SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported): September 24, 1998
CANDIE'S, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-10593 11-2481903
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
2975 Westchester Avenue, Purchase, New York 10577
(Address of principal executive officer) (zip code)
Registrant's telephone number,
including area code (914) 694-8600
(Former name or former address, if changed since the last Report)
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Item 2. Acquisition or Disposition of Assets.
On September 24, 1998 (the "Closing"), the Registrant, through its wholly
owned subsidiary, Licensing Acquisition Corp. (the "Buyer") completed the
acquisition (the "Acquisition") of all of the outstanding shares (the "Shares")
of Michael Caruso & Co., Inc. ("Caruso") pursuant to the provisions of a Stock
Purchase Agreement dated September 24, 1998, (the "Purchase Agreement") by and
among the Registrant, the Buyer, Caruso, Michael Caruso, as Trustee of the
Claudio Trust and Gene Montesano. Caruso was a licensor of certain trademarks
relating to footwear products sold by the Registrant, which license was
terminated as of the Closing.
The purchase price for the Shares was $15,350,000 which was paid at the
Closing in 1,967,742 shares of common stock, $.001 par value, of the Registrant,
(each share being valued at $7.75), plus $100,000 in cash as set forth in the
Purchase Agreement. The transaction may be subject to adjustment based on the
closing sales price of the Registrant's common stock during the six month period
immediately following the Closing. Reference is made to the Purchase Agreement
and related documentation annexed hereto as Exhibits 2(a) through (c),
respectively, which contain a more detailed description of the terms of the
Acquisition the information contained in which is hereby incorporated by
reference in response to this Item.
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits.
(a) Financial statements of business acquired.
The financial statements of Caruso as part of this Current Report on Form
8-K will be filed by amendment within sixty days of the due date of this initial
report.
(b) Pro forma financial information.
The pro forma financial information filed as part of this Current Report on
Form 8-K will be filed by amendment within sixty days of the due date of this
initial report.
(c) Exhibits.
The exhibits filed as part of this Current Report on Form 8-K are listed in
the attached Index to Exhibits.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CANDIE'S, INC.
By /s/ David Golden
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David Golden
Senior Vice President,
Chief Financial Officer
Dated: October 8, 1998
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INDEX TO EXHIBITS
Exhibit Description
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2(a) - Stock Purchase Agreement dated as of
September 24, 1998.
2(b) - Escrow Agreement dated September 24,
1998.
2(c) - Registration Rights Agreement dated
September 24, 1998.
2(d) - List of Omitted Schedules/Exhibits
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Exhibit 2(a)
STOCK PURCHASE AGREEMENT
BETWEEN
CANDIE'S, INC.
LICENSING ACQUISITION CORP.
AND
MICHAEL CARUSO & CO., INC.
AND
MICHAEL CARUSO, AS TRUSTEE OF THE
CLAUDIO TRUST DATED FEBRUARY 2, 1990 AND GENE MONTESANO
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TABLE OF CONTENTS
Page
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1. Purchase and Sale of Company Shares................................. 2
2. Purchase Price...................................................... 2
2.1. Purchase Price............................................. 2
2.2. Additional Purchase Price.................................. 3
2.3. Pledged Candie's Shares.................................... 4
2.4. Allocation of the Purchase Price........................... 6
3. Closing............................................................. 7
3.1. Closing Date............................................... 7
3.2. Action by Buyer............................................ 7
3.3. Action by the Company and Selling Shareholders............. 8
4. Covenants of the Parties............................................ 8
4.1. Further Assurances........................................ 8
4.2. Financial Audit........................................... 9
4.3. Consummation of Transaction............................... 10
4.4. Cooperation............................................... 11
4.5. Accuracy of Representations............................... 11
4.6. Notice of Material Change................................. 12
4.7. Liabilities, Inventory and Outstanding
Receivables............................................... 13
4.8. Unearned Advances of Company's License
Agreements................................................ 14
4.9. Payment of Taxes Upon Transfer of Company Shares.......... 14
4.10. Survival of Representations and Warranties................ 14
4.11. Discharge of Liens........................................ 15
4.12. Registration Rights....................................... 15
4.13. Lock-Up; Right of First Refusal........................... 16
5. Representations and Warranties as to the Company.................... 17
5.1. Organization, Standing and Power.......................... 17
5.2. Capitalization............................................ 18
5.3. Interests in Other Entities............................... 19
5.4. Authority................................................. 19
5.5. Noncontravention.......................................... 20
5.6. Financial Statements...................................... 21
5.7. Absence of Liabilities.................................... 22
5.8 Properties................................................ 22
5.9. Litigation................................................ 23
5.10. No Violation of Law....................................... 24
5.11. Intellectual Property..................................... 24
5.12. Tax Matters............................................... 26
5.13. Employee Arrangements..................................... 27
5.14. ERISA..................................................... 28
5.15. Certain Business Matters.................................. 28
5.16. Assumed Contracts......................................... 28
5.17. Approvals................................................. 29
5.18 Environmental Matters..................................... 30
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5.19. Information as to the Company................................. 32
5.20. Tax Election.................................................. 32
6. Representations and Warranties as to the Selling
Shareholders........................................................ 33
6.1. Standing and Authority..................................... 33
6.2. Ownership of the Company Shares............................ 33
6.3. Noncontravention........................................... 34
6.4. Non-Registration of Securities............................. 35
6.5. Information as to the Selling Shareholders................. 35
7. Representations and Warranties as to Buyer and
Candie's............................................................ 36
7.1. Organization, Standing and Power........................... 36
7.2. Authority.................................................. 36
7.3. Candie's Shares............................................ 37
7.4. Candie's SEC Filings; Financial Statements................. 37
7.5. Noncontravention........................................... 39
8. Indemnification..................................................... 40
8.1. Indemnification by the Selling Shareholders................ 40
8.2. Indemnification by Buyer and Candie's...................... 41
8.3. Third Party Claims......................................... 43
8.4. Exclusive Remedy........................................... 44
9. Nondisclosure....................................................... 45
9.1. "Confidential Information" Defined......................... 45
9.2. Nondisclosure of Confidential Information.................. 46
10. Legal Opinions...................................................... 46
10.1. Opinion of Counsel for the Company and the
Selling Shareholders....................................... 47
10.2. Opinion of Counsel for Candie's and the Buyer.............. 47
11. Brokers............................................................. 47
12. Miscellaneous Provisions............................................ 48
12.1. Expenses................................................... 48
12.2. Execution in Counterparts.................................. 48
12.3. Notices.................................................... 48
12.4. Amendment.................................................. 49
12.5. Entire Agreement........................................... 50
12.6. Headings................................................... 50
12.7. Assignment and Benefits.................................... 50
12.8. Binding Effect; Benefits................................... 50
12.9. Waiver, etc................................................ 51
12.10. Severability............................................... 51
12.11. Announcements.............................................. 51
12.12. Schedules.................................................. 52
12.13. Governing Law.............................................. 52
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of the 24th day of September, 1998,
is made by and among Licensing Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of Candie's, Inc. ("Buyer"); Candie's Inc., a Delaware
corporation ("Candie's"), Michael Caruso & Co., Inc., a California corporation
(the "Company"); and each of Michael Caruso, as Trustee of the Claudio Trust,
dated February 2, 1990 ("Caruso"), and Gene Montesano (said individuals being
hereinafter collectively called the "Selling Shareholders" and severally, a
"Selling Shareholder").
W I T N E S S E T H :
WHEREAS, the Selling Shareholders are the owners of all of the issued and
outstanding shares of common stock of the Company (the "Company Shares"); and
WHEREAS, the Company is engaged in the manufacture, distribution and design
of apparel and certain licensing activities (the "Business"); and
WHEREAS, Buyer wishes to purchase all of the Company Shares from the
Selling Shareholders and thereby acquire the Business upon the terms and
conditions hereinafter set forth;
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NOW, THEREFORE, in consideration of and in reliance upon the covenants,
conditions, representations and warranties herein contained, the parties hereto
hereby agree as follows:
1. Purchase and Sale of Company Shares.
Subject to the terms and conditions set forth in this Agreement and in
reliance upon the representations, warranties, covenants and conditions herein
contained, on the Closing Date (as defined in section 3.1 hereof), the Selling
Shareholders, hereby sell, convey, assign, transfer and deliver to Buyer, the
Company Shares, free and clear of any and all liens or encumbrances of any
nature whatsoever.
2. Purchase Price.
2.1. Purchase Price. The purchase price (the "Purchase Price") for the
Company Shares shall be payable by Buyer in the form of (i) 1,967,742 shares of
common stock, par value of $.001 per share, (the "Candie's Common Stock") of
Candie's (the "Initial Candie's Shares"), (ii) $100,000 in cash or immediately
available funds, and (iii) the additional amount, if any, required to be paid
pursuant to section 2.2 below (the "Additional Candie's Shares"). The Initial
Candie's Shares and the Additional Candie's Shares are sometimes collectively
referred to herein as the "Candie's Shares."
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2.2. Additional Purchase Price.
(a) In the event that the closing sale price of a share of Candie's Common
Stock, as reported on The Nasdaq Stock Market, is less than $7.75 on the Closing
Date, or does not reach $7.75 at any time within the six (6) month period
immediately following the Closing Date (the "Valuation Period"), then Buyer
shall, within five (5) business days following termination of the Valuation
Period, pay issue and deliver to the Selling Shareholders an additional number
of shares of Candie's Common Stock in an amount equal to (i) $15,250,000 minus
the value of 1,967,742 shares of Candie's Common Stock calculated at a price per
share equal to the Post Closing Valuation Price Per Share (as defined below);
divided by (ii) the Post Closing Valuation Price Per Share. The term "Post
Closing Valuation Price Per Share" shall mean the greater of (a) the highest
closing sale price of a share of Candie's Common Stock, as reported on the
Nasdaq Stock Market, during the Valuation Period, and (b) $6.0625.
(b) In the event that the closing sale price of a share of Candie's Common
Stock, as reported on The Nasdaq Stock Market, equals or exceeds $7.75 at any
time during the Valuation Period, the Valuation Period shall immediately
terminate and no Additional Candie's Shares shall be issued to the Selling
Shareholders.
(c) Anything contained herein to the contrary notwithstanding, in lieu of
issuing the Additional Candie's
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Shares, Candie's shall have the option, exercisable in its sole discretion, to
pay cash to the Selling Shareholders in an amount equal to (i) the number of
Additional Candie's Shares determined in accordance with section 2.2. multiplied
by (ii) the Post Closing Valuation Price Per Share ( the "Additional Cash"). The
Additional Candie's Shares, or if Candie's exercises its option, the Additional
Cash shall be allocated among the Selling Shareholders pro rata in accordance
with their relative ownership percentages of the Company Shares on the Closing
Date.
