ii) the most recent annual report (Form 5500 series),
(iv) the most recent financial statements, and (v) the most recent IRS determination
letter.
(h) Except as set forth on Section 3.14 of the Companies Disclosure Schedule,
(i) the execution of, and performance of the transactions contemplated by,
this Agreement will not constitute an event under any Employee Benefit Plan
that will result in any material payment (whether as severance pay or otherwise),
acceleration, vesting or increase in benefits, and (ii) there has been no
amendment, interpretation, announcement (whether or not written), which would
increase the expense of maintaining any Employee Benefit Plan in which employees
of any of the Companies or their Subsidiaries participate above the level
of expenses of such Employee Benefit Plan when compared to the fiscal year
or plan year ended immediately prior to the Closing Date or which made any
commitment to create any additional plan or offer any benefit that is not
yet effective.
(i) The representations and warranties in this Section 3.14 are the sole
and exclusive representations and warranties of Seller regarding employee
benefit plan matters.
Section 3.15. Environmental Matters. To Seller's Knowledge, except as set
forth on Section 3.15 of the Companies Disclosure Schedule:
(a) Each of the Companies and their Subsidiaries have all material permits,
licenses, and other authorizations required for the operations of their business
under applicable Environmental Laws (the "Environmental Permits"),
each of the Environmental Permits is in full force and effect, and each of
the Companies and their Subsidiaries is in compliance with all terms and conditions
of the Environmental Permits, and with all applicable Environmental Laws.
There are no past or present conditions or circumstances that could reasonably
be expected to interfere with or prevent the conduct of business of the Companies
or their Subsidiaries from being in compliance with all applicable Environmental
Laws or the terms and conditions of any Environmental Permit.
(b) Neither the Companies nor any of their Subsidiaries have received written
or oral notice of any citation, summons, order, complaint, penalty, investigation,
or review by any Governmental Authority with respect to any violation by any
such Company or Subsidiary of any Environmental Law which would be reasonably
likely to result in claims, liabilities, costs or causes of action against
the Companies or their Subsidiaries for correction of any violation, or any
fines or penalties, and there are no past or present conditions or circumstances
at, arising out of, or related to, any current or former business, assets
or properties of any of the Companies or any of their Subsidiaries which are,
individually or in the aggregate, reasonably likely to give rise to (i) liabilities
or obligations for any investigation, clean up, remediation, disposal, or
any other methods of corrective action or any monitoring requirements ("Remediation")
under Environmental Laws, or (ii) claims arising for personal injury, property
damage, or damage to natural resources.
(c) Neither any of the Companies nor any of their Subsidiaries has received
written or oral requests for information, notice of claim, demand, or notification
that it is, or may be, responsible with respect to any investigation or cleanup
of any threatened or actual Release of any Hazardous Substance, except for
such requests, notices, demands, or notifications. The term "Release"
has the meaning set forth in Section 101(22) of CERCLA.
(d) There is no action, suit, proceeding or investigation pending or threatened
against or involving any Company or any Subsidiary asserting liability under
Environmental Laws.
(e) There are no Persons whose liability, for any environmental matters
or under any applicable Environmental Law, a Company or Subsidiary has retained
or assumed contractually.
(f) The representations and warranties in this Section 3.15 are the sole and
exclusive representations and warranties of Seller concerning environmental
matters, Environmental Laws and Hazardous Substances.
Section 3.16. Employee Relations.
(a) Except as disclosed on Section 3.16 of the Companies Disclosure Schedule,
no Company: (i) is a party to or otherwise bound by any collective bargaining
or other type of union agreement, (ii) is a party to, involved in or, to the
Knowledge of Seller, threatened by, any labor dispute or unfair labor practice
charge, or (iii) has experienced any work stoppage during the last three (3)
years.
