Exhibit 10.1
ASSET PURCHASE AGREEMENT
by
and
among
CYGNE DESIGNS, INC.,
INNOVO AZTECA APPAREL, INC.,
AND INNOVO GROUP, INC.
Dated March 31, 2006
TABLE OF
CONTENTS
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Page
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ARTICLE 1
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Definitions
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1
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ARTICLE 2.
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Purchase and Sale of Assets
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8
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2.1
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Purchase and Sale of
Assets
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8
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2.2
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Assumed Liabilities
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8
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ARTICLE 3.
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Purchase Price
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8
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3.1
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Purchase Price
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8
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ARTICLE 4.
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Closing
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9
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4.1
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The Closing
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9
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4.2
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Deliveries at the Closing
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9
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4.3
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Obtaining Further
Consents
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10
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ARTICLE 5.
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Representations and Warranties of
Buyer
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10
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5.1
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Organization of Buyer
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11
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5.2
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Authority of Buyer;
Enforceability
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11
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5.3
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No Violation
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11
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5.4
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No Finder
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11
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5.5
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[Intentionally Omitted]
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11
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5.6
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Litigation
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11
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5.7
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Solvency
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12
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5.8
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Representations Complete
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12
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ARTICLE 6.
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Representations and Warranties Concerning
INNOVO, Seller and the business
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12
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6.1
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Entity Status
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12
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6.2
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Power and Authority;
Enforceability
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12
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6.3
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No Violation
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13
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6.4
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Brokers’ Fees
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13
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6.5
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Financial Statements
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13
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6.6
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Subsequent Events
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14
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6.7
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Compliance with Law
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14
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6.8
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Legal Compliance
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14
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6.9
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Tax Matters
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14
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6.10
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Title to Purchased Assets
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15
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6.11
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Intellectual Property
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15
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6.12
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Contracts
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16
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6.13
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Purchase Commitments
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17
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6.14
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Litigation
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17
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6.15
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Product Warranty
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17
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6.16
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Employees
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17
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6.17
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Employee Benefits
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19
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6.18
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Environmental, Health, and Safety
Matters
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19
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6.19
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Customers and Suppliers
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19
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6.20
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Permits
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20
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6.21
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Solvency
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20
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6.22
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Accuracy of Information
Furnished
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20
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6.23
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Certain Business
Practices.
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21
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6.24
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Proxy Statement
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21
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6.25
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Fairness Opinion
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21
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6.26
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Representations Complete
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21
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ARTICLE 7.
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Pre-Closing Covenants
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22
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7.1
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General
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22
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7.2
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Notices and Consents
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22
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7.3
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Operation of Business
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22
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7.4
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Preservation of Business
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23
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7.5
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Full Access
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23
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7.6
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Notice of Developments
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23
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7.7
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Exclusivity
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23
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7.8
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Confidentiality;
Publicity
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23
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7.9
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Charges and Fees
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24
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ARTICLE 8.
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Additional Covenants
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24
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8.1
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General
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24
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8.2
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Litigation Support
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25
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8.3
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Transition
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25
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8.4
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Confidentiality
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25
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i
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8.5
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Restrictive Covenants
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26
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8.6
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Use of Names
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27
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8.7
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Taxes
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27
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8.8
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Employees and Employee Benefit
Plans
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28
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8.9
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Payment of Non-Assumed
Liabilities
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30
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8.10
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No Liability
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30
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8.11
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Updated Financial
Statements.
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31
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8.12
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Preparation of the Proxy Statement;
Stockholder’s Meeting.
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31
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ARTICLE 9.
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Closing Conditions
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32
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9.1
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Conditions Precedent to Obligations
of Buyer
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32
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9.2
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Conditions Precedent to Obligations
of the Seller
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33
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ARTICLE 10.
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Termination
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34
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10.1
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Termination of Agreement
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34
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10.2
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Effect of Termination
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35
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ARTICLE 11.
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Indemnification
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35
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11.1
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Survival of Representations and
Warranties
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35
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11.2
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Indemnification Provisions for
Buyer’s Benefit
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35
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11.3
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Indemnification Provisions for
Seller’s Benefit
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36
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11.4
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Indemnification Claim
Procedures
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36
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11.5
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Limitations on Indemnification
Liability
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38
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11.6
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[Intentionally Omitted]
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38
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11.7
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No Wavier of Rights or
Remedies
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38
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11.8
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Other Indemnification
Provisions
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39
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ARTICLE 12.
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Miscellaneous
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39
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12.1
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Schedules
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39
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12.2
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Entire Agreement
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39
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12.3
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Successors
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40
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12.4
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Assignments
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40
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12.5
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Notices
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40
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12.6
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Specific Performance
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41
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12.7
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Submission to Jurisdiction; Process
Agent; No Jury Trial
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41
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12.8
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Time
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42
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ii
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12.9
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Counterparts
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42
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12.10
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Headings
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42
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12.11
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Governing Law
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42
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12.12
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Amendments and Waivers
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43
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12.13
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Severability
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43
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12.14
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Expenses
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43
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12.15
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Construction
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43
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12.16
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Incorporation of Exhibits and
Schedules
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44
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12.17
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Remedies
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44
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EXHIBITS
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EXHIBIT A
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Form of Bill of Sale and Assignment of Contract
Rights
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EXHIBIT B
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Azteca Note
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EXHIBIT C
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Assumption and Assignment Agreement
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EXHIBIT D
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Form of Seller’s Officer’s
Certificate
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EXHIBIT E
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Form of Seller’s Secretary’s
Certificate
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EXHIBIT F
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Form of Buyer’s Officer’s
Certificate
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EXHIBIT G
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Form of Buyer’s Secretary’s
Certificate
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EXHIBIT H
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Seller Release
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SCHEDULES
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Schedule 1.1
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Purchased Assets
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Schedule 2.2
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Assumed Liabilities
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Schedule 5.3
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Buyer Required Consents
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Schedule 5.6
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Buyer Litigation
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Schedule 6.3
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Seller Required Consents
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Schedule 6.6
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Subsequent Events
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Schedule 6.12
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Contracts
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Schedule 6.14
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Seller Litigation
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Schedule 6.15
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Standard Terms of Sale or Lease
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Schedule 6.16(a)
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Current Employees and Directors
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Schedule 6.16(b)
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Terminated Employees
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Schedule 6.17
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Employee Benefits
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Schedule 6.18
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Environmental Matters
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Schedule 6.19
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Suppliers
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Schedule 6.20
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Permits
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iii
Asset Purchase
Agreement
This Asset Purchase Agreement dated
March 31, 2006 (the “ Execution Date ”),
is by and among (i) CYGNE DESIGNS, INC., a Delaware corporation
(“ Buyer ”), (ii) INNOVO AZTECA APPAREL,
INC., a California corporation (“ Seller
”) and (iii) INNOVO GROUP, INC., a Delaware Corporation
(“ Innovo ”).
