AGREEMENT
DATED AS OF DECEMBER 15, 2000
BY AND AMONG
DONNA KARAN,
STEPHAN WEISS,
TRUST FBO LISA WEISS KEYES, COREY WEISS AND
GABRIELLE KARAN U/A/D 2/2/96
AND
LVMH MOET HENNESSY LOUIS VUITTON INC.
AGREEMENT
THIS AGREEMENT ("AGREEMENT"), made this December 15, 2000, by and
among LVMH Moet Hennessy Louis Vuitton Inc., a Delaware corporation
("PURCHASER"), and each of Donna Karan ("KARAN"), Stephan Weiss ("WEISS"),
and Trust FBO Lisa Weiss Keyes, Corey Weiss and Gabrielle Karan U/A/D
2/2/96 (the "TRUST") (Karan, Weiss and the Trust, each a "STOCKHOLDER" and,
collectively, the "STOCKHOLDERS"),
WITNESSETH: THAT
WHEREAS, the Stockholders are currently the holders of all of the
equity interests in Gabrielle Studio, Inc., a New York corporation (the
"COMPANY"), a corporation qualified as an "S" corporation under Section
1361 of the Code (as defined herein), and
WHEREAS, the Company is currently the owner of certain registered and
common law Trademarks (as defined herein) as and to the extent set forth on
SCHEDULE 1 attached hereto (collectively, the "DONNA KARAN MARKS"), and
WHEREAS, the Company is currently the licensee of certain personal
information (including the name, part of name, initials, likeness and
signature of Karan)(collectively, the "DONNA KARAN NAME") pursuant to that
certain Irrevocable Consent Agreement dated June 3, 1996 between Karan and
the Company, as amended (the "CONSENT AGREEMENT"), and
WHEREAS, the Company is currently the licensor of the Donna Karan
Marks and the sublicensor of the Donna Karan Name to Donna Karan Studio, a
New York general partnership ("DKS") and a subsidiary of Donna Karan
International Inc., a Delaware corporation ("DKI"), pursuant to that
certain Agreement dated as of June 3, 1996 between the Company and DKS (as
amended, the "DK LICENSE AGREEMENT"), and
WHEREAS, the Stockholders desire to sell to Purchaser all of the
equity interests in the Company, and Purchaser desires to acquire all of
such equity interests, all on the terms and subject to the conditions set
forth herein,
NOW, THEREFORE, in consideration of the foregoing premises (which
constitute an integral part of this Agreement) and the mutual covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:
"ACTION" shall mean any claim, action, suit (including those at law
or in equity), arbitration, inquiry, proceeding, litigation or
investigation by or before any Governmental Authority or any arbitral body
or other dispute resolution proceeding.
"ACQUISITION PROPOSAL" shall mean any agreement or offer (other than
the transactions among the Stockholders and Purchaser contemplated
hereunder and other than any Permitted Transfer in accordance with SECTION
4.1.3(I)) involving the Company or any of the Stockholders for: (i) any
merger, consolidation, share exchange, recapitalization, reorganization,
business combination, or other similar transaction involving the Company ;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of a material portion of the assets of the Company in a single
transaction or series of transactions; or (iii) any sale, transfer,
encumbrance, or issuance of all or any of the shares of capital stock of
the Company in a single transaction or series of transactions. For the
purposes of SECTION 8.3.3, all references in the preceding sentence to
"Company" shall be deemed to be "DKI".
"AFFILIATE" of any person or entity shall mean any other person or
entity (i) which controls such first person or entity or a Related Party to
such first person or entity, (ii) which such first person or entity or a
Related Party to such first person or entity controls, (iii) which is under
common control with such first person or entity or with a Related Party to
such first person or entity, or (iv) which is a Related Party to such first
person or entity. For the purposes of this Agreement, neither DKI nor any
of its subsidiaries shall be deemed to be Affiliates of the Company, Karan
or Weiss and none of the Stockholders shall be deemed to be an Affiliate of
Purchaser.
"AGREEMENT" shall mean this Agreement as the same may be amended or
modified in writing in accordance with the terms hereof.
"BUSINESS" shall mean (i) owning the Donna Karan Marks, (ii)
licensing the Donna Karan Name pursuant to the Consent Agreement, (iii)
licensing the Donna Karan Marks and sublicensing the Donna Karan Name under
and pursuant to the terms of the DK License Agreement and (iv) performing
the Company's obligations and exercising the Company's rights under and
pursuant to the terms of the DK License Agreement and the Consent
Agreement.
"CLAIMS" shall mean any and all judgments, pledges, charges, escrows,
rights of first refusal or first offer, mortgages, indentures, claims,
transfer restrictions, liens, equities, security interests and other
encumbrances of every kind and nature whatsoever, whether arising by
agreement, operation of law or otherwise.
"CODE" shall mean the Internal Revenue Code of 1986, as amended. All
citations to the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments or any substitute or successor
provisions thereto.
"CONTROL" shall mean the power, direct or indirect, to direct or
cause the direction of the management and policies of a person or entity
through stock ownership, ownership of membership interests, contract or
otherwise.
"DAMAGES" shall mean all liabilities, demands, claims, actions or
causes of action, regulatory, legislative or judicial proceedings or
investigations, assessments, levies, losses, fines, penalties, damages,
costs and expenses, including reasonable attorneys', accountants',
investigators', and experts' fees and expenses, sustained or incurred in
connection with the defense or investigation of any such matter.
"DKI TRANSACTION" shall mean a merger of Purchaser (or any of its
Affiliates) with DKI pursuant to which Purchaser (and/or its Affiliates)
acquire all of the outstanding common stock of DKI (except for those shares
of DKI common stock owned by Purchaser (or any of its Affiliates). For the
avoidance of doubt, shares of common stock for which dissenters' appraisal
rights are exercised with respect to the merger described in the preceding
sentence shall be deemed to be acquired by Purchaser (or its Affiliates) in
such merger.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended. All citations to ERISA shall include any amendments or
any substitute or successor provisions thereto.
"GAAP" shall mean generally accepted accounting principles in the
U.S., consistently applied in accordance with past practices.
"GOVERNMENTAL AUTHORITY" shall mean any court or any agency,
commission, department (including the executive department) or body of any
municipal, township, county, local, state, federal or foreign governmental,
regulatory, administrative, judicial or quasi-governmental unit, entity or
authority.
"GOVERNMENTAL ORDER" shall mean any order, ruling, writ, injunction,
judgment, award, determination or decree of any court, arbitral body or
other Governmental Authority.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"INDEMNIFIED PARTY" shall mean either a Stockholder Indemnitee or a
Purchaser Indemnitee, as the case may be, who is entitled to
indemnification from another party hereto pursuant to SECTION 8 below.
"INDEMNIFYING PARTY" shall mean a party hereto who is required to
provide indemnification under SECTION 8 below to another party hereto.
"INTELLECTUAL PROPERTY" shall mean (i) all Trademarks, together with
information regarding all registrations and pending applications to
register any such Trademarks; (ii) all proprietary formulations,
manufacturing methods, inventions, designs, know-how and trade secrets;
(iii) all computer software, Internet technologies, designs and domain
names; (iv) all patents on and pending applications to patent any
technology or design; (v) all registrations of and applications to register
copyrights and all common law copyrights; (vi) all licenses of rights in
computer software, Trademarks, patents, copyrights, unpatented
formulations, manufacturing methods and other know-how, including those to
or by the Company; and (vii) all goodwill associated with any of the above.
"LAW" shall mean any federal, state, local or foreign statute, law,
ordinance, rule, code, order or regulation of any Governmental Authority.
"LIABILITIES" shall mean any and all debts, liabilities, and
obligations, of any nature whatsoever, whether direct or indirect,
determined or determinable, accrued or fixed, matured or unmatured,
absolute, accrued, contingent or otherwise, including those arising under
any Law, Action, or Governmental Order and those arising under any
contract, agreement, arrangement, commitment or undertaking.
"MATERIAL ADVERSE EFFECT" means, with respect to any entity, any
event or change that, individually or collectively, is or is reasonably
likely to be materially adverse to the business (or, in the case of the
Company, the Business), financial condition, results of operations or
assets (including intangible assets) of such entity (in the case of DKI or
Purchaser, taken as a whole together with its subsidiaries), other than any
event or change to the extent that it relates solely to (i) the economy and
financial markets generally and not specifically relating to such entity,
(ii) the industry in which such entity operates generally and not
specifically relating to such entity, or (iii) the announcement of the
transactions contemplated by this Agreement, including any Claims or
Actions arising in connection with such transactions.
"NON-DKI BUSINESS" shall mean any and all businesses, activities,
matters and items of the Company other than the Business, including (i)
owning the following assets of the Company that are unrelated to and not
necessary for the operation of the Business: (w) shares of common stock of
DKI, (x) the assets constituting the "inspiration library and archives",
(y) any refunds receivable in respect of Taxes paid by the Company for any
period ending on or prior to the Closing, and (z) cash on hand, (ii)
guaranteeing the lease obligations of Urban Zen, LLC for the premises
commonly known as 570 Seventh Avenue, and (iii) performing the Company's
obligations under any existing employment agreements.
"RELATED PARTIES" and individually, a "RELATED PARTY," of any person
shall mean any present or former spouse, ancestor or descendant or sibling
of such person or any trust or other similar entity for the benefit of such
persons or for the benefit of any of such Related Parties.
"REPRESENTATIVE" of a person shall mean that person's employees,
officers, directors, representatives (including any investment banker,
attorney or accountant), agents or Affiliates.
"RETURNS" shall mean all returns, declarations, reports, statements,
exhibits, attachments and other documents required to be supplied or filed
in respect of Taxes, and the term "RETURN" means any one of the foregoing
Returns.
"SHARES" shall mean shares of the common stock, no par value, of the
Company.
"TAXES" shall mean all taxes, levies and assessments of any kind or
nature imposed by any Governmental Authority with taxing authority,
including all federal, state, local, foreign and other net income, gross
income, gross receipts, sales, use, ad valorem, transfer, value added,
franchise, profits, license, lease, service, service use, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, real or
personal property, intangible, windfall profits, alternative or add-on
minimum, customs, duties or other taxes, fees, assessments or charges of
any kind whatever, together with any interest and any penalties, additions
to tax or additional amounts with respect thereto, and the term "TAX" means
any one of the foregoing Taxes.
"THIRD PARTY CLAIM" shall mean any Claim or Action which is asserted
or threatened by a party other than the parties hereto, their successors
and permitted assigns, against any Indemnified Party or to which any
Indemnified Party is subject.
"TRADEMARK ASSIGNMENTS" shall mean that certain Trademark Assignment
dated July 3, 1996 between the Company and Karan, and that certain
Trademark Assignment dated July 3, 1996 between the Company and DKS.
"TRADEMARKS" shall mean all registered or common law trademarks,
derivative marks and abbreviations thereof and associated trademarks,
service marks, service names, slogans, graphics, symbols, domain names,
logos, trade names and business names, trade dress and the like, all
registrations and applications for registration of the foregoing, and all
goodwill associated therewith.
In addition to the terms defined above, the following capitalized
terms shall have the meanings set forth in the referenced section:
TERM SECTION WHERE DEFINED
Allocation Schedule 7.3
Antitrust Division 4.3.3
Basket 8.7.1
Ceiling 8.7.1
Closing 2.1
Closing Date 2.1
Company Premises
Conditional Governance Terms 7.6
Consent Agreement Premises
Contracts 3.3.6
Determination Date 2.2.1
Disclosure Schedules 3.1
DK License Agreement Premises
DKI Premises
DKI Transaction 4.2
DKS Premises
Donna Karan Marks Premises
Donna Karan Name Premises
Due Date 7.4.1
Excluded Taxes 7.4.2
FTC 4.3.3
Formal Governance Agreements 7.6
Highest Offer Price 4.2
Initial Purchase Price 2.2
Karan Preamble
LVMH 4.5
Mediator 7.6
Net Worth Statement 7.7
Permits 3.3.11
Permitted Transfers 4.1.3
Purchase Price 2.2
Purchaser Preamble
Purchaser Indemnitees 8.2
Qualified Accountant 7.3
Recipient 7.4.5
Reserved Rights Agreement 3.3.6
SEC 8.3
Second Basket 8.7.1
Section 338(h)(10) Election 7.3
Shortfall 7.7
Stockholder(s) Preamble
Stockholder Indemnitees 8.3
Stockholder's Proportionate Interest 2.2
Straddle Period 7.4.1
Tax Claim 7.4.5
Tax Determination 7.4.11
Tax Dispute Notice 7.4.11
Tax Indemnification Cut-off Date 7.4.2
Tax Indemnification Notice 7.4.11
Tax Indemnification Period 7.4.2
Tax Indemnified Party 7.4.11
Tax Indemnifying Party 7.4.11
Tax-Related Payment 7.4.11
Transfer Taxes 7.4.3
Trust Preamble
Weiss Preamble
2. PURCHASE AND SALE OF SHARES; CLOSING AND MANNER OF PAYMENTS.
2.1. AGREEMENT TO PURCHASE AND SELL SHARES. On the terms and subject
to the conditions contained in this Agreement, as soon as practicable on or
after the date that the conditions contained in SECTION 5 below have been
fulfilled or waived (the "CLOSING DATE"), Purchaser shall purchase from
each Stockholder, and each Stockholder shall sell to Purchaser, the Shares
held of record by such Stockholder, free and clear of all Claims. The
closing of such purchase and sale (the "CLOSING") shall occur at 10:00
a.m., New York time, on the Closing Date at the offices of the Company or
at such other place as the parties mutually agree and shall be deemed to be
effective as of 11:59 p.m., New York time, on the Closing Date.
2.2. PURCHASE PRICE; PAYMENT. The purchase price for the Shares shall
be equal to the sum of (i) U.S.$450 million (the "INITIAL PURCHASE PRICE"),
as it may be reduced pursuant to SECTION 2.2.1 and SECTION 2.2.2 below, and
as it may be adjusted from time to time in respect of Sales Royalty
payments under SECTION 2.3, Tax indemnity payments under SECTION 7.4 and
other indemnity payments made pursuant to SECTION 8 hereof (together with
the Initial Purchase Price, the "PURCHASE PRICE"). Purchaser shall pay the
Initial Purchase Price in cash at Closing, by paying to each Stockholder an
amount equal to the product of (a) the Initial Purchase Price, multiplied
by (b) the quotient (a "STOCKHOLDER'S PROPORTIONATE INTEREST") of (x) the
number of Shares held of record by such Stockholder divided by (y) the
aggregate number of Shares outstanding, each as measured immediately prior
to the Closing.
2.2.1. In the event that Purchaser (i) enters into a definitive
agreement with DKI for the DKI Transaction on or before the six month
anniversary (the "DETERMINATION DATE") of the date hereof and (ii)
subsequently consummates the DKI Transaction substantially in accordance
with the terms of such definitive agreement (as the same may be amended,
waived or otherwise modified by the parties thereto), then the Initial
Purchase Price shall be reduced by $50 million (to $400 million) and the
Stockholders shall (concurrently with the consummation of such DKI
Transaction), and are jointly and severally obligated to, return to
Purchaser $50 million of the Initial Purchase Price, net of that certain
amount set forth on SCHEDULE 2.2.
2.2.2. In the event that Purchaser (i) does not enter into a
definitive agreement with DKI for the DKI Transaction by the Determination
Date, (ii) enters into a definitive agreement with DKI for the DKI
Transaction in the period after the Determination Date and on or before one
year after the date hereof and (iii) subsequently consummates the DKI
Transaction substantially in accordance with the terms of such definitive
agreement (as the same may be amended, waived or otherwise modified by the
parties thereto), then the Initial Purchase Price shall be reduced by $25
million (to $425 million) and the Stockholders shall (concurrently with the
consummation of such DKI Transaction), and are jointly and severally
obligated to, return to Purchaser $25 million of the Initial Purchase
Price, net of that amount as set forth on SCHEDULE 2.2.
2.3. PAYMENTS IN RESPECT OF ACCRUED SALES ROYALTY. The Stockholders
shall also be entitled to receive from Purchaser and Purchaser shall be
obligated to pay to the Stockholders, an amount equal to the full amount of
the Sales Royalty (as defined in the DK License Agreement) accrued in
respect of all Net Sales (as defined in the DK License Agreement) up to and
including the Closing Date. The parties acknowledge and agree that the
payment of such amount shall be in addition and an adjustment to the
Purchase Price and shall be delivered to the Stockholders as soon as
practicable following the payment thereof by DKS to the Company and shall
be paid among the Stockholders in the same proportions as the Initial
Purchase Price. The payments in respect of the accrued Sales Royalty shall
be made on the following basis:
2.3.1. With respect to any Sales Royalty payable for a calendar
quarter of the applicable Annual Period (as defined in the DK License
Agreement) that ends prior to Closing, the Stockholders shall be entitled
to receive an amount equal to the full amount of such Sales Royalty.
2.3.2. With respect to any Sales Royalty payable for a quarter
of the applicable Annual Period beginning prior to Closing and ending after
Closing, the Stockholders shall be entitled to receive a portion of such
Sales Royalty equal to the pro rated portion of the entire Sales Royalty
for that quarter to be calculated by multiplying the dollar amount of the
Sales Royalty payable for such full quarter by a fraction the numerator of
which shall be the number of days in the period between the end of the last
quarter and Closing (including the Closing Date) and the denominator of
which shall be the number of days in the quarter which includes the Closing
Date.
