FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange
Act of 1934
Date of Report (Date of earliest event reported): July 18, 2003
INNOVO GROUP INC.
(Exact name of registrant as specified in charter)
Delaware 0-18926 11-2928178
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
5900 S. Eastern Ave., Suite 124, Commerce, California 90040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(323) 725-5516
No Change
(Former name or former address, if changed since last filing)
Item 2. Acquisition or Disposition of Assets
On July 17, 2003, Innovo Group Inc. (the "Company" or "IGI")
through its subsidiary Innovo Azteca Apparel, Inc. ("IAA")
entered into an asset purchase agreement ("APA") with Azteca
Production International, Inc. ("Azteca"), Hubert Guez ("Hubert
Guez")and Paul Guez ("Paul Guez"), whereby IAA acquired the Blue
Concepts division (the "Division") of Azteca. The Division
sells primarily denim jeans to American Eagle Outfitters,
Inc. ("AEO"), a national retailer. Hubert Guez and Paul Guez are
substantial stockholders of the Company, together have a
controlling interst in Azteca. As of March 25, 2003, Hubert Guez
and his affiliates beneficially own approximately 35% of the
Company's common stock on a fully diluted basis.
Pursuant to the terms of the agreement, the purchase price to be
paid by IAA for the Division is $21.8 million, subject to
adjustment, as noted below. Additionally, IAA will employ the
existing employees of the Division but will not assume any of the
Division's or Azteca's existing liabilities. The purchase price
has been funded through the issuance of a seven-year promissory
note (the "Note"). The Note bears interest at a rate of 6% and
requires payment of interest only during the first 24 months and
then is fully amortizing over the remaining five-year period. The
terms of the transaction further allow the Company, upon
shareholder approval, to convert a portion of the Note into
equity through the issuance of 3,125,000 shares of Company
common stock valued at the greater of $4 per share or the
market value of the Company's common stock at the date
shareholder approval is obtained. In the event shareholder
approval is obtained, the Note will be reduced to $9.3 million
and the shares issued pursuant to the conversion will be subject
to certain lock-up periods. In the event the market value of
the Company's common stock is greater than $4.00 per share on
the date of shareholder approval the purchase price.
In the event that sales of the Division fall below $70 million
during the first 17 month period ("Period I") following the
closing of the acquisition, or $65 million during the 12
month period ("Period II") following Period I, certain terms
of the APA allow for a reduction in the purchase price through
a decrease in the principal balance of the Note and/or the
return of certain locked-up shares of the Company's common stock.
In the event the Note is reduced during Period I and the sales of
the Division in Period II are greater than $65 million, the
Note shall be increased by half of the amount greater than $65
million but in no event shall the Note be increased by an amount
greater than the decrease in Period I.
In the event the principal amount of the Note needs to be reduced
beyond the outstanding principal balance of such Note, then an
amount of the locked-up shares equal to the balance of the
required reduction shall be returned to the Company. For these
purposes, the locked-up shares shall be valued at $4.00 per
share. Additionally, if during the 12 month period following the
closing, AEO is no longer a customer of IAA, the locked-up shares
will be returned to the Company, and any amount remaining on the
balance of the Note will be forgiven.
If the revenues of the Division decrease to $35 million or less
during Period I or Period II, IAA shall have the right to sell
the purchased assets back to Azteca, and Azteca shall have the
right to buy back the purchased assets for the remaining balance
of the Note and any and all locked-up shares shall be returned to
the Company.
As part of the transaction, IAA entered into a non-exclusive
supply agreement ("Supply Agreement") with AZT International SA
DE CV, a Mexico corporation and a wholly owned affiliate of
Azteca, for products to be sold by the Division. In addition, IAA
will pay to Sweet Sportswear, LLC, an entity owned 50% by
Huber Guez and 50% by Paul Guez, an amount equal to 2.5% of IAA's
revenues generated as a result of sales to AEO. While Paul Guez
will not become an employee or officer of IAA, he will continue
to serve as a liaison between IAA and Azteca for the purpose of
facilitating the transaction of the Division from Azteca to IAA,
and will continue to maintain a working relationship on a going
forward basis with Azteca, its subsidiary AZT, and IAA as an
interested party to these entities.
On July 18, 2003, the Company issued the press release attached
hereto as Exhibit 99.1 and incporporated herein by reference
announcing the acquisition of the Blue Concepts division from
Azteca.
Item 5. Other Events
On July 15, 2003, the Company's Board of Directors (the "Board")
increased it size from seven to nine. The Board elected Kent A.
Savage and Vincent Sanfilippo as new directors to the fill the
vacancies. The addition of Savage and Sanfilippo increases the
Board's non-employee directors from three to five.
Savage has most recently served as co-founder for TippingPoint
Technologies, Inc., a publicly traded network securities company.
Prior to that, he was co-founder, President & CEO of Netpliance,
Inc, a provider of Internet services. Savage has been affiliated
in senior management positions with Cisco Systems, Netspeed,
Inc., Connectware, Nortel and Wang Laboratories. Recognized as an
Ernst & Young Entrepreneuer-of-the-Year finalist, he received a
Bachelor's degree in Business from Oklahoma State University and
an MBA from Southern Methodist University.
Vincent Sanfilippo is Chief Investment Officer and a Principal of
Urdang & Associates Real Estate Advisors, Inc. ("Urdang"), a real
estate investment management firm whose clients include Fortune
100 corporate and public pension funds, foundations and other
institutional investors. Sanfilippo has been with Urdang for the
past 15 years. Sanfilippo received his B.S. degree from the
University of Pennsylvania's Wharton School of Finance.
On July 23, 2003, the Company issued the press release attached
hereto as Exhibit 99.2 and incorporated herein by reference
announcing the appointment of Kent A. Savage and Vincent
anfilippo to the Company's Board.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
Item 7. Financial Statements, Proforma Financial
Information and Exhibits
(a) Financial statements of businesses acquired:
It is not practicable to file the audited and un-
audited financial statements at this time. Accordingly,
pursuant to Item 7(a)4 of Form 8-K, Registrant will
file such financial statements under cover of Form 8-
K/A as soon as practicable, but in no event later than
October 1, 2003.
(b) Pro forma financial information: It is not
practicable to file this required pro forma financial
information at this time. Accordingly, pursuant to
Item 7(b)2 of Form 8-K, Registrant will file such
financial statements under cover of Form 8-K/A as soon
as practicable, but in no event later than October 1,
2003.
(c)Exhibits
Exhibit 2.1 Asset Purchase Agreement dated July 17, 2003
by and among Innovo Azteca Apparel, Inc.,
Azteca Production International, Inc., Hubert
Guez and Paul Guez
Exhibit 10.1 Supply Agreement dated July 17, 2003 by and
between AZT International SA DE CV and Innovo
Azteca Apparel, Inc.
Exhibit 99.1 Press Release dated July 18, 2003
Exhibit 99.2 Press Release dated July 22, 2003
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
INNOVO GROUP INC.
(Registrant)
Date: August 1, 2003
By: /s/ Samuel Joseph Furrow, Jr.
------------------------------
Samuel Joseph Furrow, Jr.
Chief Executive Officer,
and Director
Exhibit Index
Exhibit No.
2.1 Asset Purchase Agreement dated July 17, 2003 by and
among Innovo Azteca Apparel, Inc., Azteca Production
International, Inc., Hubert Guez and Paul Guez
10.1 Supply Agreement dated July 17, 2003 by and between AZT
International SA DE CV and Innovo Azteca Apparel, Inc.
99.1 Innovo Group, Inc. press release dated July 18, 2003
99.2 Innovo Group Inc. press release dated July 23, 2003
Exhibit 2.1
ASSET PURCHASE AGREEMENT
by
and
among
INNOVO AZTECA APPAREL, INC.,
AZTECA PRODUCTION INTERNATIONAL, INC.,
HUBERT GUEZ
and
PAUL GUEZ
Dated July 17, 2003
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS, 1
ARTICLE 2. PURCHASE AND SALE OF ASSETS 10
2.1 PURCHASE AND SALE OF ASSETS 10
2.2 NO ASSUMED LIABILITIES 10
ARTICLE 3. PURCHASE PRICE 10
3.1 PURCHASE PRICE 10
3.2 ALLOCATION OF PURCHASE PRICE 10
3.3 PAYMENT TERMS AND OFFSETS 10
3.4 PARTIAL CONVERSION OF BUYER NOTE; CONVERTED
SHARES; LOCK-UPS; SHARE REGISTRATION 11
3.5 SALES GUARANTEE; LOSS OF ACCOUNT 13
ARTICLE 4. CLOSING 16
4.1 THE CLOSING 16
4.2 DELIVERIES AT THE CLOSING 16
4.3 OBTAINING FURTHER CONSENTS 17
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER 17
5.1 ORGANIZATION OF BUYER 17
5.2 AUTHORITY OF BUYER; ENFORCEABILITY 17
5.3 NO VIOLATION 17
5.4 NO FINDER 18
5.5 BUYER'S FINANCIAL STATEMENTS 18
5.6 LITIGATION 18
5.7 SOLVENCY 18
5.8 REPRESENTATIONS COMPLETE 18
ARTICLE 6. REPRESENTATIONS AND WARRANTIES CONCERNING
SELLER AND THE BUSINESS 19
6.1 ENTITY STATUS 19
6.2 POWER AND AUTHORITY; ENFORCEABILITY 19
6.3 NO VIOLATION 19
6.4 BROKERS' FEES 20
6.5 FINANCIAL STATEMENTS 20
6.6 SUBSEQUENT EVENTS 20
6.7 NO UNDISCLOSED LIABILITIES 20
6.8 LEGAL COMPLIANCE 21
6.9 TAX MATTERS 21
6.10 TITLE TO PURCHASED ASSETS 21
6.11 INTELLECTUAL PROPERTY 21
6.12 CONTRACTS 23
6.13 PURCHASE COMMITMENTS 23
6.14 LITIGATION 23
6.15 PRODUCT WARRANTY 23
6.16 EMPLOYEES 24
6.17 EMPLOYEE BENEFITS 24
6.18 ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS 25
6.19 CUSTOMERS AND SUPPLIERS 25
6.20 PERMITS 25
6.21 SOLVENCY 26
6.22 ACCURACY OF INFORMATION FURNISHED 26
6.23 REPRESENTATIONS COMPLETE 26
6.24 REVIEW OF BUYER AND INNOVO 27
ARTICLE 7. PRE-CLOSING COVENANTS 27
7.1 GENERAL 27
7.2 NOTICES AND CONSENTS 27
7.3 OPERATION OF BUSINESS 28
7.4 PRESERVATION OF BUSINESS 28
7.5 FULL ACCESS 28
7.6 NOTICE OF DEVELOPMENTS 29
7.7 EXCLUSIVITY 29
7.8 CONFIDENTIALITY; PUBLICITY 29
7.9 CHARGES AND FEES 30
ARTICLE 8. ADDITIONAL COVENANTS 30
8.1 GENERAL 30
8.2 LITIGATION SUPPORT 30
8.3 TRANSITION 30
8.4 CONFIDENTIALITY 31
8.5 RESTRICTIVE COVENANTS 31
8.6 USE OF NAMES 32
8.7 TAXES 32
8.8 EMPLOYEES AND EMPLOYEE BENEFIT PLANS 33
8.9 PAYMENT OF NON-ASSUMED LIABILITIES 35
8.10 NO LIABILITY 35
8.11 BUYER EARN OUT 36
8.12 SHAREHOLDER APPOINTMENT RIGHTS 36
ARTICLE 9. CLOSING CONDITIONS 37
9.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER 37
9.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
SELLER PARTIES 38
ARTICLE 10. TERMINATION 39
10.1 TERMINATION OF AGREEMENT 39
10.2 EFFECT OF TERMINATION 39
ARTICLE 11. INDEMNIFICATION 40
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES 40
11.2 INDEMNIFICATION PROVISIONS FOR BUYER'S
BENEFIT 40
11.3 INDEMNIFICATION PROVISIONS FOR SELLER
PARTIES' BENEFIT 41
11.4 INDEMNIFICATION CLAIM PROCEDURES 41
11.5 LIMITATIONS ON INDEMNIFICATION LIABILITY 42
11.6 SET OFF RIGHTS 43
11.7 OPTION TO REQUIRE SELLER TO PAY IN BUYER
COMMON STOCK 43
11.8 NO WAVIER OF RIGHTS OR REMEDIES 43
11.9 OTHER INDEMNIFICATION PROVISIONS 44
ARTICLE 12. MISCELLANEOUS 44
12.1 SCHEDULES 44
12.2 ENTIRE AGREEMENT 44
12.3 SUCCESSORS 45
12.4 ASSIGNMENTS 45
12.5 NOTICES 45
12.6 SPECIFIC PERFORMANCE 46
12.7 SUBMISSION TO JURISDICTION; PROCESS AGENT; NO
JURY TRIAL 47
12.8 TIME 47
12.9 COUNTERPARTS 47
12.10 HEADINGS 48
12.11 GOVERNING LAW 48
12.12 AMENDMENTS AND WAIVERS 48
12.13 SEVERABILITY 48
12.14 EXPENSES 48
12.15 CONSTRUCTION 48
12.16 INCORPORATION OF EXHIBITS AND SCHEDULES 49
12.17 REMEDIES 49
12.18 JOINT AND SEVERAL OBLIGATIONS 49
Exhibits
Exhibit A Form of Bill of Sale and Assignment of Contract
Rights
Exhibit B Form of Buyer Note
Exhibit C Form of Supply Agreement
Exhibit D Form of Seller's Officers' Certificate
Exhibit E Form of Seller's Secretary's Certificate
Exhibit F Form of Buyer's Officers' Certificate
Exhibit G Form of Buyer's Secretary's Certificate
Schedules
Schedule 1.1 Purchased Assets
Schedule 5.3 Buyer Required Consents
Schedule 5.6 Buyer Litigation
Schedule 6.3 Seller Required Consents
Schedule 6.5 Financial Statements
Schedule 6.6 Subsequent Events
Schedule 6.12 Contracts
Schedule 6.14 Seller Litigation
Schedule 6.15 Standard Terms of Sale or Lease
Schedule 6.16(a) Current Employees and Directors
Schedule 6.16(b) Terminated Employees
Schedule 6.17 Employee Benefits
Schedule 6.18 Environmental Matters
Schedule 6.19 Suppliers
Schedule 6.20 Permits
Asset Purchase Agreement
This Asset Purchase Agreement dated July 17, 2003 (the
"Execution Date"), is by and among (i) INNOVO AZTECA
APPAREL, INC., a California corporation ("Buyer"), (ii)
AZTECA PRODUCTION INTERNATIONAL, INC., a California
corporation ("Seller"), and (iii) Hubert Guez, an
individual, and Paul Guez, an individual (each, a
"Shareholder" and, collectively with Seller, the "Seller
Parties").
RECITALS
A. Seller is engaged through its Blue Concepts
Division in the business of designing, manufacturing and
wholesaling denim and other related apparel and products
(the "Business").
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 the Business, all on the terms
and subject to the conditions set forth herein.
C. Buyer and the Seller Parties (the "Parties")
intend for the sale of such assets and properties to be
treated as a taxable purchase for tax purposes.
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.
"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.
"AGR" means Buyer's gross revenues from sales that are
attributable to the Business.
"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.
"Allocation Schedule" is defined in Section 3.2.
"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 Financial Statements" is defined in Section 5.5.
"Buyer Note" means the promissory note of Buyer in
substantially the form of Exhibit B.
"Calculation Period" means Calculation Period I or
Calculation Period II, as applicable.
"Calculation Period I" is defined in Section 3.5(a).
"Calculation Period II" is defined in Section 3.5(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.
"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, or other similar understanding, whether written or
oral.
"Conversion Price" is defined in Section 3.4(a).
"Converted Shares" is defined in Section 3.4(a).
"Copyrights" means copyrights, whether registered or
unregistered, in published works and unpublished works, and
pending applications to register the same.
"Disputed Note Adjustment Amount" is defined in Section
3.5(b).
"Earn Out Amount" is defined in Section 8.11(a).
"Earn Out Disputed Amount" is defined in Section
8.11(c).
"Earn Out Proposed Amount" is defined in Section
8.11(b).
"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, 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 August 30, 2003.
"Financial Statements" is defined in Section 6.5.
"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 the
Shareholders).
"Indemnitor" means any Party having any Liability to
any Indemnified Party under this Agreement.
"Innovo" means Innovo Group Inc., a Delaware
corporation.
"Innovo Shareholder Approval" is defined in Section
3.4(a).
"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.
"Lock-up Date Average" is defined in Section 3.4(c).
"Lock-up Period" is defined in Section 3.4(b).
"Locked-up Shares" is defined in Section 3.4(b).