2.3. Pledged Candie's Shares.
(a) As collateral security for the payment of the indemnification
obligations of the Selling Shareholders pursuant to Paragraph 8 hereof, the
Selling Shareholders shall, and by execution hereof, do hereby grant a security
interest in and pledge for the benefit of Candie's, the number of Candie's
Shares equal to $2,000,000 divided by the greater of (i) the closing sale price
of a share of Candie's Common Stock on the trading day immediately preceding the
Closing Date, or (ii) $6.0625 (collectively, the "Pledged Candie's Shares"). The
Pledged Candie's Shares shall be pledged by the Selling Shareholders pro rata in
accordance with their relative ownership percentages of the Company Shares on
the Closing Date.
(b) The Pledged Candie's Shares shall be issued to and held of record by
the appropriate Selling Shareholder but shall be delivered directly by Candie's
transfer agent to Tenzer,
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Greenblatt LLP as escrow holder (the "Escrow Holder") promptly after the Closing
Date. At the Closing, each Selling Shareholder shall deliver to the Escrow
Holder a stock assignment separate from certificate executed in blank in a
customary form for each certificate representing the Pledged Candie's Shares
owned by him.
(c) The Selling Shareholders shall be entitled to vote the Pledged Candie's
Shares and receive any dividends and distributions made with respect to such
Pledged Candie's Shares for so long as they are the registered holders thereof.
(d) The Pledged Candie's Shares shall be held by Escrow Holder as security
for the indemnification obligations of the Selling Shareholders as set forth in
Paragraph 8 of this Agreement in accordance with the Escrow Agreement attached
hereto as Exhibit A. The Escrow Agreement shall indicate that (i) promptly after
the date which is one (1) year from the Closing Date, Escrow Holder shall
release to the Selling Shareholders one half of the originally Pledged Candie's
Shares less the number of Pledged Candie's Shares having an aggregate value
equal to the amount of any outstanding indemnification obligations which have
been claimed by Candie's or Buyer in accordance with Paragraph 8 of this
Agreement (the "Indemnification Shares"), and (ii) promptly after the date which
is two (2) years from the Closing Date, Escrow Holder shall release to the
Selling Shareholders the remaining Pledged Candie's Shares, less the number of
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Indemnification Shares, if any, necessary, at such date, to satisfy outstanding
indemnification obligations claimed by Candie's. For purposes of determining the
number of Pledged Candie's Shares under the previous two sentences, the value of
each share of Candie's Common Stock shall be deemed to be the greater of (i) the
closing sale price of a share of Candie's Common Stock on the Closing Date, or
(ii) the closing sale price of a share of Candie's Common Stock on the date on
which the Pledged Candie's Shares are released by the Escrow Holder or applied
in payment of the indemnification obligations in question.
2.4. Allocation of the Purchase Price. The Purchase Price shall be
allocated as set forth in Schedule 2.4 attached hereto. In this regard, the
parties hereto agree that (i) the Initial Candie's Shares shall be valued at a
price per share equal to the closing price of a share of Candie's Common Stock
on the Closing Date, and (ii) the Additional Candie's Shares, if any, shall be
valued at the Post Closing Valuation Price Per Share. Neither Candie's nor the
Selling Shareholders shall take any position inconsistent with such allocation
and in the event any Additional Candie's Shares are issued, the allocation of
the Purchase Price shall be adjusted on a pro rata basis in accordance with the
allocation set forth on Schedule 2.4. Candie's and the Selling Shareholders
shall take all steps necessary to make a timely election under Sections 338(g)
and 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
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"Code") and any comparable election under state, local or foreign tax law,
except California (collectively, the "Section 338(h)(10) Election") with respect
to the transaction contemplated in this Agreement. The Selling Shareholders
shall pay all taxes attributable to the making of the Section 338(h)(10)
Election. In particular and not by way of limitation, in order to effect the
Section 338(h)(10) Election, Candie's and the Selling Shareholders shall jointly
execute all necessary copies of Internal Revenue Service Form 8023 and all
attachments required to be filed therewith pursuant to applicable Treasury
Regulations.
3. Closing.
3.1. Closing Date. The closing of the purchase and sale provided for herein
(the "Closing") shall take place at 12:00 P.M., New York time, on September 24,
1998 at the offices of Tenzer Greenblatt LLP, or at such other place, time and
date as may hereafter be mutually agreed upon by the parties (such time and date
of Closing being hereinafter called the "Closing Date").
3.2. Action by Buyer. Subject to the terms and conditions herein contained,
on the Closing Date, Buyer and Candie's shall deliver to the Selling
Shareholders (in addition to the documents and instruments to be delivered by it
pursuant to paragraph 4 hereof), in payment of the Purchase Price for the
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Company Shares (subject to delivery of the Pledged Candie's Shares to the Escrow
Holder as provided in section 2.3), stock certificates, representing in the
aggregate the Initial Candie's Shares, registered in the name of each of the
Selling Shareholders, which certificates shall be issued to each Selling
Shareholder pro rata in accordance with their respective share ownership of the
Company as of the Closing Date.
3.3. Action by the Company and Selling Shareholders. Subject to the terms
and conditions herein contained, on the Closing Date, the Company and/or the
Selling Shareholders, as the case may be, shall deliver to Buyer (in addition to
the documents and instruments to be delivered by it or them pursuant to
paragraphs 2 and 4 hereof) (i) stock certificates, representing all the Company
Shares issued and outstanding, which certificates shall be endorsed in blank or
accompanied by stock powers endorsed in blank and accompanied by the requisite
stock transfer stamps; and (ii) the third party consents and governmental and
administrative approvals set forth on Schedule 5.5.
4. Covenants of the Parties.
4.1. Further Assurances. Subject to the terms and conditions provided
herein, each of the parties agrees to use its best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable law or regulation to consummate and
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make effective the transactions contemplated under this Agreement in accordance
with the terms hereof. Each party shall execute and deliver both before and
after the Closing such further certificates, agreements and other documents and
take such other actions as may be necessary or appropriate to consummate or
implement the transactions contemplated hereby or to evidence such events or
matters.
4.2. Financial Audit. Promptly after execution of this Agreement, the
Company shall retain Stonefield Josephson, Inc. an accounting corporation
("Stonefield") to conduct an audit of the Company's financial statements for
each of the three years ended December 31, 1995, 1996 and 1997 (the "Audit") and
a review of the Company's financial statements for the six month periods ended
June 30, 1998 and June 30, 1997 (the "Review"). The audited financial statements
shall be accompanied by an unqualified audit report of Stonefield and the
reviewed financial statements shall be accompanied by a review report of
Stonefield. The Audit and the Review shall be completed within seventy (70) days
of the Closing Date, and the results thereof shall be delivered to Buyer and
Candie's in a format suitable for Candie's to incorporate such financial
statements in its required securities filings under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). The Buyer, Candie's, the Company and
the Selling Shareholders shall each use their best efforts to cooperate with
Stonefield in completing such Audit and Review.
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Failure by the Selling Shareholders to deliver an unqualified opinion of
Stonefield on the audited and reviewed financial statements, respectively,
within seventy (70) days following the Closing Date, shall constitute a material
breach of this Agreement, for which the exclusive remedy shall be as set forth
in this paragraph. In the event of such a breach, the Selling Shareholders shall
pay to the Buyer and Candie's an amount equal to the total cost incurred by
Candie's (including reasonable legal fees and expenses) in connection with one
(1) long form registration statement filed by Candie's with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), which Candie's is required to file as a result
of its failure to satisfy its Form 8-K financial statement filing requirements
under the Exchange Act.
The cost of the Audit and the Review shall be shared equally between the
Selling Shareholders, on the one hand, and Candie's and the Buyer, on the other
hand. Payment to Stonefield for the Audit and Review shall the responsibility of
the Selling Shareholders. Upon request by the Selling Shareholders, the Buyer
and Candie's shall promptly pay the Selling Shareholders their portion of the
costs of the Audit and Review in cash or if the parties hereto mutually agree as
an offset to amounts due hereunder.
4.3. Consummation of Transaction. Each of the parties hereto shall use
commercially reasonable efforts to cause all
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conditions precedent to his or its obligations and to the obligations of the
other parties hereto to consummate the transactions contemplated hereby to be
satisfied, including, but not limited to, using commercially reasonable efforts
to obtain all required consents, waivers, amendments, modifications, approvals,
authorizations, novations and licenses; provided, however, that nothing herein
contained shall be deemed to modify any of the obligations imposed upon any of
the parties hereto under this Agreement or any agreement executed and delivered
pursuant hereto.
4.4. Cooperation. Each of the parties hereto shall fully cooperate with the
other parties hereto in preparing and filing any notices, applications, reports
and other instruments and documents which are required by, or which are
desirable in the opinion of any of the parties hereto in respect of, any
statute, rule, regulation or order of any governmental or administrative body in
connection with the transactions contemplated hereby.
4.5. Accuracy of Representations. Prior to the Closing Date, neither party
hereto shall enter into any transaction or take any action, and shall use
commercial reasonable efforts to prevent the occurrence of any event, which
would result in any of his or its representations, warranties or covenants
contained in this Agreement or in any other agreement, document or instrument
delivered pursuant hereto not to be true and correct, or not to
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be performed as contemplated, at and as of the time immediately after the
occurrence of such transaction or event.
4.6. Notice of Material Change.
(a) The Company or one of the Selling Shareholders shall give Candie's and
Buyer, prompt notice of (i) any material change in any of the information
contained in the representations and warranties of the Company contained in
paragraph 5 or in the schedules or exhibits thereto, which occurs prior to the
Closing and (ii) any governmental or other complaints, investigations or
hearings relating to the Company's business operations or assets prior to the
Closing (or communications indicating that the same may be contemplated) or the
receipt of any notice with respect to any requirement or obligation arising out
of any applicable laws relating to its business operations prior to the Closing,
or the institution of any litigation, action, claim, proceeding or threats
relating to such business operations prior to the Closing, as well as keep
Candie's and Buyer fully informed of material developments concerning such
events.
(b) Buyer and Candie's shall give the Selling Shareholders and the Company
prompt notice of (i) any material change in any of the information contained in
the representations and warranties of Buyer and Candie's contained in paragraph
6 or in the schedules or exhibits thereto, which occurs prior to the
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Closing and (ii) any governmental or other complaints, investigations or
hearings relating to their respective business operations or assets prior to the
Closing (or communications indicating that the same may be contemplated) or the
receipt of any notice with respect to any requirement or obligation arising out
of any applicable laws relating to its business operations prior to the Closing,
or the institution of any litigation, action, claim, proceeding or threats
relating to such business operations prior to the Closing, as well as keep the
Selling Shareholders and the Company fully informed of material developments
concerning such events.