2.3.3. The Stockholders shall retain for 24 months following
the Closing Date the right to give notice pursuant to which it will conduct
Licensor Audits (as defined in the DK License Agreement) pursuant to and in
accordance with the terms of subsection 7.1 of the DK License Agreement for
all periods up to and ending on the Closing Date and shall be entitled to
exercise, and Purchaser shall reasonably cooperate with Stockholders in
such exercise, all the rights of Licensor (as defined in the DK License
Agreement) under Section 7 of the DK License Agreement in connection with
any such Licensor Audit.
3. REPRESENTATIONS AND WARRANTIES.
3.1. GENERAL STATEMENT. All the representations and warranties set
forth in this SECTION 3 (including the references to the Disclosure
Schedules set forth therein) are material, are being relied upon by the
other parties hereto and shall survive the Closing as expressly provided in
SECTION 8.7 (and none shall merge into any instrument of conveyance),
regardless of any investigation or lack of investigation by any of the
parties to this Agreement. No specific representation or warranty shall
limit the generality or applicability of a more general representation or
warranty. Except as otherwise expressly set forth herein, including SECTION
9.2.1, representations and warranties of the parties are initially made as
of the date hereof and shall be deemed remade as of the Closing Date. All
representations and warranties of the Stockholders are made subject to the
exceptions noted in the schedules delivered by the Stockholders to
Purchaser concurrently herewith and identified as the "DISCLOSURE
SCHEDULES". Each schedule contained in the Disclosure Schedules shall be
numbered to correspond to the applicable paragraph of SECTION 3.3 to which
such exception refers.
3.2. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to the Stockholders as follows:
3.2.1. ORGANIZATION AND AUTHORITY. Purchaser is a corporation duly
organized, validly existing and in good standing, under the laws of the
State of Delaware. Purchaser has full corporate power and authority to
enter into and perform this Agreement. The execution and delivery by
Purchaser of this Agreement and the performance by Purchaser of its
obligations hereunder and the consummation of the transactions contemplated
hereby have been duly authorized and approved by all requisite corporate
action. This Agreement has been duly executed and delivered by a duly
authorized officer of Purchaser, and constitutes a valid and legally
binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms (except to the extent that enforcement may be
affected by Laws relating to bankruptcy, reorganization, insolvency and
creditors' rights and by the availability of injunctive relief, specific
performance and other equitable remedies).
3.2.2. CONSENTS. No consent, waiver, authorization, order or
approval of, or filing or registration with, any Governmental Authority or
other person or entity, or under or with respect to any permit, license,
contract, agreement or other instrument to which Purchaser is a party or by
which Purchaser is bound, is required for or in connection with the
execution and delivery by Purchaser of this Agreement, and the consummation
by Purchaser of the transactions contemplated hereby, except for the same
as may be required pursuant to the HSR Act.
3.2.3. NO CONFLICTS. Neither the execution and delivery of this
Agreement by Purchaser, nor the consummation by Purchaser of the
transactions contemplated hereby, will (i) violate, conflict with or result
in a breach of any of the terms, conditions or provisions of the
Certificate of Incorporation or By-laws of Purchaser, (ii) violate,
conflict with or result in a breach of any Law, Permit or Governmental
Order to which Purchaser is a party or by which Purchaser is, or its assets
are, bound or affected, or (iii) violate, conflict with or result in a
breach of or constitute a default (or event which, with the giving of
notice or the passage of time, or both, would become a default) under,
require a consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of, or
result in the creation of any Claims on any of the assets or properties of
Purchaser pursuant to, or result in any payment or charge under, any
permit, license, contract, agreement or other instrument or arrangement
(written or oral) to which Purchaser is a party or by which any of such
assets or properties is bound or affected and no such permit, license,
contract, agreement or other instrument or arrangement shall prohibit or
delay the timely performance by Purchaser of its obligations under this
Agreement.
3.2.4. LITIGATION. There is no Action (whether or not the
defense thereof or the liability thereunder is covered by any policy of
insurance) pending or, to the best knowledge of Purchaser, threatened
against Purchaser which questions the validity of this Agreement or the
ability of Purchaser to consummate the transactions contemplated by this
Agreement.
3.2.5. BROKERS. Except for Goldman, Sachs & Co., Purchaser has no
agreement with any broker, finder or intermediary in connection with this
Agreement or the transactions contemplated hereby, and is not committed to
pay any brokers' or finders' fees or any similar fees in connection with
the transactions contemplated hereby.
3.2.6. AVAILABILITY OF FUNDS. At the Closing, Purchaser will
have sufficient immediately available funds, in cash, to pay the Initial
Purchase Price and to pay any other amounts payable pursuant to this
Agreement and to effect the transactions contemplated hereby.
3.2.7. CERTAIN FINANCIAL INFORMATION. Purchaser has consolidated
net worth, computed in accordance with GAAP, of at least U.S.$400 million.
3.3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each of the
Stockholders jointly and severally represents and warrants to Purchaser as
follows that, except as expressly set forth in the Disclosure Schedules:
3.3.1. ORGANIZATION AND AUTHORITY OF THE COMPANY AND THE TRUST.
The Company is a corporation, duly organized, validly existing and in good
standing, under the laws of the State of New York. The Company has full
corporate power and authority to carry on its businesses, including the
Business, as they are now being conducted. The Trust is an irrevocable
trust, duly created, validly existing and in good standing under the laws
of the State of New York. The Trust has full trust power and authority to
own the Shares currently owned by it.
3.3.2. AUTHORITY OF STOCKHOLDERS. Each of the Stockholders has
full legal capacity, and, in the case of the Trust, trust power, to enter
into, execute and perform this Agreement. The execution and delivery by the
Trust of this Agreement and the performance by the Trust of its obligations
hereunder and the consummation of the transactions contemplated hereby have
been duly authorized and approved by all requisite trust action. This
Agreement has been duly executed and delivered by the duly authorized
trustee of the Trust. This Agreement constitutes a valid and legally
binding obligation of each of the Stockholders, enforceable against each of
the Stockholders in accordance with its terms (except to the extent that
enforcement may be affected by laws relating to bankruptcy, reorganization,
insolvency and creditors' rights and by the availability of injunctive
relief, specific performance and other equitable remedies).
3.3.3. CONSENTS. Except as set forth on SCHEDULE 3.3.3, no
consent, waiver, authorization, notice, order or approval of, or filing or
registration with, any Governmental Authority or other person or entity, or
under or with respect to any Permit or Contract to which any of the
Stockholders or the Company is a party or by which any of the Stockholders
or the Company is bound, is required for or in connection with the
execution and delivery by any of the Stockholders of this Agreement, and
the consummation by any of the Stockholders of the transactions
contemplated hereby, except for the same as may be required pursuant to the
HSR Act and except those relating solely to the transfer of the Non-DKI
Business.
3.3.4. NO CONFLICTS. Neither the execution and delivery of this
Agreement by each of the Stockholders, nor the consummation by each of the
Stockholders of the transactions contemplated hereby, will (i) violate,
conflict with or result in a breach of any of the terms, conditions or
provisions of the Company's Certificate of Incorporation or By-laws, (ii)
violate, conflict with or result in a breach of any of the terms,
conditions or provisions of the Trust's trust agreement or other
constituent documents, (iii) violate, conflict with or result in a breach
of any Law, Permit or Governmental Order to which any of the Stockholders
or the Company is a party or by which any of the Stockholders or the
Company is, or their respective assets are, bound or affected, or (iv)
violate, conflict with or result in a breach of or constitute a default (or
event which, with the giving of notice or the passage of time, or both,
would become a default) under, require a consent under, or give to others
any rights of termination, amendment, acceleration, suspension, revocation
or cancellation of, or result in the creation of any Claims on any of the
assets or properties of any of the Stockholders or the Company pursuant to,
or result in any payment or charge under, any Permit or Contract to which
any of the Stockholders or the Company is a party or by which any of such
assets or properties is bound or affected, and no such Permit or Contract
shall prohibit, prevent or delay the timely performance by any of the
Stockholders of any of their obligations under this Agreement.
3.3.5. BOOKS AND RECORDS. True and complete copies of the
Certificate of Incorporation and By-laws of the Company and the trust
agreement for the Trust are attached as SCHEDULE 3.3.5 hereto, all as
amended and currently in force. All of the books and records of the Company
relating to its operations are and have been maintained in the Company's
usual, regular and ordinary manner, and all material transactions to which
the Company is, or has been, a party are properly reflected therein. The
books and records of the Company contain true and complete copies of all
resolutions adopted by, as appropriate, the shareholders and the board of
directors of the Company, and any other action formally taken by any of
them respectively as such.
3.3.6. NO SUBSIDIARIES; CONDUCT OF BUSINESS; CONTRACTS. The
Company does not hold any direct or indirect interest in any corporation,
joint venture, partnership, association or other entity, foreign or
domestic except for the shares of common stock of DKI set forth on SCHEDULE
3.3.6. No person or entity (including any of the Stockholders) owns any
assets (whether tangible or intangible) necessary for the operation of, or
that are used by or in the operation of, the Business, except for the
Intellectual Property licensed to the Company pursuant to the Consent
Agreement and except as contemplated by SECTION 4.1.8 and SECTION 7.5. True
and complete copies of each of the DK License Agreement, the Consent
Agreement, that certain License Agreement dated July 3, 1996 between the
Company and Karan (the "RESERVED RIGHTS AGREEMENT") and the Trademark
Assignments are attached hereto as SCHEDULE 3.3.6. All contracts, licenses,
agreements and other instruments and arrangements (written or oral) (the
"CONTRACTS") to which the Company (or any of the Stockholders to the extent
related to the Business) is a party or to which any of the Company's assets
or properties is bound are listed on SCHEDULE 3.3.6. Except as set forth on
SCHEDULE 3.3.6, all of the Contracts are in full force and effect and
binding upon the parties thereto. Except as set forth on SCHEDULE 3.3.6,
the Company is not in default under any Contract and, to the knowledge of
the Stockholders, none of the other parties to the DKI License Agreement,
the Consent Agreement, the Reserved Rights Agreement or the Trademark
Assignments is in default under such Contract.
No written notice has been given to the Company or any of the
Stockholders that the Company or any of the other parties to any Contract
is in default under any such Contract. No event, occurrence or condition
exists which, with the lapse of time, the giving of notice, or both, or the
happening of any further event or condition, would become a default by the
Company or, to the knowledge of the Stockholders, the other contracting
parties under any Contract. Except as set forth on SCHEDULE 3.3.6, the
Company has not released or waived any of its rights under any Contract and
the Company has no contractual obligation, and is not subject to any claim
for a legal right, to renegotiate any Contract.
3.3.7. OWNERSHIP OF STOCK. The Stockholders own the Shares of the
Company in the proportions and amounts set forth on SCHEDULE 3.3.7. The
Shares listed on SCHEDULE 3.3.7 constitute all of the issued and
outstanding shares of capital stock of the Company. Each of the
Stockholders has good, valid and marketable title to the Shares, free and
clear of all Claims, options, proxies, voting trusts or voting agreements
(other than the encumbrances created by this Agreement, and except as set
forth in SCHEDULE 3.3.7). Except as set forth in SCHEDULE 3.3.7, there are
no outstanding subscriptions, options, warrants, rights (including
preemptive rights), calls, or other agreements or commitments of any
character relating to any Shares or other equity interests in the Company.
Except as set forth in SCHEDULE 3.3.7, there are no agreements or
understandings to which any of the Stockholders or the Company is a party
with respect to the Shares or to any corporate governance matters. Upon
Closing, Purchaser will obtain good, valid and marketable title to the
Shares, free of all Claims.
3.3.8. SALES ROYALTIES. Schedule 3.3.8 contains true and
complete copies of the statements of Sales Royalties required to be
delivered by DKS pursuant to Section 6 of the DK License Agreement for
fiscal years 1998 and 1999 and for the period from January 1, 2000 through
the date hereof. Except as set forth on SCHEDULE 3.3.8, DKI has paid and
the Company has received all Sales Royalties set forth on such statements.
3.3.9. NO LIABILITIES. Except as set forth on SCHEDULE 3.3.9,
at Closing, the Company shall have no Liabilities related to the Non-DKI
Business and, except for the executory portion of any Contract set forth on
SCHEDULE 3.3.6, the Company shall have no Liabilities related to the
Business.
3.3.10. TAXES AND TAX RETURNS. Except as set forth on SCHEDULE
3.3.10, (i) all material Returns required to be filed by the Company have
been filed on a timely basis; (ii) all such Returns are true, correct,
complete and accurate in all material respects; and (iii) any and all
material Taxes required to be paid by the Company have been paid in full or
adequately provided for in the Company's financial statements in accordance
with GAAP. No extension of time within which to file any Return that has
not been filed has been requested or granted. Except as set forth in
SCHEDULE 3.3.10, (i) no material claim has been made in writing by any
federal, state, local or foreign Governmental Authority in connection with
the Returns, (ii) there are no Actions for the assessment or collection of
any material Taxes by any federal, state, local or foreign Governmental
Authority pending or threatened in writing against the Company, (iii) there
are no material deficiencies asserted against the Company by any federal,
state, local or foreign Governmental Authority that have not been paid in
full or adequately provided for in the Company's financial statements in
accordance with GAAP, (iv) there are no material adjustments under Section
481 of the Code by reason of a change in accounting methods or otherwise
that the Company is required to make, and (v) there are no written requests
for information from any federal, state, local or foreign Governmental
Authority relating to Taxes of the Company. No waivers of statutes of
limitation with respect to the Returns have been given by or requested from
the Company.
3.3.11. PERMITS. SCHEDULE 3.3.11 identifies every license, permit,
registration, authorization, approval, waiver, agreement, consent or other
instrument (collectively, the "PERMITS") issued or given to, or (as and if
indicated in such SCHEDULE 3.3.11) applied for or pending by, the Company
(other than registration of Intellectual Property with the U.S. Patent and
Trademark Office or comparable Governmental Authority in any jurisdiction
other than the United States disclosed on SCHEDULE 3.3.16), and every
agreement with any Governmental Authority (also a "PERMIT") entered into by
the Company, which is in effect or has been applied for or is pending. The
Permits constitute all licenses, permits, registrations, authorizations,
approvals, waivers, agreements and consents which are required in order for
the Company to conduct its business, including the Business, in a manner
consistent with past practices. To the extent applicable, the Company is in
full compliance with all such Permits and all such Permits are valid, fully
paid and in full force and effect. None of the Stockholders nor the Company
have received any notice that the Company is in default under any such
Permit.
3.3.12. EMPLOYEES AND EMPLOYEE BENEFIT PLANS. Except as set
forth on SCHEDULE 3.3.12 and for the comptroller or other financial
bookkeeper working at offices of the Company located at 201 Wolfs Lane,
Pelham, New York 10803 (whose total annual compensation does not exceed
$60,000), the Company has no employees. Except as set forth on SCHEDULE
3.3.12, the Company is not, and never has been, a party to, sponsor of or
participant in any plans or agreements providing for any benefit or
compensation to any current or former employee of the Company. The Company
is not currently and has never been, a party to or subject to any
collective bargaining agreement or other arrangement with any union.
3.3.13. LITIGATION. Except as provided in SCHEDULE 3.3.13,
there is no Action (whether or not the defense thereof or the liability
thereunder is covered by any policy of insurance) pending or, to the best
knowledge of any of the Stockholders, threatened, or any judgment levied
against the Company, or pending or, to the best knowledge of any of the
Stockholders, threatened, against any of the Stockholders that relates to
the Company, questions the validity of this Agreement or the ability of any
of the Stockholders to consummate the transactions contemplated hereby.
3.3.14. COMPLIANCE WITH LAWS. The Company is not a party to, or
bound by, any Governmental Order. The Company has conducted its business,
including the Business, in compliance with all applicable Laws, Government
Orders and Permits, and the Company is not in violation of, or delinquent
in respect to, any Law or any Permit from any Governmental Authority to
which the property, assets, personnel or business activities, including the
Business, of the Company are subject; provided, however that no
representation is made regarding whether DKI is in violation of, or
delinquent in respect to, any Law or Permit from any Governmental
Authority. Except as provided on SCHEDULE 3.3.14, the Company has not
received any notice or other communication (whether oral or written) from
any Governmental Authority or any other person regarding any actual,
alleged, possible or potential violation of, or failure to comply with, any
Law.
3.3.15. TITLE TO ASSETS. The Company has good and marketable
title to the assets referred to in SCHEDULES 3.3.6 and the Company's rights
under the Contracts identified in SCHEDULE 3.3.6, free and clear of any
Claims other than liens for Taxes not yet due and payable. The Company does
not own or lease any real estate.