RECITALS
A.
Seller is engaged in the business of designing, manufacturing and
wholesaling denim and other related apparel and
products.
B.
Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, certain assets and properties used by Seller in the
operation of its private label portion of its business (the “
Business ”), all on the terms and subject to
the conditions set forth herein.
C.
Innovo has joined as a party to this Agreement as a result of
certain assignments, assumptions and releases contemplated herein
to which it is an interested party.
AGREEMENT:
NOW, THEREFORE,
in consideration of the premises and
the mutual promises herein made, and in consideration of the
representations, warranties, and covenants contained herein, the
Parties agree as follows:
ARTICLE 1.
DEFINITIONS
“ Action ”
means any action, appeal, petition, plea, charge, complaint, claim,
suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or
proceeding.
“ Active
Employees ” is defined in Section
8.8(a)
“ AEO ”
means American Eagle Outfitters, Inc. and its subsidiaries,
divisions and Affiliates.
“ Affiliate
” or “ Affiliated ” with
respect to any specified Person means a Person that, directly or
indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such specified
Person. For this definition, “control” (and its
derivatives) means the possession, directly or indirectly, or as
trustee or executor, of the power to direct or cause the direction
of the management and policies of a Person, whether through
ownership of voting Equity Interests, as trustee or executor, by
Contract or credit arrangements or otherwise.
“ Affiliated
Group ” means an affiliated group under Code Section
1504(a) or any similar group defined under provisions of applicable
Law.
“ Agreement
” means this Asset Purchase Agreement, together with all
Exhibits and Schedules hereto, as the same may be amended,
supplemented or otherwise modified from time to time in accordance
with Section 12.12 .
“ APA ”
means that certain Asset Purchase Agreement by and among Azteca
Production International, Inc. (“ API ”),
Seller and Hubert Guez and Paul Guez dated July 17,
2003.
“ Assumption and
Assignment Agreement ” means the Assumption and
Assignment Agreement in substantially the form of Exhibit C
.
“ Assumed
Liabilities ” means the liabilities of Seller listed
in Schedule 2.2 hereto.
“ AZT
International ” means AZT International SA DE CV, a
Mexico corporation and wholly-owned subsidiary of API.
“ Azteca Note
” means the promissory note issued by Seller to API dated
July 17, 2003, pursuant to the APA, a copy of which is attached
hereto as Exhibit B .
“ Basis ”
means any past or current fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction about which the relevant
Person has Knowledge that forms or could form the basis for any
specified consequence.
“ Best Efforts
” means the efforts, time, and costs that a prudent Person
desirous of achieving a result would use, expend, or incur in
similar circumstances to ensure that such result is achieved as
expeditiously as possible; provided , however , that
no such use, expenditure, or incurrence will be required if it
would have a Material Adverse Effect on such Person calculated
immediately prior to the Closing Date.
“ Bill of Sale
” means the Bill of Sale and Assignment of Contract Rights in
the form of Exhibit A .
“ Breach ”
means (a) any breach, inaccuracy, failure to perform, failure to
comply, conflict with, failure to notify, default, or violation or
(b) any other act, omission, event, occurrence or condition the
existence of which would (i) permit any Person to accelerate any
obligation or terminate, cancel, or modify any right or obligation
or (ii) require the payment of money or other
consideration.
“ Business
” is defined in the Recitals to this Agreement.
“ Buyer ”
is defined in the preamble to this Agreement.
“ Buyer Note
” means the promissory note of Buyer in substantially the
form of Exhibit B .
“ Cash ”
means cash and cash equivalents (including marketable securities
and short term investments) calculated in accordance with GAAP
applied on a basis consistent with the preparation of the Financial
Statements.
2
“ Closing
” is defined in Section 4.1 .
“ Closing Date
” has the meaning specified in Section 4.1
.
“ Code ”
means the Internal Revenue Code of 1986, as amended.
“ Commitment
” means (a) options, warrants, convertible securities,
exchangeable securities, subscription rights, conversion rights,
exchange rights, or other Contracts that could require a Person to
issue any of its Equity Interests or to sell any Equity Interests
it owns in another Person; (b) any other securities convertible
into, exchangeable or exercisable for, or representing the right to
subscribe for any Equity Interest of a Person or owned by a Person;
(c) statutory pre-emptive rights or pre-emptive rights granted
under a Person’s Organizational Documents; and (d) stock
appreciation rights, phantom stock, profit participation, or
similar rights with respect to a Person.
“ Confidential
Information” means any information concerning the
businesses and affairs of either the Buyer, on the one hand, or the
Business and Seller, on the other hand.
“ Consent
” means any consent, approval, notification, waiver, or other
similar action that is necessary or convenient.
“ Contract
” means any contract, agreement, arrangement, commitment,
letter of intent, memorandum of understanding, heads of agreement,
promise, obligation, right, instrument, document, purchase order,
or other similar understanding, whether written or oral.