"Locked-up Shares Release Formula" means: (a) the
difference between (i) 21,800,000 and (ii) the product of
(A) the difference between (1) 65,000,000 and (2) the AGR
for Calculation Period II as of the end of a relevant fiscal
quarter of such Calculation Period, and (B) 50%, divided by
(b) 4; and subtracting from such quotient (c) any Released
Locked-up Shares determined pursuant to the Locked-up Shares
Release Formula for any previous fiscal quarter.
"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 which change (or effect),
individually or in the aggregate, could reasonably be
expected to be materially adverse to such 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.
"Most Recent Balance Sheet" means the unaudited balance
sheet of Seller prepared as of and for the Most Recent
Balance Sheet Date.
"Most Recent Balance Sheet Date" is defined in Section
6.5(a).
"Most Recent Fiscal Year" is defined in Section 6.5(a).
"Negative Balance" is defined in Section 3.5(c).
"Note Adjustment Amount" means the aggregate amount by
which the principal balance of the Buyer Note is adjusted
pursuant to Sections 3.5(a) and (b).
"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 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.
"Proposed Note Adjustment Amount" is defined in Section
3.5(b).
"Purchased Assets" means all of the right, title and
interest that Seller possesses and has the right to transfer
in and to all of the following assets as used in connection
with the ownership and operation of the Business: (a) all
Intellectual Property, goodwill associated therewith,
licenses and sublicenses granted and obtained with respect
thereto, and rights thereunder, remedies against
infringements thereof, and rights to protection of interests
therein under the laws of all jurisdictions; (b) all
purchase orders for products designed, manufactured,
distributed or marketed by Seller in connection with the
ownership and operation of the Business; (c) all Permits and
similar rights obtained from Governmental Bodies; (d)
goodwill; (e) claims, causes of action, chooses in action,
rights of recovery, rights of set off, and rights of
recoupment (including any such item relating to the payment
of taxes); (f) books, records, ledgers, files, documents,
correspondence, lists, plats, architectural plans, drawings
and specifications, manuals, quality control records and
procedures, and research and development files; (g) all
forms, designs, drawings, screens, patterns, photographs,
film, art, artwork libraries, labels, creative materials,
advertising and promotional materials, new product
development materials, studies, reports, and other printed
or written materials; and (h) all assets listed on Schedule
1.1; provided, however, that the Purchased Assets will not
include (i) any assets possessed or owned by Seller which do
not relate to the ownership or operation of the Business,
(ii) any cash or cash equivalents, checkbooks or cancelled
checks, bank accounts or deposits, refunds or prepayments,
(iii) any inventory, or (iv) any of the rights of Seller
under this Agreement, the other Transaction Documents, and
any other agreement between Seller on the one hand and Buyer
on the other hand entered into on or after the Execution
Date and on or prior to the Closing Date.
"Purchase Price" is defined in Section 3.1.
"Qualifying Offer" means an offer of employment by
Buyer to an Active Employee that would provide such Active
Employee (i) an annual compensation level that is at least
one hundred percent (100%) of the applicable Active
Employee's current total annual cash compensation
(consisting of base salary (wages) and bonuses), (ii)
benefits that are substantially similar to those provided to
similarly situated employees of Buyer, and (iii)
substantially similar duties and responsibilities as such
Active Employee had prior to Closing.
"Released Locked-up Shares" is defined in Section
3.5(f).
"S-3 Blackout Period" means, with respect to a
registration, a period, commencing on the day immediately
after Innovo notifies the Seller Parties that they are
required, pursuant to Section 3.4(f), to suspend offers and
sales of registered Converted Shares and/or Shortage Shares,
during which Innovo, in the good faith judgment of its Board
of Directors, determines (because of the existence of, or in
anticipation of, any acquisition, financing activity, or
other transaction involving Innovo, or the unavailability
for reasons beyond Innovo's control of any required
financial statements, disclosure of information which is in
its best interest not to publicly disclose, or any other
event or condition of similar significance to Innovo) that
the registration and distribution of the Converted Shares
and/or Shortage Shares to be covered by such registration
statement, if any, would be seriously detrimental to Innovo
and its shareholders, and ending on the earlier of (1) the
date upon which the material non-public information
commencing the S-3 Blackout Period is disclosed to the
public or ceases to be material and (2) such time as Innovo
notifies the Seller Parties that Innovo will no longer delay
such filing of the registration statement applicable to such
Converted Shares and/or Shortage Shares, recommence taking
steps to make such registration statement effective or allow
sales pursuant to such registration statement to resume;
provided, however, that Innovo shall limit its use of S-3
Blackout Periods, in the aggregate, to one hundred twenty
(120) trading days in any 12-month period.
"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
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 Parties" is defined in the preamble to this
Agreement.
"Shareholder" is defined in the preamble to this
Agreement.
"Shortage Shares" is defined in Section 3.4(c).
"Software" means computer software or middleware.
"Supply Agreement" means the Supply Agreement in the
form of Exhibit C.
"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.
"Tax" means any federal, state, local, or foreign
income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code Section
59A), customs, ad valorem, duties, capital stock, franchise,
profits, withholding, social security, unemployment,
disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto,
whether disputed or not.
"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.
"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, the Buyer
Note, the Supply Agreement 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 Parties 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 for the consideration specified in
ARTICLE 3 below.
2.2 No Assumed Liabilities
Buyer will not assume or have any responsibility with
respect to any obligation or Liability of Seller.
ARTICLE 3.
PURCHASE PRICE
3.1 Purchase Price
The purchase price for the Purchased Assets (the
"Purchase Price") will be equal to twenty-one million eight
hundred thousand dollars ($21,800,000), subject to
adjustment pursuant to ARTICLE 3.
3.2 Allocation of Purchase Price
Within 30 days following the Closing Date, Buyer will
deliver to Seller a schedule (the "Allocation Schedule")
allocating the Purchase Price (including, for purposes of
this Section 3.2, any other consideration paid to Seller)
among the Purchased Assets. The Allocation Schedule will be
reasonable and will be prepared in accordance with Section
1060 of the Code and the regulations thereunder. Seller
agrees that promptly after receiving the Allocation
Schedule, it will sign the Allocation Schedule and return an
executed copy thereof to Buyer. Buyer and Seller each agree
to file IRS Form 8594, and all federal, state, local and
foreign Tax Returns, in accordance with the Allocation
Schedule. Buyer and Seller each agree to provide the other
promptly with any other information required to complete IRS
Form 8594.
3.3 Payment Terms and Offsets
(a) Subject to the terms of this Agreement, at the
Closing, Buyer shall deliver to Seller a Buyer Note in
the amount of twenty-one million eight hundred thousand
dollars ($21,800,000).
(b) The Buyer Note shall be payable by Buyer to Seller,
shall have a 7-year term, shall bear interest at the rate of
six percent (6%) per annum, and shall be payable as follows:
(i) for the first two years of the term of the
Buyer Note, accrued interest only shall be due and
payable in equal monthly installments; and
(ii) for the remaining five years of the term of the
Buyer Note, the principal amount shall be fully amortized
over such period, and both principal and accrued interest
shall be due and payable in equal monthly installments.
(c) Subject to Sections 3.3(d) and 11.6, Buyer shall make
each payment under Section 3.3(b) on the fifteenth (15th) day of
the calendar month (unless such day is a Saturday, Sunday or any
other day in which banks in California are authorized or
required to be closed, in which case such payment shall be due
on the next business day immediately following such day)
immediately following the calendar month for which such payment
became due and owing. In the event that Buyer fails to make any
payment when due, then interest at the rate of eighteen percent
(18%) per annum shall accrue and be payable on the amount then
due (from the due date until the date paid).
(d) At the election of Seller, at any time following the
expiration of the Lock-up Period (as defined below), the balance
due on the Buyer Note may be reduced as an offset against monies
payable by Seller or its Affiliates to Buyer for the exercise of
issued and outstanding common stock warrants of Innovo that are
owned by Seller or its Affiliates prior to the Closing Date;
provided, however, that any such offset shall be duly authorized
and evidenced by resolutions of the board of directors of Seller
and/or its Affiliate(s), as the case may be, and shall be in
accordance with applicable law and generally accepted accounting
principles.
3.4 Partial Conversion of Buyer Note; Converted Shares;
Lock-ups; Share Registration
(a) As soon as reasonably practicable following the Closing
Date, Innovo shall, in accordance with Nasdaq Marketplace Rule
4350(i), hold a shareholder meeting for the purpose of seeking
shareholder approval ("Innovo Shareholder Approval") of:
(i) the conversion of a portion of the principal amount
of the Buyer Note into 3,125,000 shares of the common stock
of Innovo (the "Converted Shares") at a conversion price
equal to the greater of (x) $4.00 and (y) the closing price
on the day immediately prior to such shareholder meeting
(the "Conversion Price"); provided, however, that, if such
approval is obtained, then the principal amount of the Buyer
Note shall be reduced by an amount equal to the product of
(A) the Conversion Price and (B) 3,125,000; further provided,
that in no event shall the principal amount of the Buyer
Note be reduced below $9,300,000; and
(ii) the issuance of additional Shortage Shares (as
defined below), if necessary, pursuant to the provisions of
Section 3.4(c).
In the event Innovo Shareholder Approval is not
obtained, the existing terms and balances of the Buyer
Note shall remain unaffected.
(b) In the event Innovo Shareholder Approval is obtained,
the Converted Shares promptly shall be issued in the name of
Seller and, subject to Section 3.5(f) below, shall be non-
transferable (the "Locked-up Shares") until the date that is
ninety (90) days following the expiration of Calculation
Period II (as defined below) (the "Lock-up Period"). During
such Lock-up Period, in order to satisfy its obligation to hold
the requisite number of Locked-up Shares, Seller shall have the
right to substitute for Locked-up Shares other shares of the
common stock of Innovo (i) then owned by Seller or (ii) acquired
by Seller pursuant to warrant agreements to which Seller is then
a party.
(c) Subject to Innovo Shareholder Approval, in the event
that the average trading price of Innovo's common stock for the
thirty (30) days immediately preceding the expiration of the
Lock-up Period (the "Lock-up Date Average") is less than $4.00,
Innovo shall, within ninety (90) days of the expiration of the
Lock-up Period, issue to Seller additional shares of common
stock of Innovo equal to the difference of 12,500,000 divided by
the Lock-up Date Average minus 3,125,000(the "Shortage Shares"),
provided, however, that for the purposes of the calculation of
the amount of Shortage Shares, the Lock-up Date Average used in
such calculation shall be not less than $3.00, regardless of any
actual Lock-up Date Average that may be lower than such amount.
All adjustments contemplated by Section 3.5 shall be made prior
to the calculation of Shortage Shares.
(d) In the event the Converted Shares are issued pursuant
to Section 3.4(b), Innovo shall, as soon as reasonably
practicable but in no event later than twelve (12) months
thereafter, use its commercially reasonable efforts (i) to file
with the Securities and Exchange Commission a shelf registration
statement on Form S-3 relating to the resale by Seller of all of
the Converted Shares and (ii) to cause such registration
statement referred to in subclause (i) to become and remain
effective at least for a period ending with the first to occur
of (A) the sale of all of the Converted Shares, (B) the
availability of Rule 144 for Seller to immediately, freely
resell without restriction all of the Converted Shares, and (C)
one year following the expiration of the Lock-up Period;
provided, that Innovo shall not be obligated to effect any such
registration, qualification or compliance, or keep such
registration effective, (1) in any particular jurisdiction in
which Innovo would be required to qualify to do business as a
foreign corporation or as a dealer in securities under the
securities or blue sky laws of such jurisdiction ot to execute a
general consent to service of process in effecting such
registration, qualification or compliance, in each case where it
has not already done so, (2) during any S-3 Blackout Period,
(3) or if the Converted Shares have been returned to Innovo
pursuant to Section 3.5(f) or 3.5(g); further, provided, that if
Innovo is obligated to register the Converted Shares and the
Converted Shares have not been registered prior to the
expiration of Calculation Period II, then Buyer shall pay to
Seller the amount of one hundred thousand dollars ($100,000) for
each successive three (3) month period thereafter until such
time as Innovo registers the Converted Shares in accordance with
this Section 3.4(d).
(e) In the event that any Shortage Shares are issued
pursuant to Section 3.4(c), Innovo shall, no later than one
hundred twenty (120) days following such issuance, use its
commercially reasonable efforts (i) to file with the
Securities and Exchange Commission a shelf registration
statement on Form S-3 relating to the resale by Seller of all
of the Shortage Shares and (ii) to cause such registration
statement referred to in subclause (i) to become and remain
effective at least for a period ending with the first to occur
of (A) the sale of all of the Shortage Shares, (B) the
availability of Rule 144 for Seller to immediately, freely
resell without restriction all of the Shortage Shares, and (C)
one year following the expiration of the Lock-up Period;
provided, that Innovo shall not be obligated to effect any such
registration, qualification or compliance, or keep such
registration effective, (1) in any particular jurisdiction in
which Innovo would be required to qualify to do business as a
foreign corporation or as a dealer in securities under the
securities or blue sky laws of such jurisdiction to execute a
general consent to service of process in effecting such
registration, qualification or compliance, in each case where
it has not already done so, or (2) during any S-3 Blackout
Period; further, provided, that if Innovo is obligated to
register the Shortage Shares and and the Shortage Shares have
not been registered prior to the expiration of the period set
forth above, then Buyer shall pay to Seller the amount of
twenty-five thousand dollars ($25,000) for each successive
three (3) month period thereafter until such time as Innovo
registers the Shortage Shares in accordance with this Section
3.4(e).
(f) In the event of a registration of Converted Shares or
shortage Shares pursuant to Section 3.4(d) or (e), respectively,
Innovo will immediately notify the Seller Parties at any time
when a prospectus relating to such Converted Shares or Shortage
Shares is required to be delivered under the Securities Act of
1933, as amended, of the happening of any event which comes to
Innovo's attention if, as a result of such event, the prospectus
included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and Innovo shall promptly prepare and
furnish to the Seller Parties a supplement or amendment to such
prospectus (or prepare and file appropriate reports under the
Securities Exchange Act of 1934, as amended) so that, as
thereafter delivered to the purchasers of such Converted Shares
or Shortage Shares, as the case may be, such prospectus shall
not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading, unless
suspension of the use of such prospectus is authorized in the
event of an S-3 Blackout Period, in which case no supplement or
amendment need be furnished (or Securities Exchange Act of 1934,
as amended, filing made) until the termination of such S-3
Blackout Period. The Seller Parties agree that, upon receipt of
any notice from Innovo of the happening of any event of the kind
described in this Section 3.4(f) or of the commencement of an
S-3 Blackout Period, the Seller Parties shall discontinue
disposition of Converted Shares and Shortage Shares pursuant to
the registration statement(s) covering such securities until the
Seller Parties' receipt of the copies of the supplemented or
amended prospectus contemplated above or notice of the end of
the S-3 Blackout Period, and, if so directed by Innovo, the
Seller Parties shall deliver to Innovo (at Innovo's expense) all
copies (including, without limitation, any and all drafts),
other than permanent file copies, then in the Seller Parties'
possession, of the prospectus covering such securities current
at the time of receipt of such notice. In the event Innovo shall
give any such notice, the period mentioned in Sections 3.4(d)
and (e) hereof shall be extended by the greater of (i) ten
business days or (ii) the number of days during the period from
and including the date of the giving of such notice pursuant to
this Section 3.4(f) to and including the date when the Seller
Parties shall have received the copies of the supplemented or
amended prospectus contemplated by this Section 3.4(f).
3.5 Sales Guarantee; Loss of Account
(a) In the event the AGR does not equal at least
$70,000,000 during the period from the Closing Date through and
including December 31, 2004 ("Calculation Period I"), the
principal balance of the Buyer Note shall be reduced by an
amount computed as follows: (i) $70,000,000 minus the AGR for
Calculation Period I, multiplied by (ii) 50%.
(b) In the event the AGR does not equal at least $65,000,000
during the twelve (12) month period from January 1, 2005
through and including December 12, 2005 ("Calculation Period
II"), the principal balance of the Buyer Note shall be reduced
by an amount computed as follows: (i) $65,000,000 minus the AGR
for Calculation Period II, multiplied by (ii) 50%; provided,
however, if (x) the principal balance of the Buyer Note is
reduced pursuant to Section 3.5(a), (y) the AGR for Calculation
Period II is less than the AGR for Calculation Period I and (z)
the AGR for Calculation Period II is less than $65,000,000,
then the resulting principal balance of the Buyer Note shall be
reduced with respect to Calculation Period II by an amount
computed as follows: (A) the AGR for Calculation Period I minus
the AGR for Calculation Period II, multiplied by (B) 50%.
