Exhibit 10.64

 

EXECUTION COPY

 

ASSET PURCHASE AGREEMENT

 

among

 

TROPICAL SPORTSWEAR INT’L CORPORATION

 

SAVANE INTERNATIONAL CORP.,

 

TSI BRANDS, INC.,

 

TSIL, INC.,

 

APPAREL NETWORK CORP.,

 

FARAH OFFSHORE SOURCING COMPANY,

 

FARAH MANUFACTURING (U.K.) LIMITED

 

and

 

PERRY ELLIS INTERNATIONAL, INC.

 

Dated as of December 16, 2004

 

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TABLE OF CONTENTS

 

     Page

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ARTICLE I      DEFINITIONS     

SECTION 1.01. Certain Defined Terms

   2

SECTION 1.02. Interpretation and Rules of Construction

   14 ARTICLE II      PURCHASE AND SALE     

SECTION 2.01. Purchase and Sale of Purchased Assets

   15

SECTION 2.02. Assumption and Exclusion of Liabilities

   19

SECTION 2.03. Purchase Price; Allocation of Purchase Price

   21

SECTION 2.04. Contract Assumption

   21

SECTION 2.05. Cure Costs

   22

SECTION 2.06. Amounts Due Under Designated Contracts

   22

SECTION 2.07. Closing

   23

SECTION 2.08. Closing Deliveries by the Sellers

   23

SECTION 2.09. Closing Deliveries by the Purchaser

   24

SECTION 2.10. Post-Closing Adjustment of Purchase Price

   24

SECTION 2.11. Escrow

   27

SECTION 2.12. Proration

   27 ARTICLE III     

REPRESENTATIONS AND WARRANTIES

OF THE SELLERS

    

SECTION 3.01. Organization, Authority and Qualification of the TSIC Entities

   27

SECTION 3.02. No Conflict

   29

SECTION 3.03. Governmental Consents and Approvals

   29

SECTION 3.04. Financial Information

   29

SECTION 3.05. Litigation

   31

SECTION 3.06. Compliance with Laws; Permits

   31

SECTION 3.07. Environmental Matters

   31

SECTION 3.08. Intellectual Property

   33

SECTION 3.09. Real Property

   34

SECTION 3.10. Purchased Assets

   36

SECTION 3.11. Employee Benefits Matters

   36

SECTION 3.12. Taxes

   38

 

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SECTION 3.13. Contracts

   44

SECTION 3.14. Absence of Certain Changes, Events and Conditions

   45

SECTION 3.15. Labor Matters

   45

SECTION 3.16. Sufficiency of Assets

   46

SECTION 3.17. Tangible Personal Property

   46

SECTION 3.18. Receivables

   46

SECTION 3.19. Inventories

   47

SECTION 3.20. Customers

   47

SECTION 3.21. Suppliers

   48

SECTION 3.22. Insurance

   48

SECTION 3.23. Related Person Transactions

   48

SECTION 3.24. Public Filings

   48

SECTION 3.25. Product Liability

   49

SECTION 3.26. Brokers

   49

SECTION 3.27. Employees; WARN Act Compliance

   49

SECTION 3.28. DIP Loan Facility

   50

SECTION 3.29. First Day Relief

   50

SECTION 3.30. Purchased Subsidiary

   50

SECTION 3.31. Full Disclosure

   50 ARTICLE IV      REPRESENTATIONS AND WARRANTIES OF THE PURCHASER     

SECTION 4.01. Organization and Authority of the Purchaser

   51

SECTION 4.02. No Conflict

   51

SECTION 4.03. Governmental Consents and Approvals

   52

SECTION 4.04. Financing

   52

SECTION 4.05. Investment and Purpose

   52

SECTION 4.06. Brokers

   52

SECTION 4.07. Sales Tax

   52 ARTICLE V      ADDITIONAL AGREEMENTS     

SECTION 5.01. Conduct of Business Prior to the Closing

   53

SECTION 5.02. Access to Information

   54

SECTION 5.03. Confidentiality

   55

SECTION 5.04. Regulatory and Other Authorizations; Notices and Consents

   55

SECTION 5.05. Notice of Developments

   56

SECTION 5.06. Excluded Liabilities

   56

SECTION 5.07. Risk of Loss

   56

SECTION 5.08. Bulk Transfer Laws

   57

SECTION 5.09. Cooperation

   57

SECTION 5.10. Further Action

   57

 

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SECTION 5.11. Tax Indemnification, Tax Cooperation and Exchange of Information

   57

SECTION 5.12. Cooperation Regarding Property and Transfer Taxes

   62

SECTION 5.13. Conveyance and Sales Taxes

   63

SECTION 5.14. Bankruptcy Court Approvals

   63

SECTION 5.15. Bankruptcy Actions

   64

SECTION 5.16. Name Change

   65

SECTION 5.17. No Shop

   65

SECTION 5.18. Purchaser’s Deposit

   66

SECTION 5.19. Letter of Credit

   66

SECTION 5.20. Receipt of Property Relating to Purchased Assets and Excluded
Assets

   66

SECTION 5.21. Environmental Remediation

   67

SECTION 5.22. Transition Matters

   67 ARTICLE VI      BIDDING PROCEDURES     

SECTION 6.01. Bidding Procedures

   67

SECTION 6.02. Determination of Qualified Overbid Status

   68

SECTION 6.03. Auction

   70

SECTION 6.04. Expense Reimbursement

   71

SECTION 6.05. Break-up Fee

   71

SECTION 6.06. Acceptance of Qualified Overbids

   72

SECTION 6.07. Return of Purchaser’s Deposit and Good Faith Deposit.

   72

SECTION 6.08. Court-Imposed Qualified Overbid

   73

SECTION 6.09. Modifications of Bidding Procedures

   73 ARTICLE VII      EMPLOYEE MATTERS     

SECTION 7.01. Offer of Employment

   73

SECTION 7.02. Employee Benefits

   74

SECTION 7.03. 401(k) Plan

   74

SECTION 7.04. Flexible Spending Account

   74

SECTION 7.05. Cooperation

   74 ARTICLE VIII      CONDITIONS TO CLOSING     

SECTION 8.01. Conditions to Obligations of the Sellers

   75

SECTION 8.02. Conditions to Obligations of the Purchaser

   75

 

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ARTICLE IX      INDEMNIFICATION     

SECTION 9.01. Survival of Representations and Warranties

   77

SECTION 9.02. Indemnification by the Sellers

   77

SECTION 9.03. Indemnification by the Purchaser

   78

SECTION 9.04. Notice of Loss; Third Party Claims

   78

SECTION 9.05. Distributions from Indemnity Escrow Fund

   79

SECTION 9.06. Treatment of Payments

   80

SECTION 9.07. Limitations on Indemnification

   80

SECTION 9.08. Exclusive Remedy

   80 ARTICLE X      TERMINATION, AMENDMENT AND WAIVER     

SECTION 10.01. Termination

   80

SECTION 10.02. Effect of Termination

   81 ARTICLE XI      GENERAL PROVISIONS     

SECTION 11.01. Expenses

   81

SECTION 11.02. Notices

   82

SECTION 11.03. Public Announcements

   83

SECTION 11.04. Severability

   83

SECTION 11.05. Entire Agreement

   83

SECTION 11.06. Assignment

   83

SECTION 11.07. Amendment

   84

SECTION 11.08. Waiver

   84

SECTION 11.09. No Third Party Beneficiaries

   84

SECTION 11.10. Currency

   84

SECTION 11.11. Governing Law

   84

SECTION 11.12. Waiver of Jury Trial

   84

SECTION 11.13. Counterparts

   85

SECTION 11.14. Due Authorization of Signatories; Liability

   85

SECTION 11.15. Specific Performance

   85

 

iv

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EXHIBITS     1.01(a)   Form of Assignment of Lease 1.01(b)   Form of Assignment
of Transferred Intellectual Property 1.01(c)   Form of Assumption Agreement
1.01(d)   Form of Bill of Sale and Assignment 1.01(e)   Form of Deed 1.01(f)  
Sellers’ Knowledge 2.03(b)   Allocation of Purchase Price 2.10(a)(ii)  
Calculation of Reference Receivables/Inventories Amount 2.11   Form of Escrow
Agreement ADDENDUMS     3.09(n)   Representations and Warranties relating to the
Purchased Subsidiary 3.30   Representations and Warranties relating to the
Purchased Subsidiary APPENDICES     A   Form of Confidentiality Agreement B  
Bidding Procedures Order C   Sale Approval Order

 

DISCLOSURE SCHEDULES

 

Section

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Description

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Section 2.01(a)(iii)

   Schedule of Transferred Real Property

Section 2.01(a)(xii)

   Schedule of Unfilled Purchase Orders

Section 2.01(b)(vi)

   Rights, Properties or Assets to be Excluded Assets

Section 2.02(a)(ii)

   Schedule of Assumed Liabilities for Unfilled Purchase Orders

Section 2.04

   Designated Contracts to be Assumed

Section 2.12

   Proration

Section 3.01(b)

   Subsidiaries other than TSIC and Acquired Subsidiary

Section 3.02

   Filings and Notifications to be Made; No Conflict

Section 3.03

   Exceptions to Governmental Consents and Approvals Representation

Section 3.04(a)

   Financial Statements

Section 3.04(d)

   Stand-Alone Financial Statements

Section 3.05

   Exceptions to Litigation Representation

Section 3.06

   Exceptions to Compliance with Laws Representation

Section 3.07

   Exceptions to Environmental Matters Representation

Section 3.08(a)(i)

   List of Transferred Intellectual Property

Section 3.08(ii)

   List of Transferred IP Agreements

Section 3.08(a)(iii)

   Exceptions to Intellectual Property Representation

Section 3.08(f)

   Other Licenses

Section 3.09(b)

   List of Leased Real Property

Section 3.09(c)

   Exceptions to Real Property Representation

Section 3.09(d)

   List of Ancillary Lease Documents

 

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Section 3.09(e)

   Exceptions to Real Property Representation Regarding Sufficiency of
Transferred and Leased Real Property for Conduct of Business

Section 3.09(i)

   Exceptions to Real Property Representation Regarding Encroachments, Etc.

Section 3.09(k)

   Exceptions to Real Property Representation Regarding Absence of Improvements
in Excess of $25,000

Section 3.11(a)

   List of Employee Plans

Section 3.12(a)

   Exceptions to Tax Representation

Section 3.12(b)

   Exceptions to Tax Representation

Section 3.12(c)

   Purchased Subsidiary

Section 3.12(d)

   List of Income, Franchise and Tax Returns

Section 3.13(a)

   Material Contracts

Section 3.13(c)

   Cure Costs

Section 3.14

   Exception to Absence of Certain Changes

Section 3.15

   Exceptions to Labor Matters Representation

Section 3.16

   Exceptions to Sufficiency of Assets

Section 3.17(a)

   Tangible Personal Property

Section 3.19

   List Addresses of Warehouses Where Inventories Located

Section 3.20

   20 Most Significant Customers

Section 3.21

   20 Most Significant Suppliers

Section 3.22

   List of Insurance Policies and Exceptions to Insurance Representation

Section 3.23

   Exceptions to Related Person Transactions Representation

Section 3.25

   Exceptions to Products Liability Representation

Section 3.27

   Exceptions to Employees; WARN Act Compliance Representation

Section 3.28(a)

   UCC Filings

Section 3.29

   List of All First Day Orders

Section 5.01(f)

   Exception to Capital Expenditures

Section 5.19

   List of Outstanding Letters of Credit

 

vi

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THIS ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of December 16, 2004,
by and among Tropical Sportswear Int’l Corporation, a Florida corporation
(“TSIC”), Savane International Corp., a Texas corporation and a wholly owned
subsidiary of TSIC (“Savane”), TSI Brands, Inc., a Delaware corporation and an
indirect wholly owned subsidiary of TSIC (“TSI”), Apparel Network Corp., a
Florida corporation and a wholly owned subsidiary of TSIC (“Apparel Network”),
TSIL, Inc., a Delaware corporation and wholly owned subsidiary of TSI (“TSIL”),
Farah Offshore Sourcing Company, a Cayman Islands corporation and an indirect
wholly owned subsidiary of TSIC (“Farah”) (each of TSIC, TSI, Apparel Network,
TSIL and Farah, individually, a “Seller”, and collectively, the “Sellers”),
Farah Manufacturing (U.K.) Limited, a United Kingdom private limited company
(the “Purchased Subsidiary”), and Perry Ellis International, Inc., a Florida
corporation (the “Purchaser”).

 

RECITALS

 

WHEREAS, the Sellers and the Purchased Subsidiary are engaged in the business of
selling high-quality branded and retail private branded apparel products to
retailers in the United States and internationally (the “Business”); and

 

WHEREAS, TSIC and certain of its direct and indirect Subsidiaries, including
each of the Sellers (except Farah), have agreed, upon the terms and subject to
the conditions of this Agreement, to commence voluntary cases (the “Chapter 11
Cases”) in the Bankruptcy Court pursuant to chapter 11 of title 11, United
States Code (together with the Federal Rules of Bankruptcy Procedure, the
“Bankruptcy Code”), promptly after the execution of this Agreement, but not
later than the second Business Day after the date hereof (the “Petition Date”);

 

WHEREAS, the Sellers wish to sell, assign and transfer to the Purchaser, and the
Purchaser wishes to purchase and acquire from the Sellers, all of the Sellers’
right, title and interest in and to the Purchased Assets, including all of the
outstanding capital stock of the Purchased Subsidiary, and in connection
therewith the Purchaser is willing to assume from the Sellers the Assumed
Liabilities, all pursuant to Sections 363 and 365 of the Bankruptcy Code, free
and clear of all Liens (other than Permitted Liens), Actions or Claims against
Indebtedness of the Sellers (other than such Actions, Claims and Indebtedness
related to the Assumed Liabilities) to the maximum extent permissible under such
Bankruptcy Code, as more specifically set forth in this Agreement; and

 

WHEREAS, TSIC beneficially owns, indirectly through one or more of its
Subsidiaries, all the outstanding capital stock of Farah which, in turn,
beneficially owns all the outstanding capital stock of the Purchased Subsidiary;

 

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NOW, THEREFORE, in consideration of the premises and the mutual agreements and
covenants hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged hereby, the Sellers and the
Purchaser, intending to be legally bound, hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

SECTION 1.01. Certain Defined Terms. For purposes of this Agreement:

 

“Accounting Date” shall mean October 2, 2004.

 

“Accounts” shall mean the audited accounts of the Purchased Subsidiary for the
financial year which ended on the Accounting Date, comprising a balance sheet, a
profit and loss account, notes, director’s and auditors report.

 

“Adjustment Escrow Amount” means $3,825,000.

 

“A&M” means Alvarez & Marsal, LLC.

 

“Action” means any claim, action, suit, arbitration, adversary proceeding,
litigation, inquiry, proceeding or investigation, in each case by or before any
Governmental Authority or arbitrator.

 

“Affiliate” means, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such specified Person.

 

“Agreement” has the meaning set forth in the preamble of this Agreement.

 

“Allocation” has the meaning set forth in Section 2.03(b) of this Agreement.

 

“Alternative Transaction” means any single transaction or series of related
transactions pursuant to which any of the Sellers sells, transfers, leases,
exchanges or otherwise disposes of, directly or indirectly, including through an
asset sale, stock sale, merger, business combination, share exchange,
reorganization, plan of reorganization, liquidation, any form of creditor
composition, or other similar transaction, a material portion of the Purchased
Assets or any capital stock or voting debt securities of TSIC or any of its
Subsidiaries to any third party other than the Purchaser or any of its
Subsidiaries or Affiliates (or agrees to do any of the foregoing).

 

“Ancillary Agreements” means the Bill of Sale, the Deeds, the Assignments of
Leases, the Assignment of Transferred Intellectual Property, the Assumption
Agreement, the Escrow Agreement.

 

“Ancillary Lease Documents” has the meaning set forth in Section 3.09(d) of this
Agreement.

 

“Assignment of Lease” means the Assignment of Lease to be executed by the
Sellers at the Closing with respect to each parcel of Leased Real Property
listed on Section 3.09(b) of the Disclosure Schedule, substantially in the form
of Exhibit 1.01(a).

 

2

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“Assignment of Transferred Intellectual Property” means the Assignment of
Transferred Intellectual Property to be executed by the Sellers at the Closing,
substantially in the form of Exhibit 1.01(b).

 

“Assumed Liabilities” has the meaning set forth in Section 2.02(a) of this
Agreement.

 

“Assumption Agreement” means the Assumption Agreement to be executed by the
Purchaser and the Sellers at the Closing, substantially in the form of Exhibit
1.01(c).

 

“Auction” has the meaning set forth in Section 6.03(a) of this Agreement.

 

“Back-up Bid” has the meaning set forth in Section 6.03(e) of this Agreement.

 

“Bankruptcy Code” has the meaning set forth in the second recital of this
Agreement.

 

“Bankruptcy Court” means the United States Bankruptcy Court for the Middle
District of Florida or any other court having jurisdiction over the Chapter 11
Cases from time to time.

 

“Bid Deadline” has the meaning set forth in Section 6.01(c) of this Agreement.

 

“Bid Requirements” has the meaning set forth in Section 6.02(b) of this
Agreement.

 

“Bidding Procedures Order” has the meaning set forth in Section 5.14 of this
Agreement.

 

“Bidding Procedures” has the meaning set forth in Section 6.01 of this
Agreement.

 

“Bidding Process” has the meaning set forth in Section 6.01(a) of this
Agreement.

 

“Bill of Sale” means the Bill of Sale and Assignment to be executed jointly or
severally by the Sellers at the Closing, substantially in the form of Exhibit
1.01(d).

 

“Break-up Fee” has the meaning set forth in Section 6.05 of this Agreement.

 

“Business” has the meaning set forth in the first recital of this Agreement.

 

“Business Day” means any day that is not a Saturday, a Sunday or other day on
which banks are required or authorized by Law to be closed in the City of New
York.

 

“CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended through the Closing.

 

“CERCLIS” means the Comprehensive Environmental Response, Compensation and
Liability Information System, as updated through the Closing.

 

“Chapter 11 Cases” has the meaning set forth in the second recital of this
Agreement.

 

“Claims” means any and all administrative, regulatory or judicial actions,
suits, petitions, appeals, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations, proceedings, consent orders, Taxes
or consent agreements.

 

3

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“Closing” has the meaning set forth in Section 2.07 of this Agreement.

 

“Closing Date” has the meaning set forth in Section 2.07 of this Agreement.

 

“Closing Receivables/Inventories Statement” has the meaning set forth in Section
2.10(a)(i)(A) of this Agreement.

 

“Committee” has the meaning set forth in Section 6.01(a) of this Agreement.

 

“Confidentiality Agreement” has the meaning set forth in Section 5.03(a) of this
Agreement.

 

“Contest” has the meaning set forth in Section 5.11(h)(iii) of this Agreement.

 

“Contract” means any oral or written contract, agreement, understanding,
license, lease, indenture, note, bond, commitment, obligation, undertaking,
instrument or other contractual or similar arrangement.

 

“control” (including the terms “controlled by” and “under common control with”),
with respect to the relationship between or among two or more Persons, means the
possession, directly or indirectly, and whether as trustee, personal
representative, conservator, estate administrator or executor, of the power to
direct or cause the direction of the policies, affairs or management of a
Person, whether through the ownership of voting securities, as trustee, personal
representative, conservator, estate administrator or executor, or by contract,
credit arrangement or otherwise.

 

“Conveyance Taxes” means all transfer, stamp, stock transfer, real property
transfer Taxes and other similar Taxes, but shall not include sales, use, value
added or other similar Taxes.

 

“Court-Imposed Qualified Overbid” has the meaning set forth in Section 6.08 of
this Agreement.

 

“Cure Costs” has the meaning set forth in Section 2.04 of this Agreement.

 

“Deed” means, with respect to each parcel of Transferred Real Property, the
instrument of conveyance customary to the applicable jurisdiction to be executed
by the Sellers at the Closing in order to convey to the Purchaser the Sellers’
respective interests, if any, in such parcel of Transferred Real Property,
substantially in the form of Exhibit 1.01(e).

 

“Deferred Relief” means, for taxable periods prior to the Closing Date, any Tax
refund which (i) is taken into account in computing any provision for deferred
Tax which appears in the relevant Financial Statements or (ii) is taken into
account in the relevant Financial Statements as an asset;

 

“Designated Contracts” has the meaning set forth in Section 2.04 of this
Agreement.

 

“DIP Loan Facility” has the meaning set forth in Section 3.28 of this Agreement.

 

4

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“Disclosure Schedule” means the Disclosure Schedule dated the date hereof, which
is attached hereto and incorporated by reference herein and made an integral
part hereof, as though fully set forth herein, which has been delivered by the
Sellers to the Purchaser in connection with this Agreement, as the same may,
from time to time, be updated by the Sellers in accordance with Section 5.05 of
this Agreement. Any disclosure made in the Disclosure Schedule which is
applicable to another Section shall be deemed to be made with respect to such
other Section provided a specific cross reference is made to such other Section.

 

“dollar-for-dollar” means, for purposes of any calculation made in accordance
with the terms of this Agreement, a corresponding U.S. $1.00 for U.S. $1.00
adjustment without any discount, proration or other similar adjustment.

 

“Employee Plans” has the meaning set forth in Section 3.11(a) of this Agreement.

 

“Employees” has the meaning set forth in Section 3.11(a) of this Agreement.

 

“Employment Offer” has the meaning set forth in Section 7.01 of this Agreement.

 

“Environment” means surface waters, ground-waters, soil, subsurface strata and
ambient air.

 

“Environmental Claims” means any Claims or Actions relating in any way to any
Environmental Law or any Environmental Permit, including (a) any and all Claims
or Actions by Governmental Authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law and (b) any and all Claims or Actions by any Person seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the Environment arising prior
to, at or after the Closing and relating to acts or omissions of TSCI or any of
its Subsidiaries or Affiliates (other than the Purchased Subsidiary).

 

“Environmental Laws” means all local, state and federal Laws, now or hereafter
in effect and as amended, and any judicial or administrative interpretation
thereof, including any judicial, municipal or administrative order, rule,
guidance, regulation, ordinance, consent decree or judgment, relating to the
Environment, health, safety, natural resources or Hazardous Materials, including
CERCLA; the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq.;
the Hazardous Materials Transportation Act, 49 U.S.C. §§ 6901 et seq.; the Clean
Water Act, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act, 15
U.S.C. §§ 2601 et seq.; the Clean Air Act, 42 U.S.C. §§ 7401 et seq.; the Safe
Drinking Water Act, 42 U.S.C. §§ 300f et seq.; the Atomic Energy Act, 42 U.S.C.
§§ 2011 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. §§ 136 et seq.; and the Occupational Safety and Health Act, 29 U.S.C. §§
651 et seq.

 

“Environmental Liability” means any claim, demand, order, suit, obligation,
liability, cost (including the cost of any investigation, testing, compliance,
ameliorative or remedial action), consequential damages, loss or expense
(including attorneys’ and consultants’ fees and expenses) arising out of,
relating to or resulting from any Environmental Laws or environmental, health or
safety matter or condition, including natural resources, and related in any way
to the Purchased

 

5

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Assets, the Business, this Agreement or its subject matter, in each case whether
arising or incurred before, at or after the Closing and relating to acts or
omissions of TSCI or any of its Subsidiaries or Affiliates (other than the
Purchased Subsidiary).

 

“Environmental Permits” means any permit, approval, identification number,
license and other authorization required under or issued pursuant to any
applicable Environmental Laws.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the regulations and rules issued thereunder.

 

“Escrow Agent” means the escrow agent under the Escrow Agreement.

 

“Escrow Agreement” means the escrow agreement entered into by the Sellers and
the Purchaser as of the date hereof, a form of which is attached to this
Agreement as Exhibit 2.11.

 

“Escrow Amount” means the Adjustment Escrow Amount and the Indemnity Escrow
Amount.

 

“Event” means any event, fact or circumstance whatsoever including but not
limited to: (a) any transaction, action or omission (whether or not the
Purchased Subsidiary is party to it); (b) the earning, receipt or accrual for
any Tax purpose of any income, profits or gains; (c) the incurring for any Tax
purpose of any loss or expenditure; (d) the declaration, payment or making of
any dividend or other distribution; (e) the sale and purchase of the shares of
the Purchased Subsidiary pursuant to this Agreement; and (f) Closing.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“Excluded Assets” has the meaning set forth in Section 2.01(b) of this
Agreement.

 

“Excluded IP Agreements” has the meaning set forth in Section 3.08(a) of this
Agreement.

 

“Excluded Liabilities” has the meaning set forth in Section 2.02(b) of this
Agreement.

 

“Excluded Taxes” means (i) all Taxes relating to the Purchased Assets or the
Business which, under the Bankruptcy Code, would be deemed to be Taxes that
arose prior to the Closing Date, and (ii) all Taxes of the Sellers of any kind
or nature, regardless of when arising, including, without limitation, sales and
local Tax Claims, ad valorem Tax Claims (real property, tangible personal
property and intangible personal property), occupational license Tax Claims,
federal, state, local and foreign income Tax Claims.

 

“Expense Reimbursement” has the meaning set forth in Section 6.04 of this
Agreement.

 

“FA” means Finance Act.

 

“Final Sale Hearing” has the meaning set forth in section 5.14 of this
Agreement.

 

6

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“Financial Statements” has the meaning set forth in Section 3.04(a) of this
Agreement.

 

“First Day Relief” has the meaning set forth in Section 3.29 of this Agreement.

 

“GAAP” means United States generally accepted accounting principles and
practices in effect from time to time applied consistently throughout the
periods involved.

 

“Good Faith Deposit” has the meaning set forth in Section 6.01(c) of this
Agreement.

 

“Governmental Authority” means any foreign or United States federal, national,
supranational, state, provincial, local or other government, governmental,
regulatory, public or administrative authority, agency or commission or any
court, tribunal, or judicial or arbitral body.

 

“Governmental Order” means any order, writ, judgment, injunction, decree,
proclamation, stipulation, determination or award, issued, announced or entered
by or with any Governmental Authority.

 

“Governmental Permit” means any approvals, authorizations, consents, licenses,
permits or certificates of a Governmental Authority.

 

“Group Relief” means (a) any Relief surrendered or claimed pursuant to Chapter
IV of Part X ICTA; (b) any ACT surrendered or claimed pursuant to section 240
ICTA; (c) any refund of Tax surrendered or claimed pursuant to section 102 FA
1989; and (d) any Relief obtained as a result of an election made jointly with
another company pursuant to section 171A or 179A TCGA or pursuant to paragraph
66 Schedule 29 FA 2002.

 

“Hazardous Materials” means (a) petroleum and petroleum products, radioactive
materials, asbestos-containing materials, urea formaldehyde foam insulation,
transformers or other equipment that contain polychlorinated biphenyls and radon
gas, (b) any other chemicals, materials or substances defined as or included in
the definition of “hazardous substances”, “hazardous wastes”, “hazardous
materials”, “extremely hazardous wastes”, “restricted hazardous wastes”, “toxic
substances”, “toxic pollutants”, “contaminants” or “pollutants”, or words of
similar import, under any applicable Environmental Laws, and (c) any other
chemical, material or substance which is regulated by any Environmental Laws.

 

“Hong Kong Note Payable” means that certain note payable owed by the Purchased
Subsidiary to Farah (Far East) Limited.

 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.

 

“ICTA” shall mean Income and Corporation Taxes Act 1988.

 

“Improvements” means the buildings, facilities, parking lots, other improvements
and structures, building systems and fixtures existing from time to time on, in
or under any Real Property.

 

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“Indebtedness” means, with respect to any Person, (a) all indebtedness of such
Person, whether or not contingent, for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services, (c) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all obligations of such Person as lessee under
leases that have been or should be, in accordance with GAAP, recorded as capital
leases, (f) all obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities, (g) all obligations of such
Person to purchase, redeem, retire, defease or otherwise acquire for value any
capital stock of such Person or any warrants, rights or options to acquire such
capital stock, valued, in the case of redeemable preferred stock, at the greater
of its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Indebtedness of others referred to in clauses (a) through (g)
above guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply funds to or in any
other manner invest in the debtor (including any agreement to pay for property
or services irrespective of whether such property is received or such services
are rendered) or (iv) otherwise to assure a creditor against loss, and (i) all
Indebtedness referred to in clauses (a) through (g) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness.

 

“Indemnity Escrow Amount” means $3,900,000, as such amount may be decreased as
provided herein and in the Escrow Agreement.

 

“Indenture Trustee” has the meaning set forth in Section 6.01(a) of this
Agreement.

 

“Independent Accounting Firm” has the meaning set forth in Section 2.10(b)(i) of
this Agreement.

 

“Intellectual Property” means (a) patents, patent applications, inventions
disclosed therein, reissues, reexaminations, continuations and extensions, (b)
trademarks, service marks, trade names, trade dress, domain names and internet
protocol addresses, together with the goodwill associated exclusively therewith,
(c) copyrights, including copyrights on computer software, (d) confidential and
proprietary information, including trade secrets and know-how, (e) any other
intellectual property rights of any kind or nature, (f) rights to sue and
recover any damages and profits and other remedies for past, present and future
infringements or misappropriations of the foregoing (a) through (e), and (g)
registrations and applications for registration of and goodwill associated with
any of the foregoing (a) through (e).

 

“Inventories” means all inventory, merchandise, goods in production or in
transit, finished goods, work-in-progress, samples, uncut or demonstration
materials and raw materials

 

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to the extent related to the Business and produced, maintained, held or stored
by or for the TSIC Entities, including all stationery, forms, labels, office
supplies, production supplies, parts, advertising and promotional materials,
packaging materials and other supplies or accessories related thereto not sold
to customers, including all rights against suppliers of such inventories
(including claims receivable for rejected inventory) as of the Closing, and any
prepayments or prepaid deposits for any of the same (including any of the
foregoing owned by the TSIC Entities but in the possession of manufacturers,
suppliers or dealers or in transit or returned goods).

