ASSET PURCHASE AGREEMENT

Asset Purchase Agreement

You are currently viewing:

This Asset Purchase Agreement involves

PHILLIPS-VAN HEUSEN CORPORATION | A. MERVYN MANDELBAUM

. RealDealDocs™ contains millions of easily searchable legal documents and clauses from top law firms. Search for free - click here.

Title: ASSET PURCHASE AGREEMENT
Governing Law: New York Date: 10/11/2006
Industry: Apparel/Accessories Sector: Consumer Cyclical

ASSET PURCHASE AGREEMENT, Parties: phillips-van heusen corporation , a. mervyn mandelbaum

EXHIBIT 10.1

EXECUTION COPY

ASSET PURCHASE AGREEMENT

dated October 11, 2006

among

PHILLIPS-VAN HEUSEN CORPORATION

and

SUPERBA, INC.

and

A. MERVYN MANDELBAUM

TABLE OF CONTENTS Page

ARTICLE I. CLOSING; SALE OF PURCHASED ASSETS

1.1

The Closing

1.2

Sale of Purchased Assets.

1.3

Assumption of Liabilities.

1.4

Purchase Price; Delivery of Purchase Price; Escrow Account

1.5

Purchase Price Adjustment

1.6

Deferred Purchase Price

1.7

Allocation of Purchase Price

1.8

Power of Attorney

1.9

Actions Simultaneous

ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL

2.1

Authority; Execution and Delivery; Enforceability

2.2

Non-Contravention

2.3

Consents and Approvals

2.4

Litigation and Claims

2.5

Ownership

2.6

Certain Assets

2.7

No Finder

2.8

No Reliance

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND

THE PRINCIPAL WITH RESPECT TO THE SELLER

3.1

Organization; Good Standing

3.2

Equity Interests

3.3

Authority; Execution and Delivery; Enforceability

3.4

Non-Contravention

3.5

Corporate Documents; Books and Records

3.6

Consents and Approvals

3.7

Title to Assets; Sufficiency of Assets

3.8

Real Property

3.9

Employment Related Agreements and Actions

3.10

Contracts

3.11

Intellectual Property

3.12

Insurance

3.13

Financial Statements; Liabilities; Internal Controls

3.14

Tax Matters

3.15

Absence of Certain Changes and Events

3.16

Litigation and Claims

3.17

Governmental Permits; Compliance with Laws

3.18

Environmental Matters

3.19

Employee Plans

3.20

Receivables

3.21

Inventory

3.22

Customers

3.23

Suppliers

3.24

Products

3.25

Bank Accounts

3.26

No Finder

3.27

No Reliance

ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE BUYER

4.1

Organization; Good Standing

4.2

Authority; Execution and Delivery; Enforceability

4.3

Non-Contravention

4.4

Consents and Approvals

4.5

Litigation and Claims

4.6

No Restrictions on Business

4.7

No Finder

4.8

No Reliance

ARTICLE V. ACTION PRIOR TO THE CLOSING DATE

5.1

Conduct of Business

5.2

No Breach of Representations and Warranties; Notification of Certain Matters

5.3

Access

5.4

Standstill

5.5

Notice of Litigation

5.6

Fulfillment of Conditions to the Buyer’s Obligations

5.7

Fulfillment of Conditions to the Seller’s Obligations

5.8

Governmental Consents

5.9

Third Party Consents

5.10

Publicity

5.11

Employment Agreements

ARTICLE VI. OTHER AGREEMENTS OF THE PARTIES

6.1

Cooperation in Litigation

6.2

Employees

6.3

Non-Competition, Non-Solicitation, Non-Derogation and Confidentiality

6.4

Tax Matters

6.5

Access to Records

6.6

Use of Name

6.7

Letters of Credit; Lockbox Account

6.8

Cash Available for Checks

6.9

Excluded Entities

6.10

Reimbursement of Royalty and Advertising Payments

6.11

Further Assurances

ARTICLE VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER

7.1

Representations and Warranties

7.2

Performance

7.3

No Material Adverse Effect

7.4

Certificates

7.5

Injunctions

7.6

HSR Act Clearance

7.7

Government Approvals

7.8

Third Party Consents

7.9

Bill of Sale/Assignment and Assumption Agreement

7.10

Intellectual Property Agreement

7.11

Escrow Agreement

7.12

Employment Agreements

7.13

L.A. Facility

7.14

Transition Services

7.15

Power of Attorney

7.16

Landlord Waiver

ARTICLE VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER

8.1

Representations and Warranties

8.2

Performance

8.3

Certificates

8.4

Injunctions

8.5

HSR Act Clearance

8.6

Government Approvals

8.7

Assignment and Assumption Agreement

8.8

Escrow Agreement

8.9

Employment Agreements

8.10

Transition Services

8.11

L.A. Facility

ARTICLE IX. INDEMNIFICATION

9.1

Survival

9.2

Indemnification by the Seller and the Principal

9.3

Indemnification by the Buyer

9.4

Limitations on Indemnification

9.5

Tax Treatment of Indemnity Payments.

9.6

Notice of Claims

9.7

Third Party Claims

ARTICLE X. TERMINATION

10.1

Termination

10.2

Effects of Termination

ARTICLE XI. MISCELLANEOUS

11.1

Expenses of the Transaction

11.2

Notices

11.3

No Modification Except in Writing

11.4

Entire Agreement

11.5

Severability

11.6

Assignment

11.7

Governing Law; Jurisdiction

11.8

Specific Performance

11.9

Headings; References

11.10

Interpretation

11.11

Schedules

11.12

Third Parties

11.13

Seller Representative

11.14

Counterparts

APPENDICES*

APPENDIX A. DEFINITIONS

A-1

APPENDIX B. EBIT CALCULATIONS

B-1

APPENDIX C. PURCHASE PRICE ALLOCATION

C-1

APPENDIX D. SELLER DISCLOSURE SCHEDULES

D-1

APPENDIX E. WORKING CAPITAL LINE ITEMS

E-1

APPENDIX F. EMPLOYEES TO ENTER INTO EMPLOYMENT AGREEMENTS

F-1

APPENDIX G. EXCLUDED CONTRACTS

G-1

APPENDIX H. GAAP EXCEPTIONS

H-1

EXHIBITS

EXHIBIT A

Assignment and Assumption Agreement

EXHIBIT B

Escrow Agreement

EXHIBIT C

Intellectual Property Agreement

EXHIBIT D

L.A. Facility Lease

EXHIBIT E

Landlord Waiver

EXHIBIT F

M. Mandelbaum Employment Agreement

EXHIBIT G

Power of Attorney

EXHIBIT H

Transition Services Agreement

EXHIBIT I

D. Mandelbaum Employment Agreement

EXHIBIT J

Form of Employment Agreement

__________________

*The Buyer will furnish supplementally a copy of any omitted appendix to the Commission upon request. Appendix B contains principles and terms applicable to the calculation of Deferred Purchase Price Payments.

ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT (this “ Agreement ”), dated October 11, 2006, among PHILLIPS-VAN HEUSEN CORPORATION, a Delaware corporation (the “ Buyer ”), and SUPERBA, INC., a California corporation (the “ Seller ”) and A. MERVYN MANDELBAUM (the “ Principal ”).

W I T N E S S E T H :

WHEREAS , the Seller is a manufacturer and distributor of branded and private label neckwear through its “Superba Division” and “Insignia Division” (the “ Business ”);

WHEREAS , the Principal owns a majority of the outstanding capital stock of the Seller, is the Seller’s Chief Executive Officer, and in connection herewith will enter into an employment agreement with the Buyer;

WHEREAS , the Buyer desires to purchase and acquire from the Seller, and the Seller desires to sell and transfer to the Buyer, substantially all of the assets of the Seller, and the Buyer desires to assume, and the Seller desires to assign to the Buyer, certain of the liabilities of the Seller, all on the terms and subject to the conditions hereinafter set forth; and

WHEREAS , terms used in this Agreement and not otherwise defined in this Agreement are defined in Appendix A hereto.

NOW, THEREFORE , the parties hereto hereby agree as follows:

ARTICLE I.

CLOSING; SALE OF PURCHASED ASSETS

1.1

The Closing

. The closing (the “ Closing ”) of the transactions contained in this Article I shall take place at 10:00 a.m. (Eastern time) on January 2, 2007 (effective as of January 1, 2007) unless all of the conditions contained in Articles VII and VIII have not been satisfied or waived prior to such date (other than those conditions which will be satisfied at the Closing Time), in which event the Closing shall take place on the sixth Business Day after which all of the conditions contained in Articles VII and VIII have been satisfied or waived (other than those conditions which will be satisfied at the Closing Time), or at such other time or such other date as the Buyer and the Seller may agree, at the offices of Katten Muchin Rosenman LLP, 575 Madison Avenue, New York, New York. (Hereinafter, such date is referred to as the “ Closing Date ” and such time on the Closing Date is referred to as the “ Closing Time .”)