“ Copyrights
” means copyrights, whether registered or unregistered, in
published works and unpublished works, and pending applications to
register the same.
“ Customer
Consents ” means the written consents by AEO and
Target to the Transactions in a form reasonably satisfactory to the
Seller and Buyer.
“ Encumbrance
” means any Order, Security Interest, Contract, easement,
covenant, community property interest, equitable interest, right of
first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
“ Enforceable
” a Contract is “Enforceable” if it
is the legal, valid, and binding obligation of the applicable
Person enforceable against such Person in accordance with its
terms, except as such enforceability may be subject to the effects
of bankruptcy, insolvency, reorganization, moratorium, or other
Laws relating to or affecting the rights of creditors, and general
principles of equity.
“ Environmental, Health,
and Safety Requirements ” means all Orders,
Contracts, Laws, and programs (including those promulgated or
sponsored by industry associations, insurance companies, and risk
management companies) concerning or relating to public health and
safety, worker/occupational health and safety, and pollution or
protection of the environment, including those relating to the
presence, use, manufacturing, refining, production, generation,
handling, transportation, treatment, recycling, transfer, storage,
disposal, distribution, importing, labeling,
3
testing, processing, discharge, release,
threatened release, control, or other action or failure to act
involving cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise, or radiation, each as
amended and as now or hereafter in effect.
“ Equity
Interest ” means (a) with respect to a corporation,
any and all shares of capital stock and any Commitments with
respect thereto, (b) with respect to a partnership, limited
liability company, trust or similar Person, any and all units,
interests, or other partnership/limited liability company interests
, and any Commitments with respect thereto, and (c) any other
direct or indirect equity ownership or participation.
“ ERISA ”
means the Employee Retirement Income Security Act of
1974.
“ ERISA
Affiliate ” means each business or entity which is a
member of a “controlled group of corporations,” under
“common control” or an “affiliated service
group” with Seller within the meaning of Sections 414(b),
(c), or (m) of the Code, or required to be aggregated with Seller
under Section 414(o) of the Code, or is under “common
control” with Seller within the meaning of Section
4001(a)(14) of ERISA.
“ Execution Date
” is defined in the preamble to this Agreement.
“ Expiration
Date ” means June 30, 2006.
“ GAAP ”
means United States generally accepted accounting principles as in
effect from time to time.
“ Governmental Body
” means any legislature, agency, bureau, branch,
department, division, commission, court, tribunal, magistrate,
justice, multi-national organization, quasi-governmental body, or
other similar recognized organization or body of any federal,
state, county, municipal, local, or foreign government or other
similar recognized organization or body exercising similar powers
or authority.
“ Hired Active
Employees ” is defined in Section 8.8(b)(i)
.
“ Indemnification
Claim ” is defined in Section 11.4(a)
.
“ Indemnified Buyer
Parties ” means Buyer and its officers, directors,
managers, employees, agents, representatives, controlling Persons,
stockholders, and their Affiliates.
“ Indemnified
Parties ” means, individually and as a group, the
Indemnified Buyer Parties and the Indemnified Seller.
“ Indemnified
Seller ” means Seller and its officers, directors,
managers, employees, agents, representatives, controlling Persons,
and stockholders (including Innovo).
“ Indemnitor
” means any Party having any Liability to any Indemnified
Party under this Agreement.
4
“ Innovo ”
is defined in the preamble to this Agreement.
“ Innovo Shareholder
Approval ” is defined in Section 9.2(c)
.
“ Intellectual
Property ” means any rights, licenses, liens,
security interests, charges, encumbrances, equities, and other
claims that any Person may have to claim ownership, authorship or
invention, to use, to object to or prevent the modification of, to
withdraw from circulation, or control the publication or
distribution of any Marks, Patents, Copyrights, or Trade
Secrets.
“ IRS ”
means the Internal Revenue Service.
“ Knowledge
” means the knowledge of a Person’s officers and
directors as of the Execution Date and the Closing Date after due
investigation. With respect to particular areas of interest,
“Knowledge” will include the knowledge of such
Person’s employees charged with responsibility for a
particular area of such Person’s operations.
“ Law ”
means any law (statutory, common, or otherwise), constitution,
treaty, convention, ordinance, equitable principle, code, rule,
regulation, executive order, or other similar authority enacted,
adopted, promulgated, or applied by any Governmental Body, each as
amended and now and hereinafter in effect.
“ Liability
” or “ Liable ” means any liability
or obligation, whether known or unknown, asserted or unasserted,
absolute or contingent, matured or unmatured, conditional or
unconditional, latent or patent, accrued or unaccrued, liquidated
or unliquidated, or due or to become due.
“ Marks ”
means all fictitious business names, trading names, corporate
names, registered and unregistered trademarks, service marks, and
applications.
“ Material Adverse
Change (or Effect) ” means a change (or effect) in
the condition (financial or otherwise), properties, assets,
Liabilities, rights, obligations, operations, business, or
prospects of a Person which change (or effect), individually or in
the aggregate, could reasonably be expected to be materially
adverse to such Person’s condition, properties, assets,
Liabilities, rights, obligations, operations, business, or
prospects.
“ Material
Consents ” is defined in Section 9.1(e)
.
“ Material
Contracts ” is defined in Section 6.12
.
“ Order ”
means any order, ruling, decision, verdict, decree, writ, subpoena,
mandate, precept, command, directive, consent, approval, award,
judgment, injunction, or other similar determination or finding by,
before, or under the supervision of any Governmental Body,
arbitrator, or mediator.
“ Ordinary Course of
Business ” means the ordinary course of business
consistent with past custom and practice (including with respect to
quantity, quality and frequency) of the
5
relevant Person and its Subsidiaries in the
industry in which the relevant Person and its Subsidiaries does
business.
“ Organizational
Documents ” means the articles of incorporation,
certificate of incorporation, charter, bylaws, articles of
formation, regulations, operating agreement, certificate of limited
partnership, partnership agreement, and all other similar
documents, instruments or certificates executed, adopted, or filed
in connection with the creation, formation, or organization of a
Person, including any amendments thereto.