3.3.16. INTELLECTUAL PROPERTY.
(i) Except with respect to typographical errors or similarly
incorrect entries, the Company is the record owner of the
Trademark applications and registrations as and to the
extent set forth on SCHEDULE 3.3.16 (with the exception
of (i) certain rights to the Donna Karan Name with
respect to which Karan is the owner and the Company is
the licensee pursuant to the Consent Agreement, (ii)
recordation of certain assignments as reflected in
SCHEDULE 3.3.16 from Karan to the Company, (iii) the
domain names listed on SCHEDULE 3.3.16 and (iv) those
Trademark applications and registrations, if any, to be
transferred pursuant to SECTIONS 4.1.8 and 7.5), free and
clear of all pledges, charges (other than filing
charges), escrows, rights of first refusal or first
offer, transfer restrictions, liens, security interests
(including assignments as security), and any other
encumbrances placed, authorized, caused or incurred by
the Company (except for (a) a security interest granted
to DKS pursuant to Section 16 of the DK License
Agreement, (b) a restriction on transfer of the
Trademarks pursuant to Section 12.2 of the DK License
Agreement and (c) liens for Taxes not yet due and
payable). The Company has no obligation to pay any third
party for the Company's rights to use or license such
Trademarks. Except as set forth on SCHEDULE 3.3.16, all
of (x) the Consent Agreement, (y) the DK License
Agreement (assuming the due authorization, execution and
delivery thereof by DKS) and (z) the Trademark
Assignments have been validly executed and delivered by
the respective parties thereto, constitute the legal,
valid and binding obligations of each party thereto, and
are in full force and effect, and there are no defaults
under any of such agreements. The license granted to the
Company pursuant to the Consent Agreement is a valid,
exclusive, royalty-free, perpetual world-wide right to
use the Donna Karan Name in accordance with the terms
thereof.
(ii) To the knowledge of the Stockholders, except with respect
to typographical errors or similarly incorrect entries,
SCHEDULE 3.3.16 sets forth a complete and accurate list
and summary description of all registered and pending
applications for Intellectual Property owned or licensed
by the Company (with the exception of commercial software
generally available for purchase and use by the public).
Except as disclosed on SCHEDULE 3.3.16, to the knowledge
of Stockholders, with respect to those Trademarks which
make up part of the Intellectual Property of the Company,
(t) the Company owns all right, title and interest in and
to the registered Trademarks, (u) the Company and its
licensees have the right to use the registered Trademarks
in connection with the goods and/or services listed in
the Trademark registrations, (v) all such Trademarks that
are registered with the United States Patent and
Trademark Office are currently in substantial compliance
with all formal legal requirements (including the timely
post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees
or taxes falling due within six (6) months after the date
hereof, (w) no such Trademark is involved in any
opposition, invalidation, or cancellation proceeding and
no such action is threatened with respect to any of such
Trademarks, (x) no Trademark is infringed or is subject
to an Action, and, to the knowledge of the Stockholders,
none of the Trademarks used by the Company infringes or,
to the knowledge of the Stockholders, is alleged to
infringe any trade name, trademark, or service mark of
any third party, (y) except with respect to applications
filed on an intent-to-use basis, to the knowledge of the
Stockholders, since their respective application dates,
the Trademarks DONNA KARAN NEW YORK, DKNY and DONNA KARAN
CASHMERE MIST have been continually used in commerce in
the United States so as not to render such Trademarks
abandoned and, since their respective application dates,
the Trademarks DONNA KARAN NEW YORK and DKNY have been
continually used in commerce in Japan so as not to render
such Trademarks abandoned and (z) the Company does not
own any applied-for or registered Intellectual Property
or license any Intellectual Property, all except as set
forth on SCHEDULE 3.3.16 (with the exception of
commercial software generally available for purchase and
use by the public). Except as disclosed on SCHEDULE
3.3.16, to the knowledge of the Stockholders, there are
no outstanding or threatened disputes against any of the
Trademarks of the Company set forth on SCHEDULE 3.3.16.
(iii) Purchaser acknowledges that (i) the use, maintenance and
enforcement of the Intellectual Property has been managed
by DKI and/or its subsidiaries (as the perpetual Licensee
under the DK License Agreement) and its trademark counsel
since June 3, 1996, (ii) information within the knowledge
of DKI and its trademark counsel is not attributable to
the knowledge of the Stockholders solely because such
information is known by DKI or its trademark counsel and
(iii) information contained in the International WISS
Searches for the Trademarks DK (T&T Ref. #75474113-51),
DONNA KARAN (T&T Ref. #75474111-51), DKNY (T&T Ref.
#75474112-51), in the International WISS Applicant
Searches on GABRIELLE STUDIO (T&T Ref. #75474121-51) and
DONNA KARAN (T&T Ref. #76303611-51), and in U.S. TM
Portfolio Search for DONNA KARAN (T&T Ref. #76303621-
19), which has been received by the Company's
Representatives shall not be attributable to the
knowledge of Stockholders if not known to the
Stockholders prior to the receipt on December 14, 2000 by
the Stockholders' Representatives of such reports.
3.3.17. BROKERS. Except for Credit Suisse First Boston, neither
the Company nor any of the Stockholders has any agreement with any broker,
finder or intermediary in connection with this Agreement or the
transactions contemplated hereby, and is not committed to pay any brokers'
or finders' fees or any similar fees in connection with the transactions
contemplated hereby.
3.3.18. QUALIFIED STOCK PURCHASE. The Company is and has been
since January 1, 1990, an "S" corporation under Section 1361 of the Code
(and comparable provisions of New York State law). Pursuant to the terms of
this Agreement, the Company agrees to sell, and Purchaser agrees to
purchase, stock of the Company representing at least 80% of the total vote
and 80% of the total value of the outstanding stock of the Company as of
the Closing Date for cash.
4. CONDUCT PRIOR TO CLOSING.
4.1. OBLIGATIONS OF THE STOCKHOLDERS. The following are the
obligations of the Stockholders, made for the benefit of Purchaser, from
and after the date hereof until the earlier of the Closing or a termination
of this Agreement pursuant to SECTION 9 below:
4.1.1. The Stockholders shall cause the Company to conduct the
Business only in the usual and ordinary course and consistent with prudent
industry and past practices, and shall comply fully with its obligations
under the Consent Agreement and the License Agreement. Notwithstanding
anything to the contrary contained in this SECTION 4, except for those
items listed on SCHEDULE 3.3.9, the Stockholders shall cause the Company
prior to Closing to transfer as promptly as practicable all of the Non-DKI
Business, together with all of its associated assets and Liabilities, to
the Stockholders or their Affiliates (and the Stockholders shall be
entitled to remove from the Disclosure Schedules disclosures relating to
the Non-DKI Business, to the extent that such disclosures are no longer
true as result of Stockholders' transfer of the Non-DKI Business pursuant
to this sentence, by written notice to Purchaser of such removal not less
than 7 days prior to Closing (provided, that if any such transfer is
effected less than 7 days prior to Closing, then the Stockholders shall be
entitled to make such removal if the Stockholders deliver such written
notice promptly following such transfer but in any event before Closing).
4.1.2. Without the prior written consent of Purchaser and
without limiting the generality of any other provision of this Agreement,
the Stockholders shall cause the Company not to:
(i) amend the Company's Certificate of Incorporation or By-laws;
(ii) authorize, issue or sell any Shares or other equity interests
in the Company;
(iii) place, authorize or cause or incur any Claim (other than
a Claim for Taxes not yet due and payable) on any of its
assets (whether tangible or intangible) related to the
Business;
(iv) enter into or amend, terminate or give notice of
termination with respect to the DK License Agreement, the
Consent Agreement, the Reserved Rights Agreement or the
Trademark Assignments or waive any rights under DK
License Agreement (except for such waivers that are
undertaken in the ordinary course of business consistent
with past practices), the Consent Agreement, the Reserved
Rights Agreement or the Trademark Assignments; or
(v) agree, undertake or become obligated to do any of the
foregoing.
4.1.3. No Stockholder shall:
(i) sell, dispose of or otherwise transfer any of the Shares
held of record by such Stockholder except for certain
transfers to his or her siblings, descendants or
any trust formed under the laws of any state of the
United States for the benefit solely of one or more of
the Stockholders, their siblings and descendants for the
purposes of income tax or estate planning ("PERMITTED
TRANSFERS"), provided that (x) the Stockholders and the
transferees of any such Permitted Transfer will continue
to hold in aggregate all of the beneficial and economic
interests in the Shares (even though legal title to the
Shares may be held by trustees of the above-referenced
trusts), (y) any transferee of a Permitted Transfer
agrees to become bound by this Agreement as a
"Stockholder" as if originally a party hereto with all of
the obligations thereof (except that such transferee
shall not be entitled to make any Permitted Transfer
other than to the original Stockholders, the siblings of
the original Stockholders, descendants of the original
Stockholders or any trust formed under the laws of any
state of the United States for the benefit solely of one
or more of the original Stockholders, the siblings of the
original Stockholders or descendants of the original
Stockholders for the purposes of income tax or estate
planning) and (z) any transferor of any Permitted
Transfer continues to remain liable hereunder as if such
Permitted Transfer has not occurred;
(ii) place, incur or suffer any Claim on any of the Shares held
of record by such Stockholder; or
(iii) agree, undertake or become obligated to do any of the
foregoing.
4.1.4. At all times prior to Closing or the earlier termination
of this Agreement pursuant to SECTION 9 below, the Stockholders shall cause
the Company to (i) give to Purchaser's Representatives reasonable access
during normal business hours to all of the properties, books, contracts,
documents, records and personnel of the Company, provided that such
examinations or other access shall not unreasonably interfere with the
Company's operations and activities, (ii) furnish to Purchaser and such
persons as Purchaser shall designate such information as Purchaser or such
persons may at any time and from time to time reasonably request, and (iii)
cooperate in all ways reasonably requested by Purchaser in its due
diligence investigation of the Company.
4.1.5. From and after the date hereof until the termination of
this Agreement pursuant to SECTION 9 below, each Stockholder will not, and
will cause the Company not to and will use reasonable best efforts to cause
the Stockholders' and the Company's respective Representatives not to,
directly or indirectly, (i) initiate, solicit or knowingly encourage
(including by way of furnishing information or assistance), or take any
other action to facilitate, any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal, (ii) enter into any agreement contemplating an Acquisition
Proposal, (iii) maintain or continue discussions or negotiations with any
person or entity in furtherance of such inquiries or for the purpose of
obtaining an Acquisition Proposal, (iv) agree to or endorse any Acquisition
Proposal, (v) without the prior written consent of Purchaser, amend the DK
License Agreement or (vi) release any third party from any standstill or
confidentiality agreement, or waive or amend any provision thereof, to
which it is a party relating to the Shares; provided, however, that with
respect to any of (i) through (iv) hereof, nothing set forth herein shall
limit or prohibit the ability of a Stockholder who is a director or officer
of DKI to participate in discussions with the members of the DKI Board of
Directors and DKI's Representatives if such Stockholder determines, after
taking into account the advice of his or her counsel, that failing to so
act would reasonably be expected to constitute a breach of his or her
fiduciary duty as a director or officer of DKI. The Stockholders shall
notify Purchaser orally, as promptly as practicable, of all of the relevant
details relating to, and all material aspects of (including the identity of
the person or entity making such inquiry or proposal), all oral or written
inquiries and proposals which any Stockholder or the Company or any of
their respective Representatives may receive relating to any of such
matters and, if such inquiry or proposal is in writing, the Stockholders
shall deliver to Purchaser a copy of such inquiry or proposal as promptly
as practicable; provided, however, that no such disclosure or delivery of
such copy shall be required if it would reasonably be expected to
constitute a breach of their fiduciary duty as directors or officers of DKI
(as reasonably determined by such Stockholders after taking into account
the advice of their counsel). Nothing in this SECTION 4.1.5 shall permit
the Company or any of the Stockholders to enter into any agreement with the
purpose of effectuating any Acquisition Proposal prior to the termination
of this Agreement pursuant to SECTION 9 below. The Stockholders shall
immediately cease and cause to be terminated any existing solicitation,
initiation, encouragement, activity, discussion or negotiation with any
parties conducted heretofore by the Stockholders, the Company or any
Representatives with respect to any Acquisition Proposal existing on the
date hereof.
4.1.6. The Stockholders shall cause the Company to provide to
DKS the notice required pursuant to Section 14.1(b) of the DK License
Agreement in connection with this Agreement and the transactions
contemplated hereby.
4.1.7. Except as otherwise set forth in SECTION 7.5, Karan
shall transfer and convey to the Company, and cause any of her Affiliates
(if applicable) to transfer and convey to the Company, for only such
consideration as can be and is satisfied and discharged in full by the
Company prior to the Closing Date, all Intellectual Property owned by Karan
or her Affiliates (if applicable) if and to the extent that Karan has not
fully complied with her obligations pursuant to the DK License Agreement,
the Consent Agreement, or the Trademark Assignments, or any other
contractual obligation relating to such Intellectual Property, to have so
transferred and conveyed such Intellectual Property to the Company.
4.2. OBLIGATIONS OF PURCHASER. Purchaser agrees to use its best
efforts to make promptly a proposal to the Board of Directors of DKI for a
DKI Transaction, which proposal will include a per share price no less than
that which Purchaser advised the Stockholders it was including in its
proposal letter of even date herewith immediately prior to the execution
hereof and to negotiate in good faith with the Board of Directors of DKI
with respect to such proposal with a view toward entering into an agreement
pertaining thereto as promptly as practicable; provided, however, that in
no event shall Purchaser be obligated to (or be deemed to have failed to
use best efforts in the event Purchaser fails to) increase the
consideration set forth in any such proposal. If Purchaser has not entered
into a definitive agreement with DKI for the DKI Transaction on or before
the Determination Date, Purchaser hereby agrees that for a period of one
year from the earlier of the Determination Date or the date on which DKI or
Purchaser publicly announces that such negotiations have been terminated,
Purchaser will not and will cause its Affiliates not to solicit, offer to
effect or actually effect, negotiate with, or make in writing any statement
or proposal, either alone or in concert with others, to the Board of
Directors of DKI, to any director or officer of DKI or to any stockholder
of DKI or make any public announcement or proposal or offer whatsoever
(including any "solicitation" of "proxies" as such terms are defined or
used in Regulation 14A of the Securities Exchange Act of 1934, as amended)
with respect to (i) any form of business combination or similar transaction
with DKI, including a merger or a tender or exchange offer, (ii) any form
of restructuring or similar transaction of DKI, or (iii) any purchase of
any common stock of DKI or rights to acquire any common stock of DKI, in
each of the cases referred to in clauses (i) - (iii), involving an offer
price per share of DKI common stock that is less than the highest price per
share of DKI common stock (the "HIGHEST OFFER PRICE") offered in any
definitive formal offer (authorized by LVMH) presented by Purchaser to the
Board of Directors of DKI during the course of the negotiations engaged in
between Purchaser and the DKI Board of Directors pursuant to this SECTION
4.2; provided, however, that Purchaser may take any of the foregoing
actions with respect to any purchase or acquisition, either alone or in
concert with others, of any shares of capital stock of DKI from an
accredited investor in any transaction other than (x) a tender offer (as
such term is used in the Securities Exchange Act of 1934, as amended) or
(y) a transaction executed on a national securities exchange or on an
automated quotation system (provided that any "block" transactions that are
transacted off-exchange and subsequently reported on a national securities
exchange or the consolidated reporting system shall not be deemed executed
on a national securities exchange or on an automated quotation system). On
the Determination Date, Purchaser shall notify the Stockholders of the
Highest Offer Price. The parties hereby acknowledge and agree that (x) DKI
shall be a third party beneficiary of this SECTION 4.2, and (y) in the
event DKI shall waive the provisions of this SECTION 4.2, then the
Stockholders shall automatically, without further action, and shall be
deemed, also to have waived the provisions of this SECTION 4.2.
4.3. JOINT OBLIGATIONS. The following shall apply with equal
force to each of the Stockholders and Purchaser and shall be an obligation
owed by each respective party to every other party:
4.3.1. No party shall willfully perform any act which, if
performed, or omit to perform any act which, if omitted to be performed,
would prevent the performance of this Agreement by any party hereto or
which would result in any representation or warranty herein contained of
said party being untrue in any material respect.
4.3.2. Each of the parties hereto shall promptly give every
other party written notice of the existence or occurrence of any condition
which would make any representation or warranty herein contained of any
party untrue or which might reasonably be expected to prevent the
consummation of the transaction contemplated hereby.
4.3.3. Each of the Stockholders and Purchaser shall file or
cause to be filed with the United States Federal Trade Commission ("FTC")
and the Antitrust Division of the United States Department of Justice (the
"ANTITRUST DIVISION") any notification required to be filed by the
"ultimate parent" of the Company or Purchaser, respectively, under the HSR
Act and the rules and regulations promulgated thereunder with respect to
the transactions contemplated in this Agreement. Such parties will use all
reasonable efforts to make such filings promptly and to respond on a timely
basis to any requests for additional information made by either of such
agencies. Each of the parties hereto agrees to furnish the other with
copies of all correspondence, filings and communications (and memoranda
setting forth the substance thereof) between it and its Affiliates and
their respective Representatives, on the one hand, and the FTC, the
Antitrust Division or any other Governmental Authority or members or their
respective staffs, on the other hand, with respect to this Agreement and
the transactions contemplated thereby, other than personal financial
information filed therewith.
4.4. MUTUAL ACKNOWLEDGMENTS. In executing this Agreement, the
Stockholders have acted in their capacities as owners of the Company, and
not with the purpose or effect of changing or influencing the control of
DKI, nor in connection with or as a participant in any transaction having
such purpose or effect (other than pursuant to a transaction approved by
the Board of Directors of DKI). The parties agree that the Stockholders
have reserved all of their respective rights with respect to, and have no
agreement, arrangement or understanding with Purchaser relating to, any
shares of DKI. Without limiting the generality of the foregoing, the
Stockholders shall be free, subject to applicable securities laws, to
acquire or dispose of any additional shares of common stock of DKI in their
sole discretion.
