Exhibit 10.1

 

EXECUTION COPY

 

ASSET PURCHASE AGREEMENT

 

by and among

 

Deckers Outdoor Corporation,

 

Deckers Acquisition, Inc.,

 

Deckers International Limited,

 

Sanuk USA, LLC,

 

Thomas J. Kelley,

 

Ian L. Kessler,

 

C&C Partners, Ltd.,

 

Donald A. Clark,

 

and

 

Paul Carr

 

dated May 19, 2011

 

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Table of Contents

 

 

 

 

 

 

Page

ARTICLE I

DEFINITIONS

 

2

 

1.1

 

Defined Terms

 

2

 

1.2

 

Construction of Certain Terms and Phrases

 

9

 

 

 

 

 

 

ARTICLE II

PURCHASE AND SALE OF ASSETS

 

10

 

2.1

 

Purchase and Sale of the Assets of Sellers

 

10

 

2.2

 

Excluded Assets

 

11

 

2.3

 

Assumed Liabilities

 

11

 

2.4

 

Excluded Liabilities

 

12

 

2.5

 

Purchase Price

 

12

 

2.6

 

Escrow

 

15

 

2.7

 

Allocation of Aggregate Purchase Price

 

15

 

2.8

 

Purchase of International Exploitation Rights

 

15

 

2.9

 

Closing Costs; Transfer Costs; Taxes and Fees

 

16

 

2.10

 

Closing Time and Place

 

16

 

2.11

 

Working Capital Adjustment

 

19

 

 

 

 

 

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF C&C AND THE C&C SELLERS

 

20

 

3.1

 

Organization of C&C

 

20

 

3.2

 

Authorization and Enforceability

 

21

 

3.3

 

No Conflicts; Consents

 

21

 

3.4

 

Financial Statements

 

21

 

3.5

 

Absence of Certain Changes

 

22

 

3.6

 

No Undisclosed Liabilities

 

23

 

3.7

 

Purchased Assets

 

23

 

3.8

 

Benefit Plans; ERISA

 

23

 

3.9

 

Real Property; Leases

 

24

 

3.10

 

Intellectual Property Rights

 

24

 

3.11

 

Litigation

 

28

 

3.12

 

Compliance with Law

 

28

 

3.13

 

Contracts

 

28

 

3.14

 

Insurance

 

28

 

3.15

 

Tax Matters

 

29

 

3.16

 

Labor and Employment Relations

 

30

 

3.17

 

Certain Employees

 

30

 

3.18

 

Permits

 

31

 

3.19

 

Brokers

 

31

 

3.20

 

Accounts Receivable

 

31

 

3.21

 

Inventory

 

31

 

3.22

 

Books and Records

 

31

 

3.23

 

Major Customers, Suppliers and Distributors

 

32

 

3.24

 

Absence of Unlawful Payments

 

32

 

3.25

 

Transactions with Related Persons

 

32

 

3.26

 

Environmental Matters

 

32

 

i

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Table of Contents

(continued)

 

 

 

 

 

 

Page

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SANUK AND THE SANUK SELLERS

 

33

 

4.1

 

Organization of Sanuk

 

33

 

4.2

 

Authorization and Enforceability

 

33

 

4.3

 

No Conflicts; Consents

 

34

 

4.4

 

Financial Statements

 

34

 

4.5

 

Absence of Certain Changes

 

34

 

4.6

 

No Undisclosed Liabilities

 

36

 

4.7

 

Purchased Assets

 

36

 

4.8

 

Benefit Plans; ERISA

 

36

 

4.9

 

Real Property; Leases

 

37

 

4.10

 

Intellectual Property Rights

 

37

 

4.11

 

Litigation

 

40

 

4.12

 

Compliance with Law

 

41

 

4.13

 

Contracts

 

41

 

4.14

 

Insurance

 

41

 

4.15

 

Tax Matters

 

42

 

4.16

 

Labor and Employment Relations

 

43

 

4.17

 

Certain Employees

 

43

 

4.18

 

Permits

 

43

 

4.19

 

Brokers

 

44

 

4.20

 

Accounts Receivable

 

44

 

4.21

 

Inventory

 

44

 

4.22

 

Books and Records

 

44

 

4.23

 

Major Customers, Suppliers and Distributors

 

44

 

4.24

 

Absence of Unlawful Payments

 

45

 

4.25

 

Transactions with Related Persons

 

45

 

4.26

 

Environmental Matters

 

45

 

 

 

 

 

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT

 

46

 

5.1

 

Organization

 

46

 

5.2

 

Authorization and Enforceability

 

46

 

5.3

 

No Conflicts; Consents

 

46

 

5.4

 

Litigation

 

47

 

5.5

 

Sufficient Funds

 

47

 

5.6

 

Brokers

 

47

 

 

 

 

 

 

ARTICLE VI

CONDITIONS PRECEDENT

 

47

 

6.1

 

Conditions to Obligations of Seller

 

47

 

6.2

 

Conditions to Obligations of Purchaser

 

48

 

6.3

 

Conditions to Obligations of All Parties to Close

 

48

 

 

 

 

 

 

ARTICLE VII

COVENANTS

 

48

 

7.1

 

Covenants of Sellers

 

48

 

ii

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Table of Contents

(continued)

 

 

 

 

 

 

Page

 

7.2

 

Covenants of Purchaser

 

51

 

7.3

 

Restricted Substances Policy

 

53

 

7.4

 

Sanuk Lease Payments

 

55

 

 

 

 

 

 

ARTICLE VIII

SURVIVAL; INDEMNIFICATION

 

56

 

8.1

 

Survival of Representations, Warranties, Etc.

 

56

 

8.2

 

Indemnification

 

56

 

 

 

 

 

 

ARTICLE IX

MISCELLANEOUS

 

59

 

9.1

 

Termination

 

59

 

9.2

 

Effect of Termination

 

60

 

9.3

 

Notices

 

60

 

9.4

 

Entire Agreement

 

62

 

9.5

 

Waiver

 

62

 

9.6

 

Amendment

 

62

 

9.7

 

No Third Party Beneficiary

 

62

 

9.8

 

No Assignment; Binding Effect

 

62

 

9.9

 

Headings

 

62

 

9.10

 

Severability

 

62

 

9.11

 

Governing Law

 

63

 

9.12

 

Arbitration and Venue

 

63

 

9.13

 

Consent to Jurisdiction and Forum Selection

 

63

 

9.14

 

Disclosure Schedules

 

64

 

9.15

 

Expenses

 

64

 

9.16

 

Construction

 

64

 

9.17

 

Counterparts

 

64

 

9.18

 

Parent Guaranty

 

64

 

iii

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Table of Contents

(continued)

 

SCHEDULES AND EXHIBITS

 

 

Schedules

 

Schedule 1.1

Cost of Goods Sold

Schedules 2.1(a)(i) and (ii)

Equipment

Schedules 2.1(b)(i) and (ii)

Customer Lists and Accounts

Schedules 2.1(c)(i) and (ii)

Assumed Contracts

Schedules 2.1(d)(i) and (ii)

Permits

Schedules 2.2(ii) and (iii)

Excluded Assets

Schedule 2.3

Assumed Liabilities

Schedule 2.5(i) and (ii)

Purchase Price Payment Instructions

Schedule 2.7

Allocation of Purchase Price

Schedule 2.8

Allocation of International Exploitation Rights

Schedule 2.11

Sample Working Capital Calculation

Schedule 3.13

Material Contracts of C&C

Schedule 4.13

Material Contracts of Sanuk

Schedule 7.3

Restricted Substances Policy

 

Disclosure Schedule

 

 

Exhibits

 

Exhibit A

Form of Bill of Sale

Exhibit B

Form of General Assignment

Exhibit C-1

Form of Copyright Assignment

Exhibit C-2

Form of Domain Name Assignment

Exhibit C-3

Form of Patent Assignment

Exhibit C-4

Form of Trademark Assignment

Exhibit D

Form of Non-Competition Agreement

Exhibit E

Form of Employment Agreement

Exhibit F

Form of Escrow Agreement

Exhibit G

Form of Sublease

 

iv

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ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement (“Agreement”) is made and entered into as of
May 19, 2011, by and among Deckers Outdoor Corporation, a Delaware corporation
(“Parent”), Deckers Acquisition, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent (“Purchaser”), Deckers International Limited, a Bermuda
corporation (“Deckers Bermuda”), Sanuk USA, LLC, a California Limited Liability
Company (“Sanuk”), the equity holders of Sanuk Thomas J. Kelley (“Kelley”) and
Ian L. Kessler (“Kessler”), C&C Partners, Ltd., a California corporation
(“C&C”), and the shareholders of C&C Donald A. Clark (“Clark”) and Paul Carr
(“Carr”).  Each of Sanuk and C&C is referred to herein from time to time as a
“Seller,” and collectively as “Sellers,” Kelley and Kessler are collectively
referred to herein as the “Sanuk Sellers,” and Clark and Carr are collectively
referred to herein as the “C&C Sellers.”

 

RECITALS

 

WHEREAS, Sanuk is the owner of certain intellectual property rights, including,
among other things, trademarks, copyrights, trade names and logos, the principal
one of which includes the name Sanuk (collectively, the “Sanuk Brand”).

 

WHEREAS, pursuant to that certain license agreement dated January 1, 2000, as
amended, by and between Sanuk and C&C (the “Sanuk License Agreement”), C&C is
the exclusive licensee for the Sanuk trademark (the “Sanuk Mark”) in the United
States, Canada and Europe.

 

WHEREAS, each Seller is engaged in the business of the design, manufacture and
sale of footwear for men, women and children, as well as accessories and other
products under the Sanuk Brand (the “Business”).

 

WHEREAS, Purchaser desires to purchase substantially all of the assets of each
of Sanuk and C&C related to the Business, and each of Sanuk and C&C desires to
sell such assets to Purchaser, on the terms and conditions set forth herein.

 

WHEREAS, subject to the rights of Purchaser to, among other things, the record
title of the Sanuk Intellectual Property and the C&C Intellectual Property upon
the closing of the transactions contemplated by this Agreement, Deckers Bermuda
will acquire from Sellers the International Exploitation Rights (as defined
below).

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

 

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ARTICLE I
DEFINITIONS

 

1.1           Defined Terms.  As used in this Agreement, the following defined
terms have the meanings indicated below:

 

“2011 EBITDA” means, without duplication, the net income of the Sanuk Business,
the C&C Business and the Business as determined on a consolidated basis in
accordance with GAAP applied in a manner consistent with that used by C&C in
preparing the unaudited historical financial statements referenced in
Section 3.4, plus:  (i) income taxes, interest, depreciation, amortization and
impairment charges (if any) for the 2011 Participation Period; and (ii) one-time
payments made in contemplation of or in connection with the sale of the
Business, including but not limited to employee bonuses paid immediately prior
to the Closing, investment banking fees, legal expenses, data room and other
deal related expenses.  For the avoidance of doubt, the 2011 EBITDA will be
prepared on a consolidated basis and eliminate any intercompany transactions
between C&C and Sanuk.

 

“2011 Implied Enterprise Value” means the product of (i) 2011 EBITDA, multiplied
by (ii) 10.

 

“2011 Participation Period” means the 12 month period ending December 31, 2011.

 

“2012 Gross Profit Dollars” means (i) Total Sales for the 2012 Participation
Period, minus (ii) Costs of Goods Sold for such period.

 

“2012 Participation Period” means the 12 month period ending December 31, 2012.

 

“2013 Gross Profit Dollars” means (i) Total Sales for the 2013 Participation
Period, minus (ii) Costs of Goods Sold for such period.

 

“2013 Participation Period” means the 12 month period ending December 31, 2013.

 

“2015 Gross Profit Dollars” means (i) Total Sales for the 2015 Participation
Period, minus (ii) the Costs of Goods Sold for such period.

 

“2015 Implied Enterprise Value” means the product of (i) 2015 Gross Profit
Dollars, multiplied by (ii) 5.

 

“2015 Participation Period” means the 12 month period ending December 31, 2015.

 

“Acquisition Proposal” means a proposal or offer for a merger, consolidation or
other business combination involving an acquisition of any Seller or the
Purchased Assets, or any proposal to acquire in any manner any capital stock of
any Seller.

 

“Actions or Proceedings” means any action, suit, proceeding, arbitration, Order
(as defined below), inquiry or litigation (whether civil, criminal,
administrative, investigative or informal) commenced, brought, conducted or
heard by or before, or otherwise involving, any Governmental or Regulatory
Authority (as defined below).

 

2

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“Affiliate” of a Person means any other Person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, such Person. The term “control” (including the terms
“controlled by” and “under common control with”) means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

 

“Ancillary Agreements” means the Employment Agreements, the Non-Competition
Agreements, the Sublease Agreement and the Escrow Agreements.

 

“Arbiter” has the meaning set forth in Section 2.11(d).

 

“Assets and Properties” and “Assets or Properties” of any Person each means all
assets and properties of every kind, nature, character and description (whether
real, personal or mixed, whether tangible or intangible, whether absolute,
accrued, contingent, fixed or otherwise and wherever situated), including the
goodwill related thereto, operated, owned or leased by such Person, including,
without limitation, cash, cash equivalents, accounts and notes receivable,
chattel paper, documents, instruments, general intangibles, real estate,
equipment, inventory, goods and Intellectual Property.

 

“Assumed Contracts” means with respect to the contracts of a Seller, only the
contracts of that particular Seller (and not the contracts of both Sellers) that
are assumed by Purchaser, as set forth in Section 2.1 and the Disclosure
Schedules thereto.

 

“Assumed Liabilities” has the meaning set forth in Section 2.3.

 

“Audited Financial Statements” means, with respect to each Seller, a complete
copy of the audited financial statements of such Seller, consisting of the
balance sheet of such Seller as of December 31, 2010, and the related statements
of income and retained earnings, changes in members’ or stockholders’ equity, as
the case may be, and cash flow for the year then ended, prepared in accordance
with GAAP, applied in a manner consistent with that used by each Seller in
preparing its historical financial statements (but only to the extent that the
historical financial statements were prepared in accordance with GAAP), together
with the related opinion of KPMG, LLP.

 

“Benefit Plan” means any Plan established, arranged or maintained by a Seller,
existing at the Closing Date or prior thereto, to which a Seller contributes or
has contributed, or under which any employee, officer, director or former
employee, officer or director of a Seller or any beneficiary thereof is covered,
is eligible for coverage or has benefit rights.

 

“Books and Records” of any Person means all files, documents, instruments,
papers, books, computer files (including but not limited to files stored on a
computer’s hard drive or on floppy disks), electronic files and records in any
other medium relating to the business, operations or condition of such Person,
but excluding any of the foregoing related to the Excluded Assets and excluding
the minute books, stock books and other corporate records related to the
corporate organization of a Seller.

 

“Business” has the meaning set forth in the Recitals.

 

3

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“Business Day” means a day other than Saturday, Sunday or any day on which banks
located in the State of California are authorized or obligated to close.

 

“C&C Business” or the “Business of C&C” means the Business or aspects thereof as
conducted by C&C.

 

“C&C Intellectual Property” means any Intellectual Property used in the Business
that is owned by or licensed to C&C.

 

“C&C Purchased Assets” means the assets of C&C that are purchased by Purchaser
as set forth in Section 2.1 and the Disclosure Schedules thereto, but not
including the Excluded Assets.

 

“CIT Loan” means the loan evidenced by that certain factoring agreement dated as
of December 19, 1988, as amended, between C&C as obligor and CIT as lender.

 

“Closing” has the meaning set forth in Section 2.10.

 

“Closing Date” has the meaning set forth in Section 2.10.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Copyrights” means all copyrights (whether registered or unregistered) in
writings, artwork, graphics, photographs, animations, images, designs,
ornamentation, mask works or other works, web sites and registrations or
applications for registration of copyrights in any jurisdiction.

 

“Copyright Assignment” has the meaning set forth in Section 2.10(a)(iv).

 

“Costs of Goods Sold” means, for any period, the costs of goods sold of the
Business for such period determined on a consolidated basis in accordance with
GAAP applied in a manner consistent with that used by C&C in preparing the
unaudited historical financial statements referenced in Section 3.4, and shall
not include costs and expenses of overhead allocated by Purchaser that is
inconsistent with C&C’s historical allocation of overhead.  For avoidance of
doubt, Costs of Goods sold shall be calculated consistent with the calculation
set forth in Schedule 1.1.

 

“Disclosure Schedule” or “Disclosure Schedules” means the disclosure schedule
attached hereto that sets forth the exceptions to the representations and
warranties contained in Article III and Article IV hereof and certain other
information called for by this Agreement.

 

“Domain Names” means Internet web sites and domain names and registrations or
applications for registration thereof.

 

“Domain Name Assignment” has the meaning set forth in Section 2.10(a)(iv).

 

“Employment Agreement” has the meaning set forth in Section 2.10(a)(vi).

 

4

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“Encumbrances” means any mortgage, pledge, assessment, security interest, deed
of trust, lease, lien, adverse claim, levy, charge or other encumbrance of any
kind, or any conditional sale or title retention agreement or other agreement to
give any of the foregoing in the future.

 

“Environmental Law” means any applicable law, and any Order or binding agreement
with any Governmental or Regulatory Authority: (a) relating to pollution (or the
cleanup thereof) or the protection of natural resources, endangered or
threatened species, human health or safety, or the environment (including
ambient air, soil, surface water or groundwater, or subsurface strata); or
(b) concerning the presence of, exposure to, or the management, manufacture,
use, containment, storage, recycling, reclamation, reuse, treatment, generation,
discharge, transportation, processing, production, disposal or remediation of
any Hazardous Materials.  The term “Environmental Law” includes, without
limitation, the following (including their implementing regulations and any
state analogs): the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of 1976, as
amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901
et seq.; the Federal Water Pollution Control Act of 1972, as amended by the
Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control
Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air
Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§
7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29
U.S.C. §§ 651 et seq.

 

“Environmental Permit” means any Permit, letter, clearance, consent, waiver,
closure, exemption, decision or other action required under or issued, granted,
given, authorized by or made pursuant to an Environmental Law.

 

“Equipment” has the meaning set forth in Section 2.1(a).

 

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

 

“Escrow Agent” means the entity designated to serve as the escrow agent under
the Escrow Agreement.

 

“Escrow Agreement,” “C&C Escrow Agreement” and “Sanuk Escrow Agreement” have the
meanings set forth in Section 2.5(b) herein.

 

“Escrow Amount,” “C&C Escrow Amount” and “Sanuk Escrow Amount” have the meanings
set forth in Section 2.5(b) herein.

 

“Excluded Assets” has the meaning set forth in Section 2.2.

 

“Financial Statements of C&C” or “C&C Financial Statements” means:  (i) the
unaudited balance sheet of C&C at December 31, 2009 and 2010 and the related
unaudited

 

5

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statement of income and retained earnings, shareholders’ equity, and cash flow
for the fiscal years then ended; and (ii) the Interim Financial Statements of
C&C (as defined below).

 

“Financial Statements of Sanuk” or “Sanuk Financial Statements” means:  (i) the
unaudited balance sheet of Sanuk at December 31, 2009 and 2010, and the related
unaudited statement of income and retained earnings, members’ equity, and cash
flow for the fiscal years then ended; and (ii) the Interim Financial Statements
of Sanuk (as defined below).

 

“GAAP” means generally accepted United States accounting principles, applied on
a consistent basis.

 

“General Assignment” has the meaning set forth in Section 2.10(a)(iii).

 

“Governmental or Regulatory Authority” means any court, tribunal, arbitrator,
authority, agency, commission, official or other instrumentality of the United
States or other country, any state, county, city or other political subdivision.

 

“Hazardous Materials” means any material, substance, chemical, waste, product,
derivative, compound, mixture, solid, liquid, mineral or gas, petroleum or
petroleum-derived products or byproducts (including, without limitation,
polyvinyl chloride), radon, radioactive materials or wastes, asbestos in any
form, lead or lead-containing materials, urea formaldehyde foam insulation and
polychlorinated biphenyls, in each case, whether naturally occurring or manmade,
that is regulated or restricted by or under any Environmental Laws.

 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

 

“Intellectual Property” means all Copyrights, Domain Names, Marks, Patents,
Trade Secrets, and all similar intangible property and related proprietary
rights, interests and protections, however arising, pursuant to the Laws of any
jurisdiction throughout the world relating to any of the foregoing.

 

“Intellectual Property Assignments” has the meaning set forth in
Section 2.10(a)(iv).

 

“Interim Financial Statements of C&C” or “C&C Interim Financial Statements”
means the unaudited balance sheet of C&C at March 31, 2011 and the related
unaudited statement of income and retained earnings for the three (3) month
period then ended.

 

“Interim Financial Statements of Sanuk” or “Sanuk Interim Financial Statements”
means the unaudited balance sheet of Sanuk at March 31, 2011 and the related
unaudited statement of income and retained earnings for the three (3) month
period then ended.

 

“International Exploitation Rights” has the meaning set forth in Section 2.8.

 

“Knowledge” means:  (i) with respect to an individual, an individual will be
deemed to have “Knowledge” of a particular fact or other matter if (A) such
individual is actually aware of such fact or other matter, or (B) a prudent
individual would have discovered or otherwise become aware of such fact or other
matter in the course of conducting a reasonable inquiry

 

6

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concerning the existence of such fact or other matter; and (ii) with respect to
a Person (other than an individual), such Person will be deemed to have
“Knowledge” of a particular fact or other matter if any individual who is
serving as an officer, director or senior manager has, or at any time had,
Knowledge of such fact or other matter.

 

“Laws” means any federal, state, local, municipal, foreign, international,
multinational, or other administrative order, constitution, law, ordinance,
principle of common law, regulation, statute or treaty.

 

“Liabilities” means any liability, debts, obligations or commitments of any kind
or nature, whether accrued, absolute, contingent, matured, unmatured, and
whether due or to become due.

 

“Lost Sales” has the meaning set forth in Section 7.3(c).

 

“Marks” means all fictitious business names, registered or unregistered
trademarks and service marks, trade dress, trade names, Domain Names, brand
names, and other names and slogans embodying business or product goodwill or
indications of origin, all applications or registrations in any jurisdiction
pertaining to the foregoing, including intent-to-use applications, and all
issuances, extensions, renewals of such registrations and applications, and all
goodwill associated therewith.

 

“Material Adverse Effect” or “Material Adverse Change” means, with respect to a
Seller, any event, occurrence change or condition that is, or would reasonably
be expected to become, individually or in the aggregate, materially adverse to: 
(a) the business, results of operations, condition (financial or otherwise),
assets, Liabilities or prospects of the Business of such Seller; (b) the value
of the Purchased Assets of such Seller; or (c) the ability of such Seller to
consummate the transactions contemplated hereby; provided, however, that a
“Material Adverse Effect” or “Material Adverse Change” shall not include any
change or event resulting from: (i) general changes in the economy or financial
markets of the United States or any other region outside of the United States to
the extent they do not disproportionately affect the Business of such Seller in
relation to other companies in the industries in which such Seller operates; or
(ii) conditions caused by acts of war or terrorism, or the occurrence of natural
disasters to the extent they do not disproportionately affect the Business of
such Seller in relation to other companies in the industries in which such
Seller conducts the Business.