“ Parties
” is defined in the preamble to this Agreement.
“ Patents
” means all (a) patents and patent applications, and (b)
business methods, inventions, and discoveries that may be
patentable.
“ PBGC ”
means the Pension Benefit Guaranty Corporation.
“ Permit ”
means any permit, license, certificate, approval, consent, notice,
waiver, franchise, registration, filing, accreditation, or other
similar authorization required by any Law, Governmental Body, or
Contract.
“ Person ”
means any individual, partnership, limited liability company,
corporation, association, joint stock company, trust, entity, joint
venture, labor organization, unincorporated organization, or
Governmental Body.
“ Purchase Price
” is defined in Section 3.1 .
“ Purchased
Assets ” means all right, title and interest that
Seller possesses and has the right to transfer in and to all of the
assets listed on Schedule 1.1 hereto.
“ Qualifying
Offer ” means an offer of employment by Buyer to an
Active Employee that would provide such Active Employee (i) an
annual base salary or wage that is at least one hundred percent
(100%) of the applicable Active Employee’s current base
salary or wage level, (ii) eligibility to participate in employee
benefit plans (within the meaning of Section 3(3) of ERISA) that
are substantially similar to those provided to similarly situated
employees of Buyer who are not covered by a collective bargaining
agreement, and (iii) substantially similar duties and
responsibilities as such Active Employee had prior to
Closing.
“ Schedules
” mean the Schedules to this Agreement.
“ Security
Interest ” means any security interest, deed of
trust, mortgage, pledge, lien, charge, claim, or other similar
interest or right, except for (i) liens for Taxes, assessments,
governmental charges, or claims that are being contested in good
faith by appropriate Actions promptly instituted and diligently
conducted and only to the extent that a reserve or other
appropriate provision, if any, has been made on the face of the
Financial Statements in an amount equal to the Liability for which
the lien is asserted, (ii) statutory liens of landlords and
warehousemen’s, carriers’, mechanics’,
suppliers’, materialmen’s, repairmen’s, or other
like liens (including Contractual landlords’ liens) arising
in the Ordinary Course of Business and with respect to amounts not
yet delinquent and being contested in good faith by
appropriate
6
proceedings, only to the extent that a reserve
or other appropriate provision, if any, has been made on the face
of the Financial Statements in an amount equal to the Liability for
which the lien is asserted; and (iii) liens incurred or deposits
made in the Ordinary Course of Business in connection with
workers’ compensation, unemployment insurance and other
similar types of social security.
“ Seller ”
is defined in the preamble to this Agreement.
“ Seller Release
” means the Release in the form of Exhibit H
.
“ Software
” means computer software or middleware.
“ Subsidiary
” means, with respect to any Person: (a) any corporation of
which more than 50% of the total voting power of all classes of the
Equity Interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors is owned by such
Person directly or through one or more other Subsidiaries of such
Person and (b) any Person other than a corporation of which at
least a majority of the Equity Interest (however designated)
entitled (without regard to the occurrence of any contingency) to
vote in the election of the governing body, partners, managers or
others that will control the management of such entity is owned by
such Person directly or through one or more other Subsidiaries of
such Person.
“ Target ”
means Target Corporation and its subsidiaries, divisions and
Affiliates.
“ Tax ”
and “Taxes” includes (1) any federal, state,
local or foreign income, gross receipts, capital, franchise,
import, goods and services, value added, sales and use, estimated,
alternative minimum, add-on minimum, sales, use, transfer,
registration, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, environmental, customs,
duties, real property, personal property, capital stock, social
security, unemployment, disability, payroll, license, employee
withholding, unclaimed property, escheat or other tax of any kind
whatsoever, including any interest, penalties or additions to tax
or additional amounts in respect of the foregoing, (2) any
liability for the payment of any amounts of the type described in
(1) as a result of being a member of a consolidated, combined,
unitary or aggregate group for any Taxable period, and (3) any
liability for the payment of any amounts of the type described in
(1) or (2) as a result of being a transferee or successor to any
Person or as a result of any express or implied obligation to
indemnify any other Person.
“ Tax Return
” means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes required to be
filed with any Governmental Body, including any schedule or
attachment thereto, and including any amendment thereof.
“ Termination
Date ” means the earlier to occur of (a) the
Expiration Date and (b) the date on which this Agreement is
terminated pursuant to Section 10.1 (other than Section
10.1(b) ).
“ Threatened
” means a demand or statement has been made (orally or in
writing) or a notice has been given (orally or in writing), or any
other event has occurred or any other circumstances exist that
would lead a prudent Person to conclude that a cause of Action or
other matter is likely to be asserted, commenced, taken, or
otherwise initiated.
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“ Trade Secrets
” means all know-how, trade secrets, confidential
information, customer lists, Software (source code and object
code), technical information, data, process technology, plans,
drawings, and blue prints.
“ Transaction
Documents ” means this Agreement, Assumption and
Assignment Agreement, the Azteca Note and the Bill of
Sale.
“ Transactions
” means: (a) the sale of the Purchased Assets by Seller to
Buyer and Buyer’s delivery of the Purchase Price therefor;
(b) the execution, delivery, and performance of all of the
documents, instruments, and agreements to be executed, delivered,
and performed in connection herewith including each Transaction
Document; and (c) the performance by Buyer and the Seller of their
respective covenants and obligations (pre- and post-Closing) under
this Agreement.
“ Treas. Reg.
” means the proposed, temporary and final regulations
promulgated under the Code.
“ WARN Act
” is defined in Section 6.16(c) .
ARTICLE 2.
PURCHASE AND SALE OF ASSETS
2.1
Purchase and Sale of Assets.
On and subject to the terms and
conditions of this Agreement, Buyer agrees to purchase from Seller,
and Seller agrees to sell, transfer, convey, and deliver to Buyer,
all of the Purchased Assets, free and clear of any Encumbrances
(other than the Assumed Liabilities) for the consideration
specified in ARTICLE 3 below.