(c) In the event that the principal balance of the Buyer
Note is reduced pursuant to Section 3.5(a) and the AGR for
Calculation Period II is greater than $65,000,000, the
resulting principal balance of the Buyer Note shall be
increased with respect to Calculation Period II by an amount
computed as follows:(i) the AGR for Calculation Period II minus
$65,000,000, multipled by (ii) 50%; provided, however, that the
principal balance of the Buyer Note shall not be increased by
more than the amount of the decrease of the principal balance
of the Buyer Note as calculated pursuant to Section 3.5(a).
(d) Within twenty (20) days of the end of each Calculation
Period Buyer will deliver to Seller a schedule setting forth in
reasonable detail Buyer's calculation of the AGR for such period
and the proposed reduction (or increase, as the case may be) in
the principal amount of the Buyer Note (the "Proposed Note
Adjustment Amount"). The Proposed Note Adjustment Amount will
be subject to Seller's review. In reviewing the Proposed Note
Adjustment Amount, Seller will have the right to communicate
with, and to review the work papers, schedules and other
documents Buyer prepared or reviewed in determining the Proposed
Note Adjustment Amount for such period and thereafter will have
access to all relevant books and records, all to the extent
Seller reasonably requires to complete its review of Buyer's
calculation of the Proposed Note Adjustment Amount. Within ten
(10) calendar days after its receipt of Buyer's calculation of
the Proposed Note Adjustment Amount, Seller will advise Buyer
whether, based on such review, it has any exceptions to such
calculation. Unless Seller delivers to Buyer within such ten
(10) calendar day period a letter describing its exceptions to
Buyer's calculation of the applicable Proposed Note Adjustment
Amount as set forth in the schedule delivered by Buyer described
in this Section 3.5(d), the Proposed Note Adjustment Amount for
the applicable Calculation Period will be conclusive and binding
on Buyer and Seller as the Note Adjustment Amount. If Buyer
and Seller are unable to agree on the Note Adjustment Amount
(the "Disputed Note Adjustment Amount"), then (A) for ten (10)
days after the date Buyer receives the letter describing
Seller's exceptions to Buyer's calculation of the Proposed Note
Adjustment Amount, Seller and Buyer will use their Best Efforts
to agree on the calculation of the Note Adjustment Amount and
(B) lacking such agreement, the matter will be referred to an
independent accounting firm acceptable to Buyer and Seller,
who will determine the correct Disputed Note Adjustment Amount
within fifteen (15) calendar days of such referral, which
determination will be final and binding on Buyer and Seller for
all purposes.
(e) In the event the Converted Shares are issued as
contemplated in Section 3. 4(a), if the application of the
principal balance adjustment formulas described in Sections
3.5(a), (b) and (c) results in a reduction of the principal
balance of the Buyer Note greater than the principal balance of
the Buyer Note then outstanding (such amount exceeding the
principal balance, the "Negative Balance"), Locked-up Shares
shall be returned to the Buyer in an amount sufficient to
equal the Negative Balance, provided, that for such purpose each
Locked-up Share shall be valued at $4.00.
(f) In the event (i) the Converted Shares are issued as
contemplated in Section 3.4(a), (ii) the AGR for Calculation
Period I is at least $70,000,000 and (iii) the AGR for
Calculation Period II as of the end of any fiscal quarter during
Calculation Period II is at least $35,000,000 (as determined
pursuant to the unaudited financial statements of Buyer for such
quarter), then that number of Locked-up Shares determined in
accordance with the Locked-up Shares Release Formula (such
Locked-up Shares, the "Released Locked-up Shares") shall no
longer be subject to the restriction on transferability set
forth in Section 3.4(b).
(g) In the event the AGR decreases to $35,000,000 or less
in either Calculation Period I or Calculation Period II, Buyer
shall have the right to resell the Purchased Assets to the
Seller Parties, and the Seller Parties shall have the right to
repurchase the Purchased Assets from Buyer, exercisable upon
written notice to the other party given within the 90-day
period after the end of Calculation Period II. Upon the
exercise of such rights by either party, the remaining
principal balance outstanding on the Buyer Note shall be deemed
forgiven and the Buyer Note cancelled without further action by
either party and all outstanding Converted Shares shall be
returned to Buyer.
(h) If at any time during Calculation Period I AEO ceases
to be a customer of Buyer, as determined in the reasonable
judgment of the Board of Directors of Buyer, all Locked-up
Shares shall be returned to the Buyer and the remaining
principal balance outstanding on the Buyer Note shall be
deemed forgiven and the Buyer Note shall be cancelled
without further action by either party. Upon such return of
Locked-up Shares and the cancellation of the Buyer Note, Buyer
will, at the request of Seller, return to Seller any or all
Purchased Assets.
(i) Notwithstanding any other provision of this Section
3.5, aggregate Note Adjustment Amounts shall not be exceed
$16,800,000, unless (i) AEO is no longer a customer of Buyer
as contemplated in Section 3.5(h) or (ii) the Purchased Assets
are resold to or repurchased by Seller as contemplated in
Section 3.5(i).
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
Akin Gump Strauss Hauer & Feld LLP in Los Angeles,
California, commencing at 10:00 a.m., local time, or any
other mutually agreed upon location, 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 the Seller
Parties may mutually determine (the "Closing Date").
4.2 Deliveries at the Closing
At the Closing:
(a) The Seller Parties will deliver to Buyer:
(i) The Bill of Sale, duly executed by Seller.
(ii) The Supply Agreement, duly executed by AZT
International.
(iii) 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.
(iv) 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.
(v) 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) A Buyer Note in the principal amount of twenty-
one million eight hundred thousand dollars ($21,800,000),
duly executed by Buyer.
(ii) The Supply Agreement, each duly executed by
Buyer.
(iii)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(c) has been satisfied in all respects.
(iv) 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 Parties will use
their Best Efforts to obtain the consent of any such Person
for the assignment to Buyer of any such Contract or Permit.
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 Parties 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 the Seller Parties
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
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 California. 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 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 Party could become Liable.
5.5 Buyer's Financial Statements
Buyer has furnished or made available to Seller true
and complete copies of Buyer's audited financial statements
for the fiscal year ended November 30, 2002, and unaudited
financial statements for the three (3) month period ended
March 1, 2003 (collectively, the "Buyer Financial
Statements"). The Buyer Financial Statements have been
prepared in accordance with GAAP consistently applied
(except as may be indicated in the notes thereto) and
present fairly Buyer's consolidated financial position at
the dates thereof and of its operations and cash flows for
the periods then ended (subject, in the case of unaudited
statements, to normal audit adjustments). Since the date of
the balance sheet for the Buyer's most recent fiscal year
end included in the Buyer Financial Statements, Buyer 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.
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 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, and Buyer has
no Basis to believe that any such Action may be brought or
Threatened against Buyer.
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 the Seller
Parties 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 any
Seller Party or its representatives (including any opinion,
information, projection, or advice that may have been or may
be provided to such Seller Party by any director, officer,
employee, agent, consultant, or representative of Buyer or
Affiliate thereof).
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES CONCERNING SELLER AND THE
BUSINESS
The Seller Parties, jointly and severally, represent
and warrant 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. 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
Seller has the relevant corporate power and authority,
and each Shareholder has the capacity and authority,
necessary to execute and deliver each Transaction Document
to which it is a party and to perform and consummate the
Transactions. Each Seller Party 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. Each Transaction Document
to which each Seller Party is a party has been duly
authorized, executed, and delivered by, and is enforceable
against such Seller Party.
6.3 No Violation
Except as listed on Schedule 6.3, the execution and the
delivery of the applicable Transaction Documents by each
Seller Party and the performance of its respective
obligations hereunder and thereunder, and consummation of
the Transactions by each Seller Party will not (a) Breach
any Law or Order to which such Seller Party is subject or
any provision of the Organizational Documents of Seller; (b)
Breach any Contract, Order, or Permit to which such Seller
Party 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 material note,
instrument, agreement, mortgage, base, license, franchise,
permit or other authorization, rights, restriction or
obligation to which such Seller Party is a party or any of
the Purchased Assets is subject or by which such Seller
Party is bound.
6.4 Brokers' Fees
No Seller Party 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 January 31, 2001, January 31, 2002, and
January 31, 2003 for the Business. The fiscal year
ended January 31, 2003 is referred to herein as the
"Most Recent Fiscal Year."
(b) Unaudited balance sheet as of January 31, 2003
(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.
6.6 Subsequent Events
Except as set forth in Schedule 6.6, since the Most
Recent Balance Sheet Date, 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 No Undisclosed Liabilities
To any Seller Party's Knowledge, the Business has no
Liability (and there is no Basis for any present or future
Action or Order against the Business giving rise to any
Liability), except for (a) Liabilities quantified on the
face of the Financial Statements (rather than in any notes
thereto) and not heretofore paid or discharged, and (b)
Liabilities which have arisen after the Most Recent Balance
Sheet Date in the Ordinary Course of Business which,
individually or in the aggregate, are not material and are
of the same character and nature as the Liabilities
quantified on the face of the Financial Statements (rather
than any notes thereto) none of which results from or
relates to any Breach of Contract, Breach of warranty, tort,
infringement, or Breach of Law or arose out of any Action or
Order.
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 material expenditures are, or
based on applicable Law, will be required of any Seller
Party 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 set forth or adequately reserved against in the
Most Recent Balance Sheet or those incurred since the Most
Recent Balance Sheet Date in the Ordinary Course of
Business. Each Seller Party has duly filed when due all Tax
reports and returns in connection with and in respect of the
Business and the assets and employees related thereto, and
has timely paid and discharged all amounts shown as due
thereon. Each Seller Party 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 Seller
Party has 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.
6.11 Intellectual Property
(a) With respect to each Trade Secret constituting
Purchased Assets, the documentation 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 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 any Seller Party'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
therefore.
(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 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 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. To any Seller Party's
Knowledge, Buyer 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 any Seller Party'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 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;
(iii) Seller (and, to any Seller Party's Knowledge, no
counter-party) is 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 the Execution Date, the aggregate of all accepted
and unfulfilled orders for the sale of merchandise relating
to the Business entered into by Seller is at least
$4,000,000, all of which orders and commitments were made in
the Ordinary Course of Business. As of the Execution Date,
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 any
Seller Party (a) is subject to any outstanding Order or (b)
is a party, the subject of, or 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, and no Seller Party has any Basis to believe that
any such Action may be brought or Threatened against any
Seller Party.
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 and any change in
compensation since January 1, 2003; 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
January 1, 2003, 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 the Worker Adjustment and
Retraining Notification Act (the "WARN Act") or any
similar state or local Law.
(d) To any Seller Party'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 contractor (i)
to engage in or continue or perform any conduct,
activity, duties or practice relating to the Business
or (ii) to assign to Seller or to any other Person any
rights to any invention, improvement, or discovery. No
former or current employee of the Business is a party
to, or is otherwise bound by, any Contract that in any
way adversely affected, affects, or will affect the
ability of Buyer to conduct the Business as heretofore
carried on by Seller.
(e) Seller is not a party to or bound by any
collective bargaining Contract relating to the Business,
nor has it experienced any strikes, grievances, claims
of unfair labor practices, or other collective
bargaining disputes relating to the Business. Seller
has not committed any unfair labor practice (as
determined under any Law) relating to the Business. No
Seller Party has any Knowledge of any organizational
effort currently being made or Threatened by or on
behalf of any labor union with respect to any persons
employed for the Business.
6.17 Employee Benefits
Schedule 6.17 lists each non-qualified deferred
compensation plan, qualified defined contribution retirement
plan, qualified defined benefit retirement plan or other
material fringe benefit plan or program that Seller
maintains for the Business or to which Seller contributes in
respect of the Business. With respect to any employee
benefit plan, within the meaning of Section 3(3) of ERISA,
which is subject to ERISA and which is sponsored, maintained
or contributed to, or has been sponsored, maintained or
contributed to, within six years prior to the Closing Date,
by Seller or any ERISA Affiliate for the Business, (a) no
withdrawal Liability, within the meaning of Section 4201 of
ERISA, has been incurred, which withdrawal Liability has not
been satisfied, (b) no Liability to the PBGC has been
incurred by Seller or any ERISA Affiliate, which Liability
has not been satisfied, (c) no accumulated funding
deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the Code has been
incurred, and (d) all contributions (including installments)
to such plan required by Section 302 of ERISA and Section
412 of the Code have been timely made. With respect to any
kind of employee benefit plan for the Business, such plan
has been funded and maintained in compliance with all Laws
applicable thereto and the requirements of such plan's
governing documents.
6.18 Environmental, Health, and Safety Matters
Except as set forth in Schedule 6.18, (a) Seller has
complied and is in compliance with all Environmental,
Health, and Safety Requirements in connection with owning,
using, maintaining, or operating the Business or any assets
related thereto, (b) each location at which Seller operates
or has operated the Business is in compliance with all
Environmental, Health, and Safety Requirements, and (c)
there are no pending, or any Threatened, allegations by any
Person that any of the assets or properties the Business are
not, or have not been, conducted in compliance with all
Environmental, Health, and Safety Requirements.
6.19 Customers and Suppliers
Schedule 6.19 lists the Business's two (2) largest
suppliers during the 12 month period ended as of the Most
Recent Year End and the three (3) month period ended as of
the Most Recent Balance Sheet Date. Except as set forth in
Schedule 6.19, no Seller Party has received notice of
termination or an intention to terminate the relationship
with the Business from AEO or any supplier.
6.20 Permits
Seller possesses all Permits required to be obtained
for operation of the Business. Schedule 6.20 sets forth a
list of all such Permits. Except as set forth in Schedule
6.20, with respect to each such Permit:
(a) it is valid, subsisting and in full force and effect;
(b) there are no violations of such Permit that would
result in a termination of suc Permit;
(c) no Seller Party has received notice that such Permit
will not be renewed; and
(d) the Transactions will not adversely affect the
validity of such Permit or cause a cancellation of or
otherwise adversely affect such Permit.
6.21 Solvency
(a) Seller is not now insolvent, nor will Seller be
rendered insolvent by any of the Transactions. As used
herein, "insolvent" means that the sum of the Liabilities
of Seller exceeds the fair present value of its assets.
(b) Immediately after giving effect to the
consummation of the Transactions:
(i) Seller will be able to pay its Liabilities
as they become due in the Ordinary Course of
Business of Seller;
(ii) Seller will not have unreasonably small
capital with which to conduct its present or
proposed business;
(iii) Seller will have assets (calculated at fair
market value) that exceed its Liabilities; and
(iv) Taking into account all pending and
Threatened Actions, final judgments against Seller in
Actions for money damages are not reasonably
anticipated to be rendered at a time when, or in
amounts such that, Seller will be unable to satisfy
any such judgments promptly in accordance with their
terms (taking into account the maximum probable
amount of such judgments in any such Actions and the
earliest reasonable time at which such judgments
might be rendered) as well as all other obligations
of Seller.
6.22 Accuracy of Information Furnished
No representation, statement, or information contained
in this Agreement (including the Schedules) or any Contract
or document executed in connection herewith or delivered
pursuant hereto or thereto or made available or furnished to
Buyer or its representatives by Seller contains or will
contain any untrue statement of a material fact or omits or
will omit any material fact necessary to make the
information contained therein not misleading. Seller has
provided Buyer with correct and complete copies of all
documents listed or described in the Schedules.
Notwithstanding the foregoing, (a) except as otherwise
provided in Section 7.6, Buyer may only rely on the most
recent version of any information Seller furnishes to Buyer
that supersedes previous information provided to Buyer and
(b) subject to the next sentence, Seller will not be Liable
with respect to financial projections or estimates of the
Business's future performance. All projections and
estimates that have been provided to Buyer at the time of
creation were reasonably made in good faith based on
reasonable assumptions, given the circumstances at the time
such assumptions were made.
6.23 Representations Complete
Except as and to the extent set forth in this
Agreement, no Seller Party makes any 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
Buyer and each Seller Party 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 Buyer
or its representatives (including any opinion, information,
projection, or advice that may have been or may be provided
to Buyer by any director, officer, employee, agent,
consultant, or representative of any Seller Party).
6.24 Review of Buyer and Innovo
Seller:
(a) Has such knowledge and experience in financial
and business matters that it is capable of evaluating
the merits and risks of Seller's investment in the
Buyer Note contemplated hereby, and that Seller is able
to bear the economic risk of such investment
indefinitely.
(b) Has (i ) had the opportunity to meet with
representative officers and other representatives of
Innovo, to discuss its business, assets, liabilities,
financial condition, cash flow, and operations, and
(ii) received all materials, documents and other
information that it deems necessary or advisable to
evaluate the Buyer Note and the Transactions.
(c) Has made its own independent examination,
investigation, analysis and evaluation of the Buyer
Note, including its own estimate of the value of the
Buyer Note.