(b) Except as disclosed on Section 3.16 of the Companies Disclosure Schedules,
there are no outstanding claims against any of the Companies or any of their
Subsidiaries (whether under regulation, contract, policy or otherwise) asserted
by or on behalf of any present or former employee or job applicant of such
Company or Subsidiary on account of or for (i) overtime pay, other than overtime
pay for work done in the current payroll period, (ii) wages or salary for
a period other than the current payroll period, (iii) any amount of vacation
pay or pay in lieu of vacation time off, other than vacation time off or pay
in lieu thereof earned in or in respect of the current fiscal year, (iv) any
amount of severance pay or similar benefits, (v) unemployment insurance benefits,
(vi) workers' compensation or disability benefits, (vii) any violation of
any statute, ordinance, order, rule or regulation relating to plant closings,
employment terminations or layoffs, including but not limited to The Workers
Adjustment and Retraining Act, (viii) any violation of any statute, ordinance,
order, rule or regulation relating to employee "whistleblower" or
"right-to-know" rights and protections, (ix) any violation of any
statute, ordinance, order, rule or regulations relating to the employment
obligations of federal contractors or subcontractors or (x) any violation
of any regulation relating to minimum wages or maximum hours of work, in any
which case would have a Material Adverse Effect on the Companies.
Section 3.17. Bank Accounts and Letters of Credit. Section 3.17 of the Companies
Disclosure Schedule sets forth (a) the name and location of each bank in which
any of the Companies or any of their Subsidiaries has an account or safe deposit
box or standby letter of credit or maintains a banking, custodial, trading
or similar relationship and the identifying numbers or symbols thereof, (b)
each letter of credit issued on behalf of or for the benefit of any of the
Companies or any of their Subsidiaries (the "Letter of Credit"),
(c) a true and complete list of each account, safe deposit box and relationship,
and (d) the name of each Person authorized to draw thereon and having access
thereto.
Section 3.18. Absence of Changes. Except as set forth on Section 3.18 of
the Companies Disclosure Schedule, since September 30, 2004, the Companies
and their Subsidiaries have conducted their respective businesses only in
the regular and ordinary course consistent with past practice and there has
been no Material Adverse Effect on the Companies. Without limiting the foregoing,
except as set forth on Section 3.18 of the Companies Disclosure Schedules,
since September 30, 2004, the Companies and their Subsidiaries have not:
(i) disposed of any material assets (other than inventory);
(ii) declared or paid any dividend or distribution with respect to any Equity
Interests or the Securities of the Companies' Subsidiaries;
(iii) created an Encumbrance on any material asset or property, tangible
or intangible, or incurred a material amount of additional indebtedness or
entered into any other material transaction;
(iv) entered into any lease of real or personal property or any renewals
thereof involving a rental obligation exceeding $100,000 per annum per any
such lease, and $250,000 per annum in the aggregate;
(v) instituted any changes in its employee benefits or granted to any director,
officer, or other employee any increase in severance or termination pay, or
entered into any modification, amendment, waiver, or consent with respect
to any employment, severance, change of control, termination or similar agreement,
arrangement or plan (oral or otherwise) with any director, officer or employee,
or except for increases in the ordinary course of business consistent with
past practices or as may be required by any contracts or agreements existing
as of the date hereof, increased the rate of compensation, bonuses or the
benefits payable to any employee;
(vi) made any new commitment or increased any previous commitment for capital
expenditures in an amount exceeding $100,000 per any such capital expenditure,
and $250,000 in the aggregate;
(vii) suffered a Material Adverse Effect on the Companies (and no fact or
condition exists or to Seller's Knowledge, is contemplated or threatened that
would reasonably be expected to cause a Material Adverse Effect on the Companies),
entered into any transaction, contract or commitment, modified any Contract,
waived or permitted the loss of any right of substantial value, cancelled
any Debt or claim, or voluntarily suffered any extraordinary loss;
(viii) sold, assigned or conveyed any material Intellectual Property owned
by any of the Companies or any of their Subsidiaries;
(ix) made or proposed any change in its accounting or Tax methods, principles
or practices, except for changes required by GAAP or by Applicable Law and
are set forth on Section 3.18 of the Companies Disclosure Schedule;
(x) directly or indirectly redeemed, purchased or otherwise acquired any
of the Equity Interests or the Securities of the Companies' Subsidiaries or
authorized any reclassification or recapitalization or otherwise changed the
terms or provisions of any of the Equity Interests or the Securities of the
Companies' Subsidiaries;
(xi) paid, discharged, or satisfied any claim, liability, or obligation
other than the payment, discharge or satisfaction of liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
which would not result in a Material Adverse Effect on the Companies;
(xii) canceled any Debts or waived any claims or rights other than in the ordinary
course of business consistent with past practice; or
(xiii) entered into any contract, agreement, commitment or arrangement to
take any of the actions prohibited in this Section 3.18.
