Document:

Unassociated Document

 

FINISHING TOUCHES HOME GOODS, INC.

2013 EQUITY INCENTIVE PLAN

 

	
1.

	
PURPOSE OF PLAN

 

1.1           The purpose of this 2013 Equity Incentive Plan (this “Plan”) of Finishing Touches Home Goods, Inc., a Nevada corporation (the “Corporation”), is to promote the success of the Corporation and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons.

 

	
2.

	
ELIGIBILITY

 

2.1           The Administrator (as such term is defined in Section 3.1) may grant awards under this Plan only to those persons that the Administrator determines to be Eligible Persons. An “Eligible Person” is any person who is either: (a) an officer (whether or not a director) or employee of the Corporation or one of its Subsidiaries; (b) a director of the Corporation or one of its Subsidiaries; or (c) an individual consultant who renders bona fide services (other than services in connection with the offering or sale of securities of the Corporation or one of its Subsidiaries in a capital-raising transaction or as a market maker or promoter of securities of the Corporation or one of its Subsidiaries) to the Corporation or one of its Subsidiaries and who is selected to participate in this Plan by the Administrator; provided, however, that a person who is otherwise an Eligible Person under clause (c) above may participate in this Plan only if such participation would not adversely affect either the Corporation’s eligibility to use Form S-8 to register under the Securities Act of 1933, as amended (the “Securities Act”), the offering and sale of shares issuable under this Plan by the Corporation, or the Corporation’s compliance with any other applicable laws.  An Eligible Person who has been granted an award (a “participant”) may, if otherwise eligible, be granted additional awards if the Administrator shall so determine. As used herein, “Subsidiary” means any corporation or other entity a majority of whose outstanding voting stock or voting power is beneficially owned directly or indirectly by the Corporation; and “Board” means the Board of Directors of the Corporation.

 

	
3.

	
PLAN ADMINISTRATION

 

3.1 The Administrator.  This Plan shall be administered by and all awards under this Plan shall be authorized by the Administrator. The “Administrator” means the Board or one or more committees appointed by the Board or another committee (within its delegated authority) to administer all or certain aspects of this Plan. Any such committee shall be comprised solely of one or more directors or such number of directors as may be required under applicable law. A committee may delegate some or all of its authority to another committee so constituted. The Board or a committee comprised solely of directors may also delegate, to the extent permitted by Section 78.200 of the Nevada Revised Statutes and any other applicable law, to one or more officers of the Corporation, its powers under this Plan (a) to Eligible Persons who will receive grants of awards under this Plan, and (b) to determine the number of shares subject to, and the other terms and conditions of, such awards. The Board may delegate different levels of authority to different committees with administrative and grant authority under this Plan. Unless otherwise provided in the bylaws of the Corporation or the applicable charter of any Administrator: (a) a majority of the members of the acting Administrator shall constitute a quorum, and (b) the affirmative vote of a majority of the members present assuming the presence of a quorum or the unanimous written consent of the members of the Administrator shall constitute due authorization of an action by the acting Administrator.

 

With respect to awards intended to satisfy the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), this Plan shall be administered by a committee consisting solely of two or more outside directors (as this requirement is applied under Section 162(m) of the Code); provided, however, that the failure to satisfy such requirement shall not affect the validity of the action of any committee otherwise duly authorized and acting in the matter. Award grants, and transactions in or involving awards, intended to be exempt under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), must be duly and timely authorized by the Board or a committee consisting solely of two or more non-employee directors (as this requirement is applied under Rule 16b-3 promulgated under the Exchange Act). To the extent required by any applicable stock exchange, this Plan shall be administered by a committee composed entirely of independent directors (within the meaning of the applicable stock exchange). Awards granted to non-employee directors shall not be subject to the discretion of any officer or employee of the Corporation and shall be administered exclusively by a committee consisting solely of independent directors.

 

  

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3.2 Powers of the Administrator.  Subject to the express provisions of this Plan, the Administrator is authorized and empowered to do all things necessary or desirable in connection with the authorization of awards and the administration of this Plan (in the case of a committee or delegation to one or more officers, within the authority delegated to that committee or person(s)), including, without limitation, the authority to:

 

(a)           determine eligibility and, from among those persons determined to be eligible, the particular Eligible Persons who will receive awards under this Plan;

  

(b)           grant awards to Eligible Persons, determine the price at which securities will be offered or awarded and the number of securities to be offered or awarded to any of such persons, determine the other specific terms and conditions of such awards consistent with the express limits of this Plan, establish the installments (if any) in which such awards shall become exercisable or shall vest (which may include, without limitation, performance and/or time-based schedules), or determine that no delayed exercisability or vesting is required, establish any applicable performance targets, and establish the events of termination or reversion of such awards;

 

(c)           approve the forms of award agreements (which need not be identical either as to type of award or among participants);

 

(d)           construe and interpret this Plan and any agreements defining the rights and obligations of the Corporation, its Subsidiaries, and participants under this Plan, further define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan or the awards granted under this Plan;

 

(e)           cancel, modify, or waive the Corporation’s rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding awards, subject to any required consent under Section 8.6.5;

 

(f)           accelerate or extend the vesting or exercisability or extend the term of any or all such outstanding awards (in the case of options or stock appreciation rights, within the maximum ten-year term of such awards) in such circumstances as the Administrator may deem appropriate (including, without limitation, in connection with a termination of employment or services or other events of a personal nature) subject to any required consent under Section 8.6.5;

 

(g)           adjust the number of shares of Common Stock subject to any award, adjust the price of any or all outstanding awards or otherwise change previously imposed terms and conditions, in such circumstances as the Administrator may deem appropriate, in each case subject to compliance with applicable stock exchange requirements, Sections 4 and 8.6 and the applicable requirements of Code Section 162(m) and treasury regulations thereunder with respect to awards that are intended to satisfy the requirements for performance-based compensation under Section 162(m), and provided that in no case (except due to an adjustment contemplated by Section 7 or any repricing that may be approved by stockholders) shall such an adjustment constitute a repricing (by amendment, cancellation and regrant, exchange or other means) of the per share exercise or base price of any stock option or stock appreciation right or other award granted under this Plan, and further provided that any adjustment or change in terms made pursuant to this Section 3.2(g) shall be made in a manner that, in the good faith determination of the Administrator will not likely result in the imposition of additional taxes or interest under Section 409A of the Code;

 

(h)           determine the date of grant of an award, which may be a designated date after but not before the date of the Administrator’s action (unless otherwise designated by the Administrator, the date of grant of an award shall be the date upon which the Administrator took the action granting an award);

 

(i)           determine whether, and the extent to which, adjustments are required pursuant to Section 7 hereof and authorize the termination, conversion, substitution, acceleration or succession of awards upon the occurrence of an event of the type described in Section 7;

 

  

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(j)           acquire or settle (subject to Sections 7 and 8.6) rights under awards in cash, stock of equivalent value, or other consideration; and

 

(k)           determine the Fair Market Value (as defined in Section 5.6) of the Common Stock or awards under this Plan from time to time and/or the manner in which such value will be determined.

 

3.3 Binding Determinations.  Any action taken by, or inaction of, the Corporation, any Subsidiary, or the Administrator relating or pursuant to this Plan and within its authority hereunder or under applicable law shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons. Neither the Board, the Administrator, nor any Board committee, nor any member thereof or person acting at the direction thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with this Plan (or any award made under this Plan), and all such persons shall be entitled to indemnification and reimbursement by the Corporation in respect of any claim, loss, damage or expense (including, without limitation, legal fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage that may be in effect from time to time.

 

3.4 Reliance on Experts.  In making any determination or in taking or not taking any action under this Plan, the Administrator may obtain and may rely upon the advice of experts, including professional advisors to the Corporation. The Administrator shall not be liable for any such action or determination taken or made or omitted in good faith based upon such advice.

 

3.5 Delegation of Non-Discretionary Functions.  In addition to the ability to delegate certain grant authority to officers of the Corporation as set forth in Section 3.1, the Administrator may also delegate ministerial, non-discretionary functions to individuals who are officers or employees of the Corporation or any of its Subsidiaries or to third parties.

 

	
4.

	
SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMIT

 

4.1 Shares Available.  Subject to the provisions of Section 7.1, the capital stock available for issuance under this Plan shall be shares of the Corporation’s authorized but unissued Common Stock.  For purposes of this Plan, “Common Stock” shall mean the common stock of the Corporation and such other securities or property as may become the subject of awards under this Plan, or may become subject to such awards, pursuant to an adjustment made under Section 7.1.

 

4.2 Share Limit.  The maximum number of shares of Common Stock that may be delivered pursuant to awards granted to Eligible Persons under this Plan may not exceed 2,000,000 shares of Common Stock (the “Share Limit”).

 

The foregoing Share Limit is subject to adjustment as contemplated by Section 4.3, Section 7.1, and Section 8.10.

 

4.3 Awards Settled in Cash, Reissue of Awards and Shares.  The Administrator may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute awards) and make adjustments in accordance with this Section 4.3. Shares shall be counted against those reserved to the extent such shares have been delivered and are no longer subject to a substantial risk of forfeiture. Accordingly, (i) to the extent that an award under the Plan, in whole or in part, is canceled, expired, forfeited, settled in cash, settled by delivery of fewer shares than the number of shares underlying the award, or otherwise terminated without delivery of shares to the participant, the shares retained by or returned to the Corporation will not be deemed to have been delivered under the Plan and will be deemed to remain or to become available under this Plan; and (ii) shares that are withheld from such an award or separately surrendered by the participant in payment of the exercise price or taxes relating to such an award shall be deemed to constitute shares not delivered and will be deemed to remain or to become available under the Plan. The foregoing adjustments to the Share Limit of this Plan are subject to any applicable limitations under Section 162(m) of the Code with respect to awards intended as performance-based compensation thereunder.

 

  

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4.4 Reservation of Shares; No Fractional Shares.  The Corporation shall at all times reserve a number of shares of Common Stock sufficient to cover the Corporation’s obligations and contingent obligations to deliver shares with respect to awards then outstanding under this Plan (exclusive of any dividend equivalent obligations to the extent the Corporation has the right to settle such rights in cash). No fractional shares shall be delivered under this Plan. The Administrator may pay cash in lieu of any fractional shares in settlements of awards under this Plan.

 

	
5.

	
AWARDS

 

5.1 Type and Form of Awards.  The Administrator shall determine the type or types of award(s) to be made to each selected Eligible Person. Awards may be granted singly, in combination or in tandem. Awards also may be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of the Corporation or one of its Subsidiaries. The types of awards that may be granted under this Plan are:

 

5.1.1 Stock Options.  A stock option is the grant of a right to purchase a specified number of shares of Common Stock during a specified period as determined by the Administrator. An option may be intended as an incentive stock option within the meaning of Section 422 of the Code (an “ISO”) or a nonqualified stock option (an option not intended to be an ISO). The award agreement for an option will indicate if the option is intended as an ISO; otherwise it will be deemed to be a nonqualified stock option. The maximum term of each option (ISO or nonqualified) shall be ten (10) years. The per share exercise price for each option shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of the option. When an option is exercised, the exercise price for the shares to be purchased shall be paid in full in cash or such other method permitted by the Administrator consistent with Section 5.5.

 

5.1.2 Additional Rules Applicable to ISOs.  To the extent that the aggregate Fair Market Value (determined at the time of grant of the applicable option) of stock with respect to which ISOs first become exercisable by a participant in any calendar year exceeds $100,000, taking into account both Common Stock subject to ISOs under this Plan and stock subject to ISOs under all other plans of the Corporation or one of its Subsidiaries (or any parent or predecessor corporation to the extent required by and within the meaning of Section 422 of the Code and the regulations promulgated thereunder), such options shall be treated as nonqualified stock options. In reducing the number of options treated as ISOs to meet the $100,000 limit, the most recently granted options shall be reduced first. To the extent a reduction of simultaneously granted options is necessary to meet the $100,000 limit, the Administrator may, in the manner and to the extent permitted by law, designate which shares of Common Stock are to be treated as shares acquired pursuant to the exercise of an ISO. ISOs may only be granted to employees of the Corporation or one of its subsidiaries (for this purpose, the term “subsidiary” is used as defined in Section 424(f) of the Code, which generally requires an unbroken chain of ownership of at least 50% of the total combined voting power of all classes of stock of each subsidiary in the chain beginning with the Corporation and ending with the subsidiary in question). There shall be imposed in any award agreement relating to ISOs such other terms and conditions as from time to time are required in order that the option be an “incentive stock option” as that term is defined in Section 422 of the Code. No ISO may be granted to any person who, at the time the option is granted, owns (or is deemed to own under Section 424(d) of the Code) shares of outstanding Common Stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation, unless the exercise price of such option is at least 110% of the Fair Market Value of the stock subject to the option and such option by its terms is not exercisable after the expiration of five years from the date such option is granted.

 

            5.1.3 Stock Appreciation Rights.  A stock appreciation right or “SAR” is a right to receive a payment, in cash and/or Common Stock, equal to the number of shares of Common Stock being exercised multiplied by the excess of (i) the Fair Market Value of a share of Common Stock on the date the SAR is exercised, over (ii) the Fair Market Value of a share of Common Stock on the date the SAR was granted as specified in the applicable award agreement (the “base price”). The maximum term of a SAR shall be ten (10) years.