1.2

Sale of Purchase d Assets .

(a)

On the terms and subject to the conditions set forth herein, at the Closing, the Seller shall sell, convey, transfer, assign and deliver to the Buyer, and the Buyer shall purchase, all of the Seller’s right, title and interest in and to all of the assets, properties, business and goodwill, wherever located, owned, used or held by the Seller (collectively, the “ Purchased Assets ”), excluding only the Excluded Assets, free and clear of any Liens (other than Permitted Liens), including, without limitation:

(i)

all accounts and other receivables as of the Closing Date;

(ii)

all prepaid assets, expenses, rent and insurance benefits, rights and proceeds of the Seller as of the Closing Date;

(iii)

all items of tangible personal property;

(iv)

all inventory (including, without limitation, finished goods, raw materials and work in process) on hand, and all goods in transit, as of the Closing Date;

(v)

all Contracts, other than the Excluded Contracts;

(vi)

all Company Intellectual Property, and all rights with respect to any claims (past, present or future) with respect thereto and the right to all Damages payable in respect thereof;

(vii)

the business and goodwill of the Seller as a going concern; and

(viii)

all books, records, files and materials in the care, custody or control of the Seller and the Principal which relate to any and all of the Purchased Assets, to the operations of the Business, and to Transferred Employees regardless of form or medium of storage, including, without limitation, customer and prospective customer files, payment and credit and collection records, invoices, packing lists and shipping documents and supplier and prospective supplier files, maintenance records, sales and advertising material, documentation, manuals, purchase orders and accounting and financial records.

(b)

Notwithstanding anything else contained in this Agreement or in any Related Agreement, the following assets shall not be included in the Purchased Assets to be sold or acquired pursuant to this Agreement (collectively, the “ Excluded Assets ”):

(i)

all cash, cash equivalents and marketable securities as of the Closing Date;

(ii)

any and all rights to the Life Insurance Policy and related receivable;

(iii)

receivables from employees of the Seller to the extent such receivables relate to such employee’s purchase of capital stock of the Seller;

(iv)

all security deposits, prepaid expenses and rent (including rent receivable) and other rights and benefits associated with the Empire State Building Facility;

(v)

all claims for refunds of Taxes and other governmental charges of whatever nature, unless reflected on the Closing Date Working Capital Statement;

(vi)

all claims for refunds of worker’s compensation premiums or payments paid by the Seller;

(vii)

the Seller’s minute books, stock books and Tax records and related documents ( provided , however , that the Seller shall provide copies thereof to the Buyer);

(viii)

the Excluded Contracts;

(ix)

all of the issued and outstanding capital stock of the Excluded Entities;

(x)

all rights and benefits of the Seller and the Principal under this Agreement and the Related Agreements; and

(xi)

all other property and assets designated as “Excluded Assets” in the Seller Disclosure Schedule.

The Purchased Assets shall not include any of the Seller’s assets which would otherwise constitute a part of the Purchased Assets, the assignment or attempted assignment of which would be invalid or would constitute a breach of any agreement or commitment to which the Seller is a party or by which the Seller may be bound; provided , however , that any such Purchased Asset referred to in this sentence shall be held and/or received by the Seller for the benefit of the Buyer so that the Buyer will be in substantially the same position as if such Purchased Asset had been transferred to the Buyer at the Closing. The sale, conveyance, transfer, assignment and delivery of the Purchased Assets by the Seller to the Buyer hereunder shall be effected by such assignments, transfers of title, deeds, bills of sale and other instruments as shall be reasonably requested by the Buyer.

1.3

Assumption of Liabilities .

(a)

On the terms and subject to the conditions set forth herein, at the Closing, the Buyer shall assume, become liable for and agree to pay, discharge and perform, as the case may be, only the following Liabilities of the Seller (collectively, the “ Assumed Liabilities ”):

(i)

Liabilities reflected on the Closing Date Working Capital Statement;

(ii)

Liabilities of the Seller arising out of or in connection with facts or events that occur at or after the Closing Time under the Contracts, including the Intellectual Property Contracts, but excluding the Excluded Contracts;

(iii)

Liabilities of the Seller arising out of or in connection with facts or events that occur prior to the Closing Time under any Intellectual Property Contract, other than those Liabilities set forth in Section 1.3(b)(ii) and (vii); and

(iv)

Liabilities associated with any Employee Plan covering any of the Transferred Employees arising out of or in connection with facts or events that occur at or after the Closing Time, and as provided in Section 6.2.

(b)

Notwithstanding anything else contained in this Agreement or in any Related Agreement, other than the Assumed Liabilities, the Buyer shall not assume any Liabilities of the Seller or the Principal, including, without limitation, those (collectively, the “ Excluded Liabilities ”):

(i)

arising or accruing under any Excluded Contract;

(ii)

under any Contract (other than an Intellectual Property Contract) occurring prior to the Closing Time, by reason of or for any default, breach or penalty, whether known or unknown, and monetary obligations under any Intellectual Property Contract accruing or otherwise arising out of or in connection with facts or events that occurred prior to the Closing Time, whether by reason of or for any default, breach or penalty of the Seller or otherwise;

(iii)

for Taxes of any and all types (including, without limitation, whether due to the Seller’s existence, its form of ownership, the Tax treatment elected by its shareholders) as a result of the operations of the Business or the ownership of the Purchased Assets prior to the Closing Time, or otherwise;

(iv)

with respect to events occurring prior to the Closing Time arising out of or in connection with non-compliance with Laws, including Environmental Laws;

(v)

with respect to severance Liabilities as set forth in Section 6.2(b) and Liabilities associated with the Seller’s obligation, if any, to continue medical and life insurance benefits for former employees of the Seller (other than Transferred Employees);

(vi)

Liabilities associated with any Excluded Employee;

(vii)

with respect to pre-Closing periods, Liabilities arising out of or in connection with investigations or audits by licensors or other business partners of the Business;

(viii)

for accrued but unpaid dividends due shareholders of the Seller;

(ix)

related to the Stock Repurchase Agreements;

(x)

with respect to events occurring prior to the Closing Time arising out of or in connection with workers’ compensation claims;

(xi)

with respect to events occurring prior to the Closing Time, Liabilities associated with any Employee Plans, including any unused and accrued vacation and, subject to the Transition Services Agreement, with respect to events occurring prior to, at or after the Closing Time, Liabilities associated with any Employee Plan covering the employees of the Hong Kong Subsidiary;

(xii)

with respect to the characterization or treatment of certain Persons prior to the Closing Time as independent contractors, exempt employees or non-exempt employees;

(xiii)

arising out of or in connection with any Action to the extent it relates to facts or events occurring prior to the Closing Time;

(xiv)

long-term debt Liabilities, including, without limitation, any such Liabilities arising under any credit agreement between the Seller and another Person, including any letter of credit facility, and any indebtedness owed to any shareholder of the Seller;

(xv)

with respect to so-called “owner expenses,” consisting of personal expenses of the Principal and members of his family paid for by the Seller, including, lease expenses for aircraft, residences, and automobiles, salary, benefits and other compensation payable to the Excluded Employee, personal tax preparation costs, charitable donations, and estate planning fees;

(xvi)

fees and expenses of the Seller and the Principal arising out of or in connection with the transactions hereby contemplated; and

(xvii)

any Liabilities of the Excluded Entities.

All of the Excluded Liabilities shall be paid, performed or otherwise discharged by the Seller as and when due; provided , however , that the foregoing shall not restrict the Seller from contesting, in good faith, any third-party Liability.

1.4

Purchase Price; Delivery of Purchase Price; Escrow Account

(a)

In consideration of the sale of the Purchased Assets to the Buyer, the Buyer shall pay to the Seller (or its designee) aggregate consideration (the “ Purchase Price ”) as follows: the sum of (i) cash in the amount of $110,000,000, subject to adjustment as set forth in Section 1.5, plus (ii) at the times and subject to the terms and conditions set forth in Section 1.6, the Deferred Purchase Price.

(b)

At the Closing, the Buyer shall pay to the Seller (or its designee) an amount equal to (i) $110,000,000, less the Escrow Amount. Such amount shall be paid by wire transfer of immediately available funds to an account designated in writing by the Seller at least two Business Days prior to the Closing, and the Escrow Amount shall be deposited by the Buyer into the Escrow Account and held by the Escrow Agent in accordance with the Escrow Agreement.