(d) Has undertaken such due diligence as it deems
adequate, including that described above.
Nothing in Section 6.24 will preclude Seller from
relying on the representations, warranties, covenants, and
agreements of Buyer herein or from pursuing its remedies
with respect to a Breach thereof.
ARTICLE 7.
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period
between the Execution Date and the earlier of the Closing
and the Termination Date:
7.1 General
Each Party will use its Best Efforts to take all
actions and do all things necessary, proper, or advisable to
consummate, make effective, and comply with all of the terms
of this Agreement and the Transactions applicable to it
(including satisfaction, but not waiver, of the Closing
conditions for which it is responsible or otherwise in
control, as set forth in ARTICLE 9).
7.2 Notices and Consents
(a) The Seller Parties will give any notices to
third parties, and will use their respective Best
Efforts to obtain any third party Consents listed on
Schedule 6.3, or that Buyer reasonably may otherwise
request in connection with the matters referred to in
Section 6.3. The Seller Parties will give any notices
to, make any filings with, and use their respective
Best Efforts to obtain any Consents of Governmental
Authorities, if any, required or reasonably deemed
advisable by Buyer pursuant to any applicable Law in
connection with the Transactions including in
connection with the matters referred to in Section 6.3.
(b) Buyer will give any notices to third parties,
and will use its Best Efforts to obtain any third party
Consents listed on Schedule 5.3, that Seller reasonably
may otherwise request in connection with the matters
referred to in Section 5.3. Buyer will give any
notices to, make any filings with, and use its Best
Efforts to obtain any Consents of Governmental Bodies,
if any, required or reasonably deemed advisable by the
Company pursuant to any applicable Law in connection
with the Transactions including in connection with the
matters referred to in Section 5.3.
(c) Nothing in this Section 7.2 will require that(i)
Buyer or its Affiliates divest, sell, or hold
separately any of its assets or properties, or (ii)
Buyer, its Affiliates, or any Seller Party (the
determination with respect to which Buyer will make)
take any actions that could affect the normal and
regular operations of Buyer, its Affiliates, or the
operation of the Business after the Closing.
7.3 Operation of Business
Seller shall not engage in any practice, take any
action, or enter into any transaction outside the Ordinary
Course of Business of the Business or engage in any
practice, take any action, or enter into any transaction of
the sort described in Section 6.6. Subject to compliance
with applicable Law, the Seller Parties will confer on a
regular and frequent basis with one or more representatives
of Buyer to report on operational matters and the general
status of the Business and its operations and finances and
will promptly provide to Buyer or its representatives copies
of all filings made with any Governmental Body during such
period on behalf of the Business.
7.4 Preservation of Business
The Seller Parties will use their respective Best
Efforts to keep the Business and its properties
substantially intact, including its present operations,
working conditions, and relationships with lessors,
licensors, suppliers, customers, and employees.
7.5 Full Access
The Seller Parties will permit representatives of Buyer
(including financing providers) to have full access at all
reasonable times, and in a manner so as not to interfere
with the normal business operations of the Business, to all
premises, properties, personnel, books, records, Contracts,
and documents pertaining to the Business and will furnish
copies of all such books, records, Contracts and documents
and all financial, operating and other data, and other
information as Buyer may reasonably request; provided,
however, that no investigation pursuant to this Section 7.5
will affect any representations or warranties made herein or
the conditions to the Parties' obligations to consummate the
Transactions.
7.6 Notice of Developments
Seller will give prompt written notice to Buyer of any
development occurring after the Execution Date which causes
or reasonably could be expected to cause a Breach of any of
the representations and warranties in ARTICLE 6. Buyer will
give prompt written notice to Seller of any development
occurring after the Execution Date which causes or
reasonably could be expected to cause a Breach of any of the
representations and warranties in ARTICLE 5. Except as set
forth in Section 11.2(a) or Section 11.3(a), no disclosure
by any Party pursuant to this Section 7.6 or otherwise will
be deemed to amend or supplement the Schedules or to prevent
or cure any misrepresentation or Breach of any
representation, warranty, or covenant.
7.7 Exclusivity
No Seller Party will (a) solicit, initiate, or
encourage the submission of any proposal or offer from any
Person relating to the acquisition of any Equity Interests
of Seller or any portion of the assets used in the Business
(including any acquisition structured as a merger,
consolidation, or share exchange) or (b) participate in any
discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. The Seller
Parties will notify Buyer immediately if any Person makes
any proposal, offer, inquiry, or contact with respect to any
of the foregoing and the terms of any such proposal, offer,
inquiry, or contact.
7.8 Confidentiality; Publicity
Except as may be required by Law, stock exchange or as
otherwise expressly contemplated herein, no Party or their
respective Affiliates, employees, agents, and
representatives will disclose to any third party the
existence of this Agreement, the subject matter or terms
hereof or any Confidential Information concerning the
business or affairs of any other Party (including, in
respect of Seller, the Business) that it may have acquired
from such Party in the course of pursuing the Transactions
without the prior written consent of Seller (on behalf of
the Seller Parties) or Buyer, as the case may be; provided,
however, any Party may disclose any such Confidential
Information as follows: (a) to such Party's Affiliates and
its or its Affiliates' employees, lenders, counsel, or
accountants, the actions for which the applicable Party will
be responsible; (b) to comply with any applicable Law or
Order, provided that prior to making any such disclosure the
Party making the disclosure notifies the other Party of any
Action of which it is aware which may result in disclosure
and uses its Best Efforts to limit or prevent such
disclosure; (c) to the extent that the Confidential
Information is or becomes generally available to the public
through no fault of the Party or its Affiliates making such
disclosure; (d) to the extent that the same information is
in the possession (on a non-confidential basis) of the Party
making such disclosure prior to receipt of such Confidential
Information; (e) to the extent that the Party that received
the Confidential Information independently develops the same
information without in any way relying on any Confidential
Information; or (f) to the extent that the same information
becomes available to the Party making such disclosure on a
nonconfidential basis from a source other than a Party or
its Affiliates, which source, to the disclosing Party's
Knowledge, is not prohibited from disclosing such
information by a legal, Contractual, or fiduciary obligation
to the other Party. If the Transactions are not
consummated, each Party will return or destroy as much of
the Confidential Information concerning the other Party as
the Parties that have provided such information may
reasonably request. Whether or not the Closing takes place,
each Seller Party waives any cause of Action arising out of
the access of Buyer or its representatives to any
Confidential Information of Seller or the Business.
Notwithstanding the foregoing, Buyer may make such public
disclosure of the existence of this Agreement, the principal
economic terms thereof, and the status with respect to
achieving the Closing as it desires; provided, that Buyer
will consult with Seller prior to releasing any such public
disclosure so that the Seller may notify its employees of
the Transactions. No Seller Party will, nor will it permit
any of its Affiliates to, issue any press release or other
public announcement related to this Agreement or the
Transactions without Buyer's prior written approval.
7.9 Charges and Fees
The Seller Parties will, prior to the Closing, take
such steps as are necessary to ensure that no sums are owed
or payable by Buyer to any Person in the nature of a
transfer charge or processing fee with respect to any of the
Purchased Assets.
ARTICLE 8.
ADDITIONAL COVENANTS
The Parties agree as follows:
8.1 General
In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes
of this Agreement, each Party will take such further action
(including executing and delivering such further instruments
and documents) as any other Party reasonably may request,
all at the requesting Party's sole cost and expense (unless
the requesting Party is entitled to indemnification therefor
under ARTICLE 11). After the Closing, Buyer will be
entitled to possession of all documents, books, records,
agreements, and financial data of any sort relating to the
Business.
8.2 Litigation Support
So long as any Party actively is contesting or
defending against any Action in connection with (a) the
Transactions or (b) any fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence,
event, incident, action, failure to act, or transaction on
or prior to the Closing Date involving the Business, each
other Party will cooperate with such Party and such Party's
counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their
books and records as will be necessary in connection with
the contest or defense, at the sole cost and expense of the
contesting or defending Party (unless the contesting or
defending Party or one of its Affiliates is entitled to
indemnification therefor under ARTICLE 11).
8.3 Transition
No Seller Party will take any action that is designed
or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of
Seller from maintaining at least as favorable business
relationships with Buyer after the Closing as it maintained
with Seller prior to the Closing. Each Seller Party will,
and will cause its Affiliates to, refer all customer,
supplier, and other inquiries relating to the Business to
Buyer or an Affiliate thereof.
8.4 Confidentiality
Each Seller Party will treat and hold as such all of
the Confidential Information, refrain from using any of the
Confidential Information except in connection with this
Agreement, and deliver promptly to Buyer or destroy, at the
request and option of Buyer, all tangible embodiments (and
all copies) of the Confidential Information which are in
such Seller Party's possession in each case, forever. If
any Seller Party is ever requested or required (by oral
question or request for information or documents in any
Action) to disclose any Confidential Information, such
Seller Party will notify Buyer promptly of the request or
requirement so that Buyer may seek an appropriate protective
Order or waive compliance with this Section 8.4. If, in the
absence of a protective Order or the receipt of a waiver
hereunder, any Seller Party, on the written advice of
counsel, is compelled to disclose any Confidential
Information to any Governmental Body, arbitrator, or
mediator or else stand Liable for contempt, then such Seller
Party may disclose the Confidential Information to the
Governmental Body, arbitrator, or mediator; provided,
however; that Seller Party will use its Best Efforts to
obtain, at the request of Buyer, an Order or other assurance
that confidential treatment will be accorded to such portion
of the Confidential Information required to be disclosed as
Buyer may designate.
8.5 Restrictive Covenants
To assure that Buyer will realize the benefits of the
Transactions, each Seller Party hereby agrees with Buyer
that such Seller Party shall not, and such Seller Party
shall cause its Affiliates to not:
(a) From the Closing Date until four (4) years
after the Closing Date, directly or indirectly, alone
or as a partner, joint venturer, officer, director,
member, employee, consultant, agent, independent
contractor or Equity Interest holder of, or lender to,
any Person or business, engage in, induce, canvass,
solicit or accept any business or commercial
arrangements with AEO or its Affiliates.
(b) From the Closing Date until two (2) years
after the Closing Date, directly or indirectly employ
or knowingly permit any Affiliate of such Seller Party
to employ or solicit for employment or other similar
relationship with Seller, any employee or independent
contractor of Buyer or any of its Affiliates if such
Person had been employed by Seller in connection with
the Business (including employed as an independent
contractor) on June 11, 2003, except for any employees
or independent contractors of the Business as of such
date that were not hired by Buyer at any time during
such two (2) year period.
Notwithstanding the foregoing, the beneficial ownership of
less than 3% of the Equity Interests of any Person having a
class of Equity Interest actively traded on a national
securities exchange or over-the-counter market will not be
deemed, in and of itself, to Breach the prohibitions of this
Section 8.5. Each Seller Party agrees and acknowledges that
the restrictions in this Section 8.5 are reasonable in scope
and duration and are necessary to protect Buyer after the
Closing. If any Seller Party or any Affiliate thereof is
found to have Breached this Section 8.5, then, in addition
to all other remedies that may be available to the
applicable Person, an amount of time equal to the period
such Seller Party or such Affiliate was found to be in
Breach of this Section 8.5 will be added to the time periods
contemplated by this Section 8.5. If any provision of this
Section 8.5, as applied to any Party or to any circumstance,
is adjudged by a Governmental Body, arbitrator, or mediator
not to be enforceable in accordance with its terms, the same
will in no way affect any other circumstance or the
enforceability of the remainder of this Agreement. If any
such provision, or any part thereof, is held not to be
enforceable in accordance with its terms because of the
duration of such provision, the area covered thereby, or the
scope of the activities covered, the Parties agree that the
Governmental Body, arbitrator, or mediator making such
determination will have the power to reduce the duration,
area, and/or scope of activities of such provision, and/or
to delete specific words or phrases, and in its reduced
form, such provision will then be enforceable in accordance
with its terms and will be enforced. The Parties agree and
acknowledge that the Breach of this Section 8.5 will cause
irreparable damage to Buyer and the Business, and upon
Breach of any provision of this Section 8.5, Buyer will be
entitled to injunctive relief, specific performance, or
other equitable relief without bond or other security;
provided, however, that the foregoing remedies will in no
way limit any other remedies which Buyer may have.
8.6 Use of Names
From and after the Closing Date Buyer and its
Affiliates will have the royalty-free right to refer to the
Business as "formerly "the Blue Concepts Division of Azteca
Products International" "and to use such reference in
advertising or in the description or name of any service or
product from time to time purchased, processed,
manufactured, or sold by Buyer and its Affiliates in
continuation of the Business.
8.7 Taxes
(a) The Seller Parties will be Liable for and will
pay all Taxes (whether assessed or unassessed)applicable
to the Business and the Purchased Assets, in each case
attributable to periods (or portions thereof) ending on
or prior to the Closing Date. Buyer will be Liable for
and will pay all Taxes (whether assessed or unassessed)
applicable to the Business and the Purchased Assets, in
each case attributable to periods (or portions thereof)
beginning after the Closing Date. For purposes of this
Section 8.7(a), any period beginning before and ending
after the Closing Date will be treated as two partial
periods, one ending on the Closing Date and the other
beginning after the Closing Date, except that Taxes
(such as property Taxes) imposed on a periodic basis
will be allocated on a daily basis.
(b) Notwithstanding Section 8.7(a), any sales Tax,
use Tax, real property transfer or gains Tax,documentary
stamp Tax, or similar Tax attributable to the sale or
transfer of the Purchased Assets will be paid by the
Seller Parties. Buyer agrees to timely sign and deliver
such certificates or forms as may be necessary or
appropriate to establish an exemption from (or otherwise
reduce), or make a report with respect to, such Taxes.
(c) The Seller Parties, on the one hand,and Buyer,
on the other hand, will provide reimbursement for any
Tax paid by one Party all or a portion of which is the
responsibility of the other Party in accordance with the
terms of this Section 8.7. Within a reasonable time
prior to the payment of any said Tax, the Party paying
such Tax will give notice to the other Party of the Tax
payable and the portion which is the Liability of each
Party, although failure to do so will not relieve the
other Party from its Liability hereunder.
(d) Any payments made pursuant to this Section 8.7
will be treated by Buyer and Seller as an adjustment to
the Purchase Price.
(e) The Seller Parties will promptly after the
Closing prepare and file all Tax Returns and other
reports required by Law, relating to the operation of the
Business prior to the Closing Date.
8.8 Employees and Employee Benefit Plans
(a) Information on Active Employees. For the
purpose of this Agreement, the term "Active Employees"
will mean all employees employed on the Closing Date by
Seller primarily for the operation of the Business and
listed as "employees" on Schedule 6.16(a).
(b) Employment of Active Employees by Buyer.
(i) Buyer shall make Qualifying Offers to all
Active Employees. Buyer will provide Seller with a
list of Active Employees to whom Buyer has made an
offer of employment that has been accepted to be
effective as of the Closing Date (the "Hired Active
Employees"). The Seller Parties will provide Buyer
with reasonable access to the Seller's facilities
and personnel records (including performance
appraisals, disciplinary actions, grievances, and
medical records) for the purpose of preparing
Qualifying Offers to the Active Employees. Effective
immediately before the Closing, Seller will
terminate the employment of all of its Active
Employees. Seller, with respect to the Active
Employees, shall timely give all notices required to
be given under the WARN ACT or similar statutes or
regulation of any jurisdiction relating to any plant
closing or mass lay-off or as otherwise required by
law. Notwithstanding any other provision contained
herein, the Seller Parties, jointly and severally,
agree to fully indemnify Buyer for any and all
liability incurred by Buyer under the WARN Act with
respect to Active Employees as a result of the
transaction contemplated by this Agreement.
(ii) For a period of ninety (90) days following
the Closing Date, Buyer may not terminate the
employment of any Hired Active Employee, except in
the case of any such termination for cause.Following
such ninety (90) day period, each Hired Active
Employee shall be employed at will by Buyer as
employees of Buyer (subject to any applicable
probation period not prohibited by law) to occupy
positions designated by Buyer and pursuant to the
terms and conditions determined by Buyer in its sole
discretion.
(c) Salaries and Benefits.
(i) Seller will be responsible for (A) the
payment of all wages and other remuneration
liabilities and obligations due to Active Employees
with respect to their services as employees of
Seller, including pro rata bonus payments and all
vacation pay earned prior to the Closing Date, (B)
the payment of any termination or severance payments
and the provision of health plan continuation
coverage in accordance with the requirements of
Sections 601 through 608 of ERISA, and (C) any and
all payments to employees required under the WARN Act.