Section 3.19. No Brokers. Other than Harris Williams & Co., whose fees
shall be paid by Seller, no broker, finder or similar intermediary has acted
for or on behalf of, or is entitled to any broker's, finder's or similar fee
or other commission from Seller or the Companies in connection with this Agreement
or the transactions contemplated hereby.
Section 3.20. Compensation Arrangements; Officers and Directors. Section
3.20 of the Companies Disclosure Schedule sets forth (a) the names, titles
and current annual salary, including any bonus, if applicable, of all present
officers and employees of the Companies and their Subsidiaries whose rate
of annual compensation, including any bonus, equals or exceeds $100,000, together
with a statement of the full amount of all remuneration paid by such Company
or Subsidiary to each such person, during the twelve (12)-month period ending
December 31, 2003 and the nine (9)-month period ending September 30, 2004,
and Section 3.21. Customers and Suppliers. Section 3.21 of the Companies Disclosure
Schedule sets forth a list of (a) each customer (a "Material Customer")
of Lehigh Safety and each customer of Georgia Boot, that accounted for more
than 5% of the combined revenues of all of the Companies and their Subsidiaries
during the last full fiscal year and the amount of combined revenues accounted
by such Material Customer during such period, and (b) each supplier that is
the sole supplier of any significant product or service to the Companies and
their Subsidiaries ("Material Supplier"). Since September 30, 2004,
the relationships of the Companies and their Subsidiaries with the Material
Customers and Material Suppliers are good commercial working relationships.
No Material Customer or Material Supplier has notified any of the Companies
or any of their Subsidiaries in writing or, to the Knowledge of Seller, orally,
that it intends to discontinue its business relationship with such Company
or Subsidiary or in the case of a Material Supplier, indicated that it will
not continue to be the supplier for the Companies and their Subsidiaries after
the Closing with substantially the same quantity and quality of goods at competitive
prices or, to the Knowledge of Seller, does any Material Customer or Material
Supplier have any plan or intention to do so.
Section 3.22. Disclaimer of Other Representations and Warranties. Seller
acknowledges and agrees that (i) Buyer does not make, and has not made, any
representations or warranties relating to Buyer or in connection with the
transactions contemplated hereby other than those expressly set forth in Article
IV and (ii) no Person has been authorized by Buyer to make any representation
or warranty relating to Buyer or any of its subsidiaries, the businesses of
Buyer or otherwise in connection with the transactions contemplated hereby
except as set forth in Article IV and, if made, any such representation or
warranty must not be relied upon as having been authorized by Buyer.
Section 3.23. Inventory. Except as set forth on Section 3.23 of the Companies
Disclosure Schedule, all of the Inventory of the Companies and their Subsidiaries
is valued at the lower of cost or market, the cost thereof being determined
on a first-in, first-out basis, except as disclosed in the Financial Information.
Section 3.24. Accounts Receivable. Section 3.24 of the Companies Disclosure
Schedule sets forth (a) the total amount of trade accounts receivable of the
Companies and each of their Subsidiaries (the "Accounts Receivable")
outstanding as of the last day of the calendar month immediately preceding
the present calendar month and (b) the agings of such receivables based on
the following schedule: 0-30 days, 31-60 days, 61-90 days and over 90 days,
from the due date thereof. Except as set forth in Section 3.24 of the Companies
Disclosure Schedule, all Accounts Receivable set forth in Section 3.24 of
the Companies Disclosure Schedule (a) represent amounts receivable for products
actually delivered or services actually provided (or, in the case of non-trade
accounts or notes representing amounts receivable in respect of other bona-fide
business transactions), (b) arose in the ordinary course of business consistent
with past practice, and (c) constitute amounts receivable, except to the extent
reserved on the financial statements included in the Financial Information
in accordance with GAAP.
Section 3.25. Warranty and Other Claims. Section 3.25 of the Companies Disclosure
Schedule sets forth the types of products and services sold by the Companies
or any of their Subsidiaries for which it provides warranties and describes
the material terms of such warranties. There are no existing or, to the Knowledge
of Seller, threatened, product liability, warranty, or similar claims, against
any of the Companies or their Subsidiaries for products or services which
are defective or fail to meet any product or service warranties except as
set forth on Section 3.25 of the Companies Disclosure Schedule. Neither any
of the Companies or any of their Subsidiaries has received any written, or,
to the Knowledge of Seller, oral notice of any claim against it for any renegotiation
or price redetermination of any Contract for products or services.
