MEMBERSHIP INTEREST PURCHASE AGREEMENT by and among STEVEN MADDEN, LTD. and The Members of COMPO ENHANCEMENTS, LLC Dated as of May 16, 2007 TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

by and among

 

 

STEVEN MADDEN, LTD.

 

and

 

The Members

 

of

 

COMPO ENHANCEMENTS, LLC

 

Dated as of May 16, 2007

 

 

 

 

 

 

 

 

 

 

 

 

(c)  Other than as set forth on Section 4.14(c) of the Disclosure Schedule, no collective bargaining agreement with respect to the business of the Company is currently in effect or, to the Knowledge of Sellers and the Company, being negotiated.  The Company has no obligation to negotiate any other collective bargaining agreement, and, to the Knowledge of Sellers and the Company, no employees of the Company that are not already so covered desire to be covered by a collective bargaining agreement and  there are no threatened or pending union organizing efforts in connection therewith.

 

(d)  No strike, slowdown or work stoppage is occurring or has occurred since the inception of the Company nor, to the Knowledge of Sellers and the Company, is threatened or has been threatened within the last year, with respect to the employees of the Company.

 

(e)  There is no representation or certification claim or petition pending before any labor agency or board (including the U.S. National Labor Relations Board) of which the Company or any Seller has been notified and, to the Knowledge of Sellers and the Company, no question concerning representation has been raised or threatened respecting the employees of the Company.  No union or employee bargaining agency has applied or threatened to apply to any labor agency or board to have the Company declared a common, related or successor employer pursuant to any applicable Laws.

 

(f)  Except as set forth in Section 4.14(f) of the Disclosure Schedule, no notice has been received by the Company or any Seller of any complaint or proceeding filed against the Company claiming that the Company has or may have violated any applicable employment standards, human rights or other labor legislation or employment Laws, or of any complaints or proceedings of any kind involving the Company or, to the Knowledge of Sellers and the Company, against any of the employees of the Company or threatened to be filed against the Company before any agency, labor relations board or Governmental Body (including, but not limited to, the U.S. National Labor Relations Board and U.S. Equal Employment Opportunity Commission).  No notice has been received by the Company or any Seller of the intent of any agency or other Governmental Body responsible for the enforcement of labor or employment Laws to conduct an investigation of the Company, and no such investigation is in progress.

 

(g)  There are no outstanding orders or charges against the Company under any occupational health or safety legislation and, to the Knowledge of Sellers and the Company, none have been threatened.  All material levies, assessments, penalties, fines, liens and surcharges made against the Company pursuant to all applicable workers compensation legislation as of the date of the Balance Sheet have been paid or have been reserved for or accrued on the Balance Sheet by the Company and the Company has not as of the Closing Date, been reassessed under any such legislation and there are no claims or potential claims which may adversely affect the accident cost experience of the Company.  To the Knowledge of Sellers and the Company, no audit of the Company is being performed or threatened pursuant to any workers’ compensation legislation.  There have been no material levies, assessments or penalties imposed or, to the Knowledge of Sellers and the Company, threatened against the Company since the date of the Balance Sheet.

 

(h)  A schedule has been delivered to Madden setting forth a true, complete and accurate list, as of April 30, 2007, of all of the employees, officers, independent contractors

 

 

 

and consultants of the Company, and with respect to each such employee, officer, independent contractor and consultant:  (i) the total compensation (including, without limitation, salary, bonuses, incentive compensation, fees or other remuneration) received by such individual in the immediately preceding fiscal year of the Company, (ii) such individual’s current compensation, (iii) such individual’s current title, (iv) the number of years of continuous service of such employee or officer and the period of service of such independent contractor or consultant with the Company, and (v) outstanding loans to such individuals.  Amounts have been withheld by the Company from its employees for all periods in compliance with applicable law.  Federal, state, local and foreign returns, as required by applicable law, have been filed by the Company for all periods for which returns were due with respect to employee income tax withholding, social security, employment insurance and unemployment taxes and employer health taxes or premiums and the amounts shown thereof to be due and payable have been paid, together with any interest and penalties that are due as a result of the failure by the Company to file such returns when due and pay when due the amounts shown thereon to be due.  Section 4.14(h) of the Disclosure Schedule accurately sets forth a complete and correct list of all employment, management, consulting or other agreements with any Persons retained by the Company as employees, “leased employees” (within the meaning of Section 414(n) or (o) of the Code or other similar Law), management or other independent consultants, sales representatives, sales or commission agents and distributors, true, complete and accurate copies of which have been delivered to Madden.

 

(i)        Section 4.14(i) of the Disclosure Schedule accurately sets forth all severance or continuing payment obligations (either as part of a plan or otherwise) of the Company, as well as all unpaid severance or continuing payments of any kind (other than pursuant to a plan or program described in Section 4.15 hereof) which are due or claimed in writing to be due from the Company to any Person whose employment with the Company was terminated.  The consummation of the transactions contemplated hereby, either alone or in combination with another event, with respect to each director, officer, employee, independent contractor and consultant of the Company, will not result in (A) any payment (including, without limitation, severance, unemployment compensation or bonus payments) becoming due under any Employee Benefit Plan or agreement, (B) any increase in the amount of compensation, benefits or fees payable to any such individual or (C) any acceleration of the vesting or timing of payment of benefits, compensation or fees payable to any such individual.

 

(j)        Section 4.14(j) of the Disclosure Schedule accurately sets forth all accrued, but unused, vacation time of all employees of the Company as of April 30, 2007 and the policies of the Company with respect thereto.  All amounts due for all salary, wages, bonuses, commissions, vacation with pay and other benefits have either been paid or are accurately reflected on the Balance Sheet.

 

(k)  Except as set forth in Section 4.14(h) of the Disclosure Schedule, each employee of the Company is employed on an at-will basis and the Company has no any written or oral agreements with any employees which would interfere with the ability to discharge such employees. To the Knowledge of Sellers and the Company, no key employee and no group of employees of the Company has any plans to terminate or modify their status as an employee or employees of the Company (including upon consummation of the transactions contemplated hereby).

 

 

 

 

 

(l)        Neither any Seller nor the Company has promised, made any written or oral statements or representations or distributed any written material to, any employees, directors, officers, consultants, independent contractors, agents, representatives or other personnel of the Company regarding continued (x) employment or terms of employment, (y) continued engagement, or (z) continued receipt of any particular benefit, with or from the Company subsequent to the date hereof or the Closing Date.

 

4.15     Employee Benefit Plans.

 

(a)  Section 4.15(a) of the Disclosure Schedule lists all Employee Benefit Plans.  “Employee Benefit Plan” means any “employee benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended from time to time (“ERISA”), all similar plans maintained outside the United States and not required by applicable Law (a “Non-U.S. Plan”) and any other plan, policy, program, practice, agreement, understanding or arrangement (whether written or oral) providing compensation or other benefits to any current or former officer, employee or consultant (or to any dependent or beneficiary thereof), of the Company or any ERISA Affiliate, which are now, or within the last six (6) years were, maintained by the Company or any ERISA Affiliate, or with respect to which the Company or any ERISA Affiliate has or may have any liability, including but not limited to any obligation to contribute, including all employee pension, profit-sharing, savings, retirement, incentive, bonus, deferred compensation, vacation, holiday, cafeteria, medical, disability, life, accident or other insurance, stock purchase, stock option, stock appreciation right, phantom stock, restricted stock or other equity-based compensation plans, and any other plans, policies, programs, practices or arrangements.  “ERISA Affiliate” means any entity (whether or not incorporated) other than the Company that, together with the Company, is or could reasonably be expected to be deemed to be a member of a controlled group of corporations within the meaning of Section 414(b) of the Code, of a group of trades or businesses under common control within the meaning of Section 414(c) of the Code.

 

(b)  Section 4.15(b) of the Disclosure Schedule sets forth each employment agreement, contract or Employee Benefit Plan that is subject to Section 409A of the Code and any such Employee Benefit Plan has been operated in good faith compliance with available treasury guidance since January 1, 2005.

 

(c)  The Company has delivered to Madden true, complete and accurate copies of (i) any employment or severance agreements and any procedures and policies relating to the employment of employees of the Company and the use of temporary employees and independent contractors by the Company (including written summaries of any procedures and policies that are unwritten), (ii) plan texts, instruments and amendments thereto (including written summaries of any unwritten plan or amendment) for all Employee Benefit Plans and related trust agreements, insurance and other contracts (including policies), summary plan descriptions, and summaries of material modifications and material communications distributed to the participants of each Employee Benefit Plan (and written summaries of any other communications that were not written), and (iii) forms or written communications explaining employee and related beneficiaries rights under Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code (“COBRA”), or certifying group health insurance coverage pursuant to Part 7 of Subtitle B of Title I of ERISA and Chapter 100 of the Code (“HIPAA”).

 

 

 

 

 

(d)  Neither the Company nor any ERISA Affiliate maintains or contributes to, or has ever maintained or contributed to, a “pension plan” within the meaning of Section 3(2) of ERISA.