(ii) Seller will be liable for any claims made.
or incurred by Active Employees and their
beneficiaries through the Closing Date under the
Employee Benefit Plans. For purposes of the
immediately preceding sentence, a charge will be
deemed incurred, in the case of hospital, medical or
dental benefits when the services that are the
subject of the charge are performed and, in the case
of other benefits (such as disability or life
insurance), when an event has occurred or when a
condition has been diagnosed that entitles the
employee to the benefit.
(iii)Buyer assumes no obligation to continue or
assume any Employee Benefit Plans, compensation
arrangements or liabilities of Seller (including, but
not without being limited to, any salary, bonuses,
vacation, sick leave, fringe benefits, insurance
plans, or pension or retirement benefits under any
compensation or retirement plan or policy maintained
by Seller) to any Active Employee.
(d) Employee Benefit Plans. All Hired Active
Employees who are participants in Seller's Employee
Benefit Plans will retain their accrued benefits under
such plans as of the Closing Date, and Seller will retain
sole liability for the payment of such benefits as and
when such Hired Active Employees become eligible therefor
under such plans. All Hired Active Employees will become
fully vested in their accrued benefits under Seller's
Employee Benefit Plans as of the Closing Date, and Seller
will so amend such plans if necessary to achieve this
result. Neither Seller nor any ERISA Affiliate of Seller
will make any transfer of any Employee Benefit Plan assets
to Buyer. Seller also agrees to retain responsibility for
disability payments to Active Employees on medical or
disability leave at the Closing Date until such time as
such Active Employee is, if ever, offered employment by
Buyer, in its sole discretion, or as otherwise required
under applicable law or regulation. Any Active Employee or
qualified beneficiary thereof and who is covered, or who
is eligible to elect to continue his or her coverage, as
of or following the Closing Date, under any Employee
Benefit Plan that constitutes a "group health plan,"
pursuant to the provision of Part 6 of Title I, Substitute
B or ERISA or Section 4980B of the Code, shall be
eligible to continue such coverage under the Seller's plan
for the remainder of the applicable continuation coverage
period and Seller shall not terminate any such plan prior
to the end of the applicable coverage period. The Seller
Parties, jointly and severally, agree to indemnify Buyer
for all losses incurred by Buyer or Buyer's group health
plan resulting from any claim for COBRA continuation
coverage made by or on behalf of any Active Employee or a
qualified beneficiary of such an employee under any plan
maintained by Buyer or its Affiliates except to the extent
that such Active Employee is a Hired Active Employee and
has become an active participant in Buyer's "group health
plan."
(e) General Employee Provisions.
(i) Seller will provide Buyer with completed
I-9 forms and attachments with respect to all Active
Employees, except for such employees as Seller
certifies in writing to Buyer are exempt from such
requirement. The Parties intend that the Buyer
qualify as a "successor employer" for purposes of
receiving credit for the payment of taxes under the
Federal Insurance Contribution Act and Federal
Unemployment Tax Act by Seller with respect to the
Hired Active Employees within the meaning of
Section 3121 and 3306 of the Code. Accordingly, the
Parties shall cooperate with each other to effectuate
the foregoing.
(ii) Buyer will not have any Liability or obligation,
whether to Active Employees, former employees, their
beneficiaries or any other Person, with respect to any
Employee Benefit Plans, practices, programs or arrangements
(including the establishment, operation or termination
thereof and the notification and provision of COBRA coverage
extension) maintained by Seller.
8.9 Payment of Non-Assumed Liabilities
In addition to payment of Taxes pursuant to Section
8.7, the Seller Parties will pay, or make adequate provision
for the payment, in full of all Liabilities of Seller
relating to the Business as of the Closing Date. If any
such Liabilities are not so paid or provided for, or if
Buyer reasonably determines that failure to make any
payments will impair Buyer's use or enjoyment of the
Purchased Assets or conduct of the Business, Buyer may, at
any time after the Closing, elect to pay any or all of such
Liabilities directly (but will have no obligation to do so)
and treat such payment as damages under this Agreement so
that Buyer will be entitled to exercise the remedies
available to it under ARTICLE 11 of this Agreement (without
regard to the limitations in Section 11.5).
8.10 No Liability
The Seller Parties, jointly and severally, shall
protect and indemnify Buyer from and Buyer shall not assume,
acquiesce, accede to or otherwise become Liable for or with
respect to, any Liabilities or obligations of any kind or
nature of Seller or of the Business which exist as of the
Closing Date or arise from, accrue by reason of, or relate
in any material way to, any Contract, account, event or
occurrence before the Closing Date. Without limiting the
generality of the foregoing, Buyer shall have no Liability
of any kind with respect to returns, warranty claims, charge-
backs product liability claims or other adjustments, charges
or claims with respect to goods or services sold or
delivered by Seller or the Business before the Closing Date.
8.11 Buyer Earn Out
(a) Following the Closing, until the earlier of (i) such
time as AEO is no longer purchasing apparel products from
Buyer and (ii) such time as Buyer has resold the Purchased
Assets to the Seller Parties pursuant to Section 3.5(d),
Buyer will pay to Sweet Sportswear on a quarterly basis, as
additional consideration for the Purchased Assets, an amount
equal to two and one half percent (2.5%) of the AGR derived
solely from sales to AEO (the "Earn Out Amount"). That
portion of the Earn Out Amount that is due will be paid in
cash.
(b) Within forty-five (45) business days of the end of each
quarter, Buyer will deliver to Seller a schedule setting
forth in reasonable detail Buyer's calculation of the Earn
Out Amount for such period (the "Earn Out Proposed Amount").
The Earn Out Proposed Amount will be subject to Seller's
review. In reviewing the Earn Out Proposed Amount, Seller
will have the right to communicate with, and to review the
work papers, schedules, memoranda and other documents Buyer
prepared or reviewed in determining the Earn Out Proposed
Amount for such period and thereafter will have access to
all relevant books and records, all to the extent Seller
reasonably requires to complete its review of Buyer's
calculation of the Earn Out Proposed Amount. Within ten
(10) business days after its receipt of Buyer's calculation
of the Earn Out Proposed Amount, Seller will advise Buyer
whether, based on such review, it has any exceptions to such
calculation. Unless Seller delivers to Buyer within such
ten (10) business day period a letter describing its
exceptions to Buyer's calculation of the applicable Earn Out
Amount as set forth in the schedule delivered by Buyer
described in this Section 8.11(b), the Earn Out Proposed
Amount for the applicable quarter will be conclusive and
binding on Buyer and Seller as the Earn Out Amount. If
Seller delivers such letter, the Parties will follow the
procedures for resolution of disputes set forth in Section
8.11(c).
(c) If Buyer and Seller are unable to agree on the Earn Out
Amount (the "Earn Out Disputed Amount"), then (i) for ten
(10) days after the date Buyer receives the letter
describing Seller's exceptions to Buyer's calculation of the
Proposed Earn Out Amount, Seller and Buyer will use their
Best Efforts to agree on the calculation of the Earn Out
Amount and (ii) lacking such agreement, the matter will be
referred to an independent accounting firm acceptable to
Buyer and Seller, who will determine the correct Earn Out
Disputed Amount within fifteen (15) days of such referral,
which determination will be final and binding on Buyer and
Seller for all purposes.
(d) Within two (2) business days of the determination of
the applicable Earn Out Amount under this Section 8.11,
Buyer will pay to Sweet Sportswear an amount equal to such
amount.
8.12 Shareholder Appointment Rights
During the period following the Closing Date until the
expiration of Calculation Period II, in the event that
Samuel J. Furrow, Jr., for any reason, shall no longer serve
as Chief Executive Officer or Chairman of Innovo, or in any
similar executive capacity, the Shareholders shall have the
right to appoint a general manager for the operation of the
Business, which general manager must be reasonably
acceptable to Buyer in its sole discretion.
ARTICLE 9.
CLOSING CONDITIONS
9.1 Conditions Precedent to Obligations of Buyer
Buyer's obligation to consummate the purchase of the
Purchased Assets and the other transactions contemplated to
occur in connection with the Closing is subject to the
satisfaction of each condition precedent listed below.
Unless expressly waived pursuant to this Agreement, no
representation, warranty, covenant, right, or remedy
available to Buyer in connection with the Transactions
contemplated hereby will be deemed waived by any of the
following actions or inactions by or on behalf of Buyer
(regardless of whether any Seller Party is given notice of
any such matter): (i) consummation by Buyer of the
Transactions, (ii) any inspection or investigation, if any,
of the Purchased Assets, (iii) the awareness of any fact or
matter acquired (or capable or reasonably capable of being
acquired) with respect to the Purchased Assets or the
Business, or (iv) any other action, in each case at any
time, whether before, on, or after the Closing Date.
(a) Accuracy of Representations and Warranties. Each
representation and warranty set forth in ARTICLE 6 must have
been accurate and complete in all material respects (except
with respect to any provisions including the word "material"
or words of similar import and except with respect to
materiality as reflected under GAAP in the representations
in Section 6.5 related to the Financial Statements, with
respect to which, in each such case, such representations
and warranties must have been accurate and complete) as of
the Execution Date, and must be accurate and complete in all
material respects (except with respect to any provisions
including the word "material" or words of similar import and
except with respect to materiality as reflected under GAAP
in the representations in Section 6.5 related to the
Financial Statements, with respect to which, in each such
case, such representations and warranties must have been
accurate and complete) as of the Closing Date, as if made on
the Closing Date, without giving effect to any supplements
to the Schedules.
(b) Compliance with Obligations. Each Seller Party must
have performed and complied with all of its respective
covenants to be performed or complied with at or prior to
Closing (singularly and in the aggregate).
(c) No Material Adverse Change or Destruction of Property.
Since June 11, 2003, there must have been no event, 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 Purchased Assets or
the Business (including as proposed to be conducted).
Without limiting the foregoing, (i) there must have been no
Material Adverse Change to the Purchased Assets or the
Business (including as proposed to be conducted), (ii) there
must not have been any action or inaction by a Governmental
Body, arbitrator, or mediator which could reasonably be
expected to cause a Material Adverse Change to the Purchased
Assets or the Business (including as proposed to be
conducted), and (iii) there must not have been any fire,
flood, casualty, act of God or the public enemy or other
cause (regardless of insurance coverage for such damage)
which event could reasonably be expected to have a Material
Adverse Effect on the Purchased Assets or the Business
(including as proposed to be conducted).
(d) No Adverse Litigation. There must not be pending or
Threatened any Action by or before any Governmental Body,
arbitrator, or mediator which seeks to restrain, prohibit,
invalidate, or collect damages arising out of the
Transactions, or which, in the judgment of Buyer, makes it
inadvisable to proceed with the Transactions.
(e) Consents. Seller and Buyer must have received Consents
to the Transactions and waivers of rights to terminate or
modify any rights or obligations of Seller from any Person
(i) from whom such Consent is required, including under any
Contract listed or required to be listed in Schedules 6.11,
6.12, and 6.17 or any Law, or (ii) who, as a result of the
Transactions, would have such rights to terminate or modify
such Contracts, either by their terms or as a matter of Law
(the "Material Consents").
(f) Release of Encumbrances. There must have been received
by Seller and Buyer releases of all Encumbrances on the
Purchased Assets.
(g) Buyer Approvals. Buyer and Innovo must have received
all necessary corporate and shareholder approvals for
Buyer's entering into the Transactions.
9.2 Conditions Precedent to Obligations of the Seller
Parties
The Seller Parties' obligation to consummate the sale
of the Purchase Assets and the other transactions
contemplated to occur in connection with the Closing is
subject to the satisfaction of each condition precedent
listed below. Unless expressly waived pursuant to this
Agreement, no representation, warranty, covenant, right, or
remedy available to a Seller Party in connection with the
Transactions will be deemed waived by any of the following
actions or inactions by or on behalf of such Seller Party
(regardless of whether Buyer is given notice of any such
matter): (i) consummation by the Seller Parties of the
Transactions, (ii) any inspection or investigation, if any,
of Buyer, (iii) the awareness of any fact or matter acquired
(or capable or reasonably capable of being acquired) with
respect to Buyer, or (iv) any other action, in each case at
any time, whether before, on, or after the Closing Date.
(a) Accuracy of Representations and Warranties. Each
representation and warranty set forth in ARTICLE 5 must have
been accurate and complete in all material respects (except
with respect to any provisions including the word "material"
or words of similar import, with respect to which such
representations and warranties must have been accurate and
complete) as of the Execution Date, and must be accurate and
complete in all material respects (except with respect to
any provisions including the word "material" or words of
similar import, with respect to which such representations
and warranties must have been accurate and complete) as of
the Closing Date, as if made on the Closing Date.
(b) Compliance with Obligations. Buyer must have performed
and complied with all its covenants and obligations required
by this Agreement to be performed or complied with at or
prior to Closing (singularly and in the aggregate).
(c) No Order or Injunction. There must not be issued and
in effect any Order restraining or prohibiting the
Transactions.
ARTICLE 10.
TERMINATION
10.1 Termination of Agreement
The Parties may terminate this Agreement as provided
below:
(a) Buyer and Seller may terminate this Agreement as to all
Parties by mutual written consent at any time prior to the
Closing.
(b) Buyer or Seller may terminate this Agreement upon
delivery of notice if the Closing has not occurred prior to
the Expiration Date, provided that the Party delivering such
notice will not have caused such failure to close (and, if
the Party delivering such notice is Seller, no Shareholder
will have caused such failure to close).
(c) Buyer may terminate this Agreement by giving written
notice to Seller at any time prior to the Closing if any
Seller Party has Breached any representation, warranty, or
covenant contained in this Agreement in any material respect
(except with respect to materiality for any provisions
including the word "material" or words of similar import and
Section 6.5, in which case such termination rights will
arise upon any Breach).
(d) Seller may terminate this Agreement by giving notice to
Buyer at any time prior to the Closing if Buyer has Breached
any representation, warranty, or covenant contained in this
Agreement in any material respect (except with respect to
materiality for any provisions including the word "material"
or words of similar import, in which case such termination
rights will arise upon any Breach).
(e) Buyer may terminate this Agreement by giving notice to
Seller on or before the Expiration Date if Buyer is not
satisfied in its sole discretion with the results of, and
its due diligence investigations with respect to, the
operations, affairs, prospects, properties, assets, existing
and potential Liabilities, obligations, profits or condition
(financial or otherwise) of the Business and the Purchased
Assets.
10.2 Effect of Termination
(a) Except for the obligations under Section 7.8, this
ARTICLE 10 and ARTICLE 12, if this Agreement is terminated
under Section 10.1, then, except as provided in this Section
10.2, all further obligations of the Parties under this
Agreement will terminate.
(b) If Buyer or Seller terminate this Agreement pursuant to
Section 10.1(c) or 10.1(d), as the case may be, then the
rights of the non-breaching Party to pursue all legal
remedies for damages such Party suffer will survive such
termination unimpaired and no election of remedies will have
been deemed to have been made.
ARTICLE 11.
INDEMNIFICATION
11.1 Survival of Representations and Warranties
(a) Each representation and warranty of the Seller Parties
contained in ARTICLE 6 and any certificate related to such
representations and warranties will survive the Closing and
continue in full force and effect for three (3) years
thereafter, except (i) the representations and warranties
set forth in Sections 6.4, 6.5, 6.17, and 6.18, which will
survive the Closing and continue in full force and effect
until the applicable statute of limitations expires (or for
three (3) years if there is no applicable statute of
limitations) and (ii) the representations and warranties set
forth in Sections 6.1 and 6.2, which will survive the
Closing and will continue in full force and effect forever.
(b) Each representation and warranty of Buyer contained in
ARTICLE 5 and any certificate related to such
representations and warranties will survive the Closing and
continue in full force and effect for three (3) years
thereafter, except the representations and warranties set
forth in Sections 6.1 and 6.2, which will survive the
Closing and will continue in full force and effect forever.
(c) Each other provision in this Agreement or any
certificate or document delivered pursuant hereto will
survive for the relevant statute of limitations period,
unless a different period is expressly contemplated herein
or thereby.
11.2 Indemnification Provisions for Buyer's Benefit
The Seller Parties, jointly and severally, will
indemnify and hold Indemnified Buyer Parties harmless from
and pay any and all damages, directly or indirectly,
resulting from, relating to, arising out of, or attributable
to any one of the following:
(a) Any Breach of any representation or warranty any Seller
Party has made in this Agreement as if such representation
or warranty were made on and as of the Closing Date without
giving effect to any supplement to the Schedules, other than
(in the event the Transactions are consummated) any such
Breach that is disclosed in a supplement to the Schedules
delivered under Section 7.6 that contains an express written
admission by such Seller Party that such Breach has caused a
condition specified in Section 9.1 not to be satisfied.
(b) Any Breach by any Seller Party of any covenant or
obligation of Seller or the Shareholders in this Agreement.