(c)

At the Closing, pursuant to the Escrow Agreement, the Buyer shall deposit $5,500,000 (the “ Escrow Amount ”) into an escrow account, such escrow account (the “ Escrow Account ”) to be established and maintained in accordance with the terms of the Escrow Agreement to (i) provide security for the payment by the Seller or the Principal of any amounts that become due in accordance with Article IX and (ii) hold any disputed amounts deposited pursuant to Section 1.6(f).

1.5

Purchase Price Adjustment

. The Purchase Price shall be adjusted as follows:

(a)

Within 90 days after the Closing Date, the Buyer shall deliver to the Seller a statement setting forth the Average Working Capital (the “ Average Working Capital Statement ”) and the Closing Date Working Capital (the “ Closing Date Working Capital Statement ” together with the Average Working Capital Statement, the “ Working Capital Statements ”), each prepared in accordance with GAAP, applying the same accounting principles, policies and practices that were used in preparing the Audited Financial Statements, including the GAAP Exceptions. The Working Capital Statements shall become final and binding upon the parties on the 30th day following delivery thereof, unless the Seller gives notice of its disagreement with the Average Working Capital Statement and/or the Closing Date Working Capital Statement (a “ Notice of Disagreement ”) to the Buyer prior to such date. Any Notice of Disagreement shall (i) specify in reasonable detail the nature of any disagreement so asserted and (ii) only include disagreements based on mathematical errors or based on the Average Working Capital Statement and/or Closing Date Working Capital Statement not being calculated pursuant to this Section 1.5. If a Notice of Disagreement is received by the Buyer in a timely manner, then the Working Capital Statements (as revised in accordance with this sentence) shall become final and binding upon the Buyer and the Seller on the earlier of (A) the date the Buyer and the Seller resolve in writing any differences they have with respect to the matters specified in the Notice of Disagreement and (B) the date any disputed matters are finally resolved in writing by the Accounting Firm. During the 30-day period following the delivery of a Notice of Disagreement, the Buyer and the Seller 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. At the end of such 30-day period, the Buyer and the Seller shall submit to an independent accounting firm (the “ Accounting Firm ”) for arbitration, in accordance with the standards set forth in this Section 1.5, only matters that remain in dispute and were properly included in the Notice of Disagreement in accordance with this Section 1.5 and any claim of calculation-related errors. The Accounting Firm shall be KPMG LLP (which the parties represent has not provided services to any of them or their respective subsidiaries during the past three years) or, if such firm is unable or unwilling to act, such other nationally recognized independent public accounting firm as shall be agreed upon by the Buyer and the Seller in writing. The Buyer and the Seller shall use their commercially reasonable efforts to cause the Accounting Firm to render a written decision resolving the matters submitted to the Accounting Firm within 30 days of the receipt of such submission. The scope of the disputes to be resolved by the Accounting Firm shall be limited to whether the items in dispute that were properly included in the Notice of Disagreement were correctly determined pursuant to this Section 1.5 and may include calculation-related errors, and the Accounting Firm is not to make any other determination. The Accounting Firm’s decision shall be based solely on written submissions by the Buyer and the Seller and their respective representatives and by reference to the terms of this Agreement. The Seller and the Buyer shall furnish or cause to be furnished to the Accounting Firm such work papers and other documents and information related to the disputed matters as the Accounting Firm may request and are reasonably available to the Seller, the Buyer or their respective agents. The Accounting Firm shall address only those items in dispute and calculation-related errors. Judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced. The fees and expenses of the Accounting Firm incurred pursuant to this Section 1.5 shall be borne by the Buyer and the Seller equally.

(b)

Within ten Business Days after the Working Capital Statements become final and binding on the parties pursuant to this Section 1.5, the following shall occur:

(A)

if the Average Working Capital is greater than the Closing Date Working Capital, then the Seller shall pay to the Buyer an amount equal to (x) 50% of the amount by which the Average Working Capital is up to $3,000,000 greater than the Closing Date Working Capital, plus (y) 100% of the amount by which the Average Working Capital is more than $3,000,000 greater than the Closing Date Working Capital; or

(B)

if the Average Working Capital is less than the Closing Date Working Capital, then the Buyer shall pay to the Seller an amount equal to the amount by which the Average Working Capital is less than the Closing Date Working Capital; or

(C)

if the Average Working Capital is equal to the Closing Date Working Capital, then no adjustment will be made to the Purchase Price.

All payments to be made under this Section 1.5(b) shall be made by wire transfer in immediately available funds, together with interest on the amount to be so paid from the Closing Date to the date of payment. Interest on such amount shall be at the rate of 6% per annum.

(c)

The Buyer agrees that following the Closing it shall not take any actions, including by not maintaining appropriate books and records, which would affect the ability of any party to calculate the Closing Date Working Capital in accordance with the terms hereof, determine the grounds for any Notice of Disagreement or evaluate any disagreement set forth in a Notice of Disagreement. During the period of time from and after the delivery of the Closing Date Working Capital Statement through the final determination of the Closing Date Working Capital Statement, the Seller and/or its authorized representatives shall have the right, during normal business hours and upon reasonable prior notice, to examine and have copies of those books and records of the Buyer relevant to the preparation of the Closing Date Working Capital Statement, and may have reasonable access to employees of the Buyer directly involved in preparing the Closing Date Working Capital Statement for purposes of asking questions relating thereto. Such rights of access shall be exercised in a manner that does not unreasonably interfere with the operations of the Buyer.

1.6

Deferred Purchase Price

(a)

As additional purchase price for the Purchased Assets (the “ Deferred Purchase Price ”), the Buyer shall make payments (the “ Deferred Purchase Price Payments ”) to the Seller (or its designee) as and to the extent, if any, provided in accordance with Section 1.6(d). Any Deferred Purchase Price Payments due to the Seller pursuant to this Section 1.6 shall be paid to the Seller (or its designee), within 90 days after the end of each Measurement Period for any Deferred Purchase Price Payment due for such Measurement Period, by wire transfer of immediately available funds to an account designated in writing by the Seller. The Buyer shall not be obligated to pay interest on the Deferred Purchase Price (except as provided in Section 1.6(h)) and shall report the payment of the Deferred Purchase Price Payments as a part of the Purchase Price for all federal, state and local Tax purposes as exclusively payments for goodwill, in addition to that portion of goodwill included within the allocation of the Purchase Price, and the Buyer and the Seller shall file their Tax Returns accordingly.

(b)

Within 90 days after the end of each Measurement Period, the Buyer shall deliver to the Seller a written statement (each, a “ Payment Statement ”), including supporting documentation, setting forth the EBIT calculation for the applicable Measurement Period and the amount of Deferred Purchase Price, if any, for such Measurement Period. On the date each Payment Statement is delivered the amount of the Deferred Purchase Price Payment, if any, set forth in such Payment Statement shall be paid in the manner described in Section 1.6(a). The applicable Payment Statement shall become final and binding upon the parties on the 45th day following delivery thereof, unless the Seller gives notice of its disagreement with such Payment Statement (a “ Dispute Notice ”) to the Buyer prior to such date. Any Dispute Notice shall specify in reasonable detail the nature of any disagreement so asserted. If a Dispute Notice is received by the Buyer in a timely manner, then the amount of the applicable Deferred Purchase Price Payment shall become final and binding upon the Buyer and the Seller on the earlier of (A) the date the Buyer and the Seller resolve in writing any differences they have with respect to the matters specified in the Dispute Notice and (B) the date any disputed matters are finally resolved in writing by the Accounting Firm. During the 45-day period (the “ Resolution Period ”) following the delivery of a Dispute Notice, the Buyer and the Seller shall seek in good faith to resolve in writing any differences that they may have with respect to the matters specified in the Dispute Notice. At the end of the Resolution Period, the Buyer and the Seller shall submit to the Accounting Firm for arbitration, in accordance with the standards set forth in this Section 1.6, only matters that remain in dispute and were properly included in the Dispute Notice in accordance with this Section 1.6. The Buyer and the Seller shall use their commercially reasonable efforts to cause the Accounting Firm to render a written decision resolving the matters submitted to the Accounting Firm within 30 days of their delivery of such submission. The scope of the disputes to be resolved by the Accounting Firm shall be limited to whether the items in dispute that were properly included in the Dispute Notice were correctly determined pursuant to this Section 1.6 and may include calculation-related errors, and the Accounting Firm is not to make any other determination. The Accounting Firm’s decision shall be based solely on written submissions by the Buyer and the Seller and their respective representatives and by reference to the terms of this Agreement. The Seller and the Buyer shall furnish or cause to be furnished to the Accounting Firm such work papers and other documents and information related to the disputed matters as the Accounting Firm may request and are reasonably available to the Seller, the Buyer or their respective agents. The Accounting Firm shall address only those items in dispute and calculation-related errors. Judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced. To the extent it is determined in accordance with this Section 1.6 that a Deferred Purchase Price Payment was not accurately made, if the Deferred Purchase Price Payment as determined hereunder is greater than the Deferred Purchase Price Payment made, the Buyer shall, and if the Deferred Purchase Price Payment as determined hereunder is less than the Deferred Purchase Price Payment made, the Seller shall, within ten Business Days after such determination, make payment to the other party by wire transfer in immediately available funds of the amount of such difference. The fees and expenses of the Accounting Firm incurred pursuant to this Section 1.6 shall be borne by the Buyer and the Seller equally.

