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Exhibit 10.1
 
 
EXECUTION VERSION
 
 
 
 
 
 
 
STOCK PURCHASE AGREEMENT
 

 
by and between

 

 
STEVEN MADDEN, LTD.

 
and

 
The Sole Shareholder

 
of

 
BIG BUDDHA, INC.
 
 

 
 
Dated as of February 10, 2010
 
 
 

 
 

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TABLE OF CONTENTS
 

    Page       ARTICLE I  Certain Definitions 1       ARTICLE II  Purchase and
Sale 8 
    2.1
Purchase and Sale of Company Shares 8      2.2 Cash Purchase Price. 8      2.3 
Post-Closing Adjustment. 9      2.4  Release of Holdback Amount 11       
ARTICLE III  Closing 12      3.1 Closing Date 12      3.2  Certain Actions at
Closing 12        ARTICLE IV  Representations and Warranties of Seller 13 
    4.1 Organization and Good Standing 13      4.2  Capitalization. 13      4.3 
Authorization. 14      4.4  No Conflicts; Consents 14      4.5  Financial
Statements; Undisclosed Liabilities; Promotions and Allowances; Inventory. 14
    4.6  Taxes. 15      4.7  Real and Personal Property. 16      4.8 
Intellectual Property. 18     4.9  Contracts and Agreements. 20      4.10 
Insurance 22      4.11  Litigation 23      4.12  Condition and Sufficiency of
Assets 23      4.13  Compliance with Law; Licenses; Customs. 23      4.14 
Employees. 24      4.15  Employee Benefit Plans. 27      4.16  Environmental
Matters. 30      4.17  Bank Accounts and Powers of Attorney 31      4.18 
Absence of Certain Changes 31      4.19  Books and Records 33      4.20 
Transactions with Affiliated Persons 33      4.21  Customer and Supplier
Relationships. 34      4.22  Absence of Certain Business Practices 34      4.23 
Brokers and Finders 34      4.24  Restrictions on Business Activities 34 
    4.25  Payables 35      4.26  Receivables 35      4.27  Business Relations
35      4.28  Disclosure 35        ARTICLE IV  Representations and Warranties of
Madden 35      5.1  Organization and Good Standing 35 

 
 
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          5.2  Authorization 36     5.3  No Conflicts; Consents 36     5.4 
Litigation 36     5.5  Brokers and Finders 36     5.6 Investment Intent 36      
ARTICLE VI  Covenants of Seller 36     6.1 Ordinary Course 37     6.2  Conduct
of Business 37     6.3  Certain Filings 39     6.4  Consents and Approvals 40
    6.5  Efforts to Satisfy Conditions 40      6.6  Further Assurances 40 
    6.7  Notification of Certain Matters 40      6.8  Closing Date Debt 40 
    6.9  Brokers and Finders 40        ARTICLE VII  Covenants of Madden 40
    7.1 Certain Filings 41     7.2  Efforts to Satisfy Conditions 41     7.3 
Further Assurances 41     7.4  Notification of Certain Matters 41       ARTICLE
VII  Certain Other Agreements 41      8.1 Certain Tax Matters 41      8.2 
Employee Matters 45       ARTICLE IX  Conditions Precedent to Obligations of
Madden 46     9.1  Representations and Warranties 46      9.2  Compliance with
Covenants 46      9.3  Lack of Adverse Change 46      9.4  Update Certificate 
46      9.5  Balance Sheet 47     9.6  Regulatory Approvals 47      9.7 
Consents of Third Parties 47      9.8  FIRPTA Affidavit 47      9.9  No
Violation of Orders 47      9.10  Employment Agreement 47      9.11  Transaction
Documents 47      9.12  Other Closing Matters 47        ARTICLE X Conditions
Precedent to Obligations of Seller 48     10.1 Representations and Warranties
48      10.2  Compliance with Covenants 48      10.3  Update Certificate 48 
    10.4  Regulatory Approvals 48      10.5  No Violation of Orders 48 
    10.6  Transaction Documents 48     10.7  Other Closing Matters 48 

 
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      ARTICLE XI [Intentionally omitted] 49       ARTICLE XII Indemnification 49
    12.1 Survival of Representations, Warranties and Covenants 49      12.2 
Indemnification by Seller. 49      12.3 
Indemnification by Madden. 
50      12.4  Additional Seller Indemnification. 51      12.5  Assumption of
Defense 52      12.6  Non-Assumption of Defense 52      12.7  Indemnified
Party’s Cooperation as to Proceedings 53      12.8  Calculation of Losses 53 
    12.9  Payments Treated as Purchase Price Adjustment 53      12.10 
Limitation on Indemnification 53        ARTICLE XIII  Miscellaneous 53     13.1 
Expenses 53      13.2  Entirety of Agreement 53      13.3  Notices 54     13.4 
Amendment 54      13.5  Waiver 54      13.6  Counterparts; Facsimile 54 
    13.7  Assignment; Binding Nature; No Beneficiaries 54      13.8  Headings
55      13.9  Governing Law; Jurisdiction 55      13.10 
Construction 
55      13.11  Negotiated Agreement 55      13.12  Public Announcements 55 
    13.13  Remedies Cumulative 55      13.14  Severability 55      14.15  WAIVER
OF JURY TRIAL 56      13.16  Right of Set-Off. 56     13.17  Arbitration 57    
       

 
 
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STOCK PURCHASE AGREEMENT
 
THIS STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of February 10, 2010,
is entered into by and between Steven Madden, Ltd., a Delaware corporation
(“Madden”), on the one hand, and Jeremy Bassan (“Seller”), on the other hand.
 
RECITALS
 
WHEREAS, Seller owns all of the issued and outstanding shares of capital stock
of Big Buddha, Inc., a California corporation (the “Company”); and
 
WHEREAS, Madden desires to acquire all of the issued and outstanding shares of
capital stock of the Company, and Seller desires to sell the same, on the terms
and conditions contained herein and in the Earn-Out Agreement (as defined
below).
 
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
 
ARTICLE I

 
Certain Definitions
 
“338(h)(10) Election” has the meaning set forth in Section 8.1(b)(i).
 
“338(h)(10) Grossed-Up Payment” has the meaning set forth in Section
8.1(b)(iii).
 
“AAA” means the American Arbitration Association.
 
“Additional Working Capital Consideration” has the meaning set forth in Section
2.3(b)(i).
 
“Adjustment Payment Date” means a date which is within three (3) Business Days
after the Final Closing Date Balance Sheet is final, binding and conclusive.
 
“Affiliate Loans” means loans made to Affiliated Persons by the Company.
 
“Affiliated Person” means Seller, any Immediate Family Member of Seller, or any
other Person (other than the Company) that, directly or indirectly, alone or
together with others, controls, is controlled by or is under common control with
the Company, Seller or any Immediate Family Member of Seller.
 
“Agreement” has the meaning set forth in the preamble.
 
“Balance Sheet” means the unaudited balance sheet of the Company as of December
31, 2009.
 
 
 
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“Business Day” means any day that is not a Saturday or Sunday or a legal holiday
on which banks are authorized or required by law to be closed in New York, New
York.
 
“Cash-On-Hand” means all cash or cash equivalents held by the Company.
 
“Cash Purchase Price” has the meaning set forth in Section 2.2(a).
 
“Closing” has the meaning set forth in Section 3.1.
 
“Closing Date” has the meaning set forth in Section 3.1.
 
“Closing Date Balance Sheet” means the balance sheet of the Company as of the
close of business on the Closing Date.
 
“Closing Date Net Working Capital” has the meaning set forth in Section
2.3(a)(i).
 
“Closing Payment” has the meaning set forth in Section 2.2(a).
 
“COBRA” means Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the
Code.
 
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
 
“Company” has the meaning set forth in the recitals.
 
“Company IP Rights” has the meaning set forth in Section 4.8(a).
 
“Company Liens” has the meaning set forth in Section 2.1.
 
“Company Products” means all products sold, designed, marketed, licensed and/or
distributed (whether at wholesale or retail) by the Company.
 
“Company Shares” has the meaning set forth in Section 2.1.
 
“Confidentiality Agreement” means that certain Confidentiality Agreement, dated
June 6, 2009, between the Company and Madden.
 
“Contracts” has the meaning set forth in Section 4.9(a).
 
“Customs Resolution” has the meaning set forth in Section 2.4(c).
 
“Customs Resolution Date” has the meaning set forth in Section 2.4(c).
 
“Debt” means the aggregate amounts of long term and short term debt of the
Company, including, without limitation, any amounts outstanding or owing under
capital leases, notes payable to financial institutions, lines of credit, notes
or dividends payable, other than dividends set forth on Schedule 6.2(iv) of the
Disclosure Schedule, amounts due to Seller, any other notes payable, and any
prepayment penalties or expenses associated with the foregoing.
 
 
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“Delivery Date” has the meaning set forth in Section 2.3(a)(ii).
 
“Disclosure Schedule” means the disclosure schedules of Seller accompanying this
Agreement.
 
“Dispute” has the meaning set forth in Section 13.17.
 
“Dispute Notice” has the meaning set forth in Section 2.3(a)(ii).
 
“Disputing Party” has the meaning set forth in Section 13.17.
 
“Earn-Out Agreement” means the Earn-out Agreement among the Company, Seller and
Madden, which has been executed and delivered prior to or simultaneously with
the execution and delivery of this Agreement and which shall become effective as
of the Closing, attached hereto as Exhibit A.
 
“Earn-Out Payment” has the meaning set forth in Section 2.2(a).
 
“Employee Benefit Plan” has the meaning set forth in Section 4.15(a).
 
“Employment Agreement” means the employment agreement between Madden and Seller,
which has been executed and delivered prior to or simultaneously with the
execution and delivery of this Agreement and which shall become effective as of
the Closing, attached hereto as Exhibit B.
 
“Encumbrance” means any lien, pledge, mortgage, security interest, charge,
restriction, adverse claim or other encumbrance of any kind or nature
whatsoever.
 
“Environment” means soil, surface water, ground water, land, stream sediments,
surface or subsurface strata, ambient air and any environmental medium.
 
“Environmental Claim” means any allegation, notice of violation, action, claim,
Encumbrance, demand, order or direction (conditional or otherwise) by any
Governmental Body or any Person for personal injury (including sickness, disease
or death), property damage, damage to the Environment, nuisance, pollution,
contamination or other adverse effects on the Environment, or for fines,
penalties or restrictions resulting from or based upon (i) the existence, or the
continuation of the existence, of a Release of any Hazardous Material or other
substance, material, pollutant, contaminant, odor, audible noise, or other
Release in, into or onto the Environment; (ii) the transportation, storage,
treatment or disposal of Hazardous Materials; or (iii) the violation, or alleged
violation, of any Environmental Laws, or Licenses of or from any Governmental
Body relating to environmental matters.
 
“Environmental Law” means any Law that governs protection or improvement of
human health or the Environment.
 
“ERISA” has the meaning set forth in Section 4.15(a).
 
“ERISA Affiliate” has the meaning set forth in Section 4.15(a).
 
 
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“Final Allocation” has the meaning set forth in Section 8.1(b)(ii).
 
“Final Closing Date Balance Sheet” has the meaning set forth in Section
2.3(a)(iii).
 
“Final Prepaid Inventory Schedule” has the meaning set forth in Section 2.2(c).
 
“Financial Statements” means the unaudited balance sheets and statements of
earnings, shareholders’ equity and cash flows of the Company as of, and for each
of the fiscal years ended, December 31, 2009, 2008 and 2007, respectively.
 
“GAAP” means U.S. generally accepted accounting principles, as in effect on the
date of this Agreement, consistently applied.
 
“Governmental Body” means any governmental or regulatory body, agency,
authority, commission, department, bureau, court, tribunal, arbitrator or
arbitral body (public or private), or political subdivision, in any
jurisdiction.
 
“Hazardous Materials” means without regard to amount or concentration (a) any
element, compound, gas or chemical that is defined, listed, classified or
regulated as hazardous or toxic under any Environmental Law, including, without
limitation, any material or substance that is defined as a “hazardous waste,”
“hazardous material,” “hazardous substance,” “extremely hazardous waste,”
“restricted hazardous waste,” “subject waste,” “contaminant,” “toxic waste,”
“toxic substance” or similar term under any provision of any Environmental Law;
(b) petroleum, petroleum-based or petroleum-derived products; and (c) any
substance containing polychlorinated biphenyls, asbestos, lead, urea
formaldehyde or radon gas.
 
“Hired Employees” has the meaning set forth in Section 8.2.
 
“Holdback Amount” has the meaning set forth in Section 2.2(a).
 
“Immediate Family Member”, with respect to any Person who is an individual,
means each of such Person’s spouse, children (whether by blood or adoption),
parents and siblings.
 
“Indemnification Obligations” means the respective indemnification obligations
of Seller or Madden under Article XII.
 
“Independent Accounting Firm” means an independent accounting firm mutually
acceptable to Madden and Seller (which accounting firm has not, within the prior
twenty-four (24) months, provided services to Madden, Seller or the Company, or
any affiliate of any of them).  If Madden and Seller are unable to agree upon an
independent accounting firm within thirty (30) days after Seller’s delivery of a
Dispute Notice to Madden, an independent accounting firm selected by Madden
(which accounting firm has not, within the prior twenty-four (24) months,
provided services to Madden or the Company, or any affiliate of either of them)
and an independent accounting firm selected by Seller (which accounting firm has
not, within the prior twenty-four (24) months, provided services to Seller or
the Company, or any affiliate of either of them) shall select an independent
accounting firm (which accounting firm has not, within the
 
 
 
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 prior twenty-four (24) months, provided services to Madden, Seller or the
Company, or any affiliate of any of them) and such independent accounting firm
shall be the Independent Accounting Firm.
 
“Initial Prepaid Inventory Schedule” has the meaning set forth in Section
2.2(c).
 
“Intellectual Property Rights” means all intellectual property rights,
including  trademarks, service marks, internet domain names, slogans, logos,
trade names, and the goodwill associated therewith, patents, copyrights, in both
published and unpublished works, and all registrations and applications for any
of the foregoing, rights of publicity/privacy, franchises, licenses, proprietary
know-how, proprietary trade secrets, proprietary customer lists, proprietary
vendor lists, proprietary information, proprietary processes, proprietary
formulae, proprietary computer programs and applications, proprietary layouts,
proprietary specifications, proprietary designs, proprietary patterns,
proprietary inventions, proprietary development tools and all documentation and
media constituting, describing or relating to the above, including manuals,
memoranda and records wherever created throughout the world.
 
“IRS” means the U.S. Internal Revenue Service.
 
“Knowledge” means, (i) with respect to Seller and the Company, the knowledge,
after reasonable inquiry and at any time, of Seller; and (ii) in the case of
Madden, Edward Rosenfeld and Awadhesh Sinha.
 
“Law” means any law (including common law), statute, code, ordinance, rule,
regulation, permit, order, decree or other legal requirement in any
jurisdiction.
 
“Licenses” has the meaning set forth in Section 4.13(b).
 
“Loss”, in respect of any matter, means any loss, liability, cost, expense,
judgment, settlement or damage arising as a result of such matter, including
reasonable attorneys’, consultants’ and other advisors’ fees and expenses,
reasonable costs of investigating or defending any claim, action, suit or
proceeding or of avoiding the same or the imposition of any judgment or
settlement and reasonable costs of enforcing any Indemnification Obligations.
 
“Madden” has the meaning set forth in the preamble.
 
“Madden Indemnified Parties” has the meaning set forth in Section 12.2(a).
 
“Material Adverse Effect” means any material adverse effect on the business,
operations, assets, condition (financial or otherwise), liabilities, or results
of operations of the Company taken as a whole, other than, in each case, such
effects as may result from changes in (i) general industry conditions, but only
to the extent that the change or effect thereof on the Company is not
disproportionately more adverse than the change or effect thereof on comparable
companies or businesses in the industry in which the Company competes,
(ii) general economic conditions (including prevailing interest rates and
financial market conditions), but only to the extent that the change or effect
thereof on the Company is not disproportionately more adverse than the change or
effect thereof on comparable companies or business in the industry in which
 
 
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the Company competes, (iii) applicable Laws, (iv) applicable accounting
principles, (v) acts of war or terrorism, or (vi) the public announcement of
this Agreement.
 
“Net Working Capital” means (x) the current assets of the Company (including,
without limitation or duplication, Cash-On-Hand, inventory (including Prepaid
Inventory), accounts receivable and prepaid expenses), less customary reserves
such as allowance for uncollectible accounts and slow-moving or obsolete
inventory, minus (y) the current liabilities of the Company (including, without
limitation or duplication, Debt, accounts payable, accrued employee expenses,
taxes payable other than any Taxes attributable in whole or in part to a
338(h)(10) Election or analogous elections, and the Remaining Cash), in each
case, if not otherwise defined herein, as such terms have the meanings assigned
to them by GAAP.
 
“Net Working Capital Target” has the meaning set forth in Section 2.3(b)(i).
 
“Notice of Set-Off Dispute” has the meaning set forth in Section 13.16(b).
 
“Organizational Documents” has the meaning set forth in Section 4.1.
 
“Permitted Encumbrances” has the meaning set forth in Section 4.7(c).
 
“Person” means an individual, partnership, venture, unincorporated association,
organization, syndicate, corporation, limited liability company, or other
entity, trust, trustee, executor, administrator or other legal or personal
representative or any government or any agency or political subdivision thereof.
 
“Post-Closing Working Capital Adjustment” has the meaning set forth in Section
2.3(b).
 
“Pre-Closing Period” means all taxable periods ending on or before the Closing
Date and the portion ending on or before the Closing Date of any taxable period
that includes (but does not begin or end on) the Closing Date.
 
“Prepaid Inventory” has the meaning set forth in Section 2.2(c).
 
“Prepaid Inventory Expenses” has the meaning set forth in Section 2.2(c).
 
“Prime Rate” shall mean the rate of interest of The JPMorgan Chase Bank (or its
successor and assign) announces from time to time as its prime lending rate as
then in effect, or if no such rate is announced by The JPMorgan Chase Bank (or
its successor or assign), the prime lending rate announced by a New York City
money center bank selected by Madden and reasonably acceptable to Seller.
 
“Prior Disclosure” has the meaning set forth in Section 2.4(c).
 
“Purchase Price Accounts” has the meaning set forth in Section 2.2(b).
 
“Real Property” has the meaning set forth in Section 4.7(a).
 
 
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“Real Property Documents” has the meaning set forth in Section 4.7(a).
 
“Real Property Interests” has the meaning set forth in Section 4.7(a).
 
“Release” means any releasing, spilling, leaching, pumping, leaking, pouring,
emitting, emptying, discharging, depositing, injecting, escaping, dumping,
migrating or disposing, whether intentional or otherwise, of any Hazardous
Material into the Environment.
 
“Relocation Payment” has the meaning set forth in Section 8.2.
 
“Remaining Cash” means cash in an amount equal to two hundred and twelve
thousand five hundred and forty-six dollars ($212,546), which shall be left in
the Company following the Closing to fund the payment of certain bonuses and
severance amounts, as set forth on a schedule previously provided by Seller to
Madden.
 
“Returns” means returns, reports, and information statements with respect to
Taxes required to be filed with the IRS or any other Governmental Body, domestic
or foreign, including consolidated, combined and unitary tax returns, and
returns required in connection with any Employee Benefit Plan.
 