 

“Non-Competition Agreements” has the meaning set forth in Section 2.10(b)(v).

 

“Order” means any writ, judgment, decree, injunction or similar order of any
Governmental or Regulatory Authority (in each such case whether preliminary or
final).

 

“Ordinary Course of Business” means the action of a Person that is consistent
with the past practices of such Person and is taken in the ordinary course of
the normal day-to-day operations of such Person.

 

“Participating Percentage” means: (i) 50% for Sanuk and 50% for C&C for the 2011
Participating Period, 2012 Participating Period and 2013 Participating Period;
and (ii) 100% for Sanuk and 0% for C&C for the 2015 Participating Period.

 

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“Participation Payments” has the meaning set forth in Section 2.5(c).

 

“Patents” means all patented and patentable designs and inventions, discoveries,
improvements, methodology, processes, technology and computer programs, software
and databases (including source code, object code, development documentation,
programming tools, drawings, specifications and data), and all applications or
registrations in any jurisdiction pertaining to the foregoing, including all
reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof.

 

“Patent Assignment” has the meaning set forth in Section 2.10(a)(iv).

 

“Permits” means all licenses, permits, certificates of authority,
authorizations, approvals, registrations and similar consents granted or issued
by any Governmental or Regulatory Authority.

 

“Permitted Encumbrance” means:  (a) any Encumbrance for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP; and (b) any
minor imperfection of title or similar Encumbrance which individually or in the
aggregate with other such Encumbrances does not impair the value of the property
subject to such Encumbrance or the use of such property in the conduct of the
Business of a Seller.

 

“Person” means any natural person, corporation, general partnership, limited
partnership, limited liability company, proprietorship, other business
organization, trust, union, association or Governmental or Regulatory Authority.

 

“Plan” means any bonus, incentive compensation, deferred compensation, pension,
profit sharing, retirement, stock purchase, stock option, stock ownership, stock
appreciation rights, phantom stock, leave of absence, layoff, vacation, day or
dependent care, legal services, cafeteria, life, health, accident, disability,
workers’ compensation or other insurance, severance, separation or other
employee benefit plan, practice, policy or arrangement of any kind, whether
written or oral, including, but not limited to, any “employee benefit plan”
within the meaning of Section 3(3) of ERISA.

 

“Purchased Assets” means collectively, the Sanuk Purchased Assets and the C&C
Purchased Assets as more specifically identified in Section 2.1 and the
Disclosure Schedules thereto.

 

“Purchase Price” has the meaning set forth in Section 2.5.

 

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

 

“Purchaser Group” has the meaning set forth in Section 8.2(a).

 

“Purchaser Restricted Substance Policy” has the meaning set forth in
Section 7.3.

 

“Real Property” has the meaning set forth in Section 3.9 with respect to C&C,
and has the meaning set forth in Section 4.9 with respect to Sanuk.

 

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“Sanuk Brand” has the meaning set forth in the recitals.

 

“Sanuk Business” or “Business of Sanuk” means the Business or aspects thereof as
conducted by Sanuk.

 

“Sanuk Intellectual Property” means any Intellectual Property used in the
Business that is owned by or licensed to Sanuk.

 

“Sanuk Purchased Assets” means the assets of Sanuk that are purchased by
Purchaser as set forth in Section 2.1 of the Disclosure Schedule thereto, but
not including the Excluded Assets.

 

“Seller” or “Sellers” has the meaning set forth in the first paragraph of this
Agreement.

 

“Seller Group” has the meaning set forth in Section 8.2(c).

 

“Tax” (and, with correlative meaning, “Taxes,” “Taxable” and “Taxing”) means any
tax, whether estimated or actual, including without limitation, income,
property, sales, use, franchise, added value, employees’ income withholding and
social security taxes, imposed by the United States or by any foreign country,
or by any other taxing authority, which are due or payable by a Seller with
respect to Assets used in the Business, and all interest and penalties thereon,
whether disputed or not.

 

“Tax Return” means any return, report, information return, schedule or other
document (including any related or supporting information) filed or required to
be filed with respect to any taxing authority with respect to Taxes.

 

“Territory” means all territories excluding the United States of America.

 

“Total Sales” means, with respect to any Participation Period, the total sales
of the Business for such period determined on a consolidated basis in accordance
with GAAP.

 

“Trademark Assignment” has the meaning set forth in Section 2.10(a)(iv).

 

“Trade Secrets” means all proprietary confidential information, customer lists,
plans, designs, devices, technical information, data, know-how, research and
development, methods, processes, compositions or other trade secrets, and the
right in any jurisdiction to limit the use or disclosure thereof.

 

1.2           Construction of Certain Terms and Phrases.  Unless the context of
this Agreement otherwise requires:  (a) words of any gender include each other
gender; (b) words using the singular or plural number also include the plural or
singular number, respectively; (c) the terms “hereof,” “herein,” “hereby” and
derivative or similar words refer to this entire Agreement; (d) the terms
“Article” or “Section” refer to the specified Article or Section of this
Agreement; (e) the term “or” has, except where otherwise indicated, the
inclusive meaning represented by the phrase “and/or;” and (f) “including” means
“including without limitation.”  Whenever this Agreement refers to a number of
days, such number shall refer to calendar days

 

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unless Business Days are specified.  All accounting terms used herein and not
expressly defined herein shall have the meanings given to them under GAAP.

 

ARTICLE II
PURCHASE AND SALE OF ASSETS

 

2.1           Purchase and Sale of the Assets of Sellers.  Subject to the terms
and conditions of this Agreement, at the Closing, and except for the Excluded
Assets of a Seller, each of the Sellers agrees to grant, sell, convey, assign,
transfer and deliver to Purchaser (or, with respect to the Assumed Contracts
related to the International Exploitation Rights, Deckers Bermuda), and
Purchaser or Deckers Bermuda, as the case may be, agrees to purchase and acquire
from each of the Sellers, free and clear of any Encumbrance or adverse claim
other than the Assumed Liabilities of a Seller, all of such Seller’s right,
title, and interest in and to all Assets and Properties of each Seller of every
kind, type or description, real, personal and mixed, tangible and intangible,
wherever located and whether or not specifically referred to in this Agreement,
that are used in or pertain to the Business (collectively, the “Purchased
Assets”). Without limiting the foregoing, the Purchased Assets shall include:

 

(a)           all the equipment, leasehold improvements, hardware, software and
other operating assets owned or leased by C&C, including without limitation,
those set forth in Schedule 2.1(a)(i) attached hereto, and by Sanuk, including
without limitation, those set forth in Schedule 2.1(a)(ii) attached hereto (as
applicable, the “Equipment”);

 

(b)           all customer lists and customer accounts owned by each Seller
relating to the Business, including without limitation, those set forth in
Schedule 2.1(b)(i) attached hereto with respect to C&C, and those set forth in
Schedule 2.1(b)(ii) with respect to Sanuk (as applicable, the “Customer Lists
and Accounts”);

 

(c)           all of each Seller’s right, title and interest in and to the
contracts and agreements related to the Business and which are specifically set
forth in Schedule 2.1(c)(i) attached hereto with respect to C&C, and which are
specifically set forth in Schedule 2.1(c)(ii) with respect to Sanuk (as
applicable, the “Assumed Contracts”);

 

(d)           all Permits issued to or held by each Seller necessary or
incidental to the conduct of the Business that are capable of being transferred,
including without limitation, those set forth in Schedule 2.1(d)(i) attached
hereto with respect to C&C, and those set forth in Schedule 2.1(d)(ii) with
respect to Sanuk (as applicable, the “Permits”);

 

(e)           all prepaid expenses, deposits (except for lease security
deposits) and deferred items of each Seller in effect as of the Closing Date and
from which the Purchaser may derive future benefit;

 

(f)            all C&C Intellectual Property and all Sanuk Intellectual
Property, including all licenses, immunities, covenants not to sue, claims or
causes of action arising out of or related to infringement or misappropriation
of any of the foregoing, together with all Books and Records describing or used
in connection with any of the foregoing, and including, without limitation, all
Intellectual Property identified in Section 3.10(a) and Section 4.10(a) of the
Disclosure Schedule;

 

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(g)           each Seller’s goodwill and going concern value related to the
Business;

 

(h)           all accounts or notes receivable held by each Seller, and any
security, claim, remedy or other right related to any of the foregoing (the
“Accounts Receivable”);

 

(i)            all inventory, finished goods, raw materials, work in progress,
packaging, supplies, parts and other inventories of each Seller (“Inventory”);

 

(j)            rights to any actions of any nature available to or being pursued
by each Seller to the extent related to the Business, the Purchased Assets or
the Assumed Liabilities, whether arising by way of counterclaim or otherwise;

 

(k)           all of each Seller’s rights under warranties, indemnities and all
similar rights against third parties to the extent related to the Business or to
any of the Purchased Assets;

 

(l)            all of each Seller’s insurance benefits, including rights and
proceeds, arising from or relating to the Business, the Purchased Assets or the
Assumed Liabilities; and

 

(m)          originals, or where not available, copies of all Books and Records
of a Seller relating to the Business or any of the Purchased Assets, including
but not limited to, books of account, ledgers and general, financial and
accounting records, machinery and equipment maintenance files, customer lists,
customer purchasing histories, price lists, distribution lists, supplier lists,
production data, quality control records and procedures, customer complaints and
inquiry files, research and development files, records and data (including all
correspondence with any Governmental Authority), sales material and records
(including pricing history, total sales, terms and conditions of sale, sales and
pricing policies and practices), strategic plans, internal financial statements,
marketing and promotional surveys, material and research and intellectual
property files relating to the Intellectual Property of the Business.

 

2.2           Excluded Assets.  Notwithstanding Section 2.1 hereof, the
Purchased Assets shall not include:  (i) with respect to each Seller, cash and
cash equivalents and lease security deposits; (ii) the assets of C&C set forth
in Schedule 2.2(ii) attached hereto; and (iii) the assets of Sanuk set forth in
Schedule 2.2(iii) attached hereto (collectively, the “Excluded Assets”).

 

2.3           Assumed Liabilities.  The Purchaser hereby agrees to assume, pay,
perform, fulfill and discharge only the following Liabilities (collectively, the
“Assumed Liabilities”):

 

(a)           Those Liabilities and obligations specifically set forth in
Schedule 2.3 attached hereto;

 

(b)           All Liabilities and obligations first incurred or to be performed
on or after the Closing Date under or arising out of the Assumed Contracts;

 

(c)           All Liabilities and obligations arising out of or incurred in the
operation of the Business or the ownership or use of the Purchased Assets on or
after the Closing Date; and

 

(d)           All trade accounts payable of each Seller to third parties in
connection with the Business that remain unpaid and are not delinquent as of the
Closing Date and that

 

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either are reflected on the balance sheet of the Sanuk Financial Statements, the
C&C Financial Statements or arose in the Ordinary Course of Business since the
date of the balance sheet of such Sanuk Financial Statements or C&C Financial
Statements.

 

2.4           Excluded Liabilities.  Except for the Assumed Liabilities and
except for the Transfer Expenses (as defined in Section 2.9 below), the Sellers
acknowledge and agree that the Purchaser shall not be obligated to assume or
perform, and is not assuming or performing, any Liabilities of the Sellers,
whether known or unknown, fixed or contingent, certain or uncertain, disclosed
or undisclosed (collectively, the “Excluded Liabilities”), and the Sellers shall
remain responsible for all such Excluded Liabilities and pay, perform, fulfill
and discharge the same as and when due.  Without limiting the foregoing, the
Excluded Liabilities shall include:

 

(a)           Costs and expenses of the Sellers related to the negotiation,
preparation, investigation and performance of this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and thereby;

 

(b)           Liability for Taxes for any pre-Closing period;

 

(c)           Any severance, payment, cost, benefit or other Liability related
to or payable upon the termination by Sellers of any employee or other service
provider of the Sellers;

 

(d)           All Liabilities and obligations related to Excluded Assets; and

 

(e)           Claims arising out of or incurred in the operation of the Business
prior to the Closing.

 

2.5           Purchase Price.

 

(a)           Total Purchase Price.  As consideration for the Purchased Assets,
subject to the terms and conditions of this Agreement, Purchaser (and Deckers
Bermuda with respect to the payment for the International Exploitation Rights as
described in Section 2.8 below) agrees to pay to the Sellers an aggregate
purchase price equal to the sum of the following (such sum, the “Purchase
Price”):

 

(i)            $119,800,000.00 (the “Closing Day Cash Payment”), as adjusted
pursuant to Section 2.10(a) below; plus

 

(ii)           The aggregate Participation Payments payable as provided in
Section 2.5(c) and Section 2.5(d) below.

 

(b)           Payment of Closing Day Cash Payment.  At the Closing, Purchaser
shall pay the Closing Day Cash Payment to the Sellers in the following manner:

 

(i)            A cash payment to C&C in the amount and according to the wire
instructions set forth on Schedule 2.5(i) (the “C&C Closing Day Cash Payment”),
ten percent (10%) of which shall be deposited directly with the Escrow Agent
(the “C&C Escrow Amount”) according to the wire instructions set forth on
Schedule 2.5(i).  The C&C Escrow Amount shall be held by the Escrow Agent in
accordance with Section 2.6 below and an escrow

 

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agreement substantially in the form attached hereto as Exhibit F (the “Escrow
Agreement”), to be entered into by and among Purchaser, C&C and the Escrow Agent
(the “C&C Escrow Agreement”); and

 

(ii)           A cash payment to Sanuk in the amount and according to the wire
instructions set forth on Schedule 2.5(ii) (the “Sanuk Closing Day Cash
Payment”), ten percent (10%) of which shall be deposited directly with the
Escrow Agent (the “Sanuk Escrow Amount”) according to the wire instructions set
forth on Schedule 2.5(ii).  The Sanuk Escrow Amount shall be held by the Escrow
Agent in accordance with Section 2.6 below and the Escrow Agreement to be
entered into by and among Purchaser, Sanuk and the Escrow Agent (the “Sanuk
Escrow Agreement”).

 

(c)           Participation Payments.  The Participation Payments payable in the
aggregate to the Sellers for the Participation Periods shall be determined as
follows:

 

(i)            For the 2011 Participation Period, Purchaser shall pay to the
Sellers (in accordance with Sections 2.5(d) and 2.5(e) below) an aggregate cash
payment equal to the 2011 Implied Enterprise Value less the Closing Day Cash
Payment, up to a maximum 2011 Participation Payment of $30,000,000.00 (the “2011
Participation Payment”);

 

(ii)           For the 2012 Participation Period, the Purchaser shall pay to the
Sellers (in accordance with Sections 2.5(d) and 2.5(e) below) an aggregate cash
payment equal to 51.8% of the 2012 Gross Profit Dollars (the “2012 Participation
Payment”);

 

(iii)          For the 2013 Participation Period, the Purchaser shall pay to the
Sellers (in accordance with Sections 2.5(d) and 2.5(e) below) an aggregate cash
payment equal to 36.0% of the 2013 Gross Profit Dollars (the “2013 Participation
Payment”); and

 

(iv)          For the 2015 Participation Period, the Purchaser shall pay to the
Sellers (in accordance with Sections 2.5(d) and 2.5(e) below) an aggregate cash
payment equal to 8% of the 2015 Implied Enterprise Value (the “2015
Participation Payment”).

 

(d)           Calculation of Participation Payments; Disputes.  The
determination of the amount of the Participation Payments owed to the Sellers at
the end of each Participation Period shall be made as follows:

 

(i)            Within sixty (60) days after the end of each Participation
Period, the Purchaser shall prepare and deliver to the Sellers a consolidated
statement of income of the Business as of the last day each Participation
Period, prepared in accordance with GAAP on a consistent basis year-to-year (the
“Participation Income Statement”), together with a statement (the “Participation
Payment Computation Statement”) evidencing the Purchaser’s determination of the
Participation Payment for that Participation Period due to the Sellers in
accordance with Section 2.5(c) above.  In the event any of the Sellers disputes
or objects to Purchaser’s determination as provided in subparagraph (ii) below,
Purchaser shall make such payment as to the non-disputed amount in accordance
with Section 2.5(e) below and acceptance of such payment shall not constitute a
waiver of any of the Seller’s objection.

 

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(ii)           Any of the Sellers, the Sanuk Sellers or the C&C Sellers may
object to Purchaser’s determination of any Participation Payments set forth
above.  Any such objection must be made by delivery of a written statement of
objections (stating the basis of the objections with reasonable specificity)
(the “Participation Payment Dispute Notice”) to Purchaser within thirty (30)
days following delivery by Purchaser of the applicable Participation Payment
Computation Statement and related supporting information.  If any Seller so
objects, Purchaser and such Seller shall seek in good faith to resolve the
differences specified in such objection within ten (10) Business Days following
such Seller’s delivery of the Participation Payment Dispute Notice.  During such
time, if Purchaser disagrees with the Seller’s objection, Purchaser shall
provide to the Sellers, with reasonable specificity, a written statement of the
basis of its disagreement.  If no Seller timely objects to the determination of
the Participation Payment as reflected in the applicable Participation Payment
Computation Statement, or if Purchaser agrees with the Seller’s objections to
the Participation Payment, then such initial determination of the Participation
Payment, or the modification thereof, as the case may be, shall be final and
binding upon Purchaser and the Sellers.

 

(iii)          If Purchaser and the Sellers are unable to resolve a dispute with
respect to the Participation Payment for any Participation Period during such
ten (10) Business Day period following such Seller’s delivery of the
Participation Payment Dispute Notice, then Purchaser, on the one hand, and the
Sellers, on the other hand, jointly shall select an independent accounting firm
of recognized national or regional standing acceptable to the Purchaser and the
Sellers and not then rendering services to the Purchaser or any of the Sellers
to resolve any remaining disputes related to the Participation Payment Dispute
Notice.  If Purchaser and the Sellers cannot agree on the selection of an
independent accounting firm of recognized national or regional standing within
five (5) Business Days following the expiration of the ten (10) Business Day
period, the Purchaser, on the one hand, and the Sellers, on the other hand,
shall select an independent accounting firm of recognized national or regional
standing and each such selected independent accounting firm shall select a third
independent accounting firm of recognized national or regional standing who is
not then rendering services to the Purchaser or any of the Sellers (such
selected independent accounting firm whether pursuant to this sentence or the
preceding sentence, the “Participation Payment Auditor”).

 

(iv)          Within two (2) Business Days following the selection of the
Participation Payment Auditor, each of the Purchaser, on the one hand, and the
Sellers, on the other hand: (i) shall submit to the Participation Payment
Auditor their respective calculation of the applicable Participation Payment
(each, a “Proposed Amount”), together with such work papers, documents and other
information related to the disputed issues as the Participation Payment Auditor
may reasonably request and are available to each party or its agents; and
(ii) shall be afforded the opportunity to present the Participation Payment
Auditor any such material related to the disputed issues and to discuss the
issues with the Participation Payment Auditor.  The Participation Payment
Auditor shall be instructed to use every reasonable effort to perform its
services within thirty (30) days after the selection of the Participation
Payment Auditor, and in any case, as soon as practicable after such submission
of the Proposed Amounts.  The Participation Payment Auditor shall be instructed
that, in making its final and binding resolution, it must select either the
Proposed Amount of Purchaser in its entirety or the Proposed Amount of the
applicable Sellers in its entirety.  The Participation Payment Auditor shall
make a final and binding resolution of the dispute with respect to the
Participation Payment Computation

 

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Statement, and the applicable Participation Payment as finally determined
thereby shall be deemed acceptable to Purchaser and the Sellers for all purposes
of this Agreement.  No appeal from such determination shall be permitted.  The
costs and expenses for the services of the Participation Payment Auditor shall
be borne by the Party whose Proposed Amount is not selected by the Participation
Payment Auditor.  Judgment upon any award or decision by the Participation
Payment Auditor may be enforced by any court having jurisdiction thereof. 
Following such resolution by the Participation Payment Auditor, the Purchaser
immediately shall wire to Sellers all amounts, if any, to the accounts
designated by the Sellers.

 

(e)           Payment of Participation Payments.  Within the later of: 
(i) sixty (60) days from the end of each Participation Period; or (ii) if
applicable, fifteen (15) days of the decision by the Participation Payment
Auditor pursuant to Section 2.5(d) above with respect to such Participation
Period, the Purchaser shall pay to each Seller cash in the amount equal to the
product of (x) such Seller’s Participating Percentage, multiplied by (y) the
aggregate Participation Payment payable for the Participation Period as
determined above.

 

(f)            Tax Treatment of Participation Payments.  The parties acknowledge
and agree that the Participation Payments will result in the transaction being
treated as a contingent payment installment sale within the meaning of IRS
Treasury Regulation 15A.453-1(c), except to the extent that the respective
Sellers elect out.

 

2.6           Escrow.  The parties hereto shall enter into the Escrow Agreements
as security for the Sellers’ indemnification obligations under Article VIII,
subject to the continuation or extension thereof if a claim for indemnity has
been filed prior to the expiration of such period and such claim remains
unresolved as of the date such Escrow Agreement would have expired in the
absence of an indemnity claim, or as otherwise set forth in the Escrow
Agreements.  The Escrow Amount shall be subject to release from the Escrow
Account in accordance with the terms of the Escrow Agreement.

 

2.7           Allocation of Aggregate Purchase Price.  The allocation of the
Purchase Price shall be determined by Purchaser and Sellers in good faith and
set forth on Schedule 2.7 attached hereto.  Purchaser and each Seller agree: 
(i) to report the sale of the Purchased Assets for federal and state Tax
purposes in accordance with the allocations set forth on Schedule 2.7 hereto;
and (ii) not to take any position inconsistent with such allocations on any of
their respective Tax Returns.  Any adjustments to the Purchase Price, including
but not limited to purchase price adjustments or adjustments related to
Participation Payments shall, to the extent practical, be allocated to the
specific asset to which they relate, or, alternatively, be allocated to the
residual category of goodwill as reasonably determined in good faith by
Purchaser and Sellers.

 

2.8           Purchase of International Exploitation Rights.  The parties
acknowledge and agree that:  (i) immediately prior to and conditioned upon the
consummation of the transactions contemplated by this Agreement, (A) the Sanuk
License Agreement shall be terminated and of no further force and effect, and
(B) Sellers hereby grant to Deckers Bermuda a perpetual, royalty-free, exclusive
right and license to use, exploit and derive economic benefit from the Sanuk
Intellectual Property and C&C Intellectual Property in the Territory (the
“International Exploitation Rights”); and (ii) at the Closing, the transfer and
sale to Purchaser of all of C&C’s and Sanuk’s right, title, and interest in and
to the Sanuk Intellectual Property and the C&C

 

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Intellectual Property shall be subject only to the International Exploitation
Rights held by Deckers Bermuda.  Of the Purchase Price to be paid by Purchaser
at the Closing, Deckers Bermuda shall pay the amount set forth in Schedule 2.8,
which amount shall be determined prior to Closing, in consideration of the
acquisition of the International Exploitation Rights from Sellers and the
related Assumed Contracts related to such International Exploitation Rights.