(c) Any event arising from the operation or ownership of,
or conditions occurring with respect to, the Business or any
of the Purchased Assets prior to 11:59 p.m. on the Closing
Date.
11.3 Indemnification Provisions for Seller Parties' Benefit
Buyer will indemnify and hold the Indemnified Seller
Parties harmless from and pay any and all damages, directly
or indirectly, resulting from, relating to, arising out of,
or attributable to any of the following:
(a) Any Breach of any representation or warranty Buyer has
made in this Agreement as if such representation or warranty
were made on and as of the Closing Date without giving
effect to any supplement to the Schedules, other than (in
the event the Transactions are consummated) any such Breach
that is disclosed in a supplement to the Schedules
(delivered under Section 7.6) that contains an express
written admission by Buyer that such Breach has caused a
condition specified in Section 9.2 not to be satisfied.
(b) Any Breach by Buyer of any covenant or obligation of
Buyer in this Agreement.
(c) Any event arising from the operation and ownership of,
or conditions first occurring with respect to, the Business
or any of the Purchased Assets after 11:59 p.m. on the
Closing Date.
11.4 Indemnification Claim Procedures
(a) If any Action is commenced in which any Indemnified
Party is a party that may give rise to a claim for
indemnification against any Indemnitor (an "Indemnification
Claim") then such Indemnified Party will promptly give
notice to the Indemnitor. Failure to notify the Indemnitor
will not relieve the Indemnitor of any Liability that it may
have to the Indemnified Party, except to the extent the
defense of such Action is materially and irrevocably
prejudiced by the Indemnified Party's failure to give such
notice.
(b) An Indemnitor will have the right to defend against an
Indemnification Claim, other than a Indemnification Claim
related to Taxes, with counsel of its choice reasonably
satisfactory to the Indemnified Party if (i) within 15 days
following the receipt of notice of the Indemnification Claim
the Indemnitor notifies the Indemnified Party in writing
that the Indemnitor will indemnify the Indemnified Party
from and against the entirety of any damages the Indemnified
Party may suffer resulting from, relating to, arising out
of, or attributable to the Indemnification Claim, (ii) the
Indemnitor provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the
Indemnitor will have the financial resources to defend
against the Indemnification Claim and pay, in cash, all
damages the Indemnified Party may suffer resulting from,
relating to, arising out of, or attributable to the
Indemnification Claim, (iii) the Indemnification Claim
involves only money damages and does not seek an injunction
or other equitable relief, (iv) settlement of, or an adverse
judgment with respect to, the Indemnification Claim is not
in the good faith judgment of the Indemnified Party likely
to establish a precedential custom or practice materially
adverse to the continuing business interests of the
Indemnified Party, and (v) the Indemnitor continuously
conducts the defense of the Indemnification Claim actively
and diligently.
(c) So long as the Indemnitor is conducting the defense of
the Indemnification Claim in accordance with Section
11.4(b), (i) the Indemnified Party may retain separate co-
counsel at its sole cost and expense and participate in the
defense of the Indemnification Claim, (ii) the Indemnified
Party will not consent to the entry of any Order with
respect to the Indemnification Claim without the prior
written Consent of the Indemnitor (not to be withheld
unreasonably), and (iii) the Indemnitor will not consent to
the entry of any Order with respect to the Indemnification
Claim without the prior written Consent of the Indemnified
Party (not to be withheld unreasonably, provided that it
will not be deemed to be unreasonable for an Indemnified
Party to withhold its Consent (A) with respect to any
finding of or admission (1) of any Breach of any Law, Order
or Permit, (2) of any violation of the rights of any Person,
or (3) which Indemnified Party believes could have a
Material Adverse Effect on any other Actions to which the
Indemnified Party or its Affiliates are party or to which
Indemnified Party has a good faith belief it may become
party, or (B) if any portion of such Order would not remain
sealed).
(d) In connection with any Indemnification Claim for Taxes,
or if any condition in Section 11.4(b) is or becomes
unsatisfied, (i) the Indemnified Party may defend against,
and consent to the entry of any Order with respect to an
Indemnification Claim in any manner it may deem appropriate
(and the Indemnified Party need not consult with, or obtain
any Consent from, any Indemnitor in connection therewith),
(ii) each Indemnitor will jointly and severally be obligated
to reimburse the Indemnified Party promptly and periodically
for the damages relating to defending against the
Indemnification Claim, and (iii) each Indemnitor will remain
jointly and severally Liable for any damages the Indemnified
Party may suffer relating to the Indemnification Claim to
the fullest extent provided in this ARTICLE 11.
(e) Each Party hereby consents to the non-exclusive
jurisdiction of any Governmental Body, arbitrator, or
mediator in which an Action is brought against any
Indemnified Party for purposes of any Indemnification Claim
that an Indemnified Party may have under this Agreement with
respect to such Action or the matters alleged therein, and
agrees that process may be served on such Party with respect
to such claim anywhere in the world.
11.5 Limitations on Indemnification Liability
(a) With Respect to Claims by the Indemnified Buyer
Parties. The Seller Parties' aggregate Liability for money
damages under this Agreement related to Breaches of the
representations, warranties, and covenants herein will not
exceed an amount equal to the Purchase Price as adjusted
pursuant to ARTICLE 3, provided that the limitation
contemplated hereby will not be applicable with respect to
Breaches of Sections 6.1 and 6.2 or instances of fraud by a
Seller Party.
(b) With Respect to Claims by the Indemnified Seller
Parties. Buyer's aggregate Liability for money damages
under this Agreement related to Breaches of the
representations, warranties, and covenants herein will not
exceed the principal amount of the Buyer Note as adjusted
pursuant to ARTICLE 3, provided that the limitation
contemplated hereby will not be applicable with respect to
Breaches of Sections 5.1 and 5.2 or instances of fraud by
Buyer.
(c) With Respect to Claims by any Indemnified Party. Any
claims any Indemnified Party makes under this ARTICLE 11
will be limited as follows:
(i) Exclusion of Certain Types of Damages. All
indemnification obligations will be limited to actual
damages and will exclude incidental, consequential, lost
profits, indirect, punitive, or exemplary damages.
(ii) Knowledge Qualifiers. In determining whether a
representation, warranty, or covenant in this Agreement has
been breached where such covenant is modified by the concept
of "Knowledge," such concept will be disregarded in
determining whether there has been a Breach of such
representation, warranty, or covenant.
11.6 Set Off Rights
Buyer will have the option of setting off all or any
part of any damages Buyer suffers by notifying Seller that
Buyer is reducing the principal amount outstanding under the
Buyer Note by the amount of such damages. This will affect
the timing and amount of payments required under Buyer Note
in the same manner as if Buyer had made a permitted
prepayment (without premium or penalty) thereunder. Buyer's
exercise, if in good faith, of its set off rights will not
constitute an event of default under the Buyer Note or any
related security documents.
11.7 Option to Require Seller to Pay in Buyer Common Stock
If any Seller Party has an obligation to pay damages to
Buyer under this ARTICLE 11, Buyer may require such Seller
Party to satisfy the obligation by surrendering for
redemption that quantity of shares of common stock of Buyer
or any Affiliate of Buyer then held by such Seller Party
equal in value to the damages. For purposes of this Section
11.7, the value of Buyer Common Stock will be the lesser of
the closing price of such common stock on the NASDAQ Stock
Market's National Market as of (a) the business day
immediately preceding the Closing Date, and (b) the date the
amount of damages is finally determined in accordance with
this Agreement. If Buyer elects to redeem stock, it will do
so by providing notice to the transfer agent with respect to
such common stock and providing a copy of such notice to
such Seller Party. Each Seller Party hereby authorizes such
transfer agent to transfer title to such common stock on
Buyer's stock ledger and will hold such transfer agent
harmless from and indemnify such transfer agent for any
Liabilities of the transfer agent (INCLUDING LIABILITIES
ARISING FROM ITS OWN NEGLIGENCE) arising as a result of such
transfer. Any certificates representing such common stock
issued in connection herewith will bear a legend reflecting
the obligations contemplated by this Section 11.7.
11.8 No Wavier of Rights or Remedies
Each Indemnified Party's rights and remedies set forth
in this Agreement will survive the Closing and will not be
deemed waived by such Indemnified Party's consummation of
the Transactions and will be effective regardless of any
inspection or investigation conducted, or the awareness of
any matters acquired (or capable or reasonably capable of
being acquired), by or on behalf of such Indemnified Party
or by its directors, officers, employees, or representatives
or at any time (regardless of whether notice of such
knowledge has been given to Indemnitor), whether before or
after the Execution Date or the Closing Date with respect to
any circumstances constituting a condition under this
Agreement, unless any waiver specifically so states.
11.9 Other Indemnification Provisions
(a) The foregoing indemnification provisions are in
addition to, and not in derogation of, any remedy at law or
in equity that any Party may have with respect to the
Transactions.
(b) A claim for any matter not involving a third party may
be asserted by notice to the Party from whom indemnification
is sought.
ARTICLE 12.
MISCELLANEOUS
12.1 Schedules
(a) The disclosures in any Schedule, and those in any
supplement thereto, relate only to the representations and
warranties in the Section or paragraph of the Agreement to
which such Schedule expressly relates and not to any other
representation or warranty in this Agreement.
(b) If there is any inconsistency between the statements in
the body of this Agreement and those in the Schedules (other
than an exception expressly set forth as in the Schedules
with respect to a specifically identified representation or
warranty), the statements in the body of this Agreement will
control.
(c) Nothing in the Schedules will be deemed adequate to
disclose an exception to a representation or warranty made
herein, unless the Schedules identify the exception with
particularity and describes the relevant facts in reasonable
detail.
(d) The mere listing (or inclusion of a copy) of a document
or other item in a Schedule will not be deemed adequate to
disclose an exception to a representation or warranty made
in this Agreement (unless the representation or warranty
pertains to the existence of the document or other item
itself).
12.2 Entire Agreement
This Agreement, together with the Exhibits and
Schedules hereto and the certificates, documents,
instruments and writings that are delivered pursuant hereto,
constitutes the entire agreement and understanding of the
Parties in respect of its subject matters and supersedes all
prior understandings, agreements, or representations by or
among the Parties, written or oral, to the extent they
relate in any way to the subject matter hereof or the
Transactions, including the letter of intent, dated June 11,
2003, between Seller and Buyer. Except as expressly
contemplated by ARTICLE 11, there are no third party
beneficiaries having rights under or with respect to this
Agreement.
12.3 Successors
All of the terms, agreements, covenants,
representations, warranties, and conditions of this
Agreement are binding upon, and inure to the benefit of and
are enforceable by, the Parties and their respective
successors and, to the extent of any assignment permitted
under Section 12.4, the assigns of Buyer.
12.4 Assignments
No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the
prior written approval of Buyer and the Seller Parties;
provided, however, that Buyer may (a) assign any or all of
its rights and interests hereunder to one or more of its
Affiliates and (b) designate one or more of its Affiliates
to perform its obligations hereunder (in any or all of which
cases Buyer nonetheless will remain responsible for the
performance of all of its obligations hereunder), (c) make a
collateral assignment of its rights hereunder to its
lender(s) and (d) in connection with any sale or transfer by
Buyer of all or substantially all of its assets to another
Person, (i) Buyer may, by written notice to the Seller
Parties, assign any or all of its rights and interests under
this Agreement to such other Person; and (ii) to the extent
such other Person expressly assumes by a written instrument
any or all of the obligations of Buyer under this Agreement,
Buyer shall be discharged and released from such obligations
so assumed. In the event of an assignment or designation
pursuant to clauses (a) or (b) or (d) of the prior sentence
prior to the Closing Date, any documents to be delivered by
any Seller Party or Buyer pursuant hereto the forms of which
are attached hereto shall be appropriately modified to give
effect to such assignment or designation.
12.5 Notices
All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice,
request, demand, claim, or other communication hereunder
will be deemed duly given if (and then three business days
after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below:
If to Buyer:
Attn: Jay Furrow
c/o Innovo Group, Inc.
5900 S. Eastern Ave., Suite 104
Commerce, CA 90040
Tel: (323)725-5516
Fax: (865)546-9277
Copy to (which will not constitute
notice):
Akin, Gump, Strauss, Hauer & Feld,
L.L.P.
Attn: Paul A. Belvin, Esq.
1333 New Hampshire Ave., N.W.
Washington, D.C. 20036
Tel: (202) 887-4021
Fax: (202) 887-4288
If to Seller:
Attn:
Hubert Guez
5804 E. Slauson Ave.
Commerce, CA 90040
Fax: (323) 890-9677
If to the Shareholders:
Attn:
Hubert Guez
5804 E. Slauson Ave.
Commerce, CA 90040
Fax: (323) 890-9677
Any Party may send any notice, request, demand, claim,
or other communication hereunder to the intended recipient
at the address set forth above using any other means
(including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other
communication will be deemed to have been duly given unless
and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to
be delivered by giving the other Parties notice in the
manner herein set forth.
12.6 Specific Performance
Each Party acknowledges and agrees that the other
Parties would be damaged irreparably if any provision of
this Agreement is not performed in accordance with its
specific terms or is otherwise Breached. Accordingly, each
Party agrees that the other Parties will be entitled to an
injunction or injunctions to prevent Breaches of the
provisions of this Agreement and to enforce specifically
this Agreement and its terms and provisions in any Action
instituted in any court of the United States or any state
thereof having jurisdiction over the Parties and the matter,
subject to Sections 12.7 and 12.11, in addition to any other
remedy to which they may be entitled, at law or in equity.
12.7 Submission to Jurisdiction; Process Agent; No Jury
Trial
(a) Submission to Jurisdiction. Each Party submits
to the
jurisdiction of any state or federal court sitting in Los
Angeles, California, in any action arising out of or
relating to this Agreement and agrees that all claims in
respect of the action may be heard and determined in any
such court. Nothing in this Section 12.7(a) will affect the
right of any Party to bring any action arising out of or
relating to this Agreement in any other court. Each Party
agrees that a final judgment in any action so brought will
be conclusive and may be enforced by action on the judgment
or in any other manner provided at law or in equity. Each
Party waives any defense of inconvenient forum to the
maintenance of any action so brought and waives any bond,
surety, or other security that might be required of any
other Party with respect thereto.
(b) Waiver of Jury Trial. THE PARTIES EACH HEREBY AGREE TO
WAIVE THEIR RESPECTIVE RIGHTS TO JURY TRIAL OF ANY DISPUTE
BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER
AGREEMENTS RELATING HERETO OR ANY DEALINGS AMONG THEM
RELATING TO THE TRANSACTIONS. The scope of this waiver is
intended to be all encompassing of any and all actions that
may be filed in any court and that relate to the subject
matter of the transactions, including, contract claims, tort
claims, breach of duty claims, and all other common law and
statutory claims. The Parties each acknowledges that this
waiver is a material inducement to enter into a business
relationship and that they will continue to rely on the
waiver in their related future dealings. Each Party further
represents and warrants that it has reviewed this waiver
with its legal counsel, and that each knowingly and
voluntarily waives its jury trial rights following
consultation with legal counsel. NOTWITHSTANDING ANYTHING
TO THE CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED ORALLY OR IN WRITING, AND THE
WAIVER WILL APPLY TO ANY AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS
OR AGREEMENTS RELATING HERETO. In the event of an action,
this Agreement may be filed as a written consent to trial by
a court.
(c) Service of Process. The Parties agree that any Party
may make service on any other Party by sending or delivering
a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices
in Section 12.5. Nothing in this Section 12.7(c) will
affect any Party's right to bring any action arising out of
or relating to this Agreement in any other court or to serve
legal process in any other manner permitted at law or in
equity.
12.8 Time
Time is of the essence in the performance of this
Agreement.
12.9 Counterparts
This Agreement may be executed in two or more
counterparts, each of which will be deemed an original but
all of which together will constitute one and the same
instrument.
12.10 Headings
The article and section headings contained in this
Agreement are inserted for convenience only and will not
affect in any way the meaning or interpretation of this
Agreement.
12.11 Governing Law
This Agreement and the performance of the Transactions
and obligations of the Parties hereunder will be governed by
and construed in accordance with the laws of the State of
California, without giving effect to any choice of Law
principles that may require application of any other Laws.
12.12 Amendments and Waivers
No amendment, modification, waiver, replacement,
termination or cancellation of any provision of this
Agreement will be valid, unless the same will be in writing
and signed by Buyer and each Seller Party. No waiver by any
Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not,
may be deemed to extend to any prior or subsequent default,
misrepresentation, or Breach of warranty or covenant
hereunder or affect in any way any rights arising because of
any prior or subsequent such occurrence.