“Revised Closing Date Balance Sheet” has the meaning set forth in Section
2.3(a)(ii).
 
“Rules” has the meaning set forth in Section 13.17.
 
“SEC” means the U.S. Securities and Exchange Commission.
 
“Securities Act” means the Securities Act of 1933, as amended.
 
“Seller” has the meaning set forth in the preamble.
 
“Seller Indemnified Parties” has the meaning set forth in Section 12.3(a).
 
“Services Agreement” means the Services Agreement among Seller, the Company and
Madden, which has been executed and delivered prior to or simultaneously with
the execution and delivery of this Agreement and which shall become effective as
of the Closing, attached hereto as Exhibit C.
 
“Set-Off Notice” has the meaning set forth in Section 13.16(b).
 
“Set-Off Review Period” has the meaning set forth in Section 13.16(b).
 
“Straddle Period” has the meaning set forth in Section 8.1(a)(ii).
 
“Tax” or “Taxes” means taxes, fees, levies, duties, tariffs, imposts and
governmental impositions or charges of any kind payable to any Governmental Body
in any jurisdiction, including (i) income, franchise, profits, gross receipts,
ad valorem, net worth, value added, sales, use, service, real or personal
property, special assessments, capital stock, license, payroll, withholding,
employment, estimated, social security, workers’ compensation,
 
 
 
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unemployment compensation, utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains taxes, and (ii)
interest, penalties, additional taxes and additions to tax imposed with respect
thereto.
 
“Total Prepaid Inventory Amount” has the meaning set forth in Section 2.2(c).
 
“Transaction Documents” means this Agreement, the Employment Agreement, the
Earn-Out Agreement and the Services Agreement.
 
“U.S.” means the United States of America.
 
“U.S. Customs” has the meaning set forth in Section 2.4(c).
 
“Working Capital Refund” has the meaning set forth in Section 2.3(b)(ii).
 
“Working Capital Settlement” has the meaning set forth in Section 2.4(a).
 
ARTICLE II

 
Purchase and Sale
 
2.1   Purchase and Sale of Company Shares.  Subject to and upon the terms and
conditions hereinafter set forth, at the Closing, and in reliance upon the
representations and warranties contained in this Agreement or made pursuant
hereto, Seller hereby agrees to sell, assign, transfer and deliver to Madden,
and Madden hereby agrees to purchase from Seller, all of the issued and
outstanding shares of capital stock of the Company as set forth in Section 2.1
of the Disclosure Schedule (collectively the “Company Shares”), free and clear
of all Encumbrances, other than restrictions on transfer under the Securities
Act or other applicable securities laws or the Organizational Documents
(collectively, the “Company Liens”).
 
2.2   Cash Purchase Price.
 
(a)   In consideration of the aforesaid sale, assignment, transfer and delivery
of the Company Shares, Madden shall, (i) at the Closing, pay or cause to be paid
to Seller an amount (the “Closing Payment”), in cash, equal to (A) eleven
million dollars ($11,000,000), plus (B) the Total Prepaid Inventory Amount,
calculated in accordance with Section 2.2(c) below (clauses (A) and (B)
collectively, the “Cash Purchase Price”), less (C) one million dollars
($1,000,000) (the “Holdback Amount”), and (ii) at such times as are set forth in
the Earn-Out Agreement, pay to Seller all amounts (collectively, the “Earn-Out
Payment”) required to be paid pursuant to the terms of the Earn-Out
Agreement.  The Cash Purchase Price may be adjusted after payment of the Closing
Payment as provided for in Section 2.3.  The Holdback Amount (which shall be
deposited by Madden in a segregated interest-bearing money market account at a
national banking institution) shall, subject to the provisions hereof, be
available as a nonexclusive means (i) to fulfill Seller’s obligations pursuant
to Section 2.3 and (ii) to fulfill Seller’s obligations pursuant to Section
12.4(b) or to reach a Customs Resolution (as defined below), and shall be
released to Seller pursuant to Section 2.4.
 
 
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(b)   All payments of cash pursuant to Section 2.2(a) shall be made in
immediately available funds by wire transfer to an account or accounts (the
“Purchase Price Accounts”) specified by Seller at least two (2) Business Days
prior to the date such payments are to be made.
 
(c)   No later than two (2) Business Days prior to the Closing Date, Seller
shall deliver to Madden a schedule reasonably acceptable to Madden (the “Initial
Prepaid Inventory Schedule”) setting forth in reasonable detail all amounts (the
“Prepaid Inventory Expenses”) expected to have been actually paid by Seller as
of the Closing Date in respect of (i) all prepaid deposits for inventory and
(ii) all inventory shipped from the FOB shipping point within ten (10) days
prior to the Closing Date (clauses (i) and (ii) collectively, “Prepaid
Inventory”).  No later than 9:00 a.m., prevailing local time, on the Closing
Date, Seller shall deliver to Madden a schedule reasonably acceptable to Madden
(the “Final Prepaid Inventory Schedule”) setting forth (A) any updates to the
Initial Prepaid Inventory Schedule necessary to make such schedule true and
correct as of the Closing Date and (B) the total amount actually paid by Seller
as of the Closing Date in respect of the Prepaid Inventory Expenses (the “Total
Prepaid Inventory Amount”).
 
2.3   Post-Closing Adjustment.
 
(a)   Closing Date Balance Sheet.
 
(i)   Preparation of Closing Date Balance Sheet.  As promptly as practicable,
but in any event within seventy-five (75) days after the Closing Date, Madden
shall prepare and deliver to Seller (A) the Closing Date Balance Sheet, which
shall be prepared as of the Closing Date in accordance with GAAP applied on a
basis consistent with the preparation of the balance sheet of the Company as of
the Closing Date which was delivered by Seller to Madden on the date hereof,
except to the extent that such balance sheet was not prepared in accordance with
GAAP, and (B) a calculation of Net Working Capital as of the close of business
on the Closing Date based upon the Closing Date Balance Sheet (the “Closing Date
Net Working Capital”), which shall explain in reasonable detail such calculation
of Closing Date Net Working Capital.
 
(ii)   Closing Date Balance Sheet Disputes.  Seller may dispute the amount of
the Closing Date Net Working Capital reflected on the Closing Date Balance Sheet
by sending written notice (a “Dispute Notice”) to Madden within thirty (30) days
after Madden’s delivery of the Closing Date Balance Sheet and Closing Date Net
Working Capital calculation to Seller (such delivery date, the “Delivery
Date”).  The Dispute Notice shall identify, in reasonable detail, each disputed
item on the Closing Date Balance Sheet, specifying the amount of such dispute
and setting forth the basis for such dispute.  In the event of such a dispute,
Madden and Seller shall attempt in good faith to reconcile the items identified
in the Dispute Notice and any related items that may arise during the process
described in this Section 2.3(a) (including providing information that is
reasonably requested to the other party), and any resolution by them as to any
disputed items shall be final, binding and conclusive on the parties and shall
be evidenced by a writing signed by Madden and Seller, including a revised
Closing Date Balance Sheet (together with a revised calculation of the Closing
Date Net Working
 
 
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Capital based upon such revised Closing Date Balance Sheet, the “Revised Closing
Date Balance Sheet”) reflecting such resolution.  If Madden and Seller are
unable to reach such resolution within twenty (20) days after Seller’s delivery
of the Dispute Notice to Madden, then Madden and Seller shall promptly submit
any remaining disputed items to an Independent Accounting Firm for final binding
resolution.  If any remaining disputed items are submitted to an Independent
Accounting Firm for resolution (A) each party will furnish to the Independent
Accounting Firm such workpapers and other documents and information relating to
the remaining disputed items as the Independent Accounting Firm may reasonably
request and are available to such party, and each party will be afforded the
opportunity to present to the Independent Accounting Firm any material relating
to the disputed items and to discuss the resolution of the disputed items with
the Independent Accounting Firm; (B) each party will use its good faith
commercially reasonable efforts to cooperate with the resolution process so that
the disputed items can be resolved within forty-five (45) days after submission
of the disputed items to the Independent Accounting Firm; (C) the determination
by the Independent Accounting Firm, as set forth in a written notice to Madden
and Seller (which written notice shall include a Revised Closing Date Balance
Sheet), shall, subject to the provisions of Section 2.3(a)(iii), be final,
binding and conclusive on the parties absent manifest error; and (D) the fees
and disbursements of the Independent Accounting Firm shall be allocated by the
Independent Accounting Firm between Madden and Seller in the same proportion
that the aggregate dollar amount of the disputed items submitted to the
Independent Accounting Firm that are unsuccessfully disputed by Seller (as
finally determined by the Independent Accounting Firm) bears to the total amount
of all disputed items submitted to the Independent Accounting Firm.  By way of
illustration, if Seller disputes $500,000 of items, and the Independent
Accounting Firm determines that Seller’s position is correct as to $400,000 of
the disputed items, then Madden would bear 80 percent and Seller would bear 20
percent of such fees and disbursements.
 
(iii)   Final Closing Date Balance Sheet.  The Closing Date Balance Sheet, or,
if one has been adopted pursuant to Section 2.3(a)(ii), the Revised Closing Date
Balance Sheet, shall be deemed to be final, binding and conclusive on Madden and
Seller (the “Final Closing Date Balance Sheet”) upon the earliest of (A) the
failure of Seller to deliver to Madden the Dispute Notice within thirty (30)
days after the Delivery Date; (B) the resolution by Madden and Seller of all
disputes, as evidenced by the Revised Closing Date Balance Sheet; and (C) the
resolution by the Independent Accounting Firm of all disputes, as evidenced by
the Revised Closing Date Balance Sheet.  Any adjustment to the Cash Purchase
Price based on the Final Closing Date Balance Sheet shall be made in accordance
with Section 2.3(b).
 
(b)   Post-Closing Working Capital Adjustment.  Upon the Final Closing Date
Balance Sheet being deemed final, binding and conclusive pursuant to Section
2.3(a)(iii), an adjustment to the Cash Purchase Price shall be made as follows
(the “Post-Closing Working Capital Adjustment”):
 
(i)   In the event that the Closing Date Net Working Capital reflected on the
Final Closing Date Balance Sheet exceeds two million one hundred fifty-seven
thousand seven hundred forty-six dollars and fifty-two cents ($2,157,746.52)
(the “Net
 
 
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Working Capital Target”), then Madden shall be obligated to pay Seller on the
Adjustment Payment Date the Additional Working Capital Consideration (as defined
below) in immediately available funds, at Seller’s option, by certified or
official bank check or by wire transfer to an account specified, in writing, by
Seller.  The “Additional Working Capital Consideration” means the amount by
which the Closing Date Net Working Capital reflected on the Final Closing Date
Balance Sheet exceeds the Net Working Capital Target.
 
(ii)   In the event that the Closing Date Net Working Capital reflected on the
Final Closing Date Balance Sheet is less than the Net Working Capital Target,
then Seller shall be obligated to pay Madden on the Adjustment Payment Date the
Working Capital Refund (as defined below) in immediately available funds, at
Madden’s option, by certified or official bank check or by wire transfer to an
account specified, in writing, by Madden; provided, however, that any payments
owed by Seller to Madden pursuant to this Section 2.3(b)(ii) shall first be
satisfied by a deduction from the Holdback Amount.  The “Working Capital Refund”
means the amount by which the Closing Date Net Working Capital on the Final
Closing Date Balance Sheet is less than the Net Working Capital Target.
 
2.4   Release of Holdback Amount.  The Holdback Amount (together with any
interest or other income earned thereon) shall be released to Seller as follows:
 
(a)   If the Customs Resolution Date (as hereinafter defined) occurs prior to
the final settlement of the Post-Closing Working Capital Adjustment (the
“Working Capital Settlement”), then (i) five hundred thousand dollars ($500,000)
of the Holdback Amount (together with any interest or other income earned
thereon) shall be released to Seller (or to Seller’s designee) no later than
three (3) Business Days after the Customs Resolution Date and (ii) the remaining
five hundred thousand dollars ($500,000) of the Holdback Amount (together with
any interest or other income earned thereon) shall continue to be held by Madden
until the Working Capital Settlement.  If, pursuant to Section 2.3, the Holdback
Amount exceeds the amount of the Working Capital Refund, then the excess amount
of the Holdback Amount (together with any interest or other income earned
thereon) shall be returned to Seller in accordance with Section 2.2(a) no later
than three (3) Business Days following the Working Capital Settlement.
 
(b)   If the Working Capital Settlement occurs prior to the Customs Resolution
Date, then the Holdback Amount (together with any interest or other income
earned thereon) shall first be used, to the extent necessary, to fulfill
Seller’s obligations pursuant to Section 2.3 and the remaining funds
constituting the Holdback Amount (together with any interest or other income
earned thereon) shall continue to be held by Madden until the Customs Resolution
Date and shall be released to Seller (or to Seller’s designee) within three (3)
Business Days following the Customs Resolution Date.
 
(c)   For purposes of this Agreement, the term “Customs Resolution” shall mean
the delivery by Seller to Madden of (i) a copy of a notice received by Seller
from the Fines, Penalties and Forfeiture Office of the U.S. Bureau of Customs
and Border Protection (“U.S. Customs”) stating (A) that U.S. Customs has
completed its investigation relating to that certain
 
 
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prior disclosure statement filed by Seller with U.S. Customs on December 4, 2009
(the “Prior Disclosure”) and that such Prior Disclosure has been accepted and
(B) the total amount of interest and penalties (if any) payable by Seller to
U.S. Customs in resolution of the matter addressed in the Prior Disclosure, or
(ii) to the extent a written notice as described in (i) is not so delivered to
Seller, evidence reasonably satisfactory to Madden that Seller has been
otherwise notified of the matters in clauses (A) and (B) above.  The term
“Customs Resolution Date” shall mean the date on which the Customs Resolution
occurs.
 
ARTICLE III

 
Closing
 
3.1   Closing Date.  Subject to the fulfillment or waiver by the beneficiary
thereof of the agreements and conditions precedent set forth in Articles IX and
X, the closing of the transactions contemplated hereby (the “Closing”) shall be
held at any time simultaneous with or following the satisfaction or waiver of
all conditions to closing set forth in Articles IX and X of this Agreement, on
such date as may be agreed upon by Madden and Seller, at 10:00 a.m., prevailing
local time, at the offices of Kramer Levin Naftalis & Frankel LLP, 1177 Avenue
of the Americas, New York, NY 10036, or on such other date or at such other time
or place as may be agreed to in writing by Madden and Seller.  The date on which
the Closing actually occurs is herein referred to as the “Closing Date.”
 
3.2   Certain Actions at Closing.  At the Closing:
 
(a)   Seller shall deliver, or cause to be delivered, to Madden stock
certificates representing all of the Company Shares, accompanied by stock powers
duly endorsed in blank or duly executed instruments of transfer;
 
(b)   Madden shall remit the Closing Payment to the Purchase Price Accounts
pursuant to the provisions of this Agreement;
 
(c)   to the extent not previously executed and/or delivered to Madden, Seller
shall execute and/or deliver to Madden, or cause to be executed and/or delivered
to Madden, each of the Transaction Documents and any other document,
certificate, affidavit or other instrument required to be executed and/or
delivered by Seller and the Company under this Agreement at or prior to the
Closing;
 
(d)   to the extent not previously executed and/or delivered to Seller, Madden
shall execute and/or deliver to Seller, each of the Transaction Documents and
any other document, certificate or other instrument required to be executed
and/or delivered by Madden under this Agreement at or prior to the Closing; and
 
(e)   Seller shall be liable for and shall pay all stamp, transfer and similar
Taxes, direct or indirect, if any, attributable to the transfer of the Company
Shares and, in connection therewith, shall affix any necessary transfer stamps
to the stock certificates (or stock transfer powers) evidencing the Company
Shares.
 
 
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ARTICLE IV

 
Representations and Warranties of Seller
 
Seller hereby represents and warrants to Madden as follows:
 
4.1   Organization and Good Standing.  The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California.  The Company has full corporate power and authority to own or lease
its properties and to carry on its business as it is now being conducted.  The
Company is duly qualified to transact business and is in good standing in each
jurisdiction wherein the nature of the business done or the property owned,
leased or operated by it requires such qualification, except where the failure
to be so qualified would not be reasonably likely to have a Material Adverse
Effect.  Copies of the Articles of Incorporation and Bylaws of the Company (the
“Organizational Documents”) that have been made available to Madden are true,
complete and accurate in all respects.  The corporate minutes and corporate
records of the Company that have been made available to Madden are true,
complete and accurate in all respects.  The stock register and transfer records
of the Company that have been made available to Madden are true, complete and
accurate in all respects.  The Company does not have any direct or indirect
subsidiaries and does not own any ownership or equity interest in any Person.
 
4.2   Capitalization.
 
(a)   The capitalization of the Company is as set forth in Section 2.1 of the
Disclosure Schedule.  The Company Shares are all of the issued and outstanding
shares of the Company and have been duly authorized and are validly issued and
outstanding, fully paid and non-assessable.  Seller owns, beneficially and of
record, and has valid and marketable title to, and the right to transfer to
Madden, all of the Company Shares set forth in Section 2.1 of the Disclosure
Schedule, free and clear of any and all Encumbrances other than Company
Liens.  At the Closing Madden will own, and will have valid and marketable title
to, all of the issued and outstanding shares of capital stock of the Company,
free and clear of any and all Encumbrances other than the Company Liens.  No
Person other than Madden has any written or oral agreement, arrangement,
understanding or option for, or any right or privilege (whether by law,
preemption or contract) that is or is capable of becoming an agreement,
arrangement, understanding or option for, the purchase or acquisition from the
Company or any Person of any shares of capital stock or other securities of the
Company.
 
(b)   There are no outstanding or authorized options, warrants, purchase
agreements, participation agreements, subscription rights, conversion rights,
exchange rights or other securities, contracts, arrangements, understanding or
commitments that could require the Company to issue, sell or otherwise cause to
become outstanding any of its authorized but unissued shares of capital stock or
any securities convertible into, exchangeable for or carrying a right or option
to purchase shares of capital stock, or to create, authorize, issue, sell or
otherwise cause to become outstanding any new class of capital stock.  None of
the issued and outstanding shares of capital stock of the Company have been
issued in violation of any rights of any Person or in violation of the
registration requirements of any applicable jurisdiction’s securities Laws.
 
 
 
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4.3   Authorization.
 
(a)   Seller has full legal capacity to enter into and carry out Seller’s
obligations under this Agreement and the other applicable Transaction Documents,
and to consummate the transactions contemplated hereby and thereby, and is not
under any prohibition or restriction, contractual, statutory or otherwise,
against doing so.  Each of the Transaction Documents has been duly executed and
delivered by Seller and, assuming due authorization, execution and delivery by
the other parties thereto, constitutes legal, valid and binding obligations of
Seller, enforceable against Seller in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other laws affecting the rights of creditors generally
and by general principles of equity.
 
(b)   The Services Agreement and the Earn-Out Agreement have been duly executed
and delivered by the Company and, assuming due execution and delivery by the
other parties thereto, constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other laws affecting the rights of creditors generally
and by general principles of equity.
 