 

  

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5.1.4  Restricted Shares.

 

(a)           Restrictions. Restricted shares are shares of Common Stock subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Administrator may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Administrator may determine at the date of grant or thereafter.  Except to the extent restricted under the terms of this Plan and the applicable award agreement relating to the restricted stock, a participant granted restricted stock shall have all of the rights of a shareholder, including the right to vote the restricted stock and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Administrator).

 

(b)           Certificates for Shares. Restricted shares granted under this Plan may be evidenced in such manner as the Administrator shall determine. If certificates representing restricted stock are registered in the name of the participant, the Administrator may require that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such restricted stock, that the Corporation retain physical possession of the certificates, and that the participant deliver a stock power to the Corporation, endorsed in blank, relating to the restricted stock.  The Administrator may require that restricted shares are held in escrow until all restrictions lapse

 

(c)           Dividends and Splits. As a condition to the grant of an award of restricted stock, subject to applicable law, the Administrator may require or permit a participant to elect that any cash dividends paid on a share of restricted stock be automatically reinvested in additional shares of restricted stock or applied to the purchase of additional awards under this Plan. Unless otherwise determined by the Administrator, stock distributed in connection with a stock split or stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the restricted stock with respect to which such stock or other property has been distributed.

 

5.1.5           Restricted Share Units.

(a)           Grant of Restricted Share Units. A restricted share unit, or “RSU”, represents the right to receive from the Corporation on the respective scheduled vesting or payment date for such RSU, one Common Share. An award of RSUs may be subject to the attainment of specified performance goals or targets, forfeitability provisions and such other terms and conditions as the Administrator may determine, subject to the provisions of this Plan.  At the time an award of RSUs is made, the Administrator shall establish a period of time during which the restricted share units shall vest and the timing for settlement of the RSU.

(b)           Dividend Equivalent Accounts. Subject to the terms and conditions of the Plan and the applicable award agreement, as well as any procedures established by the Administrator, prior to the expiration of the applicable vesting period of an RSU, the Administrator may determine to pay dividend equivalent rights with respect to RSUs, in which case, the Corporation shall establish an account for the participant and reflect in that account any securities, cash or other property comprising any dividend or property distribution with respect to the shares of Common Stock underlying each RSU.  Each amount or other property credited to any such account shall be subject to the same vesting conditions as the RSU to which it relates.  The participant shall have the right to be paid the amounts or other property credited to such account upon vesting of the subject RSU.

 

                       (c)           Rights as a Shareholder. Subject to the restrictions imposed under the terms and conditions of this Plan and the applicable award agreement, each participant receiving RSUs shall have no rights as a shareholder with respect to such RSUs until such time as shares of Common Stock are issued to the participant.  No shares of Common Stock shall be issued at the time a RSU is granted, and the Company will not be required to set aside a fund for the payment of any such award.   Except as otherwise provided in the applicable award agreement, shares of Common Stock issuable under an RSU shall be treated as issued on the first date that the holder of the RSU is no longer subject to a substantial risk of forfeiture as determined for purposes of Section 409A of the Code, and the holder shall be the owner of such shares of Common Stock on such date.  An award agreement may provide that issuance of shares of Common Stock under an RSU may be deferred beyond the first date that the RSU is no longer subject to a substantial risk of forfeiture, provided that such deferral is structured in a manner that is intended to comply with the requirements of Section 409A of the Code.

5.1.6           Cash Awards.  The Administrator may, from time to time, subject to the provisions of the Plan and such other terms and conditions as it may determine, grant cash bonuses (including without limitation, discretionary awards, awards based on objective or subjective performance criteria, awards subject to other vesting criteria or awards granted consistent with Section 5.2 below).  Cash awards shall be awarded in such amount and at such times during the term of the Plan as the Administrator shall determine.

 

  

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5.1.7 Other Awards.  The other types of awards that may be granted under this Plan include: (a) stock bonuses, performance stock, performance units, dividend equivalents, or similar rights to purchase or acquire shares, whether at a fixed or variable price or ratio related to the Common Stock (subject to the requirements of Section 5.1.1 and in compliance with applicable laws), upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any combination thereof; or (b) any similar securities with a value derived from the value of or related to the Common Stock and/or returns thereon.

 

5.2 Section 162(m) Performance-Based Awards.  Without limiting the generality of the foregoing, any of the types of awards listed in Sections 5.1.4 through 5.1.7 above may be, and options and SARs granted with an exercise or base price not less than the Fair Market Value of a share of Common Stock at the date of grant (“Qualifying Options” and “Qualifying SARs,” respectively) typically will be, granted as awards intended to satisfy the requirements for “performance-based compensation” within the meaning of Section 162(m) of the Code (“Performance-Based Awards”). The grant, vesting, exercisability or payment of Performance-Based Awards may depend (or, in the case of Qualifying Options or Qualifying SARs, may also depend) on the degree of achievement of one or more performance goals relative to a pre-established targeted level or levels using the Business Criteria provided for below for the Corporation on a consolidated basis or for one or more of the Corporation’s subsidiaries, segments, divisions or business units, or any combination of the foregoing. Such criteria may be evaluated on an absolute basis or relative to prior periods, industry peers, or stock market indices. Any Qualifying Option or Qualifying SAR shall be subject to the requirements of Section 5.2.1 and 5.2.3 in order for such award to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code. Any other Performance-Based Award shall be subject to all of the following provisions of this Section 5.2.

 

5.2.1 Class; Administrator.  The eligible class of persons for Performance-Based Awards under this Section 5.2 shall be officers and employees of the Corporation or one of its Subsidiaries. The Administrator approving Performance-Based Awards or making any certification required pursuant to Section 5.2.4 must be constituted as provided in Section 3.1 for awards that are intended as performance-based compensation under Section 162(m) of the Code.

 

5.2.2 Performance Goals.  The specific performance goals for Performance-Based Awards (other than Qualifying Options and Qualifying SARs) shall be, on an absolute or relative basis, established based on such business criteria as selected by the Administrator in its sole discretion (“Business Criteria”), including the following: (1) earnings per share, (2) cash flow (which means cash and cash equivalents derived from either (i) net cash flow from operations or (ii) net cash flow from operations, financing and investing activities), (3) total stockholder return, (4) price per share of Common Stock, (5) gross revenue, (6) revenue growth, (7) operating income (before or after taxes), (8) net earnings (before or after interest, taxes, depreciation and/or amortization), (9) return on equity, (10) capital employed, or on assets or on net investment, (11) cost containment or reduction, (12) cash cost per ounce of production, (13) operating margin, (14) debt reduction, (15) resource amounts, (16) production or production growth, (17) resource replacement or resource growth, (18) successful completion of financings, or (19) any combination of the foregoing.  To qualify awards as performance-based under Section 162(m), the applicable Business Criterion (or Business Criteria, as the case may be) and specific performance goal or goals (“targets”) must be established and approved by the Administrator during the first 90 days of the performance period (and, in the case of performance periods of less than one year, in no event after 25% or more of the performance period has elapsed) and while performance relating to such target(s) remains substantially uncertain within the meaning of Section 162(m) of the Code. Performance targets shall be adjusted to mitigate the unbudgeted impact of material, unusual or nonrecurring gains and losses, accounting changes or other extraordinary events not foreseen at the time the targets were set unless the Administrator provides otherwise at the time of establishing the targets; provided that the Administrator may not make any adjustment to the extent it would adversely affect the qualification of any compensation payable under such performance targets as “performance-based compensation” under Section 162(m) of Code. The applicable performance measurement period may not be less than 3 months nor more than 10 years.

  

5.2.3 Form of Payment. Grants or awards intended to qualify under this Section 5.2 may be paid in cash or shares of Common Stock or any combination thereof.

 

  

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5.2.4 Certification of Payment.  Before any Performance-Based Award under this Section 5.2 (other than Qualifying Options and Qualifying SARs) is paid and to the extent required to qualify the award as performance-based compensation within the meaning of Section 162(m) of the Code, the Administrator must certify in writing that the performance target(s) and any other material terms of the Performance-Based Award were in fact timely satisfied.

 

5.2.5 Reservation of Discretion.  The Administrator will have the discretion to determine the restrictions or other limitations of the individual awards granted under this Section 5.2 including the authority to reduce awards, payouts or vesting or to pay no awards, in its sole discretion, if the Administrator preserves such authority at the time of grant by language to this effect in its authorizing resolutions or otherwise.

 

5.2.6 Expiration of Grant Authority.  As required pursuant to Section 162(m) of the Code and the regulations promulgated thereunder, the Administrator’s authority to grant new awards that are intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code (other than Qualifying Options and Qualifying SARs) shall terminate upon the first meeting of the Corporation’s stockholders that occurs in the fifth year following the year in which the Corporation’s stockholders first approve this Plan (the “162(m) Term”).

 

5.2.7           Compensation Limitations.  The maximum aggregate number of shares of Common Stock that may be issued to any Eligible Person during the term of this Plan pursuant to Qualifying Options and Qualifying SARs may not exceed 2,000,000 shares of Common Stock.  The maximum aggregate number of shares of Common Stock that may be issued to any Eligible Person pursuant to Performance-Based Awards granted during the 162(m) Term (other than cash awards granted pursuant to Section 5.1.6 and Qualifying Options or Qualifying SARs) may not exceed 500,000 shares of Common Stock.  The maximum amount that may be paid to any Eligible Person pursuant to Performance-Based Awards granted pursuant to Sections 5.1.6 (cash awards) during the 162(m) Term may not exceed $1,000,000.

 

5.3 Award Agreements.  Each award shall be evidenced by a written or electronic award agreement in the form approved by the Administrator and, if required by the Administrator, executed by the recipient of the award. The Administrator may authorize any officer of the Corporation (other than the particular award recipient) to execute any or all award agreements on behalf of the Corporation (electronically or otherwise). The award agreement shall set forth the material terms and conditions of the award as established by the Administrator consistent with the express limitations of this Plan.

 

5.4 Deferrals and Settlements.  Payment of awards may be in the form of cash, Common Stock, other awards or combinations thereof as the Administrator shall determine, and with such restrictions as it may impose. The Administrator may also require or permit participants to elect to defer the issuance of shares of Common Stock or the settlement of awards in cash under such rules and procedures as it may establish under this Plan. The Administrator may also provide that deferred settlements include the payment or crediting of interest or other earnings on the deferral amounts, or the payment or crediting of dividend equivalents where the deferred amounts are denominated in shares.  All mandatory or elective deferrals of the issuance of shares of Common Stock or the settlement of cash awards shall be structured in a manner that is intended to comply with the requirements of Section 409A of the Code.

 

5.5 Consideration for Common Stock or Awards.  The purchase price for any award granted under this Plan or the Common Stock to be delivered pursuant to an award, as applicable, may be paid by means of any lawful consideration as determined by the Administrator and subject to compliance with applicable laws, including, without limitation, one or a combination of the following methods:

 

	  	
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services rendered by the recipient of such award;

 

	  	
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cash, check payable to the order of the Corporation, or electronic funds transfer;

 

	  	
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notice and third party payment in such manner as may be authorized by the Administrator;

 

  

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the delivery of previously owned shares of Common Stock that are fully vested and unencumbered;

 

	  	
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by a reduction in the number of shares otherwise deliverable pursuant to the award; or

 

	  	
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subject to such procedures as the Administrator may adopt, pursuant to a “cashless exercise” with a third party who provides financing for the purposes of (or who otherwise facilitates) the purchase or exercise of awards.

 

In the event that the Administrator allows a participant to exercise an award by delivering shares of Common Stock previously owned by such participant and unless otherwise expressly provided by the Administrator, any shares delivered which were initially acquired by the participant from the Corporation (upon exercise of a stock option or otherwise) must have been owned by the participant at least six months as of the date of delivery (or such other period as may be required by the Administrator in order to avoid adverse accounting treatment). Shares of Common Stock used to satisfy the exercise price of an option shall be valued at their Fair Market Value on the date of exercise. The Corporation will not be obligated to deliver any shares unless and until it receives full payment of the exercise or purchase price therefor and any related withholding obligations under Section 8.5 and any other conditions to exercise or purchase, as established from time to time by the Administrator, have been satisfied. Unless otherwise expressly provided in the applicable award agreement, the Administrator may at any time eliminate or limit a participant’s ability to pay the purchase or exercise price of any award by any method other than cash payment to the Corporation.

 

5.6 Definition of Fair Market Value.  For purposes of this Plan “Fair Market Value” shall mean, unless otherwise determined or provided by the Administrator in the circumstances, the closing price for a share of Common Stock on the trading day immediately before the grant date, as furnished by the OTC Markets (the “OTC Markets”) or on the principal stock exchange on which the Common Stock is then listed for the date in question. If the Common Stock is no longer listed or is no longer actively traded on the OTC Markets or listed on a principal stock exchange as of the applicable date, the Fair Market Value of the Common Stock shall be the value as reasonably determined by the Administrator for purposes of the award in the circumstances.

 

5.7 Transfer Restrictions.

 

5.7.1 Limitations on Exercise and Transfer.  Unless otherwise expressly provided in (or pursuant to) this Section 5.7, by applicable law and by the award agreement, as the same may be amended, (a) all awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; (b) awards shall be exercised only by the participant; and (c) amounts payable or shares issuable pursuant to any award shall be delivered only to (or for the account of) the participant.