4.5. OBLIGATIONS OF LVMH. LVMH Moet Hennessy Louis Vuitton S.A.
("LVMH") shall cause Purchaser to comply with all of its obligations under
this Agreement (including those indemnification obligations set forth in
SECTION 8.3).
5. CONDITIONS TO CLOSING.
5.1. CONDITIONS TO THE STOCKHOLDERS' OBLIGATIONS. The obligation of
each of Stockholders to consummate and close the transactions contemplated
hereby is subject to the fulfillment of all of the following conditions on
or prior to the Closing Date (unless satisfaction of any such condition is
expressly waived in writing by all of the Stockholders, or unless any of
the Stockholders causes a condition set forth in any of SECTION 5.1.2
through SECTION 5.1.4 not to be satisfied). Upon the non-fulfillment of any
of the following conditions, this Agreement may, at the Stockholders'
option, be terminated pursuant to and with the effect set forth in SECTION
9.
5.1.1. Each and every representation and warranty made by
Purchaser shall have been true and correct when made and shall be true and
correct as if originally made on and as of the Closing Date except where
the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) does not have and is not
reasonably likely to have, individually or in the aggregate, a material
adverse effect on Purchaser or the Company.
5.1.2. All obligations of Purchaser to be performed hereunder
prior to the Closing Date shall have been performed in all material
respects.
5.1.3. No Action shall have been instituted or pending by any
Governmental Authority on any grounds to restrain, enjoin or hinder, or to
seek a material amount of damages on account of, the consummation of the
transactions contemplated hereby.
5.1.4. The waiting period (and any extension thereof)
applicable to the transaction contemplated by this Agreement under the HSR
Act, if applicable, shall have expired or been terminated.
5.1.5. Purchaser shall be prepared to deliver to the
Stockholders all of the instruments, documents and considerations described
in SECTION 6.2, and the form and substance of all such deliveries shall be
reasonably satisfactory in all respects to the Stockholders and their
counsel.
5.2. CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligation of
Purchaser to close the transactions contemplated hereby is subject to the
fulfillment of all of the following conditions on or prior to the Closing
Date (unless satisfaction of any such condition is expressly waived in
writing by Purchaser or unless Purchaser causes such condition not to be
satisfied). Upon the non-fulfillment of any of the following conditions,
this Agreement may, at Purchaser's option, be terminated pursuant to and
with the effect set forth in SECTION 9.
5.2.1. Each and every representation and warranty made by the
Stockholders shall have been true and correct when made and shall be true
and correct as if originally made on and as of the Closing Date except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) (i) does not have and is not
reasonably likely to have a material adverse effect on the Company and (ii)
does not have and is not reasonably likely to have an effect (other than a
de minimus effect) on the ability of any Stockholders to consummate the
transactions contemplated by this Agreement; provided that a breach or
breaches of the first sentence of paragraph (i) of SECTION 3.3.16 shall be
deemed to have or be reasonably likely to have a material adverse effect on
the Company only if the Damages therefrom exceed U.S.$7,500,000.
5.2.2. All obligations of each of the Stockholders to be
performed hereunder prior to the Closing Date shall have been performed in
all material respects.
5.2.3. From the date hereof until the Closing Date, no event
shall have occurred which is reasonably likely to have a material adverse
effect on DKI or the Company.
5.2.4. No Action shall have been instituted or pending by any
Governmental Authority on any grounds to restrain, enjoin or hinder, or to
seek a material amount of damages on account of, the consummation of the
transaction contemplated hereby.
5.2.5. The waiting period (and any extension thereof)
applicable to the transaction contemplated by this Agreement under the HSR
Act, if applicable, shall have expired or been terminated.
5.2.6. The Stockholders shall be prepared to deliver to
Purchaser all of the instruments, documents and considerations described in
SECTION 6.3, and the form and substance of all such deliveries shall be
reasonably satisfactory in all respects to Purchaser and its counsel.
6. CLOSING.
6.1. FORM OF DOCUMENTS. At the Closing, the parties shall deliver the
documents, and shall perform the acts, which are set forth in this SECTION
6. All documents which any of the Stockholders shall deliver shall be in
form and substance reasonably satisfactory to Purchaser and Purchaser's
counsel. All documents which Purchaser shall deliver shall be in form and
substance reasonably satisfactory to the Stockholders and their counsel.
6.2. PURCHASER'S DELIVERIES. Subject to the fulfillment or
written waiver of the conditions set forth in SECTION 5.2, Purchaser shall
execute and/or deliver to the Stockholders all of the following:
6.2.1. The Initial Purchase Price in the aggregate, payable to
each such Stockholder in accordance with its respective Stockholder's
Proportionate Interest, by wire transfer of immediately available funds to
the account directed by such Stockholder;
6.2.2. A copy of the Certificate of Incorporation of Purchaser
and a certificate of good standing (long-form) of Purchaser, in each case
issued not earlier than two (2) days prior to the Closing Date by the
Secretary of State of Delaware, together with a copy of the By-laws of
Purchaser, certified as true and complete by an officer of Purchaser and
dated as of the Closing Date;
6.2.3. A copy of the resolutions of the board of directors of
Purchaser authorizing the execution, delivery and performance of this
Agreement by Purchaser, and any other document delivered by Purchaser
hereunder, certified as true and complete, and in full force and effect, by
an officer of Purchaser and dated as of the Closing Date;
6.2.4. An incumbency certificate(s) with respect to the
officers of Purchaser executing this Agreement, and any other document
delivered hereunder, on behalf of Purchaser; and
6.2.5. A closing certificate(s) executed by the President of
Purchaser and the Secretary of Purchaser (or any other officer of Purchaser
authorized to do so), on behalf of Purchaser, pursuant to which Purchaser
certifies to the fulfillment of the conditions set forth in SECTIONS 5.1.1
and 5.1.2, and that all documents to be executed and delivered by Purchaser
at the Closing have been executed by duly authorized officers of Purchaser,
as the case may be.
6.3. DELIVERIES OF THE STOCKHOLDERS. Subject to the fulfillment or
written waiver of the conditions set forth in SECTION 5.1, the Stockholders
shall execute and/or deliver to Purchaser all of the following:
6.3.1. Certificates evidencing all of Shares, properly endorsed
by the Stockholders, accompanied by such stock powers and other documents
as may be necessary (or reasonably requested by Purchaser) to transfer
record ownership of such Shares into Purchaser's name on the stock transfer
books of the Company;
6.3.2. A certified copy of the Company's Certificate of
Incorporation and certificate of existence for the Company, in each case
issued not earlier than two (2) days prior to the Closing Date by the
Secretary of State of the State of New York, together with a copy of the
By-laws of the Company, certified as true and complete by an officer of the
Company and dated as of the Closing Date;
6.3.3. A copy of the Trust Agreement of the Trust, certified as
true and complete by the trustee of the Trust and dated as of the Closing
Date;
6.3.4. A closing certificate duly executed by each of the
Stockholders pursuant to which each such party certifies to the fulfillment
of the conditions set forth in SECTIONS 5.2.1 and 5.2.2, and that all
documents to be executed and delivered by any of them at the Closing have
been executed by the Stockholders or the trustee thereof in the case of the
Trust;
6.3.5. Resignations of each of the officers and directors of
the Company, duly executed by such person; and
6.3.6. A legal opinion from counsel to the Trust and any other
Stockholder that is a trust as to the due existence and good standing of
such trust under the laws of the state of its formation, such trust's power
and authority to execute this Agreement and to consummate the transactions
contemplated hereby, and the legality, validity and enforceability of this
Agreement and the documents delivered pursuant hereto against such trust.
7. ADDITIONAL AGREEMENTS.
7.1. PAYMENT OF BROKERS FEES. The Stockholders (and not the Company)
shall be responsible for and shall pay the fees and other charges of Credit
Suisse First Boston related to this Agreement and the transactions
contemplated hereby. Purchaser shall be responsible for and shall pay the
fees and other charges of Goldman, Sachs & Co. related to this Agreement
and the transactions contemplated hereby.
7.2. CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS. None of the parties
hereto shall disclose any of the business terms of this transaction without
the written consent of the other parties, except, on a need to know basis,
to its professional advisors and except insofar as such disclosure may be
required by applicable Law (including the securities Laws, including with
respect to any Schedule 13D filed by certain Stockholders and any amendment
thereto), or by existing obligations pursuant to any listing agreement with
any securities exchange on which the shares of any party (or a Controlling
direct or indirect parent of such party) are listed. Promptly following the
Closing, the parties hereto shall issue a joint press release in a form
reasonably satisfactory to each of the parties.
7.3. TAX ELECTIONS. Each of Purchaser and the Stockholders
shall (a) make an election under Code Section 338(h)(10) (the "SECTION
338(H)(10) ELECTION") (and any comparable election under applicable state,
local or foreign law) with respect to the acquisition of the Company by
Purchaser and (b) cooperate fully with the other in the making of such
elections. Within thirty (30) days following the Closing Date, Purchaser
shall deliver to the Stockholders for their review and approval, a schedule
of the allocation of the purchase price (as determined under Section 338 of
the Code and the Treasury Regulations thereunder) among the assets of the
Company in the manner prescribed under Section 338 of the Code and the
Treasury Regulations promulgated thereunder (the "ALLOCATION SCHEDULE"). If
the Stockholders and Purchaser are unable to agree upon an Allocation
Schedule within sixty (60) days following the Closing Date, the parties
shall promptly retain a mutually acceptable accounting firm (which shall be
one of the Big Five firms who is not the regular firm of accountants for
either Purchaser or any of the Stockholders or DKI (a "QUALIFIED
ACCOUNTANT")) to produce an Allocation Schedule as soon as practicable, but
in no event later than 120 days after the Closing Date. The Stockholders
and Purchaser shall share equally the costs of the accounting firm incurred
in connection with such Allocation Schedule. The Stockholders and Purchaser
shall (i) be bound by the Allocation Schedule (as agreed by the
Stockholders and Purchaser or as prepared by the Qualified Accountants, as
the case may be) and shall take no position inconsistent with the
Allocation Schedule for any Tax purpose, including any audit or judicial or
administrative proceeding and (ii) prepare and file all Returns and
determine all Taxes in a manner consistent with the Allocation Schedule. In
particular and not by way of limitation, in order to effect the Section
338(h)(10) Election, within 150 days after the Closing Date, Purchaser and
the Stockholders shall (a) jointly execute necessary copies of Internal
Revenue Service Form 8023 and all attachments required to be filed
therewith pursuant to applicable Treasury Regulations and (b) file such
Form 8023 with the Internal Revenue Service in a timely manner.
7.4. TAX MATTERS.
7.4.1. TAX RETURNS. Except as otherwise provided in this
SECTION 7.4:
(i) The Stockholders shall file or cause to be filed when due
all Returns that are required to be filed by or with
respect to the Company for taxable years or periods
ending on or before the Closing Date and shall remit (or
cause to be remitted), any Taxes due in respect of such
Returns. Purchaser shall pay to the Stockholders the
Excluded Taxes (as hereinafter defined) which are payable
with any such Return upon the written request of the
Stockholders, setting forth in detail the computation
consistent with past practices of the amount owed no
later than two days prior to the date such Return is due
to be filed, taking into account any valid extensions
(the "DUE DATE").
(ii) The Purchaser shall file or cause to be filed when due
all Returns that are required to be filed by or with
respect to the Company for taxable years or periods
ending after the Closing Date, provided that any Straddle
Period Return be filed consistent with past practices,
and Purchaser shall remit (or cause to be remitted) any
Taxes due in respect of such Returns.
(1) Any Return required to be filed by Purchaser relating
to any taxable year or period beginning on or before and ending
after the Closing Date (the "STRADDLE PERIOD") shall be
submitted (with copies of any relevant schedules, work papers
and other documentation then available) to the Stockholders for
their approval not less than 30 days prior to the Due Date for the
filing of such Return, which approval shall not be unreasonably
withheld.
(2) The Stockholders shall pay to Purchaser the Taxes for
which the Stockholders are liable (pursuant to SECTION 7.4.4)
but which are payable with any Return to be filed by Purchaser
with respect to any Straddle Period upon the written request of
Purchaser, setting forth in detail the computation of the
amount owed, no later than two days prior to the Due Date.
7.4.2. TAX INDEMNIFICATION.
(i) The Stockholders shall, during the Tax Indemnification
Period, indemnify and hold Purchaser harmless from and
against the following: (1) any liability for Taxes
imposed on the Company for any taxable year or period
that ends on or before the Closing Date (including Taxes
attributable to the Section 338(h)(10) Election) and,
with respect to any Straddle Period, the portion of such
Straddle Period deemed to end on and include the Closing
Date (as determined pursuant to SECTION 7.4.4); (2) any
liability for a breach of the representations in SECTION
3.3.18 (to the extent not payable pursuant to subsection
(1) hereof); and (3) Transfer Taxes; provided, however,
that the Stockholders shall not be liable for and shall
not indemnify Purchaser for one-half of Taxes imposed on
the Company by New York State or a locality therein that
are attributable to the Section 338(h)(10) Election (as
such, the "EXCLUDED TAXES");
(ii) Purchaser shall, during the Tax Indemnification Period,
indemnify and hold the Stockholders harmless from and
against the following: (1) Taxes imposed on the Company
for any taxable year or period that begins after the
Closing Date and, with respect to any Straddle Period,
the portion of such Straddle Period beginning after the
Closing Date (determined pursuant to SECTION 7.4.4); and
(2) Excluded Taxes; provided, however, that Purchaser
shall not be liable for and shall not indemnify the
Stockholders for Transfer Taxes;
(iii) For purposes hereof, the term "TAX INDEMNIFICATION
PERIOD" shall mean, with respect to any obligation with
respect to Taxes payable by any party pursuant to THIS
SECTION 7.4 (including any Tax-Related Payment), the
period commencing on the Closing Date and ending on the
sixtieth (60th) day (the "TAX INDEMNIFICATION CUT-OFF
DATE") following the expiration of the applicable statute
of limitations with respect to such obligation for Taxes;
provided, however, that the Tax Indemnification Period
shall be automatically extended with respect to any and
all Taxes for which a Tax Indemnification Notice has been
delivered prior to the Tax Indemnification Cut-Off Date,
until the date upon which the Tax-Related Payment, if
any, has been determined and made in accordance with the
provisions of SECTION 7.4.11 hereof.
7.4.3. TRANSFER TAXES. All excise, sales, use, transfer
(including real property transfer or gains), stamp, documentary, filing,
recordation and other similar taxes, together with any interest, additions
or penalties with respect thereto and any interest in respect of such
additions or penalties resulting directly from the transactions
contemplated by this Agreement (the "TRANSFER TAXES"), shall be borne by
the Stockholders. Notwithstanding any other provision of this SECTION 7.4,
any Returns that must be filed in connection with Transfer Taxes shall be
prepared and filed when due by the party primarily or customarily
responsible under the applicable local Law for filing such Returns, and
such party shall provide such Returns to the other party for review at
least ten days prior to the Due Date for such Returns and shall file those
Returns only with the consent of such other party, which consent shall not
be unreasonably withheld.
7.4.4. COMPUTATION OF TAX LIABILITIES.
(i) To the extent permitted or required by Law or
administrative practice, the taxable year of the Company
which includes the Closing Date shall be treated as
closing on (and including) the Closing Date. For purposes
of apportioning between the Stockholders and Purchaser
the Taxes for a Straddle Period (which is not treated
under the immediately preceding sentence as closing on
the Closing Date), such Taxes shall be apportioned
between the period deemed to end at the close of the
Closing Date and the period beginning the day after the
Closing Date on the basis of an interim closing of the
books, except that Taxes imposed on a periodic basis
(such as real property Taxes) shall be allocated on a
daily basis.
(ii) In determining the Stockholders' liability for Taxes
pursuant to this Agreement, the Stockholders shall be
credited with the amount of estimated Taxes paid by or on
behalf of the Company prior to the Closing. To the extent
that the Stockholders' liability for Taxes for a taxable
year or period is less than the amount of estimated Taxes
previously paid by or on behalf of the Company with
respect to all or a portion of such taxable year or
period, Purchaser shall pay the Stockholders the
difference, no later than two days prior to the Due Date,
of the Returns relating to such Taxes.
7.4.5. CONTEST PROVISIONS.
(i) Each of Purchaser, on the one hand, and the Stockholders,
on the other hand (the "RECIPIENT"), shall notify the
other party in writing within 15 days of receipt by the
Recipient of written notice of any pending or threatened
audits, notice of deficiency, proposed adjustment,
assessment, examination or other administrative or court
proceeding, suit, dispute or other claim (a "TAX CLAIM")
which could affect the liability for Taxes of such other
party. If the Recipient fails to give such prompt notice
to the other party, it shall not be entitled to
indemnification for any Taxes arising in connection with
such Tax Claim if and to the extent that such failure to
give notice materially and adversely affects the other
party's right to participate in the Tax Claim.
(ii) The Stockholders shall have the sole right to represent
the Company's interests in any Tax Claim relating to
taxable periods ending on or before the Closing Date. The
Stockholders and Purchaser shall have joint control with
respect to representation of the Company's interests in
any Tax Claim relating to a Straddle Period unless such
Tax Claim relates solely to one portion of the Straddle
Period or the other and only one party is responsible for
all Taxes relating to such Tax Claim, in which instance
such party shall control the defense of such Tax Claim.