2.2
Assumed Liabilities.
Buyer agrees to assume and be
responsible for the Assumed Liabilities listed on Schedule
2.2 hereof at the Closing and will enter into the Assumption
and Assignment Agreement with Seller and Innovo. Buyer will
not assume or have any responsibility, however, with respect to any
other liability or obligation of Seller not listed on such Schedule
(any such liability or obligation of Seller not listed on such
Schedule being hereinafter referred to as an “Excluded
Liability” ).
ARTICLE 3.
PURCHASE PRICE
3.1
Purchase Price.
(a)
The aggregate purchase price for the Purchased Assets shall be
$10,436,654.71 (the “ Purchase Price ”), subject to
adjustment under Section 3.1(b) below, consisting of Buyer’s
assumption of the Assumed Liabilities at Closing as set forth in
Section 2.2 above, including (i) the Buyer Note to be
executed by Buyer at Closing in favor of API, the principal amount
of which shall be the outstanding amounts owed by Seller under the
Azteca
8
Note as of the Closing Date,
with the Azteca Note to be cancelled and satisfied by API at
Closing and all obligations of Seller thereunder assumed by Buyer
under the Buyer Note and (ii) the Related Party Balance;
and
(b)
The Purchase Price is based on the estimation that the liabilities
assumed at the Closing (excluding the Azteca Note) consist of
$2,500,000 of Innovo’s obligations to API (the
“Related Party
Balance” ). If the Related Party
Balance as of the Closing Date exceeds $2,600,000 (the
“Related Party Balance
Threshold” ), then the Purchase Price
shall be increased, dollar for dollar, by the amount of the
difference between the Related Party Balance and the Related Party
Balance Threshold. To the extent that the aggregate value of
the Related Party Balance does not exceed or is below the Related
Party Balance Threshold then no adjustment shall be made to the
Purchase Price.
(c)
Schedule 3.1 sets forth an allocation of the Purchase Price (and
all other capitalized costs) among the Purchased Assets of the
Seller in accordance with Section 1060 of the Code and the Treasury
regulations thereunder (and any similar provision of state, local
or foreign law, as appropriate), subject to any adjustment to the
Purchase Price pursuant to Section 8.7(d) and Article 11.
Buyer and Seller and their respective Affiliates shall report, act
and file Tax Returns (including, but not limited to IRS Forms 8594)
in all respects and for all purposes consistent with Schedule
3.1. Neither Buyer nor Seller shall take any position
(whether in audits, Tax Returns or otherwise) which is inconsistent
with such allocation unless required to do so by applicable
law.
ARTICLE 4.
CLOSING
4.1
The Closing.
The closing of the purchase and sale
of the Purchased Assets (the “ Closing ”)
will take place at the offices of Fulbright & Jaworski L.L.P.,
666 Fifth Avenue, New York, New York 10103, or any other mutually
agreed upon location or time, on the third business day following
the satisfaction or waiver of all conditions to the obligations of
the Parties to consummate the purchase and sale of the Purchased
Assets (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other
date as Buyer and Seller may mutually determine (the “
Closing Date ”).
4.2
Deliveries at the Closing.
At the Closing:
(a)
Seller will deliver to Buyer:
(i)
The Bill of Sale, duly executed by Seller.
(ii)
The Assumption and Assignment Agreement, duly executed by Seller,
Innovo and Buyer.
(iii)
The Customer Consents duly executed by AEO and Target.
9
(iv)
Such other bills of sale, assignments, and other instruments of
transfer or conveyance as Buyer may reasonably request or as may be
otherwise necessary to evidence and effect the sale, assignment,
transfer, conveyance, and delivery of the Purchased Assets to
Buyer.
(v)
An Officers’ Certificate, substantially in the form of
Exhibit D , duly executed on Seller’s behalf, as to
whether each condition specified in Sections 9.1(a) through
9.1(d) has been satisfied in all respects.
(vi)
A duly executed certificate in the form specified by Treasury
Regulation Section 1.1445-2(b)(2).
(vii)
A Secretary’s certificate for Seller, substantially in the
form of Exhibit E , duly executed on behalf of
Seller.
(b)
Buyer will deliver the following to Seller:
(i)
The Assumption and Assignment Agreement, duly executed by
Buyer.
(ii)
An Officers’ Certificate, substantially in the form of
Exhibit F , duly executed on Buyer’s behalf, as to
whether each condition specified in Sections 9.2(a) through
9.2(d)(i) has been satisfied in all respects.
(iii)
A Secretary’s certificate, substantially in the form of
Exhibit G , duly executed on Buyer’s
behalf.
4.3
Obtaining Further Consents.
Anything in this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an
agreement to assign any of the Purchased Assets or any claim or
right or any benefit arising thereunder or resulting therefrom if
an attempted assign thereof, without the consent of a third Person,
would constitute a breach or other contravention thereof or in any
way adversely affect the rights of Buyer thereunder. The
Seller will use its Best Efforts to obtain the consent of any such
Person for the assignment to Buyer of any such Purchased
Asset. If such consent is not obtained prior to Closing, or
if an attempted assignment thereof would be ineffective or would
adversely affect the rights of Seller thereunder so that Buyer
would not in fact receive all such rights, then Buyer, its sole
discretion, may elect to waive the closing condition and in such
event the Seller and Buyer agree to cooperate in devising and
implementing a mutually satisfactory arrangement under which Buyer
would obtain substantially all of the benefits from and after the
Closing Date in accordance with this Agreement.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to
Seller that the statements contained in this ARTICLE 5 are
correct and complete as of the Execution Date and will be correct
and complete as of the Closing Date (as though made then and except
as expressly provided in a representation or
10
warranty, as though the Closing Date were
substituted for the Execution Date throughout this ARTICLE 5
), except as set forth in the Schedules that Buyer has delivered to
Seller on the Execution Date.