 

“IRS” means the Internal Revenue Service of the United States.

 

“Law” means any foreign or United States federal, national, supranational,
state, provincial, local or similar statute, law, ordinance, regulation, rule,
code, order, requirement or rule of law (including common law).

 

“Leased Real Property” has the meaning set forth in Section 3.09(b) of this
Agreement.

 

“Liabilities” means any and all Indebtedness, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including those arising under any Law, Action or
Governmental Order and those arising under any Contract.

 

“Liens” means any mortgage, pledge, charge, security interest, encumbrance, lien
(statutory or other) or conditional sale agreement.

 

“Loss” has the meaning set forth in Section 9.02 of this Agreement.

 

“Material Adverse Effect” means any state of facts, circumstance, change in or
effect on the Business, the Purchased Assets or the Assumed Liabilities (other
than any such state of facts, change, circumstance or effect relating (i) solely
to the United States economy or United States financial markets which do not
have a disproportionate effect on the Business, (ii) solely to changes in
general political or regulatory conditions in the United States which do not
have a disproportionate effect on the Business, (iii) generally to the apparel
industry and not specifically relating to the Sellers, (iv) solely to Excluded
Liabilities or Excluded Assets, provided it has no material effect or affect on
the Business, and/or (v) solely to or resulting from the commencement of the
Chapter 11 Cases and the pendency thereof and any proceedings with respect
thereto) that individually, or in the aggregate with all other circumstances,
(a) would have or is reasonably likely to have, an effect which is materially
adverse to the business, operations, assets or liabilities, results of
operations or condition (financial or otherwise) of the Business, the Purchased
Assets or the Assumed Liabilities, taken as a whole, (b) is reasonably likely to
materially and adversely affect the ability of the Purchaser to operate or
conduct the Business in the manner in which it is currently being operated or
conducted, or (c) is reasonably likely to materially delay or prevent
performance by the Sellers of their obligations under and as provided in this
Agreement.

 

“Material Contracts” has the meaning set forth in Section 3.13(a) of this
Agreement.

 

“Multiemployer Plan” has the meaning set forth in Section 3.11(b) of this
Agreement.

 

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“Multiple Employer Plan” has the meaning set forth in Section 3.11(b) of this
Agreement.

 

“Non-Assumed Liabilities Payments” means any payment, satisfaction or other
discharge by the Purchaser (i) of an Excluded Liability after the date hereof,
(ii) the net effective taxable amount attributable to or resulting from any
cancellation of Indebtedness and/or other Liability in respect of the Hong Kong
Note Payable plus any outstanding principal amount and accrued but unpaid
interest under the Hong Kong Note Payable at the Closing Date, and (iii) the
total future cost of Remedial Action, if any, that Sellers are unable to
complete as set forth in the last sentence of Section 5.21.

 

“Options” has the meaning set forth in Section 3.09(d) of this Agreement.

 

“Ordinary Course of the Business” means the usual and ordinary operation of the
Business consistent with past practice.

 

“Overbid Increment” has the meaning set forth in Section 6.03(d) of this
Agreement.

 

“Permitted Liens” means (a) Liens for Taxes, assessments and government or other
similar charges that are not yet due and payable, (b) easements, licenses,
unrecorded real estate agreements, restrictions and other matters of record
which either (i) the title company has agreed to affirmatively insure against
loss caused thereby in the applicable title policy, by way of ALTA coverage or
other affirmative cover, reasonably acceptable to the Purchaser, or (ii) do not
materially and adversely affect the value or operation of the Real Property in
question as currently operated, (c) any state of facts a survey or other visual
inspection would show that do not materially and adversely affect the value or
operation of the Real Property in question as currently operated and (d) Liens
arising from the Assumed Liabilities.

 

“Person” means any individual, partnership, firm, corporation, limited liability
company, association, trust, unincorporated organization or other entity, as
well as any syndicate or group that would be deemed to be a person under section
13(d)(3) of the Exchange Act.

 

“Petition Date” has the meaning set forth in the second recital of this
Agreement.

 

“Potential Bidder” has the meaning set forth in Section 6.01(b) of this
Agreement.

 

“Product Liabilities” means Liabilities with respect to any products designed,
manufactured, tested, marketed, distributed or sold by TSIC or any of its
Subsidiaries or Affiliates (other than the Purchased Subsidiary) and related to
the Business, whether arising prior to, at or after the Closing.

 

“Property Taxes” means real and personal ad valorem property Taxes and any other
Taxes imposed on a periodic basis and measured by the value of any asset.

 

“Purchase Price” has the meaning set forth in Section 2.03(a) of this Agreement.

 

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“Purchase Price Bank Account” means a bank account in the United States to be
designated by the Sellers in a written notice to the Purchaser at least two
Business Days before the Closing.

 

“Purchase Price Reduction Payment” has the meaning set forth in Section
2.10(c)(i) of this Agreement.

 

“Purchased Assets” has the meaning set forth in Section 2.01(a) of this
Agreement.

 

“Purchased Stock” has the meaning set forth in Section 2.01(a) of this
Agreement.

 

“Purchased Subsidiary” has the meaning set forth in the third recital of this
Agreement.

 

“Purchaser” has the meaning set forth in the preamble of this Agreement.

 

“Purchaser Indemnified Party” has the meaning set forth in Section 9.02 of this
Agreement.

 

“Purchaser’s Deposit” means $2,800,000 paid by the Purchaser upon the execution
of this Agreement, pursuant to the terms of the Escrow Agreement and as provided
in Section 2.11 of this Agreement.

 

“Qualified Overbid” means a bid received from a Qualified Overbidder including
all of the Required Bid Documents and meeting all of the Bid Requirements.

 

“Qualified Overbidder” has the meaning set forth in Section 6.01(b) of this
Agreement.

 

“Real Property” means the Transferred Real Property and the Leased Real
Property.

 

“reasonable best efforts” means best efforts; provided that in using such
efforts, the party using the same shall not be required to incur or expend
unreasonable amounts of financial resources.

 

“Receivables” means any and all accounts receivable (whether billed or
unbilled), notes and other evidences of indebtedness and other amounts
receivable from third parties, including but not limited to, credits or similar
benefits not attributable to Excluded Taxes nor Excluded Assets and customers,
to the extent arising from the conduct of the Business before the Closing,
whether or not in the ordinary course, together with any unpaid financing
charges accrued thereon as set forth on the Reference Receivable/Inventories
Statement or the Closing Receivables/Inventories Statement.

 

“Receivables/Inventories Deficiency” has the meaning set forth in Section
2.10(c)(i) of this Agreement.

 

“Receivables/Inventories Surplus” has the meaning set forth in Section
2.10(c)(ii) of this Agreement.

 

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“Reference Receivables/Inventories Statement” means a report setting forth the
calculation of the dollar amount of the Receivables and Inventories as of the
close of business on October 2, 2004, prepared in accordance with GAAP, and
calculated as set forth in Exhibit 2.10(a)(ii) of this Agreement.

 

“Regulations” means the Treasury Regulations (including Temporary Regulations)
promulgated by the United States Department of Treasury with respect to the Tax
Code or other federal Tax Laws.

 

“Related Person” has the meaning set forth in Section 3.23 of this Agreement.

 

“Release” means disposing, discharging, injecting, spilling, leaking, leaching,
dumping, emitting, escaping, emptying, seeping, placing and the like into or
upon any land or water or air or otherwise entering into the Environment.

 

“Relief” shall mean (a) any relief, allowance, exemption, set-off, deduction or
credit available from, against or in relation to Tax or in the computation for
any Tax purpose of income, profits or gains; and (b) any right to a repayment of
Tax.

 

“Remedial Action” means all action to (a) clean up, remove, treat or handle in
any other way Hazardous Materials in the Environment; (b) prevent the Release of
Hazardous Materials so that they do not migrate, endanger or threaten to
endanger public health or the Environment; or (c) perform remedial
investigations, feasibility studies, corrective actions, closures and
post-remedial or post-closure studies, investigations, operations, maintenance
and monitoring.

 

“Representative” has the meaning set forth in Section 5.17 of this Agreement.

 

“Required Bid Documents” has the meaning set forth in Section 6.02(a) of this
Agreement.

 

“Sale” means the purchase of the Purchased Assets and the assumption of the
Assumed Liabilities.

 

“Sales Taxes” means sales, use, value added or similar Taxes.

 

“Sale Approval Order” has the meaning set forth in Section 5.14 of this
Agreement.

 

“Sale Motion” has the meaning set forth in Section 5.14 of this Agreement.

 

“Saving” shall mean the reduction or elimination of any liability of the
Purchased Subsidiary to make an actual payment of corporation tax in respect of
which the Sellers would not have been liable under section 5.11(a), by the use
of any Relief arising wholly as a result of a liability to Tax in respect of
which the Sellers have made a payment under section 5.11(a).

 

“SEC” has the meaning set forth in Section 3.24 of this Agreement.

 

“SEC Reports” has the meaning set forth in Section 3.24 of this Agreement.

 

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“Seller Indemnified Party” has the meaning set forth in Section 9.03 of this
Agreement.

 

“Sellers” has the meaning set forth in the preamble of this Agreement.

 

“Sellers’ 401(k) Plan” has the meaning set forth in Section 7.04 of this
Agreement.

 

“Sellers’ Knowledge,” “Knowledge of the Sellers” or similar terms used in this
Agreement, means the actual knowledge of the Persons listed in Exhibit 1.01(f)
as of the date of this Agreement (or, with respect to a certificate or any other
writing delivered pursuant to this Agreement, as of the date of delivery of such
certificate) after reasonable inquiry and investigation.

 

“Stand-Alone Financial Statements” has the meaning set forth in Section 3.04(d)
of this Agreement.

 

“Subsidiary” means with respect to any Person (the “Owner”) (a) any corporation
or other Person of which the Owner (either alone or through or together with one
or more of its Subsidiaries) owns or holds, directly or indirectly, through one
or more intermediaries, more than 50% of the outstanding capital stock of such
other Person, (b) any corporation or other Person of which capital stock having
the power to elect a majority of that corporation’s or other Person’s board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of such Person (other than securities or other interests
having such power only upon the happening of a contingency that has not
occurred), are held or owned, directly or indirectly, through one or more
intermediaries, by the Owner (either alone or through or together with one or
more of its Subsidiaries), or (c) any Person, the operations of which are
consolidated or combined with the Owner, pursuant to GAAP, for financial
reporting purposes.

 

“Successful Bid” has the meaning set forth in Section 6.03(e) of this Agreement.

 

“Successful Bidder” has the meaning set forth in Section 6.06(a)(ii) of this
Agreement.

 

“Tangible Personal Property” has the meaning set forth in Section 2.01(a)(iv) of
this Agreement.

 

“Tax” or “Taxes” means (a) any and all taxes of any kind imposed by any Taxation
Authority, including taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers’ compensation,
unemployment compensation, or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes;
license, registration and documentation fees; and customs’ duties, tariffs, and
similar charges; and (b) any interest fine, penalty, surcharge, additions to tax
or other imposition relating to any tax, duty or levy listed above.

 

“Taxation Authority” shall mean any authority, whether of the United States of
America, the United Kingdom or elsewhere, competent to impose, assess or collect
Tax.

 

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“Taxation Statute” shall mean any statute (and all regulations and other
documents having the force of law under such statute) published, enacted, issued
or coming into force on or before the date of this Agreement relating to Tax.

 

“Tax Code” means the Internal Revenue Code of 1986, as amended through the date
hereof.

 

“Tax Returns” means any and all returns, reports and forms (including elections,
declarations, amendments, schedules, information returns or attachments thereto)
required to be filed with a Governmental Authority with respect to Taxes.

 

“TCGA” shall mean Taxation of Chargeable Gains Act 1992.

 

“Transferred Employees” has the meaning set forth in Section 7.01 of this
Agreement.

 

“Transferred Intellectual Property” means all Intellectual Property owned by the
Sellers.

 

“Transferred IP Agreements” means all (i) licenses of Intellectual Property to
the Sellers and (ii) licenses of Intellectual Property by the Sellers to third
parties, in each case as set forth in Section 3.08(a)(ii) of the Disclosure
Schedule.

 

“Transferred Real Property” has the meaning set forth in Section 2.01(a)(iii) of
this Agreement.

 

“TSIC” has the meaning set forth in the preamble of this Agreement.

 

“TSIC Balance Sheet” has the meaning set forth in Section 3.04 of this
Agreement.

 

“TSIC Entities” means each of the Sellers and the Purchased Subsidiary.

 

“US TSIC Entity” has the meaning specified in Section 3.12(a).

 

“VAT” shall mean value added Tax.

 

“WARN Act” means the Workers Adjustment and Retraining Notification Act of 1988,
as amended.

 

SECTION 1.02. Interpretation and Rules of Construction. In this Agreement,
except to the extent otherwise provided or that the context otherwise requires:

 

(a) when a reference is made in this Agreement to an Article, Section, Exhibit,
Appendix or Schedule, such reference is to an Article or Section of, or an
Exhibit, Appendix or Schedule to, this Agreement unless otherwise indicated;

 

(b) the table of contents and headings for this Agreement are for reference
purposes only and do not affect in any way the meaning or interpretation of this
Agreement;

 

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(c) whenever the words “include,” “includes” and “including” are used in this
Agreement, they are deemed to be followed by the words “without limitation”;

 

(d) the words “hereof,” “herein” and “hereunder” and words of similar import,
when used in this Agreement, refer to this Agreement as a whole and not to any
particular provision of this Agreement;

 

(e) all terms defined in this Agreement have the defined meanings when used in
any certificate or other document made or delivered pursuant hereto, unless
otherwise defined therein;

 

(f) the definitions contained in this Agreement are applicable to the singular
as well as the plural forms of such terms;

 

(g) any Law defined or referred to herein or in any agreement or instrument that
is referred to herein means such Law or statute as from time to time amended,
modified or supplemented, including by succession of comparable successor Laws;

 

(h) references to a Person are also to its successors and permitted assigns;

 

(i) the use of “or” is not intended to be exclusive unless expressly indicated
otherwise.

 

ARTICLE II

 

PURCHASE AND SALE

 

SECTION 2.01. Purchase and Sale of Purchased Assets. (a) Upon the terms and
subject to the conditions of this Agreement, at the Closing, the Sellers shall
sell, assign, transfer, convey and deliver, or cause to be sold, assigned,
transferred, conveyed and delivered, to the Purchaser (or one or more of its
designated Affiliates), and the Purchaser shall purchase from the Sellers free
and clear of all Liens (other than Permitted Liens), Actions or Claims against
and Indebtedness of the Sellers (other than such Actions, Claims and
Indebtedness related to the Assumed Liabilities) to the maximum extent
permissible under Sections 363 and 365 of the Bankruptcy Code, and otherwise as
set forth in the Sale Approval Order (other than Assumed Liabilities), (i) all
of the Sellers’ right, title and interest in and to all of the outstanding
capital stock of the Purchased Subsidiary (the “Purchased Stock”), and (ii) all
of the Sellers’ right, title and interest in and to all of the assets, rights,
privileges, Claims, Contracts (to the extent transferable) and properties of
every kind, nature, character and description, real, personal and mixed,
tangible and intangible, absolute or contingent, wherever located, used in or
relating to the conduct of the Business, other than the Excluded Assets
(collectively, the “Purchased Assets”), including, without limitation, the
following:

 

(i) the Inventories;

 

(ii) the Receivables;

 

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(iii) the real property specified in Section 2.01(a)(iii) of the Disclosure
Schedule and all of the rights of the Sellers arising out of the ownership
thereof or appurtenant thereto together with all Improvements thereon (the
“Transferred Real Property”), and all rights of the Sellers in respect of the
Leased Real Property, including all leasehold interests, options to purchase
underlying property and leasehold improvements thereon and any other rights,
licenses, and profits appurtenant to or related to such leasehold interests, but
excluding any cash security or similar deposits or rights thereto belonging to
the Sellers to the extent set forth in Section 2.12;

 

(iv) except as set forth in Section 2.01(b)(iv) of the Disclosure Schedule, all
tangible personal property used by the Sellers in the conduct of the Business,
including, without limitation, all equipment, furniture, fixtures, furnishings,
accessories, machinery, manufacturing and other equipment, computer software and
hardware, tools, molds, parts, supplies, vehicles and other tangible personal
property owned or leased by the Sellers at any location and used by the Sellers
in the conduct of the Business (the “Tangible Personal Property”);

 

(v) the books of account, general, accounting, financial, tax and personnel
records, invoices, shipping records, customer lists, supplier lists, all other
information as to sources of supply and relationships with suppliers and
customers, business plans, studies, projections, research and development
reports, operating guides and manuals, correspondence and other marketing and
all other studies and documents, records and files, in any form or medium, and
any rights thereto owned, solely associated with or solely employed by any
Seller in the conduct of the Business; provided, however, that from and after
the date hereof (including for a period of three years after the Closing Date),
the Sellers shall have the right to inspect such materials during normal
business hours as may reasonably be necessary for Tax purposes or other
legitimate business reasons of the Sellers;

 

(vi) the Purchased Stock;

 

(vii) the Transferred Intellectual Property; provided, however, that subject to
Sections 5.15 and 5.16, each of the Sellers shall have the right to use its
respective name as its corporate name;

 

(viii) all Sellers’ archives, artwork and development and design work;

 

(ix) the catalogs, sales and promotional literature, customer lists, referral
sources and other sales-and promotional materials of each of the Sellers,
including merchandise certificates and gift certificates, solely to the extent
related to the Business (including all images owned by any of the Sellers and
the Sellers’ right and interest in licensed images);

 

(x) the rights of each of the Sellers under the Designated Contracts, including
the Transferred IP Agreements (other than as excluded under Section
2.01(b)(xi)), including, without limitation, any right to receive payment for
products sold or services rendered, and to receive goods and services, pursuant
to such Designated Contracts and

 

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to assert Claims and take other rightful actions in response to breaches,
defaults and other violations of such Designated Contracts;

 

(xi) the equipment leases included in the Designated Contracts;

 

(xii) the purchase orders, invoices and commitments relating to the Inventories
set forth in Section 2.01(a)(xii) of the Disclosure Schedule (as such Section
2.01(a)(xii) of the Disclosure Schedule may be amended from time to time until
the Closing Date);

 

(xiii) any municipal, state, federal and international franchises, permits,
licenses, agreements, waivers and authorizations solely to the extent held or
used by any of the Sellers in connection with the operation of the Business or
the ownership of the Purchased Assets, to the extent transferable under
applicable Law;

 

(xiv) the rights of the Sellers’ to deposits, credits, prepaid expenses,
deferred charges, advanced payments, rights to refunds and prepaid items related
to the Purchased Assets, but excluding Sellers’ ratable portion of utilities,
maintenance, rents and other similar pre-paid items, which shall be treated in a
manner as set forth in Section 2.12;

 

(xv) all Claims of Sellers against third parties relating to the Purchased
Assets, whether choate or inchoate, known or unknown, or contingent or
non-contingent;

 

(xvi) all insurance proceeds assigned to Purchaser pursuant to Section
5.07(iii); and

 

(xvii) all other assets, rights, privileges, Claims, Contracts (to the extent
transferable) and properties of every kind, nature, character and description,
real, personal and mixed, tangible and intangible, absolute or contingent,
wherever located, to the extent used in the Business.

 

(b) Notwithstanding anything in Section 2.01(a) to the contrary, the Sellers
shall not sell, convey, assign, transfer or deliver, nor cause to be sold,
conveyed, assigned, transferred or delivered, to the Purchaser, and the
Purchaser shall not purchase, and the Purchased Assets shall not include, the
Sellers’ right, title and interest to any of the following assets of the Sellers
(the “Excluded Assets”):

 

(i) the Purchase Price Bank Account and the assets contained therein or the
proceeds thereof;

 

(ii) except as set forth in Section 2.01(a)(xiv), all cash and cash equivalents,
securities and negotiable instruments of the Sellers on hand, in lockboxes, in
financial institutions or elsewhere;

 

(iii) any and all Receivables and Inventories of the Purchased Subsidiary;

 

(iv) any rights to Tax refunds, credits or similar benefits attributable to
Excluded Taxes;

 

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(v) the Sellers’ company seals, minute books, charter documents, stock or equity
record books and such other books and records as pertain to the organization,
existence or capitalization of the Sellers, as well as any other records or
materials relating to the Sellers generally and not involving or related to the
Purchased Assets or the operation of the Business or that the Sellers are
required by Law to retain in their possession; provided, however, that from and
after the date hereof (including after the Closing Date) the Purchaser shall
have the right to inspect such materials during normal business hours upon
reasonable request to Seller’s to the extent Purchaser requires access to any
information therein for purposes of conducting the Business and owning and
operating the Purchased Assets.

 

(vi) any right, property or asset that is listed or described in Section
2.01(b)(vi) of the Disclosure Schedule, including all of the outstanding shares
of capital stock of each Subsidiary of TSIC other than the Purchased Stock;

 

(vii) all rights of the Sellers under this Agreement and the Ancillary
Agreements;

 

(viii) all rights of the Sellers under the DIP Loan Facility;

 

(ix) Tax Returns of the Sellers, other than those relating solely to the
Purchased Assets or the Business; provided, that the Purchaser has or shall be
given copies of any such Tax Returns to the extent related to the Purchased
Assets or the Business (other than Tax Returns in respect of income Taxes of any
kind or nature); provided, however, that from and after the date hereof
(including after the Closing Date) the Purchaser shall have the right to inspect
such Tax Returns during normal business hours upon reasonable request to
Seller’s to the extent Purchaser requires access to such information for
purposes of conducting the Business and owning and operating the Purchased
Assets;

 

(x) all current and prior insurance policies of the Sellers and all rights of
any nature with respect thereto, including all insurance recoveries thereunder
and rights to assert Claims with respect to any such insurance;

 

(xi) any Designated Contract and rights thereunder which, based upon the
objection of a party to a Designated Contract other than a Seller or Sellers or
any of their Affiliates, the Bankruptcy Court has determined shall not be
assigned to the Purchaser under applicable provisions of the Bankruptcy Code
without the consent or approval of the other party thereto;

 

(xii) (a) all causes of action, judgments, Claims and Actions of any nature
available to or being pursued by the Sellers against third parties, whether
choate or inchoate, known or unknown, contingent or otherwise, to the extent the
foregoing relate to or arise out of the Excluded Assets or the Excluded
Liabilities and (b) all causes of action, judgments, Claims and Actions of any
nature available to or being pursued by any Seller against (i) any
Representative of any Seller, or (ii) any supplier or vendor to any Seller, or
(iii) any third party insurance, reinsurance, bonding or other similar company

 

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providing insurance to the Sellers other than with respect to causes of action,
judgments, Claims and Actions against Representatives, suppliers or vendors
described in clause (A), (B) or (C) below, including such causes of action,
chooses in action and rights of recovery actions for preferences, fraudulent
conveyances, and other avoidance power claims and any recoveries under sections
506(c), 542, 544, 545, 546, 547, 548, 549, 550, 552(b) and 553 of the Bankruptcy
Code and the proceeds, products, rents and profits of all of the foregoing, but
only if such Representative, supplier or vendor is not a director, officer,
employee or agent of, or consultant, supplier, vendor or contractor to, the
Business (A) whose relationship with the Business continues immediately
following the Closing Date, (B) who has been hired, retained or engaged by the
Purchaser or any of its Affiliates within 60 days after the Closing Date, or (C)
who, at the end of such 60-day period, is reasonably expected to have or resume
such a continuing relationship with the Business after such 60-day period;

 

(xiii) except as provided in Article VII, all assets of any Employee Plan (or of
any related trust or other funding vehicle) maintained by the Sellers;

 

(xiv) the Excluded IP Agreements;

 

(xv) any Contracts of the Sellers that are not Designated Contracts; and

 

(xvi) intercompany Receivables.

 

SECTION 2.02. Assumption and Exclusion of Liabilities. (a) Upon the terms and
subject to the conditions set forth in this Agreement, the Purchaser or one or
more of its Subsidiaries shall, by executing and delivering, at the Closing, the
Assumption Agreement, assume, and agree to pay, perform and discharge when due,
only the following enumerated Liabilities of the Sellers to the extent relating
to the Business or the Purchased Assets (the “Assumed Liabilities”) and shall
not pay, perform, discharge or otherwise be responsible for or obligated to any
Person in any respect for any other Liabilities of TSIC or any of its
Subsidiaries or Affiliates, including any of the Excluded Liabilities set forth
in Section 2.02(b) below:

 

(i) all Liabilities of the Sellers, arising under, or relating to performance
under, the Designated Contracts not excluded under Section 2.01(b)(xi), other
than Cure Costs in respect thereof;

 

(ii) all Liabilities for the purchase orders, invoices and commitments relating
to the Inventories set forth in Section 2.02(a)(ii) of the Disclosure Schedule
(as the same may be amended from time to time through and including the Closing
Date) that have been entered into by the Sellers; provided, that, the
Liabilities relating to Inventories shall not include purchase orders, invoices
and commitments where the cost for materials has increased by more than 2% above
the cost which has been customarily charged by the vendor in the three-month
period prior to the date hereof;

 

(iii) all Liabilities for returns, credits, discounts, vendor margin agreements,
“high/low” holdbacks, contingencies, chargebacks, write-offs, write-downs, and
allowances relating to goods and products sold or orders accepted as of the
Closing Date

 

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to the extent related exclusively to the Business and incurred by the Sellers in
the Ordinary Course of the Business; and

 

(iv) Liabilities secured by Seller’s letters of credit with respect to purchase
orders for Inventories which are Purchased Assets.

 

(b) The Sellers shall retain, and shall be responsible for paying, performing
and discharging when due, and the Purchaser shall not assume or have any
responsibility for any Liabilities of any Seller or any of its Affiliates of any
kind or nature (other than the Assumed Liabilities), including, without
limitation, the following Liabilities (the “Excluded Liabilities”):

 

(i) all Liabilities in respect of the Excluded Taxes;

 

(ii) all Liabilities relating to or arising out of the Excluded Assets;

 

(iii) all Cure Costs;

 

(iv) the Sellers’ obligations under this Agreement and the Ancillary Agreements;

 

(v) all obligations of the Sellers under the DIP Loan Facility;

 

(vi) all litigation Claims against TSIC or any of its Subsidiaries or
Affiliates;

 

(vii) all intercompany Liabilities owing from any Seller to any other Seller or
any of their respective Affiliates,

 

(viii) all Liabilities related to any Employee Plans or any employee benefit
plans, agreements or arrangements;

 

(ix) all Contract and other Liabilities related to any current or former
employees of the Sellers;

 

(x) any costs or expenses incurred in connection with or related to the
administration of the Chapter 11 Cases, including “allowed administrative
expenses” under section 503(b) of the Bankruptcy Code, and professional fees or
expenses of any of the Sellers, attorneys, accountants or other professional
advisors;

 

(xi) any Liabilities for borrowed money of any kind or nature;

 

(xii) except as set forth in Section 2.02(a), any pre-Closing litigation claim
or assessment, breach of Contract, tort, infringement, violation of Law or
environmental matters of any Seller or any of their Affiliates arising from any
facts, events or circumstances arising on or prior to the Closing Date, in each
case, of any kind or nature whatsoever and whether related to the Purchased
Assets or the Business or otherwise and regardless of when commenced;

 

(xiii) all Environmental Liabilities;

 

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(xiv) all Product Liabilities;

 

(xv) all Liabilities of the Sellers, arising under, or relating to performance
under, the Designated Contracts excluded under Section 2.01(b)(xi);

 

(xvi) all Liabilities of the Sellers to pay, reimburse or indemnify their
respective Representatives;

 

(xvii) any Liabilities associated with Sellers’ obligation to pay stay bonuses
or key employee retention plans approved by the Bankruptcy Court; and

 

(xviii) all Liabilities of the Sellers for all state and local ad valorem Taxes,
including real property Taxes, tangible personal property Taxes and intangible
personal property Taxes, occupational license Tax Claims, and state and local
income Tax Claims; and

 

(xix) the Hong Kong Note Payable.

 

SECTION 2.03. Purchase Price; Allocation of Purchase Price. (a) Subject to the
post-Closing adjustments set forth in Section 2.10, the purchase price for the
Purchased Assets shall be Eighty Five Million Dollars ($85,000,000) in cash
minus, dollar-for-dollar, the Non-Assumed Liabilities Payments (the “Purchase
Price”). After the Closing, the Non-Assumed Liabilities Payments, if any, shall
be made by the Purchaser out of the Indemnity Escrow Amount. The Purchaser shall
also deduct from the Purchase Price (including any amounts payable under Section
2.10) any amounts required to be withheld and deducted under the Tax Code or
other applicable Tax Law. Any amounts so deducted shall be remitted by the
Purchaser to the appropriate Governmental Authority on a timely basis. Except as
otherwise set forth herein or in the Escrow Agreement, the Purchaser’s Deposit
and all earnings thereon shall be paid to the Sellers at Closing and deducted
from the amount payable by Purchaser at Closing.

 

(b) The sum of the Purchase Price and the Assumed Liabilities shall be allocated
among the Purchased Assets as of the Closing Date as mutually determined by the
Sellers and the Purchaser in accordance with the Tax Code (the “Allocation”).
Any subsequent adjustments to the sum of the Purchase Price and Assumed
Liabilities shall be reflected in the Allocation in a manner consistent with
section 1060 of the Tax Code and the Regulations thereunder. For all Tax
purposes, the Purchaser and the Sellers agree that the transactions contemplated
by this Agreement shall be reported in a manner consistent with the terms of
this Agreement, including the Allocation, and that neither of them will take any
position inconsistent therewith in any Tax Return, refund claim, litigation, or
otherwise. Each of the Sellers and the Purchaser agrees to cooperate with the
other in preparing IRS form 8594 and to furnish the other with a copy of such
form prepared in draft form within a reasonable period before its filing due
date.