Without implication that the contrary would otherwise be
true, Purchaser shall have the sole right to represent
the Company's interests in any Tax Claim relating to
taxable periods beginning after the Closing Date. None of
Purchaser, any of its Affiliates, or the Company may
settle or otherwise dispose of any Tax Claim for which
the Stockholders may have a liability under this
Agreement, or which may result in an increase in the
Stockholders' liability under this Agreement, without the
prior written consent of the Stockholders, which consent
may be withheld in the sole discretion of the
Stockholders, unless Purchaser fully indemnifies the
Stockholders in writing with respect to such liability in
a manner satisfactory to the Stockholders. None of the
Stockholders or any of their respective Affiliates may
settle or otherwise dispose of any Tax Claim for which
Purchaser may have a liability under this Agreement, or
which may result in an increase in Purchaser's liability
under this Agreement, without the prior written consent
of Purchaser, which consent may be withheld in the sole
discretion of Purchaser, unless the Stockholders fully
indemnify Purchaser in writing with respect to such
liability in a manner satisfactory to Purchaser.
7.4.6. REFUNDS.
(i) Any Tax refund (including any interest in respect
thereof) received by Purchaser or the Company, and any
amounts credited against Tax to which Purchaser or the
Company becomes entitled (including by way of any amended
Returns) that relate to any taxable period, or portion
thereof, ending on or before the Closing Date and that
relate solely to the Company (and not Purchaser or its
Affiliates) or the Stockholders shall be for the account
of the Stockholders, and Purchaser shall pay over to the
Stockholders any such refund or the amount of any such
credit within five days after receipt or entitlement
thereto. Any Tax refund (including any interest in
respect thereof) received by the Stockholders, and any
amounts credited against Tax to which the Stockholders
become entitled (including by way of any amended Returns)
that relate to any taxable period, or portion thereof,
beginning after the Closing Date and that relate solely
to the Company, Purchaser or their respective Affiliates
shall be for the account of Purchaser, and the
Stockholders shall pay over to Purchaser any such refund
or the amount of any such credit within five days after
receipt or entitlement thereto. For purposes of this
SECTION 7.4.6, where it is necessary to apportion a
refund or credit between Purchaser and the Stockholders
for a Straddle Period, such refund or credit shall be
apportioned between the period deemed to end at the close
of the Closing Date, and the period deemed to begin at
the beginning of the day following the Closing Date on
the basis of an interim closing of the books, except that
refunds or credits of Taxes imposed on a periodic basis
(e.g., real property Taxes) shall be allocated on a daily
basis.
(ii) The Purchaser shall use its reasonable best efforts to
cooperate, and cause the Company to use its reasonable
best efforts to cooperate, in obtaining any refund that
the Stockholders reasonably believe should be available,
including through filing appropriate forms with the
applicable taxing authorities. Any out-of-pocket expense
incurred by Purchaser or the Company in connection with
such activities shall be reimbursed by the Stockholders
within ten (10) days of written notice by Purchaser or
the Company of such expense.
7.4.7. RESOLUTION OF ALL TAX-RELATED DISPUTES. In the event
that the Stockholders and Purchaser cannot agree on the calculation of any
amount relating to Taxes or the interpretation or application of any
provision of this Agreement relating to Taxes, such dispute shall be
resolved by a Qualified Accountant, whose decision shall be final and
binding upon all persons involved and whose expenses shall be shared
equally by the Stockholders and Purchaser.
7.4.8. POST-CLOSING ACTIONS WHICH AFFECT THE STOCKHOLDERS'
LIABILITY FOR TAXES.
(i) Purchaser shall not permit the Company to take any action
after the Closing Date which could increase the
Stockholders' liability for Taxes (including any
liability of the Stockholders to indemnify Purchaser for
Taxes pursuant to this Agreement). The Stockholders shall
not take any action after the Closing Date, which could
increase Purchaser's or the Company's liability for Taxes
(including any liability of Purchaser to indemnify the
Stockholders for Taxes pursuant to this Agreement).
(ii) Purchaser shall not (and shall not cause or permit the
Company to) amend, refile or otherwise modify any Return
relating in whole or in part to the Company with respect
to any taxable year or period ending on or before the
Closing Date (or with respect to any Straddle Period)
without the prior written consent of the Stockholders,
which consent may be withheld in the reasonable good
faith discretion of the Stockholders.
7.4.9. ASSISTANCE AND COOPERATION. After the Closing Date, each
of the Stockholders and Purchaser shall:
(i) timely sign and deliver such certificates or forms as may
be necessary or appropriate to establish an exemption
from (or otherwise reduce), or file Returns or other
reports with respect to Transfer Taxes;
(ii) assist the other party in preparing any Returns which
such other party is responsible for preparing and filing
in accordance with this SECTION 7.4;
(iii) cooperate fully in preparing for any audits of, or disputes
with taxing authorities regarding, any Returns of the Company;
(iv) make available to the other and to any taxing authority
as reasonably requested in connection with any Return all
information relating to any Taxes or Returns of the
Company; and
(v) furnish the other with copies of all correspondence
received from any taxing authority in connection with any
Tax audit or information request with respect to any such
taxable period.
7.4.10. ADJUSTMENT TO PURCHASE PRICE. For all Tax purposes,
unless otherwise required by applicable Law, any payment by Purchaser or the
Stockholders under this SECTION 7.4. shall be treated as an adjustment to the
Purchase Price.
7.4.11. TAX-RELATED INDEMNIFICATION PAYMENTS. Any and all
payments required to be made pursuant to this SECTION 7.4 (each, a
"TAX-RELATED PAYMENT") shall be paid by wire transfer of immediately
available funds to the party seeking indemnification (a "TAX INDEMNIFIED
PARTY") within fifteen (15) days of the date upon which the Tax Indemnified
Party delivers to the party from whom indemnification is sought (a "TAX
INDEMNIFYING PARTY") a notice in writing of its claim for indemnification
for a Tax-Related Payment (the "TAX INDEMNIFICATION NOTICE"); provided
however, that, if the Tax-Related Payment requested pursuant to the Tax
Indemnification Notice is disputed as provided in this SECTION 7.4.11, such
payment shall be due within fifteen (15) days following the applicable Tax
Determination. Each Tax Indemnification Notice shall set forth, in
reasonable detail, the computation, amount, and basis of the Tax-Related
Payment, which computation shall be in accordance with the historical tax
accounting practices of the Company. If (a) the Tax Indemnifying Party
delivers, within fifteen (15) days of receipt of a Tax Indemnification
Notice, written notice (a "TAX DISPUTE NOTICE") to the Tax Indemnified
Party that the Tax Indemnifying Party disputes the amount of any
Tax-Related Payment set forth in the applicable Tax Indemnification Notice
and (b) the parties are, within fifteen (15) days of delivery of such Tax
Dispute Notice, unable to resolve the dispute as to the Tax-Related
Payment, the parties shall mutually retain a Qualified Accountant to
resolve such dispute, the cost of which Qualified Accountant shall be borne
equally by the parties and the conclusion of which Qualified Accountant as
to the amount of the Tax-Related Payment (the "TAX DETERMINATION"), if any,
shall be binding upon the parties. Any claim for a Tax-Related Payment by
one party may be offset by a claim for a Tax-Related Payment by the other
party, but only to the extent that the parties have delivered appropriate
Tax Indemnification Notices therefor and no Tax Dispute Notices that remain
unresolved have been delivered with respect thereto. The net Tax-Related
Payment of any party shall be made in accordance with the terms of this
SECTION 7.4.11.
7.5. INTELLECTUAL PROPERTY APPLICATIONS. In the event that there
exist any applications to register any Intellectual Property in the name of
Donna Karan or any of her Affiliates (if applicable) which are required to
be assigned or transferred to the Company prior to the Closing pursuant to
SECTION 4.1.7 above and, pursuant to applicable law, such applications
cannot be so assigned or transferred prior to the Closing, then immediately
following such time as any registration is granted pursuant to any such
application, Karan shall, and shall cause any of her Affiliates (if
applicable), to take all actions necessary in order to assign or transfer
the Intellectual Property included in such registrations to Purchaser after
the Closing, with no additional consideration to be paid by Purchaser in
connection therewith.
7.6. FUTURE AGREEMENTS. Following the date hereof, the Stockholders
and Purchaser shall negotiate in good faith and, beginning immediately
following the time that the DKI Transaction is approved by the DKI Board of
Directors, use their respective best efforts to enter into or adopt formal
agreements, including the certificate of incorporation and bylaws (the
"FORMAL GOVERNANCE AGREEMENTS"), with respect to the governance of DKI (or
any successor thereof following consummation of the DKI Transaction) and
related arrangements on the terms set forth on Annex A hereto (the
"CONDITIONAL GOVERNANCE TERMS") and such other terms as the Stockholders
and Purchaser may agree in writing, to become effective only upon
consummation of the DKI Transaction or, in the case of the GS II Agreement
(as defined in Annex A), as promptly as practicable but in no event more
than 20 days following the Closing Date. If (i) the DKI Transaction is
approved by the DKI Board of Directors, (ii) the DKI Transaction is
consummated, and (iii) the Stockholders and Purchaser do not enter into and
adopt all of the necessary Formal Governance Agreements prior to
consummation of the DKI Transaction then the Stockholders and Purchaser
hereby agree, without any further action by any of them, that DKI (or any
successor thereof following consummation of the DKI Transaction) shall be
governed pursuant to the Conditional Governance Terms. If the Stockholders
and Purchaser (x) become governed by the Conditional Governance Terms on
the Closing Date pursuant to the immediately preceding sentence and (y) do
not thereafter enter into and adopt all of the necessary Formal Governance
Agreements at any time prior to six months after Closing, then the parties
agree to submit to a mediator ("MEDIATOR"), for binding mediation, selected
by and pursuant to the rules of the American Arbitration Association (and
the provisions of the last sentence hereto) and located in New York, New
York, the determination of the form of the Formal Governance Agreements.
The Mediator shall so determine the form of the Formal Governance
Agreements (subject to the provisions of the last sentence hereof), which
determination shall be made no later than six (6) months following his
selection, and his determination shall be final and non-appealable. After
the Mediator so determines the form of the Formal Governance Agreements,
each of the parties hereto shall execute and deliver such Formal Governance
Agreements to the other parties hereto. Anything to the contrary herein
notwithstanding, the Mediator shall (1) be an attorney with over 20 years
experience in corporate transactions, (2) in so determining the form of any
Formal Governance Agreement, agree to accept all those provisions of such
Formal Governance Agreement which all of the parties hereto confirm in
writing to the Mediator have already been agreed upon, (3) determine the
form of those provisions of the Formal Governance Agreements not otherwise
agreed upon by the parties hereto based upon the intent and agreement of
parties as evidenced by (I) the Conditional Governance Terms (which shall
in any case be deemed part of such agreement), (II) any drafts of Formal
Governance Agreements which may have been circulated among the parties,
(III) interviews with the parties and their representatives, (IV) form and
custom in other comparable transactions, (V) what is reasonable under the
circumstances, and (VI) such other information that the Mediator may
reasonably deem relevant to making such determination, and (4) to the
extent not otherwise inconsistent with the prior clauses of this sentence,
be bound by the rules of the American Arbitration Association regarding
mediation.
7.7. NET WORTH STATEMENTS. The Stockholders shall deliver to
Purchaser, no later than forty-five (45) days after each of December 31,
2001 and December 31, 2002, a letter (the "NET WORTH STATEMENT") from their
accountant, Mahoney Cohen & Company CPA, P.C. (or another accounting firm
of at least comparable reputation), stating that the aggregate net worth
(as determined in accordance with GAAP) of the Stockholders is at least
U.S.$50 million, or, if less, the extent to which the aggregate net worth
(as determined in accordance with GAAP) is less than U.S.$50 million (the
"SHORTFALL"). If the Stockholders fail to deliver the Net Worth Statement
within the time period set forth in this SECTION 7.7, the Shortfall shall
be deemed to be U.S.$50 million. In the event that there is a Shortfall,
the Stockholders shall deposit an amount equal to such Shortfall with a
U.S. bank with at least U.S.$1 billion in assets as escrow agent. The
Stockholders and Purchaser shall enter into an escrow agreement, governing
the terms of such deposit, reasonably acceptable to each, which escrow
agreement shall provide for release of all or part of the escrowed amount
(i) to Purchaser in the event that Purchaser makes a successful claim for
indemnification pursuant to SECTION 8 of this Agreement and (ii) to the
extent not previously released to Purchaser, to the Stockholders (a) on the
second anniversary of the Closing Date or (b) upon the pledge of capital
stock contemplated by the terms of Annex A.
8. INDEMNIFICATION.
8.1. GENERAL. Except as set forth herein, from and after the Closing,
the parties shall indemnify each other as provided in this SECTION 8;
provided, however, that no Indemnified Party shall be indemnified for any
Claim regarding Taxes pursuant to this SECTION 8, but shall instead be
indemnified as provided in and pursuant to the terms of SECTION 7.4. No
specifically enumerated indemnification obligation with respect to a
particular subject matter as set forth below shall limit or affect the
applicability of a more general indemnification obligation as set forth
below with respect to the same subject matter. The representations,
warranties, covenants and obligations in this Agreement, including any
exhibits, annexes, or Disclosure Schedules attached hereto, will survive in
accordance with the terms set forth in SECTION 8.7. The right to
indemnification and payment of Damages or any other remedy based on such
representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to the accuracy or
inaccuracy of or compliance with any such representation, warranty,
covenant, or obligation. Except as set forth in this Agreement, including
in SECTION 9.2.1, the waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, the
payment of Damages, or any other remedy based on such representations,
warranties, covenants and obligations. For the purposes of this SECTION 8
but subject to SECTION 9.2.1, each party shall be deemed to have remade all
of its representations and warranties contained in this Agreement at the
Closing with the same effect as if originally made at the Closing. Any
representation or warranty made at Closing shall be breached if untrue on
the Closing Date regardless of whether such breach constitutes a failure of
condition set forth in SECTION 5.2.1 to Purchaser's obligation to
consummate the transactions contemplated hereby or a failure of condition
set forth in SECTION 5.1.1 to the Stockholders' obligation to consummate
the transactions contemplated hereby.
8.2. INDEMNIFICATION OBLIGATIONS OF THE STOCKHOLDERS. Except as set
forth herein (including SECTION 8.7.1 and SECTION 8.7.2), each of the
Stockholders (as such, an "INDEMNIFYING PARTY") shall jointly and severally
defend, indemnify, save and keep Purchaser and its Affiliates, officers,
directors, agents, attorneys, accountants, and employees, and each of their
successors and permitted assigns ("PURCHASER INDEMNITEES"), harmless
against and from all Damages asserted, sustained or incurred by any
Purchaser Indemnitee, as a result of or arising out of or by virtue of:
8.2.1. Any breach of any representation or warranty (including
the references to the Disclosure Schedule set forth herein) made by any of
the Stockholders to Purchaser in SECTION 3.3 hereof (other than SECTION
3.3.10 and SECTION 3.3.18).
8.2.2. Any breach of, or failure to perform, any of the
covenants or obligations of the Stockholders under this Agreement to be
performed by any of them (including their obligations under this SECTION
8).
8.3. PURCHASER'S INDEMNIFICATION COVENANTS. Except as set forth
herein (including in SECTION 8.7.1 and SECTION 8.7.2), Purchaser (as such,
an "INDEMNIFYING PARTY") shall defend, indemnify, save and keep the
Stockholders and each of their Affiliates, officers, directors, agents,
attorneys, accountants and employees and each of their successors and
permitted assigns ("STOCKHOLDER INDEMNITEES"), harmless against and from
all Damages asserted, sustained or incurred by any Seller Indemnitee, as a
result of or arising out of or by virtue of:
8.3.1. Any breach of any representation or warranty made by
Purchaser to the Stockholders in SECTION 3.2 hereof.
8.3.2. Any breach by Purchaser of, or failure by Purchaser to
comply with, any of the covenants or obligations under this Agreement to be
performed by Purchaser (including its obligations under this SECTION 8).
8.3.3. Any Third Party Claim (a) by or on behalf of DKI, (b) by a
stockholder of DKI that is (i) not a Stockholder or any of their respective
Affiliates and (ii) not Purchaser or any of its Affiliates or (c) any
person or entity (other than Purchaser or any of its Affiliates) that makes
(between the date hereof and the earlier of (i) the consummation of the DKI
Transaction or (ii) six (6) months following the abandonment by Purchaser
(and/or its Affiliates) of its efforts to consummate the DKI Transaction)
an Acquisition Proposal, against any of the Stockholders arising out of,
based upon or relating to the negotiation, execution or performance of this
Agreement, the actions required to be taken or prohibited to be taken by
the Stockholders by the terms of this Agreement, or the DKI Transaction.
Notwithstanding anything to the contrary contained herein, Purchaser shall
not, and shall not be obligated to, indemnify, save or keep harmless any of
the Stockholders for any intentional misstatement of material fact by such
Stockholder in a press release or any document filed with the U.S.
Securities and Exchange Commission (the "SEC") in such Stockholder's
capacity as a stockholder of DKI, or any omission by such Stockholder to
state a fact that is necessary to make such a press release or other such a
document filed with the SEC, in light of the circumstances in which they
are made, not misleading or any failure to file any document with the SEC,
in such Stockholder's capacity as a stockholder of DKI, when required to be
filed.