5.1
Organization of Buyer.
Buyer is a corporation duly
organized, validly existing, and in good standing under the Laws of
the State of Delaware. Buyer has the requisite corporate
power and authority necessary to own or lease its properties and to
carry on its businesses as currently conducted. There is no
pending or Threatened Action (or Basis therefor) for the
dissolution, liquidation, insolvency, or rehabilitation of
Buyer.
5.2
Authority of Buyer; Enforceability.
Buyer has the relevant corporate
power and authority necessary to execute and deliver each
Transaction Document to which it is a party and to perform and
consummate the Transactions contemplated by this Agreement.
Buyer has taken all corporate action necessary to authorize the
execution and delivery of each Transaction Document to which Buyer
is a party, the performance of its obligations thereunder, and the
consummation of the Transactions. Each Transaction Document
to which Buyer is a party has been duly authorized, executed, and
delivered by, and is Enforceable against, Buyer.
5.3
No Violation.
Except as listed on Schedule
5.3 , the execution and the delivery of the Transaction
Documents to which Buyer is a party by Buyer and the performance of
the Transactions by Buyer will not (a) Breach any Law or Order to
which Buyer is subject or any provision of Buyer’s
Organizational Documents; (b) Breach any Contract, Order, or Permit
to which Buyer is a party or by which it is bound or to which any
of the Purchased Assets are subject; or (c) require any
Consent.
5.4
No Finder.
Buyer has no Liability to pay any
compensation to any broker, finder, or agent with respect to the
Transactions for which any Seller could become Liable.
5.5
[Intentionally Omitted].
5.6
Litigation.
Schedule 5.6
sets forth each instance in which
Buyer (a) is subject to any outstanding Order or (b) is a party,
the subject of, or, to the Buyer’s Knowledge, is Threatened
to be made a party to or the subject of any Action. No Action
required to be set forth in Schedule 5.6 questions the
Enforceability of this Agreement or the Transactions, or could
result in any Material Adverse Change with respect to
Buyer.
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5.7
Solvency.
Buyer is not now insolvent, nor will
Buyer be rendered insolvent by any of the Transactions. As
used herein, “insolvent” means that the sum of the
Liabilities of Buyer exceeds the fair present value of
Buyer’s assets.
5.8
Representations Complete.
Except as and to the extent set
forth in this Agreement, Buyer makes no representations or
warranties whatsoever (INCLUDING ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS) to Seller and hereby disclaims all
Liability and responsibility for any representation, warranty,
statement, or information not included herein that was made,
communicated, or furnished (orally or in writing) to Seller or its
representatives (including any opinion, information, projection, or
advice that may have been or may be provided to Seller by any
director, officer, employee, agent, consultant, or representative
of Buyer or Affiliate thereof).
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES CONCERNING INNOVO, SELLER AND THE
BUSINESS
Seller represents and warrants to
Buyer that the statements contained in this ARTICLE 6 are
correct and complete as of the Execution Date and will be correct
and complete as of the Closing Date (as though made then and,
except as expressly provided in a representation or warranty, as
though the Closing Date were substituted for the Execution Date
throughout this ARTICLE 6) , except as set forth in the
Schedules Seller has delivered to Buyer on the Execution
Date.
6.1
Entity Status.
Seller is a corporation duly
organized, validly existing, and in good standing under the Laws of
the State of California. Seller is duly authorized to conduct
the Business and is in good standing under the laws of each
jurisdiction where the nature or operation of the Business makes
such qualification necessary, all of which jurisdictions are set
forth on Schedule 6.1 . Seller has the requisite
corporate power and authority necessary to own, lease and operate
the Business as currently conducted and as proposed to be
conducted. Seller has delivered to Buyer correct and complete
copies of Seller’s Organizational Documents, as amended to
date. Seller is not in Breach of any provision of its
Organizational Documents. There is no pending or Threatened
Action (or Basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of Seller.
6.2
Power and Authority; Enforceability.
Each of Seller and Innovo has the
relevant corporate power and authority necessary to execute and
deliver each Transaction Document to which it is a party and to
perform and consummate the Transactions. Each of Seller and
Innovo has taken all action necessary to authorize the execution
and delivery of each Transaction Document to which it is a party,
the performance of its respective obligations thereunder, and the
consummation of the Transactions.
12
Each Transaction Document to which Seller and/or
Innovo is a party has been duly authorized, executed, and delivered
by, and is Enforceable against Seller and/or Innovo, as
applicable.
6.3
No Violation.
Except as listed on Schedule
6.3 , the execution and the delivery of the applicable
Transaction Documents by Seller and Innovo and the performance of
its respective obligations hereunder and thereunder, and
consummation of the Transactions by Seller or Innovo will not (a)
Breach any Law or Order to which Seller or Innovo is subject or any
provision of the Organizational Documents of Seller or Innovo; (b)
Breach any Contract, Order, or Permit to which Seller or Innovo is
a party or by which it is bound or to which any of the Purchased
Assets are subject (or result in the imposition of any Encumbrance
upon the Purchased Assets); (c) require any Consent; (d) Breach any
other note, instrument, agreement, mortgage, base, license,
franchise, permit or other authorization, rights, restriction or
obligation to which Seller, Innovo or API is a party or any of the
Purchased Assets is subject or by which Seller or Innovo is
bound
6.4
Brokers’ Fees.
Neither Seller nor Innovo has any
Liability to pay any compensation to any broker, finder, or agent
with respect to the Transactions for which Buyer could become
directly or indirectly Liable.
6.5
Financial Statements.
Set forth on Schedule 6.5 are
the following financial statements for the Business
(collectively the “Financial Statements”
):
(a)
Unaudited statements of revenues, direct expenses and identified
corporate expenses before interest and taxes as of and for each of
the fiscal years ended November 29, 2003, November 27, 2004 and
November 26, 2005 for the Business and the three months ended
February 25, 2006 and February 26, 2005. The fiscal year
ended November 26, 2005 is referred to herein as the
“Most Recent Fiscal
Year” .