 

(e)  The Company has never maintained an Employee Benefit Plan that is a severance plan or program.

 

(f)        No event has occurred in connection with which the Company or any Employee Benefit Plan, directly or indirectly, could be subject to any liability under ERISA, the Code or any other Law or governmental order applicable to any Employee Benefit Plan.  Neither the Company nor any ERISA Affiliate has agreed to indemnify or is required to indemnify any person against liability incurred under, or for a violation or failure to satisfy the requirements of, any Law.

 

(g)  Each Employee Benefit Plan may, by its terms, be amended or terminated at any time, and no additional liabilities to the Company or to such plan will arise on account of any such termination (including, but not limited to, retrospective premium adjustments or early cancellation penalties).

 

(h)  There are no actions, claims (other than routine claims for benefits), lawsuits or arbitrations pending or threatened with respect to any Employee Benefit Plan or against any fiduciary of any Employee Benefit Plan, and there are no facts that could give rise to any such actions, claims, lawsuits or arbitrations.

 

(i)        Each Employee Benefit Plan which is a “welfare plan” within the meaning of Section 3(1) of ERISA and which provides health, disability or death benefits is fully insured.

 

(j)        No Employee Benefit Plan provides for post-retirement medical, health, life or death benefits (through insurance or otherwise) or provides for the continuation of such benefits or coverage for any participant or any dependent or beneficiary of any participant after such participant’s retirement or other termination of employment, except as may be required by COBRA or any other similar law.  There has been no communication to any person providing services to the Company that that could reasonably be expected to promise or grant any such person any retiree health or life insurance or any retiree death benefits, except as required by COBRA or any other similar law.

 

(k)  All notices, filings and disclosures required by ERISA and the Code (including COBRA notices and the provision of summary plan descriptions) have been timely made.

 

(l)        The Company has not proposed, announced or agreed to create any additional Employee Benefit Plans or to amend or modify any Employee Benefit Plan in a manner that would (i) cause an increase in benefits under such Employee Benefit Plan, (ii) cause the creation of new benefits or (iii) change any employee coverage that would cause an increase in the expense of maintaining such Plan.

 

(m)      The consummation of the transactions contemplated by this Agreement, either alone or in combination with any other event, will not result in (i) any payment (including,

 

 

 

 

 

 

without limitation, severance, unemployment compensation, bonus payments or otherwise) becoming due to any current or former director, officer, employee or consultant of the Company, (ii) any increase in the amount of compensation or benefits payable in respect of any director, officer, employee or consultant of the Company, (iii) any acceleration of the vesting or timing of payment of any benefits or compensation payable in respect of any director, officer, employee or consultant of the Company, or (iv) any “parachute payment” under Section 280G of the Code, whether or not such amount may be considered reasonable compensation for personal services rendered.

 

(n)  There are no pending or threatened investigations by any Governmental Body involving or relating to any Employee Benefit Plan or pending claims (except for routine claims for benefits payable in the normal operation of the Employee Benefit Plans), suits or proceedings against any Employee Benefit Plan, the Company, any Seller, the trustees of any Seller, or any fiduciary or trustee of any Employee Benefit Plan, nor, to the Knowledge of Sellers and the Company, are there any facts that could give rise to any liability in the event of such investigation, claim, suit or proceeding.

 

(o)  No condition exists as a result of which the Company could have any material liability, whether actual or contingent, including any obligation under any Employee Benefit Plan, as a result of or arising out of any misclassification of any person performing services for the Company as an independent contractor or the employee of a third party rather than as an employee of the Company.

 

(p)  Section 4.15(p) of the Disclosure Schedule sets forth annual costs for the last calendar year associated with the maintenance of each Employee Benefit Plan, including, without limitation, annual premiums and contributions.

 

(q)  Section 4.15(q) of the Disclosure Schedule sets forth a true, complete and accurate list of (i) all agreements with consultants obligating the Company to make annual cash payments in an amount exceeding $25,000; and (ii) all agreements with respect to the services of “leased employees” (within the meaning of Section 414(n) or (o) of the Code) whether or not such “leased employees” participate in any of the Employee Benefit Plans.  No individual performs services for the Company as an employee of a third party, including any “leased employee.”

 

(r)        No Employee Benefit Plan that is not a Non-U.S. Plan covers any non-U.S. employees.

 

4.16     Environmental Matters.

 

(a)  Except as set forth in Section 4.16 of the Disclosure Schedule:

 

(i)  the Company is in material compliance with all applicable Environmental Laws;

 

                                    (ii)     the Company possess all Environmental Permits that are required for the lawful operation of the business and each such Environmental Permit is in full force and effect and the Company is in compliance with such Environmental Permits and

 

 

 

 

         no proceeding is pending or to the Knowledge of Sellers and the Company threatened and no grounds exist to revoke, suspend, modify or limit any such Environmental Permit;

 

                                    (iii)     neither any Seller nor the Company has received any oral or written notice with respect to the business of, or any property currently or formerly owned or leased by the Company

                 from any Governmental Body or Person alleging that the Company is in violation of any Environmental Law;

 

                                    (iv)     neither any Seller nor the Company has received any oral or written notice from any Governmental Body or Person that it is or may be required to conduct any Remedial Action

                 as a result of the operation of its business, or on any property currently or formerly owned or leased by the Company;

 

                                    (v)      there has been no Release of a Hazardous Material at or from any real property currently or formerly owned or leased by the Company that would subject the Company to liability

                 under any Environmental Law, nor has any Seller or the Company received written notice that it is a potentially responsible party under any Environmental Law; and

 

                                    (vi)     the Company has not managed, handled, generated, manufactured, refined, recycled, discharged, emitted, buried, processed, produced, reclaimed, stored, treated, transported, or

                 disposed of any Hazardous Substance, except in compliance with all Environmental Laws.

 

(b)  Sellers have provided Madden with all environmental audits or assessments in the possession of the Company relating to the business of, or any property owned or leased by, the Company.

 

4.17     Bank Accounts and Powers of Attorney.  Section 4.17 of the Disclosure Schedule sets forth the name of each bank in which the Company has an account, lock box or safe deposit box, the number of each such account, lock box and safe deposit box, and the names of all Persons authorized to draw thereon or have access thereto.  Except as set forth in Section 4.17 of the Disclosure Schedule, no Person holds any power of attorney from the Company.

 

4.18     Absence of Certain Changes.  Since the date of the Balance Sheet, the Company has operated its business in the ordinary course and has maintained its relationships with customers, vendors, suppliers, employees, agents and others in a commercially reasonable manner, and there has not occurred any event, development or change which, individually or in the aggregate, has had or could be reasonably expected to have a Material Adverse Effect. Without limiting the generality of the immediately preceding sentence and except as set forth in Section 4.18 of the Disclosure Schedule, since the date of the Balance Sheet, the Company has not:

 

                                    (i)  amended or otherwise modified its organizational documents (including, as applicable, its articles or organization, certificate of formation, operating agreement or articles of

         association) or altered, through merger, liquidation, reorganization, restructuring or in any other fashion its corporate structure or ownership;

 

 

 

 

                                    (ii)      issued or sold, or authorized for issuance or sale, or granted any options or made other agreements, arrangements or understandings of the type referred to in Section 4.2(b)

                 with respect to any of its ownership interests or any other of its securities or altered any term of any of its outstanding ownership interests (or other securities) or made any change in its outstanding

                 ownership interests or other securities or its capitalization, whether by reason of a reclassification, recapitalization, stock or interest split or combination, exchange or readjustment of interests or

                 shares, dividend or otherwise;

 

                                            (iii)     mortgaged, pledged or granted any security interest in any of its assets, except Permitted Encumbrances and security interests solely in tangible personal property granted

                 pursuant to any purchase money agreement, conditional sales contract or capital lease under which, solely with respect to conditional sales contracts and capital leases, there exists an aggregate

                 future liability not in excess of $25,000 per contract or lease (which amount was not more than the purchase price for such personal property and which security interest does not extend to any other

                 item or items of personal property);

 

                                    (iv)    declared, set aside, made or paid any dividend or other distribution to any holder with respect to its ownership interests or other securities;

 

                                    (v)     redeemed, purchased or otherwise acquired, directly or indirectly, any of its ownership interests or other securities;

 

                                    (vi)    increased the compensation of any of its non-executive employees, except in the ordinary course of business and in a commercially reasonable manner, or increased the

                 compensation of any of its executive officers;

 

                                    (vii)   adopted or, except as required by Law, amended, any Employee Benefit Plan;

 

                                    (viii)  extended, terminated or modified any Contract, permitted any renewal notice period or option period to lapse with respect to any Contract or received any written notice of

                 termination of any Contract, except for terminations of Contracts upon their expiration during such period in accordance with their terms;

 

                                    (ix)     incurred or assumed any indebtedness for borrowed money or guaranteed any obligation or the net worth of any Person, except for endorsements of negotiable instruments for

                 collection in the ordinary course of business and in a commercially reasonable manner;

 