8.4. COOPERATION. Subject to the provisions of SECTION 8.6, the
Indemnifying Party shall have the right, at its own expense, to participate
in the defense of any Third Party Claim, and if said right is exercised,
the parties shall cooperate in the investigation and defense of any such
Third Party Claim.
8.5. REQUIREMENTS AS TO CLAIMS. The Indemnifying Party shall not be
entitled to require that any Action be brought against any other person
before a Claim is made against it hereunder by the Indemnified Party.
8.6. THIRD PARTY CLAIMS. Except as set forth in SECTION 7.4 for
Claims regarding Taxes,
8.6.1. Forthwith following the receipt of notice of a Third
Party Claim, the party receiving the notice of the Third Party Claim shall
(i) notify the other party of the existence of such Third Party Claim,
setting forth with reasonable specificity the facts and circumstances
relating to the Third Party Claim of which such party is aware and (ii) if
the party giving such notice is an Indemnified Party, specifying the basis
hereunder upon which the Indemnified Party's claim for indemnification is
asserted. The Indemnified Party (a) may, upon reasonable notice from the
Indemnified Party, tender the defense of a Third Party Claim to the
Indemnifying Party and (b) shall, upon reasonable notice from the
Indemnifying Party, tender such defense to the Indemnifying Party.
8.6.2. If the defense of a Third Party Claim is tendered
pursuant to SECTION 8.6.1, then the Indemnified Party shall not, and the
Indemnifying Party shall, have the right to contest, defend, litigate or
settle such Third Party Claim (except as provided in SECTION 8.6.4). The
Indemnified Party shall have the right to be represented by counsel at its
own expense in any such contest, defense, litigation or settlement
conducted by the Indemnifying Party provided that the Indemnified Party
shall be entitled to reimbursement therefor if the Indemnifying Party shall
lose its right to contest, defend, litigate and settle the Third Party
Claim as herein provided.
8.6.3. The Indemnifying Party shall lose its right to defend and
settle the Third Party Claim if it shall not agree to undertake the defense
of a Third Party Claim within 30 days following the tender thereof pursuant
to clause (a) of SECTION 8.6.1 or shall fail to diligently contest the
Third Party Claim. So long as the Indemnifying Party has not lost its right
and/or obligation to contest, defend, litigate and settle as herein
provided, the Indemnifying Party shall have the right to contest, defend
and litigate the Third Party Claim and shall have the right, and upon the
advice of counsel, to settle any such matter, either before or after the
initiation of litigation, at such time and upon such terms as it deems fair
and reasonable (except as provided in SECTION 8.6.4). All expenses
(including attorneys' fees) incurred by the Indemnifying Party in
connection with the foregoing shall be paid by the Indemnifying Party.
8.6.4. Notwithstanding the foregoing, in connection with any
settlement negotiated by an Indemnifying Party, no Indemnifying Party
shall, and no Indemnified Party shall be required by an Indemnifying Party
to, (x) enter into any settlement that does not include as an unconditional
term thereof the delivery by the claimant or plaintiff to the Indemnified
Party of a release from all liability in respect of such claim or
litigation, (y) enter into any settlement that attributes by its terms
liability to the Indemnified Party or (z) consent to the entry of any
judgment that does not include as a term thereof a full dismissal of the
litigation or proceeding with prejudice. No failure by an Indemnifying
Party to acknowledge in writing its indemnification obligations under this
SECTION 8 shall relieve it of such obligations to the extent they exist.
8.6.5. If an Indemnified Party is entitled to indemnification
against a Third Party Claim, and the Indemnifying Party fails to accept a
tender of, or assume, the defense of a Third Party Claim pursuant to clause
(a) of SECTION 8.6.1, or if, in accordance with the foregoing, the
Indemnifying Party shall lose its right to contest, defend, litigate and
settle such a Third Party Claim, pursuant to SECTION 8.6.3, the Indemnified
Party shall have the right, without prejudice to its right of
indemnification hereunder, in its discretion exercised in good faith and
upon the advice of counsel, to contest, defend and litigate such Third
Party Claim, and may settle such Third Party Claim, either before or after
the initiation of litigation, at such time and upon such terms as the
Indemnified Party deems fair and reasonable, provided that at least ten
(10) days prior to any such settlement, written notice of its intention to
settle is given to the Indemnifying Party. If, pursuant to this SECTION
8.6, the Indemnified Party so contests, defends, litigates or settles a
Third Party Claim, for which it is entitled to indemnification hereunder as
hereinabove provided, the Indemnified Party shall be reimbursed by the
Indemnifying Party for the reasonable attorneys' fees and other expenses
and court costs of defending, contesting, litigating and/or settling the
Third Party Claim which are incurred from time to time, forthwith following
the presentation to the Indemnifying Party of itemized bills for said
attorneys' fees and other expenses and court costs.
8.7. CERTAIN LIMITATIONS; SURVIVAL.
8.7.1. Notwithstanding anything to the contrary contained herein,
(i) an Indemnifying Party shall not be required to indemnify the Indemnified
Party pursuant to SECTION 8.2.1 or SECTION 8.3.1 above unless and until the
aggregate Damages suffered by the Indemnified Party on account of all
breaches of representations and warranties of the Indemnifying Party (other
than as described in clause (ii) below) shall exceed U.S.$3,000,000 (the
"BASKET") (other than willful breaches of representations and warranties
set forth in SECTION 3.3.7 and SECTION 3.3.9, to which the foregoing
limitation shall not apply), (ii) an Indemnifying Party shall not be
required to indemnify the Indemnified Party pursuant to SECTION 8.2.1 above
in the case of any breach of the first sentence of paragraph (i) of SECTION
3.3.16 on account of any facts, events or circumstances first arising after
April 28, 2000 until the aggregate Damages suffered by the Indemnified
Party on account of all such breaches of representations and warranties
shall exceed U.S.$7,500,000 (the "SECOND BASKET"), in which case only such
Damages arising from breaches of the first sentence of paragraph (i) of
SECTION 3.3.16 on account of any facts, events or circumstances first
arising after April 28, 2000 in excess of the Second Basket shall be
indemnifiable under SECTION 8.2.1 above, subject to the Basket, and (iii)
once such Damages exceed the Basket, the Indemnified Party may make all
claims and the Indemnifying Party shall be liable for all such Damages from
the first dollar (i.e., regardless of the Basket) up to a maximum amount
(the "CEILING") equal to U.S.$150,000,000. Notwithstanding anything to the
contrary contained herein, the Company and the Stockholders shall assign to
Purchaser, and Purchaser shall assign to the Stockholders, any right any
one of them may have to insurance proceeds on account of any of the events
or circumstances described in any of SECTION 8.2 or SECTION 8.3 hereof for
which the other has suffered Damages; provided, however, that each such
party shall be required to remit any portion of such proceeds to the person
or entity that assigned the rights thereto to the extent that the sum of
such proceeds and the amount the party receives pursuant to this SECTION 8
exceed such party's Damages. In no event shall any party hereto have any
liability hereunder in respect of lost profits or consequential (provided
that any diminution in the valuation of the Company shall be deemed to
constitute actual damages, and not consequential damages, to the extent
that it results from a breach of any representation or warranty set forth
in SECTION 3.3.8), speculative, special, incidental or punitive damages.
8.7.2. Any provision of this Agreement (other than SECTION 7.4)
that imposes an obligation or restriction, or confers a right or benefit,
the observance, performance, or exercise of which may or must occur after
the Closing shall survive indefinitely except as set forth in the
immediately following sentence. Without limitation of the foregoing, (1)
all representations and warranties, to the extent they relate solely to the
Business, shall terminate at Closing (except that such representations and
warranties shall survive for the applicable periods set forth in clause (2)
hereof (without regard to whether they relate to the Business) (a) if such
representations and warranties are set forth in SECTION 3.3.8, in SECTION
3.3.9 (but not to the extent such Liabilities are described in SECTION
3.3.16(II)) or in SECTION 3.3.16(I) or (b) if, and to the extent that, any
of the Stockholders actually knows on the date hereof of any fact, event or
circumstance that constitutes a breach of any such representation or
warranty) and (2) all representations and warranties, to the extent that
they do not relate solely to the Business, if set forth (w) in SECTIONS
3.2.1, 3.2.2, 3.3.1, 3.3.2, 3.3.3, and 3.3.7, shall survive forever, (x) in
SECTION 3.3.10, shall terminate at Closing, (y) in SECTION 3.3.18, shall
survive until sixty (60) days following any applicable statute of
limitations period and (z) in all other subsections of SECTION 3.2 and 3.3,
shall survive for a period of 18 months after the Closing. If any party
provides a written notification to the other party of a breach or of an
alleged breach of any representation or warranty (which notice describes
such breach or alleged breach) prior to the end of the applicable survival
period, such specific representation or warranty shall with respect to such
breach or alleged breach survive without limitation. For the avoidance of
doubt, any particular representation or warranty, in the context of an
alleged breach thereof, can both relate solely to the Business (and
therefore be described in clause (1) hereof) with respect to certain facts
or circumstances and not relate solely to the Business (and therefore be
described in clause (2) hereof) with respect to certain other facts or
circumstances. For example, the representations and warranties set forth in
SECTION 3.3.11 shall relate solely to the Business with respect to a Permit
of the Company required for any Trademark of the Company, if any were so
required, and shall not relate solely to the Business with respect to a
Permit required for the Company to do business in the City of New York.
9. TERMINATION/REMEDIES.
9.1. RIGHT TO TERMINATE. Anything to the contrary herein
notwithstanding, this Agreement and the transactions contemplated hereby
may be terminated as follows: (i) by the mutual written consent of
Purchaser and the Stockholders; or (ii) upon the Stockholders written
notice to Purchaser at any time thereafter if the Closing has not occurred
at or before 11:59 p.m. on the date that is six (6) months after the date
hereof.
9.2. FAILURE OF CONDITION. In the event of the nonfulfillment of any
condition to a party's closing obligations on or prior to September 30,
2001, such party may elect to do one of the following:
9.2.1. Proceed to close despite the nonfulfillment of any
closing condition, it being understood that consummation of the Closing
shall not be deemed a waiver of a breach of any representation, warranty or
covenant or of any party's rights and remedies with respect thereto;
provided, however, that consummation of the Closing despite the
nonfulfillment of the closing condition set forth in SECTION 5.2.1 shall be
deemed a waiver of any particular breach of representation and warranty but
only if and to the extent that such particular breach (a) relates to the
Business, (b) is due to facts, events or circumstances not actually known
by any of the Stockholders on the date of this Agreement, (c) is not
willfully caused by any of the Stockholders and (d) for which the
Stockholders have delivered written notice to Purchaser not less than seven
(7) days prior to Closing (provided, that if the Stockholders learn of any
particular fact, event or circumstance described in (b) on a date that is
less than seven (7) days prior to Closing, then this subsection (d) shall
be satisfied if the Stockholders deliver written notice thereof promptly to
Purchaser after so learning of such particular fact, event or circumstance,
but in all events before Closing);
9.2.2. Decline to close, terminate this Agreement and
thereafter seek Damages for breach of any representation, warranty or
covenant; or
9.2.3. Seek specific performance of the obligations of the
other party. Each party hereby agrees that in the event of any breach by
such party of this Agreement, the remedies available to the other party at
law would be inadequate and that such parties' obligations under this
Agreement may be specifically enforced.
9.3. RIGHT TO DAMAGES. If this Agreement is terminated pursuant to
SECTION 9.1 or 9.2, such termination shall not be deemed or construed as
limiting or denying any legal or equitable right or remedy of the party
terminating this Agreement pursuant to SECTION 9.1 or 9.2 for breach of any
representation, warranty or covenant hereunder to the extent set forth
herein. In no event shall any party hereto have any liability hereunder in
respect of lost profits or consequential (provided that any diminution in
the valuation of the Company shall be deemed to constitute actual damages,
and not consequential damages, to the extent that it results from a breach
of any representation or warranty set forth in SECTION 3.3.8), speculative,
special, incidental or punitive damages.
10. MISCELLANEOUS.
10.1. NOTICES. Any notice, demand or request which may be permitted,
required or desired to be given in connection therewith shall be given in
writing and directed to the parties hereto as follows:
If to any of the Stockholders: Mr. Stephan Weiss
c/o Gabrielle Studio, Inc.
201 Wolfs Lane
Pelham, New York 10803, U.S.A.
Fax: _______________
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036-6522, U.S.A.
Attention: Eileen T. Nugent, Esq.
Fax: (212) 735-2000
If to Purchaser: LVMH Moet Hennessy Louis Vuitton Inc.
19 East 57th Street
Fifth Floor
New York, New York 10022, U.S.A.
Attention: General Counsel
Fax: (212) 340-7620
and with a copy to: LVMH Moet Hennessy Louis Vuitton
30, Avenue Hoche
Paris, France
Attention: Patrick Houel
Fax: (33 1) 45 638 752
and with a copy to: Barack Ferrazzano Kirschbaum
Perlman & Nagelberg
333 West Wacker Drive, 27th Floor
Chicago, Illinois 60606, U.S.A.
Attention: Peter J. Barack, Esq.
Fax: (312) 984-3150
Notices shall be deemed properly delivered and received when (i) if
personally delivered, upon receipt or refusal to accept delivery, (ii) if
sent via facsimile, upon mechanical confirmation of successful transmission
thereof generated by the sending telecopy machine, (iii) if sent by a
commercial overnight courier for delivery on the next business day, on the
first business day after deposit with such courier service, or (iv) if sent
by registered or certified mail, five (5) days after deposit thereof in the
U.S. mail. Any party may change its address for delivery of notices by
properly notifying the others pursuant to this SECTION 10.1.
10.2. BENEFIT; ASSIGNMENT. Except as set forth in SECTION 4.2, this
Agreement is for the benefit only of the parties hereto and their
respective successors (and with respect to Purchaser, the Stockholders and
their respective permitted assigns as provided below), and no other person
or entity shall be entitled to rely hereon, receive any benefit herefrom or
enforce against any party hereto any provision hereof, except insofar as
such person or entity may be entitled to indemnification as an Indemnified
Party under SECTION 8 above. No party may assign any of its rights or
obligations under this Agreement without the prior written consent of all
of the other parties (in their respective sole discretion), except that (i)
Purchaser may assign its rights and obligations hereunder to any wholly
owned subsidiary of Purchaser, provided that Purchaser shall remain liable
under this Agreement and (ii) any of the Stockholders may assign its rights
and obligations hereunder to a transferee pursuant to a Permitted Transfer,
provided that such Stockholder shall remain liable under this Agreement.
10.3. FURTHER ASSURANCES. All actions required to be taken pursuant
to this Agreement to effectuate the transaction contemplated herein shall
be taken promptly and in good faith by Purchaser or by the Stockholders, as
the case may be. Purchaser and each of the Stockholders shall use their
best efforts to consummate the transactions contemplated hereby (except
that, except as expressly set forth herein, no Stockholder will have an
obligation with respect to any proposal made by Purchaser to the DKI Board
of Directors or in connection with the transactions contemplated by such
proposal), including causing the conditions to closing set forth in SECTION
5 to be satisfied, and, without limiting the generality of the foregoing,
shall cooperate with and assist the other in its efforts to obtain or cause
to be obtained any and all consents and approvals of third parties
(including, but not limited to, Governmental Authorities) that may be
necessary in connection with the transactions contemplated hereby,
including all filings pursuant to the HSR Act. Purchaser and the
Stockholders agree to (i) furnish with, or cause to be furnished to, the
other party such documents or further assurances, and (ii) perform, or
cause to be performed, such undertakings as the other party may reasonably
request at any time in connection with (x) the transactions contemplated
hereby, and (y) the respective obligations of Purchaser and each of the
Stockholders, as the case may be, set forth in this Agreement.
Notwithstanding anything to the contrary contained herein, in no event
shall Purchaser be obligated to (or be deemed to have failed to use best
efforts in the event Purchaser fails to) increase the consideration set
forth in any proposal made by Purchaser made pursuant to the terms of this
Agreement to acquire the outstanding common stock of DKI.
10.4. SCHEDULES. Disclosure of any fact or item in any section of the
Disclosure Schedule hereto referenced by a particular paragraph or section
in this Agreement shall, should the existence of the fact or item or its
contents be relevant to any other paragraph or section, be deemed to be
disclosed with respect to that other paragraph or section whether or not an
explicit cross-reference appears. Certain of the representations and
warranties set forth in this Agreement contemplate that there will be
included in the Disclosure Schedule information that might be "material" or
have a "material adverse effect." The Stockholders may, at their option,
include in such schedules items that are not material or are not likely to
have a material adverse effect in order to avoid any misunderstanding, and
any such inclusion shall not be deemed to be an acknowledgment or
representation that such items are material or would have a material
effect, to establish any standard of materiality or material adverse effect
on the Business, or to define further the meaning of such terms for
purposes of this Agreement.
10.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement, including any
exhibits, annexes or schedules attached hereto, documents, and instruments
referred to herein or delivered pursuant hereto, constitute the entire
understanding between the parties with respect to the transaction
contemplated herein, and all prior or contemporaneous oral agreements,
understandings, representations and statements with respect to such
transaction are hereby superseded. The only representations and warranties
made by the parties hereto with respect to the subject matter hereof are
the representations and warranties contained in or made pursuant to this
Agreement. Neither this Agreement nor any provisions hereof may be waived,
modified, amended, discharged or terminated except by an instrument in
writing signed by the party against which the enforcement of such waiver,
modification, amendment, discharge or termination is sought, and then only
to the extent specifically set forth in such instrument. No such waiver
shall be deemed to be a waiver of any other or similar provision or
condition, or of any future event, act, breach or default, and no course of
dealing shall be implied or arise from any waiver or series of waivers
(written or otherwise) of any right or remedy hereunder.