Section 3.26. Disclosure. No representation or warranty by Seller in this
Agreement or any statement contained in the Companies Disclosure Schedule
or any certificates delivered hereunder contains any untrue statement of material
fact or omits to state a material fact required to be stated therein or necessary
to make the statements contained therein in light of the circumstances under
which it was made, not false or misleading, except where such misstatement
or omission would not result in a Material Adverse Effect on the Companies.
Section 3.27. Investment Intent. The Stock Consideration is being acquired
by Seller solely for its own account, for investment and not with a view to
any distribution thereof that would violate Securities Laws; and Seller will
not distribute the Stock Consideration in violation of Securities Laws.
Section 3.28. Investigation. Seller acknowledges that, except for the matters
that are expressly covered by the provisions of this Agreement, Seller is
relying on its own investigation and analysis in entering into the transactions
contemplated hereby. Except to the extent Seller has otherwise advised Buyer
in writing, neither Seller, nor the Companies nor any of their Subsidiaries
or representatives is aware of any of the representations or warranties contained
in Article IV being untrue or incorrect.
Section 3.29. Employment Agreements. Seller has caused a Company or a Subsidiary
of the Companies to enter into employment and non-competition agreements with
Karen Brown, John Grzybowski, John M. Hull, David P. Mitchell, and Thomas R.
Morrison on terms acceptable to Buyer, which are conditioned upon the consummation
of the Closing.
Buyer represents and warrants to Seller as follows.
Section 4.1. Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of Ohio. Buyer has the power
and authority to carry on its business as it is now being or is currently
proposed to be conducted and to own, lease and operate all of its properties
and assets, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned, leased or operated by it makes such qualification
or licensing necessary, except where the failure to be so licensed or qualified
would not, individually or in the aggregate, have a Material Adverse Effect
on Buyer.
Section 4.2. Authority. Buyer has all requisite corporate power and authority
to execute and deliver this Agreement and to perform its obligations hereunder
and to consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly approved by all requisite action
on the part of Buyer and no other proceedings on the part of Buyer are necessary
to approve this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Buyer.
Assuming the due authorization, execution and delivery of this Agreement by
the other parties hereto, this Agreement constitutes the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with
its terms.
Section 4.3. Organization and Related Matters.
(a) The authorized capital stock of the Buyer consists of (i) 10,000,000
shares of Buyer Common Stock, of which 4,620,170 are issued and outstanding
as of October 29, 2004, (ii) 250,000 shares of Voting Preferred Stock, without
par value (the "Buyer Voting Preferred Stock"), none of which is
issued and outstanding, and (iii) 250,000 shares of Non-Voting Preferred Stock,
without par value, consisting of (A) 125,000 shares of Series A Non-Voting
Convertible Preferred Stock, without par value, none of which is issued and
outstanding and (B) 125,000 shares of Series B Junior Participating Cumulative
Preferred Stock, without par value (the "Buyer Series B Preferred Stock"
and, together with the Buyer Voting Preferred Stock, the "Buyer Preferred
Stock"), none of which is issued and outstanding. No shares of Buyer
Common Stock are held in the Buyer's treasury as of September 30, 2004, and
no shares of Buyer Preferred Stock are held in the Buyer's treasury. As of
December 31, 2003, options to purchase 851,500 shares of Buyer Common Stock
are issued pursuant to the Buyer Option Plans with a weighted average exercise
price of $6.63 per share. 125,000 shares of Buyer Series B Preferred Stock
were reserved for issuance (but are not issued and outstanding) i
$ 3
30-Day Review Period 40
Accounts Receivable 29
Acquisition Proposal 44
Affiliate 1
Aggregate Cash Consideration 2
Agreement 1
Applicable Law 2
Arbiter 13
Asserted Liability 50