                                    (x)      incurred any liability, debt or obligation (whether absolute, accrued, contingent or otherwise) to or of any Affiliated Person, or made any Affiliate Loans;

 

                                    (xi)     discharged or satisfied any Encumbrance other than those then required to be discharged or satisfied during such period in accordance with their original terms;

 

 

 

 

                                    (xii)    paid any material obligation or liability (absolute, accrued, contingent or otherwise), whether due or to become due, except for any current liabilities, and the current portion of

         any long term liabilities shown on the Financial Statements or incurred since the date of the Balance Sheet in the ordinary course of business and in a commercially reasonable manner;

 

                                    (xiii)   sold, transferred, leased to others or otherwise disposed of any assets having a fair market value in excess of $25,000, except sales of inventory in the ordinary course of

                 business and dispositions of obsolete assets no longer used or useful in the business of the Company, in each case in the ordinary course of business and in a commercially reasonable manner;

 

                                    (xiv)   cancelled, waived or compromised any debt or claim;

 

                                    (xv)    suffered any damage or destruction to, loss of, or condemnation or eminent domain proceeding relating to any of its tangible properties or assets (whether or not covered by

          insurance) which has had or would reasonably be likely to have a Material Adverse Effect;

 

                                    (xvi)   lost the employment services of any employee whose annual salary exceeded $25,000;

 

                                    (xvii)  made any loan or advance to any Person, other than travel and other similar routine advances to employees in the ordinary course of business and in a commercially reasonable

                 manner;

 

                                   (xviii)  purchased or acquired any capital stock or other securities of any other corporation or any ownership interest in any other business enterprise or Person;

 

                                    (xix)   made any capital expenditures or capital additions or betterments in amounts which exceeded $25,000, in the aggregate;

 

                                    (xx)    changed its method of accounting or its accounting principles or practices, including any policies or practices with respect to the establishment of reserves for work-in-process

                 and accounts receivable, utilized in the preparation of the Financial Statements, other than as required by GAAP;

 

                                    (xxi)   instituted or settled any litigation or any legal, administrative or arbitration action or proceeding before any court or Governmental Body relating to it or any of its properties or 

                 assets;

 

                                    (xxii)  made any settlements or new elections or changed any current elections with respect to its Taxes;

 

                                   (xxiii)  entered into any transaction with any Affiliated Person not otherwise disclosed in the Disclosure Schedule;

 

 

 

 

 

                                   (xxiv)  entered into any agreements, commitments or contracts, except those made in the ordinary course of business and in a commercially reasonable manner; or

 

                                    (xxv)  entered into any agreement or commitment to do any of the foregoing.

 

4.19    Books and Records.  The books and records of the Company with respect to the Company, its operations, employees and properties have been maintained in the usual, regular and ordinary manner, all entries with respect thereto have been accurately made, and all transactions involving the Company have been accurately accounted for.

 

4.20    Transactions with Affiliated Persons.

 

(a)  Except (i) for employment relationships otherwise disclosed pursuant to this Agreement between employees and the Company, (ii) for remuneration by the Company for services rendered as a director, officer or employee of the Company, or (iii) as set forth in Section 4.20(a) of the Disclosure Schedule, (A) the Company does not, and has not since its inception, in the ordinary course of business or otherwise, directly or indirectly, purchased, leased or otherwise acquired any property or obtained any services from, or sold, leased or otherwise disposed of any property or furnished any services to any Affiliated Person; (B) the Company does not owe any amount to any Affiliated Person; (C) no Affiliated Person owes any amount to the Company; and (D) no part of the property or assets of any Affiliated Person is used by the Company in the conduct or operation of the business of the Company.

 

(b)  Except as set forth in Section 4.20(b) of the Disclosure Schedule, the Company has no outstanding any Affiliate Loans.

 

4.21    Absence of Certain Business Practices.  Neither Sellers, the Company, nor any of their directors or officers, nor to the Knowledge of Sellers and the Company, any of the employees or agents of the Company or any of their respective shareholders, directors, officers, employees or agents, have directly or indirectly (a) made any contribution or gift which contribution or gift is in violation of any applicable Law, (b) made any bribe, rebate, payoff, influence payment, kickback or other payment to any Person, private or public, regardless of form, whether in money, property or services (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained for or in respect of the Company or any Affiliated Person, or (iv) in violation of any Law or legal requirement, or (c) established or maintained any fund or asset of the Company that has not been recorded in the books and records of the Company.

 

4.22     Brokers and Finders.  Except as set forth in Section 4.22 of the Disclosure Schedule, no broker, finder or investment advisor has been engaged by Sellers or the Company in connection with the transactions contemplated by this Agreement.  Sellers (and not the Company) shall be responsible for and shall pay all fees, commissions and costs of any such broker, finder or investment advisor.

 

 

 

4.23     Restrictions on Business Activities.  Except as set forth in Section 4.23 of the Disclosure Schedule, there is no judgment, injunction, order or decree binding upon the Company or any Seller or, to the Knowledge of Sellers and the Company, threatened, that has or could reasonably be expected to have the effect of prohibiting or impairing the conduct of the business by the Company as currently conducted or any business practice of the Company, including the acquisition of property, the sale of products, the provision of services, the hiring of employees, and the solicitation of customers, in each case either individually or in the aggregate.

 

4.24     Payables.  Except as set forth in Section 4.24 of the Disclosure Schedule, all accounts payable of the Company  have arisen in the ordinary course of business.  All items which are required by GAAP to be reflected as payables on the Financial Statements and on the books and records of the Company are so reflected and have been recorded in accordance with GAAP and in a commercially reasonable manner.  There has been no material adverse change since April 30, 2007 in the amount or delinquency of accounts payable of the Company.

 

4.25     Receivables.  Except as set forth in Section 4.25 of the Disclosure Schedule, all accounts receivable of the Company  have arisen in the ordinary course of business, represent valid obligations to the Company arising from bona fide transactions, and are not subject to claims, set-off, or other defenses or counterclaims.  All items which are required by GAAP to be reflected as receivables on the Financial Statements and on the books and records of the Company are so reflected and have been recorded in accordance with GAAP and in a commercially reasonable manner.

 

4.26     Business Relations.  Other than as set forth in Section 4.26 of the Disclosure Schedule, (i) the Company is not required to provide any bonding or any other financial security arrangements in connection with any transaction with any customer or supplier, (ii) since April 30, 2007, neither any Seller nor the Company has received any notice of any disruption (including delayed deliveries or allocations by suppliers) in the availability of any materials or products used in the Company’s business, nor do any of them have reason to believe that any such disruption will occur in connection with the business of the Company, other than as set forth in Section 4.26 of the Disclosure Schedule.  Other than as set forth in Section 4.26 of the Disclosure Schedule, there are no sole source suppliers of goods, equipment or services used by the Company (other than public utilities) with respect to which practical alternative sources of supply are unavailable.

 

4.27     Disclosure.  No representation or warranty by Sellers contained in this Agreement or any Transaction Document or any statement or certificate furnished by Sellers to Madden or its representatives in connection herewith or therewith or pursuant hereto or thereto contains any untrue statement of a material fact, or omits to state any material fact required to make the statements herein or therein contained not misleading.  There is no fact (other than matters of a general economic or political nature which do not affect the Company’s business uniquely) known to Sellers which might reasonably be expected to have a Material Adverse Effect.

 

 

 

 

 

Madden represents and warrants to Sellers as follows:

 

5.1  Organization and Good Standing.  Madden is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to enter into and carry out its obligations under this Agreement.

 

5.2  Authorization.  The execution and delivery by Madden of this Agreement and the other Transaction Documents to which Madden is a party have been duly authorized by all necessary corporate action required on the part of Madden.  This Agreement and the other Transaction Documents to which Madden is a party have been duly executed and delivered by Madden and, assuming due authorization, execution and delivery by Sellers and/or the Company, as applicable, constitute legal, valid and binding obligations of Madden, enforceable against Madden in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other laws affecting the rights of creditors generally and by general principles of equity.

 

5.3  No Conflicts; Consents.  Neither the execution and delivery by Madden of this Agreement nor any of the Transaction Documents to which Madden is a party nor the consummation by Madden of the transactions contemplated hereby or thereby will (i) conflict with or violate the charter or by-laws of Madden, or (ii) conflict with, violate, result in the breach of any term of, constitute a default under or require the consent or approval of or any notice to or filing with any Person under, any note, mortgage, deed of trust or other agreement or instrument to which Madden is a party or by which Madden is bound, or any Law, decree, writ or injunction of any Governmental Body having jurisdiction over Madden, except with respect to clause (ii) where such conflict, violation, breach or default, or the failure to obtain such consent or approval, give such notice or make such filing, would not materially adversely impair the ability of Madden to consummate the transactions contemplated hereby.

 

5.4  Litigation.  No lawsuit, governmental investigation or legal, administrative, or arbitration action or proceeding is pending or, to the Knowledge of Madden, threatened against Madden, or any director, officer or employee of Madden in his or her capacity as such, which questions the validity of this Agreement or seeks to prohibit, enjoin or otherwise challenge the consummation of the transactions contemplated hereby.