4.4   No Conflicts; Consents.  Except as set forth in Section 4.4 of the
Disclosure Schedule, neither the execution and delivery by Seller or the Company
of this Agreement or any of the Transaction Documents to which Seller or the
Company is a party, nor the consummation of the transactions contemplated hereby
or thereby, will, with or without notice or lapse of time or both, directly or
indirectly, (i) conflict with or violate the Organizational Documents of, or
resolutions of the directors or shareholders of, the Company, (ii) conflict
with, violate, result in the breach of any term of, result in the acceleration
of performance of any obligation under, constitute a default under, give any
Person the right to cancel, terminate or modify, or require the consent or
approval of or any notice to or filing with any third party or Governmental Body
under (x) any note, mortgage, deed of trust, lease or other agreement or
instrument to which Seller or the Company is a party or by which Seller or the
Company or any of their respective properties or assets are bound, or (y) any
Law, writ, injunction, or License of any Governmental Body having jurisdiction
over Seller, the Company or their respective properties or assets, or (iii)
create an Encumbrance on any of the shares of capital stock or properties or
assets of the Company, including, without limitation, the Company Shares.
 
4.5   Financial Statements; Undisclosed Liabilities; Promotions and Allowances;
Inventory.
 
(a)   Except as set forth in Section 4.5(a) of the Disclosure Schedule, the
Financial Statements (true, complete and accurate copies of which have been
previously made available to Madden) (i) have been prepared from the books and
records of the Company on a consistent basis throughout the periods covered
thereby, subject, in the case of any interim Financial Statements, to the
absence of footnote disclosure and normal year-end adjustments and (ii) fairly
present in all material respects the financial condition of the Company as at
their respective dates and the results of operations and cash flows of the
Company for the periods covered thereby.  Except as set forth in Section 4.5(a)
of the Disclosure Schedule, the statements
 
 
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of operations included in the Financial Statements do not include any item of
special or non-recurring income, except as specifically identified therein.
 
(b)   As of the date of the Balance Sheet, other than those (i) set forth in
Section 4.5(b) of the Disclosure Schedule or (ii) which are reflected or
reserved against on the Balance Sheet, the Company does not have any
liabilities, debts or obligations (whether absolute, accrued, contingent or
otherwise).  Except as set forth in Section 4.5(b) of the Disclosure Schedule,
since the date of the Balance Sheet, the Company (i) has conducted its business
in the ordinary course of business consistent with past practice and in a
commercially reasonable manner, (ii) has not incurred any liabilities, debts or
obligations (whether absolute, accrued, contingent or otherwise), except for
liabilities incurred in the ordinary course of business consistent with past
practice and in a commercially reasonable manner, which such liabilities are
consistent with the representations and warranties contained in this Agreement
and (iii) notwithstanding anything to the contrary in clause (i) or (ii) of this
sentence, has not incurred any liability, debt or obligation (whether absolute,
accrued, contingent or otherwise) to or of any Affiliated Person or made any
Affiliate Loans.  Since the date of the Balance Sheet, no event has occurred or
facts or circumstances exist which, individually or in the aggregate, has had or
is reasonably likely to result in a Material Adverse Effect.
 
(c)   Section 4.5(c) of the Disclosure Schedule sets forth the terms of all
return, markdown, promotion, co-op advertising and other similar programs and
allowances currently offered by the Company to any of its customers.  As of the
date hereof, the Company has not established reserves regarding the foregoing.
 
(d)   Except as set forth in Section 4.5(d) of the Disclosure Schedule, the
inventory reflected in the Financial Statements or thereafter acquired has been
determined and valued in accordance with past practice as reflected in the
Financial Statements and the books and records of the Company at the lower of
cost or market.  Except as set forth in Section 4.5(d) of the Disclosure
Schedule:  (i) the inventory of the Company (whether raw materials,
work-in-process, or other inventory) is salable in the ordinary course of
business consistent with past practice without any material problems; (ii) the
finished goods inventories of the Company consist of items which are good and
merchantable (as defined in the Uniform Commercial Code of the State of New
York) at normal mark-up in the ordinary course of business consistent with past
practice; and (iii) no previously sold inventory is subject to refunds
materially in excess of that historically experienced by the Company.  All
commitments or orders for work-in-process were entered into in the ordinary
course of business consistent with past practice and in a commercially
reasonable manner.  The Company does not sell any inventory on consignment such
that unsold products would be subject to return or have title to or risk of loss
with respect to any products in the possession of others.
 
4.6   Taxes.
 
(a)   Except as set forth in Section 4.6(a) of the Disclosure Schedule, the
Company has timely filed with the appropriate taxing authorities all material
Returns required to be filed by it (taking into account any extension of time to
file).  The information on such Returns is complete and accurate in all material
respects. The Company has paid all material Taxes (whether or not shown on any
Return) due and payable, except for any Taxes that result by
 
 
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reason of a 338(h)(10) Election or analogous elections made pursuant to Section
8.1(b).  Except as set forth in Section 4.6(a) of the Disclosure Schedule, there
are no liens for Taxes (other than for Permitted Encumbrances) upon the
properties or assets of the Company.
 
(b)   Except as set forth in Section 4.6(b) of the Disclosure Schedule, no
unpaid (or unreserved in accordance with GAAP) and unresolved deficiencies for
Taxes have been claimed, proposed or assessed, in each case in writing, by any
taxing authority or other Governmental Body with respect to the Company for any
Pre-Closing Period, and, to the Knowledge of Seller and the Company, there are
no pending or threatened audits, investigations, claims or assessments, in each
case in writing, for or relating to any liability in respect of Taxes of or with
respect to the Company.  Except as set forth in Section 4.6(b) of the Disclosure
Schedule, the Company has not requested any extension of time within which to
file any currently unfiled Returns in respect of any Taxes and no waiver or
extension of a statutory period of limitations for the assessment of any Taxes
is in effect with respect to the Company.
 
(c)   Except as set forth in Section 4.6(c) of the Disclosure Schedule, (i)
except for any Taxes that result by reason of a 338(h)(10) Election made
pursuant to Section 8.1(b), the Company has made provision for all Taxes payable
by it with respect to any Pre-Closing Period which have not been paid prior to
the Closing Date and the provisions for Taxes with respect to the Company for
the Pre-Closing Period (excluding any reserve for deferred Taxes established to
reflect timing differences between book and Tax income); (ii) the Company has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid to any employee, independent contractor, creditor,
shareholder or other third party; (iii) all material elections with respect to
Taxes materially affecting the Company as of the date hereof are set forth in
Section 4.6(c)(iii) of the Disclosure Schedule; (iv) there are no written
advance tax rulings in respect of any Tax issued to or pending between or with
respect to the Company and any taxing authority or any other written agreements
with a taxing authority with regard to any Tax; (v) the tax year end for the
Company is December 31; (vi) the Company is not liable for Taxes of any other
Person, and is not currently under any contractual obligation to or a party to
any tax sharing agreement or any other agreement providing for payments by the
Company with respect to Taxes; (vii) the Company is not a party to any written
joint venture, partnership or other arrangement or contract which could be
treated as a partnership for income tax purposes; (viii) the Company has not, as
of the Closing Date, agreed and will not be required, as a result of a change in
method of accounting, to include any adjustment under any provision of U.S.,
state, local or foreign law in taxable income for any period after the Closing
Date; (ix) Section 4.6(c)(ix) of the Disclosure Schedule contains a list of all
jurisdictions in which the Company files Returns, and no written claim has ever
been made by a taxing authority in a jurisdiction where the Company does not
currently file Returns that the Company is or may be subject to taxation by that
jurisdiction; (x) the Company has not filed or been included in a combined,
consolidated or unitary return (or substantial equivalent thereof) of any
Person; (xi) the Company has not engaged in any transaction for which its
participation is required to be disclosed under Treasury Regulation § 1.6011-4;
and (xii) since its inception, the Company has qualified for and has properly
had in effect an election (which has not terminated) to be an S corporation
within the meaning of Section 1361(a)(1) of the Code (and any corresponding
provision of applicable state law).
 
4.7   Real and Personal Property.
 
 
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(a)   Section 4.7(a) of the Disclosure Schedule contains a complete list by
address of all real property owned, leased, operated or used by the Company
(collectively, the “Real Property”), indicating the nature of the interest of
the Company therein (collectively, the “Real Property Interests”).  To the
Knowledge of Seller and the Company, no litigation, condemnation, expropriation,
eminent domain or similar proceeding affecting all or any portion of any Real
Property is pending or threatened.  The Company has furnished to Madden true,
correct and complete copies of all documents relating to the Real Property
Interests, including, without limitation, all leases, licenses, deeds, evidences
of ownership, evidences of possession, amendments, estoppel certificates,
subordination, non disturbance and attornment agreements and assignment and/or
assumption agreements (collectively, the “Real Property Documents”), including
rent rolls and operating expense statements (if applicable).  Except as set
forth in Section 4.7(a) of the Disclosure Schedule, the Company is not a party
to any oral agreements with respect to any Real Property Interest and, to the
Knowledge of Seller and the Company, there are no other oral agreements with
respect to any Real Property Interest.  Except as set forth in Section 4.7(a) of
the Disclosure Schedule, no Real Property Document requires that the consent or
approval of any third party be obtained in order to consummate the transactions
contemplated by this Agreement, nor do such transactions violate any Real
Property Document or cause the Company to be in default under any Real Property
Document.  Except as set forth in Section 4.7(a) of the Disclosure Schedule,
neither of the Company nor Seller has given or received any notice of default
under any Real Property Document, and neither the Company nor Seller is in
default thereunder.  Except as set forth in Section 4.7(a) of the Disclosure
Schedule, no option to extend, renew, surrender, terminate or purchase arising
under any Real Property Document has been exercised by the Company or, to the
Knowledge of Seller and the Company, by any other party thereto.  No guaranty or
other undertaking with respect to the performance of any obligation arising
under any Real Property Document has been delivered by the Company.  Except as
set forth in Section 4.7(a) of the Disclosure Schedule, all service, management,
leasing and other similar agreements with respect to any Real Property Interest
and to which the Company is a party are terminable upon no more than thirty (30)
days’ prior notice.
 
(b)   Except as set forth in Section 4.7(b) of the Disclosure Schedule, the
Company has good and marketable title to all of the properties and assets, real
and personal, tangible and intangible, it owns or purports to own, including
those reflected on its books and records and on the Balance Sheet (except those
sold or disposed of subsequent to the date thereof in the ordinary course of
business consistent with past practice and in a commercially reasonable manner),
free and clear of all Encumbrances, except for Permitted Encumbrances.  Except
as set forth in Section 4.7(b) of the Disclosure Schedule, the Company has a
valid and enforceable fee, leasehold, license or other interest in all of the
other properties and assets, real or personal, tangible or intangible, which are
used in the operation of the business of the Company as presently conducted as
of the Closing Date, free and clear of all Encumbrances, except for Permitted
Encumbrances.  Except as set forth in Section 4.7(b) of the Disclosure Schedule,
none of the properties or assets owned, leased, operated or used by the Company
is subject to any lease, sublease, license, sublicense or other agreement
granting to any other Person any right to the use, occupancy or enjoyment of
such property or any portion thereof and no leasehold interest of the Company is
proposed to be surrendered or terminated.
 
(c)   As used herein, “Permitted Encumbrances” means (i) liens for Taxes not yet
due and payable or which are being diligently contested in good faith by
appropriate
 
 
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proceedings and as to which appropriate reserves (to the extent required by
GAAP) have been established in the books and records of the Company;
(ii) mechanics’, materialmen’s, carriers’, warehousemen’s, landlord’s and
similar liens securing obligations not yet delinquent or which are being
diligently contested in good faith by appropriate proceedings and as to which
appropriate reserves (to the extent required by GAAP) have been established in
the books and records of the Company; (iii) such imperfections of title,
Encumbrances and easements, restrictive covenants and rights of way as do not
and will not materially detract from or interfere with the use of the properties
subject thereto or affected thereby, or otherwise materially impair business
operations involving such properties; and (iv) platting, subdivision, zoning,
building and other similar legal requirements affecting the building, structures
and other improvements located on any real property whether or not of record.
 
(d)   With respect to each lease of Real Property:  (i) all base rents,
percentage rents (if owing in accordance with the terms of the applicable lease)
and additional rents due and owing as of the date hereof have been paid, (ii) no
waiver, indulgence or postponement of the lessee’s obligations has been granted
by the lessor, (iii) there exists no event of default or event by the Company
or, to the Knowledge of Seller and the Company, by any other party under the
lease, occurrence, condition or act by the Company or, to the Knowledge of
Seller and the Company, by any other party under the lease which, with the
giving of notice, the lapse of time or the happening of any other event or
condition, would become a default under the lease, and (iv) to the Knowledge of
Seller and the Company, all of the covenants to be performed by any other party
under the lease have been fully performed.
 
4.8   Intellectual Property.
 
(a)   Except as set forth in Section 4.8(a) of the Disclosure Schedule, the
Company owns, or has the valid right to use or license, without Encumbrances,
all Intellectual Property Rights as used in its business as presently conducted
and as it is expected to be conducted as of the Closing (such Intellectual
Property Rights hereinafter referred to as the “Company IP Rights”).  The
Company IP Rights are sufficient to conduct the business of the Company as
presently conducted as of the Closing Date.
 
(b)   Except as set forth in Section 4.8(b) of the Disclosure Schedule, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not (i) constitute a breach of any
instrument or agreement governing any Company IP Rights, (ii) cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any Company IP Rights or (iii) impair the right of the Company or, after the
Closing, Madden, to own, use or license any Company IP Rights or portion
thereof.
 
(c)   Except as set forth in Section 4.8(c) of the Disclosure Schedule, there
are no royalties, honoraria, fees or other payments payable by the Company to
any Person for the use by the Company of any Company IP Rights.
 
(d)   Except as set forth in Section 4.8(d) of the Disclosure Schedule, (i) to
the Knowledge of Seller and the Company, the conduct of the business of the
Company, as presently conducted, does not violate or infringe any Intellectual
Property Rights of any other Person, and (ii) there is no pending or, to the
Knowledge of Seller and the Company, threatened claim or
 
 
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litigation contesting the validity, ownership, registrability, right to use or
right to license any Company IP Rights, nor, to the Knowledge of Seller and the
Company, is there any valid or reasonable basis for any such claim, nor has the
Company or Seller received any notice asserting that any Company IP Rights or
the proposed use, registration or license thereof infringes or otherwise
violates, or will infringe or otherwise violate, the rights of such Person.
 
(e)   Except as set forth in Section 4.8(e)-1 of the Disclosure Schedule, the
Company has taken reasonable steps to safeguard and maintain the secrecy and
confidentiality of the Company’s trade secrets.  Seller has made available to
Madden true, complete and accurate copies of all agreements that any directors,
officers, employees, consultants or contractors of the Company have executed
regarding (i) the protection of proprietary information, and (ii) the assignment
to the Company of all Intellectual Property Rights arising from the services
performed for the Company by such persons.  Except as set forth in Section
4.8(e)-2 of the Disclosure Schedule, no current or prior directors, officers,
employees, consultants or contractors of the Company have claimed an ownership
interest in any Company IP Rights; to the Knowledge of Seller and the Company,
there is no valid or reasonable basis for any such claim.
 
(f)   Section 4.8(f) of the Disclosure Schedule separately lists (i) all
licenses and other agreements under which the Company or any Person granted
rights by the Company uses any Company IP Rights, and (ii) all licenses and
other agreements under which the Company or any Person granted rights by the
Company uses any Intellectual Property of any other Person.  Except as set forth
in Section 4.8(f) of the Disclosure Schedule, all such licenses and other
agreements are valid, enforceable, in full force and effect, and to the
Knowledge of Seller and the Company without breach, and the transactions
contemplated by this Agreement will not cause a change in the rights or
obligations of the Company under such licenses or agreements.
 
(g)   Except as set forth in Section 4.8(g) of the Disclosure Schedule, (i) no
notice has been sent, no claim has been made and no action or proceeding has
been filed asserting that any Person’s use of, or application for, any
Intellectual Property Rights infringes upon or otherwise violates any Company IP
Rights, and (ii) to the Knowledge of Seller and the Company, no Person is
infringing upon or otherwise violating any Company IP Rights, or has filed to
register any Intellectual Property Rights which, if used by any third party,
would infringe upon or otherwise violate the Company IP Rights.
 
(h)   Section 4.8(h) of the Disclosure Schedule sets forth a list of all patents
and patent applications; all registered or applied for trademarks, service
marks, trade dress, copyrights, slogans, trade names, and internet domain names;
and all material unregistered and unapplied for trademarks, service marks, trade
dress, slogans and copyrights, comprising the Company IP Rights, including
without limitation all registrations and applications for any of the foregoing
owned, licensed, used or filed by or on behalf of the Company anywhere in the
world.  With respect each such trademark, Section 4.8(h) of the Disclosure
Schedule identifies the trademark, the jurisdiction, the
registration/application number, the registrant/applicant, the class, the
goods/services, the status (including any rejections and the basis therefor),
and the principal terms of any license governing such trademark.  With respect
to each such internet domain name, Section 4.8(h) of the Disclosure Schedule
identifies the registered domain name, expiration date, registrar, registrant,
and name and contact information for the administrative contact and the
 
 
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technical contact.  All applications, registrations and licenses listed in
Section 4.8(h) of the Disclosure Schedule, unless otherwise indicated, are in
full force and effect and have not been cancelled, expired, rejected or
abandoned.  Except as set forth in Section 4.8(h) of the Disclosure Schedule,
there is no pending, existing or, to the Knowledge of Seller and the Company,
threatened opposition, interference, cancellation, proceeding or other legal or
governmental proceeding before any court or Governmental Body against or
involving the applications or registrations listed in Section 4.8(h) of the
Disclosure Schedule.
 