 

5.7.2 Exceptions.  The Administrator may permit awards to be exercised by and paid to, or otherwise transferred to, other persons or entities pursuant to such conditions and procedures, including limitations on subsequent transfers, as the Administrator may, in its sole discretion, establish in writing (provided that any such transfers of ISOs shall be limited to the extent permitted under the federal tax laws governing ISOs). Any permitted transfer shall be subject to compliance with applicable federal and state securities laws.

 

5.7.3 Further Exceptions to Limits on Transfer.  The exercise and transfer restrictions in Section 5.7.1 shall not apply to:

 

(a)           transfers to the Corporation,

 

(b)           the designation of a beneficiary to receive benefits in the event of the participant’s death or, if the participant has died, transfers to or exercise by the participant’s beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution,

 

(c)           subject to any applicable limitations on ISOs, transfers to a family member (or former family member) pursuant to a domestic relations order if approved or ratified by the Administrator,

 

  

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(d)           subject to any applicable limitations on ISOs, if the participant has suffered a disability, permitted transfers or exercises on behalf of the participant by his or her legal representative, or

 

(e)           the authorization by the Administrator of “cashless exercise” procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of awards consistent with applicable laws and the express authorization of the Administrator.

 

5.8 International Awards.  One or more awards may be granted to Eligible Persons who provide services to the Corporation or one of its Subsidiaries outside of the United States. Any awards granted to such persons may, if deemed necessary or advisable by the Administrator, be granted pursuant to the terms and conditions of any applicable sub-plans, if any, appended to this Plan and approved by the Administrator.

 

5.9 Vesting.  Subject to Section 5.1.2  hereof, awards shall vest at such time or times and subject to such terms and conditions as shall be determined by the Administrator at the time of grant; provided, however, that in the absence of any award vesting periods designated by the Administrator at the time of grant in the applicable award agreement, awards shall vest as to one-third of the total number of shares subject to the award on each of the first, second and third anniversaries of the date of grant.

  

	
6.

	
EFFECT OF TERMINATION OF SERVICE ON AWARDS

 

6.1 Termination of Employment.

 

6.1.1           The Administrator shall establish the effect of a termination of employment or service on the rights and benefits under each award under this Plan and in so doing may make distinctions based upon, inter alia, the cause of termination and type of award. If the participant is not an employee of the Corporation or one of its Subsidiaries and provides other services to the Corporation or one of its Subsidiaries, the Administrator shall be the sole judge for purposes of this Plan (unless a contract or the award agreement otherwise provides) of whether the participant continues to render services to the Corporation or one of its Subsidiaries and the date, if any, upon which such services shall be deemed to have terminated.

 

6.1.2           For awards of stock options or SARs, unless the award agreement provides otherwise, the exercise period of such options or SARs shall expire: (1) three months after the last day that the participant is employed by or provides services to the Corporation or a Subsidiary (provided; however, that in the event of the participant’s death during this period, those persons entitled to exercise the option or SAR pursuant to the laws of descent and distribution shall have one year following the date of death within which to exercise such option or SAR); (2) in the case of a participant whose termination of employment is due to death or disability (as defined in the applicable award agreement), 12 months after the last day that the participant is employed by or provides services to the Corporation or a Subsidiary; and (3) immediately upon a participant’s termination for “cause”. The Administrator will, in its absolute discretion, determine the effect of all matters and questions relating to a termination of employment, including, but not by way of limitation, the question of whether a leave of absence constitutes a termination of employment and whether a participant’s termination is for “cause.”

 

If not defined in the applicable award agreement, “Cause” shall mean:

(i)           conviction of a felony or a crime involving fraud or moral turpitude; or

(ii)           theft, material act of dishonesty or fraud, intentional falsification of any employment or Company records, or commission of any criminal act which impairs participant’s ability to perform appropriate employment duties for the Corporation; or

(iii)           intentional or reckless conduct or gross negligence materially harmful to the Company or the successor to the Corporation after a Change in Control , including violation of a non-competition or confidentiality agreement; or

(iv)           willful failure to follow lawful instructions of the person or body to which participant reports; or

 

  

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(v)           gross negligence or willful misconduct in the performance of participant’s assigned duties.  Cause shall not include mere unsatisfactory performance in the achievement of participant’s job objectives.

6.1.3           For awards of restricted shares, unless the award agreement provides otherwise, restricted shares that are subject to restrictions at the time that a participant whose employment or service is terminated shall be forfeited and reacquired by the Corporation; provided that, the Administrator may provide, by rule or regulation or in any award agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to restricted shares shall be waived in whole or in part in the event of terminations resulting from specified causes, and the Administrator may in other cases waive in whole or in part the forfeiture of restricted shares.  Similar rules shall apply in respect of RSUs.

6.2 Events Not Deemed Terminations of Service.  Unless the express policy of the Corporation or one of its Subsidiaries, or the Administrator, otherwise provides, the employment relationship shall not be considered terminated in the case of (a) sick leave, (b) military leave, or (c) any other leave of absence authorized by the Corporation or one of its Subsidiaries, or the Administrator; provided that unless reemployment upon the expiration of such leave is guaranteed by contract or law, such leave is for a period of not more than 3 months. In the case of any employee of the Corporation or one of its Subsidiaries on an approved leave of absence, continued vesting of the award while on leave from the employ of the Corporation or one of its Subsidiaries may be suspended until the employee returns to service, unless the Administrator otherwise provides or applicable law otherwise requires. In no event shall an award be exercised after the expiration of the term set forth in the award agreement.

 

6.3 Effect of Change of Subsidiary Status.  For purposes of this Plan and any award, if an entity ceases to be a Subsidiary of the Corporation, a termination of employment or service shall be deemed to have occurred with respect to each Eligible Person in respect of such Subsidiary who does not continue as an Eligible Person in respect of another entity within the Corporation or another Subsidiary that continues as such after giving effect to the transaction or other event giving rise to the change in status.

 

7.           ADJUSTMENTS; ACCELERATION

 

7.1           Adjustments.  Upon or in contemplation of any of the following events described in this Section 7.1,: any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split (“stock split”); any merger, arrangement, combination, consolidation, or other reorganization; any spin-off, split-up, or similar extraordinary dividend distribution in respect of the Common Stock (whether in the form of securities or property); any exchange of Common Stock or other securities of the Corporation, or any similar, unusual or extraordinary corporate transaction in respect of the Common Stock; then the Administrator shall in such manner, to such extent  and at such time as it deems appropriate and equitable in the circumstances (but subject to compliance with applicable laws and stock exchange requirements) proportionately adjust any or all of (1) the number and type of shares of Common Stock (or other securities) that thereafter may be made the subject of awards (including the number of shares provided for in this Plan), (2) the number, amount and type of shares of Common Stock (or other securities or property) subject to any or all outstanding awards, (3) the grant, purchase, or exercise price (which term includes the base price of any SAR or similar right) of any or all outstanding awards, (4) the securities, cash or other property deliverable upon exercise or payment of any outstanding awards, and (5) the 162(m) compensation limitations set forth in Section 5.2.7 and (subject to Section 8.8.3(a)) the performance standards applicable to any outstanding awards (provided that no adjustment shall be allowed to the extent inconsistent with the requirements of Code section 162(m)). Any adjustment made pursuant to this Section 7.1 shall be made in a manner that, in the good faith determination of the Administrator, will not likely result in the imposition of additional taxes or interest under Section 409A of the Code.  With respect to any award of an ISO, the Administrator may make such an adjustment that causes the option to cease to qualify as an ISO without the consent of the affected participant.

 

  

10

  

 

7.2           Change in Control.  Upon a Change in Control, each then-outstanding option and SAR shall automatically become fully vested, all restricted shares then outstanding shall automatically fully vest free of restrictions, and each other award granted under this Plan that is then outstanding shall automatically become vested and payable to the holder of such award unless the Administrator has made appropriate provision for the substitution, assumption, exchange or other continuation of the award pursuant to the Change in Control.  Notwithstanding the foregoing, the Administrator, in its sole and absolute discretion, may choose (in an award agreement or otherwise) to provide for full or partial accelerated vesting of any award upon a Change In Control (or upon any other event or other circumstance related to the Change in Control, such as an involuntary termination of employment occurring after such Change in Control, as the Administrator may determine), irrespective of whether such any such award has been substituted, assumed, exchanged or otherwise continued pursuant to the Change in Control.

 

For purposes of this Plan, “Change in Control” shall be deemed to have occurred if:

 

(i)           a tender offer (or series of related offers) shall be made and consummated for the ownership of 50% or more of the outstanding voting securities of the Corporation, unless as a result of such tender offer more than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the stockholders of the Corporation (as of the time immediately prior to the commencement of such offer), any employee benefit plan of the Corporation or its Subsidiaries, and their affiliates;

 

(ii)           the Corporation shall be merged or consolidated with another entity, unless as a result of such merger or consolidation more than 50% of the outstanding voting securities of the surviving or resulting entity shall be owned in the aggregate by the stockholders of the Corporation (as of the time immediately prior to such transaction), any employee benefit plan of the Corporation or its Subsidiaries, and their affiliates;

 

(iii)           the Corporation shall sell substantially all of its assets to another entity that is not wholly owned by the Corporation, unless as a result of such sale more than 50% of such assets shall be owned in the aggregate by the stockholders of the Corporation (as of the time immediately prior to such transaction), any employee benefit plan of the Corporation or its Subsidiaries and their affiliates; or

 

(iv)           a Person (as defined below) shall acquire 50% or more of the outstanding voting securities of the Corporation (whether directly, indirectly, beneficially or of record), unless as a result of such acquisition more than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the stockholders of the Corporation (as of the time immediately prior to the first acquisition of such securities by such Person), any employee benefit plan of the Corporation or its Subsidiaries, and their affiliates.

 

For purposes of this Section 5(c), ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(I)(i) (as in effect on the date hereof) under the Exchange Act.  In addition, for such purposes, “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; provided, however, that a Person shall not include (A) the Company or any of its Subsidiaries; (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Subsidiaries; (C) an underwriter temporarily holding securities pursuant to an offering of such securities; or (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company.

 

Notwithstanding the foregoing, (1) the Administrator may waive the requirement described in paragraph (iv) above that a Person must acquire more than 50% of the outstanding voting securities of the Corporation for a Change in Control to have occurred if the Administrator determines that the percentage acquired by a person is significant (as determined by the Administrator in its discretion) and that waiving such condition is appropriate in light of all facts and circumstances, and (2) no compensation that has been deferred for purposes of Section 409A of the Code shall be payable as a result of a Change in Control unless the Change in Control qualifies as a change in ownership or effective control of the Corporation within the meaning of Section 409A of the Code.

 

7.3           Early Termination of Awards.  Any award that has been accelerated as required or permitted by Section 7.2 upon a Change in Control (or would have been so accelerated but for Section 7.4 or 7.5) shall terminate upon such event, subject to any provision that has been expressly made by the Administrator, through a plan of reorganization or otherwise, for the survival, substitution, assumption, exchange or other continuation of such award and provided that, in the case of options and SARs that will not survive, be substituted for, assumed, exchanged, or otherwise continued in the transaction, the holder of such award shall be given reasonable advance notice of the impending termination and a reasonable opportunity to exercise his or her outstanding options and SARs in accordance with their terms before the termination of such awards (except that in no case shall more than ten days’ notice of accelerated vesting and the impending termination be required and any acceleration may be made contingent upon the actual occurrence of the event).

 

  

11

  

 

The Administrator may make provision for payment in cash or property (or both) in respect of awards terminated pursuant to this section as a result of the Change in Control and may adopt such valuation methodologies for outstanding awards as it deems reasonable and, in the case of options, SARs or similar rights, and without limiting other methodologies, may base such settlement solely upon the excess if any of the per share amount payable upon or in respect of such event over the exercise or base price of the award.

 

7.4           Other Acceleration Rules.  Any acceleration of awards pursuant to this Section 7 shall comply with applicable legal and stock exchange requirements and, if necessary to accomplish the purposes of the acceleration or if the circumstances require, may be deemed by the Administrator to occur a limited period of time not greater than 30 days before the event. Without limiting the generality of the foregoing, the Administrator may deem an acceleration to occur immediately prior to the applicable event and/or reinstate the original terms of an award if an event giving rise to the acceleration does not occur. Notwithstanding any other provision of the Plan to the contrary, the Administrator may override the provisions of Section 7.2, 7.3, and/or 7.5 by express provision in the award agreement or otherwise. The portion of any ISO accelerated pursuant to Section 7.2 or any other action permitted hereunder shall remain exercisable as an ISO only to the extent the applicable $100,000 limitation on ISOs is not exceeded. To the extent exceeded, the accelerated portion of the option shall be exercisable as a nonqualified stock option under the Code.

 

7.5           Possible Rescission of Acceleration.  If the vesting of an award has been accelerated expressly in anticipation of an event and the Administrator later determines that the event will not occur, the Administrator may rescind the effect of the acceleration as to any then outstanding and unexercised or otherwise unvested awards; provided, that, in the case of any compensation that has been deferred for purposes of Section 409A of the Code,  the Administrator determines that such rescission will not likely result in the imposition of additional tax or interest under Code Section 409A.