 

5.5  Brokers and Finders.  Except as set forth in Section 5.5 of the Madden Disclosure Schedule, no broker, finder or financial advisor has been engaged by Madden in connection with the transactions contemplated by this Agreement.  Madden shall be responsible for and shall pay all fees, commissions and costs of any such broker, finder or financial advisor.

 

5.6  Investment Intent.  Madden is acquiring all of the Company Interests for its own account and for investment purposes and not with a view to the sale or other distribution of any of the Company Interests.

 

 

 

 

 

5.7  Sufficient Funds.  At the Closing, Madden will have all funds necessary and sufficient to enable Madden to perform its obligations under this Agreement and to consummate the transactions contemplated hereby.

 

 

 

Sellers hereby covenant and agree as follows:

 

6.1  Ordinary Course.  From the date hereof until the Closing, other than as contemplated by this Agreement or as set forth in Section 6.1 of the Disclosure Schedule, Sellers will (a) cause the Company  to (i) maintain its existence in good standing, (ii) maintain in effect all of its presently existing insurance coverage (or substantially equivalent insurance coverage), preserve its business organization substantially intact, keep the services of its present principal employees and preserve its present business relationships with its material suppliers and customers, (iii) maintain the lines of business of the Company, and (iv) in all respects conduct its business in the usual and ordinary course and in a commercially reasonable manner, without a material change in current operational policies, and (b) permit Madden, its accountants, its legal counsel and its other representatives reasonable access to the management, accountants, legal counsel, minute books and stock or interest transfer records, other books and records, contracts, agreements, properties and operations of the Company at all reasonable times upon reasonable notice, subject, in each case to the restrictions set forth in Section 6.2.

 

6.2  Conduct of Business.  From the date hereof until the Closing, other than as contemplated by this Agreement or as set forth in Section 6.2 of the Disclosure Schedule, Sellers will cause the Company not to do any of the following without the prior written consent of Madden (either individually or in the aggregate):

 

(i)  amend or otherwise modify its organizational documents (including, as applicable, articles of organization, certificate of formation, operating agreement or articles of association)

                 or alter, through merger, liquidation, reorganization, restructuring or in any other fashion, its structure or ownership;

 

                                            (ii)      other than pursuant to Section 2.1, issue or sell, or authorize for issuance or sale, or grant any options or make other agreements, arrangements or understandings of the type

                 referred to in Section 4.2(b) with respect to any of its ownership interests or any other of its securities, or alter any term of any of its outstanding ownership interests (or other securities) or make any

                 change in its outstanding ownership interests or other securities or its capitalization, whether by reason of a reclassification, recapitalization, stock or interest split or combination, exchange or

                 readjustment of interests or shares, dividend or otherwise;

 

                    (iii)     mortgage, pledge or grant any security interest in any of its assets, except (A) Permitted Encumbrances and (B) security interests solely in tangible personal property granted

                 pursuant to any purchase money agreement, conditional sales contract or capital lease under which, solely with respect to conditional sales contracts and capital

 

 

 

 

                 leases, there exists an aggregate future liability not in excess of $25,000 per contract or lease (which amount is not more than the purchase price for such personal property and which security interest

                does not extend to any other item or items of personal property);

 

                                            (iv)    declare, set aside, make or pay any dividend or other distribution to any holder with respect to its ownership interests or other securities;

 

                                            (v)     redeem, purchase or otherwise acquire, directly or indirectly, any of its ownership interests or other securities;

 

                                            (vi)    increase the compensation of any of its non-executive employees, except in the ordinary course of business and in a commercially reasonable manner, or increase the

 

                 compensation of any of its executive officers;

 

                                            (vii)   adopt or, except as otherwise required by Law, amend, any Employee Benefit Plan or enter into any collective bargaining agreement;

 

                                           (viii)   extend, terminate or modify any Contract or permit any renewal notice period or option period to lapse with respect to any Contract, except for terminations of Contracts upon their

                 expiration during such period in accordance with their terms;

 

                                           (ix)      incur or assume any indebtedness for borrowed money or guarantee any obligation or the net worth of any Person, except for endorsements of negotiable instruments for

                 collection in the ordinary course of business;

 

                                            (x)  incur any liability, debt or obligation (whether absolute, accrued, contingent or otherwise) to or of any Affiliated Person, or make any Affiliate Loans;

 

                                            (xi)     discharge or satisfy any Encumbrance other than those which are required to be discharged or satisfied during such period in accordance with their original terms;

 

                                            (xii)    pay any material obligation or liability (absolute, accrued, contingent or otherwise), whether due or to become due, except for any current liabilities, and the current portion of any

                 long term liabilities shown on the Financial Statements or incurred since the date of the Balance Sheet in the ordinary course of business and in a commercially reasonable manner;

 

                                           (xiii)    sell, transfer, lease to others or otherwise dispose of any of its properties or assets having a fair market value in excess of $25,000, except sales of inventory and dispositions of

                 obsolete assets no longer used or useful in its business, in each case in the ordinary course of business and in a commercially reasonable manner;

 

                                            (xiv)   cancel, waive or compromise any debt or claim;

 

 

 

                                            (xv)    make any loan or advance to any Person, other than travel and other similar routine advances to employees in the ordinary course of business and in a commercially reasonable

                 manner;

 

                                            (xvi)   purchase or acquire any capital stock or other securities of any other corporation or any ownership interest in any other business enterprise or Person;

 

                                           (xvii)   make any capital expenditures or capital additions or betterments in amounts which exceed $25,000 in the aggregate;

 

                                          (xviii)   change its method of accounting or its accounting principles or practices, including any policies or practices with respect to the establishment of reserves for work-in-process,

                 inventory and accounts receivable, utilized in the preparation of the Financial Statements, other than as required by GAAP;

 

                                           (xix)     institute or settle any litigation or any legal, administrative or arbitration action or proceeding before any court or Governmental Body relating to it or any of its properties or

                 assets;

 

                                           (xx)      make any settlements or new elections, or change any current elections, with respect to its Taxes;

 

                                            (xxi)    (a) enter into any agreements, commitments or contracts for any Real Property leases, (b) terminate or close any facility or operation, or (c) surrender or diminish any leasehold

                 interest of the Company in any Real Property Interest;

 

                                           (xxii)    enter into any transaction with any Affiliated Person;

 

                                           (xxiii)   enter into any other agreements, commitments or contracts, except those made in the ordinary course of business and in a commercially reasonable manner; or

 

                                           (xxiv)   enter into any agreement or commitment to do any of the foregoing.

 

6.3  Certain Filings.  Sellers agree to make or cause to be made all filings with Governmental Bodies that are required to be made by Sellers or by the Company to carry out the transactions contemplated by this Agreement.  Sellers agree to assist, and to cause the Company to assist Madden in making all such filings, applications and notices as may be necessary or desirable in order to obtain the authorization, approval or consent of any Governmental Body which may be reasonably required or which Madden may reasonably request in connection with the consummation of the transactions contemplated hereby.

 

6.4  Consents and Approvals.  Sellers agree to use their good faith commercially reasonable efforts to obtain, or to cause the Company to obtain, as promptly as practicable, but not later than the Closing in any event, all consents, authorizations, approvals and waivers required in connection with the consummation of the transactions contemplated by this Agreement.

 

 

 

6.5  Efforts to Satisfy Conditions.  Sellers agree to use their good faith commercially reasonable efforts to satisfy the conditions set forth in Article IX.

 

6.6  Further Assurances.  Sellers agree to execute and deliver, and to cause the Company to execute and deliver, such additional documents and instruments, and to perform such additional acts as Madden may reasonably request to effectuate or carry out and perform all the terms, provisions and conditions of this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby and to effectuate the intent and purposes hereof.

 

6.7  Notification of Certain Matters.  Promptly after obtaining knowledge thereof, Sellers shall notify Madden in writing of (a) the occurrence or non-occurrence of any fact or event which causes or would be reasonably likely to cause (i) any representation or warranty of Sellers contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Closing Date or (ii) any covenant, condition or agreement of Sellers in this Agreement not to be complied with or satisfied in any material respect, and (b) any failure of Sellers to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by Sellers hereunder in any material respect; provided, however, that no such notification shall affect the representations or warranties of Sellers, or the right of Madden to rely thereon, or the conditions to the obligations of Madden except as provided in the following sentence.  If Sellers notify Madden in writing of any matter referred to in the preceding clause (a)(i) and Madden nevertheless consummates the transactions contemplated hereby, Madden shall have no claim against Sellers for a breach of such representation or warranty based on the information contained in such notification.  Sellers shall give prompt notice in writing to Madden of any notice or other communication from any third party alleging that the consent of such third party is or may be required to be obtained by Sellers or the Company in connection with the transactions contemplated by this Agreement.