4.9   Contracts and Agreements.
 
(a)   Section 4.9(a) of the Disclosure Schedule sets forth a true, complete and
accurate list of each of the following contracts, agreements, arrangements,
instruments or understandings, whether oral or written, to which the Company is
a party or by which the Company or its assets or properties are bound, except
for purchase orders on standard forms entered into by the Company with
customers, manufacturers and suppliers in the ordinary course of business
consistent with past practice (collectively, the “Contracts”):
 
(i)   each employment or other similar agreement providing for compensation,
severance or a fixed term of employment in respect of services performed by any
employee of the Company;
 
(ii)   each management, consulting, independent contractor, subcontractor,
retainer or other similar type of agreement under which services are provided by
any Person to the Company with a term of more than one (1) year or requiring
payments in excess of $50,000 per annum or $75,000 in the aggregate;
 
(iii)   each other agreement or commitment for services and supplies provided by
any other Person to the Company with a term of more than one (1) year or
requiring payments in excess of $50,000 per annum or $75,000 in the aggregate;
 
(iv)   each agreement with sales or commission agents or sales representatives
with a term of more than one (1) year or requiring payments in excess of $25,000
per annum or $50,000 in the aggregate;
 
(v)   each agreement or commitment for the supply of products or services by the
Company to any other Person with a term of more than one (1) year (other than
those that are terminable upon not more than thirty (30) days’ notice by the
Company without penalty) or involving payments in excess of $50,000 per annum or
$75,000 in the aggregate;
 
(vi)   each agreement that restricts in any manner the operation of the business
of the Company as presently conducted, including each agreement that restricts
the ability of the Company to conduct business in any geographic or product
market, to buy or sell particular goods or services, to buy or sell goods or
services from any other Person or to solicit customers, employees or other
service providers;
 
(vii)   each agreement with any officer or director of the Company;
 
 
 
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(viii)     each agreement with an Affiliated Person or with any entity in which
an officer or director of the Company holds an interest;
 
(ix)   each lease (as lessor, lessee, sublessor or sublessee) of any real
property;
 
(x)   each lease (as lessor, lessee, sublessor or sublessee) of any tangible
personal property requiring payment during its term or any extension or renewal
thereof in excess of $25,000;
 
(xi)   each license (as licensor, licensee, sublicensor or sublicensee) of any
Intellectual Property Rights (other than licenses of commercially available,
“packaged, off the shelf,” shrink-wrap or click-through computer software),
including, without limitation, each license relating to any Company Products;
 
(xii)   each agreement under which any money has been or may be borrowed or
loaned, or any note, bond, factoring agreement, indenture or other evidence of
indebtedness has been issued or assumed, and each guaranty (including
“take-or-pay” and “keepwell” agreements) of any evidence of indebtedness or
other obligation, or of the net worth, of any Person;
 
(xiii)   each mortgage agreement, deed of trust, security agreement, purchase
money agreement, conditional sales contract or capital lease;
 
(xiv)   each partnership, joint venture or similar agreement;
 
(xv)   each agreement relating to securities of the Company, including
shareholder agreements, voting agreements, and any agreements granting
preferential rights to acquire securities of the Company or containing
restrictions with respect to the payment of dividends or other distributions in
respect of the capital stock or securities of the Company;
 
(xvi)   each agreement or commitment to make unpaid capital expenditures in
excess of $2,000;
 
(xvii)   each agreement containing a change of control provision;
 
(xviii)   each manufacturing, distribution or sourcing agreement or arrangement;
 
(xix)   each agreement or other arrangement pursuant to which the Company is
obligated to accept returned merchandise or grant credit for unsold merchandise
other than as set forth in standard form, non-negotiated purchase orders or
confirmations;
 
(xx)   each agreement or other arrangement relating to any electronic data
interchange (EDI) or similar programs;
 
 
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(xxi)   each agreement or other arrangement providing for the development of
software for, or license of software (other than off-the-shelf, shrink-wrap, or
click-through software applications) or other Intellectual Property Rights;
 
(xxii)   each agreement with respect to any Company IP Rights;
 
(xxiii)   each agreement or arrangement with respect to advertising (including
co-op advertising), marketing or any concept shops or in-store sales
environments (i.e. shop in shops) for any Company Product;
 
(xxiv)   each agreement that obligates the Company to indemnify a third party;
and
 
(xxv)   each other agreement (or group of related agreements) having an
indefinite term or a fixed term of more than one (1) year (other than those that
are terminable upon not more than thirty (30) days’ notice by the Company
without penalty) or requiring payments in excess of $50,000 per year or $75,000
in the aggregate or the loss of which could reasonably be expected to have,
directly or indirectly, individually or in the aggregate, a Material Adverse
Effect.
 
Complete copies of all written (and summaries of all oral) Contracts required to
be disclosed pursuant to this Section 4.9(a), as well as copies of all standard
forms of purchase orders with customers, manufacturers and suppliers used by the
Company, have been previously made available to Madden.
 
(b)   Each of the Contracts is legal, valid, binding and in full force and
effect and is enforceable by the Company in accordance with its respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
moratorium and other similar laws affecting creditors’ rights generally and by
general principles of equity.  The Company is not (with or without the lapse of
time or the giving of notice, or both) in breach of or in default under any of
the Contracts, and, to the Knowledge of Seller and the Company, no other party
to any of the Contracts is (with or without the lapse of time or the giving of
notice, or both) in breach of or in default under any of the Contracts.
 
4.10   Insurance.  All insurance policies currently maintained by the Company,
or under which the Company is insured, are accurately listed in Section 4.10 of
the Disclosure Schedule and complete copies of such policies have been
previously made available to Madden.  Each such insurance policy is in full
force and effect (and to the Knowledge of Seller and the Company, free from any
presently exercisable right of termination on the part of the insurance company
issuing such policy prior to the expiration of the term of such policy) and all
premiums due and payable in respect thereof have been paid.  Except as set forth
in Section 4.10 of the Disclosure Schedule, there are no pending claims with
respect to the Company or its properties or assets under any such insurance
policy. Neither Seller nor the Company has received notice of cancellation or
non-renewal of any such policy.  The transactions contemplated by this Agreement
will not give rise to a right of termination of any such policy by the insurance
company issuing the same prior to the expiration of the term of such policy.
 
 
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4.11   Litigation.  Except as set forth in Section 4.11 of the Disclosure
Schedule and with respect to environmental matters (which are addressed in
Section 4.16 of this Agreement), there is no lawsuit, governmental investigation
or legal, administrative or arbitration action or proceeding pending or, to the
Knowledge of Seller and the Company, threatened against Seller or the Company or
any of their respective properties or assets, or any director, officer or
employee of the Company, in his or her capacity as such, and, to the Knowledge
of Seller and the Company, the Company is not identified as a party subject to
any restrictions or limitations under any judgment, order or decree of any
Governmental Body.
 
4.12   Condition and Sufficiency of Assets.  Except as set forth in Section 4.12
of the Disclosure Schedule, the properties and assets owned, leased, operated
and used by the Company in the conduct or operation of its business are in good
operating condition and repair, normal wear and tear excepted, are reasonably
suitable for the purposes for which they are currently used and are all of the
properties and assets reasonably necessary for the conduct and operation of the
businesses of the Company as currently conducted. Except as set forth in Section
4.12 of the Disclosure Schedule, the Company is the sole owner of all material
properties and assets, including trademarks, utilized in the conduct or
operation of the business of the Company, except for properties and assets
leased or licensed to the Company pursuant to Contracts listed in Section 4.9(a)
of the Disclosure Schedule, to which the Company has a valid lease or license.
 
4.13   Compliance with Law; Licenses; Customs.
 
(a)   Except as set forth in Section 4.13(a) of the Disclosure Schedule, the
Company is and has been in compliance in all material respects with all
applicable Laws governing the conduct or operation of its business, and with all
of its Licenses.  Neither the Company nor Seller has received any notice of any
violation of any such Law or License, and to the Knowledge of Seller and the
Company, no such violation has been threatened.
 
(b)   All governmental licenses, approvals, authorizations, registrations,
consents, orders, certificates, decrees, franchises and permits (collectively,
“Licenses”) of the Company are listed in Section 4.13(b) of the Disclosure
Schedule.  The Licenses are all of the Licenses necessary for the ownership and
operation of the properties and assets of the Company, the manufacturing,
marketing, sale and distribution of the Company Products by the Company and the
conduct and operation of its business as currently conducted.  Such Licenses are
in full force and effect, and no proceeding is pending or, to the Knowledge of
Seller and the Company, threatened, seeking the revocation or limitation of any
such License.  To the Knowledge of Seller and the Company, there exists no state
of facts which could cause any Governmental Body to limit, revoke or fail to
renew any License related to or in connection with any business as currently
conducted or operated by the Company.
 
(c)   Except as set forth in Section 4.13(c) of the Disclosure Schedule, (i) the
Company was not the importer of record for any product prior to December 19,
2009, and (ii) from December 19, 2009 through the date hereof, the Company has
been the importer of record for all products imported for sale and distribution
by the Company.
 
(d)   Except as set forth in Section 4.13(d) of the Disclosure Schedule,
notwithstanding and in addition to the foregoing, the Company and, to the
Knowledge of Seller
 
 
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and the Company, the employees, agents and representatives of the Company are,
and at all times have been, in compliance with all applicable Laws and
regulations relating to importing and exporting, customs and national and
international trade with respect to business conducted by the Company or for
which the Company could be held liable, including, without limitation, the
accuracy of all statements and representations made to any Governmental Body
(including, but not limited to, U.S. Customs, the U.S. Department of Homeland
Security, the U.S. Federal Trade Commission, and the U.S. Consumer Products
Safety Commission), the timely and accurate filing of all reports, schedules and
forms required to be filed with any Governmental Body and the timely and
accurate reporting and payment of all duties, taxes, fees, payments or other
governmental obligations.
 
(e)   Except as set forth in Section 4.13(e) of the Disclosure Schedule, the
Company and, to the Knowledge of Seller and the Company, the employees, agents
and representatives of the Company have not provided any assistance, directly or
indirectly, to the maker of any goods the Company has imported, including,
without limitation, equipment or materials, which assistance would be subject to
a duty, tax, fee or other payment, other than such assistance which has been
fully and accurately disclosed to the appropriate Governmental Bodies and for
which such duty, tax, fee or other payment has been fully paid.
 
(f)   Except as set forth in Section 4.13(f) of the Disclosure Schedule, the
Company and, to the Knowledge of Seller and the Company, the employees, agents
and representatives of the Company have accurately prepared and maintained all
records with respect to the business conducted by the Company or for which the
Company could be held liable relating to importing and exporting, customs and
international trade, as required by Law.
 
(g)   Section 4.13(g) of the Disclosure Schedule sets forth all liabilities or
obligations owing by the Company or, to the Knowledge of Seller and the Company,
the employees, agents or representatives of the Company to U.S. Customs or any
Governmental Body in connection with the purchase, importation or attempted
importation of any product by the Company or for which the Company could be held
liable, including but not limited to: duties, taxes, fees and interest thereon;
liquidated damages; penalties; claims and assessments (whether actual or
potential and whether or not yet asserted by U.S. Customs, any Governmental Body
or some third party).
 
(h)   Except as set forth in Section 4.13(h) of the Disclosure Schedule, neither
the Company nor Seller has received written notice of any pending audits,
inquiries, investigations, claims, notices or demands for duties, fines,
penalties, seizures, forfeitures, or liquidated damages by any Governmental Body
(including, but not limited to, U.S. Customs, the U.S. Department of Homeland
Security, the U.S. Federal Trade Commission, the U.S. Consumer Products Safety
Commission, the U.S. Department of Justice, any Office of the U.S. Attorney or
any other agency of the U.S. government) arising out of any transactions or
importation of merchandise by or for the Company and, to the Knowledge of Seller
and the Company, the Company has not committed any acts or omissions which could
give rise to any such inquiry, investigation, claim, notice or demand.
 
4.14   Employees.
 
 
 
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(a)   Section 4.14(a) of the Disclosure Schedule sets forth, as of the date
hereof, a true, correct and complete list of all of the employees, officers,
independent contractors and consultants of the Company, and with respect to each
such employee, officer and, to the extent applicable, independent contractor and
consultant, such individual’s:  (i) current annual base salary, (ii) current
guaranteed annual bonus, (iii) any discretionary bonus received by such
individual for the immediately preceding fiscal year of the Company, (iv) all
other compensation and perquisites (including, without limitation, incentive
compensation, fees or other remuneration) received by such individual in the
immediately preceding fiscal year of the Company, (v) accrued vacation, (vi)
current title, (vii) date of hire, (viii) outstanding loans to such individuals
and (ix) with respect to each such independent contractor or consultant, a
summary of any oral commission agreement with such individual. Except as set
forth in Section 4.14(a) of the Disclosure Schedule, all amounts due for all
salary, wages, bonuses, commissions, vacation with pay and other benefits have
either been paid or are accurately reflected on the Balance Sheet.
 
(b)   The Company (i) is and has been in compliance in all material respects
with all applicable Laws (including any legal obligation to engage in
affirmative action), agreements and contracts relating to former, current, and
prospective employees, independent contractors and “leased employees” (within
the meaning of Section 414(n) of the Code) of the Company, workplace practices,
and terms and conditions of employment with the Company or retention by the
Company, including all such Laws, agreements and contracts relating to wages,
hours, collective bargaining, employment discrimination and human rights,
immigration, disability, civil rights, fair labor standards, occupational safety
and health, workers’ compensation, pay equity, termination of employment or
wrongful discharge and violation of the potential rights of such former,
current, and prospective employees, independent contractors and leased
employees, and (ii) has timely prepared and filed all appropriate forms
(including U.S. Immigration and Naturalization Service Form I-9) required by any
relevant Law or Governmental Body.  The Company is not engaged in any unfair
labor practice.
 
(c)   No collective bargaining agreement with respect to the business of the
Company is currently in effect or being negotiated.  The Company does not have
any obligation to negotiate any collective bargaining agreement, and, to the
Knowledge of Seller and the Company, no employees of the Company desire to be
covered by a collective bargaining agreement and there are no pending or, to the
Knowledge of Seller and the Company, threatened union organizing efforts in
connection therewith.
 
(d)   The Company generally has good relationships with its employees.  No
strike, slowdown or work stoppage is occurring or has occurred since the
inception of the Company nor, to the Knowledge of Seller and the Company, is
threatened or has been threatened within the one-year period prior to the date
hereof, with respect to the employees of the Company.
 
(e)   There is no representation or certification claim or petition pending
before any labor agency or board (including the U.S. National Labor Relations
Board) of which the Company or Seller has been notified and, to the Knowledge of
Seller and the Company, no question concerning representation has been raised or
threatened respecting the employees of the Company.  No union or employee
bargaining agency has applied or, to the Knowledge of Seller
 
 
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or the Company, threatened to apply to any labor agency or board to have the
Company declared a common, related or successor employer pursuant to any
applicable Laws.
 
(f)   Except as set forth in Section 4.14(f) of the Disclosure Schedule, no
notice has been received by the Company or Seller of any complaint or proceeding
filed against the Company claiming that the Company has or may have violated any
applicable employment standards, human rights or other labor or employment Laws,
or of any complaints or proceedings of any kind involving the Company or, to the
Knowledge of Seller and the Company, against any of the employees of the Company
or, to the Knowledge of Seller and the Company, threatened to be filed against
the Company before any agency, labor relations board or Governmental Body
(including, but not limited to, the U.S. National Labor Relations Board and U.S.
Equal Employment Opportunity Commission).  No notice has been received by the
Company or Seller of the intent of any agency or other Governmental Body
responsible for the enforcement of labor or employment Laws to conduct an
investigation of the Company, and no such investigation is in progress.
 
(g)   There are no outstanding orders or charges against the Company under any
occupational health or safety Laws and, to the Knowledge of Seller and the
Company, none have been threatened.  All material levies, assessments,
penalties, fines, liens and surcharges made against the Company pursuant to all
applicable workers compensation Laws as of the date of the Balance Sheet have
been paid or have been reserved for or accrued on the Balance Sheet by the
Company and the Company has not, as of the Closing Date, been reassessed under
any such Laws and there are no claims or potential claims which may be
reasonably expected to adversely affect the accident cost experience of the
Company.  To the Knowledge of Seller and the Company, no audit of the Company is
being performed or threatened pursuant to any workers’ compensation Laws.  There
have been no levies, assessments or penalties pursuant to any applicable workers
compensation Laws imposed or, to the Knowledge of Seller and the Company,
threatened against the Company since the date of the Balance Sheet.
 
(h)   The Company has withheld for all periods all required amounts from its
employees, including, without limitation, for employee income tax withholding,
social security and unemployment taxes in compliance with applicable
Law.  Federal, state, local and foreign returns, as required by applicable Law,
have been filed by the Company for all periods for which returns were due with
respect to employee income tax withholding, social security and unemployment
taxes, and the amounts shown thereof to be due and payable have been paid,
together with any interest and penalties that are due as a result of the failure
of the Company to file such returns when due and pay when due the amounts shown
thereon to be due.
 
(i)   Section 4.14(i) of the Disclosure Schedule accurately sets forth all
severance or continuing payment obligations of the Company, as well as all
unpaid severance or continuing payments of any kind (other than pursuant to a
plan or program described in Section 4.15) which are due or claimed in writing
to be due from the Company to any Person whose employment with the Company was
terminated.  Except as set forth in Section 4.14(i) of the Disclosure Schedule,
the consummation of the transactions contemplated hereby, either alone or in
combination with another event, with respect to each director, officer,
employee, independent contractor and consultant of the Company, will not result
in (A) any payment (including, without limitation, severance, unemployment
compensation or bonus payments) becoming due under any
 
 
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Employee Benefit Plan or agreement, (B) any increase in the amount of
compensation, benefits or fees payable to any such individual or (C) any
acceleration of the vesting or timing of payment of benefits, compensation or
fees payable to any such individual.
 
(j)   Section 4.14(j) of the Disclosure Schedule accurately sets forth the
Company’s policies with respect to accrued, but unused, vacation time.
 
(k)   Section 4.14(k) of the Disclosure Schedule sets forth a complete and
correct list of all employment, management, consulting or other agreements with
any Persons retained by the Company as employees, “leased employees” (within the
meaning of Section 414(n) or (o) of the Code or other similar Law), management
or other independent consultants, sales representatives, sales or commission
agents and distributors, complete and correct copies of which have been made
available to Madden.  Except as set forth in Section 4.14(k) of the Disclosure
Schedule, each employee of the Company is employed on an at-will basis and
neither Seller nor the Company has any written or oral agreements with any
employees of the Company regarding continued employment or terms of employment
subsequent to the date hereof or the Closing Date, or which would otherwise
interfere with the ability to discharge such employees.  To the Knowledge of
Seller and the Company, no key employee and no group of employees of the Company
has any plans to terminate or modify their status as an employee or employees of
the Company (including upon consummation of the transactions contemplated
hereby), except as contemplated by the Employment Agreement.
 
(l)   Neither Seller nor the Company has promised, made any written or oral
statements or representations or distributed any written material to any
employees, shareholders, directors, officers, consultants, independent
contractors, agents, representatives or other personnel of the Company regarding
continued (x) employment or terms of employment, (y) continued engagement, or
(z) continued receipt of any particular benefit, with or from the Company
subsequent to the date hereof or the Closing Date.
 
(m)   Section 4.14(m) of the Disclosure Schedule accurately sets forth summaries
of the significant terms and conditions of any and all arrangements (oral or
written) between the Company and sales representatives, sales agents,
distributors, and any other independent contractors.  Such arrangements are in
full force and effect and are enforceable by the Company in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium and other similar laws affecting creditors’
rights generally and by general principles of equity.  Except as set forth in
Section 4.14(m) of the Disclosure Schedule, the Company is not (with or without
the lapse of time or the giving of notice, or both) in breach of or in default
under, any of the foregoing, and, to the Knowledge of Seller and the Company, no
other party to any of such arrangements is (with or without the lapse of time or
the giving of notice, or both) in breach of or in default under any of such
arrangements.
 
(n)   To the Knowledge of Seller and the Company, no contractor, manufacturer or
supplier used by or under contract with the Company is in material violation of
any Law relating to labor or employment matters for its services to or work for
the Company.
 
4.15   Employee Benefit Plans.
 
 
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(a)   Section 4.15(a) of the Disclosure Schedule lists all Employee Benefit
Plans.  “Employee Benefit Plan” means any “employee benefit plan” as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
from time to time (“ERISA”) and any other plan, policy, program, practice,
agreement, understanding or arrangement (whether written or oral) providing
compensation or other benefits to any current or former officer, employee or
consultant (or to any dependent or beneficiary thereof), of the Company or any
ERISA Affiliate, which are now, or within the last six (6) years were,
maintained by the Company or any ERISA Affiliate, and with respect to which the
Company or any ERISA Affiliate has or may reasonably be expected to have any
liability, including but not limited to any obligation to contribute, including
all employee pension, profit-sharing, savings, retirement, incentive, bonus,
deferred compensation, vacation, holiday, cafeteria, medical, disability, life,
accident or other insurance, stock purchase, stock option, stock appreciation
right, phantom stock, restricted stock or other equity-based compensation plans,
and any other employee benefit plans, policies, programs, practices or
arrangements.  “ERISA Affiliate” means any entity (whether or not incorporated)
other than the Company that, together with the Company, is or could reasonably
be expected to be deemed to be a member of a controlled group of corporations
within the meaning of Section 414(b) of the Code, of a group of trades or
businesses under common control within the meaning of Section 414(c) of the
Code, or in the case of any Employee Benefit Plan subject to Part 3 of Subtitle
B of Title I of ERISA, of an affiliated service group within the meaning of
Section 414(m) of the Code.
 