 

SECTION 2.04. Contract Assumption. Section 2.04 of the Disclosure Schedule sets
forth a list of all executory Contracts and unexpired leases to which one or
more of the Sellers are party and which are to be included in the Purchased
Assets (the “Designated Contracts”). The Purchaser shall have the right to make
initial deletions to Section 2.04 of the Disclosure Schedule up to and including
the seventh Business Day after the date hereof, subject to the procedures set
forth in Section 5.15(a) of this Agreement. Sellers shall, at the written

 

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direction of the Purchaser delivered no later than seven days prior to the Final
Sale Hearing, direct the Sellers to add Designated Contracts to Section 2.04 to
the Disclosure Schedule and provide notice of same to the non-debtor party to
the Designated Contract to be assigned to the Purchaser. The Sellers and
Purchaser acknowledge and agree that (i) the Purchaser shall not assume any
purchase commitment or purchase order of the Sellers to the extent that the
price per unit in such purchase commitment or purchase order has increased by
more than 2% above the price per unit for that style item charged by the vendor
in any purchase commitment or purchase order that has been entered into by the
Sellers in the Ordinary Course of the Business during the three-month period
immediately preceding the date hereof, and (ii) the Purchaser shall not assume
any sales commitment or sales order of the Sellers to the extent that the price
per unit in such sales commitment or sales order has decreased by more than 2%
of the price per unit for that that style item charged to the customer in any
such sale commitment or sales order in the Ordinary Course of the Business
during the three-month period immediately preceding the date hereof. Such
non-assumed Contract shall be deemed to no longer be a Designated Contract. At
Closing, subject to the approval of the Bankruptcy Court and except to the
extent any such Designated Contracts are deemed Excluded Assets by virtue of
Section 2.01(b)(xi) above, the Sellers shall assume and then assign to the
Purchaser, and the Purchaser shall assume from the Sellers, the Designated
Contracts. The Sellers shall be exclusively responsible for and bear, any and
all cure and reinstatement costs and expenses for services rendered before the
Closing Date (collectively, the “Cure Costs”) and relating to the assumption and
assignment of the Designated Contracts.

 

SECTION 2.05. Cure Costs. Until paid from the proceeds of the Purchase Price or
the DIP Loan Facility, the Cure Costs as are allowed by the Bankruptcy Court
shall be paid by the Sellers as an administrative claim pursuant to Section
503(b)(1)(A) of the Bankruptcy Code with priority over any or all other
administrative expenses in the Chapter 11 Cases of the kind specified in
Sections 503(b) or 507(b) of the Bankruptcy Code or if the Chapter 11 Cases are
converted to Chapter 7 cases. This provision shall be requirement of, approved
by, and incorporated in the Sale Approval Order. The Purchaser shall have no
responsibility whatsoever therefor, whether to any third party or otherwise with
respect to such Cure Costs. Sellers are responsible for the verification of all
Cure Costs, including all administrative responsibilities associated therewith,
and shall use their reasonable best efforts to establish the proper Cure Costs,
if any, for each Designated Contract, including the filing and prosecution of
any and all appropriate proceedings in the Bankruptcy Court. Notwithstanding any
provision in this Agreement to the contrary, from and after the date hereof
through the Closing Date: (i) the Sellers will not reject, without prior consent
of the Purchaser, any Designated Contract and (ii) the Sellers will consult with
the Purchaser and obtain the prior written consent of the Purchaser with respect
to the modification or restructuring of any Designated Contract.

 

SECTION 2.06. Amounts Due Under Designated Contracts. From and after the
Closing, the Purchaser shall be obligated to pay all amounts for services
rendered and goods provided under the Designated Contracts in accordance with
the terms and conditions of all such Designated Contracts. Any amounts for
services rendered, and goods provided under the Designated Contracts during the
period until the Closing Date shall not be a Liability of Purchaser (unless to
the extent included in the Assumed Liabilities to be assumed by Purchaser).

 

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SECTION 2.07. Closing. Subject to the terms and conditions of this Agreement,
the sale and purchase of the Purchased Assets and the assumption of the Assumed
Liabilities contemplated by this Agreement shall take place at a closing (the
“Closing”) to be held at the offices of Greenberg Traurig, LLP, The MetLife
Building, 200 Park Avenue, New York, New York 10166, at 10:30 A.M., New York
time on the fifth Business Day next following the satisfaction or waiver of the
conditions to the obligations of the parties hereto set forth in Article VIII
(other than conditions that are not capable of being satisfied until the
Closing, but subject to the satisfaction or waiver of those conditions) or at
such other place or at such other time or on such other date as the Sellers and
the Purchaser may mutually agree upon in writing (the date of the Closing being
herein referred to as the “Closing Date”). The Closing shall be effective as of
12:01 a.m. on the Closing Date.

 

SECTION 2.08. Closing Deliveries by the Sellers. At the Closing, the Sellers
shall deliver or cause to be delivered to the Purchaser:

 

(a) each of the items set forth on Exhibit 2.08(a) hereof;

 

(b) the Bill of Sale, the Deeds, each Assignment of Lease, the Assignment of
Transferred Intellectual Property and such other instruments, in form and
substance reasonably satisfactory to the Purchaser, as may be reasonably
requested by the Purchaser to effect the transfer of the Purchased Assets to the
Purchaser or evidence such transfer on the public records, in each case duly
executed by Sellers;

 

(c) executed counterparts of the Assumption Agreement;

 

(d) executed counterparts of each other Ancillary Agreement to which any of the
Sellers is a party (other than the Ancillary Agreements delivered pursuant to
Section 2.08(a) and (d));

 

(e) a receipt for the Purchase Price less the Escrow Amount and the Purchaser’s
Deposit;

 

(f) a certificate of the secretary or an assistant secretary of each of the
Sellers certifying the names and signatures of the officers of each of the
Sellers authorized to sign this Agreement, each of the Ancillary Agreements and
any other documents to be delivered hereunder and thereunder;

 

(g) a certificate of non-foreign status (in a form reasonably acceptable to the
Purchaser) pursuant to section 1.1445-2(b)(2) of the Regulations;

 

(h) a certificate of a duly authorized officer of each of the Sellers certifying
as to the matters set forth in Section 8.02(a);

 

(i) all such other instruments and documents as the Purchaser or the Purchaser’s
counsel may reasonably request to evidence or consummate the transactions
contemplated by this Agreement;

 

(j) the Sellers’ notification pursuant to Section 5.05; and

 

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(k) a certificate from the Clerk of the Bankruptcy Court certifying that no
request for any stay pending appeal of the Sale Approval Order has been filed or
appears on the docket of the Bankruptcy Court for the Chapter 11 Cases as of the
Closing Date (together with telephonic confirmation thereof as may be requested
by the Purchaser).

 

SECTION 2.09. Closing Deliveries by the Purchaser. (a) At the Closing, the
Purchaser shall deliver to the Sellers:

 

(i) the Purchase Price, less each of the Purchaser’s Deposit paid upon execution
hereof and the Escrow Amount paid to the Escrow Agent as contemplated by this
Agreement, by wire transfer in immediately available funds to the Purchase Price
Bank Account;

 

(ii) executed counterparts of the Assumption Agreement, each Assignment of
Lease, the Assignment of Transferred Intellectual Property and such other
instruments, in form and substance reasonably satisfactory to the Sellers, as
may be requested by the Sellers to effect the assumption by the Purchaser of the
Assumed Liabilities and to evidence such assumption on the public records;

 

(iii) executed counterparts of each of the Ancillary Agreements (other than the
Ancillary Agreements delivered pursuant to Section 2.08(b) and (c)) to which the
Purchaser is a party;

 

(iv) a true and complete copy, certified by the secretary or an assistant
secretary of the Purchaser, of the resolutions duly and validly adopted by the
board of directors of the Purchaser evidencing its authorization of the
execution and delivery of this Agreement and each of the Ancillary Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby;

 

(v) a certificate of the secretary or an assistant secretary of the Purchaser
certifying the names and signatures of the officers of the Purchaser authorized
to sign this Agreement, each of the Ancillary Agreements and any other documents
to be delivered hereunder and thereunder;

 

(vi) a certificate of a duly authorized officer of the Purchaser certifying as
to the matters set forth in Section 8.01(a); and

 

(vii) such resale or exemption certificates as are reasonably acceptable by
Sellers to exempt Sellers from the obligation to collect and remit sales, use or
similar Taxes from Purchaser as a result of the sale of the Inventories to
Purchaser.

 

(b) At the Closing, the Purchaser shall deliver to the Escrow Agent the Escrow
Amount by wire transfer in immediately available funds to the account(s)
designated therefore in the Escrow Agreement, in accordance with the terms of
Escrow Agreement and Section 2.11 hereof.

 

SECTION 2.10. Post-Closing Adjustment of Purchase Price. At the Closing, the
Purchaser shall deliver to the Escrow Agent by wire transfer of immediately
available funds to

 

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the account(s) designated therefor in the Escrow Agreement, in accordance with
the terms of the Escrow Agreement and Section 2.11, the Escrow Amount. The
Purchase Price shall be subject to adjustment as specified in this Section 2.10
as follows:

 

(a) Closing Receivables/Inventories Statement. (i) As promptly as practicable,
but in any event within 30 days following the Closing Date, the Purchaser shall
prepare and deliver to Sellers a report setting forth the Purchaser’s
calculation of the dollar amount of the Receivables and Inventories as of the
close of business on the Closing Date (the “Closing Receivables/Inventories
Statement”), prepared in good faith in accordance with GAAP and, to the extent
consistent with GAAP, on a basis consistent with the preparation of the
Reference Receivables/Inventories Statement.

 

(ii) the Reference Receivables/Inventories Statement has been calculated, and
the Closing Receivables/Inventories Statement shall be calculated as set forth
on Exhibit 2.10(a)(ii) to this Agreement.

 

(iii) the Sellers shall cooperate with the Purchaser in the preparation of the
Closing Receivables/Inventories Statement, as more fully set forth in Sections
5.9 and 5.10. The Sellers and their Representatives shall be given timely access
to Purchaser, and the books, records, facilities and employees of the Business,
including all supporting documents and work papers used in the preparation of
the Closing Receivables/Inventories Statement, as may be reasonably necessary
for Sellers’ review of such statement.

 

(b) Disputes. (i) The Sellers may dispute any amounts reflected on the Closing
Receivables/Inventories Statement, but only on the basis that such amounts were
not arrived at in accordance with Exhibit 2.10(a)(ii) or resulted from a
mathematical or clerical error; provided, however, that Sellers shall have
notified Purchaser in writing of each disputed item, specifying the amount
thereof in dispute and setting forth, in reasonable detail, the basis for such
dispute, within 10 Business Days of the Purchaser’s delivery of the Closing
Receivables/Inventories Statement. In the event of such a dispute, the Sellers
and the Purchaser shall attempt to reconcile their differences, and any
resolution by them as to any disputed amounts shall be final and binding on the
parties hereto. If the Sellers and the Purchaser are unable to reach a
resolution with such effect within 10 Business Days after receipt by the
Purchaser of the Sellers’ written notice of dispute, the Sellers and the
Purchaser shall submit the items then remaining in dispute for resolution to a
mutually agreed upon accounting firm that is independent of the Purchaser and
the Sellers and is of national reputation (the “Independent Accounting Firm”),
which shall, as soon as practicable but not later than 10 Business Days after
such submission, determine and report to the Sellers and the Purchaser upon such
remaining disputed items, and such report shall be final and binding on the
Sellers and the Purchaser. The fees and disbursements of the Independent
Accounting Firm shall be shared equally by the Sellers and the Purchaser.

 

(ii) In acting under this Agreement, the Sellers’ Accountants, the Purchaser’s
Accountants and the Independent Accounting Firm shall be entitled to the
privileges and immunities of arbitrators.

 

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(c) Purchase Price Adjustment. The Closing Receivables/Inventories Statement
shall be deemed conclusive and binding on the Sellers for the purposes of this
Section 2.10 upon the earliest to occur of (A) the failure of the Sellers to
notify the Purchaser of a dispute in accordance with Section 2.10(b)(i), (B) the
resolution of all disputes by the Sellers and the Purchaser, and (C) the
resolution of all disputes by the Independent Accounting Firm. Within five
Business Days of the Closing Receivables/Inventories Statement being deemed
conclusive and binding:

 

(i) If the dollar amount reflected on the Reference Receivables/Inventories
Statement exceeds the dollar amount reflected on the Closing
Receivables/Inventories Statement (the “Receivables/Inventories Deficiency”),
then the Purchase Price shall be reduced, dollar-for-dollar, in an amount equal
to the Receivables/Inventories Deficiency, the Purchaser shall deliver written
notice thereof to the Escrow Agent and the Sellers specifying the amount of the
Receivables/Inventories Deficiency, and the Escrow Agent shall, within two
Business Days of its receipt of such notice and in accordance with the terms
hereof and the Escrow Agreement, pay the amount of such deficiency to the
Purchaser, in cash, out of the Adjustment Escrow Amount (the “Purchase Price
Reduction Payment”). If the Adjustment Escrow Amount is insufficient to pay
therefrom to Purchaser the Purchase Price Reduction Payment, in full, then the
Escrow Agent shall distribute the entire Adjustment Escrow Amount to the
Purchaser as provided in the preceding sentence and the Sellers shall pay, on or
prior to the date on which the Escrow Agent pays to the Purchaser the entire
Adjustment Escrow Amount, an amount in cash equal to the excess of (x) the
amount of the Receivables/Inventories Deficiency over (y) the Adjusted Escrow
Amount paid to Purchaser as provided above. If the Sellers fail to pay such
excess within the period specified in the immediately preceding sentence, the
Purchaser shall promptly deliver written notice thereof to the Escrow Agent and
the Sellers specifying such failure and the amount of the Purchase Price
Reduction Payment remaining unpaid, and the Escrow Agent shall, within two (2)
Business Days of its receipt of such notice and in accordance with the terms
hereof and of the Escrow Agreement, pay to the Purchaser out of the Indemnity
Escrow Amount the remaining unpaid amount of the Purchase Price Reduction
Payment. If the Adjustment Escrow Amount exceeds the amount of the
Receivables/Inventory Deficiency, then the Escrow Agent shall, after paying in
full to the Purchaser the Purchase Price Reduction Payment, transfer all
remaining funds in the Adjustment Escrow Amount to the Seller.

 

(ii) If the dollar amount reflected on the Closing Receivables/ Inventories
Statement exceeds the dollar amount reflected on the Reference
Receivables/Inventories Statement (the “Receivables/Inventories Surplus”), then
the Purchase Price shall be increased, dollar-for-dollar, in an amount equal to
the Receivables/Inventories Surplus and the Purchaser shall pay, within two (2)
Business Days after the date such statement is deemed conclusive and binding
hereunder, the full amount of such surplus to the Sellers.

 

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(iii) All payments required to be made by the Sellers, the Purchaser or the
Escrow Agent pursuant to this Section 2.10(c) shall be made by wire transfer in
immediately available funds to an account designated by the receiving party.

 

SECTION 2.11. Escrow. On the date of this Agreement, the Purchaser shall deposit
the Purchaser’s Deposit with the Escrow Agent in accordance with the terms of
this Agreement and the Escrow Agreement and shall enter into an Escrow Agreement
with the Escrow Agent substantially in the form of Exhibit 2.11 (the “Escrow
Agreement”). At or prior to the Closing, the Purchaser shall deposit the
Adjustment Escrow Amount and the Indemnity Escrow Amount in two separate
accounts to be managed and paid out by the Escrow Agent in accordance with the
terms of this Agreement and the Escrow Agreement.

 

SECTION 2.12. Proration. (a) Purchaser and Sellers agree that, except as
otherwise specifically provided in this Agreement, all of the ordinary and
recurring prepaid items normally incurred by Sellers relating to the Purchased
Assets, the Business or any TSIC Entity shall be set forth on Section 2.12 of
the Disclosure Schedule and shall be prorated (with appropriate credit made for
any cash security and similar deposits or rights thereto) as of the Closing
Date, with Sellers liable to the extent such items relate to any time periods
(tax year periods for Property Tax) ending on or prior to the Closing Date, and
Purchaser liable to the extent such items relate to periods (tax year periods
for Property Tax) after the Closing (measured in the same units used to compute
the item in question and otherwise measured on the basis of the actual number of
days elapsed in the calendar year); provided that notwithstanding anything to
the contrary herein, Purchaser shall not pay any amount under this Section 2.12
that constitutes an Excluded Liability.

 

(b) In connection with the prorations referred to in Section 2.12(a) above, in
the event that actual figures are not available at the Closing Date, the
proration shall be based upon the applicable amounts accrued through the Closing
Date or paid for the most recent year or other appropriate period for which such
amounts paid are available. All prorated amounts shall be recalculated and paid
to the appropriate Person within 15 days of the Closing Date. Sellers and
Purchaser shall furnish each other with such documents and other records as may
be reasonably requested in order to confirm all proration calculations made
pursuant to this Section 2.12.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

OF THE SELLERS

 

Subject to the exceptions set forth in the Disclosure Schedule, each Seller,
jointly and severally, hereby represents and warrants to the Purchaser, as of
the date hereof or, if a representation or warranty is made as of a specified
date, as of such date, as follows:

 

SECTION 3.01. Organization, Authority and Qualification of the TSIC Entities.
(a) Except as a result of the commencement of the Chapter 11 Cases, each TSIC
Entity is duly organized, validly existing and in good standing under the Laws
of the jurisdiction of its organization and has all necessary corporate power
and authority, subject to obtaining the

 

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approval of the Bankruptcy Court, to enter into this Agreement and the Ancillary
Agreements, to carry out its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. Each TSIC Entity is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its business makes such licensing or qualification necessary, except to the
extent that the failure to be so licensed, qualified or in good standing (a) has
resulted from the commencement or continuance of the Chapter 11 Cases, or (b)
would not (i) adversely affect the ability of each Seller to carry out its
obligations under, and to consummate the transactions contemplated by, this
Agreement and the Ancillary Agreements, or (ii) have a Material Adverse Effect.
Subject to obtaining the approval of the Bankruptcy Court, the execution and
delivery of this Agreement and the Ancillary Agreements by each Seller, the
performance by such Seller of its obligations hereunder and thereunder and the
consummation by such Seller of the transactions contemplated hereby and thereby
have been duly authorized by all requisite action on the part of such Seller.
This Agreement has been, and upon their execution the Ancillary Agreements shall
have been, duly executed and delivered by each Seller, and (assuming due
authorization, execution and delivery by the Purchaser) following the approval
by the Bankruptcy Court of this Agreement and the Ancillary Agreements and the
transactions contemplated hereby and thereby, this Agreement and the Ancillary
Agreements shall constitute legal, valid and binding obligations of each Seller,
enforceable against such Seller in accordance with their respective terms,
subject to bankruptcy, insolvency, reorganization, moratorium or similar Laws
now or hereafter in effect relating to creditors’ rights generally and subject
to general principles of equity.

 

(b) Except as set forth in Section 3.01(b) of the Disclosure Schedule, there are
no direct or indirect Subsidiaries of TSIC other than the other Sellers and the
Acquired Subsidiary. Except as set forth in Section 3.01(b) of the Disclosure
Schedule, Farah owns all of the issued and outstanding capital stock of the
Purchased Subsidiary. There are no other shares of capital stock of the
Purchased Subsidiary issued or outstanding other than the Purchased Stock and
there are no declared and unpaid dividends or distributions on any such capital
stock. The Purchased Stock (i) has been duly authorized, validly issued, and is
fully paid and nonassessable (in those jurisdictions in which such concepts are
applicable), (ii) has not been issued in violation of any preemptive rights of
stockholders or of any terms of any agreement or other understanding binding
upon any TSIC Entity, and (iii) has been offered and sold in compliance with any
and all applicable securities laws, rules and regulations. All of the Purchased
Stock is owned beneficially and of record directly by Farah free and clear of
any and all Liens. Except as set forth in Section 3.01(b) of the Disclosure
Schedule, there is no security, option, warrant, right, call, subscription
agreement, commitment or understanding of any nature whatsoever to which any
TSIC Entity is a party or by which it is bound, that (i) calls for the issuance,
sale, pledge or other disposition of any capital stock of the Purchased
Subsidiary or any securities convertible into or exchangeable for, or other
rights to acquire, any capital stock of the Purchased Subsidiary, (ii) obligates
any TSIC Entity to grant, offer or enter into any of the foregoing or to
repurchase, redeem or otherwise acquire any capital stock of the Purchased
Subsidiary or (iii) relates to the transfer, dividends rights, voting, control,
or registration rights of any capital stock of the Purchased Subsidiary. Upon
the closing, Purchaser or its designee will be the sole owner of all right,
title and interest in the Purchased Stock.

 

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SECTION 3.02. No Conflict. (a) Subject to obtaining the approval of the
Bankruptcy Court and assuming that all consents, approvals, authorizations and
other actions described in Section 3.03 have been obtained, all filings and
notifications listed in Section 3.03 of the Disclosure Schedule have been made
and any applicable waiting period has expired or been terminated, and except as
may result from any facts or circumstances relating solely to the Purchaser, the
execution, delivery and performance by each Seller of this Agreement and the
Ancillary Agreements to which such Seller is a party does not and will not (i)
violate, conflict with or result in the breach of the organizational documents
or bylaws of any TSIC Entity, (ii) conflict with or violate any Law or
Governmental Order applicable to any TSIC Entity or (iii) except as set forth in
Section 3.02 of the Disclosure Schedule, conflict with, result in any breach of,
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, require any consent under, or give to
others any rights of termination, acceleration or cancellation of, any note,
bond, mortgage or indenture, Contract, lease, sublease, license, permit,
franchise or other instrument or arrangement to which any TSIC Entity is a
party, except to the extent any of the foregoing are not enforceable due to
operation of applicable bankruptcy Law or the Sale Approval Order, and in the
case of clauses (i) and (ii), as would not (A) materially and adversely affect
the ability of each Seller to carry out its obligations under, and to consummate
the transactions contemplated by, this Agreement and the Ancillary Agreements or
(B) otherwise have a Material Adverse Effect.

 

(b) The Purchased Subsidiary is not in violation, breach of, or default under
(and no event has occurred that with notice or the lapse of time would
constitute a violation, breach of, or default under) any term, condition, or
provision of (i) its articles of incorporation or bylaws or other organizational
documents, (ii) any note, bond, mortgage, deed of trust, security interest,
indenture, loan or credit agreement, license, permit, Contract, lease, plan or
other instrument, commitment or obligation to which such Purchased Subsidiary is
a party or by which such Purchased Subsidiary’s properties or assets may be
bound or affected, or (iii) any Law or Governmental Order applicable to such
Purchased Subsidiary or to such Purchased Subsidiary’s properties or assets,
except, in the case of clause (ii) above, as would not have a Material Adverse
Effect.

 

SECTION 3.03. Governmental Consents and Approvals. Subject to obtaining the
approval of the Bankruptcy Court, the execution, delivery and performance by
each Seller of this Agreement and each Ancillary Agreement to which such Seller
is a party does not and will not require any consent, approval, authorization or
other order of, action by, filing with or notification to, any Governmental
Authority, except (a) as described in Section 3.03 of the Disclosure Schedule,
(b) according to the pre-merger notification and waiting period requirements of
the HSR Act, (c) where failure to obtain such consent, approval, authorization
or action, or to make such filing or notification, would not prevent or
materially delay the consummation by such Seller of the transactions
contemplated by this Agreement and the Ancillary Agreements and would not have a
Material Adverse Effect, or (d) as may be necessary as a result of any facts or
circumstances relating solely to the Purchaser or any of its Affiliates.

 

SECTION 3.04. Financial Information. (a) Attached as Section 3.04(a) of the
Disclosure Schedule are the following financial statements (collectively, the
“Financial Statements”): (i) the unaudited consolidated balance sheet of TSIC as
of October 2, 2004 (the “TSIC Balance Sheet”), and (ii) the related unaudited
statements of income and cash flows for

 

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the year then ended. Except as set forth in Section 3.04(a) of the Disclosure
Schedule, the Financial Statements (a) were prepared in accordance with the
books of account and other financial records of TSIC in the ordinary course of
its business without audit, (b) were prepared in accordance with GAAP applied on
a basis consistent with the past practices of TSIC, (c) reflect all normal and
recurring adjustments which are necessary to present fairly, in all material
respects, the financial condition and results of operations and cash flows of
TSIC and its Subsidiaries as of such date and for the period covered thereby in
accordance with GAAP, as consistently applied by TSIC, provided that (i) certain
information and footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted, and (ii) the
Financial Statements include Excluded Assets and Excluded Liabilities, and (d)
present fairly, in all material respects, the financial condition and results of
operations and cash flows of TSIC and its Subsidiaries as of such date and for
the period covered thereby.

 

(b) There are no Liabilities of the TSIC Entities, other than Liabilities (i)
reflected or reserved against on the Financial Statements or (ii) incurred since
the date of the TSIC Balance Sheet in the Ordinary Course of the Business, and
which do not and would not have a Material Adverse Effect. Reserves are
reflected on the TSIC Balance Sheet against all Liabilities of the TSIC
Entities, in amounts that have been established on a basis consistent with the
past practices of the Business and in accordance with GAAP.

 

(c) The books of account and other financial records of the Sellers: (i) reflect
all items of income and expense and all assets and Liabilities required to be
reflected therein in accordance with GAAP applied on a basis consistent with the
past practices of the Business, (ii) are in all material respects complete and
correct, and do not contain or reflect any material inaccuracies or
discrepancies and (iii) have been maintained in accordance with good business
and accounting practices.

 

(d) Attached as Section 3.04(d) of the Disclosure Schedule are the following
stand-alone financial statements (collectively, the “Stand-Alone Financial
Statements”): (i) the stand-alone balance sheet of the Purchased Subsidiary as
of October 2, 2004 and (ii) the related statements of income and cash flows for
the years ended October 2, 2004 and September 27, 2003, together with the notes
to such Stand-Alone Financial Statements. Except as set forth in Section 3.04(d)
of the Disclosure Schedule, the Stand-Alone Financial Statements (a) were
prepared in accordance with the books of account and other financial records of
the Purchased Subsidiary in the ordinary course of its business, (b) were
prepared in accordance with generally accepted accounting principles in the
United Kingdom (“UK GAAP”), applied on a basis consistent with the past
practices of the Purchased Subsidiary, (c) reflect all normal and recurring
adjustments which are necessary to present fairly, in all material respects, the
financial condition and results of operations and cash flows of the Purchased
Subsidiary as of such date and for the period covered thereby in accordance with
UK GAAP, as consistently applied by the Purchased Subsidiary and (d) present
fairly, in all material respects, the financial condition and results of
operations and cash flows of the Purchased Subsidiary as of such date and for
the period covered thereby.

 

(e) All financial projections and forecasts heretofore furnished to the
Purchaser were prepared by TSIC’s management in good faith on the basis of
reasonable assumptions and

 

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have been updated with actual results and additional information since
originally delivered by the Sellers to the Purchaser. These financial
projections and forecasts were based upon the best information and estimates
available when given to the Purchaser. These financial projections and forecasts
do not take into account the potential impact on the Business of entering into
this Agreement or the Sellers’ filing in Bankruptcy Court.

 

SECTION 3.05. Litigation. Except for the Chapter 11 Cases and any and all
Actions arising therefrom or related thereto, and except as set forth in Section
3.05 of the Disclosure Schedule, as of the date hereof there is no Action by or
against any TSIC Entity and relating to the Business pending, or, to such
Seller’s Knowledge, threatened against any TSIC Entity, before any Governmental
Authority except as would not (a) adversely affect the ability of each Seller to
carry out its obligations under, and to consummate the transactions contemplated
by, this Agreement and the Ancillary Agreements or (b) otherwise have a Material
Adverse Effect. To the Seller’s Knowledge, no event has occurred or circumstance
exists that is reasonably likely to give rise to or serve as a basis for the
commencement of any material Action. Each TSIC Entity is in compliance in all
material respects with the provisions of any and all settlement agreements,
consent decrees, and all other similar arrangements and understandings to which
it is a party or to which any of its properties or assets are subject.

 

SECTION 3.06. Compliance with Laws; Permits. (a) Except as set forth in Section
3.06 of the Disclosure Schedule, and as would not (i) adversely affect the
ability of each Seller to carry out its obligations under, and to consummate the
transactions contemplated by, this Agreement and the Ancillary Agreements or
(ii) otherwise have a Material Adverse Effect, each TSIC Entity has conducted
and continues to conduct the Business in accordance with all Laws and
Governmental Orders applicable to the Business, and each TSIC Entity (to the
extent it relates to the Business) is not in violation of any such Law or
Governmental Order.

 

(b) All material approvals, Governmental Permits, qualifications, franchises,
and registrations, together with all modifications, amendments, supplements and
extensions thereof, that are necessary to own the Purchased Assets, conduct the
Business and use and occupy the Transferred Real Property are valid and in full
force and effect and are fully and freely transferable by the Sellers to the
Purchaser, and there are no proceedings pending or, to the Sellers’ Knowledge,
threatened that seek the revocation, cancellation, suspension or any adverse
modification of any such material approvals, Governmental Permits,
qualifications, franchises, and registrations. None of such material approvals,
Governmental Permits, qualifications, franchises, and registrations will be
terminated or become terminable as a result of the transactions contemplated by
this Agreement or the Ancillary Agreements.

 

SECTION 3.07. Environmental Matters. (a) Except as disclosed in Section 3.07 of
the Disclosure Schedule or as would not have a Material Adverse Effect:

 

(i) To each Seller’s knowledge, each TSIC Entity (to the extent it relates to
the Business) is in compliance with, and for the past three years has been in
compliance with, all applicable Environmental Laws and has obtained and is in
compliance with all Environmental Permits. All past non-compliance with
Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future obligation, cost or Liability.