(c)

The Seller and/or its authorized representatives shall have the right upon and after receipt of a Payment Statement and through the end of the applicable Resolution Period, during normal business hours and upon reasonable prior notice, to examine (and, at the Seller’s expense, have copies made of) those books and records of the Buyer pertaining to transactions arising out of or relating to the calculation of the applicable Deferred Compensation Payment, and may have reasonable access to employees of the Buyer directly involved in calculating Deferred Purchase Price Payments for purposes of asking questions relating to such calculations. Such rights of access shall be exercised in a manner that does not unreasonable interfere with the operations of the Buyer.

(d)

If EBIT (as set forth in the applicable Payment Statement):

(A) for the First Measurement Period is greater than $19,000,000, the Buyer shall pay to the Seller (or its designee) in accordance with this Section 1.6, the amount set forth on Appendix B; provided , however , such amount shall be no greater than $15,000,000.

(C) for the Second Measurement Period is greater than $21,600,000, the Buyer shall pay to the Seller (or its designee) in accordance with this Section 1.6, the amount set forth on Appendix B; provided , however , such amount shall be no greater than $25,000,000;

(D) for the Third Measurement Period is greater than $23,400,000, the Buyer shall pay to the Seller (or its designee) in accordance with this Section 1.6, the amount set forth on Appendix B; provided , however , such amount shall be no greater than $30,000,000.

In connection with the foregoing, if EBIT during the applicable Measurement Period falls between the minimum EBIT amount and the maximum EBIT amount for the First Measurement Period or the minimum EBIT amount and the break point EBIT amount or the break point EBIT amount and the maximum EBIT amount for the Second Measurement Period or the Third Measurement Period, as the case may be (as set forth on Appendix B), linear interpolation between such points, as the case may be, will be utilized to calculate the Deferred Purchase Price Payment due to the Seller. For purposes of clarification, the Seller shall not be entitled to receive Deferred Purchase Price Payments (i) in excess of $70,000,000 in the aggregate or (ii) with respect to a Measurement Period, if EBIT for such Measurement Period does not meet the minimum threshold amount set forth above with respect to such Measurement Period.

(e)

If during any Measurement Period a transfer to a third party that is not an Affiliate of the Buyer, in one transaction or a series of related transactions, of all or substantially all of the Business, occurs, excluding in connection with a sale of all or substantially all of the assets of the Buyer (an “ Acceleration Event ”), the Buyer agrees to pay the Seller (or its designee) an amount equal to the Deferred Purchase Price Payment(s) remaining to be paid as of the date of such Acceleration Event, assuming that the Business achieved the maximum EBIT amount set forth on Appendix B in each remaining Measurement Period (the “ Acceleration Event Amount ”). Notwithstanding the foregoing, the Acceleration Event Amount will be paid on a present value basis using a discount rate of 8% per annum (pro rated for any partial period). Payment of the discounted Acceleration Event Amount shall be made by the Buyer as soon as practicable but not less than ten Business Days after the completion of such Acceleration Event. The Seller agrees that payment by the Buyer of the discounted Acceleration Event Amount shall be deemed to constitute performance in full and discharge by the Buyer of its obligation under this Agreement to make the Deferred Purchase Price Payments. The payment shall be made by wire transfer of immediately available funds to such account as the Seller shall designate in writing to the Buyer.

(f)

If (i) the Buyer makes a claim for indemnification against the Seller or the Principal in accordance with the terms of Article IX, (ii) the Seller or the Principal, as the case may be, disputes such indemnification claim by written notice to the Buyer, and (iii) the amount of such claim exceeds amounts then remaining in the Escrow Account not then subject to a claim or claims for indemnification under Article IX (such excess amount, the “ Excess Amount ”), then the Buyer may deposit the Excess Amount from the proceeds of any Deferred Purchase Price Payment which is then otherwise due and payable in the Escrow Account.

(g)

Notwithstanding that a Deferred Purchase Price Payment has become final and binding in accordance with Section 1.6(b), if within two years following the date that such Deferred Purchase Price Payment became final and binding, the Buyer discovers that there were errors or omissions in the books and records of the Business or that accounting principles relating to the Business were not properly applied for the applicable Measurement Period and, as a result, the Buyer determines that the applicable EBIT upon which such Deferred Purchase Price Payment was made to the Seller was incorrect, then the Buyer may deliver a corrected Payment Statement to the Seller for such Measurement Period, including supporting documentation, setting forth the corrected EBIT calculation for such Measurement Period and the amount of the corrected Deferred Purchase Price Payment. The corrected Payment Statement shall become final and binding upon the parties using the same resolution procedures and time periods set forth in Section 1.6(b) as if such corrected Payment Statement was a Payment Statement originally delivered pursuant to Section 1.6(b). The Seller shall, within ten Business Days after the corrected Payment Statement becomes final and binding in accordance with this Section 1.6(g), make payment to the Buyer by wire transfer in immediately available funds of the amount of any difference between the corrected Deferred Purchase Price Payment and the applicable original Deferred Purchase Price Payment, together with interest on the amount of such difference from the date the original Deferred Purchase Price Payment was made to the date of payment of such difference. Interest on the amount of such difference shall be at the rate of 8% per annum. The fees and expenses of the Accounting Firm incurred, if any, pursuant to this Section 1.6(g) shall be borne by the Buyer and the Seller equally.

(h)

The Buyer shall pay interest on the applicable Deferred Purchase Price Payment, if any, if it is not paid within 90 days after the end of the applicable Measurement Period. Interest shall be payable from the date the applicable Deferred Purchase Price Payment was due to the date of payment. If a Dispute Notice is properly delivered with respect to any Deferred Purchase Price Payment and it is thereafter determined in accordance with Section 1.6(b) that the Deferred Purchase Price Payment made was at least 3% less than the correct Deferred Purchase Price Payment that should have been made, then the Buyer shall pay the difference owed to the Seller as provided in Section 1.6(b), together with interest on the amount of such difference from the date such Deferred Purchase Price Payment was due to the date of payment. Interest on any payment made pursuant to this Section 1.6(h) shall be at the rate of 8% per annum.

(i)

Following the Closing Date until the end of Third Measurement Period, the Buyer, the Seller and the Principal agree to comply with Paragraph (b) of Appendix B hereto.

1.7

Allocation of Purchase Price .

The Purchase Price (and all other capitalized costs) shall be allocated among the Purchased Assets in accordance with Code §1060 and the Treasury regulations thereunder (and any similar provision of state, local or foreign Law, as appropriate) as set forth on Appendix C hereto. Within 60 days after the Closing Date, the Buyer and the Seller shall mutually prepare an allocation of the Purchase Price consistent with Appendix C, which allocation shall be binding upon the Buyer, the Seller and the Principal. The Buyer, the Seller, the Principal and their Affiliates shall report, act and file Tax Returns (including, but not limited to, Internal Revenue Service Form 8594) in all respects and for all purposes consistent with such allocation. The Buyer, the Seller and the Principal shall timely and properly prepare, execute, file and deliver all such documents, forms and other information as may be necessary to prepare such allocation. None of the Buyer, the Seller and the Principal shall take any position (whether in audits, Tax Returns or otherwise) that is inconsistent with such allocation unless required to do so by applicable Law.

1.8

Power of Attorney

. After the Closing Time, the Buyer shall have the right and authority to endorse, without recourse, the name of the Seller on any check or other evidence of indebtedness received by the Buyer on account of any Purchased Asset (but the Buyer shall not have such right and authority with respect to any check or other evidence of indebtedness received by the Buyer on account of any Excluded Asset), and the Seller shall deliver to the Buyer at the Closing copies of such documents reasonably requested by the Buyer, certified by the Seller, to permit the Buyer to deposit such checks or other evidences of indebtedness in bank accounts in the name of the Buyer. As of the Closing Time, the Seller shall constitute and appoint the Buyer the true and lawful attorney of the Seller with full power of substitution, in the name of the Seller, or in the name of the Buyer, at the expense of the Buyer and for the benefit of the Buyer, (a) to collect, assert or enforce any claim, right or title of any kind in or to the Purchased Assets, to institute and prosecute all actions, suits and proceedings which the Buyer may deem proper in order to collect, assert or enforce any such claim, right or title, to defend and compromise all actions, suits and proceedings in respect of any of the Purchased Assets, and to do all such acts and things in relation thereto as the Buyer shall deem advisable and (b) to take all action which the Buyer may deem proper in order to provide for the Buyer the benefits of or under any of the Purchased Assets where any required consent of a third party to the assignment thereof to the Buyer shall not have been obtained; provided , however , that the Seller shall have no Liability for any such actions taken by the Buyer. The Seller acknowledges that such powers are coupled with an interest and shall not be revocable by it in any manner or for any reason, including, without limitation, the liquidation or dissolution of the Seller, and that the Buyer shall be entitled to retain for its own account any amounts collected pursuant to such powers, including any amounts payable as interest in respect thereof. Such powers shall be granted by such powers of attorney and other instruments as shall be reasonably requested by the Buyer.