(b)
Unaudited balance sheets as of November 26, 2005 and February 25,
2006 (the “Most Recent
Balance Sheet Date” ) for the
Business.
(c)
The Financial Statements, which have been extracted from the books
and records of Seller (which books and records are the basis for
Seller’s audited consolidated financial statements), have
been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the
financial condition of the Business as of such dates and the
results of operations of the Business for such periods, are correct
and complete, and are consistent with the books and records of
Seller. Since the Most Recent Balance Sheet Date, Seller has
not effected any change in any method of accounting or accounting
practice, except for any such change required because of a
concurrent change in GAAP.
Seller has no Knowledge that the Financial
Statements cannot be audited in accordance with Generally Accepted
Auditing Standards within 75 days after the date hereof.
13
The Liabilities constituting the Related Party
Balance were incurred in the Ordinary Course of
Business.
6.6
Subsequent Events.
Except as set forth in Schedule
6.6 , since January 31, 2006, Seller has operated the Business
in the Ordinary Course of Business and there have been no events,
series of events or the lack of occurrence thereof which,
singularly or in the aggregate, could reasonably be expected to
have a Material Adverse Effect on the Business.
6.7
Compliance with Law.
The Seller has complied in all
material respects with, is not in violation in any material respect
of and has not received any notices of violation with respect to,
any applicable Law with respect to the ownership or operation of
the Business. No investigation or review by any Governmental
Body (including without limitation any audit or similar review by
any federal, state or local taxing authority) with respect to the
Business is pending or, to the Seller’s Knowledge,
Threatened, nor has any Governmental Body indicated in writing to
the Seller an intention to conduct the same.
6.8
Legal Compliance.
Seller and its respective
predecessors and Affiliates have conducted the Business in
compliance with all applicable Laws, and no Action is pending or
Threatened (and there is no Basis therefor) against them alleging
any failure to so comply. No expenditures in excess of
$25,000 are, or based on applicable Law, will be required of Seller
or Buyer for the Business to remain in compliance with applicable
Law.
6.9
Tax Matters.
There are no Liabilities for Taxes
relating to the Business, including Taxes relating to prior
periods, other than those for which Seller has adequately reserved
funds for payment. Seller has duly filed when due all Tax
Returns required to be filed by or with respect to Seller,
including in connection with and in respect of the Business and the
assets and employees related thereto. All such Tax Returns have
been properly prepared and timely filed and are true, correct and
complete in all material respects and have been completed in
accordance with applicable Law. All Taxes due and owing by
Seller (whether or not shown or required to be shown on any Tax
Return) have been timely paid and discharged. Seller has withheld
and paid all Taxes required to be withheld and paid in connection
with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party, and has
otherwise complied in all material respects with applicable Law
relating to the payment and withholding of Taxes. Seller has
made available to Buyer accurate and complete copies of all of its
Tax reports and Tax Returns relating to the Business for all
periods, except those periods for which returns are not yet
due. No Tax Return concerning or relating to Seller or its
operations has been audited or examined by a government or taxing
authority for any period after December 31, 2000, nor is any audit
or examination in process or pending, and Seller has not been
notified of any request for such an audit or other
examination. To its Knowledge, Seller is not a party to any
Action for assessment or collection of Taxes. No claim has
been made by a taxing authority in a
14
jurisdiction where Tax Returns concerning or
relating to the Business or the Purchased Assets have not been
filed such that it is or may be subject to taxation by that
jurisdiction. Seller has not received any notice of any Tax
deficiency outstanding, proposed or assessed against or allocable
to it in respect of the Business, its assets or employees, and has
not executed any waiver of any statute of limitations on the
assessment or collection of any Tax or executed or filed with any
Governmental Body any Contract now in effect extending the period
for assessment or collection of any Taxes against it in respect of
the Business, its assets or employees. There are no
Encumbrances for Taxes upon, or pending or Threatened against, any
Purchased Asset. Seller is not subject to any Tax allocation
or sharing Contract relating to the Business. Seller (i) has
not been a member of an Affiliated Group filing a consolidated
federal income Tax Return (other than a group the common parent of
which was Seller) or (ii) has no Liability for the Taxes of any
Person under Treas. Reg. Section 1.1502-6 or similar Law, as a
transferee or successor, by Contract, or otherwise.
6.10
Title to Purchased Assets.
Seller has good, marketable, and
indefeasible title to all of the Purchased Assets, in each case
free and clear of all Encumbrances. Upon and following the
Closing, Buyer will have good, marketable, and indefeasible title
to all of the Purchased Assets, in each case free and clear of all
Encumbrances. The Purchased Assets constitute all the assets
used in the operation of the business since January 31, 2005 (other
than inventory sold and accounts receivable in the Ordinary Course
of Business).
6.11
Intellectual Property.
(a)
With respect to each Trade Secret constituting Purchased Assets,
the documentation provided to Buyer relating to such Trade Secret
is current, accurate, and sufficient in detail and content to
identify and explain it and to allow its full and proper use by
Buyer without reliance on any individual’s knowledge or
memory. Seller has taken all reasonable precautions to
protect such Trade Secret’s secrecy, confidentiality, and
value. No such Trade Secret is part of the public knowledge
or literature or, to Seller’s Knowledge, has been used,
divulged, or appropriated either for the benefit of any third
person or the detriment of the Business. No such Trade Secret
required is subject to any adverse claim nor has any adverse claim
been Threatened with respect to any such Trade Secret and there is
no Basis therefor.
(b)
Seller owns or has the right to use pursuant to an Enforceable
Contract all Intellectual Property necessary or desirable to
operate the Business. Each item of Intellectual Property used
by Seller in the operation of the Business immediately prior to the
Closing will be owned or available for use by Buyer on identical
terms and conditions immediately subsequent to the Closing.