 

2.9           Closing Costs; Transfer Costs; Taxes and Fees.  Purchaser shall be
responsible for the timely payment of all sales, use, value added, documentary,
stamp, registration, transfer, conveyance, excise, recording, license, permits,
filing fees, governmental approvals and other similar expenses, costs, taxes and
fees, arising out of or in connection with or attributable to the transactions
contemplated by this Agreement, including without limitation:  (i) any expenses
associated with the transfer and assignment of Intellectual Property; (ii) any
expenses associated with Permits that may be transferred lawfully; (iii) any HSR
filings fees of each Seller if required; (iv) all expenses of obtaining the
Audited Financial Statements of each Seller; and (v) all expenses and costs of
the Escrow and Escrow Agent of each Seller (collectively, “Transfer Expenses”). 
All Taxes not otherwise addressed herein shall be the financial responsibility
of the party obligated to pay such Taxes as determined by applicable law and
neither party is or shall be liable at any time for any other party’s Taxes
incurred in connection with or related to amounts paid under this Agreement.

 

2.10         Closing Time and Place.  The consummation of the purchase and sale
of the Purchased Assets under this Agreement (the “Closing”) shall take place
upon the terms and subject to the conditions of this Agreement, through the
electronic transmission of signature pages and other required deliveries through
Purchaser’s and Sellers’ respective counsels, at 10:00 a.m. local time on
July 1, 2011, or at such time and in such manner as the Purchaser and Sellers
mutually agree in writing (the “Closing Date”).

 

(a)           Closing Deliveries by the Sellers.  At the Closing, the Sellers
shall have delivered or caused to be delivered to Purchaser:

 

(i)            possession of all of the Purchased Assets;

 

(ii)           a Bill of Sale from each Seller substantially in the form of
Exhibit A attached hereto, conveying good and marketable title in and to all of
the Purchased Assets, duly executed by such Seller;

 

(iii)          an Assignment and Assumption Agreement from each Seller
substantially in the form of Exhibit B attached hereto (the “General
Assignment”) of all of the Purchased Assets, duly executed by such Seller;

 

(iv)          a Copyright Assignment from each Seller substantially in the form
of Exhibit C-1 attached hereto (“Copyright Assignment”), a Domain Name
Assignment from each Seller substantially in the form of Exhibit C-2 attached
hereto (“Domain Name Assignment”), a Patent Assignment from each Seller
substantially in the form of Exhibit C-3 attached hereto (“Patent Assignment”),
and a Trademark Assignment from each Seller substantially in the form of
Exhibit C-4 attached hereto (“Trademark Assignment,” together with the Copyright
Assignment, Domain Name Assignment, the “Intellectual Property

 

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Assignments”), assigning all of such Seller’s Intellectual Property related to
the Business, duly executed by such Seller;

 

(v)           a Non-Competition Agreement by and between Purchaser and each of
Sanuk, C&C, Kelley, Kessler, Clark and Carr, substantially in the form of
Exhibit D attached hereto (the “Non-Competition Agreement”), duly executed by
each of the parties thereto;

 

(vi)          an Employment Agreement by and between Purchaser and each of
Kelley, Kessler, Clark and Carr, substantially in the form of Exhibit E attached
hereto (the “Employment Agreements”), duly executed by each of the parties
thereto;

 

(vii)         a sublease, substantially in the form of Exhibit G attached hereto
(the “Sublease Agreement”), with respect to the parcels of Seller Real Property
identified in Section 3.9 of the Disclosure Schedule, duly executed by the
Purchaser, by the landlord of such Seller Real Property and by the applicable
Seller bound by the lease for such Seller Real Property; provided, however, that
if for any reason the landlord of such Seller Real Property does not timely
deliver its consent to the Sublease Agreement, then Purchaser may, in
Purchaser’s sole discretion, require the applicable Seller to enter into an
assignment of such applicable lease, and concurrently enter into a sublease in
the form of Exhibit G, but providing for Purchaser to sublet a portion of the
applicable Seller Real Property to Seller that is not subject to a sublease by
Seller to LSpace, for the period commencing on the date that is eighteen (18)
months after the Closing (or such lesser period remaining after Purchaser
vacates the premises) and expiring concurrently with the expiration of such
applicable lease, and thereby providing that Seller shall bear all
responsibility, liability and cost for surrendering such Seller Real Property
upon the expiration of such applicable lease.

 

(viii)        the C&C Escrow Agreement and the Sanuk Escrow Agreement, duly
executed by each of the parties thereto;

 

(ix)           duly executed certificates of an authorized officer of each
Seller, dated as of the Closing Date, certifying to the fulfillment of the
conditions in Section 6.2(a) and Section 6.2(b);

 

(x)            certificates of good standing from the State of California for
each of the Sellers, dated as of a recent date;

 

(xi)           a Certificate of Amendment (Form LLC-2) executed by Sanuk
amending Sanuk’s Articles of Organization to delete and replace all references
to “Sanuk;”

 

(xii)          consents to assignment for the Assumed Contracts to the extent
required by the terms thereof and by the Purchaser;

 

(xiii)         evidence of termination of the CIT Loan and all obligations
thereunder, together with evidence of filing of all related UCC-3 termination
statements with respect to any security interest securing such obligations;

 

(xiv)        non-foreign affidavits from each Seller with respect to each
Seller’s interest in the Purchased Assets, dated as of the Closing, sworn under
penalty of perjury

 

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and in the form and substance required under Treasury Regulations issued
pursuant to Section 1445 of the Code, stating that each Seller is not a “foreign
person” as defined in Section 1445(f) of the Code;

 

(xv)         Audited Financial Statements of each Seller;

 

(xvi)        Resolutions duly adopted by Seller’s board of directors or
manager(s) (as applicable), and Seller’s shareholders or members (as
applicable), each authorizing the execution, delivery and performance of this
Agreement, the Ancillary Agreements to which such Seller is a party, and the
transactions contemplated hereby or thereby, certified by the corporate
secretary (or equivalent corporate officer or member of each Seller); and

 

(xvii)       such other documents as Purchaser reasonably may request for the
purpose of facilitating the consummation of the transactions contemplated
herein.

 

(b)           Closing Deliveries By Purchaser.  At the Closing, Purchaser shall
have delivered or caused to be delivered to each of the Sellers:

 

(i)            the Closing Day Cash Payment;

 

(ii)           the Bills of Sale, duly executed by Purchaser;

 

(iii)          the General Assignments, duly executed by Purchaser;

 

(iv)          the Intellectual Property Assignments, duly executed by Purchaser;

 

(v)           the Employment Agreements, duly executed by Purchaser;

 

(vi)          the Non-Competition Agreements, duly executed by Purchaser;

 

(vii)         the Sublease Agreement, duly executed by Purchaser;

 

(viii)        the Sanuk Escrow Agreement and the C&C Escrow Agreement, duly
executed by Purchaser;

 

(ix)           certificates of good standing from the State of Delaware for each
of Parent and Purchaser, and certificates of good standing and qualification to
do business from the State of California for each of Parent and Purchaser, dated
as of a recent date;

 

(x)            resolutions duly adopted by the boards of directors of Purchaser
and of Parent, each authorizing the execution, delivery and performance of this
Agreement, the Ancillary Agreements to which Purchaser or Parent is a party, and
the transactions contemplated hereby or thereby, certified by the corporate
secretary of Parent and Purchaser; and

 

(xi)           duly executed certificates of an authorized officer of each of
Purchaser and Parent, dated as of the Closing Date, certifying to the
fulfillment of the conditions in Section 6.1(a) and Section 6.1(b).

 

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2.11         Working Capital Adjustment.

 

(a)           Not more than 10 business days prior to the Closing Date, the
Sellers and the Purchaser will work in good faith to estimate the difference, if
any, of the “Specified Assets” over the “Specified Liabilities” (each such term
defined in Schedule 2.11 attached hereto) with respect to the Sellers, on a
consolidated basis, as of the Closing Date (such difference shall be referred to
herein as the “Working Capital”).  The estimate of the Working Capital with
respect to the Sellers (hereinafter referred to as the “Estimated Working
Capital”) shall be prepared in good faith in accordance with the methodology set
forth in the sample pro forma Working Capital calculation prepared by the
Sellers and Purchaser and attached to this Agreement as Schedule 2.11 (the
“Sample Working Capital Calculation”).  At the Closing, the Purchase Price will
be adjusted on a dollar-for-dollar basis as follows:  if Estimated Working
Capital exceeds $11,700,000 (the “Budget Working Capital”), then the Purchase
Price will be increased by the amount of such excess; if Estimated Working
Capital is less than Budget Working Capital, then the Purchase Price will be
decreased by the amount of such deficiency.  By way of example, Schedule 2.11
sets forth a balance sheet for the Sellers, on a consolidated basis, and a
calculation of Working Capital as calculated therefrom.

 

(b)           Within 60 days after the Closing Date, Purchaser will prepare and
deliver to each Seller:  (i) an unaudited consolidated balance sheet of the
Sellers, as of the Closing Date (the “Closing Balance Sheet”); and (ii) a
statement setting forth Working Capital, as determined by reference to the
Closing Balance Sheet (such statement shall be referred to herein as the
“Working Capital Statement”).  The Closing Balance Sheet and Working Capital
Statement shall be prepared in conformity with GAAP, applied in a manner
consistent with that used by the Sellers (as applicable) in accordance with the
Sample Working Capital Calculation, and shall present fairly the balance of the
Specified Assets and Specified Liabilities as of the Closing Date.

 

(c)           Each Seller will have a period of 30 days after its receipt of the
Closing Balance Sheet and Working Capital Statement to review such items and
Purchaser’s calculation of Working Capital, and to notify Purchaser of any
disputes with respect thereto (the “Review Period”).  As part of such review,
each Seller and its advisors will have reasonable access during normal business
hours to Purchaser’s work papers and to the preparers of the Closing Balance
Sheet and to the books and records on which the Closing Balance Sheet is based.

 

(d)           Prior to the expiration of the Review Period, each Seller shall
notify Purchaser of any objections or proposed changes to the Working Capital
Statement or the Closing Balance Sheet (a “Dispute Notice”) and the parties
shall negotiate in good faith in an effort to resolve any dispute.  If a Seller
fails to so notify Purchaser of any objections or proposed changes within the
Review Period, if each Seller notifies Purchaser that he has no objections or
proposed changes to any of such items, or if each Seller and Purchaser agree in
writing on the resolution of all such objections or changes within 30 days
following delivery to Purchaser of such objections or proposed changes, the
Closing Balance Sheet and the Working Capital Statement, with any changes as may
be agreed upon in writing, shall be final and binding.  If the parties are
unable to resolve such dispute within 30 days after Purchaser receives such
Dispute Notice, then Purchaser and the applicable Seller shall jointly select an
independent accounting firm of recognized national or regional standing who is
not then rendering services to the Purchaser or any of the Sellers to resolve
any disagreements.  If the applicable Seller and

 

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Purchaser are unable to jointly select such independent accounting firm within
ten (10) Business Days after the expiration of the Review Period, each of
Purchaser, on the one hand, and the applicable Seller, on the other hand, shall
select an independent accounting firm of recognized national or regional
standing and each such selected independent accounting firm shall select a third
independent accounting firm of recognized national or regional standing who is
not rendering services to the Purchaser or any of the Sellers (such selected
independent accounting firm whether pursuant to this or the preceding sentence,
the “Arbiter”).  Each of Purchaser and each applicable Seller will be afforded
the opportunity to present to such Arbiter any material related to the
determination and to discuss the determination with such Arbiter.  The
determination by such Arbiter will be conclusive and binding upon the parties. 
The applicable Sellers and Purchaser will share the fees and expenses of such
Arbiter equally.

 

(e)           If the Working Capital as finally determined pursuant to
Section 2.11(c) and Section 2.11(d) (the “Final Working Capital”) is less than
Estimated Working Capital (the “Overpayment”), then within five Business Days of
determination of the Final Working Capital, the Sellers shall remit the amount
of the Overpayment to Purchaser, with each Seller paying such amount according
to the instructions set forth on Schedule 2.5.  If the Final Working Capital is
greater than Estimated Working Capital (the “Underpayment”), then within five
Business Days of determination of the Final Working Capital, Purchaser shall pay
to the Sellers the amount of the Underpayment in cash, for distribution to the
Sellers according to the instructions set forth on Schedule 2.5.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF C&C AND THE C&C SELLERS

 

C&C and the C&C Sellers, jointly and severally, represent and warrant to
Purchaser as of the Closing, except as set forth in the correspondingly numbered
Section of Disclosure Schedules furnished to Purchaser, as follows:

 

3.1           Organization of C&C.  C&C is a corporation duly organized, validly
existing, and in good standing under the laws of the State of California, and
has the requisite corporate power and authority to own or lease and operate its
properties, including the C&C Purchased Assets, and to carry on its business as
now conducted.  Section 3.1 of the Disclosure Schedule contains a complete and
accurate list of C&C’s jurisdiction of incorporation and any other jurisdictions
in which it is qualified to do business as a foreign corporation.  C&C is duly
authorized or qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the properties owned, leased or operated by
it, or the business conducted by it, requires such qualification, except where
the failure to be so qualified or in good standing would not, individually or in
the aggregate, have a Material Adverse Effect.  C&C does not currently have, and
has not had in the past, any subsidiaries.  There is no outstanding obligation
of C&C to make any investment in or advance of funds to, any subsidiary, joint
venture or other entity, relating to the C&C Business or the C&C Purchased
Assets.

 

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3.2           Authorization and Enforceability.  C&C has all corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements to
which it is a party, and to consummate the transactions contemplated hereby and
thereby.  Each of the C&C Sellers has the requisite capacity to execute and
deliver this Agreement and the Ancillary Agreements to which he is a party, to
perform his obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. This Agreement and the Ancillary
Agreements have been duly and validly executed and delivered by each of C&C and
the C&C Sellers, and constitutes a legal, valid and binding obligation of C&C
and such C&C Seller enforceable against such C&C Seller and C&C in accordance
with its terms, except where such enforceability may be subject to or limited
by:  (i) bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights of creditors; and (ii) general
equitable principles, regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law.  The C&C Sellers, and trusts
established for their benefit or the benefit of family members, are the only
shareholders of C&C.

 

3.3           No Conflicts; Consents.  Except as set forth in Section 3.3 of the
Disclosure Schedule and as required by the HSR Act, no notice to or filing with,
and no Permit or consent of any Governmental Authority or any other Person is
necessary or required to be obtained, made or given by C&C or the C&C Sellers in
connection with the execution and delivery by C&C or the C&C Sellers of this
Agreement and any of the Ancillary Agreements to which they are a party, the
performance by C&C and the C&C Sellers of their respective obligations hereunder
and thereunder, and the consummation of the transactions contemplated hereby and
thereby.  The execution and delivery by C&C and the C&C Sellers of this
Agreement and each of the Ancillary Agreements to which they are a party does
not, and the consummation of the transactions contemplated hereby and thereby
will not:  (i) conflict with or result in a violation or breach of, or default
under, any provision of the certificate of incorporation, by-laws or other
shareholder agreements of C&C; (ii) conflict with or result in a violation or
breach of any provision of any Law, Permit or Order applicable to C&C, the C&C
Sellers or the C&C Purchased Assets; (iii) result in a violation or breach of,
constitute a default or an event that, with or without notice or lapse of time
or both, would constitute a default under, result in the acceleration of or
create in any party the right to accelerate, terminate, modify or cancel any,
material contract, agreement or understanding to which the C&C Sellers is a
party or by which C&C or the Business of C&C is or may be bound or to which any
of the C&C Purchased Assets are or may be subject; or (iv) result in the
creation or imposition of any Encumbrance other than Permitted Encumbrances on
the C&C Purchased Assets.

 

3.4           Financial Statements.  C&C has previously delivered to Purchaser
the C&C Financial Statements.  Such C&C Financial Statements:  (i) are true,
correct and complete; (ii) are in accordance with the Books and Records of C&C;
(iii) have been prepared in conformity with GAAP; and (iv) fairly present the
financial condition and results of operations of C&C as of the respective dates
thereof and for the periods covered thereby; provided, that the C&C Interim
Financial Statements are subject to normal adjustments and lack footnotes and
certain other presentation items.

 

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3.5           Absence of Certain Changes.  Except as set forth in Section 3.5 of
the Disclosure Schedule or as required under this Agreement, since March 31,
2011 and other than in the Ordinary Course of Business, there has not been any:

 

(a)           Event, circumstance or development that, individually or together
with other such events, would reasonably be expected to result in a Material
Adverse Effect on the C&C Purchased Assets or the Business of C&C.

 

(b)           Sale, lease, transfer or assignment of any of the C&C Purchased
Assets, tangible or intangible, except for sale of inventory in the Ordinary
Course of Business.

 

(c)           Acceleration, termination, modification or cancellation of any
agreement, contract, lease or license relating to the Business of C&C or the C&C
Purchased Assets involving more than $25,000 in any case, or $100,000 in the
aggregate.

 

(d)           Imposition of any Encumbrance upon any of the C&C Purchased
Assets, tangible or intangible, other than Permitted Encumbrances.

 

(e)           Transfer, assignment or grant of any material license or
sublicense of any rights under or with respect to any C&C Intellectual Property.

 

(f)            Material damage, destruction or loss (whether or not covered by
insurance) to the C&C Purchased Assets, with materiality for purposes of this
provision being agreed to mean damage, destruction or loss in excess of $25,000.

 

(g)           Entry into any material contract.

 

(h)           Entry into any employment contract or collective bargaining
agreement, written or oral, with any new employee of C&C, or modification of the
terms of any such existing contract or agreement.

 

(i)            Grant of any material increase in the base compensation of any of
C&C’s officers and employees, material change in employment terms of its
officers and employees, or grants of any bonuses, whether monetary or otherwise.

 

(j)            Material change in C&C’s accounting methods, principles or
practices, except as required by GAAP or as disclosed in the C&C Financial
Statements.

 

(k)           Material change in cash management practices and policies,
practices and procedures with respect to collection of Accounts Receivable,
establishment of reserves for uncollectible Accounts Receivable, accrual of
Accounts Receivable, inventory control, prepayment of expenses, payment of trade
accounts payable, accrual of other expenses, deferral of revenue and acceptance
of customer deposits.

 

(l)            Termination or failure to renew, nor has C&C received any written
threat (that was not subsequently withdrawn) to terminate or fail to renew, any
contract or other agreement that would have a Material Adverse Effect on the
Business of C&C or the C&C Purchased Assets.

 

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(m)          Waiver of any rights that would have a Material Adverse Effect on
the Business of C&C or the C&C Purchased Assets.

 

(n)           Resignation or termination of any key officers or key employees of
C&C.

 

(o)           Revaluation by C&C of any of the C&C Purchased Assets.

 

(p)           Redemption, purchase or acquisition of C&C’s capital stock or
other equity interests.

 

(q)           Contract to do any of the things described in the preceding
clauses (a) through (p), or failure or omission to take any action that would
result in any of the foregoing, other than negotiations with Purchaser and its
representatives regarding the transactions contemplated by this Agreement.

 

3.6           No Undisclosed Liabilities.  Except as disclosed in Section 3.6 of
the Disclosure Schedule or in the C&C Financial Statements, there are no
material Liabilities (whether accrued, absolute or contingent) incurred by C&C
or relating to the C&C Purchased Assets, other than Liabilities incurred after
the end of the period covered by the C&C Financial Statements in the Ordinary
Course of Business which have not had, and could not reasonably be expected to
result in, a Material Adverse Effect on C&C, the Business of C&C or the C&C
Purchased Assets.

 

3.7           Purchased Assets.

 

(a)           Section 3.7(a) of the Disclosure Schedule contains a complete and
accurate schedule specifying the location of all of the C&C Purchased Assets,
where applicable, as of the Closing Date.  C&C has good and marketable title to,
or a valid leasehold interest in all of the C&C Purchased Assets, free and clear
of all Encumbrances, except the Permitted Encumbrances.  The C&C Purchased
Assets constitute all property of any nature owned by and/or used by C&C in the
operation of the C&C Business as currently conducted.

 

(b)           All tangible personal property of C&C included in the C&C
Purchased Assets is in good operating condition and repair, ordinary wear and
tear excepted.  Except as set forth in Section 3.7(b) of the Disclosure
Schedule, the C&C Purchased Assets and the Excluded Assets constitute all of the
assets owned by C&C that are used by C&C to conduct the C&C Business, and no
assets used in the conduct of the C&C Business and valued at more than Five
Thousand and no/100 Dollars ($5,000) in the aggregate are owned by the C&C
Sellers or any Affiliate of C&C.

 

3.8           Benefit Plans; ERISA.

 

(a)           Section 3.8(a) of the Disclosure Schedule lists of all pension,
profit sharing, stock option, employee stock purchase or other plans providing
for deferred, incentive or other compensation or fringe benefits to employees,
and all other employee benefit plans to which C&C is a party or by which it is
bound (collectively, the “C&C Plans”).

 

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(b)           Except as set forth in Section 3.8(b) of the Disclosure Schedule,
neither C&C nor any ERISA Affiliate has any actual or contingent, direct or
indirect, liability in respect of any employee benefit plan or arrangement,
including any plan subject to ERISA, other than to make contributions under or
pay benefits pursuant to the C&C Plans.

 

(c)           All of the C&C Plans are in material compliance with all
applicable Laws, and no “reportable event,” as defined in ERISA, has occurred or
is continuing with respect to any C&C Plan.

 

(d)           No C&C Plan:  (i) is subject to Title IV of ERISA, or is otherwise
a defined benefit plan subject to Title 1 or Title IV of ERISA, or is a multiple
employer plan (within the meaning of IRC Section 413(c); or (ii) provides for
post-retirement welfare benefits other than as may be required under
Section 4980B(f) of the Code or a “parachute payment” (within the meaning of IRC
Section 280G(b)).

 

(e)           Except as set forth in Section 3.8(e) of the Disclosure Schedule,
the execution and delivery of this Agreement and the consummation of the
transactions described in this Agreement:  (i) will not result in any prohibited
transaction within the meaning of Section 406 of ERISA or IRC Section 4975; or
(ii) in the payment, vesting or acceleration of any benefit under any C&C Plan.

 

3.9           Real Property; Leases.  C&C does not own, and has not previously
owned, any real property.  Section 3.9 of the Disclosure Schedule contains a
complete and accurate description of each parcel of real property leased by C&C
(as lessee or lessor) (the “C&C Real Property”) and all Encumbrances (other than
Permitted Encumbrances) relating to or affecting the C&C Real Property.  C&C has
a valid leasehold interest in all C&C Real Property used in the conduct of the
Business of C&C, free and clear of all Encumbrances other than Permitted
Encumbrances.  C&C has rights of ingress and egress with respect to the C&C Real
Property, and all buildings, structures, facilities, fixtures and other
improvements thereon material for the operation of the Business of C&C.  C&C has
delivered or made available to Purchaser true, correct and complete copies of
all Real Property leases, including all modifications, amendments and
supplements thereto.  Each lease with respect to the C&C Real Property is a
legal, valid and binding agreement of C&C.  Except as set forth in Section 3.9
of the Disclosure Schedule, there is no, and C&C has not received notice of any,
default (or any condition or event which, after notice or lapse of time or both,
would constitute a default) thereunder.  C&C has not received notice of, nor has
there been any, threatened default by any landlord under any C&C Real Property
lease.  Except as set forth in Section 3.9 of the Disclosure Schedule, all
required consents, approvals or authorization of, filing with, or notice to, any
party to any C&C Real Property lease in connection with the transactions
contemplated by this Agreement have been completed.