1.9

Actions Simultaneous

. All actions to be taken and all documents to be executed and delivered by all parties at the Closing shall be deemed to have been taken and executed and delivered simultaneously and no actions shall be deemed to have been taken nor shall any documents be deemed to have been executed and delivered until all actions have been taken and all documents have been executed and delivered.

ARTICLE II.

REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL

The Principal hereby represents and warrants to the Buyer as follows:

2.1

Authority; Execution and Delivery; Enforceability .

The Principal has the legal capacity to execute and deliver this Agreement and, to the extent a party thereto, the Related Agreements, to perform his obligations hereunder and under such Related Agreements and to consummate the transactions contemplated hereby and by such Related Agreements. Each of this Agreement and (when executed) the Related Agreements has been (or will be) duly executed and delivered by the Principal (to the extent a party thereto), and constitutes (or will, when executed, constitute) the legal, valid and binding obligation of the Principal (to the extent a party thereto), enforceable against him in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, moratorium and other similar Laws of general applicability relating to or affecting creditors’ rights and to general equity principles .

2.2

Non-Contravention

Assuming the consents described in Section 2.3 have been received, the execution and delivery of this Agreement and, to the extent a party thereto, the Related Agreements by the Principal does not, and the consummation by the Principal of the transactions contemplated hereby and by such Related Agreements and compliance by the Principal with the terms hereof and of such Related Agreements, will not:

(a)

constitute a default under or a violation or breach of, or result in the acceleration of any obligation under, any provision of any contract or other instrument to which the Principal is a party, except to the extent such default, violation, breach or acceleration does not materially adversely affect the Principal’s ability to consummate the transactions contemplated hereby and by such Related Agreements; or

(b)

violate any Order or any Law affecting the Principal .

2.3

Consents and Approvals

. Except as set forth in the Seller Disclosure Schedule, no consent, approval, license, permit, order or authorization of, or registration, declaration or filing with, any Governmental Authority, and no consent or approval of any Person, is required to be obtained by or on behalf of the Principal in connection with the execution, delivery and performance by the Principal of this Agreement or the Related Agreements, to the extent a party thereto, or the consummation of the transactions contemplated hereby and by such Related Agreements, other than compliance with and filings under the HSR Act and similar Laws of any jurisdiction.

2.4

Litigation and Claims

. There is no Action pending or, to the knowledge of the Principal, threatened, against or affecting the Principal that would reasonably be expected to affect his ability to consummate the transactions contemplated hereby or by the Related Agreements, to the extent a party thereto.

2.5

Ownership

. The Principal owns beneficially and of record a majority of the capital stock of the Seller.

2.6

Certain Assets

. The Principal does not own any assets used in or necessary to conduct the Business, excluding personal assets of the Principal which are incidentally used in the Business and except as set forth in the Seller Disclosure Schedule.

2.7

No Finder

. Except as set forth in the Seller Disclosure Schedule, neither the Principal nor any party acting on his behalf has paid or become obligated to pay any fee or commission to any broker, finder or intermediary (other than counsel) for or on account of the transactions contemplated hereby or by the Related Agreements.

2.8

No Reliance

Except for the representations and warranties made herein, in any Related Agreement or in any certificate to be delivered hereunder, the Principal makes no representation or warranty express or implied, at law or in equity, and any such other representations or warranties are hereby expressly disclaimed. Without limiting the generality of the foregoing, the Principal makes no representation or warranty with respect to any projections relating to the Business heretofore delivered to or made available to the Buyer or its counsel, accountants or advisors of future revenues, expenses or expenditures or future results of operations of the Business.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF THE
SELLER AND THE PRINCIPAL WITH RESPECT TO THE SELLER

Each of the Seller and the Principal, jointly and severally, hereby represents and warrants to the Buyer as follows:

3.1

Organization; Good Standing

The Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of California. The Seller has full corporate power and authority to conduct all of the business and activities conducted by it, and to own or lease all of the assets owned or leased by it; and is duly licensed or qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of the business and activities conducted by it, and/or the character of the assets owned or leased by it, makes such qualification or license necessary, except for those jurisdictions in which the failure to be so qualified or licensed would not, individually or in the aggregate, limit the Seller’s ability to consummate the transactions contemplated hereby and by the Related Agreements or have a Material Adverse Effect .

3.2

Equity Interests

. Except as set forth in the Seller Disclosure Schedule, the Seller does not, directly or indirectly, own any capital stock, of or other equity interests in, any Person, other than its interests in the Excluded Entities. Except as set forth in the Seller Disclosure Schedule, the Seller is not a party to or otherwise a participant in any joint venture, partnership, or similar arrangement.

3.3

Authority; Execution and Delivery; Enforceability

. The Seller has full corporate power and authority to execute and deliver this Agreement and, to the extent a party thereto, the Related Agreements, to perform its obligations hereunder and under such Related Agreements and to consummate the transactions contemplated hereby and by such Related Agreements. All corporate acts and other proceedings required to be taken by the Seller to authorize the execution, delivery and performance of this Agreement and such Related Agreements have been duly and properly taken. Each of this Agreement and (when executed) the Related Agreements has been (or will be) duly executed and delivered by the Seller (to the extent a party thereto), and constitutes (or will, when executed, constitute) the legal, valid and binding obligation of the Seller (to the extent a party thereto), enforceable against the Seller in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, moratorium and other similar Laws of general applicability relating to or affecting creditors’ rights and to general equitable principles.

3.4

Non-Contravention

. Assuming the consents described in Section 3.6 have been received, the execution and delivery of this Agreement and the Related Agreements by the Seller, to the extent a party thereto, does not, and the consummation by the Seller of the transactions contemplated hereby and by such Related Agreements and compliance by the Seller with the terms hereof and of such Related Agreements, will not:

(i)

constitute a violation or breach of the articles of incorporation or the by-laws of the Seller;

(ii)

except as set forth in the Seller Disclosure Schedule, constitute a default under or a violation or breach of, or result in the acceleration of any obligation of the Seller under, or a change in any right or obligation of, the Seller or counterparty, under, any provision of any Contract to which the Seller is a party;

(iii)

violate any Order or any Law affecting the Purchased Assets or the Business;

(iv)

result in the creation of any Lien on any of the Purchased Assets, other than any Lien created by or through any action of the Buyer or its Affiliates; or

(v)

except as set forth in the Seller Disclosure Schedule, result in the termination of (A) any license, franchise, lease or permit to which the Seller is a party or by which it is bound, or (B) any right of the Seller under any of the foregoing.

3.5

Corporate Documents; Books and Records

. The Seller has made available to the Buyer complete and correct copies of the articles of incorporation and by-laws of the Seller. The Seller has made available to the Buyer complete and correct copies of all written records of any meeting of, and action by, the board of directors or other similar governing body (and any committee thereof) or shareholders of the Seller.

3.6

Consents and Approvals

. Except as set forth in the Seller Disclosure Schedule, no consent, approval, license, permit, order or authorization of, or registration, declaration or filing with, any Governmental Authority, and no consent or approval of any Person, is required to be obtained by or on behalf of the Seller in connection with the execution, delivery and performance by the Seller of this Agreement or the Related Agreements, to the extent a party thereto, or the consummation of the transactions contemplated hereby and by such Related Agreements, other than compliance with and filings under the HSR Act and similar Laws of any jurisdiction.

3.7

Title to Assets; Sufficiency of Assets .

(a)

Except as set forth in the Seller Disclosure Schedule, the Seller has good and valid title to (or sufficient rights to use), free and clear of all Liens (other than Permitted Liens), all of the Purchased Assets (excluding Company Intellectual Property, the representations and warranties with respect to which are set forth in Section 3.11).

(b)

All of the tangible personal property of the Seller has been maintained in all material respects in accordance with generally accepted industry practice. All of the leased personal property of the Seller is in all material respects in the condition required of such property by the terms of the lease applicable thereto during the relevant term of the lease.