(b)   Section 4.15(b) of the Disclosure Schedule sets forth each Employee
Benefit Plan that is subject to Section 409A of the Code.  Except as set forth
in Section 4.15(b) of the Disclosure Schedule, any such Employee Benefit Plan
complies in operation and form with Section 409A and the regulations promulgated
thereunder.
 
(c)   With respect to each Employee Benefit Plan, the Company has made available
to Madden to the extent applicable, true and complete copies of (i) each
Employee Benefit Plan including all amendments and written summaries of any
unwritten plan or amendment, and related trust agreements, insurance and other
contracts (including policies), (ii) the summary plan description, any summaries
of material modifications, and all other material communications distributed to
Employee Benefit Plan participants, including COBRA notices and forms, and (iii)
the most recent annual reports on Form 5500 with accompanying schedules and
attachments, the most recent IRS opinion or determination letter, and the most
recent audited financial statements and actuarial valuation reports.
 
(d)   Neither the Company nor any ERISA Affiliate maintains or contributes to or
has ever maintained or contributed to an Employee Benefit Plan (including,
without limitation, any “multiemployer plan” within the meaning of Section 3(37)
of ERISA) subject to Title IV or Section 302 of ERISA and Section 412 of the
Code, and to the Knowledge of Seller and the Company, no condition exists or is
reasonably likely to exist as a result of which the Company could have any
liability under any such sections.  No Employee Benefit Plan is a “multiple
employer plan” as described in Section 3(40) of ERISA or Section 413(c) of the
Code.
 
(e)   Except as set forth on Section 4.15(e) of the Disclosure Schedule, to the
Knowledge of Seller and the Company, no event has occurred in connection with
which the Company or any Employee Benefit Plan, directly or indirectly, would
reasonably be likely to be
 
 
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subject to any liability under ERISA, the Code or any other Law and neither the
Company nor any ERISA Affiliate has agreed to indemnify or is required to
indemnify any person against liability incurred for a violation of such Laws.
 
(f)   Each Employee Benefit Plan which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter or opinion from
the IRS on which it may properly rely, has timely adopted all amendments
required for continued plan qualification, and to the Knowledge of Seller and
the Company, nothing has occurred and no circumstances exist that adversely
affect any such favorable determination or opinion letter, or which would put
issuance of a favorable determination or opinion letter on a pending application
in doubt.  Each Employee Benefit Plan is and has been maintained in form and
operation in compliance with its terms and all applicable Laws, including,
without limitation, ERISA and the Code.  As of and including the date of the
Closing, the Company shall have made all contributions required to be made by it
up to and including the date of the Closing with respect to each Employee
Benefit Plan, or adequate accruals therefor will have been provided for and will
be properly reflected on the books of the Company.  All notices, filings and
disclosures required by ERISA and the Code have been timely made.
 
(g)   With respect to each Employee Benefit Plan, to the Knowledge of Seller and
the Company, (i) no “party in interest” or “disqualified person” (as defined in
Section 3(14) of ERISA or Section 4975 of the Code, respectively) has at any
time engaged in a transaction which could subject Madden, the Company or Seller,
directly or indirectly, to a tax, penalty or liability for prohibited
transactions imposed by ERISA, the Code or any other applicable law and (ii) no
fiduciary (as defined in Section 3(21) of ERISA) has breached any of the
responsibilities or obligations imposed upon the fiduciary under Title I of
ERISA or any other applicable law.
 
(h)   Each Employee Benefit Plan may, by its terms, be amended or terminated at
any time, and no additional liabilities to the Company or to such plan will
arise on account of any such termination (including, but not limited to,
retrospective premium adjustments or early cancellation penalties).
 
(i)   Each Employee Benefit Plan which is a “welfare plan” within the meaning of
Section 3(1) of ERISA and which provides health, disability or death benefits is
fully insured.
 
(j)   No Employee Benefit Plan provides for medical or health benefits or
coverage for any participant or dependent after such participant’s retirement or
other termination of employment, except as may be required by COBRA or any other
similar law.  To the Knowledge of Seller and the Company, there has been no
communication to any person providing services to the Company that could
reasonably be expected to promise or grant any such person any retiree health or
life insurance or any retiree death benefits, except as required by COBRA or any
other similar law.
 
(k)   The Company has not proposed, announced or agreed to create any additional
Employee Benefit Plans or to amend or modify any Employee Benefit Plan.
 
(l)   Except as contemplated by this Agreement or as set forth in Section
4.15(l) of the Disclosure Schedule, the consummation of the transactions
contemplated by this
 
 
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Agreement, either alone or in combination with any other event, will not result
in (i) any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus payments or otherwise) becoming due to any
current or former director, officer, employee or consultant of the Company, (ii)
any increase in the amount of compensation or benefits payable in respect of any
director, officer, employee or consultant of the Company, (iii) any acceleration
of the vesting or timing of payment of any benefits or compensation payable in
respect of any director, officer, employee or consultant of the Company, or
(iv) any “parachute payment” under Section 280G of the Code, whether or not such
amount may be considered reasonable compensation for personal services rendered.
 
(m)   To the Knowledge of Seller and the Company, there are no pending or
threatened investigations by any Governmental Body involving or relating to any
Employee Benefit Plan or pending claims (except for routine claims for benefits
payable in the normal operation of the Employee Benefit Plans), suits or
proceedings against any Employee Benefit Plan, the Company, Seller, or any
fiduciary or trustee of any Employee Benefit Plan.
 
(n)   Section 4.15(n) of the Disclosure Schedule sets forth annual costs for the
last calendar year associated with the maintenance of each Employee Benefit
Plan, including, without limitation, annual premiums and contributions.
 
(o)   No Employee Benefit Plan covers any non-U.S. employees.
 
4.16   Environmental Matters.
 
(a)   Except as set forth in Section 4.16(a) of the Disclosure Schedule:
 
(i)   the Company is and has been in compliance with all applicable
Environmental Laws;
 
(ii)   no Environmental Claims have been asserted against the Company or Seller,
nor does the Company or Seller have Knowledge or notice of any pending or
threatened Environmental Claim against the Company or Seller.
 
(iii)   there has been no Release of a Hazardous Material at or from any real
property owned or leased by the Company that would reasonably be expected to
subject the Company to liability under any Environmental Law, nor has the
Company or Seller received written notice that it is a potentially responsible
party under or otherwise has potential liability under any Environmental Law;
and
 
(iv)   the Company has not managed, handled, generated, manufactured, refined,
recycled, discharged, emitted, buried, processed, produced, reclaimed, stored,
treated, transported, or disposed of any Hazardous Substance, except in
compliance with all Environmental Laws.
 
(b)   Seller has provided Madden with all environmental audits or assessments in
the possession of the Company relating to the business of, or any property owned
or leased by, the Company.
 
 
 
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4.17   Bank Accounts and Powers of Attorney.  Section 4.17 of the Disclosure
Schedule sets forth the name of each bank in which the Company has an account,
lock box or safe deposit box, the number of each such account, lock box and safe
deposit box, and the names of all Persons authorized to draw thereon or have
access thereto.  Except as set forth in Section 4.17 of the Disclosure Schedule,
no Person holds any power of attorney from the Company.
 
4.18   Absence of Certain Changes.  Since the date of the Balance Sheet, the
Company has operated its business in the ordinary course consistent with past
practice and in a commercially reasonable manner, and has maintained its
relationships with customers, vendors, suppliers, employees, agents and others
in a commercially reasonable manner, and there has not occurred any event,
development or change, and no facts or circumstances exist, which, individually
or in the aggregate, have had or could be reasonably expected to have a Material
Adverse Effect.  Without limiting the generality of the immediately preceding
sentences, and except as set forth in Section 4.18 of the Disclosure Schedule,
since the date of the Balance Sheet, the Company has not:
 
(i)   amended or otherwise modified its Organizational Documents or altered,
through merger, liquidation, reorganization, restructuring or in any other
fashion, its corporate structure or ownership;
 
(ii)   issued or sold, or authorized for issuance or sale, or granted any
options or made other agreements, arrangements or understandings of the type
referred to in Section 4.2(b) with respect to, any shares of its capital stock
or any other of its securities, or altered any term of any of its outstanding
securities or made any change in its outstanding shares of capital stock or
other ownership interests or its capitalization, whether by reason of a
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, stock dividend or otherwise;
 
(iii)   mortgaged, pledged or granted any security interest in any of its
assets, except Permitted Encumbrances and security interests solely in tangible
personal property granted pursuant to any purchase money agreement, conditional
sales contract or capital lease under which, solely with respect to conditional
sales contracts and capital leases, there exists an aggregate future liability
not in excess of $25,000 per contract or lease (which amount was not more than
the purchase price for such personal property and which security interest does
not extend to any other item or items of personal property);
 
(iv)   declared, set aside, made or paid any dividend or other distribution to
any holder with respect to its capital stock or other securities;
 
(v)   redeemed, purchased or otherwise acquired, directly or indirectly, any of
its capital stock or other securities;
 
(vi)   increased the compensation of any of its non-executive employees, except
in the ordinary course of business consistent with past practice and in a
commercially reasonable manner, or increased the compensation of any of its
executive officers;
 
 
 
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(vii)   adopted or, except as required by Law, amended, any Employee Benefit
Plan;
 
(viii)   extended, terminated or modified any Contract, permitted any renewal
notice period or option period to lapse with respect to any Contract or received
any written notice of termination of any Contract, except for terminations of
Contracts upon their expiration during such period in accordance with their
terms;
 
(ix)   incurred or assumed any indebtedness for borrowed money or guaranteed any
obligation or the net worth of any Person, except for endorsements of negotiable
instruments for collection in the ordinary course of business consistent with
past practice and in a commercially reasonable manner;
 
(x)   incurred any liabilities, debts or obligations (whether absolute, accrued,
contingent or otherwise), except for liabilities incurred in the ordinary course
of business consistent with past practice and in a commercially reasonable
manner;
 
(xi)   incurred any liability, debt or obligation (whether absolute, accrued,
contingent or otherwise) to or of any Affiliated Person, or made any Affiliate
Loans;
 
(xii)   discharged or satisfied any Encumbrance other than those then required
to be discharged or satisfied during such period in accordance with their
original terms;
 
(xiii)   paid any obligation or liability (absolute, accrued, contingent or
otherwise), whether due or to become due, except for any current liabilities and
the current portion of any long term liabilities shown on the Financial
Statements or incurred since the date of the Balance Sheet in the ordinary
course of business consistent with past practice and in a commercially
reasonable manner;
 
(xiv)   sold, transferred, leased to others or otherwise disposed of any assets
having a fair market value in excess of $25,000, except sales of inventory and
dispositions of obsolete assets no longer used or useful in the business of the
Company, in each case in the ordinary course of business consistent with past
practice and in a commercially reasonable manner;
 
(xv)   cancelled, waived or compromised any debt or claim;
 
(xvi)   suffered any damage or destruction to, loss of, or condemnation or
eminent domain proceeding relating to any of its tangible properties or assets
(whether or not covered by insurance);
 
(xvii)   lost the employment services of any employee whose annual salary
exceeded $50,000;
 
 
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(xviii)   made any loan or advance to any Person, other than travel and other
similar routine advances to employees in the ordinary course of business
consistent with past practice and in a commercially reasonable manner;
 
(xix)   purchased or acquired any capital stock or other securities of any other
corporation or any ownership interest in any other business enterprise or
Person;
 
(xx)   made capital expenditures or capital additions or betterments in amounts
which exceeded $2,000 in the aggregate;
 
(xxi)   changed its method of accounting or its accounting principles or
practices, including any policies or practices with respect to the establishment
of reserves for work-in-process and accounts receivable, utilized in the
preparation of the Financial Statements, other than as required by GAAP;
 
(xxii)   instituted or settled any litigation or any legal, administrative or
arbitration action or proceeding before any court or Governmental Body relating
to it or any of its properties or assets;
 
(xxiii)   made any new elections or changed any current elections with respect
to its Taxes;
 
(xxiv)   entered into any transaction with any Affiliated Person;
 
(xxv)   entered into any agreements, commitments or contracts, except those made
in the ordinary course of business consistent with past practice and in a
commercially reasonable manner;
 
(xxvi)   failed to maintain reserves at historical levels and consistent with
past practice; or
 
(xxvii)   entered into any agreement or commitment to do any of the foregoing.
 
4.19   Books and Records.  The books and records of the Company with respect to
the Company, its operations, employees and properties have been maintained in
the usual, regular and ordinary manner, all entries with respect thereto have
been accurately made in all material respects, and all transactions involving
the Company have been accurately accounted for.
 
4.20   Transactions with Affiliated Persons.  Except as set forth in Section
4.20 of the Disclosure Schedule and except (i) for employment relationships
between the Company and employees of the Company, (ii) for remuneration by the
Company for services rendered as a director, officer or employee of the Company,
or (iii) as set forth in Section 4.20 of the Disclosure Schedule, reimbursement
of expenses in the ordinary course of business consistent with past practice to
directors, officers and employees, (A) the Company has not, and has not since
its inception, in the ordinary course of business consistent with past practice
or otherwise, directly or indirectly, purchased, leased or otherwise acquired
any property or obtained any
 
 
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services from, or sold, leased or otherwise disposed of any property or
furnished any services to, any Affiliated Person; (B) the Company does not owe
any amount to any Affiliated Person; (C) no Affiliated Person owes any amount to
the Company; and (D) no part of the property or assets of any Affiliated Person
is used by the Company in the conduct or operation of its business.
 
4.21   Customer and Supplier Relationships.
 
(a)   Section 4.21(a) of the Disclosure Schedule lists the ten (10) largest
customers of the Company for the fiscal years ended December 31, 2007, 2008 and
2009.  Except as set forth in Section 4.21(a) of the Disclosure Schedule, to the
Knowledge of Seller and the Company, there are no facts or circumstances
(including the consummation of the transactions contemplated hereby) that are
likely to result in the loss of any one customer or group of customers of the
Company or a material adverse change in the relationship of the Company with
such a customer or group of customers.  The Company generally has a good
relationship with each of its ten (10) largest customers.
 
(b)   Section 4.21(b) of the Disclosure Schedule lists the top ten (10) largest
suppliers of products to the Company for the fiscal years ended December 31,
2007, 2008 and 2009.  Except as set forth in Section 4.21(b) of the Disclosure
Schedule, to the Knowledge of Seller and the Company, there are no facts or
circumstances (including the consummation of the transactions contemplated
hereby) that are likely to result in the loss of any one supplier or group of
suppliers of the Company or a material adverse change in the relationship of the
Company with such a supplier or group of suppliers.  The Company generally has a
good relationship with each of its ten (10) largest suppliers.
 
4.22   Absence of Certain Business Practices.  Neither Seller nor the Company,
nor any of their directors or officers, nor, to the Knowledge of Seller and the
Company, the employees or agents of the Company, have, directly or indirectly,
(a) made any contribution or gift which contribution or gift is in violation of
any applicable Law, (b) made any bribe, rebate, payoff, influence payment,
kickback or other payment to any Person, private or public, regardless of form,
whether in money, property or services (i) to obtain favorable treatment in
securing business, (ii) to pay for favorable treatment for business secured,
(iii) to obtain special concessions or for special concessions already obtained
for or in respect of the Company or any Affiliated Person of the Company, or
(iv) in violation of any Law or legal requirement, or (c) established or
maintained any fund or asset of the Company that has not been recorded in the
books and records of the Company.
 
4.23   Brokers and Finders.  Except as set forth in Section 4.23 of the
Disclosure Schedule, no broker, finder or investment advisor has been engaged by
Seller or the Company in connection with the transactions contemplated by this
Agreement.
 
4.24   Restrictions on Business Activities.  Except as set forth in Section 4.24
of the Disclosure Schedule, there is no judgment, injunction, order or decree
binding upon the Company or Seller or, to the Knowledge of Seller and the
Company, threatened, that has or could reasonably be expected to have the effect
of prohibiting or impairing the conduct of the business of the Company as
currently conducted or any business practice of the Company,
 
 
 
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including the acquisition of property, the sale of products, the provision of
services, the hiring of employees, and the solicitation of customers, in each
case either individually or in the aggregate.
 
4.25   Payables.  Except as set forth in Section 4.25 of the Disclosure
Schedule, all accounts payable of the Company have arisen in the ordinary course
of business consistent with past practice.  All items which are required by GAAP
to be reflected as payables in the Financial Statements and on the books and
records of the Company are so reflected and have been recorded in accordance
with GAAP and in a commercially reasonable manner.  There has been no material
adverse change since December 31, 2009 in the amount or delinquency of accounts
payable of the Company, either individually or in the aggregate.
 
4.26   Receivables.  Except as set forth in Section 4.26 of the Disclosure
Schedule, all accounts receivable of the Company have arisen in the ordinary
course of business consistent with past practice, represent valid obligations to
the Company arising from bona fide transactions, and, to the Knowledge of Seller
and the Company, are not subject to claims, set-off, or other defenses or
counterclaims.  All items which are required by GAAP to be reflected as
receivables in the Financial Statements and on the books and records of the
Company are so reflected and have been recorded in accordance with GAAP and in a
commercially reasonable manner.
 
4.27   Business Relations.  Except as set forth in Section 4.27 of the
Disclosure Schedule, the Company is not required to provide any bonding or any
other financial security arrangements in connection with any transaction with
any customer or supplier.  Since December 31, 2007, neither the Company nor
Seller has received any notice of any disruption (including delayed deliveries
or allocations by suppliers) in the availability of any materials or products
used in the business of the Company, nor do any of them have reason to believe
that any such disruption will occur in connection with the business of the
Company.  There are no sole source suppliers of goods, equipment or services
used by the Company (other than public utilities) with respect to which
practical alternative sources of supply are unavailable.
 
4.28   Disclosure.  No representation or warranty by Seller contained in this
Agreement or any Transaction Document or any statement or certificate furnished
by Seller to Madden or its representatives in connection herewith or therewith
or pursuant hereto or thereto contains any untrue statement of a material fact,
or omits to state any material fact required to make the statements herein or
therein contained not misleading, in light of the circumstances in which they
were made.  There is no fact or circumstance known to Seller which could be
reasonably expected to have a Material Adverse Effect.
 
ARTICLE V

 
Representations and Warranties of Madden
 
Madden represents and warrants to Seller as follows:
 
5.1   Organization and Good Standing.  Madden is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to enter into and carry out its
obligations under this Agreement and the other Transaction Documents to which
Madden is a party.
 