4.7. Liabilities, Inventory and Outstanding Receivables. (a) As of
September 23, 1998, the Company has distributed to the Selling Shareholders, who
in turn have contributed to Michael Caruso & Co. Partnership (the "Assignee"),
the assets of the Company (other than those being retained by the Company as set
forth on Schedule 4.7), subject to any and all liabilities of the Company as of
September 23, 1998 other than those liabilities specified on Schedule 4.7. The
liabilities transferred to Assignee shall be paid in full or assumed by
Assignee. Candie's and Buyer hereby expressly acknowledge and consent to the
transfers.
(b) After the Closing Date, neither the Buyer, Candie's nor the Company
shall be responsible for the collection of any outstanding account receivables
and for the ultimate
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disposition of the transferred inventory subject to the mutual agreement of the
parties hereto.
4.8. Unearned Advances of Company's License Agreements. As of the Closing
Date, the Company shall have available in immediately available funds the sum of
$337,500 representing all unearned advances and other payments received under
its existing license agreements with Jenna Lane, Inc. and M. Fine & Sons
Manufacturing Company.
4.9. Payment of Taxes Upon Transfer of Company Shares. The Selling
Shareholders shall be responsible for, and shall pay, any and all income, sales,
use, purchase, transfer and similar taxes, and any and all filing, recording,
and similar fees, arising out of the transactions contemplated by this
Agreement.
4.10. Survival of Representations and Warranties. All representations and
warranties made by or on behalf of each of the parties hereto in this Agreement
or in any document or instrument delivered pursuant hereto shall, unless
expressly provided otherwise herein, survive the Closing Date and the
consummation of the transactions contemplated hereby for a period of two (2)
years, except that those representations and warranties made by the Company and
the Selling Shareholders in Sections 5.12, 5.14 and 5.18 with respect to taxes,
ERISA and environmental matters, respectively, shall survive until the
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expiration of their respective statute of limitations under applicable law.
4.11. Discharge of Liens. The Company shall cause all liens or encumbrances
of any nature whatsoever upon any of the Company Shares and the Company's assets
(the "Company Assets") to be terminated or otherwise discharged at or prior to
the Closing other than those liens or encumbrances identified in Schedule 4.11
attached hereto.
4.12. Registration Rights. Each of the Selling Shareholders and Candie's
shall enter into a Registration Rights Agreement in substantially the form of
Exhibit B attached hereto (the "Registration Rights Agreement") pursuant to
which the Selling Shareholders, after the first anniversary of the Closing Date,
but subject to the delivery of the financial statements and the provisions
regarding payment of offering expenses required by Section 4.2, shall be
entitled to make one written request for registration under the Securities Act
of all of the Candie's Shares subject to applicable Nasdaq, SEC and other
regulatory restrictions (the "Demand Registration"); provided, however, that
Candie's shall have the right, in its sole and absolute discretion, to register
the Candie's Shares prior to the first anniversary of the Closing Date. In
addition, the Registration Rights Agreement shall provide that if at any time
after the first anniversary of the date hereof, the Selling Shareholders are
obligated to pay for a Candie's long form registration
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statement pursuant to Section 4.2 hereof, the Selling Shareholders shall be
given "piggy back" registration rights with respect to such registration
statement, subject to the limitation and approval of any underwriter of such
registration statement.
4.13. Lock-Up; Right of First Refusal. Candie's and the Selling
Shareholders shall enter into a Lock-Up Agreement in substantially the form of
Exhibit C attached hereto (the "Lock-Up Agreement") pursuant to which the
Selling Shareholders shall not for a period of one (1) year after the Closing
Date, transfer, assign, sell or otherwise dispose of the Candie's Shares. At any
time following the expiration of the Lock-Up Agreement, Candie's shall have the
right to purchase back from the Selling Shareholders any or all of the Candie's
Shares prior to any public or private sale proposed by the Selling Shareholders
of any of such Candie's Shares to a third party. The purchase price for the such
buyback shall equal the closing sales price of the Candie's Common Stock as
reported on the Nasdaq Stock Market on the date of such proposed sale or if sold
pursuant to Rule 144 on the date the Form 144 is filed with the SEC. The Selling
Shareholders shall give Candie's twenty-four (24) hours prior written notice of
their intent to sell the Candie's Shares to any third party, and Candie's shall
have an additional twenty-four (24) hour period from receipt of such notice to
deliver written notice of its election to purchase any or all of such Candie's
Shares from the Selling Shareholders. In the event that the Selling Shareholders
(i) elect to sell any of the Candie's Shares
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pursuant to Rule 144, and (ii) have filed the required notification of such
proposed sale on Form 144 with the SEC and provided Candie's with notice and a
copy thereof, then the Selling Shareholders shall be deemed to have given
Candie's the requisite notice provided for in this Section 4.13 with respect to
all such Candie's Shares covered by the applicable Form 144. In the event that
Candie's decides to purchase any of such Candie's Shares, it shall have a period
of three (3) business days from receipt by the Selling Shareholders of Candie's
election to tender payment for such purchase. Notwithstanding anything to the
contrary contained herein, Candie's shall not have the right to exercise its
buyback right in the event that applicable corporate or securities law or any
loan covenants made by Candie's to any of its lenders would prohibit such
buyback.
5. Representations and Warranties as to the Company. The Selling
Shareholders hereby jointly and severally represent and warrant to Buyer as
follows:
5.1. Organization, Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, with full corporate power and authority to own, lease and operate
its properties and to carry on its business as presently conducted by it and has
qualified to do business as a foreign corporation in the State of New York.
There are no other states or jurisdictions in which the character and location
of any of the
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properties owned or leased by the Company, or the conduct of its business, makes
it necessary for it to qualify to do business as a foreign corporation. Copies
of the Articles of Incorporation of the Company and all amendments thereto, and
of the By-laws of the Company, as amended to date, have been furnished to Buyer
and are complete and correct. The Company's minute books heretofore exhibited to
Buyer contain in all material respects complete and accurate records of all
meetings and other corporate actions of the Company's shareholders and Board of
Directors (including committees of its Board of Directors).
5.2. Capitalization. The authorized capital stock of the Company consists
of 1,000 shares of Common Stock, no par value per share (the "Company Stock"),
of which 400 shares are issued and outstanding, no shares are issued but not
outstanding, and 600 shares are authorized and unissued. All issued shares of
the Company Stock have been duly and validly issued and are fully paid and
nonassessable. There are no outstanding options, warrants, rights, puts, calls,
commitments, conversion rights, plans or other agreements of any character to
which the Company is a party or otherwise bound which provide for the
acquisition, disposition or issuance of any issued but not outstanding,
outstanding, or authorized and unissued shares of Company Stock. There is no
personal liability, and there are no preemptive or similar rights, attached to
the Company Stock. Set forth on Schedule 5.2, is a complete and correct list of
the names, addresses and record and beneficial stock ownership of all of the
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shareholders of the Company. No holder of any of the Company's securities has
any rights, "demand," "piggy-back" or otherwise, to have such securities
registered under the Act.
5.3. Interests in Other Entities. Except as set forth on Schedule 5.3, the
Company does not (A) own, directly or indirectly, of record or beneficially, any
shares of voting stock or other equity securities of any other corporation, (B)
have any ownership interest, direct or indirect, of record or beneficially, in
any unincorporated entity, or (C) have any obligation, direct or indirect,
present or contingent, (1) to purchase or subscribe for any interest in, advance
or loan monies to, or in any way make investments in, any person or entity, or
(2) to share any profits or capital investments or both with any person or
entity.
5.4. Authority. The execution and delivery by the Company of this Agreement
and of all of the agreements to be executed and delivered by it pursuant hereto,
the performance by it of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby, have been duly
and validly authorized by all necessary corporate action on the part of the
Company (including, but not limited to, the unanimous consent of its
shareholders and Board of Directors), and the Company has all necessary power
with respect thereto. This Agreement is, and when executed and delivered by the
Company and the Selling Shareholders each of the other
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agreements to be delivered by any or all of them pursuant hereto will be, the
valid and binding obligation of the Company in accordance with its terms; except
as the same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity.
5.5. Noncontravention. Except as set forth on Schedule 5.5, neither the
execution and delivery by the Company of this Agreement or of any agreement to
be executed and delivered by it pursuant hereto, nor the consummation of any of
the transactions contemplated hereby or thereby, nor the performance by the
Company of any of its obligations hereunder or thereunder, shall (nor with the
giving of notice or the lapse of time or both would) (A) conflict with or result
in a breach of any provision of the Certificate of Incorporation or By-laws of
the Company, or (B) give rise to a default, or any right of termination,
cancellation or acceleration, or otherwise be in conflict with or result in a
loss of material contractual benefits to the Company, under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, or material
license, agreement or other instrument or obligation to which it is a party or
by which the Company or any of the assets of the Company (the "Company Assets")
may be bound, or require any consent, approval or notice under the terms of any
such document or instrument, or (C)
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violate any order, writ, injunction, decree, law, statute, rule or regulation of
any court or governmental or administrative authority which is applicable to the
Company or any of the Company Assets, or (D) result in the creation or
imposition of any lien, security interest, pledge, mortgage, easement,
leasehold, assessment, covenant restriction, reservation, conditional sales,
prior assignment, or other encumbrance of any nature whatsoever upon any of the
Company Assets, or (E) interfere with or otherwise have an adverse effect on the
Business after the Closing Date.
5.6. Financial Statements. The Company has delivered to the Buyer and
Candie's its unaudited balance sheets for the years ended, December 31, 1995,
December 31, 1996 and December 31, 1997 (the "Unaudited Balance Sheets"),
together with the related statements of income, changes in financial position
and changes in stockholders' equity for the years ended on such dates, (the
"Unaudited Financial Statements"). To the best knowledge of the Selling
Shareholders, the Unaudited Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently applied,
and in all material respects fairly present the financial position of the
Company as at the dates thereof and its results of operations for the periods
indicated, except that they are subject to normal recurring adjustments which
might be required as a result of a year-end audit.
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The books and records of the Company are in all material respects complete
and correct, have been maintained in accordance with good business practices,
and accurately reflect the basis for the financial condition of the Company as
set forth in the aforementioned Unaudited Financial Statements. The Unaudited
Financial Statements do not account for adjustments in connection with the
transfer of certain of the Company's Assets set forth in Sections 4.7 and 5.16
hereof.
5.7. Absence of Liabilities. Except as set forth on Schedule 5.7, the
Company has no liabilities or obligations of any nature whatsoever, whether
accrued, absolute, contingent or otherwise.