(c)

The Purchased Assets are adequate and suitable for the conduct of the Business as presently conducted.

3.8

Real Property .

(a)

The Seller does not own any real property or, except as set forth in the Seller Disclosure Schedule, lease any real property to any other Person.

(b)

The Seller Disclosure Schedule contains a complete and correct list of all the real property leased to the Seller (the “ Leased Real Property ”), including detail regarding (i) the landlord’s name and address, and (ii) the location of the premises. Complete and correct copies of each Real Property Lease have been provided to the Buyer.

(c)

Since January 1, 2001, the L.A. Facility and, to the Knowledge of the Seller, each other Leased Real Property, and the use thereof comply in all material respects with all applicable Laws, including, without limitation, building and zoning ordinances and codes.

(d)

No condemnation or other proceeding has been commenced or, to the Knowledge of the Seller, is contemplated with respect to all or any portion of the L.A Facility or, to the Knowledge of the Seller, with respect to all or any portion of any other Leased Real Property.

(e)

The L.A. Facility has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service the L.A. Facility for its intended uses.

(f)

Except as otherwise disclosed in the Report of Property Condition Assessment dated September 19, 2006, the L.A. Facility is in good condition, order and repair in all material respects; there exists no material structural or other material defects or damages in the L.A. Facility, whether latent or otherwise.

3.9

Employment Related Agreements and Actions

(a)

The Seller Disclosure Schedule contains a complete and correct list of the directors and the officers of the Seller.

(b)

The Seller Disclosure Schedule contains a complete and correct list of all Contracts currently in effect with current officers, directors, employees, consultants, or independent contractors of the Seller relating to employment or services to be rendered to the Seller. The Seller has provided to the Buyer the following information for each employee of the Seller as of the date of this Agreement: name, job title, and salary.

(c)

Except as set forth in the Seller Disclosure Schedule:

(i)

the Seller is not a party to any collective bargaining agreement or other contract with any labor organization or other representative of employees of the Seller, nor is any such contract presently being negotiated, and, to the Knowledge of the Seller, no question concerning representation exists or has been raised with respect to any of the employees of the Seller since January 1, 2003, nor, to the Knowledge of the Seller, are there any campaigns being conducted to solicit cards from the employees of the Seller to authorize representation by any labor organization;

(ii)

there is no labor strike, union-related slowdown, work stoppage, lockout or other labor controversy in effect, or to the Knowledge of the Seller, threatened against or otherwise affecting the Seller, and the Seller has not experienced any such event since January 1, 2003, and there is no unfair labor practice charge or complaint pending or, to the Knowledge of the Seller, threatened, against the Seller;

(iii)

no Action by or before any Governmental Authority brought by or on behalf of any employee, prospective employee, former employee, retiree, labor organization or other representative of the employees of the Seller is pending or, to the Knowledge of the Seller, threatened, against the Seller, and the Seller is not a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to employees or employment practices at the Seller;

(iv)

no grievance is pending or, to the Knowledge of the Seller, threatened, by any Person or Persons at the Seller against the Seller;

(v)

the Seller is in compliance in all material respects with all applicable Laws, Contracts and policies relating to employment, employment practices, wages, hours, immigration, occupational safety and health, the withholding and payment of Taxes from or with respect to the compensation of employees, and terms and conditions of employment;

(vi)

the Seller has accrued or paid in full (subject to any good faith dispute) to all of its employees all wages, salaries, commissions, bonuses, benefits and other compensation due to such employees or otherwise arising under any policy, practice, agreement, plan, program, statute or other applicable Law;

(vii)

to the Knowledge of the Seller, as of the date hereof, no officer or key employee, or any group of key employees, intends to terminate his, her, or their employment with the Seller;

(viii)

to the Knowledge of the Seller, no officer of the Seller is in violation of any material term of any employment, consultant, non-disclosure, non-competition, confidentiality or other equivalent agreement;

(ix)

since January 1, 2003, the Seller has not closed any Facility, effectuated any company-wide layoffs of employees or implemented any early retirement, separation or window program, nor has the Seller planned or announced any such action or program for the future; and

(x)

the Seller is in compliance in all material respects with its obligations pursuant to WARN, and all other notification and bargaining obligations arising under any collective bargaining agreement or statute.

For purposes of this Section 3.9, the Seller shall mean the Seller and the Hong Kong Subsidiary.

3.10

Contracts .

(a)

The Seller Disclosure Schedule contains a complete and correct list of all Contracts (other than Intellectual Property Contracts required to be listed pursuant to Section 3.11 or any Exempt Purchase Order) that involve payments by, or to, the Seller of more than $10,000 per annum or $25,000 in the aggregate, and all Contracts (other than Intellectual Property Contracts required to be listed pursuant to Section 3.11) without regard to dollar amount, or such lower amount expressly set forth, in the following categories:

(i)

commitments or agreements for services for which a prepayment or advance has been made to, or by, or on behalf of, the Seller in excess of $10,000;

(ii)

partnership or joint venture Contracts or arrangements or any other agreements involving a sharing of revenue or profits;

(iii)

Contracts restricting the Seller from carrying on its business or activities, as the case may be, in any material respect in its usual and customary manner in any jurisdiction;

(iv)

any non-competition agreements in favor of the Seller (other than in connection with employment or consulting agreements);

(v)

each Contract between the Seller and any Affiliate of the Seller;

(vi)

any Contract containing any guarantee or indemnity obligations on the part of the Seller or similar provisions;

(vii)

any Contracts for the sale or other disposition by the Seller of any of its assets, other than the sale or disposition of inventory in the ordinary course of business consistent with past practice;

(viii)

any loan or credit agreement, promissory note, letter of credit or other Contract to which the Seller is a party, evidencing indebtedness and any guarantee or similar obligation incurred by the Seller;

(ix)

each outstanding loan or advance made by the Seller to any director, officer, employee, shareholder or other Affiliate of the Seller;

(x)

any Contract for capital expenditures in excess of $25,000; and

(xi)

commitments or agreements not made in the ordinary and regular course of business.

(b)

Except as set forth in the Seller Disclosure Schedule, the Seller has, with respect to all Contracts required to be listed on the Seller Disclosure Schedule (excluding Intellectual Property Contracts, the representations and warranties with respect to which are set forth in Section 3.11), performed in all material respects all obligations required to be performed by it, and is not in default in any material respect under any such Contract, and, to the Knowledge of the Seller, no other party to any such Contract is in default in any material respect under any such Contract. Except as set forth in the Seller Disclosure Schedule, no event has occurred which, with the lapse of time or the giving of notice or both, would constitute a default in any material respect by the Seller, or, to the Knowledge of the Seller, by any other party to any such Contract. For purposes of this Section 3.10(b), representations that are qualified by Knowledge with respect to another party’s compliance shall be deemed not to include the Knowledge qualifier if such other party to the Contract is an Affiliate of the Seller. The Seller has provided to the Buyer a complete and correct copy of each Contract required to be listed on the Seller Disclosure Schedule. No such Contract (including, without limitation, any Contract that has not been reduced to writing a description of which is set forth in the Seller Disclosure Schedule) has been amended, modified or terminated, except as expressly noted on the Seller Disclosure Schedule, nor will any such Contract be, amended, modified or terminated as of the Closing Date, except as expressly permitted pursuant to Section 5.1.

3.11

Intellectual Property .

(a)

The Seller Disclosure Schedule sets forth a complete and correct list of: (i) all valid and subsisting registrations and applications for registration in the name of the Seller for trademarks, service marks, trade names, corporate names, brand names, logos, domain names, patents and copyrights included in Intellectual Property, (ii) all common law ( i.e. , unregistered) trademarks, service marks, trade names, corporate names and logos included in Company Intellectual Property or owned by the Seller that are material to the Business as conducted in the past five years; (iii) all pending Actions (including those in the Patent and Trademark Office and courts in the United States and throughout the world) to which the Seller is a party, or to which the Seller has Knowledge relating to Company Intellectual Property or Intellectual Property owned by the Seller; provided, that in the case of Intellectual Property which is not Company Intellectual Property, Knowledge shall not include the duty to investigate; and (iv) all Intellectual Property Contracts.

(b)

The Seller owns, beneficially owns and/or is licensed or otherwise has the right to use, all Company Intellectual Property, free and clear of all Liens (except Permitted Liens). All registrations for the Intellectual Property required to be set forth in the Seller Disclosure Schedule are valid, subsisting, in full force and effect and have not lapsed, expired or been abandoned; have not been assigned and have been properly maintained by the filing of all necessary declarations and renewals and are free and clear of all Liens (except Permitted Liens). The Seller has taken all necessary actions to maintain and protect each item of Company Intellectual Property. All Intellectual Property set forth on the Seller Disclosure Schedule has proper title ownership in the name of the Seller or such other Person(s) set forth on such Seller Disclosure Schedule. The Seller has placed all notices of Intellectual Property rights required by relevant statutes or other relevant Law on the Seller’s products as required.