 
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5.2   Authorization.  The execution and delivery by Madden of this Agreement and
the other Transaction Documents to which Madden is a party have been duly
authorized by all necessary corporate action required on the part of
Madden.  This Agreement and the other Transaction Documents to which Madden is a
party have been duly executed and delivered by Madden and, assuming due
authorization, execution and delivery by the other parties thereto, constitute
legal, valid and binding obligations of Madden, enforceable against Madden in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other laws affecting
the rights of creditors generally and by general principles of equity.
 
5.3   No Conflicts; Consents.  Neither the execution and delivery by Madden of
this Agreement or any of the Transaction Documents to which Madden is a party
nor the consummation by Madden of the transactions contemplated hereby or
thereby will, with or without notice or lapse of time or both, directly or
indirectly (i) conflict with or violate the charter or by-laws of Madden, or
(ii) conflict with, violate, result in the breach of any term of, constitute a
default under or require the consent or approval of, or any notice to or filing
with any Person under, any note, mortgage, deed of trust or other agreement or
instrument to which Madden is a party or by which Madden is bound, or any Law,
writ or injunction of any Governmental Body having jurisdiction over Madden,
except with respect to clause (ii) where such conflict, violation, breach or
default, or the failure to obtain such consent or approval, give such notice or
make such filing, would not materially adversely impair the ability of Madden to
consummate the transactions contemplated hereby.
 
5.4   Litigation.  No lawsuit, governmental investigation or legal,
administrative, or arbitration action or proceeding is pending or, to the
Knowledge of Madden, threatened against Madden, or any director, officer or
employee of Madden in his or her capacity as such, which questions the validity
of this Agreement or seeks to prohibit, enjoin or otherwise challenge the
consummation of the transactions contemplated hereby.
 
5.5   Brokers and Finders.  No broker, finder or financial advisor has been
engaged by Madden in connection with the transactions contemplated by this
Agreement.  Madden shall be responsible for and shall pay all fees, commissions
and costs of any such broker, finder or financial advisor.
 
5.6   Investment Intent.  Madden is acquiring all of the Company Shares for its
own account and for investment purposes and not with a view to the sale or other
distribution of any of the Company Shares.
 
ARTICLE VI

 
Covenants of Seller
 
Seller hereby covenants and agrees as follows:
 
 
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6.1   Ordinary Course.  From the date hereof until the Closing, other than as
contemplated by this Agreement, Seller will use his commercially reasonable
efforts to (a) cause the Company to (i) maintain its corporate existence in good
standing, (ii) maintain in effect all of its presently existing insurance
coverage (or substantially equivalent insurance coverage), preserve its business
organization substantially intact, keep the services of its present
principal employees and preserve its present business relationships with its
material suppliers and customers, (iii) maintain the lines of business of the
Company, and (iv) in all material respects conduct its business in the usual and
ordinary course consistent with past practice and in a commercially reasonable
manner, without a material change in current operational policies, subject, in
each case, to the restrictions set forth in Section 6.2, and (b) permit Madden,
its accountants, its legal counsel and its other representatives reasonable
access to the management, accountants, legal counsel, minute books and stock
transfer records, other books and records, contracts, agreements, properties and
operations of the Company at all reasonable times upon reasonable notice
(provided that all such parties shall be subject to the terms of the
Confidentiality Agreement).
 
6.2   Conduct of Business.  From the date hereof until the Closing, other than
as contemplated by this Agreement or as set forth in Section 6.2 of the
Disclosure Schedule, Seller will cause the Company not to do any of the
following without the prior written consent of Madden:
 
(i)   amend or otherwise modify its organizational documents or alter, through
merger, liquidation, reorganization, restructuring or in any other fashion, its
corporate structure or ownership;
 
(ii)   other than pursuant to Section 2.1, issue or sell, or authorize for
issuance or sale, or grant any options or make other agreements, arrangements or
understandings of the type referred to in Section 4.2(b) with respect to, any
shares of its capital stock or any other of its securities, or alter any term of
any of its outstanding securities or make any change in its outstanding shares
of capital stock or other ownership interests or its capitalization, whether by
reason of a reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, stock dividend or otherwise;
 
(iii)   mortgage, pledge or grant any security interest in any of its assets,
except Permitted Encumbrances and security interests solely in tangible personal
property granted pursuant to any purchase money agreement, conditional sales
contract or capital lease under which, solely with respect to conditional sales
contracts and capital leases, there exists an aggregate future liability not in
excess of $25,000 per contract or lease (which amount is not more than the
purchase price for such personal property and which security interest does not
extend to any other item or items of personal property);
 
(iv)   declare, set aside, make or pay any dividend or other distribution to any
holder with respect to its capital stock or other securities, except for the
distributions of cash listed on Schedule 6.2(iv) of the Disclosure Schedule;
 
 
 
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(v)   redeem, purchase or otherwise acquire, directly or indirectly, any of its
capital stock or other securities;
 
(vi)   increase the compensation of any of its non-executive employees, except
in the ordinary course of business consistent with past practice and in a
commercially reasonable manner, or increase the compensation of any of its
executive officers;
 
(vii)   adopt or, except as otherwise required by Law, amend, any Employee
Benefit Plan or enter into any collective bargaining agreement;
 
(viii)   extend, terminate or modify any Contract or permit any renewal notice
period or option period to lapse with respect to any Contract, except for
terminations of Contracts upon their expiration during such period in accordance
with their terms;
 
(ix)   incur or assume any indebtedness for borrowed money or guarantee any
obligation or the net worth of any Person, except for endorsements of negotiable
instruments for collection in the ordinary course of business consistent with
past practice;
 
(x)   incur any liabilities, debts or obligations (whether absolute, accrued,
contingent or otherwise), except for liabilities incurred in the ordinary course
of business consistent with past practice and in a commercially reasonable
manner;
 
(xi)   incur any liability, debt or obligation (whether absolute, accrued,
contingent or otherwise) to or of any Affiliated Person, or make any Affiliate
Loans;
 
(xii)   discharge or satisfy any Encumbrance other than those which are required
to be discharged or satisfied during such period in accordance with their
original terms;
 
(xiii)   pay any obligation or liability (absolute, accrued, contingent or
otherwise), whether due or to become due, except for any current liabilities,
and the current portion of any long term liabilities shown on the Financial
Statements or incurred since the date of the Balance Sheet in the ordinary
course of business consistent with past practice and in a commercially
reasonable manner;
 
(xiv)   sell, transfer, lease to others or otherwise dispose of any of its
properties or assets having a fair market value in excess of $25,000, except
sales of inventory and dispositions of obsolete assets no longer used or useful
in its business, in each case in the ordinary course of business consistent with
past practice and in a commercially reasonable manner;
 
(xv)   cancel, waive or compromise any debt or claim;
 
 
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(xvi)   make any loan or advance to any Person, other than travel and other
similar routine advances to employees in the ordinary course of business
consistent with past practice and in a commercially reasonable manner;
 
(xvii)   purchase or acquire any capital stock or other securities of any other
corporation or any ownership interest in any other business enterprise or
Person;
 
(xviii)   make capital expenditures or capital additions or betterments in
amounts which exceed $2,000 in the aggregate;
 
(xix)   change its method of accounting or its accounting principles or
practices, including any policies or practices with respect to the establishment
of reserves for work-in-process, inventory and accounts receivable, utilized in
the preparation of the Financial Statements, other than as required by GAAP;
 
(xx)   institute or settle any litigation or any legal, administrative or
arbitration action or proceeding before any court or Governmental Body relating
to it or any of its properties or assets;
 
(xxi)   make any settlements or new elections, or change any current elections,
with respect to its Taxes;
 
(xxii)   enter into any agreements, commitments or contracts for any real
property leases;
 
(xxiii)   enter into any transaction with any Affiliated Person;
 
(xxiv)   enter into any other agreements, commitments or contracts, except those
made in the ordinary course of business consistent with past practice and in a
commercially reasonable manner;
 
(xxv)   fail to maintain reserves at historical levels and consistent with past
practice; or
 
(xxvi)   enter into any agreement or commitment to do any of the foregoing.
 
6.3   Certain Filings.  Seller agrees to make or cause to be made all filings
with Governmental Bodies that are required to be made by Seller or by the
Company to carry out the transactions contemplated by this Agreement, including
as required under any applicable anti-competition Law.  Seller agrees to assist,
and to cause the Company to assist, Madden in making all such filings,
applications and notices as may be necessary or desirable in order to obtain the
authorization, approval or consent of any Governmental Body which may be
reasonably required or which Madden may reasonably request in connection with
the consummation of the transactions contemplated hereby, including as required
under any applicable anti-competition Law.
 
 
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6.4   Consents and Approvals.  Seller agrees to use its good faith commercially
reasonable efforts to obtain, or to cause the Company to obtain, as promptly as
practicable, but not later than the Closing in any event, all consents,
authorizations, approvals and waivers required in connection with the
consummation of the transactions contemplated by this Agreement.
 
6.5   Efforts to Satisfy Conditions.  Seller agrees to use its good faith
commercially reasonable efforts to satisfy the conditions set forth in Article
IX.
 
6.6   Further Assurances.  Seller agrees to execute and deliver, and to cause
the Company to execute and deliver, such additional documents and instruments,
and to perform such additional acts as Madden may reasonably request to
effectuate or carry out and perform all the terms, provisions and conditions of
this Agreement and the other Transaction Documents and the transactions
contemplated hereby and thereby and to effectuate the intent and purposes
hereof.
 
6.7   Notification of Certain Matters.  Promptly after obtaining knowledge
thereof, Seller shall notify Madden in writing of (a) the occurrence or
non-occurrence of any fact or event which causes or would be reasonably likely
to cause (i) any representation or warranty of Seller contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Closing Date or (ii) any covenant, condition or agreement
of Seller in this Agreement not to be complied with or satisfied in any material
respect, and (b) any failure of Seller to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by Seller hereunder in
any material respect; provided, however, that no such notification shall affect
the representations or warranties of Seller, or the right of Madden to rely
thereon, or the conditions to the obligations of Madden except as provided in
the following sentence.  If Seller notifies Madden in writing of any matter
referred to in the preceding clause (a)(i) and Madden nevertheless consummates
the transactions contemplated hereby, Madden shall have no claim against Seller
for a breach of such representation or warranty based on the information
contained in such notification and the provisions of Section 12.2 shall not
apply with respect to any such matter.  Seller shall give prompt notice in
writing to Madden of any notice or other communication from any third party
alleging that the consent of such third party is or may be required to be
obtained by Seller or the Company in connection with the transactions
contemplated by this Agreement.
 
6.8   Closing Date Debt.  Seller shall cause the Company to be free of any and
all Debt as of the Closing Date.
 
6.9   Brokers and Finders.  Seller (and not the Company) shall be responsible
for and shall pay all fees, commissions and costs of any such broker, finder or
investment advisor.
 
ARTICLE VII

 
Covenants of Madden
 
Madden hereby covenants and agrees as follows:
 
 
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7.1   Certain Filings.  Madden agrees to make or cause to be made all filings
with Governmental Bodies that are required to be made by Madden or its
affiliates to carry out the transactions contemplated by this Agreement,
including as required under any applicable anti-competition Law. Madden agrees
to assist Seller in making all such filings, applications and notices as may be
necessary or desirable in order to obtain the authorization, approval or consent
of any Governmental Body which may be reasonably required or which Seller may
reasonably request in connection with the consummation of the transactions
contemplated hereby, including as required under any applicable anti-competition
Law.
 
7.2   Efforts to Satisfy Conditions.  Madden agrees to use its good faith
commercially reasonable efforts to satisfy the conditions set forth in Article X
hereof that are within its control.
 
7.3   Further Assurances.  Madden agrees to execute and deliver such additional
documents and instruments, and to perform such additional acts, as Seller may
reasonably request to effectuate or carry out and perform all the terms,
provisions and conditions of this Agreement and the other Transaction Documents
and the transactions contemplated hereby and thereby and to effectuate the
intent and purposes hereof.
 
7.4   Notification of Certain Matters.  Promptly after obtaining knowledge
thereof, Madden shall notify Seller of (a) the occurrence or non-occurrence of
any fact or event which causes or would be reasonably likely to cause (i) any
representation or warranty of Madden contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing Date or (ii) any covenant, condition or agreement of Madden in this
Agreement not to be complied with or satisfied in any material respect and (b)
any failure of Madden to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder in any material
respect; provided, however, that no such notification shall affect the
representations or warranties of Madden or Seller’s right to rely thereon, or
the conditions to the obligations of Seller except as provided in the following
sentence.  If Madden notifies Seller in writing of any matter referred to in the
preceding clause (a)(i) and Seller nevertheless consummates the transactions
contemplated hereby, Seller shall have no claim against Madden for a breach of
such representation or warranty based on the information contained in such
notification and the provisions of Section 12.3 shall not apply with respect to
any such matter.  Madden shall give prompt notice in writing to Seller of any
notice or other communication from any third party alleging that the consent of
such third party is or may be required to be obtained by Madden in connection
with the transactions contemplated by this Agreement.
 
ARTICLE VIII

 
Certain Other Agreements
 
8.1   Certain Tax Matters. The parties hereby further covenant and agree as
follows:
 
(a)   Tax Returns and Cooperation.
 
 
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(i)   Seller shall, or shall use good faith commercially reasonable efforts to
cause the Company to, prepare and timely file, in a commercially reasonable
manner, all Returns and amendments thereto required to be filed by or for the
Company for all taxable periods ending on or before the Closing Date.  If the
due date (including extensions) to file any such Return is after the Closing
Date and Seller by law is not authorized to sign such Returns on the Company’s
behalf, Madden shall provide a requisite power of attorney to sign such Returns
to Seller not more than five (5) days after Madden’s, the Company’s or any
affiliate’s receipt of any such Returns from Seller.  Madden will be given a
reasonable opportunity to review and comment on all such Returns required to be
filed after the date hereof.
 
(ii)   Except to the extent taken into account in determining Closing Date Net
Working Capital, Seller shall be liable for all Taxes of the Company for the
Pre-Closing Period except for any Taxes that will result by reason of a
338(h)(10) Election or analogous elections made pursuant to Section 8.1(b),
grossed-up by Madden for any additional Taxes on the receipt so that the payment
of such Taxes is made on an after-tax basis (with respect to which Madden will
be liable on an after-tax basis).  Seller shall be liable for all Taxes of
Seller for any taxable year or taxable period, except for any Taxes that result
by reason of a 338(h)(10) Election or analogous elections made pursuant to
Section 8.1(b), grossed-up by Madden for any additional Taxes on the receipt so
that the payment of such Taxes is made on an after-tax basis (with respect to
which Madden will be liable on an after-tax basis).  In the case of any taxable
period that includes (but does not begin or end on) the Closing Date (a
“Straddle Period”), the portion of the Taxes of the Company which were incurred
in the ordinary course of its business for such Straddle Period attributable to
the period prior to close of the Closing Date shall be treated as Taxes of a
Pre-Closing Period.  The amount of Straddle Period Taxes of the Company that are
treated as Taxes of a Pre-Closing Period shall be computed (x) in the case of
income, franchise, sales, or similar taxes, pursuant to an interim closing of
the books method by assuming that the Company had a taxable year or period which
ended on the Closing Date, except that exemptions, allowances or deductions that
are calculated on an annual basis, such as the deduction for depreciation, shall
be apportioned on a per-diem basis and (y) in the case of real property Taxes,
personal property taxes and similar ad valorem obligations by prorating such
Taxes owed for the Straddle Period on a per-diem basis.
 
(iii)   The Company shall be liable for any and all Taxes imposed on the Company
relating to or apportioned to any taxable year or portion thereof beginning on
or after the Closing Date and ending after the Closing Date.  Seller shall be
liable for any and all Taxes imposed on the Company relating to or apportioned
to any taxable year or portion thereof beginning prior to the Closing Date and
ending prior the Closing Date.
 
(iv)   Any Tax refunds that are received by Madden, the Company or any Affiliate
thereof, and any amounts credited against Tax to which Madden, the Company or
any Affiliate thereof become entitled, that relate to taxable periods (or
portions thereof) ending on or before the Closing Date shall be for the account
of Seller and Madden shall pay over to Seller any such refund or the amount of
any such credit within ten (10) days after receipt or entitlement thereto.  In
addition, to the extent that a
 
 
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claim for refund or a proceeding results in a payment or credit against Tax by a
taxing authority to Madden, the Company or any affiliate thereof of any amount
accrued on the most recent Balance Sheet, Madden shall pay such amount to Seller
within ten (10) days after receipt or entitlement thereto.
 
(v)   Madden and Seller shall each cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of
Returns pursuant to this Section 8.1(a) and any audit, litigation or other
proceeding with respect to Taxes.  Such cooperation shall include the retention
and (upon the other party’s request) the provision of records, assistance and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder.  Seller (before the Closing) and Madden (after the Closing) shall
each cause the Company (A) to retain all books and records with respect to Tax
matters pertinent to it relating to any taxable period beginning before the
Closing Date until the expiration of the statutory period of limitations of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding any
such books and records.
 
(vi)   Madden and Seller further agree, upon request, to use good faith
commercially reasonable efforts to obtain any certificate or other document from
any Governmental Body or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby); provided that such
certificate or other document does not increase the Tax of Madden or Seller.
 
(vii)   Any amended Return or claim for Tax refund for any Pre-Closing Period
(other than a Straddle Period) shall be filed, or cause to be filed only by
Seller.  If Seller by law is not authorized to sign such amended Returns, Madden
shall provide a requisite power of attorney to sign such Returns to
Seller.  Madden shall not file an amended Return for a Straddle Period without
the consent of Seller, which consent shall not be unreasonably withheld or
delayed.
 
(viii)   If in connection with any examination, investigation, audit or other
proceeding in respect to any Return of the Company, any Governmental Body issues
to the Company a written notice of deficiency, a notice of reassessment, a
proposed adjustment, Madden or the Company shall notify Seller of its receipt of
such communication from the Governmental Body within twenty (20) days after
receiving any such notice.  Except as provided below, Seller shall, at his
expense, have the right to control the contest of any such assessment, proposal,
claim, reassessment, demand or other proceedings in connection with any
Pre-Closing Period Return (other than a Straddle Period
Return).  Notwithstanding anything in this Agreement to the contrary, if any
examination, investigation, audit or other proceeding relates to a Straddle
Period Return, Madden and/or the Company shall participate in, control and
resolve such examination, investigation, audit or other proceeding; provided,
however, that if such examination, investigation, audit or other proceeding
relates to the portion of the taxable
 
 
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period ending on the Closing Date, then Seller may, at his expense, participate
in such defense.  Madden and/or the Company shall not compromise or settle such
contest or proceeding without the written consent of the Seller which consent
shall not be unreasonably withheld or delayed.
 
(b)   338(h)(10) Election.
 
(i)   At the request of Madden, Madden and Seller shall timely make a joint
election under Section 338(h)(10) of the Code (a “338(h)(10) Election”) with
respect to the purchase of the shares of the Company.  Madden and Seller shall,
at the request of Madden, make any analogous election with respect to state,
local or foreign Taxes, to the extent that such election is separately
available.  Madden and Seller shall exchange completed and executed copies of
(A) IRS Form 8023 and required schedules thereto and (B) to the extent required,
any similar forms with respect to state, local or foreign Taxes, which shall in
each case be completed in a manner consistent with the Final Allocation (as
defined below), as soon after the preparation of the Final Allocation as is
reasonably practicable.
 