 

3.10         Intellectual Property Rights.

 

(a)           Section 3.10(a) of the Disclosure Schedule lists all registered
Marks, registered Copyrights, issued Patents, material unregistered Copyrights,
material unregistered Marks (including Domain Names), and applications for any
of the foregoing, in each case that are owned (in whole or in part) by C&C, and
any proceedings or actions before any

 

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Governmental Authority (including the United States Patent and Trademark Office
or equivalent authority anywhere in the world) in which any of the C&C
Intellectual Property is involved.

 

(i)            The C&C Intellectual Property is all of the Intellectual Property
that is used for the operation of the C&C Business as presently conducted.  C&C
is the owner of all right, title, and interest in and to the C&C Intellectual
Property that is registered. Except as disclosed in Section 3.10(a)(i) of the
Disclosure Schedule, to the Knowledge of C&C, C&C is the owner of all right,
title, and interest in and to the C&C Intellectual Property that is subject to a
pending application for registration with the United States Patent and Trademark
Office and any comparable foreign patent or trademark office (the “C&C Pending
IP”).  Except as disclosed in Section 3.10(a)(i) of the Disclosure Schedule,
such registered C&C Intellectual Property, and to the Knowledge of C&C such C&C
Pending IP, is free and clear of all liens, security interests, charges,
encumbrances and other adverse claims.  Except as set forth in
Section 3.10(a)(i) of the Disclosure Schedule, no Person other than C&C has an
ownership interest in or exclusive rights to any registered C&C Intellectual
Property, or to the Knowledge of C&C, such C&C Pending IP.  Except as set forth
in Section 3.10(a)(i) of the Disclosure Schedule, all registered C&C
Intellectual Property, and to the Knowledge of C&C such C&C Pending IP, is fully
transferable or assignable by C&C without restriction.

 

(ii)           C&C has not given to any third party any warranty or
indemnification related to the C&C Intellectual Property, except for: 
(i) statutory warranties given in the ordinary course of business in connection
with the sale of C&C’s goods; (ii) warranties given by third party manufacturers
that such C&C passes through or assigns to its customers in connection with the
sale of goods; and (iii) as set forth in Section 3.10(a)(ii) of the Disclosure
Schedule.

 

(b)           Section 3.10(b) of the Disclosure Schedule contains a complete and
accurate list and summary description, of all contracts relating to the C&C
Intellectual Property to which C&C is a party or by which C&C is bound, except
for:  (i) any license implied by the sale of a product; or (ii) any perpetual,
paid-up licenses for commonly available software programs, click through
standard agreements or shrink-wrap agreements with a value of less than $25,000
under which C&C is the licensee.  There are no outstanding and, to the Knowledge
of C&C and the C&C Sellers, no threatened disputes or disagreements with respect
to any such contract.

 

(c)           To the Knowledge of C&C and the C&C Sellers, no employee of C&C
has entered into any contract that restricts or limits in any way the scope or
type of work in which the employee may be engaged or requires the employee to
transfer, assign, or disclose information concerning his work to anyone other
than C&C.  Except as set forth in Section 3.10(c) of the Disclosure Schedule,
each of the employees, officers and consultants of C&C who has created or who
have participated in or contributed to, the conception, development, authoring,
creation, or reduction to practice of any C&C Intellectual Property used or held
for use by C&C has assigned ownership of such Intellectual Property to C&C.

 

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(d)           Patents.

 

(i)            C&C is the owner of all right, title, and interest in and to each
of the issued Patents listed in Section 3.10(d)(i) of the Disclosure Schedule,
free and clear of all liens, security interests, charges, encumbrances and other
adverse claims, except for Permitted Encumbrances.

 

(ii)           All of the issued Patents of C&C are currently in compliance with
formal legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
thirty (30) days after the Closing Date.

 

(iii)          Except as set forth in Section 3.10(d)(iii) of the Disclosure
Schedule, no issued Patent or Patent application of C&C has been or is now
involved in any interference, reissue, reexamination, or opposition proceeding. 
To the Knowledge of C&C and the C&C Sellers, there is no potentially interfering
patent or patent application of any third party.

 

(iv)          Except as set forth in Section 3.10(d)(iv) of the Disclosure
Schedule, to the Knowledge of C&C and the C&C Sellers, no issued Patent of C&C
is infringed, or at any time during the past five years has been challenged or
threatened in any way.

 

(v)           All products sold under the issued Patents or patent applications
of C&C have been marked with the proper patent notice.

 

(e)           Marks.

 

(i)            C&C is the owner of all right, title, and interest in and to each
of the Marks listed in Section 3.10(e)(i) of the Disclosure Schedule that are
registered.  Except as disclosed in Section 3.10(e)(i) of the Disclosure
Schedule, to the Knowledge of C&C, C&C is the owner of all right, title, and
interest in and to each of the Marks listed in Section 3.10(e)(i) of the
Disclosure Schedule that are the subject of a pending application for
registration with the United States Patent and Trademark Office and any
comparable foreign patent and trademark office (such Marks that are pending
registration, “C&C Pending Marks”).  Such registered Marks, and except as
disclosed in Section 3.10(e)(i) of the Disclosure Schedule, to the Knowledge of
C&C such C&C Pending Marks, are free and clear of all liens, security interests,
charges, encumbrances and other adverse claims, except for Permitted
Encumbrances.

 

(ii)           Except as set forth in Section 3.10(e)(ii) of the Disclosure
Schedule, all Marks of C&C that have been registered with the United States
Patent and Trademark Office and any comparable foreign patent or trademark
offices are currently in compliance with all formal legal requirements
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety (90) days after the Closing Date.

 

(iii)          Except as set forth in Section 3.10(e)(iii) of the Disclosure
Schedule, no registered Mark of C&C, or to the Knowledge of C&C no C&C Pending
Mark, is now involved in any opposition, invalidation, or cancellation
proceedings and, to the Knowledge of C&C and the C&C Sellers, no action is
threatened with respect to any of the Marks of C&C.

 

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(iv)          Except as set forth in Section 3.10(e)(iv) of the Disclosure
Schedule, to the Knowledge of C&C and the C&C Sellers, there is no potentially
interfering Mark or application for such Mark of any third party with respect to
any registered Mark or C&C Pending Mark, within the jurisdiction that the
registered or C&C Pending Mark (as the case may be) is registered or applied
for.

 

(v)           Except as set forth in Section 3.10(e)(v) of the Disclosure
Schedule, to the Knowledge of C&C and the C&C Sellers, no registered Mark of C&C
or C&C Pending Mark is infringed or has been challenged or threatened in any
way, within the jurisdiction that the Mark is registered or applied for.

 

(f)            Copyrights.

 

(i)            To the Knowledge of C&C and the C&C Sellers, C&C is the owner of
all right, title, and interest in and to each of the Copyrights listed in
Section 3.10(f)(i) of the Disclosure Schedule, free and clear of all liens,
security interests, charges, encumbrances and other adverse claims, except for
Permitted Encumbrances.

 

(ii)           To the Knowledge of C&C and the C&C Sellers, all of the
registered Copyrights of C&C are valid and enforceable, and are not subject to
any maintenance fees or taxes or actions falling due within thirty (30) days
after the date of Closing.

 

(iii)          To the knowledge of C&C and the C&C Sellers, no Copyright of C&C
is infringed or has been challenged or threatened in any way.

 

(g)           Trade Secrets.

 

(i)            Except as set forth in Section 3.10(g)(i) of the Disclosure
Schedule, C&C has taken all commercially reasonable precautions, including all
steps which C&C is contractually obligated to take, to: (A) protect the secrecy,
confidentiality, and value of its Trade Secrets; and (B) protect the Trade
Secrets of others who have provided such Trade Secrets to C&C in confidence.

 

(ii)           C&C validly owns and has an absolute (but not necessarily
exclusive) right to use its Trade Secrets.  To the Knowledge of C&C and the C&C
Sellers, the Trade Secrets are not part of the public knowledge or literature
and, have not been used, divulged, or appropriated either for the benefit of any
Person (other than C&C, Sanuk, and Purchaser) or to the detriment of C&C.  No
Trade Secret is subject to any adverse claim or has been challenged or, to the
Knowledge of C&C or the C&C Sellers, threatened in any way.

 

(h)           Except as set forth in Section 3.10(h) of the Disclosure Schedule,
the operation of the C&C Business as currently conducted, including, without
limitation, the manufacture or sale of any of the products manufactured or sold
by C&C, has not infringed, misappropriated or otherwise violated, and does not
infringe, misappropriate or otherwise violate, any Intellectual Property of any
Person in the United States or, to the Knowledge of the C&C Sellers, any other
jurisdiction in the world.

 

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3.11         Litigation.  Except as set forth in Section 3.11 of the Disclosure
Schedule, there are no Actions or Proceedings pending or, to the Knowledge of
the C&C Sellers, threatened or anticipated against, relating to or affecting: 
(i) C&C, the C&C Business or the C&C Purchased Assets; or (ii) the transactions
contemplated by this Agreement, and, to the Knowledge of the C&C Sellers, there
is no basis for any such Action or Proceeding.  C&C is not in default with
respect to any Order, and there are no unsatisfied judgments against C&C.  There
are no Actions or Proceedings that C&C or the C&C Sellers intend to initiate.

 

3.12         Compliance with Law.  C&C is in compliance with all applicable
laws, statutes, Orders, ordinances and regulations, whether federal, state,
local or foreign, except where the failure to comply would not reasonably be
expected to result in a Material Adverse Effect on the Business of C&C or the
C&C Purchased Assets.  Neither C&C nor the C&C Sellers has received any written
notice to the effect that, or otherwise has been advised that, C&C is not in
compliance with any of such laws, statutes, Orders, ordinances or regulations,
where the failure to comply could reasonably be expected to result in a Material
Adverse Effect on the Business of C&C or the C&C Purchased Assets.

 

3.13         Contracts.  Schedule 3.13 includes a true and complete list of each
material written or oral contract, agreement or other arrangement to which C&C
is a party and by which C&C or the C&C Purchased Assets are bound (and, to the
extent oral, accurately describes the terms of such contract, agreement and
commitment).  Each Assumed Contract is in full force and effect and constitutes
a legal, valid and binding agreement, enforceable against C&C in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency or
other laws affecting the rights of parties, and general equitable principles. 
To the Knowledge of the C&C Sellers, each Assumed Contract is valid and
enforceable in accordance with its terms against all other parties thereto,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of parties, and general equitable principles.  Except for
consents required pursuant to Section 3.3, C&C has performed all of its required
obligations under, and is not in violation or breach of or default under, either
with the lapse of time, giving or notice or both, any Assumed Contract.  To the
Knowledge of the C&C Sellers, the other parties to any such contract, agreement
or commitment are not in violation or breach of or default under, either with
the lapse of time, giving of notice or both, any such contract, agreement or
commitment.

 

3.14         Insurance.  Set forth in Section 3.14 of the Disclosure Schedule is
a complete and accurate list of all primary, excess and umbrella policies, bonds
and other forms of insurance currently owned or held by or on behalf of and/or
providing insurance coverage to C&C or the C&C Purchased Assets (or any of C&C’s
directors, officers, salespersons, agents or employees), including the following
information for each such policy:  type(s) of insurance coverage provided; name
of insurer; effective dates; policy number; per occurrence and annual aggregate
deductibles or self-insured retentions; per occurrence and annual aggregate
limits of liability and the extent, if any, to which the limits of liability
have been exhausted.  All policies set forth in Section 3.14 of the Disclosure
Schedule are in full force and effect, and with respect to such policies, all
premiums currently payable or previously due have been paid, and no notice of
cancellation or termination has been received with respect to any such policy. 
All such policies are sufficient for compliance with all requirements of law and
all agreements to which C&C is a party or otherwise bound, and are valid,
outstanding, collectible and enforceable policies and, to

 

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the Knowledge of the C&C Sellers, provide adequate insurance coverage for C&C,
the Business of C&C and the C&C Purchased Assets and will remain in full force
and effect through the respective dates set forth in the Disclosure Schedule. 
None of such policies contains a provision that would permit the termination,
limitation, lapse, exclusion or change in the terms of coverage of such policy
(including, without limitation, a change in the limits of liability) by reason
of the consummation of the transactions contemplated by this Agreement. 
Complete and accurate copies of all such policies and related documentation have
previously been provided to the Purchaser.

 

3.15         Tax Matters.

 

(a)           Except as set forth in Section 3.15(a) of the Disclosure Schedule,
C&C has or will have filed with the appropriate federal, state, local and
foreign taxing authorities all Tax Returns required to be filed by or with
respect to it on or before the Closing Date, and such Tax Returns are or will be
true, correct and complete in all material respects.  Except as set forth in
Section 3.15(a) of the Disclosure Schedule, C&C has paid in full or has made
provision in the C&C Financial Statements for all taxes that are due or claimed
to be due from it by any taxing authority.  The reserves for Taxes reflected in
the C&C Financial Statements are sufficient for payment in full of all unpaid
Taxes (whether or not currently known or disputed) through the date thereof. 
C&C has not incurred any liability for Taxes since the date of the C&C Financial
Statements other than in the Ordinary Course of Business.  There are no liens
for Taxes upon or affecting any of the C&C Purchased Assets.  There are no joint
ventures, partnerships, limited liability companies, or other arrangements or
contracts to which C&C is a party and that could be treated as a partnership for
federal income tax purposes. Except as set forth in Section 3.15(a) of the
Disclosure Schedule, C&C has never had a “permanent establishment” in any
foreign country, as such term is defined in any applicable Tax treaty or
convention between the United States and such foreign country, nor has it
otherwise taken steps that have exposed, or will expose, it to the taxing
jurisdiction of a foreign country.

 

(b)           C&C has not requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed, or except as set
forth in Section 3.15(b) of the Disclosure Schedule, waived any statute of
limitations for, or agreed to any extension of time with respect to, the
assessment of Taxes.  C&C has not received any notice of deficiency or
assessment from any federal, state, local or foreign taxing authorities with
respect to liabilities for Taxes which have not been fully paid or finally
settled, and any such deficiency or assessment shown in Section 3.15(b) of the
Disclosure Schedule is being contested in good faith through appropriate
proceedings.  Further, to the Knowledge of the C&C Sellers, no state of facts
exists or has existed which would constitute grounds for the assessment of any
liability for Taxes with respect to the periods prior to the Closing Date that
have not been audited by any taxing authority.  Neither the executive officers
of C&C nor the C&C Sellers are aware of any information that has caused or
should cause them to believe that an audit by any Tax authority may be
forthcoming.  No claim has ever been made by an authority in a jurisdiction
where C&C does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction.

 

(c)           C&C has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.

 

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(d)           Except as set forth in Section 3.15(d) of the Disclosure Schedule,
C&C does not have any liability for the Taxes of any other Person (A) under
Treasury Regulations § 1.1502-6 (or any similar provision of state, local, or
foreign law), (B) as a transferee or successor, (C) by contract, or
(D) otherwise.

 

(e)           C&C has not filed and will not file prior to the Closing a consent
under Code § 341(f).  C&C is not obligated to make any payments, and is not a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code § 162 or § 280G whether
paid prior to or after the Closing.  Prior to the Closing, C&C will not have
experienced a change of ownership within the meaning of Code Section 382.  C&C
is not and has not been a United States real property holding corporation within
the meaning of Code § 897(c)(2).

 

3.16         Labor and Employment Relations.  To the Knowledge of C&C and the
C&C Sellers, no officer, executive or other employees of C&C has expressed any
intention not to become an employee of Purchaser if Purchaser offers such
officer, executive or employee employment.  C&C is not a party to or bound by
any collective bargaining agreement with any labor organization, group or
association covering any of its employees, and to the Knowledge of the C&C
Sellers, there are no attempts to organize any of C&C’s employees by any Person,
unit or group seeking to act as their bargaining agent.  C&C has complied in all
material respects with all applicable laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining, discrimination against race, color, national origin,
religious creed, physical or mental disability, sex, age, ancestry, medical
condition, marital status or sexual orientation, and the withholding and payment
of social security and other taxes.  There are no pending or, to the Knowledge
of the C&C Sellers, threatened charges (by employees, their representatives or
Governmental and Regulatory Authorities) of unfair labor practices or of
employment discrimination or of any other wrongful action with respect to any
aspect of employment of any person employed or formerly employed by C&C, and
there is no investigation of C&C’s employment policies or practices by any
Governmental or Regulatory Authority pending or, to the Knowledge of the C&C
Sellers, threatened.

 

3.17         Certain Employees.  Set forth in Section 3.17 of the Disclosure
Schedule is a list of the names of C&C’s employees and consultants as of the
date hereof involved in the management and operation of the Business of C&C,
together with the title or job classification of each such person and the total
compensation (with wages and bonuses, if any, separately detailed) paid in 2010
(if applicable) and the current rate of pay for each such person on the date of
this Agreement.  Except as set forth in Section 3.17 of the Disclosure Schedule,
none of such persons has an employment agreement or understanding or commitment,
whether oral or written, with C&C that is not terminable within 30 days on
notice by C&C without cost or other liability to C&C.  Except as set forth in
Section 3.17 of the Disclosure Schedule or in the C&C Financial Statements, as
of the date hereof, all commissions and bonuses payable to employees,
consultants, or contractors of C&C in connection with the Business of C&C for
services performed on or prior to the date hereof have been paid in full and
there are no outstanding agreements, understandings or commitments of Seller
with respect to any commissions, bonuses or increases in compensation.

 

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3.18         Permits.  Section 3.18 of the Disclosure Schedule contains a true
and complete list of all Permits used in and material, individually or in the
aggregate, to the Business of C&C or the C&C Purchased Assets.  All such Permits
are currently effective and valid and have been validly issued.  Except as set
forth in Section 3.18 of the Disclosure Schedule, no additional Permits are
necessary to enable C&C to conduct the C&C Business as presently conducted,
except such Permits the failure of which to obtain would not have a Material
Adverse Effect.  Neither the execution, delivery nor performance of this
Agreement nor the mere passage of time (except as specifically noted in
Section 3.18 of the Disclosure Schedule) will have any effect on the continued
validity or sufficiency of the Permits (except for such Permits that expire
according to their terms).  There is no pending or, to the Knowledge of C&C and
the C&C Sellers, threatened Action or Proceeding by any Governmental or
Regulatory Authority that could affect the Permits or their sufficiency for the
current conduct of C&C’s Business.  C&C has provided Purchaser with true and
complete copies of all Permits listed in Section 3.18 of the Disclosure
Schedule.

 

3.19         Brokers.  Except for Moss Adams Capital, the fees of which will be
paid by C&C, the C&C Sellers, Sanuk or the Sanuk Sellers, neither the C&C
Sellers nor C&C has retained any broker in connection with the transactions
contemplated hereunder.  Purchaser has, and will have, no obligation to pay any
broker’s, finder’s, investment banker’s, financial advisor’s or similar fee in
connection with this Agreement or the transactions contemplated hereby by reason
of any action taken by or on behalf of the C&C Sellers or C&C.

 

3.20         Accounts Receivable.  Except as set forth in Section 3.20 of the
Disclosure Schedule, all of C&C’s accounts receivable that are reflected on the
C&C Financial Statements and the accounts receivable arising after the date
thereof and prior to the Closing (collectively, the “C&C Accounts Receivable”): 
(i) have arisen from bona fide transactions entered into by C&C involving the
sale of products actually made or services actually performed in the Ordinary
Course of Business; and (ii) constitute valid accounts receivable.  There are no
refunds, discounts, rights of setoff or assignment affecting any such C&C
Accounts Receivable that are not reflected on the C&C Financial Statements or,
with respect to C&C Accounts Receivable arising after the date of the C&C
Interim Financial Statements, on the accounting records of C&C.  The allowance
for doubtful accounts reflected in the C&C Financial Statements or, with respect
to C&C Accounts Receivable arising after the date of the C&C Interim Financial
Statements on the accounting Books and Records of C&C, have been determined in
accordance with GAAP.  The C&C Sellers have provided to Purchaser a complete and
accurate list of all C&C Accounts Receivable as of the date of the C&C Financial
Statements, which list sets forth the aging of such C&C Accounts Receivable.

 

3.21         Inventory.  The materials, supplies and work-in-process included in
the inventory of C&C are, and at the Closing will be, as the case may be: 
(i) substantially equivalent in quality and quantity, subject to seasonality, to
the materials, supplies and work-in-process, and additions thereto, generally
included in such inventory of C&C in the past; and (ii) suitable for the
manufacture and distribution of C&C products in a manner substantially
equivalent in quality to that achieved generally by C&C in the past.

 

3.22         Books and Records.  The accounting Books and Records, copies of
which have been made available to Purchaser, are true and correct in all
material respects.

 

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3.23         Major Customers, Suppliers and Distributors.  Section 3.23 of the
Disclosure Schedule lists the ten largest customers, the ten largest product
suppliers and the ten largest distributors (each measured by dollar volume) of
C&C during the last completed fiscal year (such Seller’s “Major Customers,”
“Major Suppliers” and “Major Distributors,” respectively) and the amount of
business done by C&C with each Major Customer, Major Supplier and Major
Distributor in such year.  As of the date of this Agreement, except as set forth
in Section 3.23 of the Disclosure Schedule: (i) C&C is not engaged in a material
dispute with any Major Customer, Major Supplier or Major Distributor; (ii) there
has been no material adverse change in the business relationship of C&C with any
Major Customer, Major Supplier or Major Distributor since January 1, 2011; and
(iii) no Major Customer, Major Supplier or Major Distributor has threatened in
writing any material modification or change in the business relationship with
C&C.

 

3.24         Absence of Unlawful Payments.  Neither C&C nor any of its officers,
employees, or agents acting for or on behalf of C&C, nor to the Knowledge of C&C
and the C&C Sellers any other Person associated with or acting for or on behalf
of C&C, has directly or indirectly:  (i) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
whether in money, property, or services (A) to improperly obtain favorable
treatment in securing business, (B) to improperly pay for favorable treatment
for business secured, (C) to improperly obtain special concessions or for
special concessions already obtained, for or in respect of C&C, or (D) in
violation of any Law; or (ii) established or maintained any unlawful fund or
asset that has not been recorded in the Books and Records of C&C.

 

3.25         Transactions with Related Persons.  Except as set forth in
Section 3.25 of the Disclosure Schedule:  (i) no stockholder, manager or officer
of C&C (any such individuals, a “Related Person”), or to the Knowledge of C&C
and the C&C Sellers, any Affiliate or member of the immediate family of any
Related Person, is involved in any business arrangement or relationship with C&C
other than employment arrangements entered into in the Ordinary Course of
Business; and (ii) no Related Person or, to the Knowledge of C&C and the C&C
Sellers, any Affiliate or member of the immediate family of any Related Person,
owns any property or right, tangible or intangible, used by the C&C in the
current conduct of the C&C Business.