(c)

The operation of the Business as presently conducted does not infringe, misappropriate or make unauthorized use of, any Intellectual Property of third parties. Except as disclosed in the Seller Disclosure Schedule, there are no Actions pending or, to the Knowledge of the Seller, threatened, that asserts that the conduct of the Business or the manufacture, sourcing, use, sale of any product, or use of any process, or of any Company Intellectual Property infringes, misappropriates, otherwise violates, dilutes, makes any claim on or against or constitutes the unauthorized use of, any Intellectual Property of third parties. To the Knowledge of the Seller, and except as disclosed in the Seller Disclosure Schedule, Company Intellectual Property is not being infringed by any Person; and there are no Actions pending or, to the Knowledge of the Seller, threatened, challenging the Seller’s ownership of, right to use, or the validity or enforceability or patentability of any Company Intellectual Property. Except as set forth in the Seller Disclosure Schedule, there are no restrictions regarding the use of material Company Intellectual Property other than the following restrictions contained in trademark license agreements pursuant to which the Seller licenses trademarks from third parties: (i) restrictions limiting the use of the licensed trademarks solely to men's neckwear, as well as, in certain instances, ascots, pocket squares or formalwear accessories (the " Licensed Products "); (ii) restrictions limiting the sale of Licensed Products to accounts approved by the applicable licensor; (iii) restrictions limiting the sale of Licensed Products to the United States and, in certain cases, Canada; (iv) limitations on terms consistent with industry practice on how the Seller may display the trademark and market the Licensed Products; (v) requirements on terms consistent with industry practice that the applicable licensor approve the design and quality of the Licensed Products, and (vi) other restrictions that are not inconsistent with industry practice.

(d)

Except as set forth in the Seller Disclosure Schedule, the Seller has, with respect to all Intellectual Property Contracts, performed in all material respects all obligations required to be performed by it, and is not in default in any material respect under any such Intellectual Property Contract, and, to the Knowledge of the Seller, no other party to any such Intellectual Property Contract is in default in any material respect under any such Intellectual Property Contract. Except as set forth in the Seller Disclosure Schedule, no event has occurred which, with the lapse of time or the giving of notice or both, would constitute a default in any material respect by the Seller, or, to the Knowledge of the Seller, by any other party to any such Intellectual Property Contract. For purposes of this Section 3.11(d), representations that are qualified by Knowledge with respect to another party’s compliance shall be deemed not to include the Knowledge qualifier if such other party to the Intellectual Property Contract is an Affiliate of the Seller. The Seller has provided a complete and correct copy of each Intellectual Property Contract to the Buyer. No Intellectual Property Contract (including, without limitation, any Intellectual Property Contract that has not been reduced to writing a description of which is set forth in the Seller Disclosure Schedule) has been amended, modified or terminated, except as expressly noted on the Seller Disclosure Schedule, nor will any such Intellectual Property Contract be, amended, modified or terminated as of the Closing Date, except as expressly permitted pursuant to Section 5.1. Except as set forth in the Seller Disclosure Schedule, the Seller has properly and fully recorded all Intellectual Property Contracts which are required to be recorded or registered with any Governmental Authority anywhere in the world. The Seller has not affirmatively waived, or does not have actual knowledge of any other waiver of, any of its rights, claims, or remedies arising under, or pursuant to, any Intellectual Property Contract, including such rights, claims or remedies resulting from a breach or other violation of such Intellectual Property Contract. All Intellectual Property Contracts are free and clear of all Liens (except Permitted Liens).

(e)

Since December 31, 2001, no present or past employee or officer of, or consultant to, the Seller or any other Person engaged by the Seller to render services to the Seller has entered into any "work made for hire" Contract or other Contract relating to Company Intellectual Property. No such Person owns, beneficially or otherwise, any rights to any Company Intellectual Property or, to the Knowledge of the Seller, any Intellectual Property owned by the Seller.

(f)

The Seller has a website privacy policy that complies with all Laws in all material respects.

3.12

Insurance

. The Seller Disclosure Schedule contains a complete and correct list of all policies of insurance carried by the Seller or pursuant to which the Seller is a named beneficiary or pursuant to which the Business or properties of the Seller is insured and complete and correct copies of which have been provided to the Buyer. All of such policies are in full force and effect and no notice of cancellation or termination has been received with respect to such policies. The Seller has notified such insurers of any claim known to them which they believe is covered by any such insurance policy and have provided the Buyer with a copy of such claim.

3.13

Financial Statements; Liabilities; Internal Controls .

(a)

The Seller has provided to the Buyer the audited consolidated balance sheets of the Seller and the U.K. Subsidiary as of, and the audited consolidated statements of income and comprehensive income, stockholders’ equity and cash flows of the Seller and the Excluded Entity for, the years ended December 31, 2005, 2004 and 2003, together with the notes thereto and the opinions of Gumbiner Savett Inc. thereon (collectively, the “ Audited Financial Statements ”). The Audited Financial Statements have been prepared from the books and records of the Seller, and present fairly in all material respects, in conformity with GAAP (subject to the GAAP Exceptions), the financial condition, results of operations and cash flows of the Seller on a consolidated basis for the periods and dates covered thereby. Additionally, the Seller has provided to the Buyer the unaudited consolidated balance sheets of the Seller and the U.K. Subsidiary as of, and the unaudited consolidated statements of income and comprehensive income and stockholders’ equity of the Seller and the U.K. Subsidiary for, the six-month period ended June 30, 2006 (collectively, the “ Unaudited Financial Statements ”). The Unaudited Financial Statements have been prepared from the books and records of the Seller, and present fairly in all material respects, in conformity with GAAP (subject to the GAAP Exceptions), the financial condition and results of operations of the Seller on a consolidated basis for such period and date covered thereby, except for adjustments and accruals which are normally made at year end and the absence of footnote disclosures thereto.

(b)

Except as set forth in the Seller Disclosure Schedule, the Seller does not have any Liabilities that would be required to be reflected as Liabilities on a balance sheet prepared in accordance with GAAP, except Liabilities that (i) are reflected on or accrued or reserved against in the 2005 Balance Sheet, or reflected in any notes thereto, or the June 30 Balance Sheet, or reflected in any notes thereto, or (b) were incurred since June 30, 2006 in the ordinary course of business.

(c)

The Seller makes and keeps accurate books and records and maintains a system of internal accounting controls over financial reporting that are sufficient to provide reasonable assurance that transactions are properly recorded and records are kept which accurately and fairly reflect, in all material respects, financial activities of the Business, so as to permit the preparation of the Seller’s consolidated financial statements in conformity with GAAP (subject to the GAAP Exceptions).

(d)

Since December 31, 2005, neither the Seller nor the Principal has been advised of (i) any significant deficiencies in the design or operation of internal controls that could adversely affect the ability of the Seller to record, process, summarize and report financial data and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the internal controls of the Seller.

3.14

Tax Matters

. Except as set forth in the Seller Disclosure Schedule:

(i)

the Seller has timely filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all material respects. All Taxes owed by the Seller (whether or not shown on said Tax Returns) have been paid. All Taxes that the Seller is or was obligated to withhold from amounts paid to any Person have been fully paid and all filings relating to such payments have been filed.

(ii)

no Tax proceeding is currently being conducted with respect to the Seller, no issues that had been raised by a Tax Authority with respect to the Seller are pending and the Seller has not received written notification from any Tax Authority that it intends to commence a Tax proceeding with respect to any Tax Return.

(iii)

the Seller Disclosure Schedule lists all federal, state, local and foreign income Tax Returns which have been filed with respect to Seller for taxable periods ended on or after January 1, 2003. The Seller has delivered to the Buyer correct and complete copies of all income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by the Seller since January 1, 2003.

(iv)

there are no Liens for any Tax (other than Taxes not yet due and payable) on the Purchased Assets.

(v)

none of the Assumed Liabilities is an obligation to make a payment that is not deductible under Code §280G.