Beacon Letter 48
Business Day 2
Buyer 1
Buyer 401(k) Plan 2
Buyer Basket Amount 51
Buyer Benefit Plans 42
Buyer Capital Stock 31
Buyer Common Stock 7
Buyer Disclosure Schedule 2
Buyer Maximum Amount 51
Buyer Option Plans 2
Buyer Preferred Stock 30
Buyer Rights Agreement 2
Buyer SEC Reports 33
Buyer Series B Preferred Stock 30
Buyer Trustee 42
Buyer Voting Preferred Stock 30
Cash Consideration 2
CERCLA 3
Claims Notice 50
Closing 2
Closing Date 2
Closing Date Balance Sheet 13
Closing Date Working Capital 13
Closing Financial Statements 45
Closing Statement 12
COBRA 2
Code 2
Collateral Source 51
Companies 1
Companies Disclosure Schedule 2
Company Subgroup 39
Competing Business 44
Contract 2
control 1
controlled 1
controlling 1
Credit Agreements 3
Debt 3
Debt Commitment Letter 33
Dollar 3
Dollars 3
Drop Dead Date 54
EJ Footwear 1
Employee Benefit Plan 3
Encumbrance 3
Environmental Laws 3
Environmental Permits 25
Equity Interests 1
ERISA 3
ERISA Affiliate 3
Escrow Account 12
Escrow Agent 12
Escrow Agreement 12
Escrow Letter of Credit 4
Estimated Working Capital 12
Exchange Act 4
Exclusivity Agreement 4
Final Adjustment Amount 14
Final Closing Statement 4
Final Determination 41
Final Working Capital 4
Financial Information 17
Financial Releases 4
Financing 46
Financing Commitment Delivery Date 4
GAAP 4
GAAP Consistently Applied 4
General Survival Period 49
Georgia Boot 1
GMNAO Termination Agreement 21
Governmental Authority 4
Governmental Consents 17
Group 39
Guaranteed Obligations 55
Hazardous Substances 4
HSR Act 36
HSR Filing 36
Indemnified Party 5
Indemnifying Parties 50
Indemnifying Party 5
Insurance Assumption Agreements 47
Insurance Policies 23
Insurer 47
Intellectual Property 5
Inventory 5
IRS 5
Knowledge 5
Leased Real Property 18
Lehigh Safety 1
Letter of Credit 26
Losses 49
Material Adverse Effect 5
Material Contracts 20
Material Customer 28
Material Supplier 28
Multiemployer Plan 6
Notice of Disagreement 13
Parent 1
Parent's Balance Sheet 55
Permitted Encumbrances 6
Person 6
Pre-Closing Consolidated Returns 39
Pre-Closing Tax Period 39
Purchase Consideration 11
Real Property Leases 18
Reference Amount 6
Registration Rights Agreement 48
Release 25
Remediation 25
Restricted Territory 44
Retained Liabilities 6
Returns 22
SEC 7
Securities 7
Securities Act 7
Securities Laws 7
Seller 1
Seller 401(k) Plan 7
Seller Basket Amount 51
Seller Maximum Amount 51
Seller Trustee 42
Seller's Pension Plan 6
SERP 55
Statement 40
Stock Consideration 7
Straddle Period 39
Straddle Period Return 40
Subsidiaries 7
Subsidiary 7
Tax 7
Tax Notice 41
Taxes 7
Termination Agreement 46
Unaudited Balance Sheet 17
Working Capital 7
(ii) shall limit its review to matters specifically set forth in the Notice
of Disagreement, (iii) shall further limit its review to whether Closing Date
Working Capital on the Closing Statement was calculated in accordance with
this Section 2.8, and (iv) shall not assign a value to any item greater than
the greatest value for such item claimed by either party or less than the
smallest value for such item claimed by either party. The fees, costs, and
expenses of the Arbiter (x) shall be borne by Seller in the proportion that
the aggregate dollar amount of such disputed items so submitted that are unsuccessfully
disputed by Seller (as finally determined by the Arbiter) bears to the aggregate
dollar amount of such items so submitted and (y) shall be borne by Buyer in
the proportion that the aggregate dollar amount of such disputed items so
submitted that are unsuccessfully disputed by Buyer (as finally determined
by the Arbiter) bears to the aggregate dollar amount of such items so submitted.
Whether any dispute is resolved by agreement among the parties or by the Arbiter,
changes to the Closing Statement shall be made hereunder only for items as
to which Seller has taken exception in the Notice of Disagreement. The fees
and expenses of Buyer incurred in connection with the preparation of the Closing
Statement and review of any Notice of Disagreement shall be borne by Buyer,
and the fees and expenses of Seller incurred in connection with review of
the Closing Statement shall be borne by Seller.
(b) the names and titles of all directors and officers of the Companies and
their Subsidiaries and of each trustee or plan administrator of Each Employee
Benefit Plan of each Company and Subsidiary of a Company.