 

 

 

Madden hereby covenants and agrees as follows:

 

7.1  Certain Filings.  Madden agrees to make or cause to be made all filings with Governmental Bodies that are required to be made by Madden or its affiliates to carry out the transactions contemplated by this Agreement.  Madden agrees to assist Sellers in making all such filings, applications and notices as may be necessary or desirable in order to obtain the authorization, approval or consent of any Governmental Body which may be reasonably required or which Sellers may reasonably request in connection with the consummation of the transactions contemplated hereby.

 

7.2  Efforts to Satisfy Conditions.  Madden agrees to use its good faith commercially reasonable efforts to satisfy the conditions set forth in Article X hereof that are within its control.

 

 

 

7.3  Further Assurances.  Madden agrees to execute and deliver such additional documents and instruments, and to perform such additional acts, as Sellers may reasonably request to effectuate or carry out and perform all the terms, provisions and conditions of this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby to effectuate the intent and purposes hereof.

 

7.4  Notification of Certain Matters.  Promptly after obtaining knowledge thereof, Madden shall notify Sellers of (a) the occurrence or non-occurrence of any fact or event which causes or would be reasonably likely to cause (i) any representation or warranty of Madden contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Closing Date or (ii) any covenant, condition or agreement of Madden in this Agreement not to be complied with or satisfied in any material respect and (b) any failure of Madden to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder in any material respect; provided, however, that no such notification shall affect the representations or warranties of Madden or Sellers’ right to rely thereon, or the conditions to the obligations of Sellers except as provided in the following sentence.  If Madden notifies Sellers in writing of any matter referred to in the preceding clause (a)(i) and Sellers nevertheless consummate the transactions contemplated hereby, Sellers shall have no claim against Madden for a breach of such representation or warranty based on the information contained in such notification.  Madden shall give prompt notice in writing to Sellers of any notice or other communication from any third party alleging that the consent of such third party is or may be required to be obtained by Madden in connection with the transactions contemplated by this Agreement.

 

 

 

8.1  Certain Tax Matters.  The parties hereby further covenant and agree as follows:

 

(a)  Tax Returns and Cooperation.

 

                    (i)  Sellers shall, or shall use good faith commercially reasonable efforts to cause the Company to, prepare and timely file, in a commercially reasonable manner, (x) all Returns and

                 amendments thereto required to be filed by or for the Company for all taxable periods ending on or before the Closing Date.  Madden will be given a reasonable opportunity to review and comment on

                all such Returns required to be filed after the date hereof.

 

                    (ii)      Sellers shall be liable for all Taxes of the Company for all Pre-Closing Periods (other than to the extent that the liability for those Taxes is provided for on the Final Closing Balance

                 Sheet) and all Taxes of Sellers for any taxable year or taxable period.  Notwithstanding the foregoing, in the case of any taxable period that includes (but does not begin or end on) the Closing Date (a

                 “Straddle Period”), the portion of the Taxes of the Company for such Straddle Period attributable to the period prior to close of the Closing Date shall be treated as Taxes of a Pre-Closing Period for

 

 

 

                 purposes of this Section 8.1(a)(ii).  The amount of Straddle Period Taxes of the Company that are treated as Taxes of a Pre-Closing Period shall be computed (x) in the case of income, franchise, sales,

                 or similar Taxes, pursuant to an interim closing of the books method by assuming that the Company had a taxable year or period which ended on the Closing Date, except that exemptions, allowances

                 or deductions that are calculated on an annual basis, such as the deduction for depreciation, shall be apportioned on a per-diem basis and (y) in the case of real property Taxes, personal property taxes

                 and similar ad valorem obligations by prorating such Taxes owed for the Straddle Period on a per-diem basis.

 

                                            (iii)     Except as provided above with respect to Straddle Periods, the Company shall be liable for any and all Taxes imposed on them relating to or apportioned to any taxable year or

                 portion thereof beginning on or after the Closing Date and ending after the Closing Date.

 

                                            (iv)    Madden and Sellers shall each cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Returns pursuant to this Section 8.1

                 (a) and any audit, litigation or other proceeding with respect to Taxes.  Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which

                 are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any

                 material provided hereunder.  Sellers (before the Closing) and Madden (after the Closing) shall each cause the Company (A) to retain all books and records with respect to Tax matters pertinent to them

                 relating to any taxable period beginning before the Closing Date until the expiration of the statutory period of limitations of the respective taxable periods, and to abide by all record retention

                 agreements entered into with any taxing authority, and (B) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other

                 party so requests, Sellers or Madden, as the case may be, shall allow the other party to take possession of such books and records.

 

                                            (v)      Madden and Sellers further agree, upon request, to use good faith commercially reasonable efforts to obtain any certificate or other document from any Governmental Body or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby); provided that such certificate or other document does not increase the Tax of Madden or Sellers.

 

8.2  Company Payments.  Simultaneously with the payment of the Purchase Price, Madden shall make a capital contribution to the Company of one million nine hundred thousand dollars ($1,900,000), which the Sellers have directed the Company to pay as set forth on Schedule B attached hereto.

 

8.3  Matters Relating to Sellers other than Silverman.

 

(a)  Notwithstanding anything herein to the contrary, Madden hereby acknowledges that, other than as a result of a breach by a Seller of such Seller’s representations

 

 

 

in the third sentence of Section 4.2(a) of this Agreement, only Silverman (and no other Seller) shall have any liability to Madden of any kind or nature with respect to this Agreement or the Transaction Documents.  Madden hereby acknowledges that it has not relied on any representation, warranty, statement or communication or, lack thereof, from any of the Sellers other than Silverman, except with respect to each Seller’s representations in third sentence of Section 4.2(a) of this Agreement.  Madden acknowledges that it has performed its own due diligence with respect to its acquisition of the Company.  Except as set forth in this Section 8.3(a) Madden hereby releases each and all of the Sellers other than Silverman from any and all liability or obligation of any kind or nature whatsoever from now until the end of time with respect to this Agreement or the Transaction Documents or any other theory of law by which a Seller could have any liability or obligation to Madden.

 

(b)  In the event that the personal guarantee of Randel under that certain  Equipment Lease Agreement, dated April 21, 2006, between the Company and General Electric Capital Corporation shall not be terminated as of the Closing, Madden shall indemnify Randel for any amount Randel pays with respect to such guarantee.

 

 

 

The obligations of Madden under Article II and Article III shall be subject to the satisfaction at or prior to the Closing of the following conditions, any one or more of which may be waived by Madden:

 

9.1  Representations and Warranties.  Each and every representation and warranty of Sellers contained in this Agreement, and any schedule or any certificate delivered pursuant hereto, shall have been true, complete and accurate when made and shall be repeated at the Closing and (a) if qualified by materiality (or any variation of such term), shall be true, complete and accurate as of the Closing Date, except that any such representation or warranty that is made as of a specified date shall only be required to be true, complete and accurate as of that date, and (b) if not qualified by materiality (or any variation of such term), shall be true, complete and accurate in all material respects as of the Closing Date, except that any such representation or warranty that is made as of a specified date shall only be required to be true, complete and accurate in all material respects as of that date.

 

9.2  Compliance with Covenants.  Sellers shall have performed and observed all covenants and agreements to be performed or observed by Sellers under this Agreement at or before the Closing.

 

9.3  Lack of Adverse Change.  Since the date of the Balance Sheet, there has not occurred any circumstance or event which, individually or in the aggregate, has had or is reasonably likely to result in a Material Adverse Effect, including a material decrease in the revenue of the Company.

 

 

 

9.4  Update Certificate.  Madden shall have received a favorable certificate, dated  the Closing Date, signed by Silverman as to the matters set forth in Sections 9.1, 9.2 and 9.3.

 

9.5  Regulatory Approvals.  All approvals and consents of Governmental Bodies required to carry out the transactions contemplated by this Agreement shall have been obtained.

 

9.6  Consents of Third Parties.  All consents from third parties to Contracts or otherwise that are required to be listed in Section 4.4 of the Disclosure Schedule in order to avoid a misrepresentation under Section 4.4 shall have been obtained in writing in a form reasonably satisfactory to Madden.

 

9.7  No Violation of Orders.  No preliminary or permanent injunction or other order issued by any Governmental Body, nor any statute, rule, regulation, decree or executive order promulgated or enacted by any Governmental Body, that (a) declares this Agreement invalid or unenforceable in any material respect, (b) prevents or significantly delays the consummation of the transactions contemplated hereby, or (c) imposes or will impose restrictions on Madden’s right or ability to operate the business of the Company shall be in effect; and no action or proceeding before any Governmental Body shall have been instituted or, to the Knowledge of Sellers or the Company, threatened by any Governmental Body, or by any other Person, which (i) seeks to prevent or delay the consummation of the transactions contemplated by this Agreement or (ii) challenges the validity or enforceability of this Agreement, (iii) seeks to impose restrictions on Madden’s right or ability to operate the business of the Company, or (iv) seeks to require Madden to dispose of any of its businesses, operations, properties or assets or any claim relating to the equity of the Company.