 

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(ii) To each Seller’s knowledge, there are no underground or aboveground storage
tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which
Hazardous Materials are being or have been treated, stored or disposed of on any
of the Real Property or, during the period of each TSIC Entity’s ownership,
lease, use or occupancy thereof, on any property formerly owned, leased, used or
occupied by such TSIC Entity. Any underground storage tanks that are or were in
service or use on the Real Property are or have been operated and/or closed in
compliance in all material respects with applicable Environmental Law.

 

(iii) To each Seller’s Knowledge, there has been no Release of any Hazardous
Material in violation of any applicable Environmental Law on any of the Real
Property or on any property formerly owned, leased, used or occupied by such
TSIC Entity, during the period of such TSIC Entity’s ownership, lease, use or
occupancy thereof.

 

(iv) No TSIC Entity (as it relates to the Business) has undertaken or completed,
any Remedial Action relating to any Release or threatened Release of any
Hazardous Material at the Real Property or at any other site, location or
operation, either voluntarily or pursuant to the order of any Governmental
Authority or the requirements of any Environmental Law or Environmental Permit.

 

(v) To each Seller’s Knowledge, there is no asbestos or asbestos-containing
material present at any of the Real Property.

 

(vi) None of the Real Property is listed or to each Seller’s Knowledge proposed
for listing, or adjoins any other property that is listed or proposed for
listing, on the National Priorities List or CERCLIS or on any analogous federal,
state or local list.

 

(vii) There are no Environmental Claims pending or to Sellers’ Knowledge
threatened against any TSIC Entity or the Real Property, and to such Sellers’
Knowledge, there are no circumstances that can reasonably be expected to form
the basis of any such Environmental Claim, including with respect to any
off-site disposal location currently or formerly used by such TSIC Entity or any
of its predecessors or with respect to previously owned or operated facilities.
To each Seller’s Knowledge, no TSIC Entity has any actual or alleged liability,
whether fixed or contingent, under any Environmental Law.

 

(viii) To each Seller’s knowledge, there are no wetlands or any areas subject to
any legal requirement or restriction in any way related to wetlands (including
requirements or restrictions related to buffer or transition areas or open
waters) at or affecting the Real Property.

 

(ix) To each Seller’s Knowledge, the TSIC Entities have used, stored,
transported, treated and disposed of (as appropriate) Hazardous Materials in
material compliance with Environmental Law.

 

(b) The Sellers have provided the Purchaser with copies of (i) any environmental
assessment or audit reports or other similar studies or analyses relating to the
Business, the Real

 

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Property or the TSIC Entities, and (ii) all insurance policies issued at any
time that may provide coverage to any TSIC Entity or the Business for
environmental matters.

 

(c) To each Sellers’ Knowledge, neither the execution of this Agreement or the
Ancillary Agreements nor the consummation of the transactions contemplated
hereby or thereby will require any Remedial Action or notice to or consent of
Governmental Authorities or third parties pursuant to any applicable
Environmental Law or Environmental Permit.

 

SECTION 3.08. Intellectual Property. (a) Section 3.08(a)(i) of the Disclosure
Schedule sets forth a true and complete list of all patents and patent
applications, registered trademarks and trademark applications, and registered
copyrights and copyright applications and registered domain names included in
the Transferred Intellectual Property. Section 3.08(a)(ii) of the Disclosure
Schedule sets forth a list of the Transferred IP Agreements. Except for the
Intellectual Property subject to the Contracts disclosed in Section 3.08(a)(iii)
of the Disclosure Schedule (the “Excluded IP Agreements”), the Transferred
Intellectual Property and the Transferred IP Agreements include all the
Intellectual Property owned by or licensed to any of the TSIC Entities and
material to the operation of the Business.

 

(b) To the Sellers’ knowledge, the operation of the Business, the use of all the
Transferred Intellectual Property and Intellectual Property covered by the
Transferred IP Agreements in connection therewith, and the TSIC Entities’
transmission, use, linking and other practices related to the operation of their
web sites in connection with the Business, the content thereof and the
advertisements contained therein, do not conflict with, infringe, misappropriate
or otherwise violate in any material respects the Intellectual Property or other
proprietary rights, including rights of privacy, publicity and endorsement, of
any third party, and no Actions or Claims are pending or, to the Sellers’
Knowledge, threatened against any TSIC Entity alleging any of the foregoing.

 

(c) The TSIC Entities are the exclusive owners of the entire and unencumbered
right, title and interest in and to the Transferred Intellectual Property and
Transferred IP Agreements, and the TSIC Entities have a valid right to use the
Transferred Intellectual Property and the Intellectual Property covered by the
Transferred IP Agreements in the operation of the Business.

 

(d) No Transferred Intellectual Property, or to the Sellers’ Knowledge, any
Intellectual Property covered by the Transferred IP Agreements, is subject to
any outstanding decree, order, injunction, judgment or ruling restricting the
use of such Intellectual Property or that would impair the validity or
enforceability of such Intellectual Property.

 

(e) No Actions or Claims have been asserted or are pending or, to the Sellers’
Knowledge, threatened against any TSIC Entity (i) based upon or challenging or
seeking to deny or restrict the use by such TSIC Entity of any of the
Transferred Intellectual Property or the Intellectual Property covered by the
Transferred IP Agreements, (ii) alleging that any services provided by,
processes used by, or products manufactured or sold by such TSIC Entity (in
connection with the Business) infringe or misappropriate any Intellectual
Property right of any third party or (iii) alleging that the Intellectual
Property covered by the Transferred IP Agreements is being licensed or
sublicensed in conflict with the terms of any license or other agreement.

 

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(f) To the Sellers’ Knowledge, no Person is engaging in any activity that
infringes the Transferred Intellectual Property or the Intellectual Property
covered by the Transferred IP Agreements. Except as set forth in Section 3.08(f)
of the Disclosure Schedule, none of the TSIC Entities has granted any license or
other right to any third party with respect to the Transferred Intellectual
Property or the Intellectual Property covered by the Transferred IP Agreements.
The consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements will not result in the termination or impairment of any of
the Transferred Intellectual Property.

 

(g) The TSIC Entities have taken reasonable steps in accordance with normal
industry practice to maintain the confidentiality of the trade secrets and other
confidential Intellectual Property used in connection with the Business. To the
Sellers’ Knowledge, (i) there has been no misappropriation of any material trade
secrets or other material confidential Intellectual Property used in connection
with the Business by any Person; (ii) no employee, independent contractor or
agent of the TSIC Entities has misappropriated any trade secrets of any other
Person in the course of performance as an employee, independent contractor or
agent of the Business; and (iii) no employee, independent contractor or agent of
the TSIC Entities is in default or breach of any term of any employment
agreement, nondisclosure agreement, assignment of invention agreement or similar
agreement or contract relating in any way to the protection, ownership,
development, use or transfer of such Intellectual Property.

 

SECTION 3.09. Real Property. (a) The Sellers have provided copies of the title
reports in respect of all Transferred Real Property. There are no Liens on the
Transferred Real Property other than the Liens described in such title reports.

 

(b) Section 3.09(b) of the Disclosure Schedule lists all real property leased by
a TSIC Entity (“Leased Real Property”), the street address of each parcel of
Leased Real Property, the current occupant (if different from the lessee) and
the identity of the lessor, the lessee and the date of the corresponding lease.
Sellers have delivered to the Purchaser true and complete copies of the leases
in effect at the date hereof relating to the Leased Real Property, and except as
set forth on Section 3.09 of the Disclosure Schedule there has not been any
sublease or assignment entered into by any of the TSIC Entities in respect of
the leases relating to the Leased Real Property.

 

(c) Except as described in Section 3.09(c) of the Disclosure Schedule, there is
no material violation of any Law (including any building, planning or zoning
law) relating to any of the Real Property. The Sellers have made available to
the Purchaser true, legible and complete copies of all the title insurance
policies, title reports, surveys, certificates of occupancy, environmental
reports and audits, appraisals, permits, other Liens, title documents and other
documents relating to or otherwise affecting the Real Property, the operations
of the TSIC Entities (as they relate to the Business) thereon or any other uses
thereof. At least one of the TSIC Entities is in peaceful and undisturbed
possession of each parcel of Real Property, and there are no contractual or
legal restrictions that preclude or restrict the ability to use the Real
Property for the purposes for which it is currently being used. All existing
water, sewer, steam, gas, electricity, telephone, cable, fiber optic cable,
Internet access and other utilities required for the construction, use,
occupancy, operation and maintenance of the Real Property are adequate for the
conduct of the Business as it has been and currently is conducted. There are no
latent

 

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defects or adverse physical conditions affecting the Real Property or any of the
facilities, buildings, structures, erections, improvements, fixtures, fixed
assets and personalty of a permanent nature annexed, affixed or attached to,
located on or forming part of the Real Property, except as would not reasonably
be expected to have a Material Adverse Effect. Except as set forth in Section
3.09(c) of the Disclosure Schedule, none of the TSIC Entities has leased or
subleased any parcel or any portion of any parcel of Real Property to any other
Person and no other Person has any rights to the use, occupancy or enjoyment
thereof pursuant to any lease, sublease, license, occupancy or other agreement,
nor has any TSIC Entity assigned its interest under any lease or sublease listed
in Section 3.09(b) of the Disclosure Schedule to any third party.

 

(d) Section 3.09(d) of the Disclosure Schedule sets forth a true and complete
list of all leases and subleases relating to the Real Property and any and all
ancillary documents (the “Ancillary Lease Documents”) pertaining thereto
(including all amendments, modifications, supplements, exhibits, schedules,
addenda and restatements thereto and thereof and all consents, including
consents for alterations, assignments and sublets, documents recording
variations, memoranda of lease, options, rights of expansion, extension, first
refusal and first offer and evidence of commencement dates and expiration
dates). With respect to each of such leases and subleases, none of the TSIC
Entities has exercised or given any notice of exercise, nor has any lessor or
landlord exercised or received any notice of exercise by a lessor or landlord
of, any option, right of first offer or right of first refusal contained in any
such lease or sublease, including any such option or right pertaining to
purchase, expansion, renewal, extension or relocation (collectively, “Options”).

 

(e) Except as set forth in Section 3.09(e) of the Disclosure Schedule, the
interests of such TSIC Entity in the Transferred Real Property and the Leased
Real Property to be transferred pursuant to this Agreement are sufficient for
the continued conduct of the Business after the Closing in substantially the
same manner as conducted prior to the Closing.

 

(f) There are no condemnation proceedings or eminent domain proceedings of any
kind pending or, to the Sellers’ Knowledge, threatened against the Real
Property.

 

(g) All the Real Property is occupied under a valid and current certificate of
occupancy or similar permit, the transactions contemplated by this Agreement and
the Ancillary Agreements will not require the issuance of any new or amended
certificate of occupancy and, to the Sellers’ Knowledge, there are no facts that
would prevent the Real Property from being occupied by the Purchaser or any of
its Subsidiaries, as the case may be, after the Closing in the same manner as
occupied by the TSIC Entities immediately prior to the Closing.

 

(h) All improvements on the Real Property constructed by or on behalf of the
Sellers or, to the Knowledge of the Sellers, constructed by or on behalf of any
other Person, were constructed in compliance with all applicable Laws (including
any building, planning or zoning Laws) affecting such Real Property.

 

(i) No improvements on the Real Property and none of the current uses and
conditions thereof violate any Lien, applicable deed restrictions or other
applicable covenants, restrictions, agreements, existing site plan approvals,
zoning or subdivision regulations or urban

 

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redevelopment plans as modified by any duly issued variances, and no permits,
licenses or certificates pertaining to the ownership or operation of all
improvements on the Real Property, other than those which are transferable with
the Real Property, are required by any Governmental Authority having
jurisdiction over the Real Property.

 

(j) To the Sellers’ knowledge, except as set forth in Section 3.09(j) of the
Disclosure Schedule, all improvements on any Real Property are wholly within the
lot limits of such Real Property and do not encroach on any adjoining premises
or Lien benefiting such Real Property, and there are no encroachments on any
Real Property or any easement or property right or benefit appurtenant thereto
by any improvements located on any adjoining premises.

 

(k) Except as otherwise set forth in Section 3.09(k) of the Disclosure Schedule,
there have been no improvements of a value in excess of $25,000 in the aggregate
made to or constructed on any Real Property within the applicable period for the
filing of mechanics’ liens.

 

(l) The rental set forth in each lease or sublease of the Leased Real Property
is the actual rental being paid, and there are no separate agreements or
understandings with respect to the same.

 

(m) Each of the TSIC Entities, as the case may be, has the full right to
exercise any Options contained in the leases and subleases pertaining to the
Leased Real Property on the terms and conditions contained therein and upon due
exercise would be entitled to enjoy the full benefit of such Options with
respect thereto.

 

(n) The Sellers hereby make the additional representations and warranties set
forth in Addendum 3.09(n) hereto with respect to the Purchased Subsidiary which
are incorporated by reference herein and made an integral part hereof as though
fully set forth herein.

 

SECTION 3.10. Purchased Assets. The Sellers own, lease or have the legal right
to use all the Purchased Assets and, subject to any necessary approvals of the
Bankruptcy Court, by the execution and delivery at the Closing of the
instruments of transfer provided for herein, the Purchaser will be vested with
good and marketable title to each of the Purchased Assets or a valid and
enforceable leasehold interest in all Leased Real Property and leased personal
property, free and clear of all Liens, Actions or Claims against and
Indebtedness of the Sellers (other than such Actions, Claims and Indebtedness
related to the Assumed Liabilities), other than Permitted Liens.

 

SECTION 3.11. Employee Benefits Matters. (a) Section 3.11(a) of the Disclosure
Schedule lists each (i) employee benefit plan, program or arrangement
(including, without limitation, any “employee benefit plan,” as defined in
section 3(3) of ERISA) maintained or contributed to by any of the TSIC Entities,
or with respect to which any TSIC Entity has any obligation, for the benefit of
any current employees of the Business (collectively, the “Employees”) and all
bonus, stock option, stock purchase, restricted stock, incentive, deferred
compensation, retiree medical or life insurance, supplemental retirement,
severance or other benefit plans, programs or arrangements, and all employment,
termination, severance or other contracts or agreements, whether legally
enforceable or not, to which any TSIC Entity is a party, with respect to which
any TSIC Entity has any obligation or which are maintained,

 

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contributed to or sponsored by any TSIC Entity for the benefit of any current or
former employee, officer or director of any TSIC Entity, (ii) each employee
benefit plan for which any TSIC Entity could incur liability under Section 4069
of ERISA in the event such plan has been or were to be terminated, (iii) any
plan in respect of which any TSIC Entity could incur liability under Section
4212(c) of ERISA, and (iv) any contracts, arrangements or understandings between
any TSIC Entity or any of its Affiliates and any Employee, including any
contracts, arrangements or understandings relating to the sale of the Business
(collectively, the “Employee Plans”). With respect to the Sellers’ 401(k) Plan,
the Sellers have made available to the Purchaser a true and correct copy of (i)
the most recent annual report (Form 5500) filed with the IRS, (ii) each such
Employee Plan, (iii) the trust agreement relating to the Sellers’ 401(k) Plan,
(iv) the most recent summary plan description for the Sellers’ 401(k) Plan or
the most recent determination letter, if any, issued by the IRS with respect to
the Sellers’ 401(k) Plan. The Sellers also have made available to the Purchaser
certain other documents relating to the Employee Plans. There are no other
employee benefit plans, programs, arrangements or agreements, whether formal or
informal, whether in writing or not, to which any TSIC Entity is a party, with
respect to which any TSIC Entity has any obligation or which are maintained,
contributed to or sponsored by any TSIC Entity for the benefit of any current or
former employee, officer or director of any TSIC Entity. No TSIC Entity has any
express or implied commitment, whether legally enforceable or not, to (i)
create, incur liability with respect to or cause to exist any other employee
benefit plan, program or arrangement, or (ii) to enter into any contract or
agreement to provide compensation or benefits to any individual, other than with
respect to a modification, change or termination required by ERISA or the Tax
Code.

 

(b) Absence of Certain Types of Plans. None of the Employee Plans is a
multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA)
(a “Multiemployer Plan”) or a single employer pension plan (within the meaning
of Section 4001(a)(15) of ERISA) for which any TSIC Entity could incur liability
under Section 4063 or 4064 of ERISA (a “Multiple Employer Plan”). Except as set
forth in Section 3.11(b)(i) of the Disclosure Schedule, none of the Employee
Plans provides for the payment of separation, severance, termination or
similar-type benefits to any Person or obligates any TSIC Entity to pay
separation, severance, termination or similar-type benefits solely as a result
of any transaction contemplated by this Agreement or the Ancillary Agreements or
as a result of a “change in control”, within the meaning of such term under
Section 280G of the Tax Code. Except as set forth on Schedule 3.11(b)(ii) of the
Disclosure Schedule, none of the Employee Plans provides for or promises retiree
medical, disability or life insurance benefits to any current or former
employee, officer or director of any TSIC Entity, except as required by ERISA or
the Tax Code. Each of the Employee Plans is subject only to the Laws of the
United States or a political subdivision thereof.

 

(c) Compliance. The Sellers’ 401(k) Plan has been operated in all material
respects in accordance with its terms and to Sellers’ Knowledge, the
requirements of all applicable Laws, including ERISA and the Tax Code, and all
Persons who participate in the operation of such Employee Plans and all Employee
Plan “fiduciaries” (within the meaning of Section 3(21) of ERISA) have always
acted in accordance with the provisions of all applicable Laws of the United
States, including ERISA and the Tax Code. Each TSIC Entity has performed all
material obligations required to be performed by it under, is not in any
material respect in default under or in material violation of, and the Sellers
have no Knowledge of any material default or violation

 

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by any party to, the Sellers’ 401(k) Plan. No Action is pending or, to the
Knowledge of the Sellers, threatened with respect to the Sellers’ 401(k) Plan
(other than Claims for benefits in the ordinary course), and, to the Knowledge
of the Sellers, no fact or event exists that could give rise to any such Action.

 

(d) Qualification of Certain Plans. Each Employee Plan that is intended to be
qualified under section 401(a) of the Tax Code has timely received a favorable
determination letter from the IRS covering all of the provisions applicable to
the Employee Plan for which determination letters are currently available that
the Employee Plan is so qualified, and no fact or event has occurred either
before or after the date of such determination letter or letters from the IRS to
adversely affect the qualified status of any such Employee Plan or the exempt
status of any such trust.

 

(e) Absence of Certain Liabilities and Events. There has been no prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of the
Tax Code) with respect to any Employee Plan to which such statutes apply. The
Purchased Subsidiary shall not have any Liability or obligation after the
Closing Date relating to any Employee Plan. As of the Closing Date, none of such
Purchased Assets will be subject to any Lien arising within Section 302(f) of
ERISA or Section 412(n) of the Tax Code, and no fact or event will exist which
could rise to any such Lien.

 

(f) Plan Contributions and Funding. All contributions, premiums or payments
required to be made with respect to any Employee Plan before the Closing Date
have been made on or before their due dates.

 

(g) Cobra. Following the Closing Date, if the “selling group” of which Sellers
are members ceases to provide any group health benefits to any employee in
connection with the transactions contemplated by this Agreement, and the “buying
group” of which the Purchaser is a member continues the business operations
associated with the Purchased Assets without interruption or substantial change,
then, if and only to the extent required pursuant to Tax Code Section 4980B and
Tax Code regulation 54.490B, Purchasers shall be responsible for providing COBRA
(Consolidated Omnibus Budget Reconciliation Act of 1985) continuation coverage
to all M&A qualified beneficiaries, as that term is defined in Tax Code
regulation 54.4980B, with respect to the business operations associated with the
Purchased Assets, in accordance with, and for the period during which the
Purchaser is required to provide such coverage under, Tax Code regulations
54.4980B.

 

SECTION 3.12. Taxes. (a) Except as set forth in Section 3.12(a) of the
Disclosure Schedule, (i) all Tax Returns required to be filed by or with respect
to each TSIC Entity other than the Purchased Subsidiary (each, a “US TSIC
Entity”) the Purchased Assets and the Business (including any consolidated
federal income Tax Return of the Sellers and any state, local or other Tax
Return that includes any US TSIC Entity on a consolidated, combined or unitary
basis) have been timely filed; (ii) all Taxes required to be shown on such Tax
Returns or otherwise due in respect of the Purchased Assets, the Business or any
US TSIC Entity have been timely paid; (iii) all such Tax Returns are true,
correct and complete in all material respects; (iv) no adjustment relating to
such Tax Returns has been proposed formally or informally by any Taxation
Authority (insofar as either relates to the activities or income of any US TSIC
Entity or

 

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could result in liability of any US TSIC Entity on the basis of joint and/or
several liability) and, to the Knowledge of the Sellers, no basis exists for any
such adjustment; (v) there are no pending or, to the Knowledge of the Sellers,
threatened Actions for the assessment or collection of Taxes in respect of the
Purchased Assets or the Business or against any US TSIC Entity or (insofar as
either relates to the activities or income of any US TSIC Entity or could result
in liability of any US TSIC Entity on the basis of joint and/or several
liability) any Person that was included in the filing of a Tax Return with such
US TSIC Entity on a consolidated or combined basis; (vi) there are no Tax Liens
on any Purchased Assets or assets of US TSIC Entity; (vii) each US TSIC Entity
has properly and timely withheld, collected and deposited all Taxes that are
required to be withheld, collected and deposited under applicable Law; (viii)
none of the US TSIC Entities (in relation to the Purchased Assets and the
Business) is doing business in or engaged in a trade or business in any
jurisdiction in which it has not filed all required Tax Returns, and no notice
or inquiry has been received from any jurisdiction in which Tax Returns have not
been filed by the US TSIC Entities (in respect of the Purchased Assets and the
Business) to the effect that the filing of Tax Returns may be required; (ix) no
US TSIC Entity has been at any time a member of any partnership or joint venture
or the holder of a beneficial interest in any trust for any period for which the
statute of limitations for any Tax has not expired, except to the extent that
the Tax consequences thereof were reflected properly in the relevant US TSIC
Entity Tax Returns; and (x) for Tax purposes, all sales and license transactions
between any of the US TSIC Entities and the Purchased Subsidiary have been
concluded on an arm’s length basis.

 

(b) Except as set forth with reasonable specificity in Section 3.12(b) of the
Disclosure Schedule: (i) there are no outstanding waivers or agreements
extending the statute of limitations for any period with respect to any Tax
relating to the Purchased Assets and the Business; (ii) there are no requests
for information currently outstanding that could affect the Taxes relating to
the Purchased Assets and the Business; (iii) there are no proposed reassessments
of any property owned by the US TSIC Entities or other proposals that could
increase the amount of any Tax relating to the Purchased Assets and the
Business; and (iv) no power of attorney that is currently in force has been
granted with respect to any matter relating to Taxes that could affect the
Purchased Subsidiary or relating to the Purchased Assets and the Business; (v)
the Purchased Subsidiary (A) has never been a passive foreign investment company
within the meaning of Section 1296 of the Tax Code, (B) does not have and is not
projected to have an amount that would be includible in the income of a U.S.
shareholder for the current year under Section 951 of the Tax Code, (C) does not
have an unrecaptured overall foreign loss within the meaning of Section 904(f)
of the Tax Code (D) has not participated in or cooperated with an international
boycott within the meaning of section 999 of the Tax Code and (E) does not have
any income reportable for a period ending after the Closing but attributable to
a transaction (e.g., an installment sale) occurring in, or a change in
accounting method made for, a period ending on or prior to the Closing that
resulted in a deferred reporting of income from such transaction or from such
change in accounting method (other than a deferred intercompany transaction).

 

(c) With respect to the Purchased Subsidiary:

 

(i) All notices, returns, computations, registrations and payments which should
have been made by the Purchased Subsidiary for any Tax purpose have been made
within the requisite periods and are up-to-date, correct and on a

 

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proper basis and none of them is, or is likely to be, the subject of any dispute
with any Taxation Authority.

 

(ii) The Purchased Subsidiary has duly and properly made all Tax claims,
disclaimers, elections and surrenders and given all notices and consents and
done all other things in respect of Tax the making, giving or doing of which was
assumed to have been made for the purposes of the balance sheet comprised in the
Accounts.

 

(iii) The Purchased Subsidiary has deducted and properly accounted to the
appropriate Taxation Authority for all amounts which it has been obliged to
deduct or otherwise account in respect of Tax (whether under the Pay as You Earn
system or otherwise), has complied fully with all reporting requirements
relating to all such amounts and has (where required by the applicable Taxation
Statute) duly provided certificates of deduction of tax to the recipients of
payments from which deductions have been made.

 

(iv) The Purchased Subsidiary maintains complete, correct and up-to-date records
which are or may be necessary for all Tax purposes.

 

(v) The Purchased Subsidiary is not involved in any dispute with any Taxation
Authority concerning any matter likely to affect in any way the liability of the
Purchased Subsidiary to Tax and there are no circumstances which are likely to
give rise to any such dispute.

 

(vi) The Purchased Subsidiary has not entered into or been a party to any
scheme, arrangement or transaction designed partly or wholly or containing steps
or stages designed partly or wholly for the purpose of avoiding or deferring Tax
or reducing a liability to Tax.

 

(vii) If each of the capital assets of the Purchased Subsidiary owned at the
Accounting Date was disposed of for a consideration equal to the book value of
that asset in, or adopted for the purpose of, the balance sheet comprised in the
Accounts or, in the case of assets acquired since the Accounting Date, equal to
the consideration given on acquisition, no liability to corporation tax on
chargeable gains or balancing charge under the Capital Allowances Act 2001 would
arise (and for this purpose there will be disregarded any relief available to
the Purchased Subsidiary other than amounts falling to be deducted from the
consideration receivable under Section 38 TCGA.

 

(viii) Since the Accounting Date no event has occurred outside the ordinary
course of business of the Purchased Subsidiary which has given rise or will or
may give rise to any liability to Tax on the Purchased Subsidiary.

 

(ix) The Purchased Subsidiary has not, and has never been, a close
investment-holding Purchased Subsidiary within the meaning of Section 13A ICTA.

 

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(x) The Disclosure Schedule contains details of all claims and surrenders of the
Group Relief involving the Purchased Subsidiary for all accounting periods after
Closing. The Purchased Subsidiary has no liability, contingent or otherwise, to
pay for group relief (as defined in Section 402 ICTA) or to repay any amounts
received by way of payment made to the Purchased Subsidiary for a surrender of
group relief made by the Purchased Subsidiary.

 

(xi) The Purchased Subsidiary has not at any time:

 

(A) made any loan or advance or effected any transaction falling within Section
419, 421 or 422 ICTA or released or written off or agreed to release or write
off the whole or any part of any such loans or advances;

 

(B) made a transfer of value which is or may be liable to Tax under the
provisions of Section 94 Inheritance Tax Act 1984; or

 

(C) acquired any asset from any company which at the time of the acquisition was
a member of the same group of companies as defined in Section 170 TCGA;

 

(D) been a party to any such reconstruction as is described in Section 343 ICTA;

 

(E) been the subject of or otherwise involved in any arrangements as are
referred to in Section 410 ICTA (transfer of Purchased Subsidiary to another
group or consortium);

 

(F) been, and there are no circumstances by virtue of which it could be,
assessed or charged to corporation tax by virtue of the provisions of Section
178(9), 179(11), 190 or 191 TCGA or paragraph 68 of Schedule 29 FA 2002 by
reason of another group Purchased Subsidiary having failed to discharge its
liability to corporation tax and is not entitled to recover or liable to have
recovered from it any sums paid pursuant to any of those sections;

 

(G) ceased to be a member of a group of companies in such circumstances that a
profit or gain was deemed to accrue to it by virtue of Section 178, 179 or
paragraph 37 of Schedule 7AC TCGA or by paragraph 58 of Schedule 29 FA 2002 and
neither the execution or this Agreement nor Completion will result in any profit
or gain being deemed to accrue to it if for any Tax purpose whether pursuant to
Section 179 or Schedule 7AC TCGA, Schedule 29 FA 2002 or otherwise;

 

(H) entered into an election pursuant to Section 171 A TCGA whereby a disposal
of an asset by the Purchased Subsidiary was treated as having been made by
another member of the same group of companies or a disposal of an asset by
another member of the same group of companies was treated as having been made by
the Purchased Subsidiary;

 

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(I) entered into an election pursuant to Section 179A TCGA or paragraph 66 of
Schedule 29 FA 2002 whereby a deemed gain or loss or a deemed debit or credit
accruing to another member of the same group of companies was treated as deeming
to accrue to the Purchased Subsidiary;

 

(J) entered into any group payment arrangements under the provisions of Section
36 FA 1998; or

 

(K) been subject to Tax in any jurisdiction outside the United Kingdom or had a
branch outside the United Kingdom or any permanent establishment (as that
expression is defined in the respective double taxation relief orders current at
the date of this Agreement) outside the United Kingdom.

 

(xii) No events have occurred or provision been made such that the Purchased
Subsidiary may have an additional liability to Tax by reason of the application
of Sections 770 and 770A and Schedule 28AA ICTA (transfer pricing).

 

(xiii) There is no outstanding Inland Revenue charge (as defined in Section 237
Inheritance Tax Act 1984) over any asset of the Purchased Subsidiary or over any
of the Purchased Subsidiary’s shares.

 

(xiv) The Purchased Subsidiary:

 

(A) is duly registered and is a taxable person for the purposes of VAT and such
registration is not subject to any conditions imposed by or agreed with the
Commissioners of Customs and Excise;

 

(B) has complied in all aspects with all statutory requirements, orders,
provisions, directions or conditions relating to VAT; and

 

(C) is not and has never been a member of a group for the purposes of section 43
Value Added Tax Act 1994.