 

	
8.

	
OTHER PROVISIONS

 

8.1 Compliance with Laws.  This Plan, the granting and vesting of awards under this Plan, the offer, issuance and delivery of shares of Common Stock, the acceptance of promissory notes and/or the payment of money under this Plan or under awards are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law, federal margin requirements) and to such approvals by any applicable stock exchange listing, regulatory or governmental authority as may, in the opinion of counsel for the Corporation, be necessary or advisable in connection therewith. The person acquiring any securities under this Plan will, if requested by the Corporation or one of its Subsidiaries, provide such assurances and representations to the Corporation or one of its Subsidiaries as the Administrator may deem necessary or desirable to assure compliance with all applicable legal and accounting requirements.

 

8.2 Future Awards/Other Rights.  No person shall have any claim or rights to be granted an award (or additional awards, as the case may be) under this Plan, subject to any express contractual rights (set forth in a document other than this Plan) to the contrary.

 

8.3 No Employment/Service Contract.  Nothing contained in this Plan (or in any other documents under this Plan or in any award) shall confer upon any Eligible Person or other participant any right to continue in the employ or other service of the Corporation or one of its Subsidiaries, constitute any contract or agreement of employment or other service or affect an employee’s status as an employee at will, nor shall interfere in any way with the right of the Corporation or one of its Subsidiaries to change a person’s compensation or other benefits, or to terminate his or her employment or other service, with or without cause.  Nothing in this Section 8.3, however, is intended to adversely affect any express independent right of such person under a separate employment or service contract other than an award agreement.

 

  

12

  

 

8.4 Plan Not Funded.  Awards payable under this Plan shall be payable in shares or from the general assets of the Corporation, and no special or separate reserve, fund or deposit shall be made to assure payment of such awards. No participant, beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including shares of Common Stock, except as expressly otherwise provided) of the Corporation or one of its Subsidiaries by reason of any award hereunder. Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Corporation or one of its Subsidiaries and any participant, beneficiary or other person. To the extent that a participant, beneficiary or other person acquires a right to receive payment pursuant to any award hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation.

 

8.5 Tax Withholding.  Upon any exercise, vesting, or payment of any award, the Corporation or one of its Subsidiaries shall have the right at its option to:

 

(a)           require the participant (or the participant’s personal representative or beneficiary, as the case may be) to pay or provide for payment of at least the minimum amount of any taxes which the Corporation or one of its Subsidiaries may be required to withhold with respect to such award event or payment; or

 

(b)           deduct from any amount otherwise payable in cash to the participant (or the participant’s personal representative or beneficiary, as the case may be) the minimum amount of any taxes which the Corporation or one of its Subsidiaries may be required to withhold with respect to such cash payment.

 

In any case where a tax is required to be withheld in connection with the delivery of shares of Common Stock under this Plan, the Administrator may in its sole discretion (subject to Section 8.1) grant (either at the time of the award or thereafter) to the participant the right to elect, pursuant to such rules and subject to such conditions as the Administrator may establish, to have the Corporation reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of shares, valued in a consistent manner at their Fair Market Value or at the sales price in accordance with authorized procedures for cashless exercises, necessary to satisfy the minimum applicable withholding obligation on exercise, vesting or payment. In no event shall the shares withheld exceed the minimum whole number of shares required for tax withholding under applicable law.

 

8.6 Effective Date, Termination and Suspension, Amendments.

 

8.6.1 Effective Date and Termination.  This Plan was approved by the Board and became effective on May 13, 2013.  Unless earlier terminated by the Board, this Plan shall terminate at the close of business on May 13, 2023. After the termination of this Plan either upon such stated expiration date or its earlier termination by the Board, no additional awards may be granted under this Plan, but previously granted awards (and the authority of the Administrator with respect thereto, including the authority to amend such awards) shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan.

 

8.6.2 Board Authorization.  The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part. No awards may be granted during any period that the Board suspends this Plan.

 

8.6.3 Stockholder Approval.  To the extent then required by applicable law or any applicable stock exchange or required under Sections 162, 422 or 424 of the Code to preserve the intended tax consequences of this Plan, or deemed necessary or advisable by the Board, this Plan and any amendment to this Plan shall be subject to stockholder approval.

 

8.6.4 Amendments to Awards.  Without limiting any other express authority of the Administrator under (but subject to) the express limits of this Plan, the Administrator by agreement or resolution may waive conditions of or limitations on awards to participants that the Administrator in the prior exercise of its discretion has imposed, without the consent of a participant, and (subject to the requirements of Sections 3.2 and 8.6.5) may make other changes to the terms and conditions of awards. Any amendment or other action that would constitute a repricing of an award is subject to the limitations set forth in Section 3.2(g).

 

8.6.5 Limitations on Amendments to Plan and Awards.  No amendment, suspension or termination of this Plan or change of or affecting any outstanding award shall, without written consent of the participant, affect in any manner materially adverse to the participant any rights or benefits of the participant or obligations of the Corporation under any award granted under this Plan prior to the effective date of such change. Changes, settlements and other actions contemplated by Section 7 shall not be deemed to constitute changes or amendments for purposes of this Section 8.6.

 

  

13

  

 

8.7 Privileges of Stock Ownership.  Except as otherwise expressly authorized by the Administrator or this Plan, a participant shall not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of record by the participant. No adjustment will be made for dividends or other rights as a stockholder for which a record date is prior to such date of delivery.

 

8.8 Governing Law; Construction; Severability.

 

8.8.1 Choice of Law.  This Plan, the awards, all documents evidencing awards and all other related documents shall be governed by, and construed in accordance with the laws of the State of Nevada.

 

8.8.2 Severability.  If a court of competent jurisdiction holds any provision invalid and unenforceable, the remaining provisions of this Plan shall continue in effect.

 

8.8.3 Plan Construction.

 

(a)  Rule 16b-3.  It is the intent of the Corporation that the awards and transactions permitted by awards be interpreted in a manner that, in the case of participants who are or may be subject to Section 16 of the Exchange Act, qualify, to the maximum extent compatible with the express terms of the award, for exemption from matching liability under Rule 16b-3 promulgated under the Exchange Act. Notwithstanding the foregoing, the Corporation shall have no liability to any participant for Section 16 consequences of awards or events under awards if an award or event does not so qualify.

 

(b)  Section 162(m).  Awards under Sections 5.1.4 through 5.1.7 to persons described in Section 5.2 that are either granted or become vested, exercisable or payable based on attainment of one or more performance goals related to the Business Criteria, as well as Qualifying Options and Qualifying SARs granted to persons described in Section 5.2, that are approved by a committee composed solely of two or more outside directors (as this requirement is applied under Section 162(m) of the Code) shall be deemed to be intended as performance-based compensation within the meaning of Section 162(m) of the Code unless such committee provides otherwise at the time of grant of the award. It is the further intent of the Corporation that (to the extent the Corporation or one of its Subsidiaries or awards under this Plan may be or become subject to limitations on deductibility under Section 162(m) of the Code) any such awards and any other Performance-Based Awards under Section 5.2 that are granted to or held by a person subject to Section 162(m) will qualify as performance-based compensation or otherwise be exempt from deductibility limitations under Section 162(m).

 

(c)  Code Section 409A Compliance.  The Board intends that, except as may be otherwise determined by the Administrator, any awards under the Plan are either exempt from or satisfy the requirements of Section 409A of the Code and related regulations and Treasury pronouncements (“Section 409A”) to avoid the imposition of any taxes, including additional income or penalty taxes, thereunder. If the Administrator determines that an award, award agreement, acceleration, adjustment to the terms of an award, payment, distribution, deferral election, transaction or any other action or arrangement contemplated by the provisions of the Plan would, if undertaken, cause a participant’s award to become subject to Section 409A, unless the Administrator expressly determines otherwise, such award, award agreement, payment, acceleration, adjustment, distribution, deferral election, transaction or other action or arrangement shall not be undertaken and the related provisions of the Plan and/or award agreement will be deemed modified or, if necessary, rescinded in order to comply with the requirements of Section 409A to the extent determined by the Administrator without the content or notice to the participant. Notwithstanding the foregoing, neither the Company nor the Administrator shall have any obligation to take any action to prevent the assessment of any excise tax or penalty on any participant under Section 409A and neither the Company nor the Administrator will have any liability to any participant for such tax or penalty.

 

(d)           No Guarantee of Favorable Tax Treatment.  Although the Company intends that awards under the Plan will be exempt from, or will comply with, the requirements of Section 409A of the Code, the Company does not warrant that any award under the Plan will qualify for favorable tax treatment under Section 409A of the Code or any other provision of federal, state, local or foreign law. The Company shall not be liable to any participant for any tax, interest or penalties the participant might owe as a result of the grant, holding, vesting, exercise or payment of any award under the Plan

 

  

14

  

 

8.9 Captions.  Captions and headings are given to the sections and subsections of this Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof.

  

8.10 Stock-Based Awards in Substitution for Stock Options or Awards Granted by Other Corporation.  Awards may be granted to Eligible Persons in substitution for or in connection with an assumption of employee stock options, SARs, restricted stock or other stock-based awards granted by other entities to persons who are or who will become Eligible Persons in respect of the Corporation or one of its Subsidiaries, in connection with a distribution, arrangement, business combination, merger or other reorganization by or with the granting entity or an affiliated entity, or the acquisition by the Corporation or one of its Subsidiaries, directly or indirectly, of all or a substantial part of the stock or assets of the employing entity. The awards so granted need not comply with other specific terms of this Plan, provided the awards reflect only adjustments giving effect to the assumption or substitution consistent with the conversion applicable to the Common Stock in the transaction and any change in the issuer of the security. Any shares that are delivered and any awards that are granted by, or become obligations of, the Corporation, as a result of the assumption by the Corporation of, or in substitution for, outstanding awards previously granted by an acquired company (or previously granted by a predecessor employer (or direct or indirect parent thereof) in the case of persons that become employed by the Corporation or one of its Subsidiaries in connection with a business or asset acquisition or similar transaction) shall not be counted against the Share Limit or other limits on the number of shares available for issuance under this Plan, except as may otherwise be provided by the Administrator at the time of such assumption or substitution or as may be required to comply with the requirements of any applicable stock exchange.

 

8.11 Non-Exclusivity of Plan.  Nothing in this Plan shall limit or be deemed to limit the authority of the Board or the Administrator to grant awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority.

 

8.12 No Corporate Action Restriction.  The existence of this Plan, the award agreements and the awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the stockholders of the Corporation to make or authorize: (a) any adjustment, recapitalization, reorganization or other change in the capital structure or business of the Corporation or any Subsidiary, (b) any merger, arrangement, business combination, amalgamation, consolidation or change in the ownership of the Corporation or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stock ahead of or affecting the capital stock (or the rights thereof) of the Corporation or any Subsidiary, (d) any dissolution or liquidation of the Corporation or any Subsidiary, (e) any sale or transfer of all or any part of the assets or business of the Corporation or any Subsidiary, or (f) any other corporate act or proceeding by the Corporation or any Subsidiary. No participant, beneficiary or any other person shall have any claim under any award or award agreement against any member of the Board or the Administrator, or the Corporation or any employees, officers or agents of the Corporation or any Subsidiary, as a result of any such action.

8.13 Other Corporation Benefit and Compensation Programs.  Payments and other benefits received by a participant under an award made pursuant to this Plan shall not be deemed a part of a participant’s compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Corporation or any Subsidiary, except where the Administrator expressly otherwise provides or authorizes in writing or except as otherwise specifically set forth in the terms and conditions of such other employee welfare or benefit plan or arrangement. Awards under this Plan may be made in addition to, in combination with, as alternatives to or in payment of grants, awards or commitments under any other plans or arrangements of the Corporation or its Subsidiaries.

 

8.14 Prohibition on Repricing.  Subject to Section 4, the Administrator shall not, without the approval of the stockholders of the Corporation (i) reduce the exercise price, or cancel and reissue options so as to in effect reduce the exercise price or (ii) change the manner of determining the exercise price so that the exercise price is less than the fair market value per share of Common Stock.

As adopted by the Board of Directors of Finishing Touches Home Goods, Inc. on May 13, 2013.

 

 

15bws8k052013ex10_1.htm

  

  

  

 

 

 

 

STOCK PURCHASE AGREEMENT

 

by and among

 

BROWN SHOE INTERNATIONAL CORP.,

 

GALAXY BRAND HOLDINGS, INC.,

 

and, solely for purposes of Article 1, Article 4, Article 5 and Article 6

 

BROWN SHOE COMPANY, INC.