12.13 Severability
The provisions of this Agreement will be deemed
severable and the invalidity or unenforceability of any
provision will not affect the validity or enforceability of
the other provisions hereof; provided that if any provision
of this Agreement, as applied to any Party or to any
circumstance, is adjudged by a Governmental Body,
arbitrator, or mediator not to be enforceable in accordance
with its terms, the Parties agree that the Governmental
Body, arbitrator, or mediator making such determination will
have the power to modify the provision in a manner
consistent with its objectives such that it is enforceable,
and/or to delete specific words or phrases, and in its
reduced form, such provision will then be enforceable and
will be enforced.
12.14 Expenses
Except as otherwise expressly provided in this
Agreement, the Seller Parties, on the one hand, and the
Buyer, on the other hand, will each bear its own costs and
expenses incurred in connection with the preparation,
execution and performance of this Agreement and the
Transactions including all fees and expenses of agents,
representatives, financial advisors, legal counsel and
accountants.
12.15 Construction
The Parties have participated jointly in the
negotiation and drafting of this Agreement. If an ambiguity
or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the
Parties and no presumption or burden of proof will arise
favoring or disfavoring any Party because of the authorship
of any provision of this Agreement. Any reference to any
federal, state, local, or foreign Law will be deemed also to
refer to Law as amended and all rules and regulations
promulgated thereunder, unless the context requires
otherwise. The words "include," "includes," and "including"
will be deemed to be followed by "without limitation."
Pronouns in masculine, feminine, and neuter genders will be
construed to include any other gender, and words in the
singular form will be construed to include the plural and
vice versa, unless the context otherwise requires. The
words "this Agreement," "herein," "hereof," "hereby,"
"hereunder," and words of similar import refer to this
Agreement as a whole and not to any particular subdivision
unless expressly so limited. The Parties intend that each
representation, warranty, covenant, and condition contained
herein will have independent significance. If any Party has
breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same or
similar subject matter (regardless of the relative levels of
specificity) which the Party has not breached will not
detract from or mitigate the fact that the Party is in
breach of the first representation, warranty, or covenant.
If any condition to Closing contained herein has not been
satisfied in any respect, the fact that there exists another
condition relating to the same or similar subject matter
(regardless of the relative levels of specificity) which has
been satisfied shall not detract from or mitigate the fact
that the first condition has not been satisfied.
12.16 Incorporation of Exhibits and Schedules
The Exhibits, Schedules, and other attachments
identified in this Agreement are incorporated herein by
reference and made a part hereof.
12.17 Remedies
Except as expressly provided herein, the rights,
obligations and remedies created by this Agreement are
cumulative and in addition to any other rights, obligations,
or remedies otherwise available at law or in equity. Except
as expressly provided herein, nothing herein will be
considered an election of remedies.
12.18 Joint and Several Obligations
Notwithstanding anything to the contrary in this
Agreement, the covenants and obligations of, and the
representations and warranties made by or attributable to,
any Seller Party pursuant to this Agreement will be deemed
to be made by and attributable to each Seller Party, jointly
and severally, and Buyer will have the right to pursue
remedies against any one or more Seller Parties without any
obligation to give notice to or to pursue all Seller
Parties, or to give notice to or pursue any individual
Seller Party, before pursuing any other Seller Party.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed on the day and year first
above written.
INNOVO AZTECA APPAREL, INC.
By: /s/ Samuel Joseph Furrow, Jr.
------------------------------
Name: Samuel Joseph Furrow, Jr.
Title: Chief Executive Officer
AZTECA PRODUCTION INTERNATIONAL, INC.
By: /s/ Hubert Guez
-----------------
Name: Hubert Guez
Title: President
/s/ Hubert Guez
---------------
Hubert Guez
/s/ Paul Guez
-------------
Paul Guez
ACKNOWLEDGED AND AGREED:
INNOVO GROUP INC.
By /s/ Samuel Joseph Furrow, Jr.
Name: Samuel Joseph Furrow, Jr.
Title: Chief Executive Officer
*The following Exhibits and Schedules marked "Intentionally
Left Blank" have not been provided because the Company does
not believe such Exhibits or Schedules contain information
that would be material to an investment decision. The
Company agrees to furnish supplementally a copy of the
omitted Exhibits and Schedules to the Commission upon
request.
EXHIBIT A
Form of Bill of Sale and Assignment of Contract Rights
BILL OF SALE AND ASSIGNMENT OF CONTRACT RIGHTS
For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and pursuant to
the Asset Purchase Agreement dated July 17, 2003 by and
among Azteca Production International, Inc., a California
corporation ("Seller"), Hubert Guez, an individual, Paul
Guez, an individual, and Innovo Azteca Apparel, Inc., a
California corporation ("Buyer") (the "Asset Purchase
Agreement"), Seller hereby unconditionally and irrevocably
grants, bargains, transfers, sells, assigns, conveys, and
delivers to Buyer, its successors and assigns forever, all
right, title, and interest, legal or equitable, in and to
the Purchased Assets (as defined in the Asset Purchase
Agreement) (the "Purchased Assets").
TO HAVE AND TO HOLD the Purchased Assets unto Buyer and
its successors and assigns forever.
Undefined capitalized terms herein are defined in the
Asset Purchase Agreement.
Seller, for itself, its successors, and assigns, hereby
covenants and agrees (i) to and with Buyer, to warrant and
defend the grant, bargain, transfer, sale, assignment,
conveyance, and delivery of the Purchased Assets to Buyer
and its successors and assigns against all Persons, to the
extent set forth in the Asset Purchase Agreement and (ii)
that, at any time and from time to time after the date
hereof, promptly upon the written request of Buyer, it will
do, execute, acknowledge, and deliver, or cause to be done,
executed, acknowledged, and delivered, each and all of such
further acts, deeds, assignments, transfers, conveyances,
powers of attorney, and assurances as may reasonably be
required by Buyer in order to assign, transfer, set over,
convey, assure, and confirm unto and vest in Buyer, its
successors, and assigns the Purchased Assets and title
thereto and to put Buyer in possession and operating control
of the Purchased Assets. To the extent that any of the
Purchased Assets are not actually delivered and turned over
by Seller to Buyer at the Closing, such Purchased Assets
will be held in trust by Seller for Buyer and will be turned
over and delivered to Buyer at any time and from time to
time upon demand therefor. Buyer will maintain the sole and
exclusive title thereto and all right, title, and interest
therein, and Seller will have no right, title, or interest
in or to any such Purchased Assets, nor will Seller have any
retaining possessory or other lien thereon.
Without limiting the foregoing, Seller hereby
constitutes Buyer the true and lawful agent and attorney-in-
fact of Seller, with full power of substitution and
resubstitution, in whole or in part, in the name and stead
of Seller but on behalf and for the benefit of Buyer and its
successors and assigns, from time to time:
1. To demand, receive, and collect any and all of the
Purchased Assets, and to give receipts and releases for and
with respect to same, or any part thereof.
2. To institute and prosecute, in the name of Seller or
otherwise, all proceedings, at law, in equity, or otherwise,
that Buyer or its successors and assigns may deem proper in
order to collect or enforce any claim or right of any kind
included in the Purchased Assets.
3. To do all things legally permissible or required, or
reasonably deemed by Buyer to be required, to recover and
collect the Purchased Assets and to use Seller's name in
such manner as Buyer may reasonably deem necessary for the
collection and recovery of same.
Seller hereby declares that the foregoing powers are coupled
with an interest and are irrevocable by Seller or by its
dissolution or in any other manner or for any reason
whatsoever. Buyer expressly does not, and should not be
deemed to, assume under this instrument any liabilities,
obligations, or commitments of Seller.
The scope, nature and extent of the Purchased Assets
are expressly set forth in the Asset Purchase Agreement.
Nothing herein contained will itself change, amend, extend,
or alter (nor should it be deemed or construed as changing,
amending, extending, or altering) the terms or conditions of
the Asset Purchase Agreement in any manner whatsoever. This
instrument does not create or establish rights, liabilities,
or obligations not otherwise created or existing under or
pursuant to the Asset Purchase Agreement. Seller
acknowledges and agrees that the representations,
warranties, covenants, agreements, and indemnities contained
in the Asset Purchase Agreement will not be superseded
hereby but will remain in full force and effect to the full
extent provided therein. In the event of any conflict or
inconsistency between the terms of the Asset Purchase
Agreement and the terms of this instrument, the terms of the
Asset Purchase Agreement will govern.
Nothing in this instrument, express or implied, is
intended or shall be construed to confer upon or give to,
any person, firm or corporation other than Buyer and its
successors and assigns any remedy or claim under or by
reason of this instrument or any term, covenant or condition
hereof, and all of the terms, covenants, conditions,
promises, and agreements in this instrument shall be for the
sole and exclusive benefit of Buyer and its successors and
assigns.
This instrument will be binding upon Seller and its
successors and assigns, and inure to the benefit of and is
enforceable by Buyer and its successors and assigns.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Bill of Sale and
Assignment of Contract Rights is being executed and
delivered by Seller as of the date first above written.
AZTECA PRODUCTION INTERNATIONAL, INC.
By: _____________________
Name: ___________________
Title: ___________________
EXHIBIT B
Form of Buyer Note
PROMISSORY NOTE
$21,800,000.00 Commerce,
California
July __, 2003
FOR VALUE RECEIVED, Innovo Azteca Apparel, Inc., a
California corporation ("Maker") promises to pay to the
order of Azteca Productions International, Inc., a
California corporation ("Noteholder"), without further
demand, at such location as Noteholder may designate, the
sum of Twenty-One Million Eight Hundred Thousand and no/100
Dollars ($21,800,000.00) in accordance with the following
terms:
This Promissory Note shall have a 7-year term,
maturing on July __, 2010;
The principal amount shall bear interest at the rate
of six percent (6%) compounded annually;
On the first and second anniversary of the date of
issuance of this Promissory Note, accrued interest
only shall be due and payable in equal annual
installments in accordance with the schedule
attached hereto as Exhibit A;
The principal amount of this Promissory Note shall
be fully amortized into five equal payments, each
due and payable on the third through seventh
anniversary dates of the issuance of this
Promissory Note, together with equal payments of
accrued interest, in accordance with the schedule
attached hereto as Exhibit A; and
All sums due hereon are payable in lawful money of
the United States.
If any holder of this Note shall institute any action
for the enforcement or collection of this Note, there shall
be due from Maker all costs and expenses of such action,
including, but not limited to, reasonable attorneys' fees,
and said holder of this Note may take judgment for the
entire amount due.
Notwithstanding any other provision of this Note, Maker
shall have the right at any time or from time to time to
prepay any or all of the unpaid principal balance of this
Note, any or all of the interest due pursuant to the terms
of this Note, or any combination of principal and interest,
without bonus, penalty or payment of unearned interest.
The provisions and covenants contained herein shall
inure to and be binding upon the successors, transferees,
heirs and assigns of the parties hereto.
Notwithstanding anything to the contrary provided
above, this Promissory Note shall be subject to offsets,
partial conversion, and reductions as provided in Sections
3.3(c), 3.4 and 3.5 of that certain Asset Purchase Agreement
by and among Maker and Noteholder ("Asset Purchase
Agreement"), dated July ____, 2003.
This Note shall be governed by the internal laws of the
State of California and the laws of the United States
applicable to transactions within said State.
INNOVO AZTECA APPAREL, INC.
By:
____________________________
Name:
__________________________
Title:
_________________________
EXHIBIT C
Form of Supply Agreement
An executed copy has been attached hereto and referenced
herein as a part of this filing as Exhibit 10.1
EXHIBIT D
Form of Seller's Officer's Certificate
Intentionally Left Blank
EXHIBIT E
Form of Seller's Secretary's Certificate
Intentionally Left Blank
EXHIBIT F
Form of Buyer's Officer's Certificate
Intentionally Left Blank
EXHIBIT G
Form of Buyer's Secretary's Certificate
Intentionally Left Blank
SCHEDULE 1.1
Purchased Assets
Intentionally Left Blank
SCHEDULE 5.3
Buyer Required Consents
None
SCHEDULE 5.6
Buyer Litigation
None
SCHEDULE 6.3
Seller Required Consents
None
SCHEDULE 6.5
Financial Statements
Intentionally Left Blank
SCHEDULE 6.6
Subsequent Events
None
SCHEDULE 6.12
Contracts
Intentionally Left Blank
SCHEDULE 6.14
Seller Litigation
None
SCHEDULE 6.15
Standard Terms of Sale or Lease
Intentionally Left Blank
SCHEDULE 6.16(a)
Current Employees and Directors
Intentionally Left Blank
SCHEDULE 6.16(b)
Terminated Employees
Intentionally Left Blank
SCHEDULE 6.17
Employee Benefits
Intentionally Left Blank
SCHEDULE 6.18
Environmental Matters
None
SCHEDULE 6.19
Suppliers
Intentionally Left Blank
SCHEDULE 6.20
Permits
Intentionally Left Blank
Exhibit 10.1
SUPPLY AGREEMENT
This SUPPLY AGREEMENT ("Supply Agreement"), dated as of
this 17th day of July, 2003 ("Effective Date"), is made by
and between AZT International SA DE CV, a Mexico corporation
("AZT") and wholly-owned subsidiary of Azteca Production
International, Inc., a California corporation with its
principal executive offices at 5804 East Slauson Avenue,
Commerce, California 90040 ("Azteca") and Innovo Azteca
Apparel, Inc., a California corporation having its principal
executive office at 5900 S. Eastern Avenue, Commerce,
California 90040 ("Innovo").
RECITALS
A. AZT is, among other things, a manufacturer of
denim-related products.
B. Innovo is, among other things, a seller of denim-
related products.
C. Azteca and Innovo have entered into a separate
Asset Purchase Agreement dated the same date as
this Supply Agreement, pursuant to which Innovo
has acquired from Azteca certain assets and
properties formerly used by Azteca in the
operation of its Blue Concepts Division.
D. Both parties now desire to enter into this non-
exclusive Supply Agreement whereby AZT will
manufacture and supply certain products for Innovo
under the terms and conditions set forth in this
Supply Agreement, and Innovo will market and sell
such products to its customers and the former
customers of the Blue Concepts Division.
NOW THEREFORE, and in consideration of the mutual
promises, covenants, representations and good and valuable
consideration set forth herein, the adequacy of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 13. PRODUCTS, ORDERS AND PRICING
13.1 AZT shall manufacture and supply to Innovo the Products
described in Exhibit A attached hereto (the "Products"),
during the Term of this Supply Agreement ("Manufacturing
Services"). AZT agrees that the purchase price of the
Products purchased from AZT by Innovo or its affiliates
shall allow Innovo an initial margin per unit of not less
than 15% (i.e., the price paid to AZT shall be at least 15%
less than the purchase price to be received by Innovo or its
affiliates from its customers).
13.2 All of the Products to be manufactured hereunder shall
be made in accordance with all applicable laws and
regulations.
13.3 Placing of Subsequent Orders During the Term or any
Renewal Term of this Supply Agreement, on a monthly basis,
Innovo shall submit written purchase orders to AZT clearly
setting forth the Products to be purchased by Innovo and
requested shipping dates for the ordered Products.
ARTICLE 14. TERM AND TERMINATION
14.1 Term The term of this Supply Agreement shall continue
from the Effective Date for a period of two (2) years
("Term").
14.2 Termination This Supply Agreement may be immediately
terminated by either party upon (i) failure of the other
party to comply with laws and regulations which materially
affect such party's contracting rights or reputation and
where such failure is not cured within thirty (30) days of
receipt of written notice thereof; or (ii) any material
breach of this Supply Agreement by the other party which is
not cured within thirty (30) days of receipt of written
notice thereof.
14.3 Renewal Term This Agreement will automatically renew
for consecutive two (2) year terms under the same terms and
conditions set forth herein ("Renewal Term") unless
terminated by either party upon delivering written notice to
the other party at least ninety (90) days prior to the end
of the then existing term.
ARTICLE 15. DELIVERY INNOVO SHALL PROVIDE AZT WITH
REASONABLE LEAD TIME FOR ALL ORDERS FOR PURCHASE AND AZT
SHALL TIMELY FULFILL ALL ORDERS FOR PURCHASES RECEIVED FROM
INNOVO AND SHALL DELIVER THE PRODUCTS WHEREVER SO INSTRUCTED
BY INNOVO ACCORDING TO A REASONABLE DELIVERY SCHEDULE. THE
PARTIES HERETO SHALL IN GOOD FAITH NEGOTIATE SUCH DELIVERY
SCHEDULE.
ARTICLE 16. QUALITY CONTROL THE QUALITY OF THE PRODUCTS,
INCLUDING, AMONG OTHER THINGS, THE TECHNICAL SPECIFICATIONS
IN MANUFACTURING THE PRODUCTS, SHALL MEET THE SPECIFICATIONS
AND STANDARDS OF BOTH PARTIES, WHICH SPECIFICATIONS AND
STANDARDS SHALL BE REASONABLY BASED ON THE HIGHEST IN THE
INDUSTRY. THE PARTIES HERETO SHALL DETERMINE SUCH QUALITY
IN GOOD FAITH.