 

(xv) The Purchased Subsidiary has no interest in any asset to which Part XV
Value Added Tax Regulations 1995 applies and has not made any election under
paragraph 2(1) Schedule 10 Value Added Tax Act 1994.

 

(xvi) All documents which are liable to stamp duty and which confer any right
upon the Purchased Subsidiary have been duly stamped and no document which
confers any right upon the Purchased Subsidiary and which is outside the United
Kingdom would attract stamp duty if it were brought into the United Kingdom and
there is no liability to any penalty in respect of such duty or circumstances
which may give rise to such a penalty.

 

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(xvii) The Balance Sheet fully provides for all Tax (on the basis of the rates
applicable to the financial year which ended on the Accounting Date) liable to
be assessed on or in respect of or by reference to:

 

(A) the profits, gains, income and earnings (whether actual or deemed) for any
period ended on or before the Accounting Date; or

 

(B) any distributions (within the meaning of Part VI or Section 418 ICTA) made
or deemed to be made on or before the Accounting Date; or

 

(C) any other transaction entered into or deemed to be entered into on or before
the Accounting Date.

 

(xviii) Stamp duty land tax has been paid in full in respect of all land
transactions to which stamp duty land tax applies and in respect of which the
Purchased Subsidiary is the purchaser within the meaning of section 43(4) FA
2003 and the Purchased Subsidiary has no liability or obligation (contingent or
otherwise) to submit a further land transaction return.

 

(xix) The Purchased Subsidiary has not claimed relief from stamp duty land tax
under Part 1 (group relief) or Part 2 (reconstruction and acquisition relief) of
Schedule 7 FA 2003 where the Purchased Subsidiary was a purchaser in respect of
a land transaction for the purposes of FA 2003.

 

(d) (i) Section 3.12 of the Disclosure Schedule lists all income, franchise and
similar Tax Returns (federal, state, local and foreign) filed with respect to
(A) the Purchased Subsidiary for taxable periods ended on or after January 1,
2002, (B) Tropical Sportswear International and Apparel Network Corporation for
taxable periods ended on or after September 29, 2001, (C) Savane International
Corporation for taxable periods ended on or after September 29, 2001, and (D)
Delta Merchandising Inc. and Duck Head Apparel Company for taxable periods ended
on or after June 30, 2001, indicates the most recent income, franchise or
similar Tax Return for each relevant jurisdiction for which an audit has been
completed or the statute of limitations has lapsed and indicates all Tax Returns
that currently are the subject of audit; (ii) the Sellers have delivered to the
Purchaser correct and complete copies of all federal, state and foreign income,
franchise and similar Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Purchased Subsidiary since
January 1, 2002, and the consolidated federal income Tax return filed by
Tropical Sportswear International Corp and its Subsidiaries, Apparel Network
Corporation, Savane International Corporation, TSI Brands, Inc. TSIL, Inc.,
Tropical Sportswear Company, and Delta Merchandising, Inc., for taxable period
ended on September 29, 2001 other than immaterial items and (iii) the Sellers
have delivered to the Purchaser a true and complete copy of any tax-sharing or
allocation agreement or arrangement involving the Purchased Subsidiary and any
other TSIC Entities and a true and complete description of any such unwritten or
informal agreement or arrangement.

 

(e) Each Seller represents and warrants that it has paid all applicable State of
Florida sales and use Tax on its initial purchase of the furniture, fixtures and
equipment to be conveyed to the Purchaser hereunder.

 

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SECTION 3.13. Contracts. (a) Section 3.13(a) of the Disclosure Schedule lists
each Contract in excess of $25,000 in value or relating to the performance or
provision of any services by or for the benefit of any of the Sellers for a term
of more than six months from the date of inception relating to the Business in
effect as of the date hereof that falls within any of the following categories
(collectively, “Material Contracts“):

 

(i) all Contracts and agreements that limit or purport to limit the ability of
the Business to compete in any line of business or with any Person or in any
geographic area or during any period of time;

 

(ii) all leases in respect of Leased Real Property;

 

(iii) any executory contracts for the printing or publishing, posting or mailing
of advertising materials for the Business;

 

(iv) any executory contracts providing for any credit programs for customers of
the Business;

 

(v) all Transferred IP Agreements other than licenses of commercially available
computer software;

 

(vi) all Contracts and agreements between or among the TSIC Entities, to the
extent relating to the Business (other than employee-related Contracts and
Contracts for the types of services contemplated by the Transition Services
Agreement), and any Affiliate of the TSIC Entities;

 

(vii) all Contracts pursuant to which a TSIC Entity made or expects to make
disbursements to vendors, or accruals in respect thereof, if any, in excess of
$100,000 in connection with the Business during the year ended December 31,
2004; and

 

(viii) all employment Contracts with members of senior management of the
Business that are not terminable without Liability;

 

(ix) all Contracts with respect to the establishment or maintenance of any
customer lists or customer databases;

 

(x) all material Contracts with respect to the shipping of the Business’ goods
and services;

 

(xi) all material buying Contracts;

 

(xii) the DIP Loan Facility; and

 

(xiii) all Designated Contracts.

 

(b) Except for such Material Contracts that have expired pursuant to their terms
and subject to the procedures set forth in Section 5.15(a) of this Agreement and
the entry of the Sale Approval Order by the Bankruptcy Court, upon the Sellers’
assumption of such Material

 

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Contracts that are Designated Contracts and are not otherwise excluded under
Section 2.02(b)(xi), and the payment by Sellers of the applicable Cure Costs,
each such Designated Contract will be a valid and binding obligation of the
applicable Seller and, to the Knowledge of the Sellers, the other parties
thereto. Upon entry of the Sale Approval Order, none of such Material Contracts
that are Designated Contracts will require the consent of any party to its
assignment, or the Sellers shall have obtained such consent if required, in
connection with the transactions contemplated hereby.

 

(c) Section 3.13(c) of the Disclosure Schedule sets forth all of the Cure Costs
to be satisfied by the Sellers for purposes of the Sellers’ assumption and
assignment to the Purchaser of the Designated Contracts under Section 365 of the
Bankruptcy Code as to be provided in the Sale Approval Order.

 

SECTION 3.14. Absence of Certain Changes, Events and Conditions. Since October
2, 2004, except as set forth in Section 3.14 of the Disclosure Schedule, the
TSIC Entities have not:

 

(a) made any redemption, repurchase or other acquisition of shares of capital
stock by a TSIC Entity, or any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to its capital stock;

 

(b) acquired, sold, transferred, leased, subleased, licensed or otherwise
disposed of any properties or assets, real, personal or mixed (including
leasehold interests and intangible property) of a TSIC Entity (related to the
Business), other than in the Ordinary Course of the Business;

 

(c) made any material changes in the customary methods of operations of the
Business, including practices and policies relating to manufacturing,
purchasing, Inventories, marketing, selling and pricing; or

 

(d) granted or announced any increase in the salaries, bonuses or other benefits
payable by such TSIC Entity to any of the Employees to be offered employment by
the Purchaser pursuant to Section 7.01, other than as required by Law, pursuant
to any plans, programs or Contracts existing on the date hereof or other
ordinary increases consistent with the past practices of the TSIC Entity other
than those bonuses approved by the Bankruptcy Court, provided that Purchaser
shall have no liability with respect to such bonuses.

 

SECTION 3.15. Labor Matters. Except as set forth in Section 3.15 of the
Disclosure Schedule, (a) no TSIC Entity is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by any
TSIC Entity, and currently there are no organizational campaigns, petitions or
other unionization activities seeking recognition of a collective bargaining
unit which could affect any TSIC Entity; (b) there are no strikes, slowdowns or
work stoppages pending or, to the Knowledge of the Sellers, threatened between
any TSIC Entity and any of their respective employees, and no TSIC Entity has
experienced any such strike, slowdown or work stoppage within the past three
years; (c) no TSIC Entity has breached or otherwise failed to comply with the
provisions of any collective

 

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bargaining or union Contract, and there are no grievances outstanding against
any TSIC Entity under any such agreement or Contract which would have a Material
Adverse Effect; (d) there are no unfair labor practice complaints pending
against any TSIC Entity before the National Labor Relations Board or any other
Governmental Authority or any current union representation questions involving
employees of any TSIC Entity which would have a Material Adverse Effect; (e)
each TSIC Entity is currently in compliance with all applicable Laws relating to
the employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of taxes and other sums as required
by the appropriate Governmental Authority, except to the extent that
non-compliance would not have a Material Adverse Effect, and has withheld and
paid to the appropriate Governmental Authority or is holding for payment not yet
due to such Governmental Authority all amounts required to be withheld from
employees of any TSIC Entity and is not liable for any arrears of wages, Taxes,
penalties or other sums for failure to comply with any of the foregoing; (f)
each TSIC Entity has paid in full to all its respective employees or adequately
accrued for in accordance with GAAP all wages, salaries, commissions, bonuses,
benefits and other compensation due to or on behalf of such employees; (g) there
is no claim with respect to payment of wages, salary or overtime pay that has
been asserted or is now pending or threatened before any Governmental Authority
with respect to any Persons currently or formerly employed by any TSIC Entity,
except as would not have a Material Adverse Effect; (h) no TSIC Entity is a
party to, or otherwise bound by, any consent decree with, or citation by, any
Governmental Authority relating to employees or employment practices, except as
would not have a Material Adverse Effect; (i) there is no charge or proceeding
with respect to a violation of any occupational safety or health standard that
has been asserted or is now pending or threatened with respect to any TSIC
Entity, except as would not have a Material Adverse Effect; and (j) there is no
charge of discrimination in employment or employment practices, for any reason,
including age, gender, race, religion or other legally protected category, which
has been asserted or is now pending or threatened before the United States Equal
Employment Opportunity Commission, or any other Governmental Authority in any
jurisdiction in which any TSIC Entity has employed or currently employs any
Person, except as would not have a Material Adverse Effect.

 

SECTION 3.16. Sufficiency of Assets. Except as set forth in Section 3.16 of the
Disclosure Schedule, the Purchased Assets, constitute all material assets used
in the operation of the Business.

 

SECTION 3.17. Tangible Personal Property. (a) Section 3.17(a) of the Disclosure
Schedule sets forth a true and complete list of all Tangible Personal Property
and any and all material ancillary documents pertaining thereto (including all
amendments, consents and evidence of commencement dates and expiration dates).

 

(b) The TSIC Entities have the full right to exercise any renewal options
contained in the leases and subleases pertaining to the Tangible Personal
Property on the terms and conditions therein and upon due exercise would be
entitled to enjoy the use of each item of leased Tangible Personal Property for
the full term of such renewal options.

 

SECTION 3.18. Receivables. Except to the extent, if any, reserved for on the
TSIC Balance Sheet, all Receivables reflected on the TSIC Balance Sheet arose
from, and the Receivables existing as of the Closing will have arisen from, the
sale of Inventories or services to

 

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Persons not affiliated with TSIC or any of its Subsidiaries and in the Ordinary
Course of the Business and, except as reserved against on the TSIC Balance
Sheet, constitute or will constitute, as the case may be, only valid, undisputed
Claims of TSIC or one of its Subsidiaries. To the Seller’s knowledge, all
Receivables reflected on the TSIC Balance Sheet or arising from the date thereof
until the Closing (subject to the reserve for bad debts, if any, reflected on
the TSIC Balance Sheet) are or will be good and have been collected or are or
will be collectible, without resort to litigation or extraordinary collection
activity, in the Ordinary Course of the Business. The Receivables Reserve
attached to Exhibit 2.10(a)(ii) has been established in accordance with GAAP and
past custom and practice and is substantially adequate to provide for all losses
which may be sustained on realization of the Receivables shown on the TSIC
Balance Sheet. Except as expressly set forth in this Section 3.18, the Sellers
are not making any representations or warranties with respect to the collection
of any Receivables.

 

SECTION 3.19. Inventories. Subject to amounts reserved therefor on the TSIC
Balance Sheet, and as detailed on Exhibit 2.10(a)(ii), the values at which all
Inventories are carried on the TSIC Balance Sheet reflect the historical
inventory valuation policy of TSIC of stating such Inventories at the lower of
cost (determined on the “first-in, first-out” method) or market value. The
Sellers have good and marketable title to the Inventories free and clear of all
Liens other than Permitted Liens. The Inventories (net of GAAP reserves) do not
consist of, in any material amount, items that are obsolete, damaged or
slow-moving. The Inventories net of reserves do not consist of any items held on
consignment. None of the TSIC Entities is under any obligation or liability with
respect to accepting returns of items of Inventories or merchandise in the
possession of its customers other than in the Ordinary Course of the Business
consistent with past practice. No clearance or extraordinary sale of the
Inventories has been conducted since October 2, 2004, other than in the Ordinary
Course of the Business. None of the TSIC Entities has acquired or committed to
acquire or manufacture Inventory for sale which is not of a quality and quantity
usable in the ordinary course of business within a reasonable period of time and
consistent with past practice, nor has any TSIC Entity changed the price of any
Inventories except for (a) price reductions to reflect any reduction in the cost
thereof to such TSIC Entity, (b) reductions and increases responsive to normal
competitive conditions and consistent with such TSIC Entity’s past sales
practices, (c) increases to reflect any increase in the cost thereof to such
TSIC Entity and (d) increases and reductions made with the written consent of
the Purchaser. Section 3.19 of the Disclosure Schedule is a complete list of the
addresses of all warehouses and other facilities in which the Inventories are
located. The Inventories are in good and merchantable condition in all material
respects, are suitable and usable for the purposes for which they are intended
and are in a condition such that they can be sold in the ordinary course of the
Business consistent with past practice. The Inventory Reserve attached to
Exhibit 2.10(a)(ii) has been established in accordance with GAAP and past custom
and practice and is substantially adequate to provide for all losses which may
be sustained with respect to the Inventories shown on the TSIC Balance Sheet.

 

SECTION 3.20. Customers. Listed in Section 3.20(a) of the Disclosure Schedule
are the names and addresses of the 20 most significant customers (by revenue) of
the Business for the 12-month period ended October 2, 2004, and the amount for
which each such customer was invoiced during such period. Except as set forth in
section 3.20(b) of the disclosure Schedule, none of the Sellers has received any
notice or has any reason to believe that any significant customer of the
Business has ceased, or will cease, to purchase materials, products or

 

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services of the Business or has substantially reduced, or will substantially
reduce, the purchase of products of the Business at any time. The Sellers shall
move for Bankruptcy Court authority to file Section 3.20 of the Disclosure
Schedule under seal pursuant to Federal Rule of Bankruptcy Procedure 9018;
provided, however, that the Sellers shall be permitted to provide Section 3.20
of the Disclosure Schedule to any Qualified Overbidder.

 

SECTION 3.21. Suppliers. Listed in Section 3.21 of the Disclosure Schedule are
the names and addresses of each of the 20 most significant suppliers of raw
materials, supplies, merchandise and other goods for the Business for the
12-month period ended October 2, 2004, and the amount for which each such
supplier invoiced the Business during such period. No Seller has received any
notice or has any reason to believe that any such supplier will not sell raw
materials, supplies, merchandise and other goods to the Business at any time
after the Closing on terms and conditions substantially similar to those used in
its current sales to the Business, subject only to general and customary price
increases.

 

SECTION 3.22. Insurance. Section 3.22 of the Disclosure Schedule lists all
policies of insurance owned or held by the TSIC Entities relating to the
Business, or insuring the Purchased Assets, including the type and amount of
coverage and the expiration dates of the policies. Except as set forth in
Section 3.22 of the Disclosure Schedule, (i) current premiums and any other
obligations under such insurance have been paid and all such policies are valid
and enforceable and in full force and effect on the date hereof, and (ii)
Sellers have not received any notice within the last ninety (90) days
threatening suspension, revocation, modification or cancellation of any
insurance policy or a material increase in any premium in connection therewith
or informing Sellers that any coverage listed in Section 3.22 of the Disclosure
Schedule will or may not be available in the future on substantially the same
terms as now in effect other than notices with respect to items that have been
cured.

 

SECTION 3.23. Related Person Transactions. No Affiliate, director, officer,
employee, agent, representative or other personnel of any TSIC Entity, nor any
spouse or child or other family member of any of them, or any Person affiliated
with any of them (each of the foregoing, a “Related Person”), has any interest
in any of the Purchased Assets or any other assets or properties relating to the
Business. No Related Person has owned, directly or indirectly, and whether on an
individual, joint or other basis, any equity interest (other than ownership by a
Person of less than 1% of the outstanding capital stock of a company as long as
the Person is not otherwise involved in the management of such company) or any
other financial or profit interest in a Person that has (i) had business
dealings with the Business or (ii) engaged in competition with the Business.
Except with respect to employment and compensation arrangements with employees
in the Ordinary Course of the Business, described in Section 3.23 of the
Disclosure Schedule, no Related Person is a party to any contract, agreement or
arrangement with, or has any claim or right against, or owes any amounts to, the
TSIC Entities in connection with the Business. All loans, payables and other
amounts due between a Related Person and any TSIC Entity or any of their
respective affiliates in connection with the Business are listed in Section 3.23
of the Disclosure Schedule.

 

SECTION 3.24. Public Filings. The SEC Reports, when filed with the Securities
and Exchange Commission (“SEC”), complied in all material respects with the
requirements of the Exchange Act, and the rules promulgated thereunder. As of
their respective dates, the SEC

 

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Reports did not contain an untrue statement of material fact or omit to state a
material fact required to be stated therein. The “SEC Reports” shall mean: (i)
the Annual Report on Form 10-K for the fiscal year ended September 27, 2003, and
any amendments thereto, filed or to be filed by TSIC with the SEC; (ii) all
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any
amendments thereto, filed after January 1, 2004 (or to be filed after the date
hereof) by TSIC with the SEC, and (iv) the Schedule l4A filed by TSIC on January
13, 2004; in each case (where applicable), together with all certifications
required pursuant to the Sarbanes-Oxley Act of 2002. The financial statements of
TSIC and its Subsidiaries included in SEC Reports (including the related notes)
complied or comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto (including,
without limitation, Regulation S-X), were prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Quarterly Report
Form 10-Q of the SEC) applied on a consistent basis during the periods and at
the dates involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial condition of TSIC and its Subsidiaries at the
dates thereof and the consolidated results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to notes and
normal year-end audit adjustments that were not, or with respect to any such
financial statements contained in any SEC Reports to be filed subsequent to the
date hereof are not reasonably expected to be, material in amount or effect).

 

SECTION 3.25. Product Liability. Except as set forth in Section 3.25 of the
Disclosure Schedule and as would not have a Material Adverse Effect, none of the
TSIC Entities has any Liability that relates to, or that arises out of, products
manufactured, shipped or sold by or on behalf of any TSIC Entity on or prior to
the Closing date (including claims of negligence, personal injury, product
damage, product liability, product warranties, promotional obligations, strict
liability, product recall, safety or regulatory compliance, infringement of
intellectual property or any other similar or related claims), whether such
Liability relates to or arises out of accidents, injuries or losses occurring on
or prior to or after the date hereof. The reserves on the TSIC Balance Sheet
established with respect to certain product liability indemnity claims represent
management’s best estimate of the Sellers’ contingent Liabilities with respect
to such Liabilities.

 

SECTION 3.26. Brokers. Except for A&M, no broker, finder or investment banker is
entitled to any brokerage, finder’s or other fee or commission in connection
with the transactions contemplated by this Agreement or the Ancillary Agreements
based upon arrangements made by or on behalf of each of the Sellers. Each of the
Sellers is solely responsible for the fees and expenses of A&M, if any. Should
any other broker make a claim for any brokerage, finder’s or other fee or
commission in connection with the transactions contemplated by this Agreement,
Sellers agree to indemnify and hold Purchaser harmless from and against all
costs relating to any claim by third parties for such fees and commissions
alleged to be due because of authorization or other action by Sellers. Purchaser
agrees to indemnify and hold Sellers harmless from and against all costs
relating to any claim by third parties for such fees and commissions alleged to
be due because of authorization or other action by Purchaser.

 

SECTION 3.27. Employees; WARN Act Compliance. Except as listed on Section 3.27
of the Disclosure Schedule, at no time within one year prior to the Closing
Date, have or will have the TSIC Entities effectuated with respect to any
Employee or former

 

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employee: (a) a “plant closing” (as defined in the WARN Act) affecting any site
of employment or one or more facilities or operating units within any site of
employment or facility; or (b) a “mass layoff” (as defined in the WARN Act)
affecting any site of employment or facility; nor have any of the TSIC Entities
been affected by any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of any similar Law. On
the Closing Date, the Sellers shall provide the Purchaser with an updated list
of the Employees or former employees, if any, who have experienced a layoff or
“employment loss” (as defined in the WARN Act or similar Law) from the date of
this Agreement to the Closing Date.

 

SECTION 3.28. DIP Loan Facility. As of the date hereof and prior to the
commencement of the Chapter 11 Cases, the Sellers shall have obtained a
commitment from their existing secured lenders and/or such other financing
sources as may be acceptable to the Purchaser (in its sole discretion) to make
available debtor-in-possession financing to, and allow use of cash collateral
by, the Business in such amounts and on such terms and conditions as will
provide the Sellers with adequate financing to maintain the Business without
Material Adverse Effect through the Closing Date (the “DIP Loan Facility”). Any
failure to (i) promptly obtain preliminary and final Bankruptcy Court approval
of the DIP Loan Facility in the Chapter 11 Cases in the manner contemplated by
the applicable sections of the Bankruptcy Code, or (ii) maintain financing under
the DIP Loan Facility through the Closing Date may be deemed a Material Adverse
Effect by the Purchaser. Set forth on Schedule 3.28(a) is a list of all UCC
filings currently in effect covering the Purchased Assets.

 

SECTION 3.29. First Day Relief. Section 3.29 of the Disclosure Schedule lists
all motions, applications, notices and proposed orders that the Sellers
reasonably anticipate as of the date hereof will be required to be filed with
the Bankruptcy Court immediately following the commencement of the Chapter 11
Cases (or within a reasonable time thereafter as indicated in Section 3.29 of
the Disclosure Schedule) in order to maintain the Business without interruption
or occurrence of other Material Adverse Effect pending the Closing Date (the
“First Day Relief”).

 

SECTION 3.30. Purchased Subsidiary. The Sellers make the additional
representations and warranties set forth in Exhibit 3.30 hereto with respect to
the Purchased Subsidiary, which representations and warranties are incorporated
by reference herein and made an integral part of this Agreement as if fully set
forth herein.

 

SECTION 3.31. Full Disclosure. (a) Sellers are not aware of any facts pertaining
to the TSIC Entities, the Purchased Assets, the Assumed Liabilities or the
Business which would have a Material Adverse Effect and which have not been
disclosed in this Agreement, the Disclosure Schedule, the Exhibits, the
Financial Statements, any written statement, certificate or due diligence
response of the Sellers or any Representative, or otherwise disclosed to the
Purchaser by the Sellers in writing.

 

(b) No representation or warranty of the Sellers in this Agreement, the
Disclosure Schedule and the Exhibits, nor any written statement, certificate or
due diligence response of the Sellers or any Representative furnished or to be
furnished to the Purchaser pursuant to this Agreement, or in connection with the
transactions contemplated by this Agreement, knowingly contains or will contain
any untrue statement of a material fact, or knowingly omits or will omit

 

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to state a material fact necessary to make the statements contained herein or
therein not misleading.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

OF THE PURCHASER

 

The Purchaser hereby represents and warrants to each of the Sellers as follows:

 

SECTION 4.01. Organization and Authority of the Purchaser. The Purchaser is a
corporation duly organized, validly existing and in good standing under the Laws
of the jurisdiction of its incorporation and has all necessary corporate power
and authority to enter into this Agreement and the Ancillary Agreements to which
it is a party, to carry out its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The Purchaser is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its business makes such licensing or qualification necessary, except to the
extent that the failure to be so licensed, qualified or in good standing would
not materially adversely affect the ability of the Purchaser to carry out its
obligations under, and to consummate the transactions contemplated by, this
Agreement and the Ancillary Agreements. The execution and delivery by the
Purchaser of this Agreement and the Ancillary Agreements to which it is a party,
the performance by the Purchaser of its obligations hereunder and thereunder and
the consummation by the Purchaser of the transactions contemplated hereby and
thereby have been duly authorized by all requisite corporate action on the part
of the Purchaser. This Agreement has been, and upon their execution the
Ancillary Agreements to which the Purchaser is a party shall have been, duly
executed and delivered by the Purchaser, and (assuming due authorization,
execution and delivery by the Sellers) this Agreement constitutes, and upon
their execution the Ancillary Agreements to which the Purchaser is a party shall
constitute, legal, valid and binding obligations of the Purchaser, enforceable
against the Purchaser in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium or similar Laws now or
hereafter in effect relating to creditors’ rights generally and subject to
general principles of equity.

 

SECTION 4.02. No Conflict. Subject to obtaining the approval of the Bankruptcy
Court and assuming that all consents, approvals, authorizations and other
actions referred to in Section 4.03 have been obtained, the execution, delivery
and performance by the Purchaser of this Agreement and the Ancillary Agreements
to which it is a party do not and will not (a) violate, conflict with or result
in the breach of any provision of the certificate of incorporation or bylaws (or
similar organizational documents) of the Purchaser, (b) conflict with or violate
any Law or Governmental Order applicable to the Purchaser or its respective
assets, properties or businesses or (c) conflict with, result in any breach of,
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, require any consent under, or give to
others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, any note, bond, mortgage or indenture, Contract,
agreement, lease, sublease, license, permit, franchise or other instrument or
arrangement to

 

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which the Purchaser is a party, except, in the case of clauses (b) and (c), as
would not materially adversely affect the ability of the Purchaser to carry out
its obligations under, and to consummate the transactions contemplated by, this
Agreement and the Ancillary Agreements.

 

SECTION 4.03. Governmental Consents and Approvals. Subject to obtaining the
approval of the Bankruptcy Court, the execution, delivery and performance by the
Purchaser of this Agreement and each Ancillary Agreement to which the Purchaser
is a party do not and will not require any consent, approval, authorization or
other order of, action by, filing with, or notification to, any Governmental
Authority, except (a) the pre-merger notification and waiting period
requirements of the HSR Act and the requirements of the antitrust Laws of any
other relevant jurisdiction, (b) where failure to obtain such consent, approval,
authorization or action, or to make such filing or notification, would not
prevent or materially delay the consummation by the Purchaser of the
transactions contemplated by this Agreement and the Ancillary Agreements, (c)
any filings or approvals as may be required under U.S. federal and state
securities laws, or (d) as may be necessary as a result of any facts or
circumstances relating solely to the Sellers or their Affiliates.

 

SECTION 4.04. Financing. The Purchaser has or will have not later than the
Business Day next preceding the Closing Date sufficient immediately available
funds to pay, in cash, the Purchase Price (less the Purchaser’s Deposit paid to
the Escrow Agent on the date hereof as provided in Section 2.11 of this
Agreement) and all other amounts payable pursuant to this Agreement and the
Ancillary Agreements necessary to consummate all the transactions contemplated
hereby and thereby.

 

SECTION 4.05. Investment and Purpose. The Purchaser is acquiring the Purchased
Stock solely for the purpose of investment and not with a view to, or for offer
or sale in connection with, any distribution thereof. The Purchaser is an
“accredited investor” within the meaning of Rule 501 of Regulation D under the
Securities Act of 1933, as amended.

 

SECTION 4.06. Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Purchaser. The Purchaser shall be solely responsible for
payment of the fees and expenses of any broker or finder engaged by or on its
behalf in connection with the negotiation, execution, delivery or performance of
this Agreement.

 

SECTION 4.07. Sales Tax. (a) The Purchaser is properly registered with all
Governmental Authorities to collect and remit sales, use and other applicable
Taxes in each jurisdiction where Inventories are located on the Closing Date;
(b) the Purchaser has the right in each jurisdiction where Inventories are
located on the Closing Date to give Sellers a resale or other exemption
certificate relieving Sellers from any obligation to collect sales, use or other
Taxes otherwise applicable to the sale of the Inventories to Purchaser and such
resale or other exemption certificates shall have been delivered to Sellers on
or before the Closing Date; (c) the Purchaser shall at all times subsequent to
the Closing Date, hold all Inventories acquired by it from Sellers exclusively
for sale to customers in the regular course of Purchaser’s business; (d) the
Purchaser has not engaged, and is not acquiring any of the Purchased Assets by
or

 

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through an auctioneer, agent, broker, factor, or any other person required to be
registered and to collect sales, use or other Taxes.