5.8 Properties. The Company has good, valid and marketable fee title to all
of the real property and fixtures, and good and marketable title to all of the
other properties and assets, reflected on the Unaudited Balance Sheets, or
thereafter acquired, except properties or assets sold or otherwise disposed of
in the ordinary course of business, and pursuant to Section 4.7 hereof, free and
clear of any and all liens, liens for current taxes not yet due and payable or
being contested in good faith by appropriate proceedings. All plants, structures
and equipment which are utilized in the Business, or are material to the
operations or condition (financial or otherwise) of the Company are owned or
leased by the Company and are in good operating condition and repair (ordinary
wear and tear excepted),
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and are adequate and suitable for purposes for which they are used. Schedule 5.8
sets forth all (A) real property which is owned, leased (whether as lessor or
lessee) or subject to contract or commitment of purchase or sale or lease
(whether as lessor or lessee) by the Company or which is subject to a title
retention or conditional sales agreement or other security device, and (B)
tangible personal property which is owned, leased (whether as lessor or lessee)
or subject to contract or commitment of purchase or sale or lease (whether as
lessor or lessee) by the Company.
5.9. Litigation. Except as set forth on Schedule 5.9, there are no claims,
suits, actions, arbitration, investigations, inquiry or other proceeding before
any governmental agency, court or tribunal, domestic or foreign, or before any
private arbitration tribunal, pending or, to the best of the knowledge of the
Selling Shareholders, threatened, against or relating to the Company, the
Business or any of the Company Assets; nor, is there any basis for any such
claim, suit, action, arbitration, investigation, inquiry or other proceeding.
There are no judgments, orders, stipulations, injunctions, decrees or awards in
effect which relate to the Company, the Business or any of the Company Assets,
the effect of which is to limit, restrict, regulate, enjoin or prohibit any
business practice in any area, or the acquisition of any properties, assets or
businesses.
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5.10. No Violation of Law. The Company is not engaging in any activity or
omitting to take any action as a result of which it is in violation of any law,
rule, regulation, zoning or other ordinance, statute, order, injunction or
decree, or any other requirement of any court or governmental or administrative
body or agency, applicable to the Company, the Business or any of the Company
Assets, including, but not limited to, those relating to: occupational safety
and health; environmental and ecological protection (e.g., the use, storage,
handling, transport or disposal of pollutants, contaminants or hazardous or
toxic materials or wastes, and the exposure of persons thereto); business
practices and operations; labor practices; employee benefits; and zoning and
other land use.
5.11. Intellectual Property.
(a) Schedule 5.11 contains a complete and accurate list of:
(1) United States and foreign trademarks, service marks, marks, brand
names, applications, and registrations therefor used or owned by
the Company (hereinafter MARKS);
(2) U.S. copyright applications, and registrations (hereinafter
COPYRIGHTS) used or owned by the Company; and
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(3) Licenses and other agreements to which the Company is a party or
otherwise bound which relate to the MARKS and/or COPYRIGHTS.
(b) The Company owns all right, title and interest in the applications and
the registrations for the MARKS and the COPYRIGHTS.
(c) To the best of the Selling Shareholders' knowledge, except as set
forth in Schedules 5.9 and 5.11:
(1) no proceedings have been instituted, are pending, or are
threatened which challenge the rights of the Company in the MARKS
and/or COPYRIGHTS;
(2) the Company's use of the MARKS and/or COPYRIGHTS does not violate
any laws, statutes, ordinances, or regulations, or presently
infringes upon or violates any rights of others;
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(3) the Company's MARKS and/or COPYRIGHTS are not presently being
infringed by others; and
(4) the Company's use of its MARKS and/or COPYRIGHTS are not the
subject of any outstanding order, decree, judgment, stipulation,
or agreement which limit or restrict their use.
5.12. Tax Matters. The Company has filed with the appropriate governmental
agencies all tax returns and reports required to be filed by it for the past
five (5) taxable years, and has paid in full all taxes, interest, penalties,
assessments and deficiencies shown to be due or claimed to be due on such tax
returns and reports. The Company has currently and upon the Closing will have in
effect a valid election qualifying the Company as an S Corporation for United
States Federal Income Tax purposes and similar elections under corresponding
state, local and foreign income tax laws. The provision for income and other
taxes which is set forth on the Unaudited Balance Sheets is adequate for all
accrued and unpaid taxes of the Company as of such respective dates of such
Balance Sheets, whether (A) incurred in respect of or measured by income of the
Company for any periods prior to the close of business on that date, or (B)
arising out of transactions entered into, or any state of facts existing, on or
prior to that date. The provision for income and
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other taxes which is set forth on the books of account of the Company is
adequate for all income and other taxes which accrued after January 1, 1998 and
prior to the Closing. The Company has not executed or filed with any taxing
authority any agreement extending the period for the assessment or collection of
any income or other taxes, and is not a party to any pending or, to the best of
the knowledge of the Company, threatened, action or proceeding by any
governmental authority for the assessment or collection of income or other
taxes. The United States federal income tax returns of the Company have not been
examined by the Internal Revenue Service ("the IRS") within the last ten (10)
years.
5.13. Employee Arrangements. As of the Closing Date, the Company will have
no employees and will not be subject to any union, collective bargaining,
employment, management, termination or consulting agreements or any compensation
plans and arrangements; bonus and incentive plans and arrangements; deferred
compensation plans and arrangements; pension and retirement plans and
arrangements; profit-sharing and thrift plans and arrangements; stock purchase
and stock option plans and arrangements; hospitalization and other life, health
or disability insurance or reimbursement programs; holiday, sick leave,
severance, vacation, tuition reimbursement, personal loan and product purchase
discount policies and arrangements; and other plans or arrangements providing
for benefits for employees.
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5.14. ERISA.
The Company has no "employee pension benefit plan", as such term is defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and no "employee welfare benefit plan" as such term is
defined in Section 3(1) of ERISA, which is maintained by the Company or to which
it contributes or is obligated or required to contribute.
5.15. Certain Business Matters. There are no pending, or to the best of the
knowledge of the Company threatened, labor disputes or other labor related
claims and, to the best of the knowledge of the Company, no union representation
questions exist, and there are no organizing activities, in respect of any of
the former employees of the Company, (A) the product and service warranties
given by the Company or by which it is bound entail no greater obligations than
are customary in the business of the Company and (B) the Company is not a party
to or bound by any agreement which limits its freedom to compete in any line of
business or with any person, or which is otherwise materially burdensome to it.
5.16. Assumed Contracts. In accordance with Section 4.7, the Assignee has
assumed all of the Company's contracts other than those set forth on Schedule
5.16 of this Agreement or in any other agreement of the parties with respect
hereto. Schedule 5.16 is a complete and correct list of all contracts,
commitments, indentures, mortgages, obligations, agreements and
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undertaking to which the Company is currently a party or otherwise bound and
which the Buyer has assumed. Complete and correct copies of all such assumed
contracts, commitments, indentures, mortgages, obligations, agreements and
undertakings set forth on Schedule 5.16 delivered pursuant to this Agreement
have been furnished by the Selling Shareholders to Buyer, and except as
expressly stated on such Schedule, to the best of the knowledge of the Selling
Shareholders (A) each of them is in full force and effect, no person or entity
which is a party thereto or otherwise bound thereby is in default thereunder,
and, to the best of the knowledge of the Selling Shareholders, no event,
occurrence, condition or act exists which does (or which with the giving of
notice or the lapse of time or both would) give rise to a default or right of
cancellation, acceleration or loss of contractual benefits thereunder; (B) there
has been no threatened cancellations thereof, and there are no outstanding
disputes thereunder; and (C) none of them is materially burdensome to the
Company. None of the provisions of such contracts, instruments or agreements
violates any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court having jurisdiction over the Company,
the Business or the Company's Assets.
5.17. Approvals. Schedule 5.17 is a complete and correct list of all
governmental and administrative consents, permits, appointments, approvals,
licenses, certificates, franchises and other authorizations which are necessary
for the
29
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operation of the Business or to own or operate the Company's Assets, all of
which have been obtained by the Company and are in full force and effect. There
are no proceedings pending or threatened, or any basis therefor, seeking to
cancel, terminate or limit such consents, permits, appointments, approvals,
licenses, certificates, franchises or other authorizations.
5.18 Environmental Matters. Except as set forth on Schedule 5.18, (i) the
properties and facilities of the Company are not being and for the past five
years, have not been used to make, store, handle, treat, dispose, generate, or
transport hazardous substances in violation of any Environmental Law (as defined
herein); (ii) for the past five years, hazardous substances have not been made,
stored, handled, treated, disposed of, generated, or transported on or from the
properties and facilities of the Company, except in accordance with applicable
Environmental Law then in effect; (iii) the properties, facilities and
operations of the Company comply in all material respects with all applicable
Environmental Laws; (iv) none of the properties, facilities or operations of the
Company is subject to any currently pending judicial or administrative
proceedings alleging the violation of any Environmental Law; (v) to the best of
the Selling Shareholders' knowledge, none of the properties, facilities or
operations of the Company is the subject of Federal, state or local
investigation evaluating whether any remedial action is needed to respond to a
release of any hazardous or toxic waste, substance or constituent, any petroleum
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<PAGE>
or petroleum product, or any other hazardous, illegal or unlawful substance into
the environment; (vi) for the past five years, the Company has not filed nor is
presently required to file any notice under any Federal, state, or local law
indicating past or present treatment or disposal of a hazardous waste, hazardous
substance or any petroleum or petroleum product, or reporting a spill or release
of a hazardous or toxic waste, substance or constituent, any petroleum or
petroleum product, or any other substance into the environment; and (vii) during
the past five years, the Company has not received notice nor is aware of any
contingent liability in connection with any release of any hazardous or toxic
waste, substance or constituent, any petroleum or petroleum product, or any
other substance into the environment.
For purposes hereof, "Environmental Laws" means all Federal, state and
local laws, rules, regulations, permits, orders, judgments, injunctions and
decrees relating to hazardous substances and environmental matters applicable to
the Business and the facilities of the Company (whether or not owned by it).
Such laws and regulations include, without limitation, the Resource Conservation
and Recovery Act of 1976 ("RCRA"); the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"); the Toxic Substance Control
Act; the Clean Water Act; and the Clean Air Act, all as amended from time to
time; state and Federal superlien and environmental cleanup programs; and U.S.
Department of Transportation hazardous materials transportation regulations. The
terms "hazardous
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substance" and "release" shall have the meanings specified in CERCLA and the
terms "solid waste" and "disposed," the meaning specified in RCRA as of the
Closing Date; provided, further, however, that to the extent a parcel of real
property is situated in a state or other jurisdiction in which as of the Closing
Date, the applicable Environmental Laws may establish a meaning for "hazardous
substance," "release," "solid waste," or "disposal" which is broader than that
specified in either CERCLA or RCRA, such broader meaning shall apply.