10.6. CONSTRUCTION. Whenever used in this Agreement, the singular
shall include the plural and vice versa (where applicable), the use of the
masculine, feminine or neuter gender shall include the other genders
(unless the context otherwise requires), the words "hereof," "herein,"
"hereto," "hereby," "hereunder" and other words of similar import refer to
this Agreement as a whole (including all schedules and exhibits), and the
word "include", "includes" and "including" shall mean "include, without
limitation", "includes, without limitation" and "including, without
limitation", respectively. For the purposes of this Agreement, the actual
knowledge of the Stockholders shall be deemed to include the actual
knowledge of David L. Bressman acquired while an officer of the Company
(even if also acquired in a different capacity or at a different time).
This Agreement shall not be construed more strictly against one party than
against the other merely by virtue of the fact that it may have been
prepared by counsel for one of the parties, it being recognized that
Purchaser and each of the Stockholders have contributed substantially and
materially to the preparation of this Agreement. The headings of various
Sections in this Agreement are for convenience only, and are not to be
utilized in construing the content or meaning of the substantive provisions
hereof.
10.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to its conflict of laws rules.
10.8. JURISDICTION; FORUM. By the execution and delivery of this
Agreement, Purchaser and each of the Stockholders submits to the personal
jurisdiction of any state or federal court in the State of New York, County
of New York in any suit or proceeding arising out of or relating to this
Agreement.
10.8.1. To the extent that Purchaser or any of the Stockholders has
or hereafter may acquire any immunity from jurisdiction of any New York
court from any legal process (whether through service or notice, attachment
prior to judgment, attachment in aid of execution, execution or otherwise)
with respect to itself or its property, Purchaser or such Stockholder, as
the case may be, hereby irrevocably waives such immunity in respect of its
obligations with respect to this Agreement.
10.8.2. The parties hereto agree that the appropriate and
exclusive forum for any disputes between any of the parties hereto arising
out of this Agreement or the transactions contemplated hereby shall be in
any state or federal court in the State of New York, County of New York.
The parties hereto further agree that the parties will not bring suit with
respect to any disputes arising out of this Agreement or the transactions
contemplated hereby in any court or jurisdiction other than the above
specified courts; provided, however, that the foregoing shall not limit the
rights of the parties to obtain execution of judgment in any other
jurisdiction. The parties hereto further agree, to the extent permitted by
law, that final and unappealable judgment against a party in any action or
proceeding contemplated above shall be conclusive and may be enforced in
any other jurisdiction within or outside the United States by suit on the
judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and amount of such judgment.
10.9. PARTIAL INVALIDITY. The provisions hereof shall be deemed
independent and severable, and the invalidity or partial invalidity or
enforceability of any one provision shall not affect the validity or
enforceability of any other provision hereof.
10.10.EXPENSES. Except as set forth herein, Purchaser and each of the
Stockholders shall each bear their own respective costs and expenses
relating to the transactions contemplated hereby, including fees and
expenses of legal counsel, accountants, investment bankers or other
representatives for the services used, hired or connected with the proposed
transactions mentioned above.
10.11.REMEDIES CUMULATIVE. Except as otherwise provided herein, all
remedies of any party hereunder are cumulative and not alternative, and are
in addition to any other remedies available at law, in equity or otherwise.
The amount recoverable by Purchaser from any of the Stockholders on account
of any breach hereof or default hereunder by any of them shall not be
diminished by reason of the fact that the principal or sole damage
resulting therefrom is suffered by or relates to the Company.
10.12.COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, any of which may contain the signatures of less
than all parties, and all of which together shall constitute a single
agreement.
10.13.TERMINATION OF CERTAIN AGREEMENTS. In connection with the
transactions contemplated in this Agreement, the Stockholders hereby agree
that both (i) the Shareholders Agreement, dated September 1, 1989, among
the Company, Karan and Weiss, as amended, and (ii) the Agreement, dated
June 10, 1996, by and among Karan, Weiss, certain trusts and the Company
shall automatically terminate (without any further action required by the
parties thereto) and be of no further force and effect as of the Closing.
[The remainder of this page is intentionally left blank.]
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
PURCHASER:
LVMH MOET HENNESSY LOUIS VUITTON INC.
By: /s/ Bruce G. Ingram
______________________________________
Name: Bruce G. Ingram
Title: Senior Vice President
STOCKHOLDERS:
/s/ Donna Karan
------------------------------------------
Donna Karan
/s/ Stephan Weiss
------------------------------------------
Stephan Weiss
TRUST FBO LISA WEISS KEYES, COREY WEISS
AND GABRIELLE KARAN U/A/D 2/2/96
By: /s/ Stephan Weiss
______________________________________
Stephan Weiss
Trustee
LVMH hereby accepts and agrees to SECTION 4.5 of this Agreement and the
section entitled "OTHER TRANSACTION ISSUES - Karma-Parent Guaranty" of the
Conditional Governance Terms. LVMH hereby acknowledges that each
Stockholder who is a signatory hereto may proceed directly against LVMH in
the event of any breach of SECTION 4.5 of this Agreement and the section
entitled "OTHER TRANSACTION ISSUES - Karma-Parent Guaranty" of the
Conditional Governance Terms.
LVMH MOET HENNESSY LOUIS VUITTON S.A.
By: /s/ Myron Ullman
______________________________________
Name: Myron Ullman
Title: Director General
SCHEDULES
SCHEDULE 1 Donna Karan Marks
SCHEDULE 2.2 Purchase Price; Payment
SCHEDULE 3.3.3 Consents
SCHEDULE 3.3.5 Books and Records
SCHEDULE 3.3.6 Contracts
SCHEDULE 3.3.7 Ownership of Stock
SCHEDULE 3.3.8 Sales Royalties
SCHEDULE 3.3.9 No Liabilities
SCHEDULE 3.3.10 Taxes and Tax Returns
SCHEDULE 3.3.11 Permits
SCHEDULE 3.3.12 Employees and Employee Benefit
Plans
SCHEDULE 3.3.13 Litigation
SCHEDULE 3.3.14 Compliance With Laws
SCHEDULE 3.3.16 Intellectual Property
ANNEX A
Redacted
L will form Karma, a wholly owned, direct or indirect, Delaware subsidiary,
which, upon satisfaction of all relevant conditions, will acquire all of
the outstanding stock of Gabrielle Studio, Inc. ("GS") pursuant to the
terms of the Agreement between DK/SW and the related trusts (generally
referred to herein collectively as "DK/SW") and L (the "Agreement"). The
date of consummation of the acquisition of the stock of GS is referred to
as the "GS Closing Date." Thereafter, L may merge or liquidate GS with and
into Karma. In the event that L does not merge or liquidate GS with and
into Karma, GS will remain as a wholly-owned subsidiary of Karma. In all
events, DK/SW and Karma (or L if L is acquiror) will make a Section
338(h)(10) election in connection with the acquisition of GS. In addition,
L shall be responsible for 50% of the New York State and New York City
taxes imposed on GS as a result of the Section 338(h)(10) election, which
reimbursement of taxes shall be treated as an adjustment to the purchase
price of GS.
THE FOLLOWING DESCRIBES THE POSSIBLE STRUCTURE AND GOVERNANCE OF KARMA IF
THE DKI BOARD APPROVES AND DKI, L AND KARMA ENTER INTO A DEFINITIVE
AGREEMENT WITH RESPECT TO A MERGER TRANSACTION BETWEEN DKI AND KARMA (THE
"DKI MERGER"):
If DKI, L and Karma enter into a definitive agreement with respect to the
DKI Merger within 12 months of the date of the Agreement and the DKI Merger
is consummated, DK/SW will take the steps set forth in the second
succeeding paragraph and all of the provisions of this Annex A will come
into effect. If the DKI Merger does not take place in accordance with the
preceding sentence, until the third anniversary of the date of this
Agreement, then (i) DK/SW shall have the option to take the steps set forth
in such second succeeding paragraph and exercise in full their rights to
acquire shares of Karma common stock (with the understanding that in such
circumstance, i.e., the exercise by DK/SW in full of such rights to acquire
shares of Karma common stock, the terms governing such investment set forth
in this Annex A will then come into effect on the same terms that would
apply if the DKI Board of Directors had approved and entered into a
definitive agreement with respect to the DKI Merger within 12 months of the
Agreement) and (ii) L shall have the right to cause DK/SW to exchange the
DKI Karma Exchange Shares (as defined below) for an equal number of shares
of Karma common stock, but not to make any of the other investments
described herein (with the understanding that in such circumstance the
parties will not otherwise have the rights or obligations set forth in this
Annex A and that the governance of Karma will not be subject to the terms
of Annex A, but the parties will negotiate in good faith contractual
provisions relating to tag-and drag-along rights and transfers of such
shares to permitted transferees or to third parties, subject to L's right
of first refusal).
CAPITAL STRUCTURE OF KARMA
o Immediately before the consummation of the DKI Merger, L will cause
the Karma capital structure to consist of (x) Karma common stock
valued on a per share basis at the same price as the cash price per
share paid to DKI common stockholders (the "DKI Price") in the DKI
Merger and (y) Karma Series A Preferred Stock which will be valued
at $130M (the "Preferred") and will entitle L to receive the
cumulative preferred dividend set forth below. L will contribute to
Karma cash sufficient to undertake the DKI Merger. Karma will not
have any funded indebtedness other than the indebtedness assumed
pursuant to the DKI Merger and the acquisition of the store at 819
Madison Avenue.
o It is the parties' intent that, immediately prior to the DKI
Merger, DK/SW will exchange shares of stock in DKI representing
14.0% of the outstanding shares of common stock of DKI for an equal
number of shares of Karma common stock (the "DKI Karma Exchange
Shares"), valued at the DKI Price. The remaining shares of DKI
stock owned by DK/SW will be converted in the DKI Merger into the
right to receive the DKI Price (the "DK/SW Merger Cash"). After the
DKI Merger, DK/SW will have the option (to be exercised immediately
after the DKI Merger) (i) first, to use all of the DK/SW Merger
Cash to purchase from L, and (ii) after all such DK/SW Merger Cash
is so used, thereafter to use all of an additional $25 million in
cash (the "Additional Investment Amount") to purchase from Karma,
additional shares of Karma common stock, such that, if such DK/SW
Merger Cash and Additional Investment Amount is so used, DK/SW will
own (together with the DKI Karma Exchange Shares) an aggregate
number of shares of Karma common stock representing 14.3% of shares
of Karma common stock. Immediately after the closing of the DKI
Merger and any purchase of Karma shares by DK/SW pursuant to the
preceding sentence, L will own all of the remaining shares of Karma
common stock not owned by DK/SW.
o After the purchase by DK/SW of any shares of Karma common stock as
provided in the prior paragraph and prior to three months after the
closing of the DKI Merger (the "DKI Closing Date"), with the
consent of DK/SW (which consent shall not be unreasonably
withheld), L shall have the right to sell an aggregate number of
shares of Karma common stock representing up to 5.69% of the shares
of Karma common stock to accredited investors
[intentionally omitted]
which sales shall not be subject to the Right of First Offer described
below or any other restriction. L and DK/SW agree that Karma will not
issue any additional equity for 15 months from the DKI Closing Date
(except (i) for sales to DK/SW as provided above, (ii) for issuances
under employee stock option or other incentive plans in accordance
with the terms of this Annex A, (iii) as provided in External
Financing/Capital Calls below, and (iv) any acquisitions approved
as provided by the terms of this Annex A).
o On the DKI Closing Date, L(US) will own, directly or indirectly, at
least 80% of Karma's common stock and will consolidate with Karma
for tax purposes.
o Except as expressly provided in this Annex A, any other common
equity interests in Karma will be in the form of phantom stock or
other similar equity incentives granted to the CEO or YC, subject
in the case of the CEO to achieving certain performance goals.
Other equity incentive programs to retain and incentivize key
senior Karma executives will need to be developed by L and DK/SW.
L(US) will consolidate with Karma for US tax purposes and Karma and
L (US) will enter into a tax sharing agreement pursuant to which
Karma will be required to pay to L(US) an amount equal to the
federal, state and local taxes that would have otherwise been owing
by Karma if Karma had not been consolidated for tax purposes with
L(US). For the purpose of determining the payment due from Karma to
L(US), Karma shall not be able to use L(US)'s operating losses or
other attributes generated by the L(US) group (excluding Karma).
The tax sharing agreement will contain similar provisions relating
to the utilization by the L(US) group of any losses or other
attributes generated by Karma. The tax sharing agreement will
provide appropriate procedures for the contest of tax controversies
consistent with the status of Karma as a non-wholly-owned member of
the L(US) group.
o As soon as practicable but in no event more than 20 days following
the GS Closing Date, L and G Studio II, LLC ("GS II") will enter
into an agreement, substantially in the form attached hereto as
Appendix I (the "GS II Agreement").
GOVERNANCE ISSUES
o Karma will be an independent company within L, organized under and
reporting to L's Fashion Group. Karma's charter and by-laws will
provide that the only permitted action of Karma will be conducting
the business of DKI subject to the amendment of the charter or
by-laws pursuant to the procedures set forth below. Karma will be
managed in accordance with the Conceptual Business Plan attached
hereto as Appendix IV, which Conceptual Business Plan will be
subject to modification or change in accordance with the procedures
applicable to Super Majority Board Decisions as set forth below.
o Karma will be governed by a seven-member Board consisting of DK and
SW (or their designees for so long as the Ownership Threshold (as
defined below) is met), the CEO, and four designees of L
(including, (x) YC as long as he is an employee or consultant of L
or an affiliate of L and (y) the Chairman of L Fashion Group).
o The CEO will report to the Board and will have authority over
day-to-day ordinary course business decisions, acting within the
constraints of approved strategic plans and operating budgets. Such
plans and budgets will be developed by the CEO in conjunction with
the Chairman of L Fashion Group and DK and SW (or their designees)
and presented to the Board for its approval, all as consistent with
the corporate budget process of the L Fashion Group. DK will be
Chief Designer of Karma and will have creative control of Karma
consistent with the terms of the form of the employment agreement
to be entered into between DK and Karma (the "DK/Karma Employment
Agreement"), substantially in the form attached hereto, and the
by-laws of Karma. DK/SW and L agree that they will work together to
form Karma and to cause the Karma certificate of incorporation and
by-laws to reflect the provisions of this Annex A in accordance
with the terms hereof; it being understood that the duties and
scope of authority of DK as set forth in the DK/Karma Employment
Agreement will also be incorporated in the Karma by-laws so long as
she is employed by Karma.
o L agrees that it will, and will cause its Board designees to,
operate Karma in a manner consistent with its and their fiduciary
obligations to all Karma shareholders.
o For so long as DK/SW (for the avoidance of doubt, including the
family trusts, family members, beneficiaries, etc.) maintain an
investment in shares of Karma common stock with a cash value of
least $10M, based on the Base Price as computed in Appendix II
attached hereto (such threshold being referred to as the "Ownership
Threshold"), the following decisions ("Super Majority Board
Decisions") require approval by a super-majority of the Board
(i.e., the vote of six members which must include DK and SW (or
each of their designees as applicable) (the "Super Majority
Approval")).
(1) Any change in Karma's dividend policy (as described below).
(2) (a) Any acquisition by Karma or one of its subsidiaries in
an amount above $15M (including the assumption of debt) or
(b) any divestiture or sale of assets of Karma or one of its
subsidiaries which are material to Karma taken as a whole
(the determination of materiality will be subject to
arbitration if the parties cannot decide at the time the
decision is being made).
- Note that if the Karma Board reviews and does not
obtain Super Majority Approval, L will have the right
to make such acquisition itself and may enter into a
Related Party Transaction (as defined below).
(3) The (a) decision to obtain External Financing or a Capital
Contribution or (b) any change in the process relating to
External Financing/Capital Calls (as described below).
(4) The decision to register the equity or debt securities of
Karma or one of its subsidiaries for sale on a public
exchange or stock market.
(5) Any change in Karma's equity capital structure (e.g.,
issuance of new equity, authorization of supervoting shares,
preferred stock or an employee stock option plan, not
including issuances of up to 3% of the common equity
interest of Karma to employees under stock option and other
incentive plans).
(6) Any change in Karma's charter, by-laws, the shareholder
agreement or other governance documents (except for changes
to Karma's by-laws that are effected subsequent to the
termination of DK's employment to reflect the fact that DK
is no longer Chief Designer).
(7) Any substantial modification or changes to the scope of
Karma's business beyond that described in the Conceptual
Business Plan.
(8) The liquidation or dissolution of Karma.
(9) The guarantee of payment obligations or the performance of
the other obligations of third parties (other than L or any
of its subsidiaries or affiliates), including liens on
material assets of Karma for the benefit of third parties
(other than L or any of its subsidiaries or affiliates),
other than guarantees made in the ordinary course of
business of Karma.