 

Dated as of May 14, 2013

 

 

 

 

  

  

  

INDEX OF DEFINED TERMS

 

 

	
  

	
Accounting Firm

	
  

	
Accounts Receivable

	
  

	
Action

	
  

	
Affiliate

	
  

	
Agreement

	
  

	
Ancillary Agreements

	
  

	
Annual Financial Statements

	
  

	
Balance Sheet

	
  

	
Base Inventory Amount

	
  

	
Base Purchase Price

	
  

	
Base Working Capital

	
  

	
Brown Shoe

	
  

	
Brown Shoe Cap

	
  

	
Brown Shoe Guaranty

	
  

	
Brown Shoe Indemnified Persons

	
  

	
Business Day

	
  

	
Buyer

	
  

	
Buyer Cap

	
  

	
Buyer Indemnified Persons

	
  

	
Buyer Parties

	
  

	
CERCLA

	
  

	
Closing

	
  

	
Closing Date

	
  

	
Closing Payment

	
  

	
Closing Purchase Price

	
  

	
Closing Working Capital

	
  

	
COBRA

	
  

	
Code

	
  

	
Company

	
  

	
Company Accounting Methodology

	
  

	
Company Group

	
  

	
Company Intellectual Property

	
  

	
Company Material Adverse Effect

	
  

	
Company Parties

	
  

	
Confidentiality Agreement

	
  

	
Contract

	
  

	
Contracts

	
  

	
Credit Agreement

	
  

	
Defense Notice

	
  

	
Defense Notice Period

	
  

	
DeMinimis

	
  

	
Disclosure Schedules

	
  

	
Disputed Items

	
  

	
Distribution Agreement

	
  

	
Environmental Claim

	
  

	
Environmental Law

	
  

	
ESO

	
  

	
Estimated Closing Schedule

	
  

	
Estimated Closing Working Capital

	
  

	
Estimated Inventory Amount

	
  

	
Excluded Assets

	
  

	
Excluded Businesses

	
  

	
Excluded Liabilities

	
  

	
Excluded Subsidiaries

	
  

	
Final Closing Schedule

	
  

	
Final Closing Working Capital

	
  

	
Final Inventory Amount

	
  

	
Final Purchase Price

	
  

	
Financial Statements

	
  

	
Fundamental Reps

	
  

	
GAAP

	
  

	
Governmental Authority

	
  

	
Governmental Authorization

	
  

	
Hazardous Materials

	
  

	
Identified Claims

	
  

	
Income Tax

	
  

	
Income Tax Return

	
  

	
Indebtedness

	
  

	
Indemnification Threshold

	
  

	
Indemnified Losses

	
  

	
Indemnified Party

	
  

	
Indemnifying Party

	
  

	
Intellectual Property

	
  

	
Intercompany Accounts

	
  

	
Interim Financials

	
  

	
Inventory Adjustment Amount

	
  

	
Inventory Buyer

	
  

	
Inventory Purchase Agreement

	
  

	
Law

	
  

	
Leased Real Property

	
  

	
Liens

	
  

	
Losses

	
  

	
Material Contract

	
  

	
Non-Assignable Assets

	
  

	
Note

	
  

	
Note Amount

	
  

	
Order

	
  

	
Ordinary Course of Business

	
  

	
Parties

	
  

	
Party

	
  

	
Permits

	
  

	
Permitted Liens

	
  

	
Person

	
  

	
Plan

	
  

	
Plans

	
  

	
Pre-Closing Cash Dividend

	
  

	
Pre-Closing Periods

	
  

	
Real Property Lease

	
  

	
Real Property Leases

	
  

	
Release

	
  

	
Releasees

	
  

	
Releasing Parties

	
  

	
Restructuring

	
  

	
Schedule of Agreed Exceptions

	
  

	
Seller

	
  

	
Seller’s Dispute Notice

	
  

	
Shared Contract

	
  

	
Software

	
  

	
Special Third Person Claim

	
  

	
Specified Order Liabilities

	
  

	
Specified Orders

	
  

	
Specified Shared Contracts

	
  

	
Stock

	
  

	
Straddle Period

	
  

	
Subsidiary

	
  

	
Tax

	
  

	
Tax Return

	
  

	
Tax Returns

	
  

	
Taxes

	
  

	
Third Person

	
  

	
Third Person Claim

	
  

	
Third Person Claim Notice

	
  

	
Transfer Taxes

	
  

	
Transition Services Agreement

	
  

	
Willful Misconduct

	
  

	
Working Capital

 

  

  

  

TABLE OF CONTENTS

 

 

 

ARTICLE 1. PURCHASE AND SALE 

	
  

	
1.1.

	
Purchase and Sale of the Stock

	
 

	
  

	
1.2.

	
Closing

	 

	
  

	
1.3.

	
Purchase Price

	 

	
  

	
1.4.

	
Deliveries of Seller at Closing

	 

	
  

	
1.5.

	
Deliveries of Buyer at Closing

	 

	
  

	
1.6.

	
Inventory; Closing Working Capital

	 

 

ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER 

	
  

	
2.1.

	
Organization, Qualification

	
 

	
  

	
2.2.

	
Subsidiaries

	 

	
  

	
2.3.

	
Capitalization

	 

	
  

	
2.4.

	
Authorization; Enforceability; Non-contravention; Consents

	 

	
  

	
2.5.

	
Financial Statements

	 

	
  

	
2.6.

	
Books and Records; Business Practices

	 

	
  

	
2.7.

	
Taxes

	 

	
  

	
2.8.

	
Assets and Real Property

	 

	
  

	
2.9.

	
Accounts Receivable; Inventories

	 

	
  

	
2.10.

	
Material Contracts

	 

	
  

	
2.11.

	
Intellectual Property

	 

	
  

	
2.12.

	
Litigation

	 

	
  

	
2.13.

	
Absence of Certain Changes

	 

	
  

	
2.14.

	
No Breach of Law or Governing Document; Licenses and Permits

	 

	
  

	
2.15.

	
Environmental Matters

	 

	
  

	
2.16.

	
Labor Matters

	 

	
  

	
2.17.

	
Employee Benefit Matters

	 

	
  

	
2.18.

	
Customers and Suppliers

	 

	
  

	
2.19.

	
Foreign Operations and Export/Import Compliance

	 

	
  

	
2.20.

	
Brokers, Finders

	 

	
  

	
2.21.

	
No Undisclosed Liabilities

	 

	
  

	
2.22.

	
Company Material Adverse Effect

	 

	
  

	
2.23.

	
Acknowledgement by Seller and Brown Shoe

	 

	
  

	
2.24.

	
No Additional Representations

	 

 

ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER 

	
  

	
3.1.

	
Organization; Authorization

	 

	
  

	
3.2.

	
Non-Contravention; Consents

	 

	
  

	
3.3.

	
Brokers, Finders

	 

	
  

	
3.4.

	
Litigation

	 

	
  

	
3.5.

	
Acknowledgement by Buyer

	 

	
  

	
3.6.

	
No Additional Representations

	 

 

ARTICLE 4. COVENANTS 

	
  

	
4.1.

	
Public Announcements

	 

	
  

	
4.2.

	
Further Assurances

	 

	
  

	
4.3.

	
Taxes

	 

	
  

	
4.4.

	
Reliance

	
 

	
  

	
4.5.

	
Restructuring

	 

	
  

	
4.6.

	
Release

	 

	
  

	
4.7.

	
Confidentiality

	 

	
  

	
4.8.

	
Intercompany Accounts

	 

	
  

	
4.9.

	
Credit Agreement; UCC; Release

	 

	
  

	
4.10.

	
Intercompany Contracts

	 

	
  

	
4.11.

	
Shared Contracts

	 

	
  

	
4.12.

	
Corporate Names

	 

	
  

	
4.13.

	
Brown Shoe Guaranties

	 

	
  

	
4.14.

	
Performance by Seller

	 

	
  

	
4.15.

	
Credit Agreement

	 

 

ARTICLE 5. INDEMNIFICATION 

	
  

	
5.1.

	
Survival of Representations and Warranties and Covenants

	 

	
  

	
5.2.

	
Indemnification of Buyer

	 

	
  

	
5.3.

	
Tax Indemnification

	 

	
  

	
5.4.

	
Indemnification of Brown Shoe

	 

	
  

	
5.5.

	
Notice of Claim

	 

	
  

	
5.6.

	
Right to Contest Claims of Third Persons

	 

	
  

	
5.7.

	
Limitations on Indemnity

	 

	
  

	
5.8.

	
Indemnification Procedures for Identified Claims

	 

 

ARTICLE 6. MISCELLANEOUS PROVISIONS 

	
  

	
6.1.

	
Notice

	 

	
  

	
6.2.

	
Entire Agreement

	 

	
  

	
6.3.

	
Assignment; Binding Agreement

	 

	
  

	
6.4.

	
Counterparts

	 

	
  

	
6.5.

	
Headings; Interpretation; Disclosure Schedules

	 

	
  

	
6.6.

	
Expenses

	 

	
  

	
6.7.

	
Remedies Cumulative

	 

	
  

	
6.8.

	
Governing Law

	 

	
  

	
6.9.

	
Submission to Jurisdiction; Waivers

	 

	
  

	
6.10.

	
No Waiver

	 

	
  

	
6.11.

	
Severability

	 

	
  

	
6.12.

	
Amendments

	 

	
  

	
6.13.

	
No Third Party Beneficiaries; Recourse

	 

	
  

	
6.14.

	
Specific Performance

	 

 

 

  

  

  

STOCK PURCHASE AGREEMENT

 

          THIS STOCK PURCHASE AGREEMENT (this “Agreement”) is entered into as of May 14, 2013, by and among BROWN SHOE INTERNATIONAL CORP., a Delaware corporation (“Seller”), GALAXY BRAND HOLDINGS, INC., a Delaware corporation (“Buyer”), and, solely for purposes of Article 1, Article 4, Article 5 and Article 6, BROWN SHOE COMPANY, INC., a New York corporation (“Brown Shoe”).  Seller, Brown Shoe and Buyer are referred to herein each as a “Party” and together as the “Parties.”

 

RECITALS

 

          A.           Seller owns all of the issued and outstanding capital stock (the “Stock”) of American Sporting Goods Corporation, a Delaware corporation (the “Company”).

 

          B.           Seller is a wholly-owned direct Subsidiary of Brown Shoe.

 

          C.           Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Stock, on the terms and conditions hereinafter set forth.

 

          D.           Concurrently with the entry into this Agreement, the Company and the “Buyer” named therein (the “Inventory Buyer”), have entered into that certain inventory purchase agreement (the “Inventory Purchase Agreement”) with respect to the purchase and sale of certain inventory of the Company.

 

          E.           Concurrently with the entry into this Agreement, Brown Shoe, the Inventory Buyer and the Company have entered into a transition services agreement in the form of Exhibit A (“Transition Services Agreement”).

 

          NOW, THEREFORE, in consideration of the recitals and the mutual covenants, representations, warranties, conditions, and agreements hereinafter expressed, the Parties agree as follows:

 

ARTICLE 1.

PURCHASE AND SALE

 

      1.1. Purchase and Sale of the Stock.  Pursuant to the terms of this Agreement, at the Closing, Seller shall sell and deliver to Buyer, and Buyer shall purchase from Seller, the Stock, free and clear of all Liens.

 

      1.2. Closing.  The purchase and sale of the Stock contemplated hereby shall take place at a closing (the “Closing”) to be held at the offices of Bryan Cave, LLP, 211 N. Broadway, Suite 3600, St. Louis, Missouri, 63102, at 9:00 a.m., local time, on the date of this Agreement or such other date as Buyer and Seller may mutually determine (the “Closing Date”).

 

       1.3. Purchase Price.

 

          (a) For purposes of this Agreement, the “Base Purchase Price” shall be Seventy Four Million Dollars ($74,000,000) minus the amount of the Pre-Closing Cash Dividend.

 

          (b) No less than one Business Day prior to the Closing Date, Seller shall prepare and deliver to Buyer a schedule (the “Estimated Closing Schedule”) setting forth a good faith estimate (and the calculation thereof in reasonable detail), of (i) the Closing Working Capital (the “Estimated Closing Working Capital”) and (ii) the Merchandise Cost (as defined in the Inventory Purchase Agreement) of the Merchandise (as defined in the Inventory Purchase Agreement) (excluding On-Order Merchandise (as defined in the Inventory Purchase Agreement)) (the “Estimated Inventory Amount”).  The Estimated Closing Schedule shall be based on the most recent month-end balance sheet of the Company (excluding the Excluded Businesses) available to Seller at the time of its preparation of the Estimated Closing Schedule, with such other adjustments as Seller believes necessary to reflect its good faith estimate of changes from the date of such balance sheet until immediately prior to the consummation of the Closing (including giving effect to the Restructuring contemplated by Section 4.5).  The Estimated Closing Schedule shall be prepared in accordance with United States generally accepted accounting principles (“GAAP”), applied consistently with the methodology used to prepare the Balance Sheet (as defined below) (such methodology, the “Company Accounting Methodology”), and the definitions of Working Capital, Merchandise Cost and Merchandise, except to the extent set forth on Schedule 1.3(b) (the “Schedule of Agreed Exceptions”).  To the extent there is any inconsistency between GAAP and the Schedule of Agreed Exceptions, the Schedule of Agreed Exceptions shall take precedence over GAAP as the basis on which the Estimated Closing Schedule is prepared. To the extent there is any inconsistency between the Schedule of Agreed Exceptions and the Company Accounting Methodology, the Schedule of Agreed Exceptions shall take precedence over the Company Accounting Methodology as the basis on which the Estimated Closing Schedule is prepared.  In connection with Buyer’s review of the Estimated Closing Schedule, Seller shall, and shall cause the Company to, provide to Buyer and its representatives reasonable access during normal business hours of the Company to records, work papers, documents, employees and accountants of the Company, as Buyer may reasonably request, and shall cause the employees of Seller and the Company to cooperate in all reasonable respects with Buyer and its representatives in connection with such review.