 

ARTICLE V

 

ADDITIONAL AGREEMENTS

 

SECTION 5.01. Conduct of Business Prior to the Closing. Each of the Sellers
covenants and agrees that, except as required by the Bankruptcy Court or
applicable Law, or as may otherwise be approved in advance in writing by the
Purchaser, between the date hereof and the Closing, each of the Sellers shall
use its commercially reasonable efforts in the context of its Chapter 11 Case
(i) to conduct its businesses in the ordinary course in all material respects
and (ii) to preserve intact in all material respects the business organization
of the Business. Except as permitted or required by the DIP Loan Facility, or
required by the Bankruptcy Court or applicable Law, each Seller covenants and
agrees that, between the date hereof and the Closing, without the prior written
consent of the Purchaser, each TSIC Entity, will not:

 

(a) permit, other than in the Ordinary Course of the Business in arm’s-length
third-party transactions or as may be required by Law or a Governmental
Authority, any of the Purchased Assets (real or personal, tangible or
intangible) to be sold, licensed, abandoned or subjected to any Lien other than
Permitted Liens;

 

(b) acquire, sell, lease, license, transfer or dispose of any Real Property,
Real Property interest or other asset that would otherwise be a Purchased Asset
except in the Ordinary Course of the Business in arm’s-length third-party
transactions;

 

(c) enter, terminate or materially extend or materially modify any Contract,
except in the Ordinary Course of the Business consistent with past practice in
arm’s-length third-party transactions (and such TSIC Entity will continue
performance in the ordinary course of its obligations under any Contracts, and
other obligations to be included as part of the Purchased Assets);

 

(d) make or consent to any material changes to its existing policies of
insurance related to the Business or the Purchased Assets;

 

(e) enter into any lease of real or personal property or any renewals thereof
involving a term of more than one year or rental obligation exceeding fifteen
thousand dollars ($15,000) per annum in any single case;

 

(f) make any single new commitment or increase any single previous commitment
for capital expenditures for the Business in an amount exceeding ten thousand
dollars ($25,000), except as listed on Section 5.01(f) of the Disclosure
Schedule;

 

(g) accelerate or delay the sale of the products of the Business, except as may
be necessary in the Ordinary Course of the Business in arm’s-length third-party
transactions;

 

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(h) take any action that would cause the level, mix and quality of the
Inventories to be inconsistent with the Ordinary Course of the Business;

 

(i) except in the Ordinary Course of the Business, enter into any transaction,
Contract or commitment or incur or permit the incurrence of any obligation or
Liability which would constitute an Assumed Liability;

 

(j) waive any right of substantial value, cancel any Indebtedness or Claim
except in the Ordinary Course of the Business in arm’s-length third-party
transactions or voluntarily suffer any extraordinary loss;

 

(k) sell, assign, transfer, license, abandon or convey any of its Intellectual
Property;

 

(l) make any change in accounting methods or principles or cost allocation
procedures that would affect the financial statements of the Business;

 

(m) except as would not adversely affect Purchaser, change any method of Tax
accounting, make any material Tax election, file any Tax Return other than in a
manner consistent with past practice, or settle any material Tax Claim;

 

(n) do or omit to do any other act which would cause (i) any representation or
warranty of the Sellers in this Agreement or any Ancillary Agreement to be or
become untrue in any material respect or intentionally omit to take any action
necessary to prevent any such representation or warranty from being untrue in
any material respect at such time or (ii) any material non-compliance by any of
the Sellers with any Laws or Governmental Permits applicable to the Business;

 

(o) cause or allow the Purchased Subsidiary to dividend or otherwise distribute,
whether to an Affiliate thereof or any other Person, any of the Purchased
Subsidiary’s cash or cash equivalents, other than repayment by the Purchased
Subsidiary of the Hong Kong Note Payable from the proceeds of a capital
contribution to the Purchased Subsidiary; or

 

(p) enter into any agreement or commitment with respect to any of the foregoing.

 

SECTION 5.02. Access to Information. From the date hereof until the Closing,
upon reasonable notice, each Seller shall, and shall cause its respective
Representatives to, (i) afford the Purchaser and its financing sources and their
respective authorized Representatives reasonable access during normal business
hours to the offices, properties, plants, other facilities, books and records
and other information of the TSIC Entities relating to the Business, as well as
to those Representatives of such Seller who have knowledge relating to the
Business, and (ii) furnish to the Representatives of the Purchaser such
additional financial and operating data and other information regarding the
Business (or copies thereof), including each report, schedule, and other
document filed or received by them pursuant to the requirements of United States
federal or state securities laws, as the Purchaser may from time to time
reasonably request. No investigation or receipt of information by the Purchaser
pursuant to, or in connection with, this

 

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Agreement, shall diminish or obviate any of the representations, warranties,
covenants or agreements of the Sellers under this Agreement or the conditions to
the obligations of the Purchaser under this Agreement.

 

SECTION 5.03. Confidentiality. (a) The terms of the confidentiality agreement
dated as of November 9, 2004 (the “Confidentiality Agreement“) between TSIC and
PEI are hereby incorporated herein by reference and shall continue in full force
and effect until the Closing, at which time such Confidentiality Agreement and
the obligations of the Purchaser under this Section 5.03 shall terminate;
provided, however, that the Confidentiality Agreement shall terminate only in
respect of that portion of the Confidential Information (as defined in the
Confidentiality Agreement) exclusively relating to the transactions contemplated
by this Agreement. If this Agreement is, for any reason, terminated prior to the
Closing, the Confidentiality Agreement shall nonetheless continue in full force
and effect.

 

(b) The Purchaser acknowledges and agrees that any Confidential Information
provided to the Purchaser pursuant to Section 5.02 or otherwise by the Sellers
or any officer, director, employee, agent, representative, accountant or counsel
thereof shall be subject to the terms and conditions of the Confidentiality
Agreement.

 

(c) Notwithstanding anything herein to the contrary, each party hereto (and its
representatives, agents and employees) may consult any Tax advisor regarding the
Tax treatment and Tax structure of the transactions contemplated hereby, and may
disclose to any Person, without limitation of any kind, the Tax treatment and
Tax structure of such transactions and all materials (including opinions and
other Tax analyses) that are provided relating to such treatment or structure.

 

SECTION 5.04. Regulatory and Other Authorizations; Notices and Consents. (a) The
Sellers shall use all reasonable best efforts to promptly obtain all
authorizations, consents, orders and approvals of all Governmental Authorities
and officials that may be or become necessary for their execution and delivery
of, and the performance of their obligations pursuant to, this Agreement and the
Ancillary Agreements, and will cooperate fully with the Purchaser in promptly
seeking to obtain all such authorizations, consents, orders and approvals. Each
party hereto agrees to make promptly its respective filings, if necessary,
pursuant to the HSR Act with respect to the transactions contemplated by this
Agreement within ten Business Days of the entry of the date of the Bidding
Procedures Order, and to supply as promptly as practicable to the appropriate
Governmental Authorities any additional information and documentary material
that may be requested pursuant to the HSR Act; provided, however, that the
Purchaser and the Sellers agree that neither of them will make any voluntary
filing under applicable foreign antitrust laws or regulations unless advised by
legal counsel in such jurisdiction that the failure to make a filing would
result in a Material Adverse Effect or otherwise be in violation of Applicable
Law.

 

(b) The Sellers shall give promptly such notices to third parties (and use their
reasonable best efforts to obtain such third party consents and estoppel
certificates) as the Purchaser may in its sole discretion deem necessary or
desirable in connection with the transactions contemplated by this Agreement and
the Ancillary Agreements.

 

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(c) The Purchaser shall cooperate and use all reasonable efforts to assist the
Sellers in giving such notices and obtaining such consents and estoppel
certificates; provided, however, that the Purchaser shall have no obligation to
give any guarantee or other consideration of any nature in connection with any
such notice, consent or estoppel certificate or to consent to any change in the
terms of any agreement or arrangement which the Purchaser in its sole discretion
may deem adverse to the interests of the Purchaser or the Business.

 

(d) The Sellers and the Purchaser agree that, in the event that any consent,
approval or authorization necessary or desirable to preserve for the Business
any right or benefit under any lease, license, contract, commitment or other
agreement or arrangement to which any of the Sellers is a party is not obtained
prior to the Closing, the Sellers will, subsequent to the Closing, cooperate
with the Purchaser in attempting to obtain such consent, approval or
authorization as promptly thereafter as practicable. If such consent, approval
or authorization cannot be obtained, the Sellers shall use their reasonable best
efforts to provide the Purchaser with the rights and benefits of the affected
lease, license, contract, commitment or other agreement or arrangement for the
term of such lease, license, contract or other agreement or arrangement, and, if
the Sellers provides such rights and benefits, the Purchaser shall assume the
obligations and burdens thereunder.

 

SECTION 5.05. Notice of Developments. Prior to the Closing, Sellers shall
promptly notify the Purchaser in writing of (a) all state of fact, events,
circumstances, changes and occurrences arising subsequent to the date of this
Agreement which could result in the occurrence of a Material Adverse Effect or
any breach of a representation or warranty or covenant of the Sellers in this
Agreement known to the Sellers or which could have the effect of making any
representation or warranty of the Sellers in this Agreement untrue or incorrect
in any respect and shall promptly deliver to the Purchaser an amended or
supplemental Disclosure Schedule to such representation or warranty, and (b) all
other material developments affecting the assets, Liabilities, business,
financial condition, operations, results of operations, customer or supplier
relations or prospects of the Business; provided, however, that delivery of any
such notice shall not limit or otherwise affect the remedies available to the
Purchaser hereunder. No notification to the Purchaser under this Section 5.05
shall be deemed to cure any breach or default or event of default by the Sellers
or render any representation or warranty of the Sellers incomplete or
inaccurate.

 

SECTION 5.06. Excluded Liabilities. The Sellers shall pay and fully discharge
(i) the Excluded Liabilities as and when the same become due and payable and
(ii) the Hong Kong Note Payable as soon as practicable but not later than 20
Business Days after the date hereof.

 

SECTION 5.07. Risk of Loss. The risk of loss, damage or impairment by fire or
other casualty or for any other reason to any Purchased Asset before the Closing
is assumed by the Sellers. In the event that any Purchased Asset shall suffer
any fire or casualty or any injury, the Sellers agree to (i) repair the damage
at their sole cost and expense before the Closing Date, or (ii) make an
appropriate reduction in the Purchase Price based on a reasonable approximation
of the cost of such repair as agreed by the parties, or (iii) assign to the
Purchaser the proceeds of any insurances covering such fire, casualty or injury.

 

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SECTION 5.08. Bulk Transfer Laws. The Purchaser hereby waives compliance by the
Sellers with any applicable bulk sale or bulk transfer Laws of any jurisdiction
in connection with the sale of the Purchased Assets to the Purchaser. Pursuant
to Article IX, the Sellers have agreed to indemnify the Purchaser against any
and all liabilities which may be asserted by third parties against the Purchaser
as a result of the Sellers’ noncompliance with any such law.

 

SECTION 5.09. Cooperation. The Sellers shall cooperate with the Purchaser, its
auditors and other representatives (through and after the Closing), including by
making available in a timely manner their relevant personnel and providing
timely access to their books and records to the extent related to the Business
or the Purchased Subsidiary, in connection with the Purchaser’s preparation of
the Closing Receivables/Inventories Statement as may be required by the
Purchaser. As soon as practicable after the date hereof, but in no event later
than the Closing Date, Sellers shall furnish to the Purchaser financial
information with respect to the Business and the Purchased Subsidiary as of and
for periods during which the Business and the Purchased Subsidiary were owned
and operated by the Sellers, in a form reasonably satisfactory to the Purchaser,
as shall be required to be included in or is otherwise reasonably necessary in
connection with the preparation of, any and all filings, statements, reports or
schedules under the Exchange Act to be filed by the Purchaser in connection
with, or with respect to, the transactions contemplated by this Agreement
(including such historical and pro forma financial information as may be
required by SEC Regulations S-X or S-K, SEC Forms 10-K, 10-Q and 8-K under the
Exchange Act). After the Closing, the Purchaser shall reasonably cooperate with
the Sellers, their auditors and other representatives, including by making
available during normal business hours its relevant personnel and providing
timely access to its books and records when Sellers’ have a legitimate purpose
for such books and records relating to the assets, liabilities and operations of
the Business and the Purchased Subsidiary prior to Closing. Sellers and their
representatives shall have the right to make copies of such books and records in
connection with such legitimate purpose. The Purchaser will not destroy the
Sellers’ accounting records without at least 10 days’ prior written notice to
the Sellers.

 

SECTION 5.10. Further Action. The parties hereto shall use all reasonable best
efforts to take, or cause to be taken, all appropriate action, to do or cause to
be done all things necessary, proper or advisable under applicable Law, and to
execute and deliver such documents and other papers, as may be required to carry
out the provisions of this Agreement and the Ancillary Agreements and to
consummate and make effective the transactions contemplated hereby and thereby,
including the Sellers using all reasonable best efforts to obtain consents to
assignment to Purchaser of all license agreements which are Designated Contracts
to which Subsidiaries of TSIC which are not debtors in the Chapter 11 Cases are
a party.

 

SECTION 5.11. Tax Indemnification, Tax Cooperation and Exchange of Information.
(a) Taxes Indemnified. Subject to the terms and conditions of this Agreement, in
addition to any indemnity obligations of the Sellers contained in Article IX,
Sellers shall indemnify and hold harmless the Purchaser for:

 

(i) all Taxes imposed by any Taxation Authority payable by the Purchased
Subsidiary (except to the extent that adequate provision has been made for that
purpose in the Financial Statements of the Purchased Subsidiary), which arise as
a result of, in

 

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connection with, or in relation to any Event which occurs or arises on or prior
to the Closing Date; and

 

(ii) all Taxes imposed on the Sellers resulting directly or indirectly from the
disposition of the Purchased Subsidiary.

 

(b) Straddle Period. In the case of Taxes payable by the Purchased Subsidiary
with respect to a taxable period that begins before the Closing Date and ends
after the Closing Date, the portion of any such Taxes that is allocable to the
period ending on the Closing Date shall be (except to the extent that adequate
provision has been made for that purpose in the Stand-Alone Financial Statements
of the Purchased Subsidiary):

 

(i) in the case of corporate income tax, deemed to be the amount of such Tax for
the aforementioned entire taxable period multiplied by a fraction the numerator
of which is the number of calendar days in the portion of such period ending on
the Closing Date and the denominator of which is the number of calendar days in
the entire period, and

 

(ii) in the case of all other Taxes (including dividend withholding tax and
VAT), deemed equal to the amount which would be payable if the taxable period
ended on the Closing Date.

 

(c) Quantification.

 

For the purposes of Section 5.11(a) and (b) the amount of any liability to Tax
imposed on the Purchased Subsidiary will be determined as follows:

 

(i) where the Purchased Subsidiary is liable to make an actual payment of Tax
the amount of the liability to Tax will be the amount of the actual payment of
Tax which the Purchased Subsidiary is liable to make;

 

(ii) where the Purchased Subsidiary uses any Deferred Relief (in whole or in
part) to reduce or eliminate any liability of the Purchased Subsidiary to make
an actual payment of Tax in respect of which the Sellers would otherwise have
been liable under Section 5.11(a) (whether or not the Purchased Subsidiary is
primarily so liable and whether or not the Purchased Subsidiary has any right of
recovery against any other person) the amount of the liability to Tax will be
the amount of Tax saved by the Purchased Subsidiary as a result of the use of
the Deferred Relief; and

 

(iii) where the Purchased Subsidiary loses any Deferred Relief (in whole or in
part) the amount of the liability to Tax will be: (A) the amount of Tax which
would have been saved by the Purchased Subsidiary but for the loss of the
Deferred Relief on the basis of the rates of Tax effective at the date of the
loss, assuming for this purpose that the Purchased Subsidiary had sufficient
profits or was otherwise in a position actually to use the Deferred Relief; or
(B) if the Deferred Relief lost was a right to a repayment of Tax, the amount of
the repayment of Tax so lost.

 

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(d) Deductions from payments.

 

(i) Except as required by law all payments by the Sellers under Section 5.11(a)
will be made free and clear of all deductions and withholdings in respect of
Tax.

 

(ii) If any deduction or withholding is required by any applicable law to be
made from any payment by the Sellers under Section 5.11(a) or if (ignoring any
available Relief) the Purchaser is subject to Tax in respect of any payment by
the Sellers under Section 5.11(a) the Sellers shall pay to the Purchaser such
additional amount as is necessary to ensure that the net amount received and
retained by the Purchaser (after taking account of such deduction or withholding
or Tax) is equal to the amount which it would have received and retained had the
payment in question not been subject to the deduction or withholding or Tax.

 

(e) Due date for payment.

 

(i) The due date for the making of a payment by the Sellers under Section
5.11(a) will be: (A) the date falling 5 Business Days after the Purchaser has
served notice on the Sellers demanding such payment; or (B) in any case
involving a liability of the Purchased Subsidiary to make an actual payment of
Tax, the later of the date mentioned in Section 5.11(e)(i)(A) and the date
falling 5 Business Days before the last date upon which the payment is required
to be made to the person entitled to the payment; or ( C) in any case involving
the use of any Deferred Relief as referred to in Section 5.11(c)(ii), the later
of the date mentioned in Section 5.11(e)(i)(A) and the date falling 5 Business
Days before the last date upon which the payment of Tax which has been reduced
or eliminated by the use of a Deferred Relief is or would have been required to
be made to the relevant Taxation Authority; or. (D) in any case involving the
loss of a Deferred Relief other than the right to repayment of Tax, the later of
the date mentioned in Section 5.11(e)(i)(A) and the date falling 5 clear
Business Days before the last date upon which the payment of Tax is or would be
required to be made in. respect of the accounting period in which the Deferred
Relief is lost; or (E) if the Deferred Relief lost was a right to a repayment of
Taxation, the later of the date mentioned in Section 5.11(e)(i)(A) and the date
upon which the repayment was due from tile Taxation Authority.

 

(f) Returns and Payments.

 

(i) With respect to any Tax Return that has not yet been filed but is required
to be filed by the Purchased Subsidiary prior to the Closing Date:

 

(A) The Purchased Subsidiary shall, and the Sellers shall cause the Purchased
Subsidiary to, prepare and file in a timely manner all Tax Returns required to
be filed by the Purchased Subsidiary and pay all Taxes shown to be due thereon;

 

(B) Such Tax Returns shall be true, correct and complete in all material
respects and items thereon shall be treated in a manner consistent with their
treatment on prior Tax Returns in accordance with the applicable law of the
United Kingdom; and

 

(C) The Sellers and their authorized representatives shall have the right to
review such Tax Return and statement prior to the filing of such Tax Return and

 

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the parties agree to consult and to attempt in good faith to resolve any issues
arising as a result of such review.

 

(ii) With respect to any Tax Returns required to be filed with respect to the
Purchased Subsidiary after the Closing Date and as to which an amount of Tax is
allocable to the Sellers under Section 5.11(a):

 

(A) The Purchased Subsidiary shall, and the Purchaser shall cause the Purchased
Subsidiary to, prepare and file in a timely manner all Tax Returns required to
be filed by the Purchased Subsidiary after the Closing Date and pay all Taxes
shown to be due thereon;

 

(B) Such Tax Returns shall be true, correct and complete in all material
respects and items thereon shall be treated in a manner consistent with their
treatment on prior Tax Returns in accordance with the applicable law of the
United Kingdom; and

 

(C) The Purchaser and its authorized Representatives shall have the right to
review such Tax Return and statement prior to the filing of such Tax Return, and
the parties agree to consult and to attempt in good faith to resolve any issues
arising as a result of such review.

 

(g) Refunds. Any refunds of Taxes received by the Purchased Subsidiary (and any
equivalent benefit to any such company through a reduction in tax liability for
a post Closing Date period) relating to taxable periods ending on or prior to
the Closing Date (or the portion of the taxable period including such date that
precedes and includes the Closing Date in accordance with Section 5.11(c), other
than a Deferred Relief, shall be for the account of the Sellers, and the
Purchaser shall pay over to the Sellers any such refund pursuant to this Section
5.11(e) within five (5) Business Days of receipt thereof.

 

(h) Contests.

 

(i) After the Closing Date, the Purchaser shall, or shall cause the Purchased
Subsidiary to, notify the Sellers in writing promptly upon the commencement of
any Tax audit or administrative or judicial proceeding or the receipt by the
Purchaser or the Purchased Subsidiary of any request issued by any Taxation
Authority for documents in connection with Taxes which are the subject of the
indemnities provided for in Section 5.11(a) (but in any event within no later
than ten (10) Business Days of such receipt by the Purchaser or the Purchased
Subsidiary) which, could give rise to a Sellers’ liability under Section 5.11,
provided the giving of such notice will not be a condition precedent to the
liability of the Sellers under this Section 5.11, and shall also separately
notify the Sellers in writing of any proposed or final demand or claim on the
Purchaser or the Purchased Subsidiary which, if determined adversely to the
taxpayer or after the lapse of time, would be grounds for indemnification by the
Tax Indemnifying Parties under Section 5.11(a). Each such notice shall contain
factual information (to the extent known to the Purchaser or the Purchased
Subsidiary) describing the asserted Tax liability in

 

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reasonable detail and shall include copies of any notice or other document
received from any Tax Authority in respect of any such asserted Tax liability.

 

(ii) If the Purchaser or the Purchased Subsidiary fail to give the Sellers
prompt notice of an asserted Tax liability as required by Section 5.11(h)(i) and
if the Sellers are precluded by such failure to give prompt notice from
contesting the asserted Tax liability in both the administrative and judicial
forums, the Sellers shall not have any obligation to indemnify for any loss or
damage arising out of such asserted Tax liability, and (ii) if the Sellers are
not so precluded from contesting but such failure to give prompt notice results
in additional liabilities, expenses or other detriment to the Sellers, then any
amount which the Sellers otherwise are required to pay to the Purchaser or the
Purchased Subsidiary pursuant to this Section 5.11 with respect to such
liability shall be reduced by the amount of such detriment; provided however,
that such detriment is duly substantiated by the Sellers.

 

(iii) The Sellers may direct, through counsel of their own choosing and at their
own expense, any audit, claim for refund and administrative or judicial
proceeding to the extent it involves any asserted liability with respect to
which indemnity by the Sellers may be sought under this Section 5.11 (any such
audit, claim for refund or proceeding relating to an asserted Tax liability are
referred to herein collectively as a “Contest”). If the Sellers choose to direct
the Contest, the Purchaser or the Purchased Subsidiary, as applicable, shall
promptly empower (by power of attorney and such other documentation as may be
appropriate) such of Sellers’ representatives as Sellers may designate to
represent the Purchaser or the Purchased Subsidiary insofar as the Contest
involves an asserted Tax liability for which the Sellers would be liable under
this Section 5.11.

 

(iv) The Sellers shall consult with respect to, and a reasonable amount of time
in advance of, the settlement of any Contest controlled by the Sellers pursuant
to this paragraph, and the Sellers may not settle any such Contest or transmit
any material communication (whether oral, in writing or otherwise) to any
Taxation Authority in connection with such Contest, or transmit any material
communication (whether oral, in writing or otherwise) to any Taxation Authority
in connection with such Contest, without the prior written consent of the
Purchaser or the Purchased Subsidiary, as applicable (which consent shall not be
unreasonably withheld or delayed).

 

(v) If the Sellers elect not to direct the Contest, the Purchaser or the
Purchased Subsidiary, as the case may be, may pay, compromise or contest such
asserted liability as it sees fit, and shall be reimbursed by the Sellers for
reasonable costs of outside tax advisors and related professionals and
reasonable out of pocket costs (for all of which appropriate supporting
documentation shall be provided) incurred in connection with a Tax liability
ultimately determined to be indemnifiable by the Sellers hereunder.

 

(vi) The Sellers and Purchaser shall cooperate in respect of any Contest.

 

Such cooperation and information shall include providing copies of relevant Tax
Returns or portions thereof, together with accompanying schedules and related
work papers and documents relating to rulings or other determinations by
Taxation Authorities. The Sellers and the

 

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Purchaser will make themselves (and their respective employees) available, on a
mutually convenient basis, to provide explanations of any documents or
information provided under this Section 5.11.

 

(c) Certain Audit Adjustments.

 

(i) If (at the Sellers’ request and expense) the auditors of the Purchased
Subsidiary determine that the Purchased Subsidiary has obtained a Saving, the
Purchaser will offset such Saving against any outstanding claim under section
5.11(a) of which it has given notification to the Sellers.

 

(ii) To the extent that no claim is outstanding the Purchaser will as soon as
reasonably practicable thereafter repay to the Sellers the lesser of: (A) the
amount of the Saving (as determined by the auditors of the Purchased
Subsidiary); and (B) the amount paid by the Sellers under section 5.11(a) in
respect of the liability to Tax which gave rise to the Saving less any part of
that amount previously repaid to the Sellers under any provision of this
Agreement or otherwise.

 

(iii) The Purchased Subsidiary will not obtain a Saving until the last date upon
which it would have been obliged to make the actual payment of corporation tax
which has been reduced or eliminated in order to avoid incurring interest
thereon.

 

(iv) In determining whether the Purchased Subsidiary has obtained a Saving, the
auditors of the Purchased Subsidiary will act as experts and not as arbitrators
and their determination will (in the absence of manifest error) be conclusive
and binding on the parties.

 

SECTION 5.12. Cooperation Regarding Property and Transfer Taxes. (a) With
respect to Property Taxes to be prorated in accordance with Section 2.12 of this
Agreement, Purchaser shall prepare and timely file all Tax Returns required to
be filed after the Closing with respect to the Purchased Assets, if any, and
shall duly and timely pay all such Property Taxes shown to be due on such Tax
Returns. Purchaser’s preparation of any such Tax Returns shall be subject to
Sellers’ approval, which approval shall not be unreasonably withheld or delayed.
Purchaser shall make such Tax Returns available for Seller’s review and approval
no later than twenty (20) Business Days prior to the due date for filing such
Tax Returns, it being understood that Sellers’ failure to approve any such Tax
Returns shall not limit Purchaser’s obligation to timely file such Tax Returns
and duly and timely pay all Property Taxes shown to be due thereon. Not less
than five (5) Business Days prior to the due date of any such Property Taxes,
Sellers shall pay to Purchaser the amount shown as due on such Tax Returns as
determined in accordance with Section 2.12 of this Agreement to be the
responsibility of Sellers and, to the extent required by Law, Sellers shall join
in the execution of any such Tax Returns.

 

(b) With respect to prorated Property Taxes to be paid by Sellers, Sellers’
preparation of any Tax Return relating to a lien for Property Taxes on or
related to the Purchased Assets that will arise after the Closing Date shall be
subject to Purchaser’s approval, which approval shall not be unreasonably
withheld or delayed. Sellers shall make such Tax Returns available for
Purchaser’s review and approval no later than twenty (20) Business Days prior to
the due date

 

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for filing such Tax Return, it being understood that Purchaser’s failure to
approve any such Tax Return shall not limit Seller’s obligation to timely file
such Tax Returns and duly and timely pay all Property Taxes shown to be due
thereon. Not less than five (5) Business Days prior to the due date of any such
Property Taxes, Purchaser shall pay to Seller the amount shown as due on such
Tax Returns as determined in accordance with Section 2.12 of this Agreement to
be the responsibility of Purchaser and to the extent required by Law, Purchaser
or any of its Affiliates shall join in the execution of any such Tax Returns.

 

(c) In preparing and reviewing the Tax Returns referred to in Sections 5.12(a)
and (b), the parties shall cooperate and act in good faith to resolve any
disagreement related to such Tax Returns as between the parties or as between
either Party and any Governmental Authority.

 

(d) Purchaser and Seller shall provide the other party with such assistance as
may reasonably be requested by the other Party in connection with the
preparation of any Tax Return, or any audit or other examination by any Tax
authority, or any judicial or administrative proceedings relating to liability
for any Property Taxes or Transfer Taxes in connection with the Purchased
Assets, and each will retain and provide the requesting Party with any records
or information which may be relevant to such Tax Return, audit or examination,
proceedings or determination. Any information obtained pursuant to this Section
5.12 or pursuant to any other Section hereof providing for the sharing of
information relating to or review of any Tax Return or other schedule relating
to Property Taxes or Transfer Taxes shall be kept confidential by the parties
hereto.

 

SECTION 5.13. Conveyance and Sales Taxes. Each of the Purchaser, on the one
hand, and the Sellers, on the other hand, shall assume 50% of any liability for
the payment of any Conveyance Taxes incurred as a result of the transactions
contemplated hereby, it being understood that the Sellers shall use their
commercially reasonable efforts to obtain a waiver of such Conveyance Taxes to
the extent permitted under the Bankruptcy Code. The proposed transfer of the
Transferred Real Estate and the assumption of the Assumed Liabilities is
necessary to confirm, consummate and implement a plan of reorganization or
liquidation, and therefore is exempt from state of Florida documentary stamp Tax
pursuant to Rules 12B-4.014 (15) and Rule 12B-4.054 (3) of the Florida
Administrative Code and Section 1146(c) of the Bankruptcy Code, respectively. In
the event a plan of reorganization or liquidation is not confirmed by the
Bankruptcy Court, then the parties shall each be responsible for 50% of such
stamp Tax. Each of the Purchaser, on the one hand, and the Sellers, on the other
hand, shall assume 50% of any Liability for the payment of Sales Taxes incurred
on the furniture, fixtures and equipment as a result of the transactions
contemplated hereby. In no event shall the Sellers be responsible for Sales
Taxes on the Inventory sold by the Sellers to the Purchaser as a result of the
transactions contemplated hereby.