(ii)   Unless Madden determines that it will not make a 338(h)(10) Election and
within fifteen (15) days after the date hereof provides to Seller written notice
thereof, Madden shall, within sixty (60) days after the Closing, determine and
provide to Seller the allocation of the purchase price, as determined for United
States federal income Tax purposes, among the assets deemed acquired for United
States federal income Tax purposes assuming a 338(h)(10) Election was made with
respect to the Company Shares (the “Final Allocation”).  The Final Allocation
shall be made in accordance with the Code and any applicable Treasury
Regulations and any allocation to inventory will be equal to the fully adjusted
tax basis.  The Final Allocation shall be redetermined, consistent with the
principles set forth above, upon the happening of any event reasonably requiring
such redetermination, including, without limitation, any adjustments to taxable
income, post-closing adjustments pursuant to Section 2.3(b) and the payment to
Seller of the Earn-Out Payment pursuant to the Earn-Out Agreement.  The Final
Allocation, once determined, shall be annexed to this Agreement as Exhibit D,
and any redetermination of the Final Allocation pursuant to the preceding
sentence shall likewise be annexed to this Agreement with an appropriate
designation.  The Final Allocation (and any redetermination thereof) shall be
binding on Seller and Madden for all Tax and financial reporting purposes.
 
(iii)   Notwithstanding anything herein to the contrary, Madden shall reimburse
Seller for the increased Taxes, if any, incurred by Seller with respect to the
year in which the Closing occurs and/or any subsequent year as a result of any
338(h)(10) Election or analogous elections made (taking into account the Final
Allocation) (as grossed-up for additional Taxes of Seller and/or the Company on
the receipt of such payment) such that Seller will receive the same after-tax
proceeds with respect to the year in which the Closing occurs and/or any
subsequent year as if Seller had sold stock and no 338(h)(10) Election or
analogous elections had been made (“338(h)(10) Grossed-Up Payment”).  Within
thirty (30) days after determination of the Final Allocation, Seller shall
provide to Madden a schedule, with supporting workpapers, which shall be based
 
 
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upon the Final Allocation, setting forth (A) the amount of Taxes incurred by
Seller with respect to the year in which the Closing occurs from the sale of the
Company Shares with respect to which a 338(h)(10) Election or analogous election
is made taking into account a receipt of the 338(h)(10) Grossed-Up Payment and
(B) the amount of Taxes that would have been incurred by Seller with respect to
the year in which the Closing occurs from the sale of such Company Shares
determined as if no such election were made.  In the event that Madden’s payment
of all or a portion of the 338(h)(10) Grossed-Up Payment (or portions thereof)
to Seller occurs (or will occur) after the end of the year in which the Closing
occurs (including the years in which the Earn-Out Payment is made), then Seller
shall provide Madden with a recomputed schedule, with supporting workpapers,
setting forth the amount of any additional Taxes incurred by Seller with respect
to such year following the year in which the Closing occurs as a result of a
338(h)(10) Election or any analogous election.  Unless Madden disputes the
schedule by providing written notice to Seller within fifteen (15) days after
the receipt thereof, Seller’s schedule shall be final, binding and conclusive on
the parties for all Tax purposes.  If Madden and Seller cannot agree on the
proper amount that Madden is required to pay Seller, pursuant to this Section
8.1(b)(iii) within twenty (20) days after the provision of written notice to
Seller, such dispute shall be settled, within thirty (30) days after its
submission, by the Independent Accounting Firm, and the amount that the
Independent Accounting Firm determines is required to be paid pursuant to this
Section 8.1(b)(iii) shall be final, binding and conclusive on the parties for
all Tax purposes.  Madden and Seller shall submit the dispute to the Independent
Accounting Firm within twenty (20) days after the receipt by Seller of the
written objection.  Seller’s schedule and the determination of any amounts
required to be paid pursuant to this Section 8.1(b)(iii) shall be consistent
with and based upon, inter alia, the principles, statements and, if applicable,
assumptions set forth in Exhibit D-1 attached hereto, which shall also be
applied by the Independent Accounting Firm in settling any dispute
hereunder.  Madden shall pay the amounts required to be paid pursuant to this
Section 8.1(b)(iii) on or before the date Seller is required to pay Taxes as a
result of the 338(h)(10) Election or analogous election.
 
(iv)   In addition to the foregoing, Madden shall reimburse Seller for any
reasonable documented out-of-pocket professional fees and expenses incurred by
Seller in connection with determining the parties’ obligations, if any, under
clause (iii) above.
 
(v)   Madden shall promptly provide written notice to Seller of any audit or
other investigation that may be initiated in connection with a 338(h)(10)
Election or any analogous election.
 
8.2   Employee Matters.  On the Closing Date, Madden shall offer employment to
those individuals listed under the heading “Hired Employees” in Section 8.2 of
the Disclosure Schedule (the “Hired Employees”), which employment shall be on
such terms and with such compensation and benefits as are comparable to
similarly situated employees of Madden; provided that, to the extent that each
such Hired Employee accepts employment with Madden, such Hired Employee shall
initially receive compensation in an amount no less than the amount set forth
opposite such Hired Employee’s name on Section 8.2 of the Disclosure Schedule,
Madden shall pay to each such Hired Employee a lump sum equal to the amount set
forth opposite such Hired Employee’s name on Section 8.2 of the Disclosure
Schedule in respect of
 
 
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such Hired Employee’s relocation to the New York metropolitan area (the
“Relocation Payment”), which Relocation Payment shall be deemed compensation to
each such Hired Employee, and each such Hired Employee shall receive benefits
based on the date such Hired Employee started employment at the Company as set
forth opposite such Hired Employee’s name on Schedule 8.2 of the Disclosure
Schedule. Except as set forth in Section 8.2 of the Disclosure Schedule, Madden
agrees to pay severance to each individual listed under the heading “Terminated
Employees” in Section 8.2 of the Disclosure Schedule in an amount equal to one
month of such Terminated Employee’s annual salary as of the date hereof as set
forth opposite such Terminated Employee’s name on Section 8.2 of the Disclosure
Schedule, provided that each such Terminated Employee shall be required to sign
a release before they will be eligible to receive any severance
payment.  Notwithstanding the foregoing, and without limiting the provisions of
Section 13.7 hereof, this Section 8.2 shall not confer any rights or remedies
upon any Person other than the parties hereto and their respective heirs,
personal representatives, legatees, successors and permitted assigns.
 
ARTICLE IX

 
Conditions Precedent to Obligations of Madden
 
The obligations of Madden under Article II and Article III shall be subject to
the satisfaction at or prior to the Closing of the following conditions, any one
or more of which may be waived by Madden:
 
9.1   Representations and Warranties.  Each and every representation and
warranty of Seller contained in this Agreement, and any schedule or any
certificate delivered pursuant hereto, shall have been true and correct when
made and shall be repeated at the Closing and (a) if qualified by materiality
(or any variation of such term), shall be true and correct (as so qualified) as
of the Closing Date, except that any such representation or warranty that is
made as of a specified date shall only be required to be true and correct as of
that date, and (b) if not qualified by materiality (or any variation of such
term), shall be true and correct in all material respects as of the Closing
Date, except that any such representation or warranty that is made as of a
specified date shall only be required to be true and correct in all material
respects as of that date.
 
9.2   Compliance with Covenants.  Seller shall have performed and observed all
covenants and agreements to be performed or observed by Seller under this
Agreement at or before the Closing.
 
9.3   Lack of Adverse Change.  Since the date of the Balance Sheet, there shall
not have occurred any circumstance or event which, individually or in the
aggregate, has had or is reasonably likely to result in a Material Adverse
Effect, including a material decrease in the revenue of the Company.
 
9.4   Update Certificate.  Madden shall have received a favorable certificate,
dated the Closing Date, signed by Seller as to the matters set forth in Sections
9.1, 9.2 and 9.3.
 
 
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9.5   Balance Sheet.  Madden shall have received an unaudited balance sheet of
the Company as of the Closing Date, reflecting that, as of the Closing Date, the
Company is free of any and all Cash-On-Hand and Debt as of the Closing Date,
other than the Remaining Cash.
 
9.6   Regulatory Approvals.  All approvals and consents of Governmental Bodies
required to carry out the transactions contemplated by this Agreement shall have
been obtained.
 
9.7   Consents of Third Parties.  Except as set forth in Section 9.7 of the
Disclosure Schedule, all consents from third parties to Contracts or otherwise
that are required to be listed in Section 4.4 of the Disclosure Schedule in
order to avoid a misrepresentation under Section 4.4 shall have been obtained in
writing.
 
9.8   FIRPTA Affidavit.  Seller shall have provided to Madden a duly sworn
affidavit dated as of the Closing Date that Seller is not a “foreign person,”
setting forth Seller’s taxpayer identification number and otherwise meeting the
requirements of Section 1445(b)(2) of the Code and the Treasury Regulations
promulgated thereunder.
 
9.9   No Violation of Orders.  No preliminary or permanent injunction or other
order issued by any Governmental Body, nor any statute, rule, regulation, decree
or executive order promulgated or enacted by any Governmental Body, that
declares this Agreement invalid or unenforceable in any material respect or that
prevents or delays the consummation of the transactions contemplated hereby or
which imposes or will impose restrictions on Madden’s right or ability to
operate the business of the Company shall be in effect; and no action or
proceeding before any Governmental Body shall have been instituted or, to the
Knowledge of Seller and the Company, threatened by any Governmental Body, or by
any other Person, which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement or which seeks to impose restrictions on
Madden’s right or ability to operate the business of the Company, or seeks to
require Madden to dispose of any of its businesses, operations, properties or
assets or any claim relating to the equity of the Company.
 
9.10   Employment Agreement.  Madden and Seller shall have entered into the
Employment Agreement, and the Employment Agreement shall be in full force and
effect with no notice that Seller does not intend to honor such Employment
Agreement.
 
9.11   Transaction Documents.  The Company and Seller shall have entered into
each of the other Transaction Documents to which they are a party.
 
9.12   Other Closing Matters.  Madden shall have received such other supporting
information in confirmation of the representations, warranties, covenants and
agreements of Seller and the satisfaction of the conditions to Madden’s
obligation to close hereunder as Madden or its counsel may reasonably request.
 
 
 
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ARTICLE X

 
Conditions Precedent to Obligations of Seller
 
The obligations of Seller under Article II and Article III shall be subject to
the satisfaction at or prior to the Closing of the following conditions, any one
or more of which may be waived by Seller:
 
10.1   Representations and Warranties.  Each and every representation and
warranty of Madden contained in this Agreement, and any schedule or any
certificate delivered pursuant hereto, shall have been true and correct when
made and shall be repeated at the Closing and (a) if qualified by materiality
(or any variation of such term), shall be true and correct as of the Closing
Date (as so qualified), except that any such representation or warranty that is
made as of a specified date shall only be required to be true and correct as of
that date, and (b) if not qualified by materiality (or any variation of such
term), shall be true and correct in all material respects as of the Closing
Date, except that any such representation or warranty that is made as of a
specified date shall only be required to be true and correct in all material
respects as of that date.
 
10.2   Compliance with Covenants.  Madden shall have performed and observed all
covenants and agreements to be performed or observed by it under this Agreement
at or before the Closing.
 
10.3   Update Certificate.  Seller shall have received a favorable certificate,
dated the Closing Date, signed by Madden as to the matters set forth in Sections
10.1 and 10.2.
 
10.4   Regulatory Approvals.  All material approvals and consents of
Governmental Bodies required to carry out the transactions contemplated by this
Agreement shall have been obtained.
 
10.5   No Violation of Orders.  No preliminary or permanent injunction or other
order issued by any Governmental Body, nor any statute, rule, regulation, decree
or executive order promulgated or enacted by any Governmental Body, that
declares this Agreement invalid or unenforceable in any material respect or that
prevents the consummation of the transactions contemplated hereby or which would
impose restrictions on the ability of the Company to operate in accordance with
the terms of the Earn-Out Agreement shall be in effect.
 
10.6   Transaction Documents.  Madden shall have entered into each of the other
Transaction Documents to which it is a party.
 
10.7   Other Closing Matters.  Seller shall have received such other supporting
information in confirmation of the representations, warranties, covenants and
agreements of Madden and the satisfaction of the conditions to Seller’s
obligations to close hereunder as Seller or its counsel may reasonably request.
 
 
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ARTICLE XI

 
[Intentionally omitted]
 

ARTICLE XII

 
Indemnification
 
12.1   Survival of Representations, Warranties and Covenants.  The parties to
this Agreement hereby agree that the remedy for any breach or inaccuracy of a
representation or warranty, covenant or agreement contained in this Agreement or
the Earn-Out Agreement shall be the indemnification provisions set out in this
Article XII; provided, however, that nothing in this Section 12.1 shall prohibit
any party from seeking specific performance or injunctive relief against any
other party in respect of a breach by such other party of any covenant
hereunder; and provided further, that nothing in this Section 12.1 shall limit
any party’s remedies for a breach of a covenant occurring prior to the Closing
nor limit the exercise of any other remedies expressly set forth in the Earn-Out
Agreement.
 
(a)   The representations and warranties of the parties contained in this
Agreement, any schedule or any certificate delivered pursuant hereto, shall
survive the Closing and shall continue in full force and effect (a) in the case
of the representations and warranties of Seller and Madden contained in Sections
4.6, 4.15, 4.16, 4.23 and 5.5 until thirty (30) days following the expiration of
the applicable statutory period of limitations with respect to the matter to
which the claim relates, as such limitation period may be extended from time to
time, (b) in the case of the representations and warranties of Seller and Madden
contained in Sections 4.1, 4.2, 4.3, 4.20, 5.1 and 5.2, indefinitely, and (c) in
the case of all other representations and warranties of the parties contained in
this Agreement, and in any schedule or any certificate delivered pursuant
hereto, until eighteen (18) months after the Closing Date.  Each party hereto
shall be entitled to rely on any such representation or warranty regardless of
any independent knowledge of such party or any inquiry or investigation made by
or on behalf of such party. Notwithstanding the foregoing, any representation or
warranty in respect of which indemnity may be sought hereunder shall survive the
time at which it would otherwise terminate pursuant to this Section 12.1 if
notice of the breach thereof shall have been given to the party against whom
such indemnity may be sought prior to the expiration of the applicable survival
period.
 
(b)   The parties’ covenants and agreements under this Agreement shall survive
the Closing indefinitely unless a shorter period of performance is specified
with respect to such covenant or agreement.
 
12.2   Indemnification by Seller.
 
(a)   Subject to Section 12.2(b), 12.9 and 12.10, Seller shall indemnify and
hold harmless Madden, the Company, and each of their respective stockholders,
directors, officers, employees, agents and representatives, and the successors
and assigns of each of the foregoing (collectively, the “Madden Indemnified
Parties”) from and against any and all Losses incurred or suffered by such
Person as a result of or arising from, without duplication:
 
 
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(i)   a breach by Seller or an inaccuracy of any representation or warranty made
by Seller in this Agreement, the Earn-Out Agreement or any schedule or
certificate delivered pursuant hereto or thereto (in each case, as of the
Closing Date, except to the extent such representations and warranties shall
have been expressly made as of an earlier date, in which case as of such date);
and
 
(ii)   a failure by Seller to perform or comply with any covenant or agreement
on the part of Seller contained herein or in the Earn-Out Agreement.
 
Any amount paid pursuant to this Section 12.2(a) shall be paid to Madden or, at
Madden’s election, to the Company and shall be the amount required to put Madden
or the Company, as the case may be, in the position it would have been in had
such representation, warranty, covenant or agreement not been breached.
 
(b)   Notwithstanding Section 12.2(a):
 
(i)   Seller shall not have any obligation to indemnify the Madden Indemnified
Parties from and against any Loss under clause (i) of Section 12.2(a) until the
Madden Indemnified Parties have suffered aggregate Losses, by reason of all such
breaches, in excess of one hundred twenty-five thousand dollars ($125,000);
provided that once the aggregate Losses covered by Section 12.2(a) exceeds such
threshold, Seller shall be liable for all such Losses only to the extent such
Losses exceed sixty-two thousand five hundred dollars ($62,500); and provided
further that such threshold shall not apply to any Loss as a result of, arising
from or in connection with a breach by Seller of a representation or warranty
contained in Sections 4.1, 4.2, 4.3, 4.6, 4.20 or 4.23; and
 
(ii)   Seller shall not have any obligation to indemnify the Madden Indemnified
Parties from and against any Loss under clause (i) of Section 12.2(a) to the
extent the aggregate Losses the Indemnified Parties have suffered by reason of
all such breaches exceed three million five hundred thousand dollars
($3,500,000); provided that such aggregate limit shall not apply to any Loss as
a result of, arising from or in connection with a breach by Seller of a
representation or warranty contained in Sections 4.1, 4.2, 4.3, 4.6, 4.20 or
4.23.
 
(iii)   For the avoidance of doubt, Seller shall not have any obligation to
indemnify the Madden Indemnified Parties from and against any Loss under clause
(i) of Section 12.2(a) arising or resulting from the actions of the Company
undertaken at Madden’s request or the intellectual property rights of third
parties with respect to such actions, to the extent such actions or intellectual
property rights are disclosed in Section 4.8 of the Disclosure Schedule.
 
(c)   Notwithstanding anything to the contrary contained in Section 12.2(b) or
anywhere else in this Agreement, Seller shall indemnify and hold harmless the
Madden Indemnified Parties, without limitation, from and against any and all
Losses incurred or suffered by such Person after the Closing Date as a result of
or arising from any fraudulent act or willful or intentional misconduct by the
Company prior to the Closing Date or by Seller.
 
12.3   Indemnification by Madden.
 
 
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(a)   Madden shall indemnify and hold harmless Seller and each of his agents and
representatives, and the successors and assigns of each of the foregoing (the
“Seller Indemnified Parties”), from and against any Loss incurred or suffered by
such Person as a result of or arising from:
 
(i)   a breach by Madden or an inaccuracy of any representation or warranty made
by Madden in this Agreement, the Earn-Out Agreement or in any schedule or
certificate delivered pursuant hereto or thereto (in each case, as of the
Closing Date, except to the extent such representations and warranties shall
have been expressly made as of an earlier date, in which case as of such date);
and
 
(ii)   a failure by Madden to perform or comply with any covenant or agreement
on the part of Madden contained herein or in the Earn-Out Agreement.
 
Any amount paid pursuant to this Section 12.3(a) shall be the amount required to
put Seller in the position Seller would have been in had such representation,
warranty, covenant or agreement not been breached.
 
(b)   Notwithstanding anything to the contrary contained in this Agreement,
Madden shall indemnify and hold harmless the Seller Indemnified Parties from and
against any Loss incurred or suffered by Seller after the Closing Date as a
result of or arising from any fraudulent act or willful misconduct by Madden.
The Seller Indemnified Parties shall not take any action the purpose or intent
of which is to prejudice the defense of any claim subject to indemnification
hereunder or to induce a third party to assert a claim subject to
indemnification hereunder.
 
12.4   Additional Seller Indemnification.
 
(a)   Product Liability.  Seller shall indemnify and hold harmless the Madden
Indemnified Parties from and against any and all Losses incurred or suffered by
such Person as a result of or arising from any claims made for failure to comply
with Proposition 65 (i) in respect of any non-compliance occurring prior to the
Closing Date or (ii) related to any and all products of the Company
manufactured, produced, sold or distributed prior to the Closing Date.
 