 

          (c) The Parties hereby acknowledge the matters set forth on Schedule 1.3(c).

 

       1.4. Deliveries of Seller at Closing.  At the Closing, Seller shall deliver, or cause to be delivered, to Buyer:

 

          (a) a stock certificate evidencing the Stock, which certificate shall be either duly endorsed in blank or accompanied by a stock power or other instruments of transfer duly executed and in proper form for transfer to Buyer under applicable law;

 

          (b) the written resignations, effective the Closing Date, of each director of the Company and each officer of the Company;

 

          (c) a certificate, as provided in Section 1445(b)(2) of the Code, stating under penalties of perjury that Seller is not a foreign person within the meaning of Section 1445(f)(3) of the Code;

 

          (d) a certificate of good standing, or equivalent certificates, for the Company issued by the Secretary of State (or analogous officer) of (i) Delaware (dated within eleven (11) Business Days of the Closing Date) and (ii) each other jurisdiction set forth on Schedule 1.4(d) (dated within eleven (11) Business Days of the Closing Date);

 

          (e) the Transition Services Agreement, duly executed by Seller and the Company;

 

          (f) all share transfer books, minute books and other corporate records of the Company;

 

          (g) a copy, certified by the Secretary of Seller to be true, complete and correct as of the Closing Date, of the constituent documents of the Company, and resolutions of the board of directors of each of Seller and Brown Shoe, authorizing and approving the transactions contemplated hereby; and

 

          (h) the Guarantee and Collateral Agreement among the Company, Buyer and Seller, dully executed by the Company and Seller.

 

For purposes of this Agreement, “Business Day” shall mean any day which is not a Saturday, Sunday or a legal holiday in the State of Missouri, United States of America.

 

      1.5. Deliveries of Buyer at Closing.  At the Closing, Buyer shall deliver or cause to be delivered to Seller:

 

          (a) an amount equal to the Closing Purchase Price minus the Note Amount (the “Closing Payment”) by wire transfer of immediately available funds to the account of Seller designated in writing by Seller to Buyer one (1) day prior to the Closing Date;

 

          (b) a copy, certified by the Secretary of Buyer to be true, complete and correct as of the Closing Date, of the resolutions of the members of Buyer, authorizing and approving the transactions contemplated hereby;

 

          (c) a promissory note in the amount of $11,968,956 (the “Note Amount”) in the form of Exhibit F (the “Note”), duly executed by Buyer; and

 

          (d) documents required to be delivered pursuant to Exhibit B of the Note.

 

       1.6. Inventory; Closing Working Capital.

 

          (a) If the Merchandise Cost of the Merchandise (excluding on On-Order Merchandise) based on the Inventory Taking (as defined in the Inventory Purchase Agreement) (such Merchandise Cost, the “Final Inventory Amount”) is greater than the Estimated Inventory Amount, Buyer shall pay to Seller the amount, if any, of such excess.  If the Estimated Inventory Amount is greater than the Final Inventory Amount, Seller shall pay to Buyer the amount, if any, of such excess.  Buyer and Seller agree that any payment required to be made pursuant to this Section 1.6(a) (the amount of such payment, the “Inventory Adjustment Amount”) shall be made on the third Business Day following the reconciliation of the final agreed report of the Merchandise located at the Fontana Warehouse (as defined in the Inventory Purchase Agreement) and the In-Transit Merchandise (as defined in the Inventory Purchase Agreement) at the conclusion of the Inventory Taking by wire transfer in immediately available funds to a bank account or bank accounts designated in writing by Seller or Buyer, as the case may be, to the other party.

 

          (b) As promptly as practicable, but in no event later than August 12, 2013, Seller shall prepare and deliver to Buyer a schedule (the “Final Closing Schedule ”) setting forth in reasonable detail Seller’s calculation of the Closing Working Capital, which shall be prepared in accordance with GAAP, applied consistently with the Company Accounting Methodology, and the definition of Working Capital, except to the extent set forth on the Schedule of Agreed Exceptions.  To the extent there is any inconsistency between GAAP and the Schedule of Agreed Exceptions, the Schedule of Agreed Exceptions shall take precedence over GAAP as the basis on which the Final Closing Schedule is prepared.  To the extent there is any inconsistency between the Schedule of Agreed Exceptions and the Company Accounting Methodology, the Schedule of Agreed Exceptions shall take precedence over the Company Accounting Methodology as the basis on which the Final Closing Schedule is prepared.  In connection with Seller’s preparation of the Final Closing Schedule and, if applicable, at any time during which the parties have engaged the Accounting Firm with respect to a Disputed Item, Buyer shall cause to be provided to Seller and its representatives reasonable access during normal business hours of the Company to records, work papers, documents and employees of the Company, as Seller may reasonably request, and shall cause the employees of Buyer to cooperate in all reasonable respects with Seller and its representatives in connection with such preparation.  In connection with Buyer’s review of the Final Closing Schedule and, if applicable, at any time during which the parties have engaged the Accounting Firm with respect to a Disputed Item, Seller shall provide to Buyer and its representatives reasonable access during normal business hours of Seller to records, work papers, documents and employees of Seller, as Buyer may reasonably request, and shall cause the employees of Seller to cooperate in all reasonable respects with Buyer and its representatives in connection with such review.  Buyer will notify Seller in writing (“Buyer’s Dispute Notice”) within 45 days after receiving the Final Closing Schedule if Buyer disagrees with Seller’s calculation of the Closing Working Capital set forth in the Final Closing Schedule, which notice shall set forth in reasonable detail the basis for such disagreement, the dollar amounts involved and Buyer’s calculation of the Closing Working Capital.  If Buyer timely delivers to Seller a Buyer’s Dispute Notice, only those matters specified in such Buyer’s Dispute Notice shall be deemed to be in dispute (the “Disputed Items”), and all other matters included in the Final Closing Schedule shall be deemed to be final and binding on the parties hereto.  If no Buyer’s Dispute Notice is delivered by Buyer within such 45-day period, Seller’s calculation of the Closing Working Capital as set forth in the Final Closing Schedule shall be final and binding upon the parties hereto.

 

          (c) Upon receipt by Seller of Buyer’s Dispute Notice, Seller and Buyer shall negotiate in good faith to resolve any disagreement with respect to the Disputed Items and any resolution by Seller and Buyer of such Disputed Items shall be final and binding on the parties hereto.  To the extent Buyer and Seller are unable to agree with respect to any Disputed Items within 30 days after receipt by Seller of Buyer’s Dispute Notice, Buyer and Seller shall promptly, and in any event, within 15 days after the end of such 30-day period, engage Protiviti (or, if Protiviti does not accept such engagement within 10 days, an independent accounting firm of recognized national standing mutually selected by Buyer and Seller in good faith) (the “Accounting Firm”) and submit their dispute to the Accounting Firm for a binding resolution.  Except as specified in the following sentence, the cost of any dispute resolution procedure (including the fees and expenses of the Accounting Firm) pursuant to this Section 1.6 shall be borne, in its entirety, by the Party whose calculation of the Final Purchase Price based upon its calculation of Closing Working Capital as initially submitted to the Accounting Firm is furthest away from the Final Purchase Price based upon the Closing Working Capital as determined by the Accounting Firm.  The fees and expenses of each Party incurred in connection with the determination of Final Closing Working Capital as set forth in this Section 1.6 shall be borne by the Party incurring such fees and expenses.

 

          (d) Not later than 15 days after the engagement of the Accounting Firm (as evidenced by its written acceptance by facsimile or otherwise to the parties), Seller and Buyer shall submit simultaneous briefs to the Accounting Firm (with a copy to the other party or parties) setting forth their respective positions regarding the Disputed Items, and not later than 15 days after the submission of such briefs Seller and Buyer shall submit simultaneous reply briefs (with a copy to the other party or parties).  If an additional briefing, a hearing or other information is required by the Accounting Firm, the Accounting Firm shall give notice thereof to the parties as soon as practicable before the expiration of such 15-day period, and the parties shall respond as promptly as practicable.  Seller and Buyer shall instruct the Accounting Firm to render its decision resolving the dispute within 15 days after submission of the reply briefs or, in the event additional briefing, a hearing or other information is required, within 15 days after the completion of such additional briefing, hearing, or the submission of such additional information, as the case may be, and during such period, the Parties shall make available to the Accounting Firm such individuals and such information, books and records as may be reasonably requested by the Accounting Firm to make its final determination.  In resolving any Disputed Item, the Accounting Firm (i) shall act as an accounting expert and not as an arbitrator, (ii) shall be bound by the provisions of this Section 1.6 and the definition of Closing Working Capital and the definitions included therein, (iii) shall limit its review to the Disputed Items submitted to the Accounting Firm for resolution, and shall be instructed not to otherwise investigate matters independently, and (iv) shall further limit its review solely to whether the Final Closing Schedule has been prepared in accordance with this Section 1.6 and the definition of Closing Working Capital and the definitions included therein or contains any mathematical or clerical error.  The determination of any Disputed Items cannot, however, be in excess of, or less than, the greatest or lowest value, respectively, specified in writing for any such item in the Final Closing Schedule or the Buyer’s Dispute Notice (or, if closer to the value specified in writing in the Buyer’s Dispute Notice or Final Closing Schedule, respectively, the value specified in writing by the relevant party in its brief to the Accounting Firm at the commencement of such 15-day period.  Seller and Buyer agree that the resolution by the Accounting Firm of any Disputed Items shall be final and binding on the parties hereto.  Seller and Buyer agree that the procedure set forth in this Section 1.6 for resolving disputes with respect to the Closing Working Capital shall be the sole and exclusive method for resolving such disputes, provided that the Parties agree that judgment may be entered upon the determination of the Accounting Firm in any court having competent jurisdiction over the Party against which such determination is to be enforced.  Closing Working Capital, as agreed upon by Seller and Buyer, as deemed agreed upon pursuant to the last sentence of Section 1.6(b) or as determined by the Accounting Firm in accordance with Section 1.6(c) and Section 1.6(d), shall be termed the “Final Closing Working Capital”.

 

          (e) If the Final Purchase Price (based upon the Final Closing Working Capital) is greater than the Closing Purchase Price, Buyer shall pay to Seller the amount, if any, of such excess minus the Inventory Adjustment Amount.  If the Closing Purchase Price is greater than the Final Purchase Price (based upon the Final Closing Working Capital), Seller shall pay to Buyer the amount, if any, of such excess minus the Inventory Adjustment Amount.  Buyer and Seller agree that any payment required to be made pursuant to this Section 1.6(e) shall be made within three Business Days after the Final Closing Working Capital become final and binding on the Parties by wire transfer in immediately available funds to a bank account or bank accounts designated in writing by Seller or Buyer, as the case may be, to the other party.

 

          (f) No amount with respect to a matter shall be included more than once in the calculation of the Closing Working Capital or the Final Inventory Amount.

 

          (g) If the delivery deadline date for the Final Closing Schedule or the Buyer’s Dispute Notice is a day that is not a Business Day, the applicable delivery deadline date shall be the immediately following Business Day.

 

          (h) For purposes of this Agreement:

 

             (i) “Base Working Capital” means $5,278,000 minus the Base Inventory Amount.

 

             (ii) “Base Inventory Amount” means $24,106,000.

 

             (iii) “Closing Purchase Price” means the Base Purchase Price (i) plus an amount, if any, equal to the amount by which the Estimated Closing Working Capital is greater than the Base Working Capital, (ii) minus an amount, if any, equal to the amount by which the Base Working Capital is greater than the Estimated Closing Working Capital, (iii) plus an amount, if any, equal to the amount by which the Estimated Inventory Amount is greater than the Base Inventory Amount, and (iv) minus an amount, if any, equal to the amount by which the Base Inventory Amount is greater than the Estimated Inventory Amount.

 

             (iv) “Closing Working Capital” means the Working Capital as of 11:59 p.m. (local time) on May 13, 2013.

 

             (v) “Final Purchase Price” means the Base Purchase Price (i) plus an amount, if any, equal to the amount by which the Final Closing Working Capital is greater than the Base Working Capital, (ii) minus an amount, if any, equal to the amount by which the Base Working Capital is greater than the Final Closing Working Capital, (iii) plus an amount, if any, equal to the amount by which the Final Inventory Amount is greater than the Base Inventory Amount, and (iv) minus an amount, if any, equal to the amount by which the Base Inventory Amount is greater than the Final Inventory Amount.

 

             (vi) “Working Capital” means, as of any date of determination, the Company’s current assets (excluding (i) income or other Tax assets and rights to Tax refunds to which Seller is entitled pursuant to Section 4.3, (ii) amounts due from Brown Shoe or its controlled Affiliates (other than amounts due from Famous Footwear or Shoes.com or other e-commerce Affiliates of Brown Shoe for merchandise sold in a manner consistent with past practices or on arms-length terms by the Company in the Ordinary Course of Business), (iii) any Excluded Assets and (iv) any inventory or other Merchandise and associated reserves) minus the Company’s current liabilities (excluding (w) income Tax liabilities, (x) amounts due to Brown Shoe or its controlled Affiliates (other than amounts due to Yingtan ASG Footwear Co., Ltd. for merchandise ordered in a manner consistent with past practices or on arms-length terms by the Company in the Ordinary Course of Business) and (y) any Excluded Liabilities (other than outstanding checks in accordance with the Schedule of Agreed Exceptions)), in each case, as determined in accordance with GAAP, applied consistently with the Company Accounting Methodology, except to the extent set forth on the Schedule of Agreed Exceptions.