 

3.26         Environmental Matters.

 

(a)           C&C:  (i) is in material compliance, and is not subject to any
liability for past non-compliance, with respect to any applicable Environmental
Laws; (ii) is not a party to any investigation, suit, claim, action or
proceeding pending, or to the Knowledge of C&C and the C&C Sellers, threatened,
relating to or arising under Environmental Laws; (iii) holds or has applied for
all Environmental Permits necessary to conduct their current operations, and
(iv) is in material compliance with its Environmental Permits (each of which is
disclosed in Section 3.26(a) of the Disclosure Schedule

 

(b)           To the Knowledge of C&C or the C&C Sellers, there are no facts,
circumstances or conditions that reasonably could be expected to form the basis
for any investigation, suit, claim, action, proceeding or liability against or
affecting C&C relating to or arising under Environmental Laws.

 

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(c)           Except as set forth in Section 3.26(c) of the Disclosure Schedule,
C&C has not received any written notice, demand, letter, claim or request for
information alleging that C&C may be in violation of, or liable under, any
Environmental Law.

 

(d)           C&C:  (i) has not entered into or agreed to any consent decree or
order, and is not subject to any judgment, decree or order, relating to
compliance with Environmental Law, Environmental Permits or the investigation,
monitoring, treatment, remediation, removal or cleanup of Hazardous Materials;
or (ii) is an indemnitor in connection with any claim threatened or asserted in
writing by any third-party indemnitee for any liability under any Environmental
Law or relating to any Hazardous Materials.

 

(e)           Except as set forth in Section 3.26(e) of the Disclosure Schedule,
to the Knowledge of C&C and the C&C Sellers, none of the Inventory or products
contains any Hazardous Material and no Hazardous Materials have been used in the
design, manufacture or storage of any Inventory of C&C or any other product of
C&C.

 

ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SANUK AND THE SANUK SELLERS

 

Sanuk and the Sanuk Sellers, jointly and severally, represent and warrant to
Purchaser as of the Closing, except as set forth on the Disclosure Schedule
furnished to Purchaser, as follows:

 

4.1           Organization of Sanuk.  Sanuk is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
California, and has the requisite limited liability company power and authority
to own or lease and operate its properties, including the Sanuk Purchased
Assets, and to carry on its business as now conducted.  Section 4.1 of the
Disclosure Schedule contains a complete and accurate list of Sanuk’s
jurisdiction of incorporation and any other jurisdictions in which it is
qualified to do business as a foreign entity.  Sanuk is duly authorized or
qualified to do business as a foreign entity and is in good standing in each
jurisdiction where the properties owned, leased or operated by it, or the
business conducted by it, requires such qualification, except where the failure
to be so qualified or in good standing would not, individually or in the
aggregate, have a Material Adverse Effect.  Sanuk does not currently have, and
has not had in the past, any subsidiaries.  There is no outstanding obligation
of Sanuk to make any investment in or advance of funds to, any subsidiary, joint
venture or other entity, relating to the Sanuk Business or the Sanuk Purchased
Assets.

 

4.2           Authorization and Enforceability.  Sanuk has all limited liability
company power and authority to execute and deliver this Agreement and the
Ancillary Agreements to which it is a party, and to consummate the transactions
contemplated hereby and thereby.  Each of the Sanuk Sellers has the requisite
capacity to execute and deliver this Agreement and the Ancillary Agreements to
which he is a party, to perform his obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. This Agreement and
the Ancillary Agreements have been duly and validly executed and delivered by
each of Sanuk and the Sanuk Sellers, and constitutes a legal, valid and binding
obligation of

 

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Sanuk and such Sanuk Seller enforceable against such Sanuk Seller and Sanuk in
accordance with its terms, except where such enforceability may be subject to or
limited by:  (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors; and (ii) general
equitable principles, regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law.  The Sanuk Sellers are the only
equity holders of Sanuk.

 

4.3           No Conflicts; Consents.  Except as set forth in Section 4.3 of the
Disclosure Schedule and as required by the HSR Act, no notice to or filing with,
and no Permit or consent of any Governmental Authority or any other Person is
necessary or required to be obtained, made or given by Sanuk or the Sanuk
Sellers in connection with the execution and delivery by Sanuk or the Sanuk
Sellers of this Agreement and any of the Ancillary Agreements to which they are
a party, the performance by Sanuk and the Sanuk Sellers of their respective
obligations hereunder and thereunder, and the consummation of the transactions
contemplated hereby and thereby.  The execution and delivery by Sanuk and the
Sanuk Sellers of this Agreement and each of the Ancillary Agreements to which
they are a party does not, and the consummation of the transactions contemplated
hereby and thereby will not:  (i) conflict with or result in a violation or
breach of, or default under, any provision of the articles of organization,
operating agreement or other member agreements of Sanuk; (ii) conflict with or
result in a violation or breach of any provision of any Law, Permit or Order
applicable to Sanuk, the Sanuk Sellers or the Sanuk Purchased Assets;
(iii) result in a violation or breach of, constitute a default or an event that,
with or without notice or lapse of time or both, would constitute a default
under, result in the acceleration of or create in any party the right to
accelerate, terminate, modify or cancel any, material contract, agreement or
understanding to which the Sanuk Sellers is a party or by which Sanuk or the
Business of Sanuk is or may be bound or to which any of the Sanuk Purchased
Assets are or may be subject; or (iv) result in the creation or imposition of
any Encumbrance other than Permitted Encumbrances on the Sanuk Purchased Assets.

 

4.4           Financial Statements.  Sanuk has previously delivered to Purchaser
the Sanuk Financial Statements.  Such Sanuk Financial Statements:  (i) are true,
correct and complete; (ii) are in accordance with the Books and Records of
Sanuk; and (iii) fairly present the financial condition and results of
operations of Sanuk as of the respective dates thereof and for the periods
covered thereby; provided, that the Sanuk Financial Statements are not prepared
in accordance with GAAP; and provided further, that the Sanuk Interim Financial
Statements are subject to normal adjustments and lack footnotes and certain
other presentation items.

 

4.5           Absence of Certain Changes.  Except as set forth in Section 4.5 of
the Disclosure Schedule or as required under this Agreement, since March 31,
2011 and other than in the Ordinary Course of Business, there has not been any:

 

(a)           Event, circumstance or development that, individually or together
with other such events, would reasonably be expected to result in a Material
Adverse Effect on the Sanuk Purchased Assets or the Business of Sanuk.

 

(b)           Sale, lease, transfer or assignment of any of the Sanuk Purchased
Assets, tangible or intangible, except for sale of inventory in the Ordinary
Course of Business.

 

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(c)           Acceleration, termination, modification or cancellation of any
agreement, contract, lease or license relating to the Business of Sanuk or the
Sanuk Purchased Assets involving more than $25,000 in any case, or $100,000 in
the aggregate.

 

(d)           Imposition of any Encumbrance upon any of the Sanuk Purchased
Assets, tangible or intangible, other than Permitted Encumbrances.

 

(e)           Transfer, assignment or grant of any material license or
sublicense of any rights under or with respect to any Sanuk Intellectual
Property.

 

(f)            Material damage, destruction or loss (whether or not covered by
insurance) to the Sanuk Purchased Assets, with materiality for purposes of this
provision being agreed to mean damage, destruction or loss in excess of $25,000.

 

(g)           Entry into any material contract.

 

(h)           Entry into any employment contract or collective bargaining
agreement, written or oral, with any new employee of Sanuk, or modification of
the terms of any such existing contract or agreement.

 

(i)            Grant of any material increase in the base compensation of any of
Sanuk’s officers and employees, material change in employment terms of its
officers and employees, or grants of any bonuses, whether monetary or otherwise.

 

(j)            Material change in Sanuk’s accounting methods, principles or
practices, except as required by GAAP or as disclosed in the Sanuk Financial
Statements.

 

(k)           Material change in cash management practices and policies,
practices and procedures with respect to collection of Accounts Receivable,
establishment of reserves for uncollectible Accounts Receivable, accrual of
Accounts Receivable, inventory control, prepayment of expenses, payment of trade
accounts payable, accrual of other expenses, deferral of revenue and acceptance
of customer deposits.

 

(l)            Termination or failure to renew, nor has Sanuk received any
written threat (that was not subsequently withdrawn) to terminate or fail to
renew, any contract or other agreement that would have a Material Adverse Effect
on the Business of Sanuk or the Sanuk Purchased Assets.

 

(m)          Waiver of any rights that would have a Material Adverse Effect on
the Business of Sanuk or the Sanuk Purchased Assets.

 

(n)           Resignation or termination of any key officers or key employees of
Sanuk.

 

(o)           Revaluation by Sanuk of any of the Sanuk Purchased Assets.

 

(p)           Redemption, purchase or acquisition of Sanuk’s equity interests.

 

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(q)           Contract to do any of the things described in the preceding
clauses (a) through (p), or failure or omission to take any action that would
result in any of the foregoing, other than negotiations with Purchaser and its
representatives regarding the transactions contemplated by this Agreement.

 

4.6           No Undisclosed Liabilities.  Except as disclosed in Section 4.6 of
the Disclosure Schedule or in the Sanuk Financial Statements, there are no
material Liabilities (whether accrued, absolute or contingent) incurred by Sanuk
or relating to the Sanuk Purchased Assets, other than Liabilities incurred after
the end of the period covered by the Sanuk Financial Statements in the Ordinary
Course of Business which have not had, and could not reasonably be expected to
result in, a Material Adverse Effect on Sanuk, the Business of Sanuk or the
Sanuk Purchased Assets.

 

4.7           Purchased Assets.

 

(a)           Section 4.7(a) of the Disclosure Schedule contains a complete and
accurate schedule specifying the location of all of the Sanuk Purchased Assets,
where applicable, as of the Closing Date.  Sanuk has good and marketable title
to, or a valid leasehold interest in all of the Sanuk Purchased Assets, free and
clear of all Encumbrances, except the Permitted Encumbrances.  The Sanuk
Purchased Assets constitute all property of any nature owned by and/or used by
Sanuk in the operation of the Sanuk Business as currently conducted.

 

(b)           All tangible personal property of Sanuk included in the Sanuk
Purchased Assets is in good operating condition and repair, ordinary wear and
tear excepted.  Except as set forth in Section 4.7(b) of the Disclosure
Schedule, the Sanuk Purchased Assets and the Excluded Assets constitute all of
the assets owned by Sanuk that are used by Sanuk to conduct the Sanuk Business,
and no assets used in the conduct of the Sanuk Business and valued at more than
Five Thousand and no/100 Dollars ($5,000) in the aggregate are owned by the
Sanuk Sellers or any Affiliate of Sanuk.

 

4.8           Benefit Plans; ERISA.

 

(a)           Section 4.8(a) of the Disclosure Schedule lists of all pension,
profit sharing, option, employee equity purchase or other plans providing for
deferred, incentive or other compensation or fringe benefits to employees, and
all other employee benefit plans to which Sanuk is a party or by which it is
bound (collectively, the “Sanuk Plans”).

 

(b)           Except as set forth in Section 4.8(b) of the Disclosure Schedule,
neither Sanuk nor any ERISA Affiliate has any actual or contingent, direct or
indirect, liability in respect of any employee benefit plan or arrangement,
including any plan subject to ERISA, other than to make contributions under or
pay benefits pursuant to the Sanuk Plans.

 

(c)           All of the Sanuk Plans are in material compliance with all
applicable Laws, and no “reportable event,” as defined in ERISA, has occurred or
is continuing with respect to any Sanuk Plan.

 

(d)           No Sanuk Plan:  (i) is subject to Title IV of ERISA, or is
otherwise a defined benefit plan subject to Title 1 or Title IV of ERISA, or is
a multiple employer plan

 

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(within the meaning of IRC Section 413(c); or (ii) provides for post-retirement
welfare benefits other than as may be required under Section 4980B(f) of the
Code or a “parachute payment” (within the meaning of IRC Section 280G(b)).

 

(e)           Except as set forth in Section 4.8(e) of the Disclosure Schedule,
the execution and delivery of this Agreement and the consummation of the
transactions described in this Agreement:  (i) will not result in any prohibited
transaction within the meaning of Section 406 of ERISA or IRC Section 4975; or
(ii) in the payment, vesting or acceleration of any benefit under any Sanuk
Plan.

 

4.9           Real Property; Leases.  Sanuk does not own, and has not previously
owned, any real property.  Section 4.9 of the Disclosure Schedule contains a
complete and accurate description of each parcel of real property leased by
Sanuk (as lessee or lessor) (the “Sanuk Real Property”) and all Encumbrances
(other than Permitted Encumbrances) relating to or affecting the Sanuk Real
Property, as well as the amount of the monthly lease payment and related
expenses with respect to such Sanuk Real Property.  Sanuk has a valid leasehold
interest in all Sanuk Real Property used in the conduct of the Business of
Sanuk, free and clear of all Encumbrances other than Permitted Encumbrances. 
Sanuk has rights of ingress and egress with respect to the Sanuk Real Property,
and all buildings, structures, facilities, fixtures and other improvements
thereon material for the operation of the Business of Sanuk.  Sanuk has
delivered or made available to Purchaser true, correct and complete copies of
all Real Property leases, including all modifications, amendments and
supplements thereto.  Each lease with respect to the Sanuk Real Property is a
legal, valid and binding agreement of Sanuk.  Except as set forth in Section 4.9
of the Disclosure Schedule, there is no, and Sanuk has not received notice of
any, default (or any condition or event which, after notice or lapse of time or
both, would constitute a default) thereunder.  Sanuk has not received notice of,
nor has there been any, threatened default by any landlord under any Sanuk Real
Property lease.  Except as set forth in Section 4.9 of the Disclosure Schedule,
all required consents, approvals or authorization of, filing with, or notice to,
any party to any Sanuk Real Property lease in connection with the transactions
contemplated by this Agreement have been completed.

 

4.10         Intellectual Property Rights.

 

(a)           Section 4.10(a) of the Disclosure Schedule lists all registered
Marks, registered Copyrights, issued Patents, material unregistered Copyrights,
material unregistered Marks (including Domain Names), and applications for any
of the foregoing, in each case that are owned (in whole or in part) by Sanuk,
and any proceedings or actions before any Governmental Authority (including the
United States Patent and Trademark Office or equivalent authority anywhere in
the world) in which any of the Sanuk Intellectual Property is involved.

 

(i)            The Sanuk Intellectual Property is all of the Intellectual
Property that is used for the operation of the Sanuk Business as presently
conducted.  Sanuk is the owner of all right, title, and interest in and to the
Sanuk Intellectual Property that is registered. Except as disclosed in
Section 4.10(a)(i) of the Disclosure Schedule, to the Knowledge of Sanuk, Sanuk
is the owner of all right, title, and interest in and to the Sanuk Intellectual
Property that is subject to a pending application for registration with the
United States Patent and Trademark Office and any comparable foreign patent or
trademark office (the “Sanuk Pending IP”).  Except as

 

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disclosed in Section 4.10(a)(i) of the Disclosure Schedule, such registered
Sanuk Intellectual Property, and to the Knowledge of Sanuk such Sanuk Pending
IP, is free and clear of all liens, security interests, charges, encumbrances
and other adverse claims.  Except as set forth in Section 4.10(a)(i) of the
Disclosure Schedule, no Person other than Sanuk has an ownership interest in or
exclusive rights to any registered Sanuk Intellectual Property, or to the
Knowledge of Sanuk, such Sanuk Pending IP.  Except as set forth in
Section 4.10(a)(i) of the Disclosure Schedule, all registered Sanuk Intellectual
Property, and to the Knowledge of Sanuk such Sanuk Pending IP, is fully
transferable or assignable by Sanuk without restriction.

 

(ii)           Sanuk has not given to any third party any warranty or
indemnification related to the Sanuk Intellectual Property, except for: 
(i) statutory warranties given in the ordinary course of business in connection
with the sale of Sanuk’s goods; (ii) warranties given by third party
manufacturers that such Sanuk passes through or assigns to its customers in
connection with the sale of goods; and (iii) as set forth in
Section 4.10(a)(ii) of the Disclosure Schedule.

 

(b)           Section 4.10(b) of the Disclosure Schedule contains a complete and
accurate list and summary description, of all contracts relating to the Sanuk
Intellectual Property to which Sanuk is a party or by which Sanuk is bound,
except for:  (i) any license implied by the sale of a product; or (ii) any
perpetual, paid-up licenses for commonly available software programs, click
through standard agreements or shrink-wrap agreements with a value of less than
$25,000 under which Sanuk is the licensee.  There are no outstanding and, to the
Knowledge of Sanuk and the Sanuk Sellers, no threatened disputes or
disagreements with respect to any such contract.

 

(c)           To the Knowledge of Sanuk and the Sanuk Sellers, no employee of
Sanuk has entered into any contract that restricts or limits in any way the
scope or type of work in which the employee may be engaged or requires the
employee to transfer, assign, or disclose information concerning his work to
anyone other than Sanuk.  Except as set forth in Section 4.10(c) of the
Disclosure Schedule, each of the employees, officers and consultants of Sanuk
who has created or who have participated in or contributed to, the conception,
development, authoring, creation, or reduction to practice of any Sanuk
Intellectual Property used or held for use by Sanuk has assigned ownership of
such Intellectual Property to Sanuk.

 

(d)           Patents.

 

(i)            Sanuk is the owner of all right, title, and interest in and to
each of the issued Patents listed in Section 4.10(d)(i) of the Disclosure
Schedule, free and clear of all liens, security interests, charges, encumbrances
and other adverse claims, except for Permitted Encumbrances.

 

(ii)           All of the issued Patents of Sanuk are currently in compliance
with formal legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
thirty (30) days after the Closing Date.

 

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(iii)          Except as set forth in Section 4.10(d)(iii) of the Disclosure
Schedule, no issued Patent or Patent application of Sanuk has been or is now
involved in any interference, reissue, reexamination, or opposition proceeding. 
To the Knowledge of Sanuk and the Sanuk Sellers, there is no potentially
interfering patent or patent application of any third party.

 

(iv)          Except as set forth in Section 4.10(d)(iv) of the Disclosure
Schedule, to the Knowledge of Sanuk and the Sanuk Sellers, no issued Patent of
Sanuk is infringed, or at any time during the past five years has been
challenged or threatened in any way.

 

(v)           All products sold under the issued Patents or patent applications
of Sanuk have been marked with the proper patent notice.

 

(e)           Marks.

 

(i)            Sanuk is the owner of all right, title, and interest in and to
each of the Marks listed in Section 4.10(e)(i) of the Disclosure Schedule that
are registered.  Except as disclosed in Section 4.10(e)(i) of the Disclosure
Schedule, to the Knowledge of Sanuk, Sanuk is the owner of all right, title, and
interest in and to each of the Marks listed in Section 4.10(e)(i) of the
Disclosure Schedule that are the subject of a pending application for
registration with the United States Patent and Trademark Office and any
comparable foreign patent and trademark office (such Marks that are pending
registration, “Sanuk Pending Marks”).  Such registered Marks, and except as
disclosed in Section 4.10(e)(i) of the Disclosure Schedule, to the Knowledge of
Sanuk such Sanuk Pending Marks, are free and clear of all liens, security
interests, charges, encumbrances and other adverse claims, except for Permitted
Encumbrances.

 

(ii)           Except as set forth in Section 4.10(e)(ii) of the Disclosure
Schedule, all Marks of Sanuk that have been registered with the United States
Patent and Trademark Office and any comparable foreign patent or trademark
offices are currently in compliance with all formal legal requirements
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety (90) days after the Closing Date.

 

(iii)          Except as set forth in Section 4.10(e)(iii) of the Disclosure
Schedule, no registered Mark of Sanuk, or to the Knowledge of Sanuk no Sanuk
Pending Mark, is now involved in any opposition, invalidation, or cancellation
proceedings and, to the Knowledge of Sanuk and the Sanuk Sellers, no action is
threatened with respect to any of the Marks of Sanuk.

 

(iv)          Except as set forth in Section 4.10(e)(iv) of the Disclosure
Schedule, to the Knowledge of Sanuk and the Sanuk Sellers, there is no
potentially interfering Mark or application for such Mark of any third party
with respect to any registered Mark or Sanuk Pending Mark, within the
jurisdiction that the registered or Sanuk Pending Mark (as the case may be) is
registered or applied for.

 

(v)           Except as set forth in Section 4.10(e)(v) of the Disclosure
Schedule, to the Knowledge of Sanuk and the Sanuk Sellers, no registered Mark of
Sanuk or

 

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Sanuk Pending Mark is infringed or has been challenged or threatened in any way,
within the jurisdiction that the Mark is registered or applied for.

 

(f)            Copyrights.

 

(i)            To the Knowledge of Sanuk and the Sanuk Sellers, Sanuk is the
owner of all right, title, and interest in and to each of the Copyrights listed
in Section 4.10(f)(i) of the Disclosure Schedule, free and clear of all liens,
security interests, charges, encumbrances and other adverse claims, except for
Permitted Encumbrances.

 

(ii)           To the Knowledge of Sanuk and the Sanuk Sellers, all of the
registered Copyrights of Sanuk are valid and enforceable, and are not subject to
any maintenance fees or taxes or actions falling due within thirty (30) days
after the date of Closing.

 

(iii)          To the knowledge of Sanuk and the Sanuk Sellers, no Copyright of
Sanuk is infringed or has been challenged or threatened in any way.

 

(g)           Trade Secrets.

 

(i)            Except as set forth in Section 4.10(g)(i) of the Disclosure
Schedule, Sanuk has taken all commercially reasonable precautions, including all
steps which Sanuk is contractually obligated to take, to:  (A) protect the
secrecy, confidentiality, and value of its Trade Secrets; and (B) protect the
Trade Secrets of others who have provided such Trade Secrets to Sanuk in
confidence.

 

(ii)           Sanuk validly owns and has an absolute (but not necessarily
exclusive) right to use its Trade Secrets.  To the Knowledge of Sanuk and the
Sanuk Sellers, the Trade Secrets are not part of the public knowledge or
literature and, have not been used, divulged, or appropriated either for the
benefit of any Person (other than Sanuk, C&C, and Purchaser) or to the detriment
of Sanuk.  No Trade Secret is subject to any adverse claim or has been
challenged or, to the Knowledge of Sanuk or the Sanuk Sellers, threatened in any
way.

 

(h)           Except as set forth in Section 4.10(h) of the Disclosure Schedule,
the operation of the Sanuk Business as currently conducted, including, without
limitation, the manufacture or sale of any of the products manufactured or sold
by Sanuk, has not infringed, misappropriated or otherwise violated, and does not
infringe, misappropriate or otherwise violate, any Intellectual Property of any
Person in the United States or, to the Knowledge of the Sanuk Sellers, any other
jurisdiction in the world.