(10) Entering into any transaction with L or any subsidiary or
affiliate of L (a "Related Party Transaction"); provided,
however, that "Related Party Transaction" shall not include
transactions solely for the provision of treasury, cash
management or other corporate support services (which shall
be provided on a third party arm's length basis) (Related
Party Transactions would include, for example, any
manufacturing or distribution agreement, real estate lease
or licensing agreement, including with respect to services
provided by any businesses acquired by L following the
failure to obtain Super Majority Approval with respect to
any such acquisition).
o Except with respect to the two matters specified below, if Super
Majority Approval of any of the matters set forth above is not
obtained, L will have a Call Right on all the DK/SW shares of Karma
common stock at agreed-upon prices (as described in Appendix II)
which L must exercise in full if Karma is to take the action in
dispute. If Karma nonetheless takes the action without L exercising
its Call Right, DK/SW may then put all (but not some) of its shares
at the same price as would have applied to L's Call Right.
However, failure to obtain a Super Majority Approval of the
following items will not provide L with a Call Right (and therefore
Karma will be prohibited from taking any such action):
- Acquisitions in the amount above US$15M (but see above).
- Entering into a Related Party Transaction.
Notwithstanding the Ownership Threshold set forth above, if both DK and SW
are deceased, the DK/SW interests will not have the right to designate
members to the Karma Board and will not have the approval rights set forth
above, but they will have the right to approve the matters set forth in
numbers 1, 3(b), 6, and 8 above (such rights to be embodied as a contract
right in the Karma shareholders agreement).
DIVIDEND POLICY
- The Preferred will be non-voting and will carry a
non-participating, cumulative preferred dividend of zero for
the calendar years 2001 and 2002 and $15M per annum payable
quarterly in arrears thereafter.
- If paid, dividends or other distributions, redemptions or
returns of capital to any of its holders of shares of Karma
common stock ("Dividends") will be paid on an equal per
share basis (the "Per Share Dividend"); provided that
Dividends on the Preferred will have priority.
- Until December 31, 2003, Karma will not pay Dividends to its
common shareholders.
- From and after December 31, 2003 until December 31, 2006,
Karma may pay Dividends to its common shareholders in an
aggregate amount per year of no more than 25% of net income
for such year (as calculated in accordance with U.S.
accounting principles in a manner consistent with Karma's
past practice ("US GAAP")).
- From December 31, 2006 until December 31, 2010, Karma may
pay Dividends to its common shareholders in an aggregate
amount per year of no more than 65% of net income,
calculated in accordance with US GAAP.
- Following December 31, 2010, Karma may pay Dividends to its
common shareholders in an aggregate amount per year of no
more than 80% of net income for such year, calculated in
accordance with US GAAP.
EXTERNAL FINANCING/CAPITAL CALLS
o If, as long as the Ownership Threshold is met, the Board determines
by Super Majority Approval that Karma requires additional capital
(beyond internally-generated funds), it will require that Karma
seek to borrow such amount from an unrelated institutional lender
on commercially reasonable terms. If Karma is successful in
obtaining a source for such funds, the Board must notify L, which
has the option to provide such funds on the same terms. If L
declines to make such loan, Karma may borrow from the unrelated
lender. If Karma is unable to borrow such amounts on commercially
reasonable terms, the Board may request (only by Super Majority
Approval) the shareholders to provide a capital contribution, in
proportion to their respective ownership interest. If any
shareholder elects not to make a capital contribution, the
shareholder's ownership interest will be adjusted to reflect this
and the respective contribution of the other shareholders.
Notwithstanding the foregoing, if both DK and SW are deceased, the
decision to obtain additional capital described above will not be
subject to Super Majority Approval, but any variations from the
process described above will require the contractual consent
described in the last paragraph under "Governance Issues."
o DK/SW and/or L may present alternative financing proposals to the
Board for consideration.
HIRING DECISIONS
o [intentionally omitted]
o DK, as long as she is an employee of Karma, will have veto rights
(as set forth below) over the selection of the CEO
[intentionally omitted]
In this context, the following procedure must be followed:
- L must present to DK for her consideration and approval
three qualified CEO candidates with experience and
credentials (consistent with L's existing standards for
similarly situated executives) within a six-month period (it
being understood that L must give DK a reasonable amount of
time during such six month period to evaluate each
candidate). At the time that either (1) at least three
candidates have been presented to DK or (2) six-months from
the commencement of the CEO selection process have elapsed,
whichever is longer, DK must approve one of the CEO
candidates (the "CEO Selection") within 45 days. If DK does
not make a CEO Selection within 45 days after the later of
the time frames specified in (1) and (2) of the preceding
sentence, the Karma Board of Directors will have the right
to make the CEO Selection. (This process is the "CEO
Selection Process").
- If the CEO Selection Process occurs but a CEO is chosen
without DK's approval, she will have the right to exercise a
Put Right on her shares of Karma common stock at (i) the
Premium Price for the thirty day period following
commencement of such CEO's employment and (ii) the Base
Price at any time after such thirty day period and during
the one year period following commencement of such CEO's
employment. Note that DK will be able to terminate her
employment agreement for "Good Reason" under this
circumstance, in accordance with the terms of the DK/Karma
Employment Agreement; provided that the prices applicable to
any exercise of a put by DK/SW in such circumstance will be
governed by the pricing terms set forth in the preceding
sentence. For purposes of this put, the applicable Valuation
Date for the Equity Value of Karma will be the date that
such non-approved CEO commences employment.
o DK, as long as she is an employee of Karma, will have the right to
propose or veto and the Karma CEO will have the right to propose or
veto, as the case may be, the hiring of the following employees in
the same procedure as the CEO Selection Process (modified as
appropriate to reflect which party is proposing and which party is
vetoing and that in each case the person who sets forth the
proposal has the ultimate decision-making ability):
- For the hiring of Senior Design Directors or any other
senior creative personnel, all of whom shall report to her,
including senior product design and development personnel,
senior creative advertising and marketing personnel and
senior personnel responsible for retail visual imaging and
merchandising, retail fashion coordination and the non-
financial aspects of public relations: DK proposes, Karma
CEO vetoes; it being understood that the failure of Karma
CEO to approve one of DK's senior creative personnel
candidates within the time frame specified will result in DK
having the right to make the final selection.
Notwithstanding the foregoing, Karma will not be obligated
to hire any of the aforementioned senior creative personnel,
provided it has "good reason" (i.e., evidence on the part of
the prospective senior creative employee of alcohol abuse,
illicit drug use, the commission of any material act of
dishonesty or fraudulent behavior, the conviction of a
felonious criminal act, or the like).
- For the hiring of the Brand Presidents of DK and DKNY or any
other brand of similar importance developed by Karma during
the term of DK's employment: Karma CEO proposes, DK vetoes;
it being understood that the failure of DK to approve one of
such candidates within the time frame specified will result
in the Karma CEO having the right to make the final
selection.
- With respect to these executives (for the avoidance of
doubt, not including the CEO), in the event that the
candidate selection process results in the selection of a
candidate DK has vetoed, she will not have a Put Right and
she will not be able to terminate her employment agreement
for "Good Reason".
o L agrees that neither it nor any of its affiliates (other than
Karma) will hire (x) any potential employee of Karma for a position
as a Brand President, Head Designer, First Assistant to a Head
Designer, Head of Creative Services, who, to the knowledge of L's
designees on the Board, is in substantive employment negotiations
with Karma, or (y) any existing employee of Karma, without the
approval of Karma's CEO or, in the case of design or creative
personnel, without the approval of DK, unless said employee or
potential employee has himself previously initiated contact with L
or its affiliates directly.
DK/KARMA EMPLOYMENT AGREEMENT
o Upon consummation of the DKI Merger, DK agrees to enter into the
DK/Karma Employment Agreement, the form of which is attached hereto
as Appendix V.
OTHER TRANSACTION ISSUES
Terms Relating to 819 Madison
o The parties agree that if L enters into a definitive agreement for
the DKI Transaction within 6 months from the date of the Agreement,
L will cause Karma to acquire, within 9 months from the date of the
Agreement, the 819 Madison Avenue store (including the lease and
all related agreements) from UZ at its documented cost and
expenses, and will complete the project and operate the store as a
DK Collection store. No adjustment will be made to the respective
equity holdings of Karma's shareholders in respect of the provision
of such funds. The estimated total capital cost of the project
(excluding rent, inventory and other non-capital expenses) is
approximately US$13.7M. The existing Boutique Agreement between UZ
and DKI will be cancelled. In the event L does not enter into a
definitive agreement for the DKI Transaction within 6 months of the
date of the Agreement, L shall be obligated to assume the
obligations relating to the 819 Madison Avenue store described
above, effective from the end of such 6 month period and in
accordance with the terms of the letter agreement entered into
among L, DK/SW and UZ on the date hereof.
o In order for Karma to so acquire the 819 Madison store in
accordance with the terms of the lease, UZ shall assign to Karma
(or if the DKI Merger has already occurred, DKI), and Karma or, if
applicable, DKI will accept the assignment of, such lease from UZ
immediately upon the consummation of the DKI Merger. This method of
transfer will not in any way limit the obligation of Karma to
directly reimburse UZ for all of its documented costs and expenses.
Additionally, Karma will indemnify UZ for its continuing
obligations as "Tenant", if any, despite the valid assignment of
the 819 Madison lease.
Pledge of Shares of Karma Common Stock
o As collateral security for DK/SW's indemnification obligations that
may arise under the Agreement, after the DKI Merger is consummated
and DK/SW becomes a Karma shareholder (if such DKI Merger occurs
prior to 24 months from the GS Closing Date), DK/SW will pledge
their shares of Karma common stock ("Pledge Agreement") to L;
provided, however, that in no event shall the term of the Pledge
Agreement continue beyond 24 months from the GS Closing Date;
provided, further, that the Pledge Agreement shall include a
mechanism that will provide for the release of one-third of such
shares of Karma common stock from such pledge 18-months thereafter.
Karma-Parent Guaranty
o If at any time during the period from the DKI Closing Date to the
full exercise by DK/SW of the put rights, or by L of the call
rights, described herein L's net worth falls below $400M, L-Parent
agrees for so long as L's net worth remains below $400M to
unconditionally guaranty the payment obligations of L in respect of
any put by DK/SW of their shares of Karma common stock.
[intentionally omitted]
INTERACTION WITH L AND OTHER L GROUP COMPANIES
o Karma may access the resources of L or other L Group companies
(i.e., manufacturing, sourcing, media buying, real estate) or
provide resources (i.e., DKI Hong Kong office or Creative Services
Group) to L or other L Group companies, as it sees fit in the sole
discretion of Karma's management and under certain circumstances,
its Board of Directors.
o All commercial agreement and/or transactions between Karma and L
will be on a third-party, arm's-length basis and subject to Super
Majority Approval as discussed above.
o DK/SW will have a Right of First Offer, as defined below, on any
sales by any Karma shareholder (or any of its affiliates), other
than DK/SW, of its ownership interests in Karma to any unrelated
third party, as more fully described in the Put/Call Matrix
attached hereto.
o For so long as the Ownership Threshold is met, DK/SW will have
preemptive rights on any issuances of equity interests by Karma or
any of its subsidiaries in accordance with the following general
terms. In the event Karma or any of its subsidiaries issues, sells
or grants rights to acquire any shares of common stock, or options,
warrants or similar instrument or any other security convertible or
exchangeable therefor (except for issuances to employees, employee
benefit plans, issuances as consideration to sellers in connection
with acquisitions and issuances to directors, consultants and
officers; it being understood that any such issuances (other than
issuances of up to 3% of the common equity interest in Karma to
employees under stock option or other incentive plans) will
constitute changes to Karma's equity structure and will be subject
to Super-Majority Approval), then Karma will be obligated to offer
DK/SW the right to purchase at the sale price and on the same cash
or cash equivalent terms and conditions of the sale, up to such
amount of shares of common stock or such other equity interest as
would be necessary to maintain their then current pro rata
ownership interest in Karma's common equity. Karma will promptly
notify DK/SW in writing of any proposed issuance, sale, transfer or
grant of equity interests of Karma or any of its subsidiaries and
the material terms thereof. Within 30 days of receipt of Karma's
notice that it or any of its subsidiaries intends to issue equity
interests, DK/SW must notify Karma of their desire to purchase any
such equity interests.
o Appendix II is the Put/Call Matrix which outlines the (1)
circumstances and valuations of the put and call rights on the
shares of Karma common stock held by DK/SW pursuant to which DK/SW
may put to L, and L may call from DK/SW, the Karma shares owned by
DK/SW, (2) DK/SW's tag-along rights and L's drag-along rights and
(3) DK/SW's Right of First Offer (as defined below) on L's Karma
shares. Appendices II and III include certain definitions and
formulas relevant to the put/call purchase price (the "Put/Call
Purchase Price"). No put or call is exercisable for the first year
following the DKI Closing Date. DK/SW cannot transfer any shares in
Karma, except (x) as described on the attached Put/Call Matrix, (y)
to the Karan-Weiss Foundation or (z) to or for the benefit of
family members for tax or estate planning purposes provided that
the Karan-Weiss Foundation or any such trusts or family members are
bound by this Annex A.
URBAN ZEN
- UZ will have a high-end luxury and/or couture positioning in
all of the markets and product categories in which it will
compete with Karma including, but not limited to, apparel,
accessories, home-related products and cosmetics/skin care.
- Trademark and any derivatives thereof and business to be
retained by DK (e.g., "SubUrban Zen").
- L will acquire symbolic ownership in UZ (i.e., 5%), in
conjunction with the consummation of the DKI Merger and the
valuation of such ownership shall be based on DK's actual
investment in UZ at the time.
- UZ will determine which DK Collection stores will carry UZ
products and will select the UZ products to be carried in
particular DK Collection stores; provided, that Karma CEO
will have the right to approve or disapprove of the sale of
UZ products in DK Collection stores. If approved by the
Karma CEO, UZ products will be carried in DK Collection
stores
[intentionally omitted]
and will provide space for UZ products on a non-discriminatory
basis consistent with existing Boutique Agreement.
- L will have a Right of First Offer and a Right of First
Refusal, both as defined below, on any sale by any
shareholder of UZ (other than L) of his or her ownership
interests in UZ other than for tax or estate-planning
purposes and DK will have a Right of First Offer and a Right
of First Refusal on any sale by L of its ownership interests
in UZ. L's Right of First Offer and Right of First Refusal
will terminate upon DK/SW ceasing to own any shares of Karma
common stock and DK ceasing to be employed by Karma.
- On the GS Closing Date, GS and DK will enter into an
agreement acknowledging DK's rights to use her name and
likeness in connection with her involvement in UZ,
consistent with the provisions contained in Section 1.5 of
the DK/Karma Employment Agreement.
- There are no restrictions on DK in her activities regarding
UZ or UZ in its business or activities, except that UZ
products may only be sold in DK Collection full price retail
stores (and Karma may claim that it is the exclusive
third-party retailer of UZ products) or UZ free-standing
retail stores, but the decision to purchase or distribute UZ
products in DK Collection stores must be acceptable to both
UZ and Karma (as compared to UZ stores, which is solely a
DK/SW decision).
- To the extent UZ chooses to enter into license, joint
venture, strategic alliance or other similar relationship to
develop its services, real property assets or products, it
will offer such opportunity first to L. However, UZ will
have no obligation to use L, if L cannot provide the
appropriate product quality, distribution, pricing or
expertise required by UZ in its sole discretion.
- L will commit to provide services and support (including,
but not limited to, manufacturing and sourcing) to UZ
through L or Karma based upon arms-length commercial
agreements to be established at the time the services are
requested.
DEFINITIONS OF RIGHTS OF FIRST OFFER/ RIGHTS OF FIRST REFUSAL
o For purposes of this Annex A, a Right of First Offer is defined as
follows: If a selling party desires to sell all or a portion of its
shares, it shall provide written notice to the other shareholder or
shareholder group requesting that it or they deliver an offer to
purchase its shares. The shareholder or shareholder group has 30
days from receipt of such notice to make a bone fide all-cash offer
for the shares of the selling party. If the shareholder or
shareholder group elects not to make an offer for the shares, the
selling party shall be free to sell all or a portion of its shares
to any third party, subject to tag-along and drag-along rights, if
any, on any terms for a period of 90 days. If the shareholder or
shareholder group delivers to the selling party an offer ("Offer
Notice") for all or part of its shares ("Subject Interests"), the
selling party must accept or decline such offer within 30 days of
receipt of the Offer Notice ("Offer Period"). In the event the
selling party declines to accept the proposal made in the Offer
Notice, for a period of 90 days following the Offer Period, the
selling party shall be free to sell the Subject Interests to a
third party either (i) at a price no less than 105% of the purchase
price proposed in the Offer Notice or (ii) at any price less than
105% of the purchase price proposed in the Offer Notice, subject to
compliance with applicable rights of first refusal described below.
If the selling party does not sell the Subject Interests within 90
days of the termination of the Offer Period, the selling party's
right to sell such Subject Interests shall terminate and the other
shareholder's or shareholder group's right of first offer with
respect to such Subject Interests would be reinstated.
o For purposes of this Annex A, a Right of First Refusal is defined
as follows: If a selling party receives an offer from an unrelated
third party, he must provide notice to the other shareholder or
shareholder group setting forth the terms of such offer and the
identity of such third party. The other shareholder or shareholder
group has the option to purchase from the selling party all of the
shares that are the subject of the third party offer on the same
cash or cash equivalent terms as such offer for a period of 30
days. If at the end of such period, the shareholder or shareholder
group has not elected to purchase the shares, the selling party
shall be free to sell the shares to the third party for a period of
90 days, after which time the shareholder's or shareholder group's
right of first offer described above shall be reinstated.