3.15

Absence of Certain Changes and Events

. Since December 31, 2005, except as set forth in the Seller Disclosure Schedule, the Seller has conducted the Business in the ordinary course thereof consistent with past practice and from such date through the date of this Agreement, with respect to Seller, there has not been any:

(i)

change in the business, assets, liabilities, results of operations or financial condition of the Seller, or any event, condition or contingency (either individually or taken together) that constitutes a Material Adverse Effect;

(ii)

(A) incurrence, payment or discharge of any Liability, (B) sale or transfer of any property, or (C) acquisition or sale, lease, grant of interest in, or other disposition of, any assets or businesses, in each of clauses (A), (B) and (C), other than in the ordinary course of business, consistent with past practice;

(iii)

(A) guarantee or any other assumption of the obligations of any Person, or (B) making of any loan or advance to any Person (other than vacation payments made to hourly factory employees at the L.A. Facility in the ordinary course of business, consistent with past practice);

(iv)

settlement or compromise of any Action if the amount of such settlement will either not be paid in full prior to the Closing or which settlement or compromise would reasonably be expected to have a continuing adverse impact on the Business after the Closing;

(v)

Tax election or change in a Tax election or the filing for any change in any material respect of any method of accounting with the Internal Revenue Service, except as required by any change in Law;

(vi)

change in any method of accounting applied in the preparation of the Financial Statements, other than a change which is required by reason of a concurrent change in Law or GAAP;

(vii)

(A) adoption or amendment in any material respect to any benefit plan or bonus, profit sharing, deferred compensation, incentive, stock option or stock purchase plan, program or commitment, paid time off for sickness or other plan, program or arrangement for the benefit of its employees, consultants or directors, or (B) grant of any increase (other than increases required under any Contact) in the compensation of its employees (including any such increase pursuant to any bonus, profit sharing or other compensation or incentive plan, program or commitment) or any increase (other than increases required under any Contract) in the compensation payable or to become payable to any officer or director;

(viii)

material change or modification in any of the Contracts required to be listed in any Schedule to this Agreement (other than an Exempt Purchase Order), nor has the Seller entered into any Contract (other than an Exempt Purchase Order), except, in each case, in the ordinary and regular course of its business and in no event calling for annual payments by, or to, the Seller in excess of $25,000;

(ix)

the making of any capital expenditures in excess of $25,000;

(x)

declaration, distribution or the setting aside for distribution of any property, other than cash, or directly or indirectly, the redemption, purchase or otherwise acquisition of any shares of capital stock for property, other than cash, as the case may be; and

(xi)

agreement, whether in writing or otherwise, to take any action described in this Section 3.15.

3.16

Litigation and Claims

. Except as set forth in the Seller Disclosure Schedule, there is no Action pending or, to the Knowledge of the Seller, threatened, against or affecting the Purchased Assets or the Business, and there is no Action pending or, to the Knowledge of the Seller, threatened, affecting the propriety or validity of the transactions contemplated hereby or by the Related Agreements. Except as set forth in the Seller Disclosure Schedule, the Seller is not subject to or in default under or with respect to any Order, and the Seller has not made, and to the Knowledge of the Seller, the Seller has not engaged in making, any illegal payment or payments which would reasonably likely directly or indirectly constitute commercial bribery.

3.17

Governmental Permits; Compliance with Laws .

(a)

The Seller owns, holds or possesses all Governmental Permits which are necessary to entitle it to own or lease, operate and use its assets and to carry on and conduct the Business substantially as currently conducted, except for such incidental Governmental Permits which would be obtainable in due course by any qualified applicant without any adverse affect on the Business or any undue burden or cost in the event of any failure to apply, lapse, termination, cancellation or forfeiture thereof.

(b)

The Seller Disclosure Schedule sets forth a complete and correct list and brief description of each Governmental Permit owned, held or possessed by the Seller as of the date hereof. Except as set forth in the Seller Disclosure Schedule, (i) the Seller has fulfilled and performed in all material respects its obligations under each of the Governmental Permits which it owns, holds or possesses , and (ii) since December 31, 2001, no written notice of cancellation, of default or of any material dispute concerning any Governmental Permit, or of any event, condition or state of facts described in the preceding clause, has been received by the Seller or the Principal.

(c)

The Seller is in compliance in all material respects with all Laws which are applicable to the Business.

3.18

Environmental Matters

. Except as set forth in the Seller Disclosure Schedule:

(i)

the Seller is in compliance, in all material respects, with its obligations under applicable Environmental Laws;

(ii)

the Seller has obtained and at all times has been in compliance, in all material respects, with, and has submitted any necessary applications for renewals of, permits required pursuant to Environmental Law;

(iii)

no condition at the L.A. Facility has violated, or is in violation of, in any material respect, any Environmental Law and, to the Knowledge of the Seller, no condition at any other Facility has violated, or is in violation of, any Environmental Law;

(iv)

there are no Environmental Conditions present at, on, or under, the L.A. Facility, and there are no there are no Environmental Conditions present at, on, or under, any other Facility as a result of activities of the Seller or any of its employees or agents, in each case, in amounts exceeding the levels permitted by applicable Environmental Law or under circumstances that would reasonably be expected to result in Liability in any material respect under or relating to Environmental Law;

(v)

the Seller has not disposed of, arranged for the disposal of, released, threatened to release, or transported any Hazardous Substances in violation of any applicable Environmental Law or in a manner that would reasonably be expected to result in material Liability to the Seller;

(vi)

the Seller is not subject to any Actions, is not subject to any Order or has not received any written notice from any Governmental Authority or the current or prior owner or operator of any of any Facility or any other Person, in each case with respect to any actual or potential violation or failure to comply with any Environmental Law or of any actual or threatened Liability under any Environmental Law, or regarding any Hazardous Substances; and to the Knowledge of the Seller, the Seller is not threatened with any such written Action, Order, notice or communication;

(vii)

the Seller has not contractually assumed any Liability under or relating to Environmental Laws or Hazardous Substances; and

(viii)

since January 1, 2001, there are no Environmental Reports in the custody or control of the Seller relating to any Facility, the Business or activities of the Seller that have not been made available to the Buyer.

3.19

Employee Plans .

(a)

The Seller Disclosure Schedule sets forth (i) each employee benefit plan (as defined in Section 3(3) of ERISA) and (ii) each other benefit plan, program, contract or arrangement of any kind whatsoever (whether for the benefit of present, former, retired or future employees, directors, consultants or independent contractors of the Seller) sponsored, maintained or contributed to by the Seller or the Hong Kong Subsidiary, or with respect to which the Seller or the Hong Kong Subsidiary could have any liability, including, without limitation, plans, programs, contracts or arrangements with respect to pension, retirement, profit sharing, deferred compensation, thrift, savings, stock ownership, stock bonus, restricted stock, health, dental, medical, life, hospitalization, disability, relocation, child care, educational assistance, stock purchase, stock option, incentive, bonus, sabbatical leave, vacation, severance, cafeteria, pre-tax premium, flexible spending or other contribution, benefit or payment of any kind, employee severance and change-of-control agreement, contracts or arrangements, and plans, programs, contracts or arrangements providing for contributions, benefits or payments in the event of a change of ownership or control in whole or in part of the Seller or the Hong Kong Subsidiary (all such employee benefit plans and other benefit plans, programs, contracts or arrangements, whether written or oral, hereinafter individually and collectively called the “ Employee Plans ”).

(b)

A complete and correct copy of the plan document for each of the Employee Plans, and all amendments thereto, and all contracts and agreements relating thereto, or to the funding thereof (including, without limitation, all trust agreements, insurance contracts, investment management agreements, subscription and participation agreements, administration and recordkeeping agreements) have been provided to the Buyer. In the case of any Employee Plan that is not in written form, an accurate and complete description of such Employee Plan has been provided to the Buyer. With respect to each Employee Plan, the Buyer has been provided, as applicable, with a complete and correct copy of each of (i) the three most recent annual reports (Form 5500 series), including all schedules to such annual reports, and (ii) the most recent summary plan description (including summaries of material modification), employee handbooks, Internal Revenue Service determination letter and/or or ruling, and, in the case of any funded Employee Plan, a current schedule of assets (and the fair market value thereof assuming liquidation of any asset which is not readily tradeable) held with respect thereto.

(c)

No Employee Plan or any plan sponsored, maintained or contributed to by the Seller or any ERISA Affiliate is subject to Title IV of ERISA. Neither the Company nor any ERISA Affiliate has completely or partially withdrawn, within the meaning of Title IV of ERISA, from any “multiemployer plan” within the meaning of Section 3(37) of ERISA (each such plan hereinafter, individually and collectively called a “ Multiemployer Plan ”) or any single-employer plan (within the meaning of Section 4001(a)(15) of ERISA) which has two or more contributing sponsors at least two of whom are not under common control (each such plan hereinafter, individually and collectively, called a “ Single-Employer Plan ”). Neither the Seller nor any ERISA Affiliate is a party to, or participates in, or has any liability or contingent liability with respect to any Multiemployer Plan or

SITE SEARCH

AGREEMENTS / CONTRACTS

CLAUSES

Search Contract Clauses >>

Browse Contract Clause Library>>

Get Email Updates