 

4.11         Litigation.  Except as set forth in Section 4.11 of the Disclosure
Schedule, there are no Actions or Proceedings pending or, to the Knowledge of
the Sanuk Sellers, threatened or anticipated against, relating to or affecting: 
(i) Sanuk, the Sanuk Business or the Sanuk Purchased Assets; or (ii) the
transactions contemplated by this Agreement, and, to the Knowledge of the Sanuk
Sellers, there is no basis for any such Action or Proceeding.  Sanuk is not in
default with respect to any Order, and there are no unsatisfied judgments
against Sanuk.  There are no Actions or Proceedings that Sanuk or the Sanuk
Sellers intend to initiate.

 

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4.12         Compliance with Law.  Sanuk is in compliance with all applicable
laws, statutes, Orders, ordinances and regulations, whether federal, state,
local or foreign, except where the failure to comply would not reasonably be
expected to result in a Material Adverse Effect on the Business of Sanuk or the
Sanuk Purchased Assets.  Neither Sanuk nor the Sanuk Sellers has received any
written notice to the effect that, or otherwise has been advised that, Sanuk is
not in compliance with any of such laws, statutes, Orders, ordinances or
regulations, where the failure to comply could reasonably be expected to result
in a Material Adverse Effect on the Business of Sanuk or the Sanuk Purchased
Assets.

 

4.13         Contracts.  Schedule 4.13 includes a true and complete list of each
material written or oral contract, agreement or other arrangement to which Sanuk
is a party and by which Sanuk or the Sanuk Purchased Assets are bound (and, to
the extent oral, accurately describes the terms of such contract, agreement and
commitment).  Each Assumed Contract is in full force and effect and constitutes
a legal, valid and binding agreement, enforceable against Sanuk in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of parties, and general equitable
principles.  To the Knowledge of the Sanuk Sellers, each Assumed Contract is
valid and enforceable in accordance with its terms against all other parties
thereto, except as enforceability may be limited by bankruptcy, insolvency or
other laws affecting the rights of parties, and general equitable principles. 
Except for consents required pursuant to Section 4.3, Sanuk has performed all of
its required obligations under, and is not in violation or breach of or default
under, either with the lapse of time, giving or notice or both, any Assumed
Contract.  To the Knowledge of the Sanuk Sellers, the other parties to any such
contract, agreement or commitment are not in violation or breach of or default
under, either with the lapse of time, giving of notice or both, any such
contract, agreement or commitment.

 

4.14         Insurance.  Set forth in Section 4.14 of the Disclosure Schedule is
a complete and accurate list of all primary, excess and umbrella policies, bonds
and other forms of insurance currently owned or held by or on behalf of and/or
providing insurance coverage to Sanuk or the Sanuk Purchased Assets (or any of
Sanuk’s managers, officers, salespersons, agents or employees), including the
following information for each such policy:  type(s) of insurance coverage
provided; name of insurer; effective dates; policy number; per occurrence and
annual aggregate deductibles or self-insured retentions; per occurrence and
annual aggregate limits of liability and the extent, if any, to which the limits
of liability have been exhausted.  All policies set forth in Section 4.14 of the
Disclosure Schedule are in full force and effect, and with respect to such
policies, all premiums currently payable or previously due have been paid, and
no notice of cancellation or termination has been received with respect to any
such policy.  All such policies are sufficient for compliance with all
requirements of law and all agreements to which Sanuk is a party or otherwise
bound, and are valid, outstanding, collectible and enforceable policies and, to
the Knowledge of the Sanuk Sellers, provide adequate insurance coverage for
Sanuk, the Business of Sanuk and the Sanuk Purchased Assets and will remain in
full force and effect through the respective dates set forth in the Disclosure
Schedule.  None of such policies contains a provision that would permit the
termination, limitation, lapse, exclusion or change in the terms of coverage of
such policy (including, without limitation, a change in the limits of liability)
by reason of the consummation of the transactions contemplated by this
Agreement.  Complete and accurate copies of all such policies and related
documentation have previously been provided to the Purchaser.

 

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4.15         Tax Matters.

 

(a)           Except as set forth in Section 4.15(a) of the Disclosure Schedule,
Sanuk has or will have filed with the appropriate federal, state, local and
foreign taxing authorities all Tax Returns required to be filed by or with
respect to it on or before the Closing Date, and such Tax Returns are or will be
true, correct and complete in all material respects.  Except as set forth in
Section 4.15(a) of the Disclosure Schedule, Sanuk has paid in full or has made
provision in the Sanuk Financial Statements for all taxes that are due or
claimed to be due from it by any taxing authority.  The reserves for Taxes
reflected in the Sanuk Financial Statements are sufficient for payment in full
of all unpaid Taxes (whether or not currently known or disputed) through the
date thereof.  Sanuk has not incurred any liability for Taxes since the date of
the Sanuk Financial Statements other than in the Ordinary Course of Business. 
There are no liens for Taxes upon or affecting any of the Sanuk Purchased
Assets.  There are no joint ventures, partnerships, limited liability companies,
or other arrangements or contracts to which Sanuk is a party and that could be
treated as a partnership for federal income tax purposes. Except as set forth in
Section 4.15(a) of the Disclosure Schedule, Sanuk has never had a “permanent
establishment” in any foreign country, as such term is defined in any applicable
Tax treaty or convention between the United States and such foreign country, nor
has it otherwise taken steps that have exposed, or will expose, it to the taxing
jurisdiction of a foreign country.

 

(b)           Sanuk has not requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed, or except as set
forth in Section 4.15(b) of the Disclosure Schedule, waived any statute of
limitations for, or agreed to any extension of time with respect to, the
assessment of Taxes.  Sanuk has not received any notice of deficiency or
assessment from any federal, state, local or foreign taxing authorities with
respect to liabilities for Taxes which have not been fully paid or finally
settled, and any such deficiency or assessment shown in Section 4.15(b) of the
Disclosure Schedule is being contested in good faith through appropriate
proceedings.  Further, to the Knowledge of the Sanuk Sellers, no state of facts
exists or has existed which would constitute grounds for the assessment of any
liability for Taxes with respect to the periods prior to the Closing Date that
have not been audited by any taxing authority.  Neither the executive officers
of Sanuk nor the Sanuk Sellers are aware of any information that has caused or
should cause them to believe that an audit by any Tax authority may be
forthcoming.  No claim has ever been made by an authority in a jurisdiction
where Sanuk does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction.

 

(c)           Sanuk has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.

 

(d)           Except as set forth in Section 4.15(d) of the Disclosure Schedule,
Sanuk does not have any liability for the Taxes of any other Person (A) under
Treasury Regulations § 1.1502-6 (or any similar provision of state, local, or
foreign law), (B) as a transferee or successor, (C) by contract, or
(D) otherwise.

 

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(e)           Sanuk has not filed and will not file prior to the Closing a
consent under Code § 341(f).  Sanuk is not obligated to make any payments, and
is not a party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code § 162 or § 280G
whether paid prior to or after the Closing.  Prior to the Closing, Sanuk will
not have experienced a change of ownership within the meaning of Code
Section 382.  Sanuk is not and has not been a United States real property
holding corporation within the meaning of Code § 897(c)(2).

 

4.16         Labor and Employment Relations.  To the Knowledge of Sanuk and the
Sanuk Sellers, no officer, executive or other employees of Sanuk has expressed
any intention not to become an employee of Purchaser if Purchaser offers such
officer, executive or employee employment.  Sanuk is not a party to or bound by
any collective bargaining agreement with any labor organization, group or
association covering any of its employees, and to the Knowledge of the Sanuk
Sellers, there are no attempts to organize any of Sanuk’s employees by any
Person, unit or group seeking to act as their bargaining agent.  Sanuk has
complied in all material respects with all applicable laws relating to the
employment of labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining, discrimination against race, color,
national origin, religious creed, physical or mental disability, sex, age,
ancestry, medical condition, marital status or sexual orientation, and the
withholding and payment of social security and other taxes.  There are no
pending or, to the Knowledge of the Sanuk Sellers, threatened charges (by
employees, their representatives or Governmental and Regulatory Authorities) of
unfair labor practices or of employment discrimination or of any other wrongful
action with respect to any aspect of employment of any person employed or
formerly employed by Sanuk, and there is no investigation of Sanuk’s employment
policies or practices by any Governmental or Regulatory Authority pending or, to
the Knowledge of the Sanuk Sellers, threatened.

 

4.17         Certain Employees.  Set forth in Section 4.17 of the Disclosure
Schedule is a list of the names of Sanuk’s employees and consultants as of the
date hereof involved in the management and operation of the Business of Sanuk,
together with the title or job classification of each such person and the total
compensation (with wages and bonuses, if any, separately detailed) paid in 2010
(if applicable) and the current rate of pay for each such person on the date of
this Agreement.  Except as set forth in Section 4.17 of the Disclosure Schedule,
none of such persons has an employment agreement or understanding or commitment,
whether oral or written, with Sanuk that is not terminable within 30 days on
notice by Sanuk without cost or other liability to Sanuk.  Except as set forth
in Section 4.17 of the Disclosure Schedule or in the Sanuk Financial Statements,
as of the date hereof, all commissions and bonuses payable to employees,
consultants, or contractors of Sanuk in connection with the Business of Sanuk
for services performed on or prior to the date hereof have been paid in full and
there are no outstanding agreements, understandings or commitments of Seller
with respect to any commissions, bonuses or increases in compensation.

 

4.18         Permits.   Section 4.18 of the Disclosure Schedule contains a true
and complete list of all Permits used in and material, individually or in the
aggregate, to the Business of Sanuk or the Sanuk Purchased Assets.  All such
Permits are currently effective and valid and have been validly issued.  Except
as set forth in Section 4.18 of the Disclosure Schedule, no additional Permits
are necessary to enable Sanuk to conduct the Sanuk Business as presently
conducted,

 

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except such Permits the failure of which to obtain would not have a Material
Adverse Effect.  Neither the execution, delivery nor performance of this
Agreement nor the mere passage of time (except as specifically noted in
Section 4.18 of the Disclosure Schedule) will have any effect on the continued
validity or sufficiency of the Permits (except for such Permits that expire
according to their terms).  There is no pending or, to the Knowledge of Sanuk
and the Sanuk Sellers, threatened Action or Proceeding by any Governmental or
Regulatory Authority that could affect the Permits or their sufficiency for the
current conduct of Sanuk’s Business.  Sanuk has provided Purchaser with true and
complete copies of all Permits listed in Section 4.18 of the Disclosure
Schedule.

 

4.19         Brokers.  Except for Moss Adams Capital, the fees of which will be
paid by C&C, the C&C Sellers, Sanuk or the Sanuk Sellers, neither the Sanuk
Sellers nor Sanuk has retained any broker in connection with the transactions
contemplated hereunder.  Purchaser has, and will have, no obligation to pay any
broker’s, finder’s, investment banker’s, financial advisor’s or similar fee in
connection with this Agreement or the transactions contemplated hereby by reason
of any action taken by or on behalf of the Sanuk Sellers or Sanuk.

 

4.20         Accounts Receivable.  Except as set forth in Section 4.20 of the
Disclosure Schedule, all of Sanuk’s accounts receivable that are reflected on
the Sanuk Financial Statements and the accounts receivable arising after the
date thereof and prior to the Closing (collectively, the “Sanuk Accounts
Receivable”):  (i) have arisen from bona fide transactions entered into by Sanuk
involving the sale of products actually made or services actually performed in
the Ordinary Course of Business; and (ii) constitute valid accounts receivable. 
There are no refunds, discounts, rights of setoff or assignment affecting any
such Sanuk Accounts Receivable that are not reflected on the Sanuk Financial
Statements or, with respect to Sanuk Accounts Receivable arising after the date
of the Sanuk Interim Financial Statements, on the accounting records of Sanuk. 
The allowance for doubtful accounts reflected in the Sanuk Financial Statements
or, with respect to Sanuk Accounts Receivable arising after the date of the
Sanuk Interim Financial Statements on the accounting Books and Records of Sanuk,
have been determined in accordance with GAAP.  The Sanuk Sellers have provided
to Purchaser a complete and accurate list of all Sanuk Accounts Receivable as of
the date of the Sanuk Financial Statements, which list sets forth the aging of
such Sanuk Accounts Receivable.

 

4.21         Inventory.  The materials, supplies and work-in-process included in
the inventory of Sanuk are, and at the Closing will be, as the case may be:  (i)
substantially equivalent in quality and quantity, subject to seasonality, to the
materials, supplies and work-in-process, and additions thereto, generally
included in such inventory of Sanuk in the past; and (ii) suitable for the
manufacture and distribution of Sanuk products in a manner substantially
equivalent in quality to that achieved generally by Sanuk in the past.

 

4.22         Books and Records.  The accounting Books and Records, copies of
which have been made available to Purchaser, are true and correct in all
material respects.

 

4.23         Major Customers, Suppliers and Distributors.  Section 4.23 of the
Disclosure Schedule lists the ten largest customers, the ten largest product
suppliers and the ten largest distributors (each measured by dollar volume) of
Sanuk during the last completed fiscal year (such Seller’s “Major Customers,”
“Major Suppliers” and “Major Distributors,”

 

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respectively) and the amount of business done by Sanuk with each Major Customer,
Major Supplier and Major Distributor in such year.  As of the date of this
Agreement, except as set forth in Section 4.23 of the Disclosure Schedule:  (i)
Sanuk is not engaged in a material dispute with any Major Customer, Major
Supplier or Major Distributor; (ii) there has been no material adverse change in
the business relationship of Sanuk with any Major Customer, Major Supplier or
Major Distributor since January 1, 2011; and (iii) no Major Customer, Major
Supplier or Major Distributor has threatened in writing any material
modification or change in the business relationship with Sanuk.

 

4.24         Absence of Unlawful Payments.  Neither Sanuk nor any of its
officers, employees, or agents acting for or on behalf of Sanuk, nor to the
Knowledge of Sanuk and the Sanuk Sellers any other Person associated with or
acting for or on behalf of Sanuk, has directly or indirectly:  (i) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, whether in money, property, or services (A) to improperly
obtain favorable treatment in securing business, (B) to improperly pay for
favorable treatment for business secured, (C) to improperly obtain special
concessions or for special concessions already obtained, for or in respect of
Sanuk, or (D) in violation of any Law; or (ii) established or maintained any
unlawful fund or asset that has not been recorded in the Books and Records of
Sanuk.

 

4.25         Transactions with Related Persons.  Except as set forth in Section
4.25 of the Disclosure Schedule:  (i) no member, manager or officer of Sanuk
(any such individuals, a “Related Person”), or to the Knowledge of Sanuk and the
Sanuk Sellers, any Affiliate or member of the immediate family of any Related
Person, is involved in any business arrangement or relationship with Sanuk other
than employment arrangements entered into in the Ordinary Course of Business;
and (ii) no Related Person or, to the Knowledge of Sanuk and the Sanuk Sellers,
any Affiliate or member of the immediate family of any Related Person, owns any
property or right, tangible or intangible, used by the Sanuk in the current
conduct of the Sanuk Business.

 

4.26         Environmental Matters.

 

(a)           Sanuk:  (i) is in material compliance, and is not subject to any
liability for past non-compliance, with respect to any applicable Environmental
Laws; (ii) is not a party to any investigation, suit, claim, action or
proceeding pending, or to the Knowledge of Sanuk and the Sanuk Sellers,
threatened, relating to or arising under Environmental Laws; (iii) holds or has
applied for all Environmental Permits necessary to conduct their current
operations, and (iv) is in material compliance with its Environmental Permits
(each of which is disclosed in Section 4.26(a) of the Disclosure Schedule).

 

(b)           To the Knowledge of Sanuk or the Sanuk Sellers, there are no
facts, circumstances or conditions that reasonably could be expected to form the
basis for any investigation, suit, claim, action, proceeding or liability
against or affecting Sanuk relating to or arising under Environmental Laws.

 

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(c)           Except as set forth in Section 4.26(c) of the Disclosure Schedule,
Sanuk has not received any written notice, demand, letter, claim or request for
information alleging that Sanuk may be in violation of, or liable under, any
Environmental Law.

 

(d)           Sanuk: (i) has not entered into or agreed to any consent decree or
order, and is not subject to any judgment, decree or order, relating to
compliance with Environmental Law, Environmental Permits or the investigation,
monitoring, treatment, remediation, removal or cleanup of Hazardous Materials;
or (ii) is an indemnitor in connection with any claim threatened or asserted in
writing by any third-party indemnitee for any liability under any Environmental
Law or relating to any Hazardous Materials.

 

(e)           Except as set forth in Section 4.26(e) of the Disclosure Schedule,
to the Knowledge of Sanuk and the Sanuk Sellers, none of the Inventory or
products contains any Hazardous Material and no Hazardous Materials have been
used in the design, manufacture or storage of any Inventory of Sanuk or any
other product of Sanuk.

 

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT

 

Each Parent and Purchaser represents and warrants to C&C, the C&C Sellers, Sanuk
and the Sanuk Sellers as of the Closing as follows:

 

5.1           Organization.  Each of Parent and Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware.  Deckers Bermuda is a corporation duly organized, validly existing,
and in good standing under the laws of Bermuda.  Each of Parent and Purchaser
has all requisite right, power and authority to carry on its business as now
conducted.

 

5.2           Authorization and Enforceability.  Each of Parent and Purchaser
has all corporate power and corporate authority and has taken all corporate
actions necessary to enter into this Agreement and each of the Ancillary
Agreements to which it is a party, to consummate the transactions contemplated
hereby and thereby and to perform its obligations hereunder and thereunder, and
no other proceedings on the part of either Parent or Purchaser are necessary to
authorize this Agreement and each of the Ancillary Agreements or to consummate
the transactions contemplated hereby or thereby.  This Agreement and each of the
Ancillary Agreements to which Parent or Purchaser is a party have been duly and
validly executed and delivered by Parent and Purchaser, as applicable, and
constitute legal, valid and binding obligations of each of Parent and Purchaser,
as applicable, enforceable against Parent and Purchaser in accordance with their
respective terms.

 

5.3           No Conflicts; Consents.  Except as required by the HSR Act, no
notice to or filing with, and no Permit or consent of any Governmental Authority
or any other Person is necessary or required to be obtained, made or given by
Parent or Purchaser in connection with the execution and delivery by Parent or
Purchaser of this Agreement and any of the Ancillary Agreements to which they
are a party, the performance by Parent and Purchaser of their respective
obligations hereunder and thereunder, and the consummation of the transactions
contemplated hereby and thereby.  The execution and delivery by Parent and
Purchaser of this

 

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Agreement and each of the Ancillary Agreements to which they are a party does
not, and the consummation of the transactions contemplated hereby and thereby
will not:  (i) conflict with or result in a violation or breach of, or default
under, any provision of the certificate of incorporation or by-laws of Parent or
Purchaser; (ii) conflict with or result in a violation or breach of any
provision of any Law, Permit or Order applicable to Parent or Purchaser; (iii)
result in a violation or breach of, constitute a default or an event that, with
or without notice or lapse of time or both, would constitute a default under,
result in the acceleration of or create in any party the right to accelerate,
terminate, modify or cancel any material contract disclosed in Parent’s filings
made with the Securities and Exchange Commission; or (iv) result in the creation
or imposition of any Encumbrance other than Permitted Encumbrances on the
Purchased Assets.

 

5.4           Litigation.  Neither Parent not Purchaser is a party to any
pending or threatened litigation that, if decided adversely to Parent or
Purchaser, reasonably would be expected to materially and adversely affect
Parent’s or Purchasers’ ability to consummate the transactions contemplated by
this Agreement or any of the Ancillary Agreements to which it is a party.

 

5.5           Sufficient Funds.  As of the date hereof and as of the Closing
Date, Purchaser has and will have available cash sufficient to consummate the
transactions contemplated by this Agreement and does not and will not require
any outside financing to consummate the transactions contemplated by this
Agreement.

 

5.6           Brokers.  Except for Peter J. Solomon Company, the fees of which
will be paid by the Purchaser, neither Parent nor Purchaser has retained any
broker in connection with the transactions contemplated hereunder.  None of the
Sellers, the C&C Sellers or the Sanuk Sellers has, and will not have, any
obligation to pay any broker’s, finder’s, investment banker’s, financial
advisor’s or similar fee in connection with this Agreement or the transactions
contemplated hereby by reason of any action taken by or on behalf of Parent or
Purchaser.

 

ARTICLE VI
CONDITIONS PRECEDENT

 

6.1           Conditions to Obligations of Seller.  The obligations of the
Sellers to consummate the transactions contemplated by this Agreement are
subject, in the discretion of the Sellers, to the satisfaction on or prior to
the Closing Date of the following conditions, any of which may be waived by the
applicable Seller:

 

(a)           Representations and Warranties.  The representations and
warranties of the Parent and Purchaser contained herein and in any certificate
or other writing delivered pursuant hereto or in connection herewith shall be
true and correct at and as of the Closing as though made at that time, other
than representations and warranties that expressly speak as of a specific date
or time which shall be true and correct only as of such time.

 

(b)           Performance.  Parent and Purchaser shall have duly performed and
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with prior to the Closing, and the
Purchaser shall have delivered all items required to be delivered at the Closing
pursuant to Section 2.10(b).

 

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6.2           Conditions to Obligations of Purchaser.  The obligations of the
Purchaser to consummate the transactions contemplated by this Agreement are
subject, in the discretion of the Purchaser, to the satisfaction on or prior to
the Closing Date of the following conditions, any of which may be waived by
Purchaser:

 

(a)           Representations and Warranties.  The representations and
warranties of the Sellers contained herein and in any certificate or other
writing delivered pursuant hereto or in connection herewith shall be true and
correct at and as of the Closing as though made at that time, other than
representations and warranties that expressly speak as of a specific date or
time which shall be true and correct only as of such time.

 

(b)           Performance.  Each of the Sellers, the Sanuk Sellers and the C&C
Sellers shall have duly performed and complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with prior to the Closing, and each of the Sellers, Sanuk Sellers and C&C
Sellers shall have delivered all items required to be delivered at the Closing
pursuant to Section 2.10(a).

 

(c)           Audited Financial Statements.  The Audited Financial Statements of
each Seller shall not be materially different from the C&C Financial Statements
or the Sanuk Financial Statements, as the case may be.

 

6.3           Conditions to Obligations of All Parties to Close.  The Parties’
obligations to consummate the transactions contemplated by this Agreement are
subject to the satisfaction on or prior to the Closing Date of the following
conditions (any of which may be waived by the Parties’ in whole or in part to
the extent legally permitted):

 

(a)           HSR Act.  The waiting period and any extensions under the HSR Act
shall have expired or terminated.

 

(b)           No Actions or Court Orders.  No Actions or Proceedings by any
Governmental or Regulatory Authority or other Person shall have been instituted
or threatened seeking to restrain or prohibit the transactions contemplated by
this Agreement.

 

(c)           Regulatory Compliance and Approval.  No court or other
Governmental or Regulatory Authority of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any Law (whether temporary,
preliminary, or permanent) that is in effect and restrains, enjoins or otherwise
prohibits the consummation of the transactions contemplated by this Agreement.