 

SECTION 5.14. Bankruptcy Court Approvals. No later than two Business Days after
the execution of this Agreement, the Sellers shall (i) make all filings in the
Bankruptcy Court necessary to initiate the Chapter 11 Cases in the manner
contemplated by Sections 3.28 and 3.29, and (ii) file and serve notice thereof
on all interested parties as required by the Bankruptcy Code, a motion, in form
and substance reasonably satisfactory to the Purchaser (together with supporting
papers and exhibits, the “Sale Motion”) seeking (x) entry of an order
substantially in the form of Appendix B hereto or otherwise in form and
substance reasonably

 

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satisfactory to the Purchaser (the “Bidding Procedures Order“) on the Bankruptcy
Court’s docket and setting a preliminary hearing with respect to the Bidding
Procedures contemplated by this Agreement on shortened notice and in no event
later than the 20th Business Day from the date hereof to approve the Bidding
Procedures (the “Preliminary Hearing”), and (y) entry of an order substantially
in the form of Appendix C hereto or otherwise in form and substance reasonably
satisfactory to the Purchaser (the “Sale Approval Order”), at a final hearing
(the “Final Sale Hearing”) upon no less than 45 days’ notice (or such shorter
time period as the Bankruptcy Court may approve) after the Preliminary Hearing,
authorizing each of the Sellers to perform all of its respective obligations
pursuant to this Agreement and the transactions contemplated hereby, including,
without limitation (a) the sale, conveyance, assignment, transfer and delivery
by the Sellers to the Purchaser or a Qualified Overbidder of the Purchased
Assets, free and clear of all Liens, Actions or Claims against and Indebtedness
of the Sellers (other than such Actions, Claims and Indebtedness related to the
Assumed Liabilities) as set forth in the Sale Approval Order, other than the
Permitted Liens, and (b) the assumption and assignment of the Designated
Contracts to be assumed and assigned pursuant to the terms hereof without
adequate assurance of future performance liability pursuant to Section 365(f)(2)
of the Bankruptcy Code, except Purchaser’s obligation to perform the Designated
Contracts following the Closing, and (c) which Sale Approval Order shall
contain, inter alia, a finding that the Purchaser has acted in “good faith”
within the meaning of section 363(m) of the Bankruptcy Code. The Sale Approval
Order shall also provide that it will become effective immediately and that any
stay of such order as provided by rules 6004(g) and 6006(d) under the Bankruptcy
Code is expressly waived and terminated. Sellers shall not modify, change,
alter, amend or supplement the proposed Sale Approval Order without the
Purchaser’s prior written consent. The Sellers failure to timely obtain the
Bidding Procedures Order shall entitle Purchaser to terminate this Agreement
without further liability of either party as contemplated in Section 10.01(a),
and Sellers will have no obligation to pay the Expense Reimbursement and the
Break-Up Fee. The Sellers failure to timely obtain the Sale Approval Order shall
entitle Purchaser to both payment of the Expense Reimbursement and Break-Up Fee
in the manner contemplated by Sections 6.04 and 6.05 of this Agreement and to
terminate this Agreement as contemplated in Section 10.01(a). In the event that
Purchaser is paid the Expense Reimbursement and Break-up Fee solely under the
circumstances and in the manner contemplated by Sections 6.04 and 6.05 of this
Agreement, such funds shall constitute Purchaser’s sole and exclusive remedy for
any breach of this Agreement by Sellers or otherwise under this Agreement, other
than any fraud or knowing or willful breach by or on the part of Sellers or
collusion by Sellers with creditors or other constituent parties-in-interest in
the Chapter 11 Cases.

 

SECTION 5.15. Bankruptcy Actions. (a) The Designated Contracts (as set forth on
Schedule 3.13(a) of the Disclosure Schedule attached hereto) shall be identified
(by the date of the Designated Contract (if available), the other party to the
contract or lease and the address of such party) on an exhibit attached to the
Sale Motion. Such exhibit shall set forth the amounts necessary to cure defaults
under each of such Designated Contracts as determined by Sellers based on
Sellers’ books and records. Sellers shall, at the written direction of the
Purchaser delivered no later than seven days prior to the Final Sale Hearing,
direct the Sellers to add Designated Contracts to Section 2.04 to the Disclosure
Schedule and provide notice of same to the non-debtor party to the Designated
Contract to be assigned to the Purchaser. Sellers shall, at the written
direction of Purchaser delivered any time prior to one day prior to the Closing
Date, remove Designated Contracts from the exhibit. In cases in which Sellers
are unable to

 

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establish that a default exists, the relevant cure amount shall be set at $0.
The Sale Motion shall reflect that Purchaser’s promise to perform from and after
the Closing under the Designated Contracts and shall be the only adequate
assurance of future performance necessary to satisfy the requirements of section
365 of the Bankruptcy Code in respect of the assignment to Purchaser of such
Designated Contracts.

 

(b) Sellers will provide Purchaser with a reasonable opportunity to review and
comment upon all motions, applications, notices and supporting papers relating
to the sale of the Purchased Assets or the Assumed Liabilities, including those
motions, applications, notices and supporting papers listed in Section 3.29 on
the Disclosure Schedule prepared by Sellers relating to this Agreement
(including forms of orders and notices to interested parties) prior to the
filing thereof in the Chapter 11 Cases. All motions, applications and supporting
papers prepared by Sellers and relating to the approval of this Agreement
(including forms of orders and notices to interested parties) to be filed on
behalf of Sellers after the date hereof must be acceptable in form and substance
to Purchaser, in its reasonable discretion.

 

SECTION 5.16. Name Change. Promptly, but in no event later than 30 days after
the Closing, the Sellers agree (a) to change the name of Savane to some other
name not using the name “Savane”, including, without limitation, changing the
names of the debtors and captions in the Chapter 11 Cases, and (b) after the
Closing, until papers are duly filed with the applicable Governmental
Authorities to effect such name change, not to use the name “Savane” in any way
for the purpose of selling or marketing any product or service or otherwise in
any manner which does or might compete with the Purchaser or, in any other way
which, in the Purchaser’s reasonable judgment, could be detrimental to
Purchaser’s enjoyment of the rights and goodwill it sought when it paid for and
acquired the Purchased Assets, except as expressly agreed by the Purchaser in
its sole discretion.

 

SECTION 5.17. No Shop. From and after the execution of this Agreement and until
the date the Bankruptcy Court enters the Bidding Procedures Order, subject to
the exceptions contained in this Section 5.17, and except for actions expressly
permitted by the Bidding Procedures required herein following entry of the
Bidding Procedures Order, the Sellers shall not cause, authorize or permit any
of their respective Subsidiaries or Affiliates, or any of their respective
officers, directors, employees, agents, advisors and other representatives
(including, each investment banker, finder, financial advisor, attorney and
accountant engaged by it (each, a “Representative”)), to, directly or
indirectly, (a) except with respect to the Committee, solicit, initiate, induce
or encourage (including by means of furnishing any information and/or entering
into any confidentiality or similar agreement with any Person), or take any
other action to facilitate the making, submission or receipt of any contact,
inquiry, proposal or offer (including any contact, inquiry, proposal or offer
made directly to TSIC’s shareholders or creditors) that constitutes or which
reasonably would be likely to lead to any Alternative Transaction, (b) except
with respect to the Committee, enter into or continue any discussions or
negotiations with any Person regarding or in furtherance of an Alternative
Transaction, or (c) agree to, approve, recommend or endorse (whether by means of
public announcement or filings with any judicial, public or Governmental
Authority) any contact, inquiry, proposal or offer regarding or in furtherance
of any Alternative Transaction or enter into any memorandum of understanding,
term sheet, letter of intent or definitive agreement providing for or relating
to an Alternative Transaction. Notwithstanding the immediately preceding

 

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sentence, subsequent to the entry of the Bidding Procedures Order by the
Bankruptcy Court, the Sellers and their respective Representatives may respond
to wholly unsolicited inquiries and requests (not in violation of this Section
5.17) for information from any Person that submits a bona fide, written proposal
or offer to acquire the Business or the Purchased Assets, and may develop a list
of Persons that may qualify as Potential Bidders under the Bidding Procedures by
providing general information relating to the Chapter 11 Cases and the Bidding
Procedures and advising such Persons of their opportunity to pursue in good
faith an Alternative Transaction and to obtain further due diligence information
and materials relating to the Purchased Assets and the Business following the
formal commencement of the Bidding Process. If the Sellers or any of their
Representatives, Subsidiaries or Affiliates receive from any Person any
Acquisition Proposal, offer, inquiry or information request regarding the
Business or any of the Acquired Assets, Sellers will promptly advise such
Person, by written notice (with a copy to the Purchaser), of the terms of this
Section 5.17 and the Bidding Procedures and will promptly (and, in any event,
within 24 hours) advise Purchaser in writing of such Acquisition Proposal,
offer, inquiry or informational request, and deliver copies of any written
materials received by any Seller or their Representatives at any time in
connection therewith, and keep the Purchaser fully informed of the timing and
contents of, and provide the Purchaser with copies of, and further written or
oral communications related thereto. Nothing herein shall prohibit Sellers from
seeking to sell, pursuant to a Qualified Bid in connection with the Auction
established in the Bidding Procedures Order, the Purchased Assets to any Person.

 

SECTION 5.18. Purchaser’s Deposit. On the date hereof, the Purchaser shall make
a good faith, earnest deposit in the form of a certified check (or other form
acceptable to the Sellers in their sole discretion) payable to the Escrow Agent
to be held pursuant to the terms of this Agreement and the Escrow Agreement in
the amount equal to $2,800,000 (the “Purchaser’s Deposit”).

 

SECTION 5.19. Letter of Credit. The Sellers through their DIP Loan Facility have
caused to be provided to certain of their vendors letters of credit as set forth
in Section 5.19 of the Disclosure Schedule (the “Sellers’ Letters of Credit”).
At the Closing, the Purchaser or one or more of its Affiliates shall cause the
Sellers’ Letters of Credit to be replaced with those naming the Purchaser as the
account beneficiary.

 

SECTION 5.20. Receipt of Property Relating to Purchased Assets and Excluded
Assets. (a) If after the Closing Date Sellers or any of their respective
Affiliates, or any other Person acting for or in concert with any of the
foregoing Persons, shall receive any money, check, note, draft, instrument,
payment or other property relating to or as proceeds of the Purchased Assets
(including the Receivables constituting part of the Purchased Assets) or the
Assumed Liabilities or any part thereof, each such Person shall receive all such
items in trust for, and as the sole and exclusive property of, Purchaser and,
immediately upon receipt thereof, shall notify Purchaser in writing of such
receipt and shall remit the same (or cause the same to be remitted) in kind to
Purchaser in the manner specified by Purchaser.

 

(b) If after the Closing Date Purchaser or any of its Affiliates, or any other
Person acting for or in concert with any such Persons, shall receive any money,
check, note, draft, instrument, payment or other property relating to or as
proceeds of the Excluded Assets or the Excluded Liabilities, or any part
thereof, each such Person shall receive all such items in trust for, and as

 

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the sole and exclusive property of, the Sellers and, immediately upon receipt
thereof, shall notify TSIC in writing of such receipt and shall remit the same
(or cause the same to be remitted) in kind to TSIC in the manner specified by
TSIC.

 

SECTION 5.21. Environmental Remediation. Concurrent with the execution of this
Agreement, and in addition to any other duty or obligation imposed by Section
3.07, the Sellers shall, at their sole cost and expense: (i) (A) undertake,
using URS Corporation and a commercially reasonable scope of work approved by
the Purchaser, a baseline assessment of soil and groundwater conditions at the
Real Property known as 4902 West Waters Avenue, (B) provide all data,
information, reports, and documents generated by this investigation to the
Purchaser, as the intended third party beneficiary of Sellers’ contract with the
environmental consultant, all within 60 days after the date hereof, (C)
investigate and resolve all issues and/or concerns identified in the Phase I
Environmental Site Assessment prepared for CIT Group, Inc. by Clayton Group
Services, Inc. dated June 17, 2004, including those noted in Section 6.0 titled
“Findings, Conclusions and Recommendations” and (D) provide certification by URS
Corporation that property soil and groundwater are in material compliance with
applicable Environmental Law; and (ii) use best efforts to complete any Remedial
Action recommended by URS Corporation to comply with Environmental Law within 35
days prior to the Closing Date. If the Sellers are unable to complete the
Remedial Action within 35 days prior to the Closing Date, URS Corporation shall
estimate the future cost of such Remedial Action and provide such estimate in
writing promptly to the parties.

 

SECTION 5.22. Transition Matters. Sellers shall have the use of office space and
related services at the 4902 West Waters Avenue facility for a period of six
months after the Closing Date without charge to the Sellers.

 

ARTICLE VI

 

BIDDING PROCEDURES

 

SECTION 6.01. Bidding Procedures. Unless otherwise agreed by the Purchaser,
Sellers shall obtain, no later than the 80th day after the Petition Date, the
Sale Approval Order authorizing and approving the sale of the Purchased Assets
to the Purchaser or a Qualified Overbidder which the Sellers determine to have
made the highest and best offer for the Purchased Assets and the Assumed
Liabilities in accordance with the procedures set forth in this Article VI
(collectively, the “Bidding Procedures”). Subject to Section 6.09 of this
Agreement, the Bidding Procedures set forth herein shall be approved by the
Bankruptcy Court and set forth in the Bidding Procedures Order.

 

(a) The Sellers will (i) in consultation with A&M and counsel for any official
committee of unsecured creditors appointed in the Chapter 11 Cases
(collectively, the “Committee”) and counsel for the Indenture Trustee (the
“Indenture Trustee”), if any determine whether any Person is a Qualified
Overbidder, (ii) coordinate the efforts of Qualified Overbidders in conducting
their respective due diligence investigations regarding the Business, the
Purchased Assets and the Assumed Liabilities generally, (iii) receive offers
from Qualified Overbidders, and (iv) in consultation with the

 

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Committee and A&M negotiate any offer made to purchase the Purchased Assets and
the Assumed Liabilities (collectively, the “Bidding Process”). Any Person who
elects to participate in the Bidding Process must be a Qualified Overbidder, and
neither the Sellers nor their representatives shall furnish any information of
any kind whatsoever relating to the Sellers or the Purchased Assets and the
Assumed Liabilities to any Person who is not a Qualified Overbidder. The Sellers
have the right to adopt such other rules for the Bidding Process that the
Sellers reasonably shall determine, after request by the Committee, the
Indenture Trustee or the Office of the U.S. Trustee, will facilitate the goals
and expeditious completion of the Bidding Process and which are not inconsistent
with any of the other provisions hereof or of any order of the Bankruptcy Court.

 

(b) To participate in the Bidding Process, each Person (a “Potential Bidder”),
other than the Purchaser, must deliver (unless previously delivered) to the
Sellers an executed confidentiality agreement in form and substance satisfactory
to the Sellers and containing terms no less restrictive to the Sellers than the
Confidentiality Agreement.

 

A “Qualified Overbidder” is a Potential Bidder that the Sellers in their
reasonable, good faith business judgment, after consultation with the Committee,
each determines is financially able to consummate the purchase of the Purchased
Assets and the assumption of the Assumed Liabilities; it being hereby
acknowledged and agreed that the Purchaser qualifies as a Qualified Overbidder.
A&M and the Committee’s financial advisors shall be entitled to perform due
diligence on each Qualified Overbidder, upon execution of a confidentiality
agreement in form and substance reasonably satisfactory to the Sellers and
containing terms no less restrictive to the Sellers than the Confidentiality
Agreement. The Qualified Overbidder shall comply with all reasonable requests
for additional information and due diligence access by A&M and the Committee’s
financial advisors. Failure by the Qualified Overbidder to fully comply with
requests for additional information and due diligence access will be a basis for
the Sellers to irrevocably determine that any bid made by the Qualified
Overbidder is not a Qualified Overbid.

 

(c) A Qualified Overbidder who desires to make a bid must deliver a good faith
deposit via wire transfer (or other form acceptable to the Sellers in their sole
discretion) to Account No.                      at Bank ABA
No.                     in an amount not less than $3,900,000 (the “Good Faith
Deposit”) and must deliver a copy of its Required Bid Documents to each of (i)
the Sellers and their Counsel, (ii) A&M, (iii) the Purchaser and its counsel, at
the notice addresses specified in Section 12.02 hereof and (iv) counsel for the
Committee so as to be received not later than 9:00 a.m. (prevailing Eastern
time) on the seventh day prior to the date of the Final Sale Hearing (the “Bid
Deadline”).

 

SECTION 6.02. Determination of Qualified Overbid Status. A bid received from a
Qualified Overbidder will constitute a “Qualified Overbid” only if it includes
all of the Required Bid Documents listed below and meets all of the Bid
Requirements set forth below. The transaction terms and conditions set forth in
this Agreement shall be deemed a Qualified Overbid for all purposes in
connection with the Bidding Process, the Auction and the Sale.

 

(a) Required Bid Documents. Except as expressly provided to the contrary by this
Agreement, to participate in the Bidding Process, each Potential Bidder, other
than

 

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the Purchaser, must deliver (unless previously delivered) to the Sellers, at the
Sellers’ request, the following documents (collectively, the “Required Bid
Documents”) by the Bid Deadline:

 

(i) a bona fide written offer stating that: (A) the Qualified Overbidder offers
to purchase all or substantially all of the Purchased Assets and to assume all
or substantially all of the Assumed Liabilities, (B) the Qualified Overbidder is
prepared and intends promptly to enter into a legally binding purchase and sale
agreement for the acquisition of the Business and the Purchased Stock on terms
and conditions no less favorable to the Sellers than those contained in this
Agreement immediately following the conclusion of the Auction (as defined in
Section 6.03(a) below), and (C) the Qualified Overbidder’s offer is irrevocable
until the consummation of a Sale;

 

(ii) a copy of such purchase and sale agreement described above in Section
6.02(a)(i)(B) marked to show proposed amendments and modifications to this
Agreement and executed by the Qualified Overbidder; and

 

(iii) current audited financial statements of the Potential Bidder or, if the
Potential Bidder is an entity formed for the purpose of acquiring the Purchased
Assets and the Assumed Liabilities, current audited financial statements of the
owner(s) of all of the outstanding securities having voting power with respect
to the Potential Bidder or such other form of financial disclosure acceptable to
the Sellers and A&M, after consultation with the Committee, demonstrating such
Potential Bidder’s ability to close the proposed transaction expeditiously
(including, the Potential Bidder’s ability to finance a Sale without any
material conditions or delay).

 

(b) Bid Requirements. Except as expressly provided to the contrary by this
Agreement, all bids must satisfy the following requirements (collectively, the
“Bid Requirements”):

 

(i) the Sellers must determine, after consultation with A&M and the Committee,
that the bid (A) is not materially more burdensome or conditional than the
transaction described in this Agreement (including, for this purpose, a
determination that there is a high certainty of timely consummation) and (B) has
a value not less than the sum of (x) $88,900,000 (which amount represents the
sum of (i) the Purchase Price payable by the Purchaser under this Agreement,
including the Purchaser’s Deposit, (ii) $2,800,000, the amount of the Break-up
Fee, (iii) $500,000, the amount of the Overbid Increment, and (iv) $600,000, the
maximum amount of the Expense Reimbursement), plus (y) the consideration to the
Sellers arising from the assumption of the Assumed Liabilities under this
Agreement, plus (z) all other consideration to the Sellers under this Agreement;

 

(ii) the bid is on substantially the same or better terms and conditions than
those set forth in this Agreement;

 

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(iii) the bid is not conditioned upon the Bankruptcy Court’s approval of any bid
protections, such as a break-up fee, termination fee, expense reimbursement or
similar type of payment;

 

(iv) the bid is not conditioned upon the Potential Bidder’s financing
requirements and is accompanied by reasonable evidence (in the form of
                    ) of the Potential Bidder’s financial ability to promptly
consummate its Qualified Overbid;

 

(v) the bid acknowledges and represents that the bidder: (A) has had a full
opportunity to conduct all due diligence regarding the Purchased Assets and the
Assumed Liabilities prior to making its bona fide, written offer; (B) has relied
solely upon its own independent review, investigation and/or inspection of any
documents and/or the Purchased Assets in making its bid; (C) did not rely upon
any written or oral statements, representations, promises, warranties or
guaranties whatsoever, whether express, implied, by operation of law or
otherwise, regarding the Purchased Assets, or the completeness of any
information provided in connection therewith or the Auction, except as expressly
stated in these Bidding Procedures and the Sellers’ representations and
warranties in this Agreement; and (D) is not contingent upon any additional due
diligence or approvals of any Governmental Authority; and

 

(vi) the bid is received by the Bid Deadline.

 

SECTION 6.03. Auction (a) If one or more Qualified Overbids is received, the
Sellers will conduct an auction (the “Auction”) with respect to the Purchased
Assets and the Assumed Liabilities. If no Qualified Overbid (other than that of
the Purchaser) is received by the Bid Deadline, the Sellers shall report the
same to the Bankruptcy Court, the transactions contemplated by this Agreement
shall be deemed the Successful Bid and the Sellers shall proceed immediately to
consummate all of the transactions contemplated by this Agreement.

 

(b) The Auction, if required, will commence at 10:00 A.M. (prevailing Eastern
time) on                     , 2005, before the Honorable                     ,
United States Bankruptcy Judge for the Middle District of Florida, United States
Bankruptcy Court, Courtroom         , [address], or at such other time or place
determined by the Bankruptcy Court.

 

(c) Only the Purchaser, the Sellers and their advisors, Qualified Overbidders
who have submitted Qualified Overbids, the United States trustee, the Committee
and representatives of the Sellers’ post-petition secured (or DIP) lenders will
be entitled to attend, participate and be heard at the Auction, and only the
Purchaser and Qualified Overbidders will be entitled to make any subsequent
Qualified Overbids at the Auction.

 

(d) During the Auction, bidding will begin at the purchase price stated in the
highest and best Qualified Overbid (taking into account the Break-up Fee and
Expense Reimbursement), and will subsequently continue in minimum increments of
not less than $500,000 higher than the previous Qualified Overbid (the “Overbid
Increment”). Subsequent

 

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overbids, if any, submitted by the Purchaser will be deemed to include a
dollar-for-dollar credit equal to the sum of the Break-up Fee and the Expense
Reimbursement.

 

(e) Bidding at the Auction will continue until such time as the highest and best
Qualified Overbid is determined. Upon conclusion of the Auction, the Sellers, in
consultation with A&M and the Committee, will (i) review each Qualified Overbid
on the basis of financial and contractual terms and other factors relevant to
the sale process, including those factors affecting the certainty and timeliness
of consummating the Sale, and (ii) identify the highest and best offer for the
Purchased Assets (the “Successful Bid”) and the second highest and best offer
for the purchase of the Purchased Assets (the “Back-up Bid”).

 

SECTION 6.04. Expense Reimbursement. If (a) the Bankruptcy Court does not issue
the Sale Approval Order within 45 days after the Preliminary Hearing or approves
a higher and better bid than that submitted by the Purchaser, (b) the Sellers
withdraw the motion for Bankruptcy Court approval of the Sale and the Purchaser
is not then in material breach of this Agreement (and has not otherwise
terminated this Agreement pursuant to the provisions of Section 10.01(a), (c),
(e), (f), (g) or (h)), or (c) notwithstanding the fact that all of the Sellers’
conditions to Closing have been satisfied or waived by the Sellers and the
Purchaser is not then in material breach of this Agreement, the Sellers do not
consummate the Sale, or (d) in the event of an Alternative Transaction, then the
Purchaser shall be entitled to immediate payment and reimbursement for its
out-of-pocket expenses reasonably incurred in connection with the transactions
contemplated by this Agreement, not to exceed $600,000 (the “Expense
Reimbursement”). Until paid, the Expense Reimbursement shall be allowed by the
Bankruptcy Court as an administrative claim pursuant to Section 503(b)(1)(A) of
the Bankruptcy Code with priority over any or all other administrative expenses
in the Chapter 11 Cases of the kind specified in Sections 503(b) or 507(b) of
the Bankruptcy Code, or if the Chapter 11 Cases are converted to Chapter 7
cases. This provision shall be a requirement of, approved by, and incorporated
in the Bidding Procedures Order.

 

SECTION 6.05. Break-up Fee. The Purchaser shall be entitled to immediate payment
of a compensatory termination fee (the “Break-up Fee”) in cash in an amount
equal to $2,800,000, if: (a) (i) the Bankruptcy Court does not issue the Sale
Approval Order within 45 days after the date of the Preliminary Hearing or
approves a higher and better bid than that submitted by the Purchaser, (ii) the
Closing of a Sale to the Successful Bidder (but not the Purchaser) has occurred
and (iii) the Purchaser is not then in material breach of this Agreement; (b)
the Bankruptcy Court confirms a plan of reorganization for the Sellers, which
plan transfers any of the Purchased Assets to a person other than the Purchaser
and such plan of reorganization is consummated and the Purchaser is not then in
material breach of this Agreement; (c) the Purchaser is not in material breach
of this Agreement and the Sellers (i) withdraw the motion for Bankruptcy Court
approval of the Sale and (ii) subsequently liquidate or otherwise dispose of the
Purchased Assets, in one or a series of transactions; or (d) the Sellers
withdraw the motion for Bankruptcy Approval of the Sale and an Alternative
Transaction is pursued. Until paid, the Break-up Fee shall be allowed by the
Bankruptcy Court as an administrative claim pursuant to Section 503(b)(1)(A) of
the Bankruptcy Code with priority over any or all other administrative expenses
in the Chapter 11 Cases of the kind specified in Sections 503(b) or 507(b) of
the Bankruptcy Code, or if the Chapter 11 Cases are converted to Chapter 7
cases. This provision shall be a requirement of, approved by, and incorporated
in the Bidding Procedures Order.

 

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SECTION 6.06. Acceptance of Qualified Overbids. (a) At the Final Sale Hearing,
the Sellers will seek entry of the Sale Approval Order authorizing and approving
the Sale (i) if no Qualified Overbid is received (other than that of the
Purchaser), to the Purchaser pursuant to the terms and conditions set forth in
this Agreement, (ii) if one or more Qualified Overbids are received by the
Sellers, to the Purchaser or such Qualified Overbidder as the Sellers, in the
exercise of their reasonable, good faith business judgment, after consultation
with A&M and the Committee, determine to have made the highest and best offer to
purchase the Purchased Assets (the “Successful Bidder”) or (iii) to the extent
of any default by the Successful Bidder, to the Qualified Overbidder who
submitted the Back-up Bid (including, as applicable, the Purchaser).

 

(b) The Sellers’ presentation to the Bankruptcy Court for approval of a
particular Qualified Overbid does not constitute the Sellers’ acceptance of the
bid, except with respect to the bid of the Purchaser as reflected in this
Agreement (subject to higher and better Qualified Overbids and subject to
Bankruptcy Court approval). The Sellers will be deemed to have accepted any
other bid only when the bid has been approved by the Bankruptcy Court at the
Final Sale Hearing. The Sellers shall not be deemed to have rejected any bid
unless or until either the sale of the Purchased Assets closes and/or such bid
is rejected in writing.

 

(c) Following the Final Sale Hearing approving the Sale to the Successful
Bidder, (i) if such Successful Bidder fails to consummate an approved Sale
because of a breach or failure to perform on the part of such Successful Bidder,
the Back-up Bid, as disclosed at the Final Sale Hearing, will be deemed to be
the Successful Bid and the Sellers will be authorized, but not required, to
consummate the Sale with the Back-up Bidder submitting such bid without further
order of the Bankruptcy Court or, (ii) if a Qualified Overbidder other than the
Purchaser fails to consummate the Sale for any reason and the Purchaser has made
the Back-up Bid, then the Purchaser shall purchase the Purchased Assets on the
same terms and conditions set forth in this Agreement (except the Closing Date
shall be extended for a reasonable period of time, not to exceed thirty (30)
days, to allow the Purchaser to complete such purchase) and at the final
purchase price bid by the Purchaser at the Auction, without requiring further
Bankruptcy Court Approval.

 

(d) At the Auction and Final Sale Hearing, the Purchaser shall have standing to
contest any Qualified Overbid or the Successful Bidder that may be considered or
selected by the Sellers. This provision shall be a requirement of, approved by,
and incorporated in the Bidding Procedures Order.

 

SECTION 6.07. Return of Purchaser’s Deposit and Good Faith Deposit. (a) The Good
Faith Deposits of all Qualified Overbidders and the Purchaser’s Deposit will be
retained by the Sellers or the Escrow Agent, as the case may be, and all
Qualified Overbids will remain open until the closing of a Sale; provided,
however, that if no closing of a Sale occurs on or before 30 days after the
Final Sale Hearing, the Sellers shall, except as provided in subsection (b) of
this Section 6.07, within five (5) Business Days, return or cause to be returned
each of the Good Faith Deposits to the respective Overbidder that made such Good
Faith Deposit (including any earnings thereon), and return or cause to be
returned the Purchaser’s Deposit to the Purchaser.

 

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(b) If a Successful Bidder fails to consummate an approved Sale because of a
breach or failure to perform on the part of such Successful Bidder and the
Sellers are not then in material breach of this Agreement, or the Purchaser
otherwise is in material breach or material default under this Agreement, the
Sellers will not have any obligation to return the Good Faith Deposit or the
Purchaser’s Deposit (including any earnings thereon), as the case may be,
deposited by such Successful Bidder, and such Good Faith Deposit or the
Purchaser’s Deposit (including any earnings thereon), as the case may be,
irrevocably will become the property of the Sellers and shall not be credited
against the purchase price of the subsequent buyer and the Purchaser shall cause
the Escrow Agent to pay to the Sellers the Purchaser’s Deposit or the Good Faith
Deposit, as the case may be (including any earnings thereon). In the event of a
material breach of this Agreement by the Purchaser, as a result of which the
Sellers retain the Purchaser’s Deposit (including any earnings thereon) in
accordance with this Section 6.07(b), the Sellers’ receipt of such funds shall
constitute the Seller’s sole and exclusive remedy for any breach of this
Agreement by the Purchaser.

 

SECTION 6.08. Court-Imposed Qualified Overbid. For the Sellers to accept any
alternative offer, such alternative offer must be a Qualified Overbid or a
Court-Imposed Qualified Overbid. “Court-Imposed Qualified Overbid” means any
alternative offer that the Sellers are required to accept by the Bankruptcy
Court.

 

SECTION 6.09. Modifications of Bidding Procedures. Prior to the entry of the
Bidding Procedures Order, the Sellers may upon request of any Committee, the
Indenture Trustee or the Office of the U.S. Trustee and after consultation with
the Purchaser, establish reasonable Bidding Procedures other than, or in
addition to, those set forth herein. Such additional or other Bidding Procedures
shall be acceptable to the Purchaser and thereafter approved by the Court. The
Sellers, after consultation with the Committee, may (a) determine in their good
faith business judgment which Qualified Overbid, if any, is the highest and best
offer, and (b) reject at any time before entry of an order of the Bankruptcy
Court approving a Qualified Overbid, any bid (other than that of the Purchaser)
that the Sellers, in consultation with the Committee, determine to be (i)
inadequate or insufficient, (ii) not in conformity with the requirements of the
Bankruptcy Code, the Bidding Procedures or the terms and conditions of this
Agreement, or (iii) contrary to the best interests of the Sellers, their estates
and their creditors. At or before the Final Sale Hearing, the Sellers may impose
such other terms and conditions upon Qualified Overbidders (other than the
Purchaser) as they determine, in consultation with the Committee, to be in the
best interests of the Sellers’ estates, their creditors and other parties in
interest in the Chapter 11 Cases.