5.19. Information as to the Company. None of the representations or
warranties made by the Company or any of the Selling Shareholders in this
Agreement or in any agreement executed and delivered by or on behalf of any of
them pursuant hereto are false or misleading in any material respect with
respect to any fact, or omit to state any material fact necessary in order to
make the statements therein contained not misleading.
5.20. Tax Election. The Selling Shareholders and the Company are eligible
to make an election under Sections 338(g) and 338(h)(10) of the Code, and any
corresponding election available under state or local tax law provisions of each
state in which the Selling Shareholders file an income or franchise tax return,
with respect to the sale and purchase of the Company Shares.
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<PAGE>
6. Representations and Warranties as to the Selling Shareholders. The
Selling Shareholders hereby jointly and severally represent and warrant to Buyer
as follows:
6.1. Standing and Authority. Each Selling Shareholder has the right, power,
legal capacity and authority to enter into this Agreement and to carry out its
respective obligations hereunder, including without limitation the execution and
delivery of the Lock Up Agreement. This Agreement constitutes, and each
agreement to be executed and delivered by any Selling Shareholder pursuant
hereto will be the valid and binding obligation of the Selling Shareholder
enforceable against each of them in accordance with their respective terms ;
except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity.
6.2. Ownership of the Company Shares. Each of the Selling Shareholders is
the record and beneficial owner of that number of Company Shares set forth
opposite such Selling Shareholders' name in the chart annexed hereto as Schedule
6.2. Each Selling Shareholder has good and marketable title to such Company
Shares, free and clear of any liens or other claims, security interests,
pledges, or encumbrances of any nature whatsoever. All such Company Shares are
duly authorized, validly
33
<PAGE>
issued, fully paid and nonassessable and each Selling Shareholder has complete
and unrestricted power and the unqualified right to sell, assign, transfer and
deliver its Company Shares to Buyer, and upon delivery to Buyer of the
certificates representing such Company Shares, either endorsed in blank for
transfer or together with appropriately executed stock powers with respect
thereto, Buyer shall acquire good and marketable title to such Company Shares,
free and clear of any liens or encumbrances of any nature whatsoever.
6.3. Noncontravention. Neither the execution and delivery by the Selling
Shareholders of this Agreement or of any agreement to be executed and delivered
pursuant hereto, nor the consummation of any of the transactions contemplated
hereby or thereby, nor the performance by the Selling Shareholders of any of
their respective obligations hereunder or thereunder, will (nor with the giving
of notice or the lapse of time or both would) (A) conflict with or result in a
breach of any provision of the Certificate of Incorporation or Bylaws of the
Company, or (B) give rise to a material default, or any right of termination,
cancellation or acceleration, or otherwise be in conflict with or result in a
loss of material contractual benefits to the Company under the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which the Company is a party or by which it
may be bound, or require any consent, approval or notice under the terms of any
such document or instrument, or (C) violate any order,
34
<PAGE>
writ, injunction, decree, law, statute, rule or regulation of any court or
governmental authority which is applicable to the Company or any of them, or (D)
result in the creation or imposition of any Liens upon any of the Company Shares
or the Company Assets.
6.4. Non-Registration of Securities. Each Selling Shareholder understands
that the Candie's Shares received by him pursuant to this Agreement are not
registered under the Act, or under applicable state securities laws, in reliance
upon exemption contained in the Act and such laws and any applicable regulations
promulgated thereunder or interpretations thereof, and cannot be offered for
sale, sold or otherwise transferred unless the Candie's Shares are subsequently
so registered pursuant to the terms of this Agreement or qualify for exemption
from registration under the Act and such applicable state securities laws; and
the certificates of such Candie's Shares shall bear an appropriate legend to
that effect.
6.5. Information as to the Selling Shareholders. None of the
representations or warranties made by any Selling Shareholder in this Agreement
or in any agreement executed and delivered by or on behalf of any of them
pursuant hereto are false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements
therein contained, in light of the circumstances, under which they were made,
not misleading.
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<PAGE>
7. Representations and Warranties as to Buyer and Candie's. Candie's and
Buyer hereby jointly and severally represents and warrants to the Company and
the Selling Stockholders as follows:
7.1. Organization, Standing and Power. Each of Candie's and Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and authority to own, lease
and operate its properties and to carry on its business as presently conducted
by it.
7.2. Authority. The execution and delivery by Candie's and Buyer of this
Agreement and of each agreement to be executed and delivered by each of them
pursuant hereto, the compliance by Candie's and Buyer with the provisions hereof
and thereof, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate action
on the part of each of them and Candie's and Buyer have all necessary corporate
power with respect thereto. This Agreement is, and when executed and delivered
by Candie's and Buyer, each other agreement to be executed and delivered by each
of them pursuant hereto will be, the valid and binding obligation of each of
them in accordance with its terms. Neither the execution and delivery by
Candie's and Buyer of this Agreement or of any of the aforementioned other
agreements, nor the consummation of the transactions contemplated hereby or
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<PAGE>
thereby, nor the compliance by Candie's and Buyer with the provisions hereof and
thereof, will (nor with the giving of notice or the lapse of time or both,
would) conflict with or result in a violation of any provision of the
Certificate of Incorporation or By-laws of either of them, or in the breach of
any material agreement to which either of them is a party or otherwise bound or
violates any order, writ, injunction, decree, law statute, rule or regulation of
any court or governmental or administrative authority which is applicable to
Candie's and the Buyer.
7.3. Candie's Shares. The Candie's Shares, when issued to the Selling
Shareholders, will be duly authorized and validly issued, fully paid and
non-assessable, will be delivered hereunder free and clear of any lien, claim,
security interest, pledge or other encumbrance of any nature whatsoever, except
(i) that the Candie's Shares will be "restricted securities" as such term is
defined in the rules and regulations of the SEC and will be subject to
restrictions on transfers pursuant to such rules and regulations and State laws,
(ii) Candie's Shares shall be subject to the Lock-Up Agreement and (iii) the
Pledged Candie's Shares shall be subject to the provisions of Section 2.3
hereof.
7.4. Candie's SEC Filings; Financial Statements.
(a) As of the date hereof, Candie's has filed all forms, reports and
documents required to be filed by Candie's with the SEC (collectively, the
"Candie's SEC Reports"). The
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<PAGE>
Candie's SEC Reports (i) at the time filed, complied in all material respects
with the applicable requirements of the Securities Act and the Exchange Act, as
the case may be, and (ii) did not at the time they were filed (or if amended or
superseded by a subsequent filing, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated in such Candie's SEC Reports or necessary in order to make the
statements in such Candie's SEC Reports, in the light of the circumstances under
which they were made, not misleading. To the best of the knowledge of Candie's,
there is no material adverse information with respect to Candie's which a
reasonable investor would consider material in making an investment decision in
a similar situation.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Candie's SEC Reports, (the "Candie's
Financial Statements"), complied as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto, was
or will be prepared in accordance with U.S. generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by Form 10-Q or 8-K promulgated by the SEC),
and fairly presented or will fairly present the consolidated financial position
of Candie's as at the respective dates and the consolidated results of its
operations
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<PAGE>
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
7.5. Noncontravention. Neither the execution and delivery by the Buyer and
Candie's of this Agreement or of any agreement to be executed and delivered by
either of them pursuant hereto, nor the consummation of any of the transactions
contemplated hereby or thereby, nor the performance by the Buyer and Candie's of
any of their respective obligations hereunder or thereunder, shall (nor with the
giving of notice or the lapse of time or both would) give rise to a default, or
any right of termination, cancellation or acceleration, or otherwise be in
conflict with or result in a loss of material contractual benefits to the Buyer
and Candie's, under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, or material license, agreement or other instrument or
obligation to which it is a party or by which the Buyer and Candie's or any of
the assets of the Buyer and Candie's may be bound, or require any consent,
approval or notice under the terms of any such document or instrument.
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8. Indemnification
8.1. Indemnification by the Selling Shareholders. The Selling Shareholders
hereby jointly and severally agree to indemnify and hold Buyer and Candie's
harmless from and against any and all losses, obligations, deficiencies,
liabilities, claims, damages, costs and expenses (including, without limitation,
the amount of any settlement entered into pursuant hereto, and all reasonable
legal and other expenses incurred in connection with the investigation,
prosecution or defense of any matter indemnified pursuant hereto) which Buyer or
Candie's may sustain, suffer or incur (including reasonable legal fees) and
which arise out of, are caused by, relate to, or result or occur from or in
connection with (i) the breach by the Company or any of the Selling Shareholders
of any representation, warranty or covenant made by him or it in this Agreement
or in any agreement or instrument executed and delivered pursuant hereto and
(ii) the operation of the business of the Company prior to the Closing Date.
The aggregate amount of the Selling Shareholders' liability under this
Paragraph 8 shall not exceed the Purchase Price. The Selling Shareholders shall
not have any immediate indemnification obligation under this Paragraph 8 for any
losses suffered by the Buyer and/or Candie's which aggregate less than
Twenty-Five Thousand ($25,000) Dollars. Candie's, the Buyer and the Selling
Shareholders shall in good faith negotiate a
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resolution as to which party shall be responsible for satisfaction of those
losses aggregating less than Twenty-Five Thousand Dollars ($25,000). All losses
and liabilities which are, individually or in the aggregate, in excess of
Twenty-Five Thousand Dollars ($25,000) shall be the immediate obligation of the
Selling Shareholders. This indemnification obligation shall also apply to claims
directly by Buyer or Candie's against any Selling Shareholder as well as to
third party claims. Subject to compliance with provisions of the Escrow
Agreement, all indemnification obligations due to the Buyer and/or Candie's
under this Agreement, shall first be satisfied from the Pledged Candie's Shares,
and to the extent unsatisfied from the Pledged Candie's Shares, shall be
promptly paid to Buyer and/or Candie's.
8.2. Indemnification by Buyer and Candie's. Buyer and Candie's hereby
jointly and severally agree to indemnify and hold the Selling Shareholders
harmless from and against any and all losses, obligations, deficiencies,
liabilities, claims, damages, costs and expenses (including, without limitation,
the amount of any settlement entered into pursuant hereto, and all reasonable
legal and other expenses incurred in connection with the investigation,
prosecution or defense of any matter indemnified pursuant hereto), which either
of them may sustain, suffer or incur and which arise out of, are caused by,
relate to, or result or occur from or in connection with (i) the breach by Buyer
or Candie's of any representation, warranty or covenant made by it in this
Agreement or in any agreement or instrument executed and
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delivered pursuant hereto; (ii) the maintenance of the Trademarks and License
Agreements; (iii) the Bongo's Cuban Cafe and Skechers litigation; (iv) the
improper use by third parties as it relates solely to the unauthorized use
and/or distribution of certain labels, from an intellectual property
perspective, listed on Schedule 8.2 in connection with these goods which have
been previously manufactured by such third parties without any commitment to do
so by the Company, and for which no obligation exists as of the date hereof for
the Company or the Selling Shareholders to purchase such goods, and for which
the Buyer shall have no obligation to purchase such goods and (v) the operation
of the business of the Company subsequent to the Closing Date.