 

ARTICLE VII
COVENANTS

 

7.1           Covenants of Sellers.

 

(a)           Further Assurances.  If from time to time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Sellers, the C&C Sellers or the Sanuk Sellers, as the
case may be, shall execute and deliver such additional instruments, documents,
conveyances or assurances and take such other actions as

 

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reasonably requested by the Purchaser to confirm and assure the rights and
obligations provided for in this Agreement and in the Ancillary Agreements and
render effective the consummation of the transactions contemplated hereby.

 

(b)           Conduct of Business Prior to Closing.  Except as specifically
contemplated in this Agreement, from the date of this Agreement to the Closing
Date, each Seller shall:  (i) conduct the Business of such Seller in the
Ordinary Course of Business; (ii) use commercially reasonable efforts to
preserve intact the present business organization of such Seller, its Business
and its Purchased Assets; and (iii) use commercially reasonable efforts to
preserve the rights, franchises, goodwill and relationships of its employees,
contractors, customers, lenders, suppliers, regulators and others having
commercial relationships with such Seller’s Business.

 

(c)           Books and Records; Cooperation.  After the Closing, each Seller
shall preserve and store at its expense its Books and Records, including,
without limitation, each Seller’s historical accounting records and ledgers, in
original form that pertain to its Business and the Purchased Assets (as
applicable to each Seller).  Purchaser and any proper representative(s) it
designates in writing to a Seller shall have the right to inspect, make extracts
from and copy, all at Purchaser’s sole expense, such Books and Records.  Each
Seller shall:  (i) provide Purchaser with such assistance as may reasonably be
requested by Purchaser in connection with the preparation of any return, audit,
or other examination by any taxing authority or judicial or administrative
proceedings relating to Liabilities for Taxes arising out of the Purchased
Assets of such Seller; (ii) retain and provide Purchaser with any records or
other information that may be relevant to such return, audit or examination,
proceeding or determination; and (iii) provide Purchaser with any final
determination of any such audit or examination, proceeding, or determination
that affects any amount required to be shown on any Tax Return of a Purchaser
for any period.  Without limiting the generality of the foregoing, each Seller
shall retain, until the applicable statutes of limitations (including any
extensions) have expired, copies of all Tax Returns, supporting work schedules,
and other records or information that may be relevant to such returns for all
Tax periods or portions thereof ending on or before the Closing Date and shall
not destroy or otherwise dispose of any such records without first providing
Purchaser with a reasonable opportunity to review and copy.

 

(d)           Transition.  After the Closing:  (i) Each of the Sellers shall
cooperate to transfer to Purchaser the control and enjoyment of such Seller’s
Business and the Purchased Assets; (ii) Sellers shall not take any action which
obstructs or impairs the assumption by Purchaser of the Purchased Assets; and
(iii) each Seller shall promptly deliver to Purchaser all of the Purchased
Assets in the possession of a Seller and not previously delivered to Purchaser. 
To the extent a Purchaser elects to proceed with the Closing without having
received the consent to assignment of a material contract prior to Closing, each
Seller (with respect to a material contract of such Seller) hereby agrees to use
its reasonable best efforts to provide Purchaser such consent as soon as
possible after the Closing.

 

(e)           Access to Information.  From the date of this Agreement until the
Closing, each Seller shall provide Purchaser access, through its employees and
representatives, to make such investigation of the assets, properties, Business
and operations of each Seller and such examination of the Books and Records and
financial condition of each Seller as Purchaser

 

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reasonably may request.  Any such investigation and examination shall be
conducted at reasonable times after providing reasonable prior notice and under
reasonable circumstances and each Seller shall, and shall instruct its employees
and representatives to, cooperate therewith.  Any exchange of confidential
information hereunder or otherwise pursuant to this Agreement shall be subject
to the terms of the Confidentiality and Non-Disclosure Agreement between the
parties dated September 22, 2010.

 

(f)            Required Consents.  Each Seller, as applicable, shall use its
best efforts to obtain all consents set forth in Section 2.10(a)(xii),
Section 3.3 and Section 4.3 of the Disclosure Schedule.

 

(g)           Sublease Agreement.  With respect to the parcels of Seller Real
Property identified in Section 3.9 of the Disclosure Schedule, such Seller shall
request each landlord of such Seller Real Property to consent to, execute and
deliver the Sublease Agreement.

 

(h)           Notification of Certain Matters.  Each Seller (as applicable)
shall promptly advise the Purchaser orally and in writing of:  (i) any
representation or warranty made by such Seller contained in this Agreement
becoming untrue or inaccurate in any material respect; (ii) the failure by a
Seller, C&C Seller or Sanuk Seller (as applicable) to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with or
satisfied by such Seller, C&C Seller or Sanuk Seller, as applicable, under this
Agreement or any of the Ancillary Agreements; or (iii) any change or event
(A) having, or which insofar as reasonably can be foreseen would have, a
Material Adverse Effect on any Seller, any of the Purchased Assets or the
Business, or (B) which has resulted, or which insofar as can reasonably be
foreseen would result, in any of the conditions set forth in Article VI not
being satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of a Seller, C&C Seller or
Sanuk Seller or the conditions to the obligations of a Seller, C&C Seller or
Sanuk Seller under this Agreement or under any of the Ancillary Agreements.

 

(i)            HSR Filing.  As promptly as practicable after the date of this
Agreement, the Sellers will, in cooperation with Purchaser, complete and file
with the appropriate Governmental and Regulatory Authority the pre-merger
notification forms and any other documents required under the HSR Act; provided,
however, that Purchaser shall pay all filing fees due from the parties in
connection with compliance with the HSR Act.

 

(j)            Audited Financial Statements.  The Sellers, Sanuk Sellers and the
C&C Sellers will use their commercially reasonable efforts to cause the Audited
Financial Statements of the Sellers to be completed as promptly as practicable.

 

(k)           Reasonable Best Efforts.  Between the date of this Agreement and
the Closing, each of the Sellers, Sanuk Sellers and C&C Sellers shall use their
reasonable best efforts to cause the conditions in Section 6.2 and Section 6.3
to be satisfied as promptly as practicable.

 

(l)            No Solicitation.  From and after the date of this Agreement and
until the earlier of the Closing or the termination of this Agreement, none of
the Sellers, the C&C Sellers

 

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and the Sanuk Sellers, shall (nor shall they permit any of their respective
Affiliates or representatives to) directly or indirectly take any of the
following actions with any Person other than Purchaser or its designees:
(i) solicit, initiate or encourage any proposals or offers from, or engage in
negotiations with, any Person relating to any possible Acquisition Proposal with
any of the Sellers; (ii) provide information with respect to the Sellers to any
Person, other than Purchaser, relating to, or otherwise cooperate with,
facilitate or encourage any effort or attempt by any such Person with regard to,
any possible Acquisition Proposal; (iii) enter into a contract or agreement
(whether oral or written) with any Person, other than Purchaser, providing for
an Acquisition Proposal with any Seller; or (iv) make or authorize any
statement, recommendation or solicitation in support of any possible Acquisition
Proposal with the Seller other than by the Purchaser.  Each of the Sellers, the
C&C Sellers and the Sanuk Sellers shall, and shall cause their Affiliates and
representatives to, immediately cease and cause to terminate any such contacts
or negotiations with any Person relating to any Acquisition Proposal.  Each of
the parties acknowledge that this Section 7.1(l) was a significant inducement
for Parent and Purchaser to enter into this Agreement and the absence of such
provision would have resulted in a failure to induce Parent and Purchaser to
enter into this Agreement.

 

7.2           Covenants of Purchaser.

 

(a)           Further Assurances.  If from time to time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, the Purchaser shall, and shall cause it and its affiliates to,
execute and deliver such additional instruments, documents, conveyances or
assurances and take such other actions as reasonably requested by any Seller to
confirm and assure the rights and obligations provided for in this Agreement and
in the Ancillary Agreements and render effective the consummation of the
transactions contemplated hereby.

 

(b)           Books and Records; Cooperation.  From and after the date of this
Agreement (unless this Agreement is terminated) and following the Closing,
Purchaser agrees that it will cooperate with and make available to any Seller,
the C&C Sellers or the Sanuk Sellers, all Books and Records, information and
employees (without substantial disruption of employment) that may be necessary
or useful to such Seller in connection with any tax inquiry, audit,
investigation or dispute, any litigation or investigation, any computation of a
Participation Statement or any other matter for any reasonable business
purpose.  Any Seller and any proper representative(s) it designates in writing
to Purchaser shall have the right to inspect, make extracts from and copy, all
at such Seller’s sole expense, such Books and Records, including but not limited
to financial statements and work papers related to the Participation Income
Statement and the Participation Payment Computation Statement.  Purchaser
shall:  (i) provide any Seller with such assistance as may reasonably be
requested by such Seller in connection with the preparation of any return,
audit, or other examination by any taxing authority or judicial or
administrative proceedings relating to Liabilities for Taxes; (ii) retain and
provide such Seller with any records or other information that may be relevant
to such return, audit or examination, proceeding or determination; and
(iii) provide any Seller with any final determination of any such audit or
examination, proceeding, or determination that affects any amount required to be
shown on any tax return of a Seller for any period.  Without limiting the
generality of the foregoing, Purchaser shall each retain, until the applicable
statutes of limitations (including any extensions) have expired, copies of all
tax returns, supporting work schedules, and other records

 

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or information that may be relevant to such returns for all tax periods or
portions thereof ending on or before the Closing Date and shall not destroy or
otherwise dispose of any such records without first providing the Sellers with a
reasonable opportunity to review and copy.

 

(c)           Employee Matters.  Subject to the condition that the Closing
occurs, Purchaser shall offer to employ, immediately following the Closing Date,
each of the employees of each Seller (including those employees, if any, on sick
leave or short-term leave of absence as of the Closing) on terms and with
employee benefits that are no less favorable to such employee than such employee
currently enjoys as an employee of a Seller.  Each offer of employment shall be
made on or prior to the Closing Date for employment beginning the next business
day after the Closing.  Effective upon, and subject to, the Closing, each Seller
shall terminate the employment of each employee of such Seller.  The employment
of each employee of Sellers who accepts Purchaser’s offer of employment (each, a
“Continuing Employee”) will be on an “at will” basis and will be on terms and
conditions including benefits comparable to those set forth on Section 3.8 of
the Disclosure Schedule (with respect to C&C) and Section 4.8 of the Disclosure
Schedule (with respect to Sanuk) for such Continuing Employee, other than Clark,
Carr, Kelley and Kessler, who will be offered employment contracts. With respect
to employee Plans and other fringe benefits provided by the Purchaser to
Continuing Employees after the Closing:  (i) the Purchaser shall provide that
service with a Seller will be credited as service for purposes of the
Purchaser’s Plans, policies, programs, agreements and arrangements, and will be
recognized for purposes of participation, eligibility and vesting under the
Purchaser’s Plans, policies, programs, agreements and arrangements; and (ii) the
Purchaser will, subject to the coverage restrictions of the Purchaser’s benefit
providers, cause its benefit providers to waive all waiting periods and
pre-existing condition requirements for any Continuing Employee under the
Purchaser’s Plans for any co-payments or deductibles actually paid by such
employees under the Sellers’ plans during the calendar year in which the Closing
occurs.  C&C shall terminate the employment contract with Kelley effective at or
prior to the Closing.  Purchaser does not assume, and each Seller shall be fully
responsible for the payment of, any severance or other benefits related to or
payable upon the termination of any of such Seller’s employees including,
without limitation, any Continuing Employee who fails to accept Purchaser’s
employment offer.  Each Seller shall cooperate with Purchaser’s efforts to
employ and retain the employees of such Seller.  Each Seller shall be
responsible for compliance with all laws related to the termination by a Seller
of such Seller’s employees.  Each Seller shall give any notices required by Law
and take whatever other actions with respect to such Seller’s Benefit Plans as
may be necessary to carry out the terms and conditions of this Section 7.2(c).

 

(d)           Collection of Accounts Receivable.  Except as otherwise provided
for in this Agreement, at the Closing, Purchaser will acquire hereunder, and
thereafter Purchaser or its designee shall have the right and authority to
collect for Purchaser’s or its designee’s account, all receivables, letters of
credit and other items which constitute a part of the Purchased Assets, and each
Seller shall within five business days after receipt of any payment in respect
of any of the foregoing, properly endorse and deliver to Purchaser any letters
of credit, documents, cash or checks received on account of or otherwise
relating to any such receivables, letters of credit or other items.  Each Seller
shall promptly transfer or deliver to Purchaser or its designee any cash or
other property that such Seller may receive in respect of any deposit, prepaid
expense, claim, contract, license, lease, commitment, sales order, purchase
order, letter of credit or receivable of any character, or any other item,
constituting a part of the Purchased Assets.

 

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(e)           HSR Filing.  As promptly as practicable after the date of this
Agreement, the Purchaser will, in cooperation with each Seller, complete and
file with the appropriate Governmental and Regulatory Authority the pre-merger
notification forms and any other documents required under the HSR Act. 
Purchaser shall pay all filing fees due from the parties in connection with
compliance with the HSR Act.

 

(f)            Reasonable Best Efforts.  Between the date of this Agreement and
the Closing, each of Parent and Purchaser shall use their reasonable best
efforts to cause the conditions in Section 6.1 and Section 6.3 to be satisfied
as promptly as practicable.

 

(g)           Participation Payments.  Each of Parent and Purchaser hereby
covenants and agrees to use commercially reasonable efforts with respect to the
operation of the Business following the Closing, including but not limited to
decisions relating to issues arising, if any, with respect to the presence, if
any, in any of the Sellers’ products of any substance identified in Schedule 7.3
of this Agreement, and agrees not to act in bad faith with respect to attaining
any Gross Profit Dollars for the purpose of reducing the potential Participation
Payments as contemplated by this Agreement.  From and after the Closing Date,
Purchaser shall maintain a financial reporting system that will be sufficient to
permit it to determine the EBITDA and Gross Profit of the consolidated Business,
the Participation Payment Income Statement and, consequently, the amount of
Participation Payments payable, if any, pursuant to Section 2.5.

 

(h)           Email Addresses.  The Purchaser agrees that Clark, Carr, Kelley
and Kessler shall retain any and all interests and rights to their respective
email addresses dacc@cctraders.com, dac.clark@cctraders.com,
paulc@cctraders.com, paul.carr@cctraders.com, jeff@sanuk.com, and ian@sanuk.com,
so long as such persons are employed or engaged as an employee or service
provider of Purchaser or its Affiliates.

 

(i)            Most Favored Status; Friends and Family.  After the Closing,
Purchaser shall provide each of the C&C Sellers, the Sanuk Sellers and Daniel P.
Murphy (“collectively, the “F&F Beneficiaries”) with the right and ability to
order Purchaser’s products on a “most favored” basis, “friends and family”
status, or other similar program.  Specifically, for the five (5) year period
following the Closing, Purchaser shall make available to each F&F Beneficiary
the right to order up to Two Thousand Dollars ($2,000) per year in Purchaser
products at the wholesale cost of such products.  Such products shall not be for
purposes of commercial distribution.

 

7.3           Restricted Substances Policy.  Sellers acknowledge and understand
that Purchaser has a restricted substances policy that Purchaser previously has
made available to the Sellers (the “Purchaser Restricted Substances Policy”). 
Prior to the Closing, the Sellers shall obtain reports from its factories
responsible for at least 80% of its production regarding such factories’ use,
with respect to materials sourced directly by such factories and currently used
in the manufacture of Sellers’ products, of any substances that are listed in
Purchaser Restricted Substances Policy.  Sellers, together with Purchaser, shall
set forth in Schedule 7.3 substances found, if any, that Sellers and Purchaser
agree are not in compliance with the Purchaser Restricted Substances Policy.  In
the event that any substances are set forth in Schedule 7.3, then Purchaser
shall have the right to reduce the Participation Payments owed to the Sellers at
the end of the 2011 Participation Period and the 2012 Participation Period as
follows:

 

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(a)           2011 Participation Payment.  The 2011 Participation Payment shall
be reduced by an amount equal to the reduction of 2011 Gross Profit Dollars
caused by Lost Sales; provided, however, that:  (i) there shall be no reduction
if the 2011 Gross Profit Dollars equals or exceeds $36,700,000 (the “2011 Gross
Profit Dollar Base”); and (ii) the amount of any such reduction shall in no
event exceed an amount equal to the 2011 Gross Profit Dollar Base less the
amount of the 2011 Gross Profit Dollars.

 

By way of example only and assuming that the 2011 EBITDA exceeds $15,500,000
which would provide for a 2011 Participation Payment of the $30,000,000 maximum:

 

(i)            If the 2011 Gross Profit Dollars are $35,000,000 and there is a
$1,700,000 reduction of 2011 Gross Profit Dollars caused by Lost Sales, then the
2011 Participation Payment shall be reduced by $1,700,000, from $30,000,000 to
$28,300,000.

 

(ii)           If the 2011 Gross Profit Dollars are $35,000,000 and there is a
$500,000 reduction of 2011 Gross Profit Dollars caused by Lost Sales, then the
2011 Participation Payment shall be reduced by $500,000, from $30,000,000 to
$29,500,000.

 

(iii)          If the 2011 Gross Profit Dollars are $35,000,000 and there is a
$2,000,000 reduction of 2011 Gross Profit Dollars caused by Lost Sales, then the
2011 Participation Payment shall be reduced by $1,700,000, from $30,000,000 to
$28,300,000.

 

(iv)          If the 2011 Profit Dollars are $36,800,000 and there is a
$2,000,000 reduction of 2011 Gross Profit Dollars caused by Lost Sales, then
there would be no reduction to the 2011 Participation Payment which would remain
at $30,000,000.

 

(b)           2012 Participation Payment.  Purchaser shall have the right to
reduce the 2012 Participation Payment by an amount equal to the reduction of
2012 Gross Profit Dollars caused by Lost Sales; provided, however, that: 
(i) there shall be no reduction if the 2012 Gross Profit Dollars equals or
exceeds $46,900,000 (the “2012 Gross Profit Dollar Base”); and (ii) the amount
of any such reduction shall in no event exceed an amount equal to the 2012 Gross
Profit Dollar Base less the amount of the 2012 Gross Profit Dollars.  In
addition, to the extent that the 2011 Participation Payment was reduced pursuant
to Section 7.3(a) above, and the 2012 Gross Profit Dollars exceed the 2012 Gross
Profit Dollar Base, then Sellers shall have the right to receive back an amount
of the reduction to the 2011 Participation Payment up to a maximum of the
difference between (i) the 2012 Gross Profit Dollars, minus (ii) the 2012 Gross
Profit Dollar Base.

 

By way of example only:

 

(i)            If the 2012 Gross Profit Dollars are $46,000,000 and there is a
$1,700,000 reduction of 2012 Gross Profit Dollars caused by Lost Sales, then the
2012 Participation Payment shall be reduced by $900,000, from $23,828,000 to
$22,928,000.

 

(ii)           If the 2012 Gross Profit Dollars are $50,000,000 and there is a
$3,000,000 reduction of 2012 Gross Profit Dollars caused by Lost Sales, then
there would be no reduction of the 2012 Participation Payment and the 2012
Participation Payment would remain at

 

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$25,900,000.  In addition, to the extent that there was a reduction of the 2011
Participation Payment in the amount of $500,000 based upon the example set forth
in clause (ii) of Section 7.3(a) above, then Sellers would have the right to
receive back the entire $500,000.

 

(iii)          If the 2012 Gross Profit Dollars are $40,000,000 and there is a
$5,000,000 reduction of 2012 Gross Profit Dollars caused by Lost Sales, the 2012
Participation Payment shall be reduced by $5,000,000, from $20,720,000 to
$15,720,000.

 

(c)           Definition of Lost Sales.  Notwithstanding anything else to the
contrary in this Section 7.3, no sale is “lost” and no account shall have a
“lost sale” unless and until an account: (i) failed to meet or exceed Sellers’
2011 or 2012 (as the case may be) financial projections for such account; and
(ii) canceled, failed to place a fill in order for, or failed to re-order
product as a result of Sellers use, if any, of any substance that may be set
forth in Schedule 7.3.  In such event, “Lost Sales” shall mean, with respect to
the Business:

 

(i)            for 2011, orders for products that are canceled and any 2011
fill-in orders that based on the Sellers’ financial projections for such product
are not placed, in both cases as a result of Sellers’ use, if any, of any
substance that may be set forth in Schedule 7.3 (collectively, “Canceled
Orders”), which Canceled Orders are not replaced by another product, or if
replaced by another product then the deficit, if any, between the Canceled Order
and the replacement order; provided, in no event shall the Lost Sales amount
exceed the difference between 2011 actual total sales for such account and
Sellers’ 2011 projected sales for such account; and

 

(ii)           for 2012, orders for products that are not placed in 2012 as a
result of Sellers’ use, if any, of any substance that may be set forth in
Schedule 7.3 (“2012 Non-Placed Order(s)”), that are not replaced by another
product, or if replaced by another product then the deficit, if any, between the
2012 Non-Placed Order and the replacement order.  For purposes of this
provision, the amount of the 2012 Non-Placed Orders shall be calculated by
multiplying the combined amount of the 2011 placed and Canceled Orders times the
Seller’s projected growth rate for the account from 2011 to 2012.  In no event
shall the Lost Sales amount exceed the difference between 2012 actual total
sales for such account and Sellers’ 2012 projected sales for such account.

 

7.4           Sanuk Lease Payments.  Purchaser shall reimburse Sanuk for the
amount of its lease payment and related expenses in the amount set forth in
Section 4.9 of the Disclosure Schedule (the “Lease Payment”) with respect to the
condominium in which its offices are located as set forth in Section 4.9 of the
Disclosure Schedule.  Purchaser shall reimburse Sanuk for the amount of such
Lease Payment for a period of 18 months following the Closing Date, and for such
length of time (if any) that Purchaser may elect to extend the Sublease
Agreement.  The Lease Payment by Purchaser to Sanuk shall be due and payable on
the first day of each calendar month.

 

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ARTICLE VIII
SURVIVAL; INDEMNIFICATION

 

8.1           Survival of Representations, Warranties, Etc.  The representations
and warranties contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing hereunder for a period
of one (1) calendar year after the Closing Date; provided, however, that: 
(i) the representations and warranties in each of Section 3.8 and Section 4.8
(Benefit Plans; ERISA), Section 3.15 and Section 4.15 (Tax Matters),
Section 3.19, Section 4.19 and Section 5.6 (Brokers) shall continue to survive
after the Closing Date for a period equal to the applicable statute of
limitations; and (ii) the representations and warranties in each of Section 3.1
and Section 4.1 (Organization of Sellers), Section 3.2 and Section 4.2
(Authorization and Enforceability), and Section 3.7(a) and
Section 4.7(a) (Purchased Assets), Section 5.1 (Organization of Purchaser), and
Section 5.2 (Authorization and Enforceability) shall survive indefinitely.