 

9.8  Employment Agreement.  Madden and Silverman shall have entered into the Employment Agreement, and the Employment Agreement shall be in full force and effect with no notice that Silverman does not intend to honor the Employment Agreement.

 

9.9  Transaction Documents.  The Company and Sellers shall have entered into each of the other Transaction Documents to which they are a party.

 

9.10     Other Closing Matters.  Madden shall have received such other supporting information in confirmation of the representations, warranties, covenants and agreements of Sellers and the satisfaction of the conditions to Madden’s obligation to close hereunder as Madden or its counsel may reasonably request.

 

 

 

The obligations of Sellers under Article II and Article III shall be subject to the satisfaction at or prior to the Closing of the following conditions, any one or more of which may be waived by Sellers:

 

 

 

 

10.1     Representations and Warranties.  Each and every representation and warranty of Madden contained in this Agreement, and any schedule or any certificate delivered pursuant hereto, shall have been true, complete and accurate when made and shall be repeated at the Closing and (a) if qualified by materiality (or any variation of such term), shall be true, complete and accurate as of the Closing Date, except that any such representation or warranty that is made as of a specified date shall only be required to be true, complete and accurate as of that date, and (b) if not qualified by materiality (or any variation of such term), shall be true, complete and accurate in all material respects as of the Closing Date, except that any such representation or warranty that is made as of a specified date shall only be required to be true, complete and accurate in all material respects as of that date.

 

10.2     Compliance with Covenants.  Madden shall have performed and observed all covenants and agreements to be performed or observed by it under this Agreement at or before the Closing.

 

10.3     Update Certificate.  Sellers shall have received a favorable certificate, dated the Closing Date, signed by Madden as to the matters set forth in Sections 10.1 and 10.2.

 

10.4     Regulatory Approvals.  All approvals and consents of Governmental Bodies required to carry out the transactions contemplated by this Agreement shall have been obtained.

 

10.5     No Violation of Orders.  No preliminary or permanent injunction or other order issued by any Governmental Body, nor any statute, rule, regulation, decree or executive order promulgated or enacted by any Governmental Body, that declares this Agreement invalid or unenforceable in any material respect or that prevents or significantly delays the consummation of the transactions contemplated hereby shall be in effect.

 

10.6     Transaction Documents.  Madden shall have entered into each of the other Transaction Documents to which it is a party.

 

10.7     Other Closing Matters.  Sellers shall have received such other supporting information in confirmation of the representations, warranties, covenants and agreements of Madden and the satisfaction of the conditions to Sellers’ obligations to close hereunder as the Seller Representative or its counsel may reasonably request.

 

 

 

11.1    Conditions for Termination.  This Agreement may be terminated:

 

(a)  at any time prior to the Closing by mutual consent of Madden and Sellers;

 

(b)  by Madden if the Closing shall not have been consummated by seventy-five (75) days after the date hereof, unless such failure of consummation shall be due to a material breach of any representation or warranty, or the nonfulfillment in any material respect,

 

 

 

 

 

(a)  and failure to cure such nonfulfillment as set forth in clause (d) below, of any covenant or agreement contained herein on the part of Madden; or

 

(b)  by Sellers if the Closing shall not have been consummated by seventy-five (75) days after the date hereof, unless such failure of consummation shall be due to a material breach of any representation or warranty, or the nonfulfillment in any material respect, and failure to cure such nonfulfillment as set forth in clause (d) below, of any covenant or agreement contained herein on the part of Sellers; or

 

(c)  by Madden, on the one hand, or Sellers, on the other hand, if Madden or any Seller fails to cure a material breach of any provision of this Agreement within fifteen (15) days after its receipt of written notice of such breach from the non-breaching party, provided, however, that a party shall not be entitled to terminate this Agreement pursuant to this Section 11.1(d) if it is also in material breach of any provision of this Agreement.

 

1.2  Effect of Termination. Upon the termination of this Agreement for any reason, Madden and Sellers shall have no liability or further obligations arising out of this Agreement, except for any liability resulting from any intentional breach of a representation, warranty or covenant contained in this Agreement prior to termination. Furthermore, the provisions of Sections 4.23, 5.5, this Section 11.2 and Articles XII and XIII shall survive any termination of this Agreement.

 

  

 

12.1     Survival of Representations, Warranties and Covenants. The parties to this Agreement hereby agree that the remedy for any breach of a representation or warranty, covenant or agreement contained in this Agreement shall be the indemnification provisions set out in this Article XII; provided, however, that nothing in this Section 12.1 shall prohibit any party from seeking specific performance or injunctive relief against any other party in respect of a breach by such other party of any covenant hereunder; and provided further, that nothing in this Section 12.1 shall limit any party’s remedies for a breach of a covenant occurring prior to the Closing.

 

(a)  The representations and warranties of the parties contained in this Agreement, any schedule or any certificate delivered pursuant hereto, shall survive the Closing and shall continue in full force and effect (a) in the case of the representations and warranties of Sellers and Madden contained in Sections 4.6, 4.15, 4.16, 4.23 and 5.5 until thirty (30) days following the expiration of the applicable statutory period of limitations with respect to the matter to which the claim relates, as such limitation period may be extended from time to time, (b) in the case of the representations and warranties of Sellers and Madden contained in Sections 4.1, 4.2, 4.3, 4.20, 5.1 and 5.2, indefinitely, and (c) in the case of all other representations and warranties of the parties contained in this Agreement, and in any schedule or any certificate delivered pursuant hereto, until twenty-four (24) months after the Closing Date. Each party hereto shall be entitled to rely on any such representation or warranty regardless of any independent knowledge of such party or any inquiry or investigation made by or on behalf of

 

 

40

 

 

 

such party. Notwithstanding the foregoing, any representation or warranty in respect of which indemnity may be sought hereunder shall survive the time at which it would otherwise terminate pursuant to this Section 12.1 if notice of the breach thereof shall have been given to the party against whom such indemnity may be sought prior to the expiration of the applicable survival period.

 

(b)  The parties’ covenants and agreements under this Agreement shall survive the Closing indefinitely unless a shorter period of performance is specified with respect to such covenant or agreement.

 

12.2     Indemnification by Silverman.

 

(a)  Subject to Sections 12.2(b) and 12.7, Silverman shall indemnify and hold harmless Madden, its affiliates and each of their respective stockholders, directors, officers, employees, agents and representatives (other than Silverman), and the successors and assigns of each of the foregoing (collectively, the “Madden Indemnified Parties”) from and against any Loss incurred or suffered by such Person as a result of or arising from, without duplication:

 

                   (i)         a breach by any Seller of any representation or warranty made by Sellers in this Agreement or any schedule or certificate delivered pursuant hereto or

                 thereto; and

 

                                            (ii)  a failure by any Seller to perform or comply with any covenant or agreement on the part of Sellers contained herein.

 

Any amount paid pursuant to this Section 12.2(a) shall be paid to Madden or, at Madden’s election, to the Company and shall be the amount required to put Madden, the Company, as the case may be, in the position it or they would have been in had such representation, warranty, covenant or agreement not been breached.

 

(b)  Notwithstanding Section 12.2(a):

 

                    (i)  Silverman shall not have any obligation to indemnify the Madden Indemnified Parties from and against any Loss under clause (i) of Section 12.2(a) until

 

         the Madden Indemnified Parties have suffered aggregate Losses collectively hereunder, in excess of two hundred thousand dollars ($200,000); provided that such threshold

                 shall not apply to any Loss as a result of, arising from or in connection with a breach by any Seller of a representation or warranty contained in Section 4.1, Section 4.2,

                 Section 4.3, Section 4.6, Section 4.20 or Section 4.23 herein; and

 

                    (ii)  Silverman shall not have any obligation to indemnify the Madden Indemnified Parties from and against any Loss under clause (i) of Section 12.2(a) to the

                 extent the Madden Indemnified Parties have suffered aggregate Losses collectively hereunder, in excess of five million dollars ($5,000,000); provided that such aggregate limit

                 shall not apply to any Loss as a result of, arising from or in connection with a breach by any Seller of a representation or warranty contained in Section 4.1, Section 4.2,

                 Section 4.3, Section 4.6, Section 4.20 or Section 4.23 herein.

 

 

 

(c)  Notwithstanding anything to the contrary contained in Section 12.2(b) or anywhere else in this Agreement, Silverman shall indemnify and hold harmless the Madden Indemnified Parties, without limitation, from and against any and all Losses incurred or suffered by such Person after the Closing Date as a result of or arising from any fraudulent act or willful or intentional misconduct by the Company prior to the Closing Date, or by any Seller.

 

(d)  Indemnity as to Preschoolians. Silverman hereby agrees to indefinitely indemnify the Madden Indemnified Parties for any and all Losses incurred by any of them in connection with, relating to or arising from the so called “Preschoolians” business.