The aggregate amount of Buyer's and/or Candie's liability under this
paragraph 8 shall not exceed the Purchase Price. The Buyer and Candie's shall
not have any immediate indemnification obligation under this Paragraph 8 for any
losses suffered by the Selling Shareholders which aggregate less than
Twenty-Five Thousand ($25,000) Dollars. The Selling Shareholders and the Buyer
and/or Candie's shall in good faith negotiate a resolution as to which party
shall be responsible for satisfaction of those losses aggregating less than
Twenty-Five Thousand Dollars ($25,000). All losses and liabilities which are,
individually or in the aggregate, in excess of Twenty-Five Thousand Dollars
($25,000) shall be the immediate obligation of Buyer and/or Candie's. This
indemnification obligation shall
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also apply to claims directly by the Selling Stockholders against Buyer and
Candie's as well as to third party claims.
8.3. Third Party Claims. If a claim by a third party is made against any
party or parties hereto and the party or parties against whom said claim is made
intends to seek indemnification with respect thereto under this paragraph 8, the
party or parties seeking such indemnification shall promptly notify the
indemnifying party or parties, in writing, of such claim; provided, however,
that the failure to give such notice shall not affect the rights of the
indemnified party or parties hereunder unless such failure materially and
adversely affects the indemnifying party or parties. The indemnifying party or
parties shall have ten (10) days after said notice is given to elect, by written
notice given to the indemnified party or parties, to undertake, conduct and
control, through counsel of their own choosing (subject to the consent of the
indemnified party or parties, such consent not to be unreasonably withheld) and
at their sole risk and expense, the good faith settlement or defense of such
claim, and the indemnified party or parties shall cooperate with the
indemnifying parties in connection therewith; provided: (i) in the case of the
Selling Shareholders as the indemnifying party or parties, they shall not
thereby permit to exist any lien, encumbrance or other adverse change upon any
of the Company's assets, properties or the Business, and (ii) the indemnified
party or parties shall be entitled to participate in such settlement or defense
through counsel chosen by the
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indemnified party or parties, provided that the fees and expenses of such
counsel shall be borne by the indemnified party or parties. So long as the
indemnifying party or parties are contesting any such claim in good faith, the
indemnified party or parties shall not pay or settle any such claim; provided,
however, that notwithstanding the foregoing, the indemnified party or parties
shall have the right to pay or settle any such claim at any time, provided that
in such event they shall waive any right of indemnification therefor by the
indemnifying party or parties. If the indemnifying parties do not make a timely
election to undertake the good faith defense or settlement of the claim as
aforesaid, or if the indemnifying parties fail to proceed with the good faith
defense or settlement of the matter after making such election, then, in either
such event, the indemnified party or parties shall have the right to contest,
settle or compromise the claim at their exclusive discretion, at the risk and
expense of the indemnifying parties to the full extent set forth in subparagraph
8.1 or 8.2 hereof, as the case may be. The provisions of this Section 8.3 shall
also apply to claims made directly by any of the parties hereto against each
other.
8.4. Exclusive Remedy. Except as specifically provided in Section 4.2 of
this Agreement, the provisions of this paragraph 8 shall be the sole and
exclusive remedy of the parties hereto with respect to any and all claims
relating to or arising out of a breach of any representation, warranty, covenant
or
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agreement made by any other party hereto in this Agreement; provided, however,
nothing shall be deemed to prohibit or limit the right of any of the parties
hereto to at any time seek injunctive or other equitable relief based upon the
failure of any of the other parties hereto to perform any covenant or agreement
contained herein or any other agreement executed by the parties hereto with
respect to the subject matter hereof. Each of the parties hereto shall make any
indemnification claims pursuant to this paragraph 8 on or prior to the date
which the relevant representation or warranty shall expire. The failure to make
a claim within the time period prescribed herein shall constitute a bar against
any party making such claim.
9. Nondisclosure.
9.1. "Confidential Information" Defined. As used in this paragraph 9, the
term "Confidential Information" shall mean any and all information (oral and
written) relating to the Business or the Company Assets of the Company, on the
one hand and relating to the business of Candie's, on the other hand, other than
such information which can be shown to be in the public domain (such information
not being deemed to be in the public domain merely because it is embraced by
more general information which is in the public domain) other than as the result
of a breach of the provisions of subparagraph 9.2 below, including, but not
limited to, information relating to: identity and description of goods and
services used; purchasing; costs;
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pricing; machinery and equipment; manufacturing processes; technology; research;
test procedures and results; customers and prospects; marketing; and selling and
servicing. Between the date hereof and the Closing Date, each of the Company and
Buyer may, directly and/or through its representatives, make such investigation
of the other party and as such party deems necessary or advisable, but such
investigation shall not affect any of the representations and warranties of
either party contained herein or in any other instrument or document delivered
pursuant hereto. Each of the Buyer, Candie's, the Company and Selling
Shareholders shall not disclose or use any Confidential Information, it obtains
in connection with the foregoing, other than in connection with the transactions
contemplated hereby. In the event that the purchase and sale transaction
provided for herein is not consummated for any reason whatsoever, each of the
parties shall return to the other all documents, workpapers and other written
materials which were obtained by it during the course of such investigation
which constitute Confidential Information.
9.2. Nondisclosure of Confidential Information. The parties shall not at
any time, directly or indirectly, use, communicate, disclose or disseminate any
Confidential Information in any manner whatsoever.
10. Legal Opinions.
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10.1. Opinion of Counsel for the Company and the Selling Shareholders.
Simultaneously with the execution and delivery of this Agreement, the Company
and the Selling Shareholders shall cause Jeffer, Mangels, Butler & Marmaro LLP
to deliver an opinion to the Buyer and Candie's, dated the Closing Date, in
substantially the form of Exhibit D attached hereto.
10.2. Opinion of Counsel for Candie's and the Buyer. Simultaneously with
the execution and delivery of this Agreement, Candie's and the Buyer shall cause
Tenzer Greenblatt LLP to deliver an opinion to the Selling Shareholders, dated
the Closing Date, in substantially the form of Exhibit E attached hereto.
11. Brokers.
Each of Candie's, Buyer, the Company and the Selling Shareholders
represents and warrants to the other that other than Salomon Smith Barney, Inc.
with respect to Candie's and Buyer and The Westheimer Company with respect to
the Selling Shareholders and the Company, it has not engaged or dealt with any
broker or finder in connection with any of the transactions contemplated by this
Agreement, and each of the parties shall indemnify and hold the other harmless
from and against any and all claims or liabilities asserted by or on behalf of
any alleged broker or finder for finder's fees, commissions, brokerage fees or
like payment.
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12. Miscellaneous Provisions.
12.1. Expenses. Except as otherwise provided in this Agreement, each of the
parties hereto shall pay his or its own costs and expenses in connection with
this Agreement and the transactions contemplated hereby. For purpose of this
Agreement, the expenses of the Company shall be the expenses of the Selling
Shareholders.
12.2. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement, and shall become effective when one
or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto.
12.3. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made as of the earlier of the date delivered or mailed if delivered personally
by overnight courier or mailed by express, registered or certified mail,
(postage prepaid, return receipt requested), or by facsimile transmittal,
confirmed by express, certified or registered mail, as follows:
If to Buyer, to: Candie's Inc.
2975 Westchester Avenue
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Purchase, NY 10577
Attn: Neil Cole,
Chairman of the Board
Copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Michael S. Mullman, Esq.
If to the Company, to: Michael Caruso & Co., Inc.
2925 Mountain Maple Lane
Jackson, Wyoming 83001
Attn: Michael Caruso, President
Copy to: Jeffer, Mangels,
Butler & Marmaro, LLP
2121 Avenue of the Stars
Los Angeles, CA 90067
Attn: Joel Berman, Esq.
If to any or all of the
Selling Shareholders, to: Michael Caruso
2925 Mountain Maple Lane
Jackson, Wyoming 83001
Gene Montesano
2501 Sycamore Canyon Drive
Montecito, CA 93108
Copy to: Jeffer, Mangels,
Butler & Marmaro LLP
2121 Avenue of the Stars
Los Angeles, CA 90067
Attn: Joel Berman, Esq.
or to such other address as any party shall have designated by like notice to
the other parties hereto (except that a notice of change of address shall only
be effective upon receipt).
12.4. Amendment. This Agreement may only be amended by a written instrument
executed by each of the parties hereto.
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12.5. Entire Agreement. This Agreement (together with the other agreements
and documents being delivered pursuant to or in connection with this Agreement)
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings of
the parties, oral and written, with respect to the subject matter hereof.
12.6. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
12.7. Assignment and Benefits. Prior to the Closing Date, neither this
Agreement nor any rights, interests or obligations hereunder may be assigned (by
operation of law or otherwise) by any party hereto without the prior written
consent of all of the parties hereto. This Agreement shall inure to the benefit
of and bind the respective parties's successors or permitted assigns.
12.8. Binding Effect; Benefits. This Agreement shall inure to the benefit
of, and shall be binding upon, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns. Nothing herein
contained, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives,
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<PAGE>
successors and permitted assigns, any rights or remedies under or by reason of
this Agreement.
12.9. Waiver, etc. The failure of any of the parties hereto to at any time
enforce any of the provisions of this Agreement shall not be deemed or construed
to be a waiver of any such provision, nor to in any way affect the validity of
this Agreement or any provision hereof or the right of any of the parties hereto
to thereafter enforce each and every provision of this Agreement. No waiver of
any breach of any of the provisions of this Agreement shall be effective unless
set forth in a written instrument executed by the party or parties against whom
or which enforcement of such waiver is sought; and no waiver of any such breach
shall be construed or deemed to be a waiver of any other or subsequent breach.
12.10. Severability. Any provision of this Agreement which is held by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
12.11. Announcements. No party hereto shall issue any press release or
otherwise divulge the existence of this Agreement or the transactions
contemplated hereby without the
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prior approval of the other parties hereto, except as may be required by
applicable law or the applicable rules or regulations of any stock exchange.
12.12. Schedules. The Schedules delivered pursuant to this Agreement are an
integral part hereof. Each such Schedule shall be in writing, shall indicate the
subparagraph pursuant to which it is being delivered, and shall be initialled by
the delivering party.
12.13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law thereof.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
LICENSING ACQUISITION CORP.
By: /s/ Neil Cole
--------------------------
Neil Cole, President
CANDIE'S, INC.
By: /s/ Neil Cole
--------------------------
Neil Cole, President
MICHAEL CARUSO & CO., INC.