 

8.2           Indemnification.

 

(a)           By C&C and the C&C Sellers.  C&C and the C&C Sellers jointly and
severally, shall indemnify, defend and hold harmless Purchaser, Parent and their
respective officers, directors, employees, agents, Affiliates, successors and
assigns (collectively, the “Purchaser Group”) from and against any and all
costs, losses, Liabilities, damages, lawsuits, deficiencies, claims, settlements
and expenses (including reasonable attorneys’ fees, other professionals’ and
experts’ reasonable fees and court or arbitration costs), whether or not arising
out of any claims by or on behalf of a third party (collectively, the
“Damages”), incurred arising out of or as a result of:

 

(i)            any breach of or inaccuracy in any of the representations or
warranties of C&C or the C&C Sellers contained in this Agreement or in any
certificate delivered by or on behalf of C&C or the C&C Sellers pursuant to this
Agreement, as of the Closing Date (except for representations and warranties
that expressly relate to a specified date, the inaccuracy in or breach of which
will be determined with reference to such specified date);

 

(ii)           any breach or non-fulfillment of any covenant, agreement or
obligation to be performed by C&C or the C&C Sellers pursuant to this Agreement
or any certificate delivered by or on behalf of C&C or the C&C Sellers pursuant
to this Agreement;

 

(iii)          any Excluded Asset of C&C or Excluded Liability of C&C; and

 

(iv)          any and all Taxes imposed on the Purchaser, and resulting from
(A) C&C’s use, ownership or operation of the C&C Business or any of the C&C
Purchased Assets, in each case prior to the Closing, or (B) C&C’s failure to
file the Tax Returns required to be filed or to pay any Taxes required to be
paid by C&C in accordance with this Agreement.

 

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(b)           By Sanuk and the Sanuk Sellers.  Sanuk and the Sanuk Sellers
jointly and severally, shall indemnify, defend and hold harmless the Purchaser
Group from and against any and all Damages incurred arising out of or as a
result of:

 

(i)            any breach of or inaccuracy in any of the representations or
warranties of Sanuk or the Sanuk Sellers contained in this Agreement or in any
certificate delivered by or on behalf of Sanuk or the Sanuk Sellers pursuant to
this Agreement, as of the Closing Date (except for representations and
warranties that expressly relate to a specified date, the inaccuracy in or
breach of which will be determined with reference to such specified date);

 

(ii)           any breach or non-fulfillment of any covenant, agreement or
obligation to be performed by Sanuk or the Sanuk Sellers pursuant to this
Agreement or any certificate delivered by or on behalf of Sanuk or the Sanuk
Sellers pursuant to this Agreement;

 

(iii)          any Excluded Asset of Sanuk or Excluded Liability of Sanuk; and

 

(iv)          any and all Taxes imposed on the Purchaser, and  resulting from
(A) Sanuk’s use, ownership or operation of the Sanuk Business or any of the
Sanuk Purchased Assets, in each case prior to the Closing, or (B) Sanuk’s
failure to file the Tax Returns required to be filed or to pay any Taxes
required to be paid by Sanuk in accordance with this Agreement.

 

(c)           By Purchaser.  Purchaser shall indemnify, reimburse, defend and
hold harmless each of C&C, the C&C Sellers, Sanuk, the Sanuk Sellers, and their
respective officers, employees, agents, successors and assigns (collectively,
the “Seller Group”) from and against any and all Damages incurred arising out of
or as a result of:

 

(i)            any breach of or inaccuracy in any of the representations or
warranties of Purchaser or Parent contained in this Agreement or in any
certificate delivered by or on behalf of Purchaser or Parent pursuant to this
Agreement, as of the Closing Date (except for representations and warranties
that expressly relate to a specified date, the inaccuracy in or breach of which
will be determined with reference to such specified date);

 

(ii)           any breach or non-fulfillment of any covenant, agreement or
obligation to be performed by the Purchaser or Parent pursuant to this Agreement
or any certificate delivered by or on behalf of the Purchaser or Parent pursuant
to this Agreement;

 

(iii)          any Purchased Asset or Assumed Liability; and

 

(iv)          any and all taxes imposed on any of the Seller Group, and
resulting from (A) Purchaser’s use, ownership or operation of the Business or
any of the Purchased Assets, in each case after the Closing, or (B) the
Purchaser’s or Parent’s failure to file the tax returns required to be filed or
to pay any taxes required to be paid by Purchaser or Parent in accordance with
this Agreement.

 

(d)           Defense of Claims.  If any Action or Proceeding is filed,
initiated, or threatened against any party entitled to the benefit of indemnity
hereunder, written notice thereof shall be given to the indemnifying party as
promptly as practicable (and in any event within ten (10) days after the service
of the citation or summons); provided, however, that the failure of any

 

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indemnified party to give timely notice shall not affect rights to
indemnification hereunder except to the extent that the indemnifying party
demonstrates actual damage or prejudice caused by such failure.  If the
indemnifying party elects to control the defense of such claim, the indemnifying
party shall do so diligently and shall select counsel reasonably satisfactory to
the indemnified party, at the sole cost and expense of the indemnifying party;
provided, however, that the indemnified party may, at its own cost, participate
in the investigation, trial and defense of such Action or Proceeding and any
appeal arising therefrom.  The indemnifying party shall not consent to the entry
of any judgment or enter into any settlement (except with the written consent of
the indemnified party, which shall not be withheld unreasonably) that does not
include a complete and absolute release of the indemnified party.  The
indemnified party shall cooperate in all reasonable respects with the
indemnifying party and such attorneys in the investigation, trial and defense of
such Action or Proceeding and any appeal arising therefrom.

 

(e)           Other Claims.  A claim for indemnification for any matter not
involving a third-party claim may be asserted by notice to the party from whom
indemnification is sought.

 

(f)            Limitations on C&C and C&C Sellers Indemnification Obligation. 
Notwithstanding anything in this Agreement to the contrary, the aggregate
liability of C&C and the C&C Sellers for indemnification under this Agreement
shall not exceed twenty-five percent (25%) of the C&C Closing Day Cash Payment
(the “C&C Indemnification Cap”); provided, however, that the C&C Indemnification
Cap shall not apply to the extent that Damages are the result of fraud by C&C or
the C&C Sellers, in which case Damages shall not exceed the C&C Closing Day Cash
Payment.  C&C and the C&C Sellers shall have no obligation to indemnify any of
the Purchaser Group that otherwise would be entitled to indemnification under
Section 8.2(a) unless and until the Purchaser Group has incurred, in the
aggregate, Damages totaling more than Three Hundred Fifty Thousand Dollars
($350,000.00) (the “Deductible”), and in the event such Deductible is exceeded,
then C&C and the C&C Sellers shall be liable to indemnify the Purchaser Group
for Damages from the first dollar and up to a maximum of the C&C Indemnification
Cap.

 

(g)           Limitations on Sanuk and Sanuk Sellers Indemnification
Obligation.  Notwithstanding anything in this Agreement to the contrary, the
aggregate liability of Sanuk and the Sanuk Sellers for indemnification under
this Agreement shall not exceed twenty-five percent (25%) of the Sanuk Closing
Day Cash Payment (the “Sanuk Indemnification Cap”); provided, however, that the
Sanuk Indemnification Cap shall not apply to the extent that Damages are the
result of fraud by Sanuk or the Sanuk Sellers, in which case Damages shall not
exceed the Sanuk Closing Day Cash Payment.  Sanuk and the Sanuk Sellers shall
have no obligation to indemnify any of the Purchaser Group that otherwise would
be entitled to indemnification under Section 8.2(b) unless and until the
Purchaser Group has incurred, in the aggregate, Damages totaling more than the
Deductible, and in the event such Deductible is exceeded, then Sanuk and the
Sanuk Sellers shall be liable to indemnify the Purchaser Group for Damages from
the first dollar and up to a maximum of the Sanuk Indemnification Cap.

 

(h)           Limitation on Indemnification Covered by Insurance, Taxes;
Mitigation.  Any payment made by an indemnifying party pursuant to this
Article VIII in respect of any claim will be adjusted for any insurance proceeds
or tax benefit actually received by the indemnified party in respect of such
claim.  Purchaser shall use reasonable efforts to take

 

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advantage of such tax benefit, and shall seek recovery under any insurance
policies of Purchaser and any affiliate or subsidiary as such insurance policies
are in existence on the Closing Date (including any renewals or replacements
thereof) for any claim to the same extent as it would if such claim were not
subject to indemnification hereunder.  Purchaser shall take all reasonable steps
to mitigate damages in respect of any claim for which it is seeking
indemnification and shall use reasonable efforts to avoid any costs or expenses
associated with such claim and, if such costs and expenses cannot be avoided, to
minimize the amount thereof.

 

(i)            No Holdback or Set Off.  The Purchaser Group shall be held
harmless and indemnified pursuant to Section 8.2 above:  (i) first, from the C&C
Escrow Amount and/or the Sanuk Escrow Amount, as the case may be, in accordance
with the terms of the Escrow Agreements; and (ii) second, provided that the
Purchaser Group has obtained a final and binding decision from an arbitrator
pursuant to Section 9.12 of this Agreement and the time period for filing a
motion under California Civil Procedure Section 1285 et seq. has elapsed or a
decision on a motion brought pursuant to California Civil Procedure Section 1285
et seq. has been decided by the trial court, out of the Purchase Price
previously paid or Participation Payments to be paid by the Purchaser pursuant
to Article II of this Agreement.  Except as otherwise set forth above, Purchaser
may not withhold or set off against any amounts that are due and payable to any
of C&C, the C&C Sellers, Sanuk or the Sanuk Sellers under this Agreement or
under any of the Ancillary Agreements (except pursuant to the terms of the
Escrow Agreement) or otherwise, any claims or Damages that the Purchaser Group
may be entitled to indemnification under Section 8.2(a) or Section 8.2(b) of
this Agreement.

 

(j)            Time Limitation.  All claims for indemnification under
Section 8.2(a)(i), Section 8.2(b)(i) and Section 8.2(c)(i) must be asserted
before 5:00 pm California time on the day prior to the expiration of the
survival period for the applicable representation and warranty.  Notwithstanding
the foregoing, if prior to 5:00 pm California time on the last day a claim must
be asserted hereunder, an indemnifying party shall have been properly notified
and such claim shall not have been finally resolved or disposed of by such date,
such claim shall continue to survive and shall remain a basis for indemnity
hereunder until such claim is finally resolved or disposed of in accordance with
the terms hereof.

 

ARTICLE IX
MISCELLANEOUS

 

9.1           Termination.  This Agreement may be terminated at any time before
the Closing:

 

(a)           by the mutual written consent of each of the parties hereto;

 

(b)           by either Purchaser or the Sellers, by written notice to the
other, if all conditions to such party’s obligations to consummate the
transactions contemplated by this Agreement have not been satisfied or waived,
and the Closing has not occurred prior to the close of business on or before
August 31, 2011 (the “Outside Date”); provided, however, that the right to
terminate this Agreement under this Section 9.1(b) shall not be available to any
party whose failure to fulfill any of its obligations hereunder will have been a
principal cause of, or will have resulted in, the failure of the Closing to
occur on or before the Termination Date;

 

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(c)           by any of the Sellers (but only so long as neither such Seller nor
such Seller’s equity holders is in material breach of its obligations under this
Agreement), if there has been a material breach by Parent or Purchaser of any
representation, warranty, covenant or agreement contained herein on the part of
Parent or Purchaser, such that one or more conditions to Closing set forth in
Section 6.1 or Section 6.3 are not capable or being fulfilled as of the Outside
Date; or

 

(d)           by Purchaser (but only so long as neither Parent nor Purchaser is
in material breach of its obligations under this Agreement), if there has been a
material breach by any of the Sellers, the C&C Sellers or the Sanuk Sellers of
any representation, warranty, covenant or agreement contained herein on the part
of the Sellers, the C&C Sellers or the Sanuk Sellers, such that one or more
conditions to Closing set forth in Section 6.2 or Section 6.3 are not capable or
being fulfilled as of the Outside Date.

 

9.2           Effect of Termination.  Each party’s right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies.  If this Agreement is terminated pursuant to Section 9.1, all
further obligations of the parties under this Agreement will terminate, except
that:  (i) the rights and obligations in this Article IX shall survive any
termination; and (ii) the Confidentiality and Non-Disclosure Agreement between
the parties dated September 22, 2010, shall survive any termination.  In
addition, if this Agreement is terminated by a party because one or more
conditions to the terminating party’s obligations under this Agreement is not
satisfied as a result of the other party’s failure to comply with its
obligations under this Agreement, the terminating party’s right to pursue all
legal remedies will survive such termination unimpaired.

 

9.3           Notices.  All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission with answer back
confirmation or mailed (postage prepaid by certified or registered mail, return
receipt requested) or by overnight courier to the parties at the following
addresses or facsimile numbers:

 

If to C&C, to:

 

C&C Partners, Ltd.
64 Fairbanks
Irvine, CA  92618
Facsimile No:  (949) 707-2396
Attention:  Donald Clark

 

If to the C&C Sellers, to:

 

Donald Clark
64 Fairbanks
Irvine, CA  92618
Facsimile No:  (949) 707-2396

 

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with copies to:

 

Daniel P. Murphy
4691 Torrey Circle, A306
San Diego, CA  92130
Email:  dmurphy245@yahoo.com

 

If to Sanuk, to:

 

Sanuk USA, LLC
2140 Orinda Drive, Unit M

Cardiff, CA 92007

Facsimile No:  (760) 230-2076
Attention:  Ian Kessler

 

If to the Sanuk Sellers, to:

 

Ian Kessler
2140 Orinda Drive, Unit M
Cardiff, CA 92007
Facsimile No: (760) 230-2076

 

with copies to:

 

Daniel P. Murphy
4691 Torrey Circle, A306
San Diego, CA  92130
Email:  dmurphy245@yahoo.com

 

If to Purchaser, to:

 

Deckers Acquisition, Inc.
c/o Deckers Outdoor Corporation
495-A South Fairview Avenue
Goleta, California  93117
Facsimile No.:  (805) 967-9722
Attention:  General Counsel

 

with copies to:

 

Stradling Yocca Carlson & Rauth
800 Anacapa Street, Suite A
Santa Barbara, CA  93101
Facsimile No.:  (805) 730-6801
Attention:  David E. Lafitte, Esq.

 

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All such notices, requests and other communications will:  (i) if delivered
personally to the physical address as provided in this Section 9.3, be deemed
given upon delivery; (ii) if delivered by facsimile transmission to the
facsimile number as provided in this Section 9.3, be deemed given upon receipt;
and (iii) if delivered by mail in the manner described above to the address as
provided in this Section 9.3, be deemed given upon receipt (in each case
regardless of whether such notice, request or other communication is received by
any other Person to whom a copy of such notice, request or other communication
is to be delivered pursuant to this Section).  Any party from time to time may
change its address, facsimile number or other information for the purpose of
notices to that party by giving notice specifying such change to the other
parties hereto.

 

9.4           Entire Agreement.  This Agreement (and all Exhibits and Schedules
attached hereto) and the Confidentiality and Non-Disclosure Agreement between
the parties dated September 22, 2010 supersedes all prior discussions and
agreements among the parties with respect to the subject matter hereof and
contains the sole and entire agreement among the parties hereto with respect
thereto.

 

9.5           Waiver.  Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition.  No waiver by any
party hereto of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion.  All remedies,
either under this Agreement or by law or otherwise afforded, will be cumulative
and not alternative.

 

9.6           Amendment.  This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.

 

9.7           No Third Party Beneficiary.  The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Section 8.2.

 

9.8           No Assignment; Binding Effect.  Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other parties hereto and any attempt to
do so will be void, except that any party’s rights to indemnification under
Article VIII may be freely assigned.  This Agreement is binding upon, inures to
the benefit of and is enforceable by the parties hereto and their respective
successors and assigns.

 

9.9           Headings.  The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the provisions
hereof.

 

9.10         Severability.  If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby:  (i) such provision will be fully
severable; (ii) this Agreement will be construed and enforced as if such
illegal,

 

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invalid or unenforceable provision had never comprised a part hereof; (iii) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom; and (iv) in lieu of such illegal, invalid or
unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and mutually
acceptable to the parties herein.

 

9.11         Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
executed and performed in such State, without giving effect to conflicts of laws
principles.

 

9.12         Arbitration and Venue.  Any controversy or claim arising out of or
relating to this Agreement or the making, performance or interpretation thereof
(except for disputes regarding the determination of Closing Working Capital,
which shall be decided as provided in Section 2.11) shall be submitted to
arbitration in San Diego County, California, pursuant to the commercial
arbitration rules and procedures of the American Arbitration Association before
a panel of three arbitrators, unless the parties are able to agree on the
selection of a single arbitrator.  In the absence of such agreement within ten
(10) days after the initiation of an arbitration proceeding, Sellers shall
select one arbitrator and Purchaser shall select one arbitrator, and those two
arbitrators shall then select, within ten (10) days, a third arbitrator.  If
those two arbitrators are unable to select a third arbitrator within such ten
(10) day period, a third arbitrator shall be appointed by the commercial panel
of the American Arbitration Association.  The decision in writing of at least
two of the three arbitrators shall be final and binding upon the parties.  The
arbitrator(s) decision shall provide a reasoned basis for the resolution of each
dispute and for any award.  The ruling of the arbitrator(s) shall be final, and
judgment thereon may be entered in any court having jurisdiction.  If any
question is submitted to a court of law for resolution, then the Superior Court
of the County of San Diego or the United States District Court having
jurisdiction in the County of San Diego shall be the exclusive court of
competent jurisdiction for the resolution of such question.  Each party will
bear one half of the cost of the arbitration filing and hearing fees, and the
cost of the arbitrator.  Each party will bear its own attorneys’ fees, unless
otherwise decided by the arbitrator.  The parties understand and agree that the
arbitration shall be instead of any civil litigation and that the arbitrator’s
decision shall be final and binding to the fullest extent permitted by law and
enforceable by any court having jurisdiction thereof.  Each party shall be
entitled to pre-hearing discovery as provided in California Code of Civil
Procedure Section 1283.05.

 

9.13         Consent to Jurisdiction and Forum Selection.  The parties hereto
agree that all actions or proceedings arising in connection with this Agreement
shall be initiated and tried exclusively in the State and Federal courts located
in the County of San Diego, State of California.  The aforementioned choice of
venue is intended by the parties to be mandatory and not permissive in nature,
thereby precluding the possibility of litigation between the parties with
respect to or arising out of this Agreement in any jurisdiction other than that
specified in this Section 9.13.  Each party hereby waives any right it may have
to assert the doctrine of forum non conveniens or similar doctrine or to object
to venue with respect to any proceeding brought in accordance with this
paragraph, and stipulates that the State and Federal courts located in the
County of San Diego, State of California shall have in personam jurisdiction and
venue over each of them for the purposes of litigating any dispute, controversy
or proceeding arising out of

 

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or related to this Agreement.  Each party hereby authorizes and accepts service
of process sufficient for personal jurisdiction in any action against it as
contemplated by this Section 9.13 by registered or certified mail, return
receipt requested, postage prepaid, to its address for the giving of notices as
set forth in this Agreement, or in the manner set forth in Section 9.3 of this
Agreement for the giving of notice.  Any final judgment rendered against a party
in any action or proceeding shall be conclusive as to the subject of such final
judgment and may be enforced in other jurisdictions in any manner provided by
law.

 

9.14         Disclosure Schedules.  The disclosures in any section or subsection
of the Disclosure Schedules shall qualify other sections and subsections of the
representations and warranties contained in Article III and Article IV to the
extent it is clear from a reading of the disclosure that such disclosure is
applicable to such other sections and subsections.  Any disclosure in the
Disclosure Schedules also shall be deemed disclosure under any other section of
the Disclosure Schedules that contains an appropriate cross-reference thereto. 
Disclosure of any matter in the Disclosure Schedules shall not constitute an
expression of a view that such matter is material or is required to be disclosed
pursuant to this Agreement.  To the extent that any representation or warranty
set forth in this Agreement is qualified by the materiality of the matter(s) to
which the representation or warranty relates, the inclusion of any matter in the
Disclosure Schedules does not constitute a determination by any of the Sellers
that any such matter is material. The disclosure of any information concerning a
matter in the Disclosure Schedules does not imply that any other, undisclosed
matter that has a greater significance or value is material.

 

9.15         Expenses.  Except as otherwise provided in this Agreement, the C&C
Sellers, the Sanuk Sellers, Purchaser and Parent shall pay their own expenses
and costs incidental to the preparation of this Agreement and the Ancillary
Agreements and to the consummation of the transactions contemplated hereby and
thereby.

 

9.16         Construction.  No provision of this Agreement shall be construed in
favor of or against any party on the ground that such party or its counsel
drafted the provision.  Any remedies provided for herein are not exclusive of
any other lawful remedies that may be available to either party.  This Agreement
shall at all times be construed so as to carry out the purposes stated herein.

 

9.17         Counterparts.  This Agreement may be executed in any number of
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.

 

9.18         Parent Guaranty.  Parent hereby absolutely and unconditionally
guarantees the full and prompt payment and performance of all obligations of the
Purchaser arising under this Agreement.  Parent waives:  (i) any right to
require any of the Sellers, the Sanuk Sellers or the C&C Sellers to proceed
against Purchaser or any other person or entity; and (ii) presentment, demand,
protest and notice of any kind.

 

[SIGNATURE PAGES TO FOLLOW]

 

64

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IN WITNESS WHEREOF, this Asset Purchase Agreement has been duly executed and
delivered by the parties hereto, or their duly authorized officer, as of the
date first above written.

 

 

PARENT:

 

 

 

Deckers Outdoor Corporation,

 

a Delaware corporation

 

 

 

 

 

By:

 

 

 

 

 

Name:

Angel Martinez

 

 

 

 

Title:

President and Chief Executive Officer

 

 

 

Executed at

 

 

[City and State [or] Country]

 

 

 

 

 

PURCHASER:

 

 

 

Deckers Acquisition, Inc.,

 

a Delaware corporation

 

 

 

By:

 

 

 

 

 

Name:

Zohar Ziv

 

 

 

 

Title:

President

 

 

 

Executed at

 

 

[City and State [or] Country]

 

 

 

 

 

DECKERS BERMUDA:

 

 

 

Deckers International Limited,

 

a Bermuda corporation

 

 

 

 

 

By:

 

 

 

 

Name:

Zohar Ziv

 

 

 

Title:

Vice-President

 

 

 

Executed at

 

 

[City and State [or] Country]

 

[Asset Purchase Agreement]

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, this Asset Purchase Agreement has been duly executed and
delivered by the parties hereto, or their duly authorized officer, as of the
date first above written.

 

 

SANUK:

 

 

 

Sanuk USA, LLC,

 

a California Limited Liability Company

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

Executed at

 

 

[City and State [or] Country]

 

 

 

 

 

Thomas J. Kelley

 

 

 

Executed at

 

 

[City and State [or] Country]

 

 

 

 

 

Ian L. Kessler

 

 

 

Executed at

 

 

[City and State [or] Country]

 

 

 

C&C:

 

 

 

C&C Partners, Ltd.,

 

a California corporation

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

Executed at

 

 

[City and State [or] Country]

 

 

 

 

 

Donald A. Clark

 

 

 

Executed at

 

 

[City and State [or] Country]

 

 

 

 

 

Paul Carr

 

 

 

Executed at

 

 

[City and State [or] Country]

 

[Asset Purchase Agreement]

 

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