ARTICLE 17. INVOICING AND FORM OF PAYMENT
17.1 Invoices
(a) AZT shall invoice Innovo upon each shipment of goods
made against an Innovo purchase order. Payments by Innovo
will be made directly to AZT immediately upon receipt of
such invoices.
(b) If Innovo fails to pay any fees or charges when due,
AZT may charge Innovo a late payment charge of one and one-
half percent (1 1/2%) per month on the past due balance.
17.2 Form of Payments Innovo shall remit payments directly
to AZT in the form of cash via a wire transfer.
ARTICLE 18. RISK OF LOSS AZT SHALL BEAR THE RISK OF LOSS
OF, OR DAMAGE TO, THE PRODUCTS, UNTIL DELIVERY IN ACCORDANCE
WITH INSTRUCTIONS FROM INNOVO.
ARTICLE 19. INSPECTION OF THE PRODUCTS INNOVO AND ITS
REPRESENTATIVES MAY, FROM TIME TO TIME, UPON REASONABLE
NOTICE AND DURING REGULAR BUSINESS HOURS, INSPECT THE
MANUFACTURE OF PRODUCTS AND CONDUCT RELATED QUALITY CONTROL.
IN CONNECTION THEREWITH, AZT SHALL PROVIDE REASONABLE
ASSISTANCE AND ACCESS TO AZT'S FACILITIES, PERSONNEL AND
MATERIALS. AZT SHALL COMPLY WITH INNOVO'S REASONABLE
QUALITY AND INSPECTION PROCEDURES DURING PRODUCTION AND
AFTER SHIPMENT, PROVIDED, HOWEVER, THAT AMERICAN EAGLE
OUTFITTERS OR OTHER PURCHASER OF THE PRODUCT(S) FROM INNOVO
SHALL HAVE THE RIGHT OF FINAL DETERMINATION WITH RESPECT TO
QUALITY CONTROL ISSUES.
ARTICLE 20. MUTUAL REPRESENTATIONS AND WARRANTIES
20.1 Each party represents and warrants to the other that it
has the right and authority to enter into this Supply
Agreement and to perform all of its respective obligations
and undertakings herein. Each party further represents and
warrants to the other that (i) the rights and privileges
granted or to be granted hereunder are and will at all times
be free and clear of any liens, claims, charges or
encumbrances; and (ii) neither party has done or omitted to
do, nor will do or omit to do, any act or thing that would
or might impair, encumber, or diminish the other party's
full enjoyment of the rights and privileges granted and to
be granted under this Supply Agreement.
20.2 Each party represents and warrants that it is duly
organized and existing in good standing under the laws of
the jurisdiction in which it is organized, is duly qualified
and in good standing as a foreign corporation in every state
in which the character of its business requires such
qualifications, and has the power to own its property and to
carry on its business as now being conducted.
ARTICLE 21. CONFIDENTIAL INFORMATION
21.1 Each party acknowledges and agrees that it may have
access to information, including, but not limited to,
intellectual property, trade secrets, business information,
ideas and expressions, which are proprietary to and/or
embody the substantial creative efforts of the other party
("Confidential Information"). The parties agree that
Confidential Information will remain the sole and exclusive
property of the disclosing party ("Disclosing Party"), and
the receiving party ("Receiving Party") agrees to maintain
and preserve the confidentiality of such information,
including, but without limitation, taking such steps to
protect and preserve the confidentiality of the Confidential
Information as it takes to preserve and protect the
confidentiality of its own confidential information. All
materials and information disclosed by either party to the
other will be presumed to be Confidential Information and
will be so regarded by the Receiving Party unless, the
Receiving Party can prove that the materials or information
are not Confidential Information. For the purposes of this
section:
21.2 The parties agree that the Confidential Information
will be disclosed for use by the Receiving Party only for
the limited and sole purpose of carrying out the terms of
this Supply Agreement.
21.3 The Receiving Party agrees not to disclose or permit
any other person or entity access to the Confidential
Information, except that such disclosure will be permitted
to an employee, agent, representative or independent
contractor of the Receiving Party requiring access to the
same.
21.4 The Receiving Party agrees (i) not to alter or remove
any identification of any copyright, trademark or other
proprietary rights notice which indicates the ownership of
any part of the Confidential Information, and (ii) to notify
the Disclosing Party of the circumstances surrounding any
possession, use or knowledge of the Confidential Information
by any person or entity other than those authorized by this
Supply Agreement.
21.5 Confidential Information will exclude any information
that (i) has been or is obtained by the Receiving Party from
a source independent of the Disclosing Party and not
receiving such information from the Disclosing Party, (ii)
is or becomes generally available to the public other than
as a result of an unauthorized disclosure by the Disclosing
Party or its personnel, or (iii) is independently developed
by the Receiving Party without reliance in any way on the
Confidential Information provided by the Disclosing Party;
or (iv) the Receiving Party is required to disclose under
judicial order, regulatory requirement, or statutory
requirement, provided that the Receiving Party provides
written notice and an opportunity for the Disclosing Party
to take any available protective action prior to such
disclosure.
ARTICLE 22. INDEMNIFICATION
22.1 AZT's Indemnification AZT hereby agrees to indemnify,
defend, and hold Innovo harmless from any claims, losses,
liabilities, causes of action and costs (including
reasonable attorneys' fees) arising from, or on account of,
or related to any breach by AZT of its obligations,
representations and warranties hereunder.
22.2 Innovo's Indemnification Innovo hereby agrees to
indemnify, defend, and hold AZT harmless from any claims,
losses, liabilities, causes of action and costs (including
reasonable attorneys' fees) arising from, or on account of,
or related to any breach by AZT of its obligations,
representations and warranties hereunder.
ARTICLE 23. GENERAL
23.1 Governing Law This Supply Agreement shall be
interpreted in accordance with the laws of the State of
California, without regard to the conflicts of laws
principles thereof. The parties agree that jurisdiction
over and venue in any legal proceeding arising out of or
relating to this Supply Agreement will exclusively be in the
state or federal courts located in California.
23.2 Entire Agreement This Supply Agreement, including the
Exhibit(s) attached hereto, constitutes the entire agreement
and understanding between the parties and integrates all
prior discussions between them related to its subject
matter. No modification of any of the terms of the
agreement will be valid unless in writing and signed by an
authorized representative of each party.
23.3 Assignment This Supply Agreement may not be assigned
by either party hereto to any other person, firm, or entity
without the express written approval of the other party
hereto and any attempt at assignment in violation of this
section will be null and void.
23.4 Notices All legal notices required or permitted
hereunder will be given in writing addressed to the
respective parties as set forth below and will either be (i)
personally delivered, (ii) transmitted by postage prepaid
certified mail, return receipt requested, or (iii)
transmitted by nationally recognized private express
courier, and will be deemed to have been given on the date
of receipt if delivered personally, or three (3) days after
deposit in mail or express courier. Either party may change
its address for purposes hereof by written notice to the
other in accordance with the provisions of this Subsection.
The addresses for the parties are as follows:
AZT Innovo
AZT International Innovo Azteca Apparel, Inc.
5804 E. Slauson Ave. c/o Innovo Group, Inc.
Commerce, CA, 90040 5900 S.Eastern Avenue
Attn: Hubert Guez Suite 104
Commerce, CA 90040
Attn: Jay Furrow
23.5 Rights to Injunctive Relief Both parties acknowledge
that remedies at law may be inadequate to provide full
compensation in the event of a material breach relating to
either party's obligations, representations, and warranties
hereunder, and the non-breaching party will therefore be
entitled to seek injunctive relief in the event of any such
material breach.
23.6 Force Majeure No party will be liable for, or will be
considered to be in breach of or default under this Supply
Agreement on account of, any delay or failure to perform as
required by this Supply Agreement as a result of any causes
or conditions that are beyond such party's reasonable
control (such as war, riot, insurrection, rebellion, strike,
lockout, unavoidable casualty, or damage to personnel,
material or equipment, fire, flood, storm, earthquake,
tornado, or any act of God) and that such party is unable to
overcome through the exercise of commercially reasonable
diligence. If any force majeure event occurs, the affected
party will give prompt written notice to the other party and
will use commercially reasonable efforts to minimize the
impact of the event. However, if a force majeure event
prevents a party's performance of a material covenant set
forth herein, the other party can immediately terminate this
Supply Agreement.
23.7 Waiver The waiver, express or implied, by either party
of any breach of this Supply Agreement by the other party
will not waive any subsequent breach by such party of the
same or a different kind.
23.8 Headings The headings to the Sections and Exhibits of
this Supply Agreement are included merely for convenience of
reference and will not affect the meaning of the language
included therein.
23.9 Independent Contractors The parties acknowledge and
agree that they are dealing with each other hereunder as
independent contractors. Nothing contained in this Supply
Agreement will be interpreted as constituting either party
the joint venturer, employee or partner of the other party
or as conferring upon either party the power of authority to
bind the other party in any transaction with third parties.
23.10 Severability In the event any provision of this
Supply Agreement is held by a court or other tribunal of
competent jurisdiction to be unenforceable, such provision
will be reformed only to the extent necessary to make it
enforceable, and the other provisions of this Supply
Agreement will remain in full force and effect.
23.11 Counterparts This Supply Agreement may be
executed in two or more counterparts, each of which will be
deemed an original, but all of which together will
constitute one and the same instrument. For purposes hereof,
a facsimile copy of this Supply Agreement, including the
signature pages hereto, will be deemed to be an original.
Notwithstanding the foregoing, the parties will deliver
original execution copies of this Supply Agreement to one
another as soon as practicable following execution thereof.
23.12 Cooperation in Drafting All parties have
cooperated in the drafting and preparation of this Supply
Agreement, and it will not be construed more favorably for
or against any party.
23.13 Attorney's Fees Should either party hereto
initiate a legal or administrative action or arbitration
proceeding (an "Action") to enforce any of the terms or
conditions of this Supply Agreement, the prevailing party
(as determined by the court, arbitrator or other fact-
finder) will be entitled to recover from the losing party
all reasonable costs of the Action, including without
limitation attorneys' fees and costs.
IN WITNESS WHEREOF, the parties have executed this
Supply Agreement as of the Effective Date.
AZTECA INTERNATIONAL, SA DE CV
By: /s/ Hubert Guez
-----------------
Name: Hubert Guez
Title: President
INNOVO AZTECA APPAREL, INC.
By: /s/ Samuel Joseph Furrow, Jr.
-------------------------------
Name: Samuel Joseph Furrow, Jr.
Title: CEO
(Exhibit A to Supply Agreement
Intentionally Left Blank)
Exhibit 99.1
FOR IMMEDIATE RELEASE
Innovo Group Acquires Azteca Productions International's
Blue Concepts Division
LOS ANGELES, July 18, 2003 -- Innovo Group Inc. (NASDAQ:
INNO), a sales and marketing organization designing and
selling branded and private label apparel and accessory
products to the retail and private label markets, announced
today that its wholly owned subsidiary, Innovo Azteca
Apparel, Inc. ("IAA") has completed the acquisition of the
Blue Concepts division ("Blue Concepts") of Azteca
Productions International, Inc. ("Azteca").
Azteca's Blue Concepts division, which sells primarily denim
jeans to American Eagle Outfitters, Inc. ("AEO"), had
revenues of approximately $75 million for the fiscal year
ending January 2003.
Pursuant to the terms of the agreement, IAA has purchased
certain assets of Blue Concepts for $21.8 million.
Additionally, IAA will employ the existing employees of Blue
Concepts but will not assume any of Blue Concept's or
Azteca's existing liabilities.
The purchase price has been funded through the issuance of a
seven-year promissory note (the "Note"). The Note bears an
interest rate of 6% and is an interest only note during the
first 24 months and then is fully amortizing over the
remaining five-year period.
"The addition of Blue Concepts will complement our existing
private label business extremely well and we look forward to
capitalizing on the existing operations and expertise within
Blue Concepts. The acquisition will significantly increase
the revenues of the Company and we believe it will also
greatly increase the overall financial strength of the
Company," said Innovo Group CEO Jay Furrow.
After the transaction is completed, the Company will as soon
as reasonably possible call a shareholder meeting at which
the Company's shareholders shall vote upon the conversion of
a portion of the Note into equity through the issuance of
3,125,000 shares of Company common stock valued at the
greater of $4 per share or the market value of the Company's
common stock at the date shareholder approval is obtained.
In the event shareholder approval is obtained, the Note will
be reduced to $9.3 million and the shares issued pursuant to
the conversion will be non-transferable and "locked up"
during Period I (defined below) and locked up during Period
II (defined below) in such quantities necessary to protect
the Company against any revenue shortfalls by Innovo Blue
Concepts ("IBC") during Period II as discussed in more
detail below (the "Locked Up Shares").
In the event that the sales by the newly formed IBC division
fall below $70 million during the first 17 month period
("Period I") following the closing of the acquisition or $65
million during the 12 month period ("Period II") following
Period I, the Company has negotiated certain provisions
which will allow for a reduction in the purchase price
through a decrease in the principal balance of the Note
and/or the return of Locked Up Shares. In the event the Note
is reduced during Period I and the sales of IBC in Period II
are greater than $65 million, the Note shall be increased by
half of the amount greater that $65 million but in no event
shall the Note be increased by an amount greater than the
decrease in Period I.
In the event the principal amount of the Note needs to be
reduced beyond the outstanding principal balance of such
Note, then an amount of the Locked Up Shares equal to the
balance of the required reduction shall be returned to the
Company. For these purposes, the Locked Up Shares shall be
valued at $4.00 per share. Additionally, if during the 12
month period following the closing, AEO is no longer a
customer of IAA, the Locked Up Shares will be returned to
the Company, and any amount remaining on the balance of the
Note will be forgiven.
If the revenues of IBC decrease to $35 million or less
during Period I or Period II, IAA shall have the right to
sell the purchased assets back to Azteca, and Azteca shall
have the right to buy back the purchased assets for the
remaining balance of the Note and any and all Locked Up
Shares shall be returned to the Company.
As part of the transaction, IAA has entered into a non-
exclusive supply agreement with an affiliate of Azteca for
products to be sold by IBC. In addition, IAA will pay to
Sweet Sportswear, LLC, an Azteca affiliate, an amount equal
to 2.5% of IAA's revenues generated as a result of sales to
AEO.
Exhibit 99.2
Innovo Group's Board of Directors Elects Two New Members
LOS ANGELES, Jul 23, 2003 /PRNewswire-FirstCall via COMTEX/
-- Innovo Group Inc. (Nasdaq: INNO), a sales and marketing
organization designing and selling branded and private label
apparel and accessory products to the retail and private
label markets, announced today that its Board of Directors
has elected two new members to its ranks.
The addition of Kent A. Savage and Vincent Sanfilippo
increases the Board's size to nine members, five of them
outsiders, with the other four members representing the
senior management of Innovo Group.
Kent A. Savage has nearly 20 years of entrepreneurial
experience in the information technology, communications and
networking industry, most recently serving as co-founder for
TippingPoint Technologies, Inc., a publicly traded network
securities company. Prior to that, he was co-founder,
President & CEO of Netpliance, Inc, a pioneering provider of
Internet services. During his tenure, Netpliance, Inc.
achieved a leading market position, raised more than $235
million in capital, and took the company public in an IPO at
a market cap of $1.2 billion.
Earlier, Savage was affiliated in senior management
positions with Cisco Systems, Netspeed, Inc, Connectware,
Nortel and Wang Laboratories. Recognized as an Ernst & Young
Entrepreneuer-of-the-Year finalist, he received his
Bachelors in Business and MBA from Oklahoma State University
and Southern Methodist University, respectively. Savage and
his family reside in Austin, Texas.
Vincent Sanfilippo is Chief Investment Officer and a
Principal of Urdang & Associates Real Estate Advisors, Inc.
Urdang & Associates is a real estate investment management
firm whose clients include Fortune 100 corporate and public
pension funds, foundations and other institutional
investors. The Company's portfolio of real estate
investments is currently valued at approximately $2 billion,
and Sanfilippo has been responsible for originating or
overseeing the acquisition of approximately $3 billion of
real estate assets during his 15 years at the Company.
The recipient of a B.S. degree from the University of
Pennsylvania's Wharton School of Finance, Sanfilippo and his
family reside in the Philadelphia area.
"We are extremely fortunate to have both Kent and Vince join
our Board," said Innovo Group CEO Jay Furrow. "Their
collective experience will lend much guidance to our company
as we seek to move forward aggressively both in growing the
company and maximizing shareholder value."