 

             (vii) “Ordinary Course of Business” means only the ordinary course of commercial operations customarily engaged in by such Person consistent with past practices, and specifically does not include (a) activity (I) involving the purchase or sale of such Person or any product line or business unit thereof, (II) involving assumption, adoption, or modification of any Plan or (III) that, under applicable Law, approval by the Board of Directors or Managers, as applicable, managers, equity holders or members of such Person would be required or (b) the incurrence of any liability for any tort.

 

ARTICLE 2.

REPRESENTATIONS AND WARRANTIES OF SELLER

 

       Seller hereby represents and warrants to Buyer that the statements contained in this Article 2 are true and correct on the date hereof (except for those representations and warranties which address matters only as of a particular date or period, which shall be true and correct as of such date or period); providedhowever, that except to the extent expressly provided otherwise in this Article 2, none of the representations and warranties contained in this Article 2 are made with respect to the Excluded Businesses, the Excluded Assets or the Excluded Liabilities, it being understood and agreed that this proviso does not in any way limit the indemnification obligation set forth in Section 5.2(a)(iii) (including the parenthetical thereto).

 

       2.1. Organization, Qualification.  Each of Seller and the Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as set forth opposite the name of Seller and the Company on Schedule 2.1 of the Disclosure Schedules attached hereto (the “Disclosure Schedules”).  The Company has all requisite corporate power and authority to own, lease or operate its assets and properties and to conduct its business as presently conducted, and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction wherein the nature of its business or the ownership of its assets makes such qualification necessary, other than those jurisdictions where the failure to be so registered, in such standing, licensed, or qualified has not had and does not have, individually or in the aggregate, an adverse economic impact on the Company in excess of fifty thousand dollars ($50,000).  Seller has provided or made available to Buyer true, complete and correct copies of the organizational and constituent documents as currently in effect of the Company.

 

       2.2. Subsidiaries.  The Company does not have any Subsidiaries.  For purposes of this Agreement, “Subsidiary” means, with respect to any Person, any corporation, association, limited liability company or other business entity of which more than fifty percent (50%) of (i) the total equity interest or (ii) total voting power of shares of stock (or equivalent ownership or controlling interest) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other subsidiaries of that Person or a combination thereof.  The Company does not own any capital stock or other equity or voting interest in any Person.  The Company does not have the right or the obligation to acquire any capital stock or other equity or voting interest in, or any interest convertible or exchangeable or exercisable for, any capital stock or other equity or voting interest in, any Person.  For purposes of this Agreement, “Permitted Liens ” shall mean (i) mechanics’, materialmen’s, carriers’, workmen’s, repairmen’s, contractors’ or other similar Liens arising or incurred in the Ordinary Course of Business, but only to the extent included as liabilities in Final Working Capital, (x) for amounts not more than thirty (30) days overdue or that are being contested in good faith and (y) for which adequate reserves have been established on the books and records of the Company in accordance with GAAP, (ii) easements, rights-of-way, zoning restrictions and other similar charges and encumbrances on real property (whether or not of record) imposed by law or arising in the Ordinary Course of Business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the Ordinary Course of Business of the Company, and (iii) Liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith by appropriate proceedings, provided however, in any case, only to the extent appropriate reserves have been established on the books and records of the Company in accordance with GAAP.  For purposes of this Agreement, “Excluded Subsidiaries” means Brown Shoe Asia Investment Limited, a company incorporated under the laws of Hong Kong; ASG Asia Investments Company Limited, a company incorporated under the laws of Hong Kong; Shangrao ASG Footwear Co., Ltd., a corporation organized under the laws of China; Yingtan ASG Footwear Co., Ltd., a corporation organized under the laws of China; Yihuang County ASG Footwear Co., Ltd, a corporation organized under the laws of China; Jishui ASG Footwear Co., Ltd., a corporation organized under the laws of China, Shanghai American Sports Trading Co., Ltd. and its subsidiaries, Yingtan Turntec Footwear Co., Ltd., a corporation organized under the laws of China, and Wonderful Idea Investments Limited, a company organized under the laws of Hong Kong.

 

       2.3. Capitalization.

 

          (a) The Stock consists of 1,000 shares of common stock, $0.001 par value per share.  Immediately prior to the consummation of the Closing, all shares of the Stock will be owned by Seller, of record and beneficially, and will constitute the only issued and outstanding capital stock of the Company.  All of the shares of the Stock have been duly authorized, have been validly issued and are fully paid and non-assessable.  Immediately prior to the consummation of the Closing, all of the Stock will be owned by Seller free and clear of any Lien and free of any other limitation or restriction (including any restrictions on the right to vote, sell or otherwise dispose of such capital stock or other voting securities or ownership interests), except as provided by state and federal securities Laws. The Restructuring has been consummated.

 

          (b) Except for Buyer’s rights pursuant to this Agreement, (i) there are no authorized or outstanding (A) securities of the Company other than the Stock or (B) warrants, preemptive rights, other rights, or options with respect to any securities of the Company or any securities or right convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of Stock, (ii) the Company is not subject to any obligation to issue, sell, deliver, redeem, or otherwise transfer, acquire or retire the Stock and (iii) there are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to the Company.  There is no shareholder agreement, buy-sell agreement, voting trust or other agreement or understanding to which the Company is a party or to which it is bound or by which any of the shares of Stock are bound.  There are no outstanding and unexercised warrants, options or unit appreciation rights exercisable for shares of Stock.  All of the Stock has been issued in accordance with applicable Laws and without violation of any preemptive rights.

 

2.4. Authorization; Enforceability; Non-contravention; Consents.

 

          (a) Each of Seller and Brown Shoe has full corporate power and authority to enter into this Agreement, the Transition Services Agreement and every other certificate, instrument or agreement contemplated by this Agreement or the foregoing agreements (collectively, the Transition Services Agreement and every other certificate, instrument or agreement contemplated by this Agreement or the foregoing agreements, the “Ancillary Agreements”), in each case, to which it is a party, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and each Ancillary Agreement to which it is a party by each of Seller and Brown Shoe has been duly authorized by all requisite corporate action on the part of each of Seller and Brown Shoe, and no other corporate or stockholder action on the part of either Seller or Brown Shoe or its respective stockholders is necessary to authorize the execution, delivery and performance of this Agreement and each Ancillary Agreement to which it is a party and the consummation by Seller or Brown Shoe of the transactions contemplated hereby and thereby.  This Agreement and each Ancillary Agreement to which it is a party, assuming due and valid authorization, execution and delivery by Buyer, constitutes a legal, valid and binding obligation of Seller and Brown Shoe, enforceable against Seller and Brown Shoe in accordance with its respective terms, except to the extent that enforceability hereof may be affected by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting the rights and remedies of creditors generally and general equitable principles.

 

          (b) 

 

             (i) Except as set forth on Schedule 2.4(b)(i) of the Disclosure Schedules and except to the extent exclusively related to the Excluded Businesses, none of the Company, Seller or Brown Shoe is a party to, subject to or bound by any note, bond, mortgage, indenture, deed of trust, agreement, Lien, lease, Contract or other instrument or written obligation or any statute, law, rule, regulation, judgment, order, writ, injunction, or decree of any court, administrative or regulatory body, governmental agency, arbitrator, mediator or similar body, franchise or license, which would be breached or violated or the rights or the obligations thereunder accelerated, increased, extinguished or terminated (whether or not with notice or lapse of time or both) by the execution, delivery or performance by Seller or Brown Shoe of this Agreement or any Ancillary Agreement to which it is a party, except for those agreements, licenses, or Contracts where such breach or violation does not, individually or in the aggregate, subject the Company, Seller or Brown Shoe to any material liability or otherwise adversely affect the Company, Seller or Brown Shoe in any material respect.

 

             (ii) No permit, consent, waiver, approval or authorization of, or declaration to or filing or registration with, any third person or any nation, state, or bilateral or multilateral governmental authority, any local governmental unit or subdivision thereof, or any branch, agency, or judicial body thereof (“Governmental Authority”) is required in connection with the execution, delivery or performance of this Agreement by Seller or Brown Shoe or any Ancillary Agreement to which it is a party, or the consummation by Seller or Brown Shoe of the transactions contemplated hereby or thereby, except (A) where the failure to obtain any permit, consent, waiver, approval or authorization does not, individually or in the aggregate, subject such entity or the Company (except to the extent exclusively related to the Excluded Businesses) to any material liability or otherwise adversely affect such entity or the Company in any material respect or (B) any permits, consents, waivers, approvals or authentications which relate exclusively to the Excluded Businesses.

 

             (iii) The execution of this Agreement by Seller and Brown Shoe and the execution by Seller and Brown Shoe of any Ancillary Agreement to which it is a party and the consummation of the transactions contemplated hereby or thereby will not result in the creation of any Liens (except Permitted Liens) against the Company, Seller or Brown Shoe or any of the properties or assets of the Company, Seller or Brown Shoe (excluding the Excluded Assets).

 

             (iv) None of the execution and delivery of this Agreement by Seller and Brown Shoe or any Ancillary Agreement to which it is a party, the performance by Seller and Brown Shoe of their obligations hereunder or thereunder, nor the consummation of the transactions contemplated hereby or thereby will violate or result in any breach of any provision of the organizational documents of the Company, Seller or Brown Shoe.

 

      2.5. Financial Statements.

 

          (a) Set forth on Schedule 2.5(a)-1 of the Disclosure Schedules are (i) the unaudited balance sheet of the Company as of February 2, 2013, the related unaudited statement of income of the Company for the fiscal year then ended, and the related unaudited statement of cash flows of the Company for the fiscal year then ended (the “Annual Financial Statements”), (ii) the unaudited monthly balance sheet of the Company as of October 27, 2012, the related unaudited statement of income of the Company for the fiscal year-to-date period then ended and the related unaudited statement of cash flows of the Company for the fiscal year-to-date period then ended, and for each (i) and (ii), the balance sheets and statements of income of each, separately identifying the accounts associated with the Excluded Businesses (the financial statements described in clause (ii) being the “Interim Financials,” and together with the Annual Financial Statements, the “Financial Statements”).  For purposes of this Agreement, the unaudited balance sheet of the Company less the Excluded Businesses column as of October 27, 2012 shall be considered the “Balance Sheet.”

 

          (b) The Financial Statements were derived from the books and records of Seller, the Company and except as set forth on Schedule 2.5(b) of the Disclosure Schedules, (i) are true, complete and correct in all material respects, (ii) present fairly, in all material respects, the financial position and results of operations and cash flows of the Company, at the dates and for the periods indicated, subject to normal year-end adjustments and as otherwise set forth therein, in accordance with GAAP, and (iii) have been prepared in accordance with GAAP applied consistently, subject to normal year-end adjustments and the absence of footnotes.

 

          (c) Except as set forth on Schedule 2.5(c) of the Disclosure Schedules, the Company does not have, as of the consummation of the Closing, any Indebtedness.  For purposes of this Agreement, “Indebtedness” shall mean, without duplication, (i) all indebtedness for borrowed money or advances; (ii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money (for the avoidance of doubt, excluding any trade accounts payable and checks payable to the Company, which have been endorsed by the Company for collection in the Ordinary Course of Business), including all obligations evidenced by notes, bonds, debentures or other similar instruments; (iii) all obligations under conditional sale or other title retention agreements relating to property acquired by the Company; (iv) all obligations in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the Ordinary Course of Business), including earn-out arrangements; (v) all obligations of the type described in clauses (i) – (iv) and (vi) – (x) of others secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by the Company, whether or not such obligation secured thereby has been assumed; (vi) guaranties securing obligations of others including those of the type described in clauses (i) – (v) and (vii) – (x); (vii) all obligations under capital leases, purchase money obligations or surety bonds; (viii) all obligations, contingent or otherwise, of the Company as an account party in respect of letters of credit, to the extent drawn, and letters of guaranty; (ix) all obligations, contingent or otherwise, in respect of bankers’ acceptances; (x) the net termination obligations of all interest rate and other hedging agreements, in each case excluding any intercompany indebtedness; and (xi) any prepayment premiums, accrued interest, fees and expenses related to any of the items in clauses (i) - (x).

 

      2.6. Books and Records; Business Practices.  True, correct and complete copies of the books of account, stock record books, minute books, and other corporate records of the Company (except to the extent exclusively related to the Excluded Businesses) in existence as of the date of this Agreement have been provided or made available to Buyer prior to the date of this Agreement, and such books and records have been maintained in all material respects in accordance with good business practices.  The Company maintains accurate books and records which fairly reflect in all material respects transactions relating to the Company, excluding to the extent related exclusively to the Excluded Businesses.

 

       2.7. Taxes.  Except as set forth on Schedule 2.7 of the Disclosure Schedules:

 

          (a) The Company and each affiliated group of corporations of which the Company is or ever has been a member and the Seller or the Company is the common parent, within the meaning of Section 1504 of the Code, and similar state, local or foreign consolidated, unitary or combined groups (the “Company Group”) has filed, or caused to be filed, on a timely basis all Tax Returns required to be filed by the Company and each Company Group, and such Tax Returns are true, correct and complete in all material respects.  Without limiting the foregoing, none of the Tax Returns contains any position that is subject to penalties under Section 6662 of the Internal Revenue Code (“Code”), or any corresponding provisions of state, local or non-U.S. Tax law (whether or not such penalties have been asserted by or paid to a Governmental Authority).  The Company has not entered into any “listed transactions” as defined in Treasury regulation 1.6011-4(b)(2).