 

12.3     Indemnification by Madden.

 

(a)  Madden shall indemnify and hold harmless Sellers and each of Sellers’ agents and representatives, and the successors and assigns of each of the foregoing (the “Seller Indemnified Parties”), from and against any Loss incurred or suffered by such Person as a result of or arising from:

 

                            (i)  a breach by Madden of any representation or warranty made by Madden in this Agreement or in any schedule or certificate delivered pursuant hereto or

                 thereto; and

 

                            (ii)  a failure by Madden to perform or comply with any covenant or agreement on the part of Madden contained herein;

 

Any amount paid pursuant to this Section 12.3(a) shall be the amount required to put Sellers in the position Sellers would have been in had such representation, warranty, covenant or agreement not been breached.

 

(b)  Notwithstanding anything to the contrary contained in this Agreement, Madden shall indemnify and hold harmless the Seller Indemnified Parties from and against any Loss incurred or suffered by Sellers after the Closing Date as a result of or arising from any fraudulent acts or willful misconduct by Madden. The Seller Indemnified Parties shall not take any action the purpose or intent of which is to prejudice the defense of any claim subject to indemnification hereunder or to induce a third party to assert a claim subject to indemnification hereunder.

 

12.4     Assumption of Defense. An indemnified party shall promptly give notice to each indemnifying party after obtaining knowledge of any matter as to which recovery may be sought against such indemnifying party because of the indemnity set forth above, and, if such indemnity shall arise from the claim of a third party, shall permit such indemnifying party to assume the defense of any such claim or any proceeding resulting from such claim; provided, however, that failure to give any such notice promptly shall not affect the indemnification provided under this Article XII, except to the extent such indemnifying party shall have been actually and materially prejudiced as a result of such failure. Notwithstanding the foregoing, an indemnifying party may not assume the defense of any such third-party claim if it does not demonstrate to the reasonable satisfaction of the indemnified party that it has adequate financial resources to defend such claim and pay any and all Losses that may result therefrom, or if the

 

 

 

 

claim (i) is reasonably likely to result in imprisonment of the indemnified party, (ii) is reasonably likely to result in an equitable remedy which would materially impair the indemnified party’s ability to exercise its rights under this Agreement, or impair Madden’s right or ability to operate the Company, or (iii) names both the indemnifying party and the indemnified party (including impleaded parties) and representation of both parties by the same counsel would create a conflict. If an indemnifying party assumes the defense of such third party claim, such indemnifying party shall agree prior thereto, in writing, that it is liable under this Article XII to indemnify the indemnified party in accordance with the terms contained herein in respect of such claim, shall conduct such defense diligently, shall have full and complete control over the conduct of such proceeding on behalf of the indemnified party and shall, subject to the provisions of this Section 12.4, have the right to decide all matters of procedure, strategy, substance and settlement relating to such proceeding; provided, however, that any counsel chosen by such indemnifying party to conduct such defense shall be reasonably satisfactory to the indemnified party, and the indemnifying party will not without the written consent of the indemnified party consent to the entry of any judgment or enter into any settlement with respect to the matter which does not include a provision whereby the plaintiff or the claimant in the matter releases the indemnified party from all liability with respect thereto, or which may be reasonably expected to have an adverse effect on the indemnified party and does not provide that the indemnified party is without fault, or, with respect to an indemnification relating to Taxes, if such settlement could affect the Taxes of the Company or the Madden Indemnified Parties for a period or portion thereof beginning on or after the Closing Date. The indemnified party may participate in such proceeding and retain separate co-counsel at its sole cost and expense. Failure by an indemnifying party to notify the indemnified party of its election to defend any such claim or proceeding by a third party within thirty (30) days after notice thereof shall be deemed a waiver by such indemnifying party of its right to defend such claim or action.

 

12.5     Non-Assumption of Defense. If no indemnifying party is permitted or elects to assume the defense of any such claim by a third party or proceeding resulting therefrom, the indemnified party shall diligently defend against such claim or litigation in such manner as it may deem appropriate and, in such event, the indemnifying party or parties shall promptly reimburse the indemnified party for all reasonable out-of-pocket costs and expenses, legal or otherwise, incurred by the indemnified party and its affiliates in connection with the defense against such claim or proceeding, as such costs and expenses are incurred. Any counsel chosen by such indemnified party to conduct such defense must be reasonably satisfactory to the indemnifying party or parties, and only one counsel shall be retained to represent all indemnified parties in an action (except that if litigation is pending in more than one jurisdiction with respect to an action, one such counsel may be retained in each jurisdiction in which such litigation is pending). The indemnified party shall not settle or compromise any such claim without the written consent of the indemnifying party, which consent shall not be unreasonably withheld.

 

12.6     Indemnified Party’s Cooperation as to Proceedings. The indemnified party will cooperate in all reasonable respects with any indemnifying party in the conduct of any proceeding as to which such indemnifying party assumes the defense. For the cooperation of the indemnified party pursuant to this Section 12.6, the indemnifying party or parties shall promptly reimburse the indemnified party for all reasonable out-of-pocket costs and expenses, legal or otherwise, incurred by the indemnified party or its affiliates in connection therewith, as such costs and expenses are incurred.

 

 

 

 

 

12.7     Payments Treated as Purchase Price Adjustment. To the extent permitted by applicable law, any payment by Madden, the Company or Sellers under this Article XII will be treated for Tax purposes as an adjustment to the consideration hereunder for the Company Interests.

 

 

 

13.1    Expenses. Except as otherwise explicitly set forth herein, whether or not the transactions contemplated hereby are consummated, each party hereto shall pay all costs and expenses incurred by such party in respect of the transactions contemplated hereby. All expenses incurred by the Company with respect to the transactions contemplated hereby for the benefit of Sellers prior to the Closing, including, without limitation, expenses for legal and investment advisory services, shall be paid by Sellers.

 

13.2    Entirety of Agreement. This Agreement (including the Disclosure Schedule, the Madden Disclosure Schedule and all other schedules, exhibits and appendices hereto), together with the other Transaction Documents (including the schedules and exhibits thereto) and certificates and other instruments delivered hereunder and thereunder, state the entire agreement of the parties, merge all prior negotiations, agreements and understandings, if any, and state in full all representations, warranties, covenants and agreements which have induced this Agreement. Each party agrees that in dealing with third parties no contrary representations will be made..

 

13.3     Notices. All notices, demands and communications of any kind which any party hereto may be required or desire to serve upon another party under the terms of this Agreement shall be in writing and shall be given by: (a) personal service upon such other party; (b) mailing a copy thereof by certified or registered mail, postage prepaid, with return receipt requested; (c) sending a copy thereof by Federal Express or equivalent courier service; or (d) sending a copy thereof by facsimile, in each case to the parties at the respective addresses and facsimile numbers set forth on the signature pages hereto.

 

In case of service by Federal Express or equivalent courier service or by facsimile or by personal service, such service shall be deemed complete upon delivery or transmission, as applicable. In the case of service by mail, such service shall be deemed complete on the fifth Business Day after mailing. The addresses and facsimile numbers to which, and persons to whose attention, notices and demands shall be delivered or sent may be changed from time to time by notice served as hereinabove provided by any party upon any other party.

 

13.4    Amendment. This Agreement may be modified or amended only by an instrument in writing, duly executed by all of the parties hereto.

 

13.5    Waiver. No waiver by any party of any term, provision, condition, covenant, agreement, representation or warranty contained in this Agreement (or any breach thereof) shall be effective unless it is in writing executed by the party against which such waiver is to be enforced. No waiver shall be deemed or construed as a further or continuing waiver of

 

 

 

any such term, provision, condition, covenant, agreement, representation or warranty (or breach thereof) on any other occasion or as a waiver of any other term, provision, condition, covenant, agreement, representation or warranty (or of the breach of any other term, provision, condition, covenant, agreement, representation or warranty) contained in this Agreement on the same or any other occasion.

 

13.6     Counterparts; Facsimile. For the convenience of the parties, any number of counterparts hereof may be executed, each such executed counterpart shall be deemed an original and all such counterparts together shall constitute one and the same instrument. Facsimile transmission of any signed original counterpart and/or retransmission of any signed facsimile transmission shall be deemed the same as the delivery of an original.

 

13.7     Assignment; Binding Nature; No Beneficiaries. This Agreement may not be assigned by any party hereto without the written consent of Madden and Sellers; provided, however, that Madden may assign its rights hereunder to any affiliate of Madden which assumes the obligations of Madden hereunder, but no such assignment shall relieve Madden of any such obligations. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by the parties hereto and their respective heirs, personal representatives, legatees, successors and permitted assigns. Except as otherwise expressly provided in Article XII, this Agreement shall not confer any rights or remedies upon any Person other than the parties hereto and their respective heirs, personal representatives, legatees, successors and permitted assigns.

 

13.8     Headings. The headings in this Agreement are inserted for convenience only and shall not constitute a part hereof.