(b)   Customs Liability.  Seller shall indemnify and hold harmless the Madden
Indemnified Parties from and against any and all Losses incurred or suffered by
any such Madden Indemnified Party as a result of or arising from (i) any actions
or omissions by Seller or the Company prior to the Closing Date in connection
with the importation of goods into the United States, (ii) any failure of Seller
or the Company to comply in all respects with applicable customs Laws prior to
the Closing Date, including without limitation any failure of Seller or the
Company to have timely and accurately paid all duties, taxes, fees, payments or
other governmental charges due to U.S. Customs, the United States government or
any subdivision or agency thereof, (iii) any deficiencies in any entries,
reports, schedules, forms, declarations or any other documents or materials
filed with U.S. Customs by Seller or,  prior to the Closing Date, by the
Company, or (iv) any investigation or inquiry, or any fines or penalties
assessed (whether criminal, civil or administrative, and whether monetary or
non-monetary), by U.S. Customs or other governmental agency or subdivision
relating to any of the foregoing.
 
 
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12.5   Assumption of Defense.  An indemnified party shall promptly give notice
to each indemnifying party after obtaining knowledge of any matter as to which
recovery may be sought against such indemnifying party because of the indemnity
set forth above, and, if such indemnity shall arise from the claim of a third
party, shall permit such indemnifying party to assume the defense of any such
claim or any proceeding resulting from such claim; provided, however, that
failure to give any such notice promptly shall not affect the indemnification
provided under this Article XII, except to the extent such indemnifying party
shall have been actually and materially prejudiced as a result of such
failure.  Notwithstanding the foregoing, an indemnifying party may not assume
the defense of any such third-party claim if it does not demonstrate to the
reasonable satisfaction of the indemnified party that it has adequate financial
resources to defend such claim and pay any and all Losses that may result
therefrom, or if the claim (i) is reasonably likely to result in imprisonment of
the indemnified party, (ii) is reasonably likely to result in an equitable
remedy which would materially impair the indemnified party’s ability to exercise
its rights under this Agreement, or impair Madden’s right or ability to operate
the Company, or (iii) names both the indemnifying party and the indemnified
party (including impleaded parties) and representation of both parties by the
same counsel would create a conflict.  If an indemnifying party assumes the
defense of such third party claim, such indemnifying party shall agree prior
thereto, in writing, that it is liable under this Article XII to indemnify the
indemnified party in accordance with the terms contained herein in respect of
such claim, shall conduct such defense diligently, shall have full and complete
control over the conduct of such proceeding on behalf of the indemnified party
and shall, subject to the provisions of this Section 12.5, have the right to
decide all matters of procedure, strategy, substance and settlement relating to
such proceeding; provided, however, that any counsel chosen by such indemnifying
party to conduct such defense shall be reasonably satisfactory to the
indemnified party, such consent not to be unreasonably withheld or delayed, and
the indemnifying party will not without the written consent of the indemnified
party consent to the entry of any judgment or enter into any settlement with
respect to the matter which does not include a provision whereby the plaintiff
or the claimant in the matter releases the indemnified party from all liability
with respect thereto or which may reasonably be expected to have an adverse
effect on the indemnified party.  The indemnified party may participate in such
proceeding and retain separate co-counsel at its sole cost and expense.  Failure
by an indemnifying party to notify the indemnified party of its election to
defend any such claim or proceeding by a third party within thirty (30) days
after notice thereof shall be deemed a waiver by such indemnifying party of its
right to defend such claim or action.
 
12.6   Non-Assumption of Defense.  If no indemnifying party is permitted or
elects to assume the defense of any such claim by a third party or proceeding
resulting therefrom, the indemnified party shall diligently defend against such
claim or litigation in such manner as it may deem appropriate and, in such
event, the indemnifying party or parties shall promptly reimburse the
indemnified party for all reasonable out-of-pocket costs and expenses, legal or
otherwise, incurred by the indemnified party and its affiliates in connection
with the defense against such claim or proceeding, as such costs and expenses
are incurred.  Any counsel chosen by such indemnified party to conduct such
defense must be reasonably satisfactory to the indemnifying party or parties,
and only one counsel shall be retained to represent all indemnified parties in
an action (except that if litigation is pending in more than one jurisdiction
with respect to an action, one such counsel may be retained in each jurisdiction
in which such litigation
 
 
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is pending).  The indemnified party shall not settle or compromise any such
claim without the written consent of the indemnifying party, which consent shall
not be unreasonably withheld.
 
12.7   Indemnified Party’s Cooperation as to Proceedings.  The indemnified party
will at its own expense cooperate in all reasonable respects with any
indemnifying party in the conduct of any proceeding as to which such
indemnifying party assumes the defense.  For the cooperation of the indemnified
party pursuant to this Section 12.7, the indemnifying party or parties shall
promptly reimburse the indemnified party for all reasonable out-of-pocket costs
and expenses, legal or otherwise, incurred by the indemnified party or its
affiliates in connection therewith, as such costs and expenses are incurred.
 
12.8   Calculation of Losses.  In calculating amounts payable to an indemnified
party, the amount of any indemnified Losses shall be determined without giving
effect to any “materiality” or “Material Adverse Effect” qualifications set
forth in any representations or warranties the inaccuracy or breach of which
forms any part of the basis for the related indemnification claim (but such
qualifications shall be given effect for purposes of determining whether there
has been an inaccuracy or breach).
 
12.9   Payments Treated as Purchase Price Adjustment.  Any payment by Madden,
the Company or Seller under this Article XII will be treated for Tax purposes as
an adjustment to the consideration hereunder for the Company Shares.
 
12.10   Limitation on Indemnification.  The amount of any indemnification made
or payable under this Agreement shall be reduced by any amounts when and as
recovered by (net of any expenses of recovery) any indemnified party with
respect to the matter giving rise to such Loss under insurance policies, except
to the extent by which premiums (or other retroactive adjustments or
reimbursements to the insurer) of such policies have increased primarily as a
result of such recovery.
 
ARTICLE XIII

 
Miscellaneous
 
13.1   Expenses.  Except as otherwise explicitly set forth herein, whether or
not the transactions contemplated hereby are consummated, each party hereto
shall pay all costs and expenses incurred by such party in respect of the
transactions contemplated hereby; provided, however, that all expenses incurred
by the Company with respect to the transactions contemplated hereby for the
benefit of Seller prior to the Closing, including, without limitation, expenses
for legal and investment advisory services, shall be paid by Seller.
 
13.2   Entirety of Agreement.  This Agreement (including the Disclosure Schedule
and all other schedules and exhibits hereto), together with the other
Transaction Documents and certificates and other instruments delivered hereunder
and thereunder, state the entire agreement of the parties, merge all prior
negotiations, agreements and understandings, if any, and state in full all
representations, warranties, covenants and agreements which have induced this
Agreement.  Each party agrees that in dealing with third parties, no contrary
representations will be made.  Notwithstanding anything to the contrary in this
Section 13.2,
 
 
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unless and until the Closing occurs, the Confidentiality Agreement shall
continue in full force and effect.
 
13.3   Notices.  All notices, demands and communications of any kind which any
party hereto may be required or desire to serve upon another party under the
terms of this Agreement shall be in writing and shall be given by:  (a) personal
service upon such other party; (b) mailing a copy thereof by certified or
registered mail, postage prepaid, with return receipt requested; (c) sending a
copy thereof by Federal Express or equivalent courier service; or (d) sending a
copy thereof by facsimile, in each case to the parties at the respective
addresses and facsimile numbers set forth on the signature pages hereto.  In
case of service by Federal Express or equivalent courier service or by facsimile
or by personal service, such service shall be deemed complete upon delivery or
transmission, as applicable.  In the case of service by mail, such service shall
be deemed complete on the fifth Business Day after mailing.  The addresses and
facsimile numbers to which, and persons to whose attention, notices and demands
shall be delivered or sent may be changed from time to time by notice served as
hereinabove provided by any party upon any other party.
 
13.4   Amendment.  This Agreement may be modified or amended only by an
instrument in writing, duly executed by all of the parties hereto.
 
13.5   Waiver.  No waiver by any party of any term, provision, condition,
covenant, agreement, representation or warranty contained in this Agreement (or
any breach thereof) shall be effective unless it is in writing executed by the
party against which such waiver is to be enforced.  No waiver shall be deemed or
construed as a further or continuing waiver of any such term, provision,
condition, covenant, agreement, representation or warranty (or breach thereof)
on any other occasion or as a waiver of any other term, provision, condition,
covenant, agreement, representation or warranty (or of the breach of any other
term, provision, condition, covenant, agreement, representation or warranty)
contained in this Agreement on the same or any other occasion.
 
13.6   Counterparts; Facsimile.  For the convenience of the parties, any number
of counterparts hereof may be executed, each such executed counterpart shall be
deemed an original and all such counterparts together shall constitute one and
the same instrument.  Facsimile or electronic transmission of any signed
original counterpart and/or retransmission of any signed facsimile or electronic
transmission shall be deemed the same as the delivery of an original.
 
13.7   Assignment; Binding Nature; No Beneficiaries.  This Agreement may not be
assigned by any party hereto without the written consent of Madden and Seller;
provided, however, that Madden may assign its rights hereunder to any affiliate
of Madden which assumes the obligations of Madden hereunder, but no such
assignment shall relieve Madden of any such obligations.  Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of, and be enforceable by the parties hereto and their respective heirs,
personal representatives, legatees, successors and permitted assigns.  Except as
otherwise expressly provided in Article XII, this Agreement shall not confer any
rights or remedies upon any Person other than the parties hereto and their
respective heirs, personal representatives, legatees, successors and permitted
assigns.
 
 
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13.8   Headings.  The headings in this Agreement are inserted for convenience
only and shall not constitute a part hereof.
 
13.9   Governing Law; Jurisdiction.  This Agreement and all of the transactions
contemplated hereby, and all disputes between the parties under or related to
this Agreement or the facts and circumstances leading to its execution, whether
in contract, tort, or otherwise, shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York including,
without limitation, Section 5-1401 of the New York General Obligations Law and
New York Civil Practice Laws and Rules 327.
 
13.10   Construction.  In this Agreement (i) words denoting the singular include
the plural and vice versa, (ii) “it” or “its” or words denoting any gender
include all genders, (iii) the word “including” shall mean “including without
limitation,” whether or not expressed, (iv) any reference to a statute shall
mean the statute and any regulations thereunder in force as of the date of this
Agreement or the Closing Date, as applicable, unless otherwise expressly
provided, (v) any reference herein to a Section, Article, Schedule or Exhibit
refers to a Section or Article of or a Schedule or Exhibit to this Agreement or
the Disclosure Schedule, as applicable, unless otherwise stated, and (vi) when
calculating the period of time within or following which any act is to be done
or steps taken, the date which is the reference day in calculating such period
shall be excluded and if the last day of such period is not a Business Day, then
the period shall end on the next day which is a Business Day.
 
13.11   Negotiated Agreement.  Madden and Seller acknowledge that they have been
advised and represented by counsel in the negotiation, execution and delivery of
this Agreement and the Transaction Documents and accordingly agree that if an
ambiguity exists with respect to any provision of this Agreement or the
Transaction Documents, such provision shall not be construed against any party
because such party or its representatives drafted such provision.
 
13.12   Public Announcements.  Neither Madden nor Seller shall issue any press
release or make any other public announcement concerning this Agreement or the
transactions contemplated hereby without the prior written approval of Madden,
in the case of an announcement by Seller, and Seller, in the case of an
announcement by Madden; provided, however, that Madden or its affiliates may,
upon written notice to Seller, describe this Agreement and the transactions
contemplated hereby in any press release or filing with the SEC or other
Governmental Body it is required to make under applicable Law.
 
13.13   Remedies Cumulative.  The remedies provided for or permitted by this
Agreement shall be cumulative and the exercise by any party of any remedy
provided for herein shall not preclude the assertion or exercise by such party
of any other right or remedy provided for herein.
 
13.14   Severability.  If any provision of this Agreement or the application of
any such provision to any party or circumstances shall be determined by any
arbitrator to be invalid or unenforceable to any extent, the remainder of this
Agreement, or the application of such provision to such person or circumstances
other than those to which it is so determined to be invalid or unenforceable,
shall not be affected thereby, and each provision hereof shall be
 
 
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enforced to the fullest extent permitted by law.  If the final determination of
any arbitrator declares that any item or provision hereof is invalid or
unenforceable, the parties hereto agree that the arbitrator making the
determination of invalidity or unenforceability shall have the power, and is
hereby directed, to reduce the scope, duration or area of the term or provision,
to delete specific words or phrases and to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified.
 
13.15   WAIVER OF JURY TRIAL.  MADDEN AND SELLER HEREBY IRREVOCABLY WAIVE, TO
THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
 
13.16   Right of Set-Off.
 
(a)   Notwithstanding any provision of this Agreement or the Earn-Out Agreement
to the contrary, the parties hereby acknowledge and agree that, in addition to
any other right hereunder or under the Earn-Out Agreement or otherwise, Madden
shall have the right, but not the obligation, from time to time to set off
against any amounts otherwise required to be paid by Madden to Seller pursuant
to this Agreement or the Earn-Out Agreement any amounts owed at such time by
Seller to the Company, Madden or any other Madden Indemnified Party under this
Agreement or the Earn-Out Agreement.
 
(b)   If Madden elects to exercise its set-off rights hereunder against any
amounts otherwise required to be paid by Madden to Seller pursuant to this
Agreement or the Earn-Out Agreement, it shall give Seller written notice of such
election (the “Set-Off Notice”), which Set-Off Notice shall include the amount
to be set-off and a reasonable description of the circumstances giving rise to
Madden’s entitlement to such set-off.  Seller shall have thirty (30) days after
receipt of such Set-Off Notice to review such Set-Off Notice (the “Set-Off
Review Period”), and in the event that Seller has any objections or challenges
to the exercise of the set-off right of Madden, Seller shall submit a single
written notice of set-off dispute (“Notice of Set-Off Dispute”) to Madden during
such Set-Off Review Period, specifying in reasonable detail the nature of any
asserted objections or challenges.  In the event of any such dispute, Seller and
Madden shall negotiate in good faith to resolve such dispute for thirty (30)
days after receipt by Madden of the Notice of Set-Off Dispute.  If Seller and
Madden are unable to resolve such dispute within such 30-day period, the amount
payable by Madden to Seller shall automatically be reduced by the amount set
forth in the Set-Off Notice.  In the event that there is a final determination
that Seller did not owe the Company, Madden or any Madden Indemnified Party the
amount that has been set-off, Madden shall promptly refund to Seller all such
amounts that are so determined to have been incorrectly set-off, plus interest,
calculated from the date of set-off until the date such amount is paid to
Seller, at a rate per annum equal to the Prime Rate, calculated and payable
monthly, compounded monthly.  For purposes of this Section 13.16, a
determination shall be final if any and all appeals therefrom shall have been
resolved or if thirty
 
 
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(30) days shall have passed from the rendering of such determination (or of any
determination of appeal therefrom) and no party shall have commenced any appeal
therefrom.
 
(c)   In the case of any such set-off by Madden pursuant to this Section 13.16,
Seller’s obligation to make such payment (or any portion thereof) shall be
deemed satisfied and discharged to the extent of such set-off.  The exercise of
such right of set-off by Madden in good faith, whether or not finally determined
to be justified, will not constitute a breach under this Agreement or the
Earn-Out Agreement.
 
13.17   Arbitration.  Except as otherwise set forth in Section 2.3(a)(ii) or
Section 8.1(b)(iii), if any dispute or difference of any kind whatsoever shall
arise between the parties to this Agreement (each a “Disputing Party”) in
connection with or arising out of this Agreement, or the breach, termination or
validity thereof (a “Dispute”), then, on the demand of any Disputing Party, the
Dispute shall be finally and exclusively resolved by arbitration in accordance
with the Commercial Arbitration Rules of the AAA (the “Rules”) then in effect,
except as modified herein.  The arbitration shall be held, and the award shall
be issued in, the State of New York.  There shall be one neutral arbitrator
appointed by agreement of the Disputing Parties within thirty (30) days after
receipt by respondent of the demand for arbitration.  If such arbitrator is not
appointed within the time limit provided herein, on the request of any Disputing
Party, an arbitrator shall be appointed by the AAA by using a list striking and
ranking procedure in accordance with the Rules.  Any arbitrator appointed by the
AAA shall be a retired federal judge or a practicing attorney with no less than
fifteen years of experience and an experienced arbitrator with no less than five
completed prior arbitrations relating to the purchase and sale of a wholesale
business.  By agreeing to arbitration, the Disputing Parties do not intend to
deprive any court of its jurisdiction to issue a pre-arbitral injunction,
pre-arbitral attachment, or other order in aid of arbitration proceedings and
the enforcement of any award.  Without prejudice to such provisional remedies as
may be available under the jurisdiction of a court, the arbitrator shall have
full authority to grant provisional remedies and to direct the Disputing Parties
to request that any court modify or vacate any temporary or preliminary relief
issued by such court, and to award damages for the failure of any Disputing
Party to respect the arbitrator’s orders to that effect.  Any arbitration
proceedings, decisions or awards rendered hereunder and the validity, effect and
interpretation of this arbitration agreement shall be governed by the Federal
Arbitration Act, 9 U.S.C. § 1 et seq.  In arriving at a decision, the arbitrator
shall be bound by the terms and conditions of this Agreement and shall apply the
governing law of this Agreement as designated in Section 13.9.  The arbitrator
is not empowered to award damages in excess of compensatory damages, and each
Disputing Party hereby irrevocably waives any right to recover punitive,
exemplary or similar damages with respect to any Dispute.  The award shall
provide that the fees and expenses of the arbitration (including the fees of the
AAA, the fees and expenses of the arbitrator and attorneys’ fees) shall be
allocated based on the proportion that the aggregate amount of disputed items
submitted to arbitration that are unsuccessfully disputed by each Disputed Party
(as finally determined by the arbitrator) bears to the total amount of all
disputed items submitted to arbitration.  The award, which shall be in writing
and shall, on the written request of any Disputing Party, state the findings of
fact and conclusions of law upon which it is based, shall be final and binding
on the Disputing Parties and shall be the sole and the exclusive remedy between
the Disputing Parties regarding any claims, counterclaims, issues or accountings
presented to the arbitral tribunal.  Judgment upon any award may be entered in
any
 
 
 
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court of competent jurisdiction located in the State of New York, and the
parties hereby consent to the exclusive jurisdiction of the courts located in
the State of New York.
 
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement as of the date first set forth above.
 

 
STEVEN MADDEN, LTD.
 
Address:
52-16 Barnett Ave.
Long Island City, New York  11104
Attention:  Awadhesh Sinha
Facsimile No.: (718) 446-5599
By:      /s/ Edward Rosenfeld
Name: Edward Rosenfeld
Title:   Chief Executive Officer
   
with copies to:
 
 
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York  10036
Attention:  James A. Grayer, Esq.
Facsimile No.: (212) 715-8000
 

 
SELLER
 
Address:
208 Woodrow Avenue
Santa Cruz, California 95060
 
/s/ Jeremy Bassan
Jeremy Bassan
 
       
with copies to:
 
Sonnenschein Nath & Rosenthal LLP
525 Market Street, 26th Floor
San Francisco, California 94105
Attention:  Stafford Matthews, Esq.
Facsimile No.: (415) 882-0300