Seller has taken all necessary and desirable action to maintain and
protect the ownership, confidentiality and value of each item of
Intellectual Property that it owns or uses.
(c)
Seller has delivered to Buyer correct and complete copies of all
written documentation evidencing ownership and prosecution (if
applicable) of each item of
15
Intellectual
Property used by Seller in the operation of the Business.
With respect to each such item of Intellectual
Property:
(i)
Seller possesses all right, title, and interest in and to the item,
free and clear of any Encumbrance;
(ii)
the item is not subject to any outstanding Order;
(iii)
no Action is pending or Threatened (and there is no Basis therefor)
which challenges the Enforceability, use, or ownership of the item;
and
(iv)
Seller has never agreed to indemnify any person for or against any
interference, infringement, misappropriation, or other conflict
with respect to the item.
(d)
In respect of the Business, Seller has not interfered with,
infringed upon, misappropriated, or otherwise come into conflict
with any other person’s Intellectual Property, and Seller has
never received any notice alleging any such interference,
infringement, misappropriation, violation or conflict (including
any claim that Seller must license or refrain from using any other
person’s Intellectual Property). No third Person has
any Intellectual Property that interferes or would be likely to
interfere with Buyer’s use of any of its Intellectual
Property. Buyer’s use of such Intellectual Property in
the same manner as used by Seller will not interfere with, infringe
upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of any other Person as a result of the
continued operation of the Business as currently conducted and as
currently proposed to be conducted. To Seller’s
Knowledge, no other Person has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with the
Intellectual Property used in the operation of the
Business.
(e)
No former and current employees engaged in the Business have
executed written Contracts with Seller that assign to Seller all
rights to any inventions, improvements, discoveries, or information
relating to the Business. No employee engaged in the Business
has entered into any Contract that restricts or limits in any way
the scope or type of work in which the employee may be engaged or
requires the employee to transfer, assign, or disclose information
concerning his work or her work to any person other than
Seller.
6.12
Contracts.
Each material Contract (as amended
to date) related to the Business, including the Contracts with AEO
and Target, is listed in Schedule 6.12 (the “
Material Contracts ”). Seller has
delivered to Buyer a correct and complete copy of each such
contract. With respect to each such Material
Contract:
(i)
the Contract is Enforceable;
(ii)
the Contract will continue to be Enforceable on identical terms
following the consummation of the Transactions;
16
(iii)
Seller is, and to Seller’s Knowledge the other parties to
such Contracts are, not in Breach of such Contract, and no event
has occurred that, with notice or lapse of time, would constitute a
Breach under the Contract; and
(iv)
no party to the Contract has repudiated any provision of the
Contract.
6.13
Purchase Commitments.
As of March 21, 2006, the aggregate
of all accepted and unfulfilled orders for the sale of merchandise
relating to the Business entered into by Seller is at least
$17,991,242.13, all of which orders and commitments were made in
the Ordinary Course of Business and are listed on Schedule 6.13
and, to Seller’s Knowledge, all of such orders will be
fulfilled within the time specified by such order. There are
no claims against Seller to return merchandise relating to the
Business by reason of alleged overshipments, defective merchandise
or otherwise, or of merchandise in the hands of customers under an
understanding that such merchandise would be returnable. No
ordinary purchase or outstanding lease commitment of Seller
relating to the Business presently is in excess of the normal,
ordinary and usual requirements of the Business or was made at any
price in excess of the now current market price or contains terms
and conditions more onerous than those usual and customary in the
Business.
6.14
Litigation.
Schedule 6.14
sets forth each instance in which
Seller (a) is subject to any outstanding Order or (b) is a party,
the subject of, or, to Seller’s Knowledge, is Threatened to
be made a party to or the subject of any Action. No Action
required to be set forth in Schedule 6.14 questions the
Enforceability of this Agreement or the Transactions, or could
result in any Material Adverse Change with respect to
Seller.
6.15
Product Warranty.
Each product manufactured, sold,
leased, or delivered by Seller for the Business has been in
conformity with all applicable Law, Contracts, and all express and
implied warranties, and neither Seller nor the Business has any
Liability (and there is no Basis for any present or future Action
against Seller or the Business giving rise to any Liability) for
replacement or repair thereof or other damages in connection
therewith. No product designed, manufactured, sold, leased,
or delivered by Seller for the Business is subject to any guaranty,
warranty, or other indemnity or similar Liability beyond the
applicable standard terms and conditions of sale or lease.
Schedule 6.15 includes copies of the standard terms and
conditions of sale or lease for products and services offered by
the Business.
6.16
Employees.
(a)
Schedule 6.16(a) contains a complete and accurate list of
the following information for each employee, director, independent
contractor, consultant and agent of Seller primarily engaged in the
Business, including each employee on leave of absence or layoff
status: employer; name; job title; date of hiring or engagement;
date of commencement of employment or engagement; current
compensation paid or payable
17
and any change in
compensation since January 1, 2005; sick and vacation leave that is
accrued but unused; and service credited for purposes of vesting
and eligibility to participate under any Employee Benefit Plan, or
any other employee or director benefit plan.
(b)
Schedule 6.16(b) states the number of employees engaged in
the Business terminated by Seller since September 1, 2005, and
contains a complete and accurate list of the following information
for each employee engaged in the Business who has been terminated
or laid off, or whose hours of work have been reduced by more than
fifty percent (50%) in the six (6) months prior to the Execution
Date: (i) the date of such termination, layoff or reduction in
hours; (ii) the reason for such termination, layoff or reduction in
hours; and (iii) the location to which the employee was
assigned.
(c)
Seller has not violated, and the consummation of the transactions
contemplated hereby will not violate, the Worker Adjustment and
Retraining Notification Act (the “ WARN Act ”) or any similar
state or local Law.
(d)
To Seller’s Knowledge, no employee, consultant, or contractor
engaged in the Business is bound by any Contract that purports to
limit the ability of such employee, consultant, or con