By: /s/ Michael Caruso
--------------------------
Michael Caruso, President
/s/ Michael Caruso
------------------------------
Michael Caruso, Trustee of the
Claudio Trust dated February 2,
1990
/s/ Gene Montesano
------------------------------
Gene Montesano
53
Exhibit 2(b)
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement dated as of September 24, 1998, by and
between Candie's, Inc., a Delaware corporation (the "Company"), and the persons
whose names and addresses appear on the signature page attached hereto (each a
"Holder" and collectively, the "Holders").
WHEREAS, the Company issued to the Holders, pursuant to the purchase of all
of the capital stock of Michael Caruso & Co., Inc. ("Caruso & Co.") by a
wholly-owned subsidiary of the Company, an aggregate of 1,967,742 shares (the
"Shares") of the Company's common stock, par value $.001 per share (the "Common
Stock"), as described in the stock purchase agreement, of even date herewith, by
and among the Company and its subsidiary, Caruso & Co. and each of the Holders
(the "Purchase Agreement"); and
WHEREAS, pursuant to the Purchase Agreement, the Company has agreed to
grant to the Holder registration rights set forth herein with respect to the
Shares.
NOW, THEREFORE, the parties do hereby agree as follows:
As used herein the term "Registrable Security" means each of the Shares,
and any shares of Common Stock issued upon any stock split or stock dividend in
respect of such Shares; provided, however, that with respect to any particular
Registrable Security, such security shall cease to be a Registrable Security
when, as of the date of determination, (i) it has been effectively registered
under the Securities Act of 1933, as amended (the "Securities Act") and disposed
of pursuant thereto, (ii) it may be sold pursuant to Rule 144(k) or (iii) it has
ceased to be outstanding. In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be made in the definition of
"Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Agreement.
The term "Majority Holder" as used in this Agreement shall mean any holder
or any combination of holders of Registrable Securities, if included in such
holders' Registrable Securities are that aggregate number of Shares as would
constitute a majority of the aggregate number of Shares included in all of the
Registrable Securities.
<PAGE>
1. Demand Registration. (a) Subject to receipt by the Company of the
audited financial statements of Michael Caruso & Co., Inc. for the periods set
forth in Section 4.2 of the Stock Purchase Agreement, together with the
unqualified opinion of Stonefield Josephson, Inc. (the "Audited Financial
Statements"), at any time during the two (2) year period after the first year
anniversary of the date of this Agreement, the Majority Holder shall have the
right, on one (1) occasion only, exercisable by written notice to the Company (a
"Demand Registration Request"), to have the Company promptly prepare and file
with the Securities and Exchange Commission, in respect of the Registrable
Securities held by the Holders, a registration statement (the "Demand
Registration Statement") so as to permit a public offering and sale of the
Registrable Securities; provided however, that the Company is then eligible to
register the Registrable Securities.
(b) The Company and other stockholders may, at the Company's discretion,
have other shares of Common Stock included in the Demand Registration Statement,
provided that in the event that an underwriter for the Registrable Securities
determines that the inclusion of the additional shares of Common Stock in the
Demand Registration Statement would adversely affect its ability to sell the
Registrable Securities, then the shares of Common Stock proposed to be offered
by the Company and such other stockholders shall be cut-back as requested in
writing by such underwriter.
(c) The Company will use reasonable efforts to file the Demand Registration
Statement as expeditiously as reasonably possible, provided that nothing herein
shall require the Company to undergo an audit, other than in the ordinary course
of business.
(d) Notwithstanding any provision of this Section 1 to the contrary, if, at
the time a Demand Registration Request is given to the Company under this
Section 1, the Company is negotiating a merger, consolidation, acquisition or
sale of all or substantially all of its assets or a similar transaction and if
in the opinion of counsel to the Company, the Demand Registration Statement
would be required to include information concerning such transactions or the
parties thereto which is not reasonably available at the time, the Company shall
promptly inform the Holder by written notice of such circumstances (a
"Postponement Notice") and, at the Company's election to be set forth in the
Postponement Notice, the filing of the Demand Registration Statement may be
postponed for one (and not more than one) period not to exceed 90 days from the
date on which the Demand Registration Request is given to the Company under this
Section 1 (notwithstanding any provisions herein to the contrary).
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2. Piggyback Registration.
(a) Subject to receipt by the Company of the Audited Financial Statements,
if at any time during the three (3) year period after the date of this
Agreement, the Company proposes to prepare and file with the Securities and
Exchange Commission a registration statement covering equity or debt securities
of the Company, or any such securities of the Company held by its stockholders,
other than in connection with a merger, acquisition or pursuant to a
registration statement on Form S-4 or Form S-8 or any successor form (for
purposes of this Section 2, collectively, a "Piggyback Registration Statement")
and the Holders are required pursuant to the terms of Section 4.2 of the
Purchase Agreement to pay for the costs of such Piggyback Registration
Statement, the Company will give written notice of its intention to do so by
registered or certified mail to Holders. If the Company elects to file a
Piggyback Registration Statement prior to the first anniversary of the date
hereof, those Shares registered on behalf of the Holders shall remain subject to
the Lock-Up Agreement dated the date hereof between the parties. Upon the
written request of Holders, made within 5 days after receipt of such notice,
that the Company include the Registrable Securities in the Piggyback
Registration Statement, the Company shall, as to Holders, use its reasonable
efforts to effect the registration under the Securities Act of the Registrable
Securities which it has been so requested to register ("Piggyback
Registration"), at the Holder's sole cost and expense and at no cost or expense
to the Company; provided, however, that if, the Piggyback Registration is in
connection with an underwritten public offering and in the written opinion of
the Company's underwriter or managing underwriter of the underwriting group, if
any, for such offering, the inclusion of all or a portion of the Registrable
Securities requested to be registered, when added to the securities being
registered by the Company or the selling stockholder(s), if any, will exceed the
maximum amount of the Company's securities which can be marketed (i) at a price
reasonably related to their then current market value, or (ii) without otherwise
having a material adverse effect on the entire offering, then the Company may,
subject to the allocation priority set forth in the next paragraph, exclude from
such offering all or a portion of the Registrable Securities which it has been
requested to register. Without limiting the generality of the foregoing, such
underwriter or managing underwriter may condition its consent to the inclusion
of all or a portion of the Registrable Securities requested to be registered
upon the participation by Holders in the underwritten public offering on the
terms and conditions thereof.
(b) If securities are proposed to be offered for sale pursuant to such
Piggyback Registration Statement by other security holders of the Company and
the total number of the Registrable Securities to be offered by Holder and such
other selling security holders is required to be reduced pursuant to a
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<PAGE>
request from the underwriter or managing underwriter (which request shall be
made only for the reasons and in the manner set forth above), the aggregate
number of Registrable Securities to be offered by Holders pursuant to such
Piggyback Registration Statement shall equal the number which bears the same
ratio to the maximum number of securities that the underwriter or managing
underwriter believes may be included for all the selling security holders
(including Holders) as the original number of securities proposed to be sold by
Holders bears to the total original number of securities proposed to be offered
by Holders and the other selling security holders.
(c) Notwithstanding the preceding provisions of this Section 2, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 2 (irrespective of whether any written request for
inclusion of such securities shall have already been made) to elect not to file
any proposed Piggyback Registration Statement filed pursuant to this Section 2,
or to withdraw the same after the filing but prior to the effective date
thereof. In the event that the Company elects to withdraw, the Company shall pay
for the cost of such withdrawn Piggyback Registration Statement; provided,
however, that the Company shall not be liable for the costs (including but not
limited to legal fees and expenses) of the Holders in connection with the
Piggyback Registration Statement, and, furthermore, such withdrawal shall not
affect Holders' obligation to pay for any subsequent Piggyback Registration
Statement filed by the Company.
(d) In the event Holders exercise the rights granted under this paragraph
2, such Holder shall no longer be entitled to the Demand Registration rights set
forth in paragraph 1 of this Agreement.
3. Covenants of the Company With Respect to Registration. The Company
hereby covenants and agrees as follows:
(a) Following the effective date of the Demand Registration Statement,
the Company shall, upon the request of the Majority Holder, forthwith
supply such reasonable number of copies of the Demand Registration
Statement and prospectus as shall be reasonably requested by the Holders to
permit the Holders to make a public distribution of the Registrable
Securities. The obligations of the Company hereunder with respect to the
registrable Securities are expressly conditioned on the Holders' furnishing
to the Company such appropriate information concerning the Holders, the
Registrable Securities and the terms of the Holders' offering of such
Registrable Securities as the Company may request.
(b) Subject to the provisions of the Purchase Agreement, the Company
will pay all costs, fees and expenses in
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connection with any Demand Registration Statement filed, provided however,
that the Holders shall be solely responsible for the fees of any counsel or
advisor or underwriter retained by the Holders in connection with such
registration and any transfer taxes, selling commissions or selling fees
applicable to the Registrable Securities sold by the Holders pursuant
thereto.
(c) The Company will use reasonable efforts to qualify or register the
Registrable Securities included in the Demand Registration Statement for
offering and sale under the securities or blue sky laws of such states as
are reasonably requested by the Holders, provided that the Company shall
not be obligated to execute or file any general consent to service of
process (unless the Company is already then subject to service in such
jurisdiction) or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction, except as may be required by the
Securities Act and its rules and regulations.
(d) The Company shall cause any successor corporation to assume the
obligations set forth under this Agreement in connection with any merger,
consolidation or acquisition in which the Company is not the surviving
entity.
4. Covenant of the Holders. The Holders, upon receipt of notice from the
Company that an event has occurred which requires a post-effective amendment to
a registration statement or a supplement to the prospectus included therein,
shall promptly discontinue the sale of Registrable Securities until the Holders
receive a copy of a supplemented or amended prospectus from the Company, which
the Company shall provide as soon as reasonably practicable after such notice.
5. Indemnification. The Company agrees to indemnify, defend and hold
harmless the Holders from and against any and all losses, claims, damages and
liabilities caused by or arising out of any untrue statement of a material fact
contained in the Demand Registration Statement, the Piggyback Registration
Statement or any prospectus included therein or caused by or arising out of any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of circumstances which they
are made, not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission based upon
information furnished or required to be furnished in writing to the Company by
the Holders expressly for use therein; provided, however, that the
indemnification in this Section shall not inure to the benefit of the Holders on
account of any such loss, claim, damage or liability arising from the sale of
Registrable Securities by the Holders, if a copy of a subsequent prospectus
correcting the untrue statement or omission in such earlier prospectus was
provided to the Holders by the Company prior to the sale and the subsequent
prospectus was not delivered or sent by the Holders to the purchaser prior to
such sale. The
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Holders agree to indemnify the Company, its directors, each officer signing a
registration statement, each person who controls the Company within the meaning
of the Securities Act, any underwriter and any person who controls any
underwriter within the meaning of the Securities Act from and against any and
all losses, claims, damages and liabilities caused by or arising out of any
untrue statement of a material fact contained in the Demand Registration
Statement, Piggyback Registration Statement, or any prospectus included therein,
or caused by or arising out of any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case, only insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omissions based upon
information furnished in writing to the Company by the Holders expressly for use
therein.