 

ARTICLE VII

 

EMPLOYEE MATTERS

 

SECTION 7.01. Offer of Employment. Prior to the Closing Date, the Purchaser
shall, or shall cause an Affiliate of the Purchaser to, make an offer of
employment (the “Employment Offer”) to those Employees as were mutually agreed
upon between the Purchaser and the Sellers listed on Section 7.01 of the
Disclosure Schedule (which schedule shall be

 

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provided by Purchaser to Seller not less than five Business Days prior to the
Closing Date), including those on sick leave, vacation, other authorized leaves
of absences or short-term disability (but excluding those on long-term
disability). Each Employment Offer shall provide that such offer of employment
shall take effect on the Closing Date. Employees who accept such offer of
employment by the Closing Date shall be referred to herein as “Transferred
Employees.” Nothing in this Agreement is intended to confer, nor shall confer,
upon any employee of the Sellers any rights, remedies, claims or recourse of any
nature against the Purchaser, including, without limitation, any rights of
employment of any nature or kind whatsoever or any entitlement to participate in
any plans, benefits or programs of the Purchaser, except to the extent if
employed that such employee meets the eligibility requirements for participation
in such plans, benefits or programs.

 

SECTION 7.02. Employee Benefits. Effective as of the Closing Date, the
Transferred Employees shall cease participation in Employee Plans and shall
commence participation in employee benefit plans and arrangements of the
Purchaser or an Affiliate of the Purchaser, subject to their satisfaction of the
eligibility requirements for each such plan.

 

SECTION 7.03. 401(k) Plan. The Sellers shall take or cause to be taken all such
actions as may be required to ensure that, as of the Closing Date, each
Transferred Employee shall become 100% vested in his account balance under
TSIC’s 401(k) profit sharing plan (collectively, the “Sellers’ 401(k) Plan”).
The Purchaser shall permit the plan(s) maintained by the Purchaser or one of its
Affiliates that is an eligible retirement plan, pursuant to section
401(a)(31)(D) of the Tax Code, to accept an “eligible rollover contribution”
(within the meaning of section 401(a)(31) of the Tax Code) in cash of all or a
portion of the account balance distributed to a Transferred Employee under the
Sellers’ 401(k) Plan. For purposes of this Section 7.03, “eligible rollover
contribution” shall include the amount of any unpaid balance of any loan of a
Transferred Employee under the Sellers’ 401(k) Plan.

 

SECTION 7.04. Flexible Spending Account. Subject to the requirements of section
125 of the Tax Code, any unused amounts credited to Transferred Employees’
accounts (after the satisfaction of claims for expenses incurred prior to the
Closing Date) under the Sellers’ medical expense reimbursement or dependent care
reimbursement plan, a copy of which has been made available to the Purchaser and
any pre-existing elections of the Transferred Employees in effect thereunder
will be transferred to, and assumed by, the corresponding plan of the Purchaser
or one of its Affiliates in which the Transferred Employees are eligible to
participate for the balance of the calendar year during which the Closing
occurs; provided, however, that Purchaser’s obligation hereunder shall be
conditioned upon and shall only be applicable if upon the Closing Date Sellers
transfer cash equal to the unused amounts so credited to transferred employees
accounts by Purchaser.

 

SECTION 7.05. Cooperation. The Sellers shall cooperate with the Purchaser until
the Closing Date in communicating to Employees any information concerning
employment offers and employment after the Closing Date, and during normal
business hours shall allow additional meetings by representatives of the
Purchaser with such Employees upon the reasonable request of the Purchaser.

 

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ARTICLE VIII

 

CONDITIONS TO CLOSING

 

SECTION 8.01. Conditions to Obligations of the Sellers. The obligations of each
of the Sellers to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment or written waiver (to the extent permitted
by applicable Laws), at or prior to the Closing, of each of the following
conditions:

 

(a) Representations, Warranties and Covenants. (i) The representations and
warranties of the Purchaser contained in this Agreement (A) that are not
qualified as to “materiality” shall be true and correct in all material respects
as of the date hereof and as of the Closing Date as though made on such date and
(B) that are qualified as to “materiality” shall be true and correct as of the
date hereof and as of the Closing Date as though made on such date, in each case
except for such representations and warranties that are made as of a specific
date, in which case such representations and warranties shall be true and
correct in all material respects or true and correct, as the case may be, as of
such date, and (ii) the covenants and agreements contained in this Agreement to
be complied with by the Purchaser on or before the Closing shall have been
complied with in all material respects;

 

(b) Governmental Approvals. Any waiting period (and any extension thereof) under
the HSR Act and the antitrust legislation of any other relevant jurisdiction
applicable to the purchase of the Purchased Assets contemplated by this
Agreement shall have expired or shall have been earlier terminated;

 

(c) No Order. No Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any Law or Governmental Order (whether temporary,
preliminary or permanent) that has the effect of making the transactions
contemplated by this Agreement or the Ancillary Agreements illegal or otherwise
restraining, materially delaying or prohibiting the consummation of such
transactions;

 

(d) Sale Approval Order. The Bankruptcy Court shall have entered the Sale
Approval Order and such Sale Approval Order shall not be subject to a stay by
any court of competent jurisdiction; and shall have become final and
non-appealable; and

 

(e) Documents, Agreements and Certificates. All of the documents, agreements,
schedules and certificates described in Section 2.10 and elsewhere in this
Agreement shall have been delivered as described herein.

 

SECTION 8.02. Conditions to Obligations of the Purchaser. The obligations of the
Purchaser to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment or written waiver (to the extent permitted by
applicable Laws), at or prior to the Closing, of each of the following
conditions:

 

(a) Representations, Warranties and Covenants. (i) The representations and
warranties of the Sellers contained in this Agreement (A) that are not qualified
as to “materiality” or “Material Adverse Effect” shall be true and correct in
all material

 

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respects as of the date hereof and as of the Closing Date as though made on such
date and (B) that are qualified as to “materiality” or “Material Adverse Effect”
shall be true and correct as of the date hereof and as of the Closing Date as
though made on such date, in each case except for such representations and
warranties that are made as of a specific date, in which case such
representations and warranties shall be true and correct in all material
respects or true and correct, as the case may be, as of such other date, and
(ii) the covenants and agreements contained in this Agreement to be complied
with by the Sellers at or before the Closing shall have been complied with in
all material respects;

 

(b) Governmental Approvals; Third Party Consents. Any waiting period (and any
extension thereof) under the HSR Act and the antitrust legislation of any other
relevant jurisdiction applicable to the purchase of the Purchased Assets
contemplated by this Agreement shall have expired or shall have been earlier
terminated. All consents and approvals of third parties and Governmental
Authorities, including, without limitation, any Governmental Permits or
Environmental Permits, necessary to allow the Purchaser to operate the Business
immediately after the Closing substantially in the same manner as the Business
is operated immediately prior to the Closing or to consummate the transactions
contemplated by this Agreement, other than those consents and approvals, the
absence of which Purchaser reasonably determines would not have a Material
Adverse Effect, shall have been obtained in a form reasonably satisfactory to
the Purchaser, without any diminution in the value or limitation of value of the
Purchased Assets or the Purchased Subsidiary;

 

(c) No Order. No Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any Law or Governmental Order (whether temporary,
preliminary or permanent) that has the effect of making the transactions
contemplated by this Agreement or the Ancillary Agreements illegal or otherwise
restraining, materially delaying or prohibiting the consummation of such
transactions;

 

(d) Sale Approval Order. The Bankruptcy Court shall have entered the Sale
Approval Order substantially in the form of Appendix C hereto or otherwise in
substance reasonably satisfactory to the Purchaser, and such Sale Approval Order
shall not be subject to a stay by any court of competent jurisdiction and shall
have become final and non-appealable;

 

(e) No Material Adverse Effect. No Material Adverse Effect shall have occurred
after the date of this Agreement and none of the Sellers shall have notified
Purchaser, pursuant to Section 5.05, of the occurrence of any state of facts,
circumstance, change or effect which would result in a Material Adverse Effect;

 

(f) Liens. CIT shall have consented in writing to the sale of, and release of
any and all Liens on, the Receivables covered by the Factoring Agreement entered
into with CIT;

 

(g) Certain Designated Contracts. Sellers shall have obtained all approvals and
consents necessary to effect the transfer and assignment to the Purchaser of
those

 

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Designated Contracts designated with a double asterisk set forth in Section
3.13(a) of the Disclosure Schedule;

 

(h) Documents, Agreement, and Certificates. All of the documents, agreements and
certificates as described in Section 2.09 shall have been delivered as described
herein; and

 

(i) DIP Loan Facility. The Sellers shall have continued to have access to
uninterrupted borrowings under the DIP Loan Facility after the commencement of
the Chapter 11 Cases through the Closing Date.

 

ARTICLE IX

 

INDEMNIFICATION

 

SECTION 9.01. Survival of Representations and Warranties. (i) The
representations and warranties of the parties contained in Sections 3.10 and
3.16 of this Agreement shall survive the Closing indefinitely, (ii) the
representations and warranties contained in Sections 3.07 and 3.12 shall survive
until the end of the applicable statute of limitations period, and (iii) the
other representations and warranties of the parties contained in this Agreement
and in the Ancillary Agreements shall survive the Closing until the first
anniversary of the Closing; provided, however, that if written notice of a Claim
has been given prior to the expiration as provided in this Section 9.01 of the
applicable representations and warranties by the Purchaser to the Sellers, or by
the Sellers to the Purchaser, as the case may be, then the relevant
representations and warranties shall survive indefinitely as to such claim,
until such Claim has been finally resolved. The parties agree that the covenants
contained in this Agreement and the Ancillary Agreements to be performed on or
after Closing, shall survive the Closing indefinitely, and each party hereto
shall be liable to the other after the Closing for any breach thereof.

 

SECTION 9.02. Indemnification by the Sellers. Sellers agree, jointly and
severally, to indemnify and hold harmless the Purchaser and its Affiliates,
officers, directors, employees, agents, successors and assigns (each a
“Purchaser Indemnified Party”) for and against any and all Liabilities, losses,
damages, Claims, costs and expenses, interest, awards, judgments and penalties
(including reasonable attorneys’ and consultants’ fees and expenses) suffered or
incurred by them (hereinafter a “Loss”), arising out of or resulting from:

 

(i) the breach of any representation or warranty made by the Sellers contained
in this Agreement or in any Ancillary Agreements;

 

(ii) the breach of any covenant or agreement by the Sellers contained in this
Agreement or in any Ancillary Agreements;

 

(iii) the Sellers’ failure to comply with the terms and conditions of any
applicable bulk sales or bulk transfer or similar Laws of any jurisdiction that
may be applicable to the sale or transfer of any or all of the Purchased Assets
to Purchaser (or its Affiliates), notwithstanding the waiver contained in
Section 5.08;

 

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(iv) Liabilities relating to the Excluded Assets;

 

(v) Liabilities relating to Non-Assumed Liability Payments that remain
outstanding after the Closing Date; and

 

(vi) the Excluded Liabilities (whether or not such Liabilities reflect a breach
referred to in clause (i) of this Section 9.02).

 

To the extent that the Sellers’ undertakings set forth in this Section 9.02 may
be unenforceable, each of the Sellers shall contribute the maximum amount that
it is permitted to contribute under applicable Law to the payment and
satisfaction of all Losses incurred by the Purchaser Indemnified Parties. Other
than a Claim for indemnification by a Purchaser Indemnified Party with respect
to Excluded Liabilities or otherwise in respect of a breach of the Seller’s
representations and warranties set forth in Sections 3.07, 3.08, 3.11, 3.15,
3.25, 5.06 and in Article VII of this Agreement which shall not be subject to
any limitation on amount or method of recovery any Claim for indemnification of
a Purchaser Indemnified Party under this Agreement shall be paid solely out of
the Indemnity Escrow Amount and no Purchaser Indemnified Party shall have any
additional recourse against Sellers for such indemnification claims.

 

SECTION 9.03. Indemnification by the Purchaser. The Sellers and their respective
Affiliates, officers, directors, employees, agents, successors and assigns (each
a “Seller Indemnified Party”) shall be indemnified and held harmless by the
Purchaser for and against any and all Losses, arising out of or resulting from:

 

(i) the breach of any representation or warranty made by the Purchaser contained
in this Agreement or in any Ancillary Agreement;

 

(ii) the breach of any covenant or agreement by the Purchaser contained in this
Agreement or any in Ancillary Agreements;

 

(iii) the Assumed Liabilities; and

 

(iv) Liabilities (including for Taxes) related to the ownership and operation of
the Purchased Assets after the Closing (other than the Excluded Liabilities).

 

To the extent that the Purchaser’s undertakings set forth in this Section 9.03
may be unenforceable, the Purchaser shall contribute the maximum amount that it
is permitted to contribute under applicable Law to the payment and satisfaction
of all Losses incurred by the Seller Indemnified Parties.

 

SECTION 9.04. Notice of Loss; Third Party Claims. (a) Without limitation of
Section 5.05 hereof, an Indemnified Party shall give the Indemnifying Party
notice of any matter which an Indemnified Party has determined has given or
could give rise to a right of or Claim for indemnification under this Agreement,
promptly after such determination, stating the amount of the Loss, if known, and
method of computation thereof, and containing a reference to the provisions of
this Agreement in respect of which such right of indemnification is claimed or
arises.

 

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(b) If an Indemnified Party shall receive notice of any Action, Claim, audit,
demand or assessment (each, a “Third Party Claim”) against it or which may give
rise to a Claim for Loss under this Article IX, promptly after the receipt
thereof, the Indemnified Party shall give the Indemnifying Party notice of such
Third Party Claim; provided, however, that the failure to provide such notice
shall not release the Indemnifying Party from any of its obligations under this
Article IX except to the extent that the Indemnifying Party is actually and
materially prejudiced by such failure and such failure shall not relieve the
Indemnifying Party from any other obligation or Liability that it may have to
any Indemnified Party otherwise than under this Article IX. If the Indemnifying
Party acknowledges in writing its obligation to indemnify the Indemnified Party
hereunder against any Losses that may result from such Third Party Claim, then
the Indemnifying Party shall be entitled to assume and control the defense of
such Third Party Claim at its expense and through counsel of its choice if it
gives notice of its intention to do so to the Indemnified Party within five days
of the receipt of such notice from the Indemnified Party; provided, however,
that if there exists or is reasonably likely to exist a conflict of interest
that would make it inappropriate (in the reasonable judgment of outside counsel
for the Indemnified Party) for the same counsel to represent both the
Indemnified Party and the Indemnifying Party, then the Indemnified Party shall
be entitled to retain its own counsel (plus local counsel if required), at the
expense of the Indemnifying Party. In the event that the Indemnifying Party
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the Indemnified Party shall cooperate with the
Indemnifying Party in such defense and make available to the Indemnifying Party,
at the Indemnifying Party’s expense, all witnesses, pertinent records, materials
and information in the Indemnified Party’s possession or under the Indemnified
Party’s control relating thereto as is reasonably required by the Indemnifying
Party. Similarly, in the event the Indemnified Party is, directly or indirectly,
conducting the defense against any such Third Party Claim, the Indemnifying
Party shall cooperate with the Indemnified Party in such defense and make
available to the Indemnified Party, at the Indemnifying Party’s expense, all
such witnesses, records, materials and information in the Indemnifying Party’s
possession or under the Indemnifying Party’s control relating thereto as is
reasonably required by the Indemnified Party. No such Third Party Claim may be
settled by the Indemnifying Party without the prior written consent of the
Indemnified Party (not to be unreasonably withheld), unless such settlement
contains a full release of such Indemnified Party.

 

SECTION 9.05. Distributions from Indemnity Escrow Fund. In the event that (a)
the Sellers shall not have objected to the amount claimed by the Purchaser for
indemnification with respect to any Loss in accordance with the procedures set
forth in the Escrow Agreement or (b) the Sellers shall have delivered notice of
its disagreement as to the amount of any indemnification requested by the
Purchaser and either (i) the Sellers and the Purchaser shall have, subsequent to
the giving of such notice, mutually agreed that the Sellers is obligated to
indemnify the Purchaser for a specified amount and shall have so jointly
notified the Escrow Agent or (ii) a final non-appealable judgment shall have
been rendered by the court having jurisdiction over the matters relating to such
claim by the Purchaser for indemnification from the Sellers and the Escrow Agent
shall have received, in the case of clause (i) above, written instructions from
the Sellers and the Purchaser or, in the case of clause (ii) above, a copy of
the final judgment of the court, the Escrow Agent shall deliver to the Purchaser
from the Indemnity Escrow Amount any amount determined to be owed to the
Purchaser under this Article IX in accordance with the Escrow Agreement. The
Escrow Agreement shall provide that on the six-month anniversary of the Closing,
so long as no Claims for indemnification pursuant

 

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to this Article IX are outstanding, the Escrow Agent shall be authorized by the
Purchaser to distribute one-half of the Indemnity Escrow Amount to the Sellers
(to the extent not utilized to pay the Purchaser for any such indemnification
Claims). So long as no Claims for indemnification pursuant to this Article IX
are outstanding on the first anniversary of the Closing, the Escrow Agent shall
be authorized by the Purchaser to distribute the remaining Indemnity Escrow
Amount to the Sellers.

 

SECTION 9.06. Treatment of Payments. To the extent permitted by law, the parties
agree to treat all payments made by any of them to or for the benefit of any
other Person under this Article IX or under Section 2.11 and for any breach of
covenants as adjustments to the Purchase Price for Tax purposes.

 

SECTION 9.07. Limitations on Indemnification. Solely for the purpose of avoiding
any recovery in excess of 100% of an out-of-pocket indeminable loss,
indemnification Losses shall be reduced dollar-for-dollar by any applicable
insurance recoveries and other reimbursements. The indemnification obligations
of the parties hereto pursuant to this Article IX shall be limited to actual
damages and shall not include incidental, consequential, punitive, special, or
exemplary damages, except that any incidental, consequential, punitive, specific
or exemplary damages recovered by any third party against any Indemnified Party
under this Article IX shall be included in Losses recoverable under this
indemnification.

 

SECTION 9.08. Exclusive Remedy. The parties agree that, except with respect to
any act of fraud, willful misconduct or bad faith, following the Closing Date,
Purchaser’s sole and exclusive remedy for any Claim arising out of or in
connection with this Agreement shall be the indemnification rights set forth in
this Article IX.

 

ARTICLE X

 

TERMINATION, AMENDMENT AND WAIVER

 

SECTION 10.01. Termination. This Agreement may be terminated at any time prior
to the Closing:

 

(a) by either the Sellers or the Purchaser if (i) the Sellers shall not have
commenced the Chapter 11 Cases within two Business Days after the date hereof;
(ii) the Bankruptcy Court shall not have entered the Bidding Procedures Order
within 20 Business Days after the date hereof; (iii) the Bankruptcy Court shall
not have entered the Sale Approval Order within 45 days after the Preliminary
Hearing; or (iv) the Closing shall not have occurred within 75 days after the
Petition Date; provided, however, that the right to terminate this Agreement
under this Section 10.01(a) shall not be available to any party whose failure to
fulfill any obligation under this Agreement shall have been the cause of, or
shall have resulted in, the failure of the Closing to occur on or prior to such
date;

 

(b) by either the Purchaser or the Sellers in the event that any Governmental
Order restraining, enjoining or otherwise prohibiting or materially modifying
the transactions contemplated by this Agreement shall have become final and
nonappealable;

 

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(c) by either the Purchaser or the Sellers if the Bankruptcy Court approves a
higher and better bid than that submitted by the Purchaser and the Closing of a
Sale to the Successful Bidder has not occurred on or before 30 days after the
Final Sale Hearing;

 

(d) by the Sellers if the Purchaser shall have breached any of its
representations, warranties, covenants or other agreements contained in this
Agreement which would give rise to the failure of a condition set forth in
Article VIII, which breach cannot be or has not been cured as of the Closing, as
the same may be extended by mutual written agreement of the parties;

 

(e) by the Purchaser if the Sellers shall have breached any of their
representations, warranties, covenants or other agreements contained in this
Agreement which would give rise to the failure of a condition set forth in
Article VIII, which breach cannot be or has not been cured as of the Closing, as
the same may be extended by mutual written agreement of the parties;

 

(f) by the mutual written consent of the Sellers and the Purchaser;

 

(g) by the Purchaser if approvals to the transfer to the Purchaser of any
Designated Contracts the failure to secure which would result in the closing
condition set forth in Section 8.02(g) not being satisfied have not been
obtained; or

 

(h) by the Purchaser if (i) an order with respect to the Chapter 11 Cases shall
be entered by the Bankruptcy Court (x) converting the Chapter 11 Cases to a case
under chapter 7 of the Bankruptcy Code or (y) appointing a trustee (or examiner
with enlarged powers substantially similar to those of a trustee) or (ii) the
Chapter 11 Cases are not commenced on or prior to the Petition Date.

 

SECTION 10.02. Effect of Termination. In the event of termination of this
Agreement as provided in this Section 10.02, this Agreement shall forthwith
become void and there shall be no liability on the part of either party hereto
except (a) as set forth in Sections 5.03, 6.04, 6.05, 6.07 and Article XI and
(b) subject to Section 6.07, that nothing herein shall relieve either party from
liability for any breach of this Agreement occurring prior to such termination.

 

ARTICLE XI

 

GENERAL PROVISIONS

 

SECTION 11.01. Expenses. Except as otherwise specified in this Section 11.01 and
elsewhere in this Agreement, all costs and expenses, including fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the Ancillary Agreements and the transactions
contemplated hereby and thereby shall be paid by the party incurring such costs
and expenses, whether or not the Closing shall have occurred; provided, however,
that the parties shall share equally the filing fee of the Purchaser’s
notification report under the HSR Act and the fees and expenses of the Escrow
Agent.

 

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SECTION 11.02. Notices. All notices, requests, Claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by an internationally recognized overnight courier service, by facsimile
or registered or certified mail (postage prepaid, return receipt requested) to
the respective parties hereto at the following addresses (or at such other
address for a party as shall be specified in a notice given in accordance with
this Section 11.02):

 

  (a) If to the Sellers, to:

 

Tropical Sportswear Int’l Corporation

4902 W. Waters Avenue

Tampa, Florida 33634-1302

Telephone: (813) 249-4900

Facsimile: (813) 249-4904

Attention: Mike Kagan

 

with a copy (which shall not constitute notice pursuant to this Section 11.02)
to:

 

Akerman Senterfitt

Post Office Box 231

Orlando, Florida 32802-0231

Telephone: (407) 843-7860

Facsimile: (407) 843-6610

Attention: Peter E. Reinert, Esq.

 

  (b) if to the Purchaser, to:

 

Perry Ellis International, Inc.

3000 N.W. 107th Avenue

Miami, Florida 33172

Telephone: (305) 418-1418

Facsimile: (786) 221-8418

Attention: Alberto de Cardenas, Esq., Senior Vice President and General Counsel

 

with a copy (which shall not constitute notice pursuant to this Section 11.02)
to:

 

Greenberg Traurig, LLP

The MetLife Building

200 Park Avenue

New York, NY 10166

Telephone: (212) 801-9200

Facsimile: (212) 801-6400

Attention: Clifford E. Neimeth, Esq.

 

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and

 

with a copy of all Bankruptcy Court pleadings and notices in the Chapter 11
Cases to:

 

Greenberg Traurig, LLP

401 E. Las Olas Boulevard, Suite 2000

Ft. Lauderdale, Florida

Telephone: (954) 768-8212

Facsimile: (954) 765-1477

Attention: Brian K. Gart, Esq.

Email: GartB@GTLaw.com

 

SECTION 11.03. Public Announcements. No party to this Agreement shall make, or
cause to be made, any press release or public announcement in respect of this
Agreement or the transactions contemplated by this Agreement or otherwise
communicate with any news media without the prior written consent of the other
party unless otherwise required by Law or applicable stock exchange regulation,
and the parties to this Agreement shall cooperate as to the timing and contents
of any such press release, public announcement or communication.

 

SECTION 11.04. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any Law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect for so long as the economic or legal substance of the
transactions contemplated by this Agreement is not affected in any manner
materially adverse to any party hereto. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated by this Agreement are
consummated as originally contemplated to the greatest extent possible.

 

SECTION 11.05. Entire Agreement. This Agreement (and the Disclosure Schedule,
the Exhibits, all statements, certificates and due diligence responses of the
Sellers or any Representative furnished or to be furnished to the Purchaser
pursuant to this Agreement, or in connection with the transactions contemplated
by this Agreement), the Ancillary Agreements and the Confidentiality Agreement
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior agreements and
undertakings, both written and oral, among the Sellers and the Purchaser with
respect to the subject matter hereof and thereof.

 

SECTION 11.06. Assignment. This Agreement may not be assigned by operation of
law or otherwise without the express written consent of the Sellers and the
Purchaser (which consent may be granted or withheld in the sole discretion of
the Sellers or the Purchaser), as the case may be; provided, that (i) the
Purchaser may assign any of its rights or obligations hereunder to any of its
Affiliates and (ii) the Purchaser may collaterally assign any of its rights or
obligations hereunder to any financing source of the Purchaser or its
Affiliates;

 

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provided, further that no assignment pursuant to clause (i) or clause (ii) shall
relieve the Purchaser of any of its obligations hereunder.

 

SECTION 11.07. Amendment. This Agreement may not be amended or modified except
(a) by an instrument in writing signed by, or on behalf of, the Sellers and the
Purchaser or (b) by a waiver in accordance with Section 11.08.

 

SECTION 11.08. Waiver. Any party to this Agreement may (a) extend the time for
the performance of any of the obligations or other acts of the other party, (b)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document delivered by the other party pursuant hereto
or (c) waive compliance with any of the agreements of the other party or
conditions to such party’s obligations contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party to be bound thereby. Any waiver of any term or condition shall not be
construed as a waiver of any subsequent breach or a subsequent waiver of the
same term or condition, or a waiver of any other term or condition of this
Agreement. The failure of either party hereto to assert any of its rights
hereunder shall not constitute a waiver of any of such rights.

 

SECTION 11.09. No Third Party Beneficiaries. This Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their respective
successors and permitted assigns, and nothing herein, express or implied
(excluding the provisions of Article IX relating to indemnified parties), is
intended to or shall confer upon any other Person, including any union or any
employee or former employee of any of the Sellers or any of their Subsidiaries,
any legal or equitable right, benefit or remedy of any nature whatsoever,
including any rights of employment for any specified period, under or by reason
of this Agreement.

 

SECTION 11.10. Currency. Unless otherwise specified in this Agreement, all
references to currency, monetary values and dollars set forth herein shall mean
United States (U.S.) dollars and all payments hereunder shall be made in United
States dollars.

 

SECTION 11.11. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the Laws of the State of Florida. Each of the parties hereto
hereby irrevocably and unconditionally consents to submit to the personal
jurisdiction of the Bankruptcy Court for any litigation arising out of or
relating to this Agreement and the transactions contemplated thereby (and agrees
not to commence any litigation relating thereto except in the Bankruptcy Court).

 

SECTION 11.12. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY WAIVE TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT. EACH OF THE PARTIES HERETO HEREBY (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO
ENTER INTO THIS

 

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AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE,
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
11.12.

 

SECTION 11.13. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.

 

SECTION 11.14. Due Authorization of Signatories; Liability. The Persons
executing this Agreement acted solely in their representative and not their
individual capacities. Nothing herein shall be construed to impart any personal
obligation or liability on any of the individuals executing this Agreement nor
shall any of such signatories, or any other directors, officers, employees,
shareholders, representatives, or agents thereof be held personally liable
hereunder.

 

SECTION 11.15. Specific Performance. Each of TSIC and the Purchaser acknowledge
and agree that the other party would be irreparably damaged in the event the
provisions of this Agreement, including Sections 5.02, 5.06, 5.10, 5.11, 5.12,
5.16, and 5.20 were not fully performed in accordance with their specific terms
or otherwise were breached. Accordingly, each of TSIC and the Purchaser shall be
entitled, after the Closing, to an injunction (or injunctions) to prevent
breaches of such provisions and to enforce specifically this Agreement and the
terms and provisions hereof in any Action instituted in the Bankruptcy Court, in
addition to any other equitable remedy, remedy at law for money damages to the
extent provided elsewhere in and contemplated by this Agreement.

 

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IN WITNESS WHEREOF, the Sellers and the Purchaser have caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.

 

Sellers

 

TROPICAL SPORTSWEAR INT’L

CORPORATION

By:   /S/    MICHAEL KAGAN            

Name:

  Michael Kagan    

Title:

  Chief Executive Officer

 

SAVANE INTERNATIONAL CORP.

By:   /S/    MICHAEL KAGAN            

Name:

  Michael Kagan    

Title:

  Chief Executive Officer

 

TSI BRANDS, INC.

By:   /S/    MICHAEL KAGAN            

Name:

  Michael Kagan    

Title:

  President

 

TDIL, INC.

By:   /S/    MICHAEL KAGAN            

Name:

  Michael Kagan    

Title:

  President

 

APPAREL NETWORKS CORP.

By:   /S/    MICHAEL KAGAN            

Name:

  Michael Kagan    

Title:

  Chief Executive Officer

 

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FARAH OFFSHORE SOURCING COMPANY

By:

  /S/    MICHAEL KAGAN            

Name:

  Michael Kagan    

Title:

  President

 

FARAH MANUFACTURING (U.K.) LIMITED

By:

  /S/    MICHAEL KAGAN            

Name:

  Michael Kagan    

Title:

  Chief Executive Officer

 

Purchaser

 

PERRY ELLIS INTERNATIONAL, INC.

By:

  /S/    GEORGE FELDENKREIS            

Name:

  George Feldenkreis    

Title:

 

Chairman of the board

and Chief Executive Officer