 

13.9     Governing Law; Jurisdiction. This Agreement and all the transactions contemplated hereby, and all disputes between the parties under or related to this Agreement or the facts and circumstances leading to its execution, whether in contract, tort, or otherwise, shall be governed by, and construed and enforced in accordance with, the laws of the State of New York including, without limitation, Section 5-1401 of the New York General Obligations Law and New York Civil Practice Laws and Rules 327. In the event of any controversy or claim arising out of or relating to this Agreement or the breach or alleged breach hereof, each of the parties hereto irrevocably (a) submits to the non-exclusive jurisdiction of any New York State court sitting in the County of New York or any federal court sitting in U.S. District Court for the Southern District of the State of New York, (b) waives any objection which it may have at any time to the laying of venue of any action or proceeding brought in any such court, (c) waives any claim that such action or proceeding has been brought in an inconvenient forum, and (d) agrees that service of process or of any other papers upon such party by registered mail at the address to which notices are required to be sent to such party under Section 13.3 shall be deemed good, proper and effective service upon such party.

 

13.10   Construction; Units. In this Agreement (i) words denoting the singular include the plural and vice versa, (ii) “it” or “its” or words denoting any gender include all genders, (iii) the word “including” shall mean “including without limitation,” whether or not expressed, (iv) any reference to a statute shall mean the statute and any regulations thereunder in force as of the date of this Agreement or the Closing Date, as applicable, unless otherwise

 

 

 

 

expressly provided, (v) any reference herein to a Section, Article, Schedule or Exhibit refers to a Section or Article of or a Schedule or Exhibit to this Agreement or the Disclosure Schedule, as applicable, unless otherwise stated, and (vi) when calculating the period of time within or following which any act is to be done or steps taken, the date which is the reference day in calculating such period shall be excluded and if the last day of such period is not a Business Day, then the period shall end on the next day which is a Business Day. 

 

13.11   Negotiated Agreement. Madden and Sellers acknowledge that they have been advised and represented by counsel in the negotiation, execution and delivery of this Agreement and the Transaction Documents and accordingly agree that if an ambiguity exists with respect to any provision of this Agreement or the Transaction Documents, such provision shall not be construed against any party because such party or its representatives drafted such provision.

 

13.12   Public Announcements. Neither Madden nor Sellers shall issue any press release or make any other public announcement concerning this Agreement or the transactions contemplated hereby without the prior written approval of Madden, in the case of an announcement by Sellers, and Sellers, in the case of an announcement by Madden; provided, however, that Madden or its affiliates may, upon written notice to Sellers, describe this Agreement and the transactions contemplated hereby in any press release or filing with the SEC or other Governmental Body it is required to make under applicable Law, and if required, necessary or desirable, file this Agreement with the SEC.

 

13.13   Remedies Cumulative. The remedies provided for or permitted by this Agreement shall be cumulative and the exercise by any party of any remedy provided for herein shall not preclude the assertion or exercise by such party of any other right or remedy provided for herein.

 

13.14   Severability. If any provision of this Agreement is found by a court of competent jurisdiction to be invalid or unenforceable, such provision shall not affect the other provisions, but such invalid or unenforceable provision shall be deemed modified to the extent necessary to render it valid and enforceable, preserving to the fullest extent permissible the intent of the parties set forth herein.

 

13.15  WAIVER OF JURY TRIAL. MADDEN AND SELLERS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

13.16   Authority of Seller Representative.

 

(a)  In order to facilitate the consummation of the transactions contemplated by this Agreement and the other Transaction Documents and the resolution of certain matters after the Closing between Madden and Sellers, Sellers hereby appoint Silverman as the Seller

 

 

 

 

 

Representative who shall serve as the attorney-in-fact and agent for each Seller in connection with the transactions contemplated by this Agreement and the other Transaction Documents. By executing and delivering this Agreement, the Seller Representative (i) accepts his appointment and authorization as attorney-in-fact and agent on behalf of each Seller in accordance with the terms of this Agreement and (ii) agrees to perform his obligations under, and otherwise comply with, this Agreement.

 

(b)  The Seller Representative has the authority, without restriction, to (i) prepare, finalize, approve and authorize all exhibits, schedules and other attachments to any of this Agreement, the other Transaction Documents, and the other contracts, certificates, instruments and documents delivered by or on behalf of Sellers pursuant to this Agreement and the other Transaction Documents; (ii) deliver to Madden on behalf of Sellers the share or interest certificates (as appropriate) representing all of the Company Interests; (iii) execute, deliver, and accept delivery, on behalf of each Seller, any other agreements, certificates, instruments and documents to be delivered by or on behalf of Sellers pursuant to this Agreement or the other Transaction Documents; (iv) execute, deliver, and accept delivery, on behalf of each Seller, such amendments as may be deemed by the Seller Representative in his sole and absolute discretion to be appropriate under this Agreement or the other Transaction Documents; (v) bind Sellers by all notices received, by all agreements and determinations made, and by all agreements, certificates, instruments and other documents executed and delivered by Sellers under the Transaction Documents (including in connection with the post-Closing adjustments pursuant to Section 2.3 of this Agreement and the Earn-Out Payment); (vi) dispute or refrain from disputing any claim made by Madden under any Transaction Document; (vii) negotiate and compromise any dispute which may arise under, and exercise or refrain from exercising remedies available under, any Transaction Document (including in connection with the post-Closing adjustments pursuant to Section 2.3 of this Agreement and the Earn-Out Payment) and sign any releases or other documents with respect to such dispute or remedy; (viii) waive any condition contained in any Transaction Document; (ix) give any and all consents under any Transaction Document; (x) dispute or refrain from disputing the Contingent Purchase Price Statement (as defined in the Earn-Out Agreement) delivered in connection with the Earn-Out Agreement, or to deliver or refrain from delivering a Notice of Election in connection with the Earn-Out Agreement; (xi) give such instructions and perform such actions and refrain from performing such actions as the Seller Representative shall in his sole and absolute discretion deem necessary or appropriate to carry out the provisions of any Transaction Document; (xii) receive any payments made to any Seller pursuant to any Transaction Document; and (xiii) disburse to Sellers payments made to the Seller Representative under any Transaction Document in accordance with the allocation referred to in Section 2.2(a) hereof.

 

(c)  By executing and delivering this Agreement, each Seller hereby jointly and severally agrees to indemnify and hold the Seller Representative harmless for any and all liability, loss, cost, damage or expense (including attorneys’ fees) reasonably incurred or suffered as a result of the performance of his duties as Seller Representative under any Transaction Document, except such that arises from such Seller Representative’s gross negligence or willful misconduct.

 

(d)  Madden and the other Madden Indemnified Parties shall be entitled to deal exclusively with the Seller Representative as the sole and exclusive representative and agent of

 

 

 

 

Sellers in respect of this Agreement and the other Transaction Documents and all matters arising under or pertaining to this Agreement and any Transaction Document. Without limiting the foregoing, (i) any notice, communication, demand, claim, action or proceeding required or permitted hereunder may be delivered by Madden to or brought by Madden against the Seller Representative in his capacity as agent and representative of Sellers with the same effect, and which shall be binding and effective to the same degree, as if delivered to or brought against all Sellers or any of them individually and (ii) any settlement or other agreement of Madden with the Seller Representative in his capacity as agent and representative of Sellers in respect of all matters arising under or pertaining to this Agreement or any Transaction Document shall have the same effect, and be binding upon, all Sellers to the same degree as if made with all Sellers or any of them individually. Any decision, act, consent or instruction of the Seller Representative shall be final, binding and conclusive upon each Seller, and Madden may rely upon any such decision, act, consent or instruction of the Seller Representative as being the decision, act, consent or instruction of every Seller. Madden is hereby relieved from any liability to any Person for any acts done by it in accordance with any decision, act, consent or instruction of the Seller Representative.

 

(e)  Madden and any other Madden Indemnified Party shall be entitled to regard as the Seller Representative the Person identified to it as such in accordance with the provisions of this Agreement unless and until Madden shall have received written notice, executed by Jeff Silverman, of the designation of another Seller or Sellers as the Seller Representative(s).

 

 

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first set forth above.

 

	STEVEN MADDEN, LTD.
Address: 52-16 Barnett Ave. Long Island City, New York 11104 Attention: Awadhesh Sinha Facsimile No.: (718) 446-5999	By:/s/ Jamieson A. Karson       Name: Jamieson A. Karson       Title: Chairman and Chief Executive Officer
with copies to:
Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036 United States of America Attention: James A. Grayer, Esq. Facsimile No.: (212) 715-8000

 

 

 

	SELLERS
Address:
___________________________________ ___________________________________ Facsimile No.: ( )	/s/ Jeffrey Silverman Jeffrey Silverman

___________________________________

___________________________________

Address:
___________________________________ ___________________________________ Facsimile No.: ( )	/s/ James Randel James Randel

Address:
___________________________________ ___________________________________   Facsimile No.: ( )	/s/ Ron Offir Ron Offir

Address:
___________________________________ ___________________________________   Facsimile No.: ( )	/s/ Godfrey Baker Godfrey Baker

Address:
___________________________________ ___________________________________   Facsimile No.: ( )	/s/ Alyse Nathan Alyse Nathan

Address:
___________________________________ ___________________________________   Facsimile No.: ( )	/s/ Andrew Rosca Andrew Rosca

 

 

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