6. Governing Law.
(a) This Agreement shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal substantive
laws of the State of New York, without giving effect to the choice of law
rules thereof.
(b) Each of the Company and each of the Holders hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of New York and of the United States located in the
County of New York, State of New York (the "New York Courts") for any
litigation arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any litigation
relating thereto except in such courts), waives any objection to the laying
of venue of any such litigation in the New York Courts and agrees not to
plead or claim that such litigation brought in any New York Courts has been
brought in an inconvenient forum.
7. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or mailed by express, registered or certified mail, postage prepaid, return
receipt requested, as follows:
If to the Company, at:
Candie's, Inc.
2975 Westchester Avenue
Purchase, New York 10577
Attn: Neil Cole
with a copy of the same to:
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Tenzer Greenblatt LLP
405 Lexington Avenue
23rd Floor
New York, New York 10174
Attn: Michael S. Mullman, Esq.
If to the Holder(s), at that address set forth under their
name on the signature page.
with a copy of the same to:
Jeffer, Mangels, Butler & Marmaro, LLP
2121 Avenue of the Stars
Los Angeles, CA 90067
Attn: Joel Berman, Esq.
Or such other address as has been indicated by either party in accordance
with a notice duly given in accordance with the provisions of this Section.
8. Amendment. This Agreement may only be amended by a written instrument
executed by the Company and the Holders.
9. Entire Agreement. This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
10. Assignment; Benefits. This Agreement and the rights granted hereunder
may not be assigned by any Holder and any purported assignment shall be void ab
initio. Nothing herein contained, express or implied, is intended to confer upon
any person other than the parties hereto any rights or remedies under or by
reason of this Agreement. This Agreement shall inure to the benefit of and bind
the respective parties' successors or permitted assigns.
11. The prevailing party to any action brought under this Agreement shall
be entitled to recover reasonable attorneys' fees and expenses in connection
therewith from the non-prevailing party.
12. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
13. Severability. Any provision of this Agreement which is held by a court
of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the
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remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
14. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
Company: CANDIE'S, INC.
By: /s/ Neil Cole
-----------------------------------
Name: Neil Cole
Title: Chairman of the Board
Holders:
/s/ Michael Caruso
-----------------------------------
Michael Caruso, Trustee of
the Claudio Trust dated
February 2, 1990
Address: 2975 Mountain Maple Lane
Jackson, Wyoming 83001
Number of Shares: 1,475,806
/s/ Gene Montesano
-----------------------------------
Gene Montesano
Address: 2501 Sycamore Drive
Montecito, CA 93108
Number of Shares: 491,936
9
Exhibit 2(c)
ESCROW AGREEMENT
ESCROW AGREEMENT made this day of September 24, 1998 between Candie's,
Inc., a Delaware corporation with its principal place of business at 2975
Westchester Avenue, Purchase, New York 10577 (the "Corporation") Michael Caruso,
as Trustee of the Claudio Trust dated February 2, 1990 residing at 2925 Mountain
Maple Lane, Jackson, Wyoming 83001, Gene Montesano, residing 2501 Sycamore
Canyon Drive, Montecito, CA 93108 (each a "Shareholder" and collectively the
"Shareholders") and Tenzer Greenblatt LLP, as escrow agent (the "Escrow Agent").
WHEREAS, the Corporation, Michael Caruso & Co., Inc., and the Shareholders
have entered into a stock purchase agreement dated the date hereof (the "Stock
Purchase Agreement") pursuant to which the Corporation, through its wholly owned
subsidiary, will purchase all of the outstanding capital stock of Michael Caruso
& Co., Inc. in consideration for a certain number of shares of the Corporation's
common stock; and
WHEREAS, it is a condition of the Stock Purchase Agreement that the
Shareholders pledge a certain number of shares of the Corporation's Common Stock
received by them in the Acquisition by depositing such shares into escrow with
Escrow Agent;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, it is hereby agreed:
1. Deposit - Simultaneously with the execution of this Escrow Agreement,
the Shareholders shall place into escrow the stock certificate(s) of the
Shareholders representing the number of Shares set forth in Schedule A together
with endorsed stock powers attached thereto (the "Pledged Candie's Shares").
2. Distribution of Escrowed Shares - The Pledged Candie's Shares shall be
held by Escrow Agent as security for the indemnification obligations of the
Shareholders as set forth in Paragraph 8 of the Stock Purchase Agreement.
Promptly after the date which is one (1) year from the date hereof, Escrow Agent
shall release to the Shareholders one half of the originally Pledged Candie's
Shares less the number of Pledged Candie's Shares having an aggregate value
equal to the amount of any outstanding indemnification obligations which have
been claimed by Candie's or Buyer in accordance with Paragraph 8 of the Stock
Purchase Agreement (the "Indemnification Shares"), and (ii) promptly after the
date which is two (2) years from the date hereof, Escrow Agent shall release to
the Shareholders the
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remaining Pledged Candie's Shares, less the number of Indemnification Shares, if
any, necessary, at such date, to satisfy outstanding indemnification obligations
claimed by Candie's. For purposes of determining the number of Pledged Candie's
Shares released or applied under the previous sentence, the value of each share
of Candie's Common Stock shall be deemed to be the greater of (i) the closing
sale price of a share of Candie's Common Stock on the Closing Date, or (ii) the
closing sale price of a share of Candie's Common Stock on the date on which the
Pledged Candie's Shares are released or applied by the Escrow Agent in payment
of the indemnification obligations in question.
3. Duties of the Escrow Agent
a. The Escrow Agent, by executing this Escrow Agreement, signifies its
agreement to hold the Pledged Candie's Shares for the purposes as provided in
this Escrow Agreement. In the event of any dispute or conflict between the
Corporation and Shareholders as to the release of the Pledged Candie's Shares,
such dispute or conflict shall be determined by appropriate court action. During
the pendency of any disputes and until the final adjudication of such dispute
(including expiration of time for appeal and petition for rehearing), the Escrow
Agent shall be entitled to retain possession of the Pledged Candie's Shares.
b. The Corporation and the Shareholders shall indemnify defend and hold
Escrow Agent harmless from and against any and all loss, damage, tax, liability
and expense that may be incurred arising out of this Agreement (including
reasonable legal fees and expenses) except Escrow Agent's gross negligence or
willful misconduct, notwithstanding that Escrow Agent has acted as counsel for
the Corporation under the Stock Purchase Agreement. In all questions arising
under this Escrow Agreement, the Escrow Agent may rely on the advice of counsel,
and for anything done, omitted or suffered in good faith by the Escrow Agent
based on such advice, the Escrow Agent shall not be liable to anyone. The Escrow
Agent shall not be required to take any action hereunder involving any expenses
unless the payment of such expense shall be made or provided for in a manner
satisfactory to it.
4. Term - This Escrow Agreement shall remain in full force and effect for a
term of two years or until all of the Pledged Candie's Shares have been
distributed in accordance with the provisions hereof.
5. Notices - All notices hereunder by any party to another shall be sent by
telecopy, certified mail, return receipt requested, by overnight courier, or by
personal delivery, addressed as set forth on the first page of this Escrow
Agreement. Notices shall be deemed served (i) if sent by overnight courier, on
the date of delivery of the notice by such
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overnight courier, and (ii) if sent by personal delivery, or by telecopy on the
date of delivery if delivered or received prior to 5:00 P.M., and on the next
business day if delivered or received after 5:00 P.M., or, if sent by certified
mail, when received. A copy of all notices under this Escrow Agreement shall be
given to Escrow Agent, 405 Lexington Avenue, New York, New York 10174.
6. Entire Agreement Modification; Binding Effect - This Escrow Agreement,
together with the Stock Purchase Agreement dated the date hereof between the
Corporation and the Shareholders, constitutes the entire agreement between the
parties with respect to the subject matter hereof, and may not be assigned by
either party or changed or modified except in a writing executed by the
Corporation and the Shareholders.
7. Governing Law - This Escrow Agreement shall be governed by the laws of
the State of New York. The Corporation and Shareholder agree that, should there
be any litigation relating to this Escrow Agreement, they shall bring such
litigation in New York County, New York.
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the day and year first above written.
CANDIE'S, INC.
By: /s/ Larry O'Shaughnessy
-----------------------------------
Executive Vice President
TENZER GREENBLATT LLP, as Escrow Agent
By: /s/ Michael Mullman, Partner
-----------------------------------
SHAREHOLDERS:
/s/ Michael Caruso
----------------------------------------
Michael Caruso, Trustee of the Claudio
Trust dated February 2, 1990
/s/ Gene Montesano
----------------------------------------
Gene Montesano
4
Exhibit 2(d)
List of Omitted Schedules/Exhibits
Schedule 2.4 - Allocation of Purchase Price
Schedule 4.7 - Assets and Liabilities Retained by Michael
Caruso & Co., Inc.
Schedule 4.11 - Liens
Schedule 5.2 - Names, Addresses of Record and Beneficial
Stock Ownership of all shareholders of
Michael Caruso & Co., Inc.
Schedule 5.3 - Interests in Other Entities Owned by Michael
Caruso & Co., Inc.
Schedule 5.7 - Liabilities and Obligations of Michael Caruso
& Co., Inc.
Schedule 5.8 - Real Property and Tangible Personal Property
Schedule 5.9 - Claims of All Kinds Against Michael Caruso &
Co., Inc.
Schedule 5.11 - All Intellectual Property of Michael Caruso &
Co., Inc.
Schedule 5.16 - Contracts Retained by Michael Caruso & Co.,
Inc.
Schedule 5.17 - Governmental Approvals and Other
Authorization Needed to Own or Operate the
Business of Michael Caruso & Co., Inc.
Schedule 5.18 - Violations of Environmental Law by Michael
Caruso & Co., Inc.
Schedule 6.2 - Shareholders
Schedule 8.2 - "Made but not Ordered Goods"
NOTE TO SCHEDULES: Each Schedule shall be deemed to include all
other Schedules
Exhibit C - Lock-Up Agreement
Exhibit D - Opinion Letter from Counsel for Michael
Caruso & Co., Inc.
Exhibit E - Opinion Letter from Counsel for Candie's,
Inc. and Licensing Acquisition Corp.
Copies of any of the Schedules and/or Exhibits listed above will be furnished to
the Securities and Exchange Commission on request.