 

          (b) None of the Company or any Company Group is currently the beneficiary of any extension of time within which to file any Tax Return.

 

          (c) All Taxes due and owing by the Company and each Company Group (whether or not reflected on any Tax Return) have been timely and fully paid.

 

          (d) The Company has complied in all material respects with all Laws relating to the withholding of Taxes and the payment thereof (including, without limitation, withholding of Taxes under Section 1441 and 1442 of the Code, or any similar provision of state, local, or non-U.S. law), and has timely and properly withheld and paid all Taxes required to have been withheld and paid and complied with information requirements with respect to any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.

 

          (e) Since February 17, 2011, the Company has not acquired the assets of any corporation in a transaction described in Section 381(a) of the Code.

 

          (f) There are no material liens, claims, hypothecations, encumbrances, security interests, mortgages, deeds of trust, charges, pledges, equitable interests or other restrictions or adverse claims of whatever nature, including any restrictions on use, transfer, receipt of income, voting or exercise of any other attribute of ownership (collectively, “Liens”) for Taxes (other than for current Taxes not yet due and payable) upon any assets of the Company.

 

          (g) The Company is not a party to or bound by any Tax indemnity, Tax sharing or Tax allocation agreement or arrangement (other than (i) such agreements with customers, vendors, lessors or the like entered into in the Ordinary Course of Business and (ii) Tax distribution provisions and standard Tax indemnity provisions entered into in connection with purchase or sale agreements or credit or other commercial agreements).

 

          (h) The Company is not a party to or a partner in any joint venture, partnership or other arrangement or contract that is treated as a partnership for federal Income Tax purposes.

 

          (i)Since February 17, 2011, no written claim has ever been made by a taxing authority in a jurisdiction where neither the Company nor any Company Group files Tax Returns that the Company or any Company Group is subject to taxation by that jurisdiction, other than any such claim that has been resolved with the applicable taxing authority.

 

          (j) No federal, state, local or non-U.S. Tax audits or administrative or judicial Tax proceedings are pending or being conducted solely with respect to the Company or any Company Group.

 

          (k) Since February 17, 2011, none of the Company or any Company Group has received from any federal, state, local or non-U.S. Tax authority (including jurisdictions where none of the Company or any Company Group has filed a Tax Return) any (i) notice indicating an intent to open an audit or other review solely of the Company; (ii) request for information related to Tax matters solely of the Company; or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any Tax authority solely against the Company or any Company Group with respect to any period for which the limitation period on assessing additional Tax has not closed.

 

          (l) There is no waiver or tolling of any statute of limitations in effect with respect to any Tax Returns solely of the Company or any Company Group, nor has the Company or any Company Group agreed to any extension of time with respect to a Tax assessment or deficiency.

 

          (m) None of the assets of the Company is “tax-exempt use property” within the meaning of Section 168(h) of the Code.

 

          (n) The Company has not been either a “distributing corporation” or a “controlled corporation” in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code in the two (2) years prior to the date of this Agreement.

 

          (o) None of the Company or any Company Group will be required to include any item of income in, or exclude any item of deduction from, taxable income or reduce its tax basis in any asset for any taxable period (or portion thereof) ending after the Closing Date as a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date; (ii) “closing agreement” as described in Section 7121 of the Code executed on or prior to the Closing Date; (iii) installment sale or open transaction disposition made on or prior to the Closing Date; (iv) intercompany transaction or excess loss account described in the Treasury Regulations under Section 1502 (or any corresponding or similar provision of state, local or foreign Law); or (v) prepaid amount received on or prior to the Closing Date.

 

          (p) Except as provided in Schedule 2.7(p) of the Disclosure Schedules, the Company does not file as part of a consolidated, combined, unitary or similar group for the purposes of U.S. Federal, state, local or foreign tax law.

 

          (q) As used in this Agreement, “Taxes” means all taxes, charges, fees, levies, or other like assessments, including without limitation, all federal, possession, state, city, county and non-U.S. (or governmental unit, agency, or political subdivision of any of the foregoing) income, profits, employment (including Social Security, unemployment insurance and employee income tax withholding), franchise, gross receipts, sales, use, transfer, stamp, occupation, property, capital, severance, premium, windfall profits, environmental (under Section 59A of the Code), customs, duties, ad valorem, value added and excise taxes; Pension Benefit Guaranty Corporation premiums and any other governmental charges of the same or similar nature; including any interest, penalty, or addition thereto, whether disputed or not.  Any one of the foregoing shall be referred to as a “Tax.”  “Income Tax” means any Tax imposed upon or measured by net income or gross income (excluding any Tax based solely on gross receipts).

 

          (r) As used in this Agreement, “Tax Returns” means all returns, reports, notices, forms, estimates, declarations, claims for refund, information statements or returns relating to, or required to be filed in connection with, any Taxes, including any schedule or attachment thereto, and including any amendment or supplement thereof.  Any one of the foregoing Tax Returns shall be referred to sometimes as a “Tax Return.”  “Income Tax Return” means a Tax Return with respect to Income Taxes.

 

      2.8. Assets and Real Property.

 

          (a) Except as set forth on Schedule 2.8(a) of the Disclosure Schedules or to the extent exclusively used in the Excluded Businesses, the Company has good and valid title to or, in the case of leased property, good and valid leasehold interests in, all of the assets and property owned, used regularly or held for regular use in connection with or necessary for the conduct of the business of the Company in the manner it is currently conducted, including those reflected on the on the unaudited balance sheet of the Company as of February 2, 2013, (but excluding the Excluded Businesses and any such assets and properties sold, consumed or otherwise disposed of in the Ordinary Course of Business since February 2, 2013), free and clear of all Liens, other than Permitted Liens.

 

          (b) Except as set forth on Schedule 2.8(b) of the Disclosure Schedules or for the Excluded Assets, (i) all of the tangible property of the Company has been maintained in accordance with normal industry practice in all material respects, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it is presently used and (ii) none of the tangible property of the Company is in the possession of others (including bailees and warehousemen) and the Company holds no property on consignment.

 

          (c) The Company does not own in fee any real property interests.

 

          (d) Except to the extent exclusively related to the Excluded Businesses, Schedule 2.8(d) of the Disclosure Schedules sets forth (whether as lessee or lessor) a complete and accurate list of all leases of real property (such real property, the “Leased Real Property”) to which the Company is a party or by which it is bound (each a “Real Property Lease” and collectively the “Real Property Leases”).  Except as set forth on Schedule 2.8(d) of the Disclosure Schedules, each Real Property Lease is valid and binding on the Company and, to the Seller’s Knowledge, on the other parties thereto, and is in full force and effect and, and subject to Seller’s Knowledge, enforceable against the parties thereto, subject further to bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting the rights and remedies of creditors generally and general equitable principles.  Except as set forth on Schedule 2.8(d) of the Disclosure Schedules, the Company and, to the Seller’s Knowledge, each of the other parties thereto, is not in material default under each Real Property Lease.  Other than the Real Property Leases, none of the Leased Real Property is subject to any lease, sublease, license or other agreement granting to any Person any right to the use, occupancy or enjoyment of such Leased Real Property or any part thereof.

 

          (e) True and accurate copies of the written Real Property Leases (including all amendments and modifications thereto) have been provided to Buyer.

 

          (f) This Section 2.8 does not relate to matters relating to Intellectual Property, which are the subject of Section 2.11.

 

      2.9. Accounts Receivable; Inventories.

 

          (a) Set forth on Schedule 2.9(a)-1 of the Disclosure Schedules is a list of all the accounts receivable of the Company and an aging schedule relating thereto (excluding any such accounts receivables that are exclusively related to the Excluded Businesses), each as of the end of the last completed fiscal month prior to the date hereof.  Such accounts receivable (the “Accounts Receivable”) are valid as of the end of the last completed fiscal month prior to the date hereof and, except as set forth on Schedule 2.9(a)-1 of the Disclosure Schedules, all such Accounts Receivable arose in the Ordinary Course of Business.  To the Seller’s Knowledge, the Company has not charged any of its customers (other than to the extent exclusively related to the Excluded Businesses) for amounts in excess of the amounts that such customer had previously agreed to pay for the goods and services provided to it by the Company.  “To the Seller’s Knowledge” or any other similar knowledge qualification with respect to Seller in this Agreement means the actual knowledge of the Persons set forth in Schedule 2.9(a)-2 of the Disclosure Schedules.

 

          (b) Set forth on Schedule 2.9(b) of the Disclosure Schedules is a list of all the inventories of the Company on hand (excluding the Excluded Assets) and an aging schedule relating thereto, each as of the end of the last completed fiscal month prior to the date of this Agreement.

 

       2.10. Material Contracts.

 

          (a) Schedule 2.10(a)(i)-(x) of the Disclosure Schedules sets forth, as of the date of this Agreement, all Contracts to which the Company is a party or the Company or any of its respective assets or properties are otherwise bound or that otherwise relate to the business of the Company, of the type described below (except for any Contract that is an Excluded Asset or Excluded Liability) (each, a “Material Contract”):

 

             (i) Any contract, agreement or purchase order providing for the sale of products, the provision of services or warranty liability in excess of $75,000, in any such case, by the Company to any other Person;

 

             (ii) Any single contract or purchase order providing for an expenditure by the Company in excess of $75,000 or any contracts or purchase orders with the same or affiliated vendor(s) providing for an expenditure by the Company in excess of $75,000;

 

             (iii) Any contract pursuant to which the Company is the lessee or sublessee of, or holds or operates, any personal property owned or leased by any other Person or entity (other than leases of personal property leased in the Ordinary Course of Business with annual lease payments no greater than $75,000);

 

             (iv) Any Contract involving Indebtedness of the Company;

 

             (v) Any Contract containing outstanding obligations relating to the settlement of any Action;

 

             (vi) All partnership, limited liability company, joint venture or similar Contracts relating to the Company;

 

             (vii) Any sales agency, sales representation, consulting, distributorship or franchise agreement that is (i) projected to provide for the Company to make or receive payments in excess of $75,000 in a calendar year or (ii) are not terminable on ninety (90) days’ notice or less without penalty;

 

             (viii) Any Contract (A) prohibiting competition by the Company, (B) binding any party to any exclusive business arrangement, or (C) prohibiting the Company or any of its employees from freely engaging in any business anywhere in the world, in each case, excluding Contracts governing exclusive license and distribution relationships which are set forth in Schedule 2.10(a)(ix) of the Disclosure Schedules entered into in the Ordinary of Business which generally contain standard exclusivity provisions along with other restrictive covenants;

 

             (ix) Any license, consent, permission, covenant not to sue or other agreement by which the Company licenses from a third party Intellectual Property that is material to the conduct of the business of the Company (and, for the avoidance of doubt, expressly excluding any license of commercial Software licensed on non-discriminatory terms), or by which the Company permits a third party to use any Company Intellectual Property;

 

             (x) Any Contract pursuant to which the Company has entered into or has agreed to enter into any hedging or similar transactions; and

 

             (xi) Any commitment to do any of the foregoing described in clauses (i) through (x).

 

          (b) For the purpose of this Agreement, a “Contract” and collectively, the “Contracts” shall mean, with respect to a Person, each written or oral contract, agreement, commitment, license, lease, indenture, or evidence of indebtedness to which such Person is a party or is otherwise obligated.

 

          (c) Schedule 2.10(c)-1 of the Disclosure Schedules lists each Material Contract that directly benefits, or contains direct obligations or liabilities with respect to, both the Company and an Excluded Business (each, a “Shared Contract”).  Each Material Contract is in full force and effect and is a valid, binding and enforceable obligation of the Company and, to the Seller’s Knowledge, the other parties thereto in accordance with its terms and conditions, subject to bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting the rights and remedies of creditors generally and general equitable principles.  Neither the Company nor, to the Seller’s Knowledge, any other party to any of the Material Contracts is in material default under or in material breach of such Material Contract.  Except as set forth on Schedule 2.10(c)-2 of the Disclosure Schedules, no event has occurred which, with the passage of time or the giving of notice, or both, would constitute such a material default or material breach.  True and correct copies of the Material Contracts have been provided or made available to Buyer prior to the date of this Agreement.

 

       2.11. Intellectual Property.

 

          (a) For purposes of this Agreement, the following terms shall have the identified meanings:

 

             (i) “Intellectual Property” means:  intellectual property of any type throughout the world, including, but not limited to:  (i) patents, patent applications and statutory invention registrations, including, but not limited to, continuations, continuations-in-part, divisions, provisionals, non-provisionals, reexaminations, reissues and extensions; (ii) trademarks, service marks, trade names, brand names, logos and corporate names and other indicia of source of origin, including without limitation characters, symbols, slogans, trade dress and designs, whether or not registered, including all common law rights thereto and all goodwill associated therewith, and registrations and applications for registration thereof; (iii) tangible works of authorship, copyrights, whether registered or unregistered, and registrations and applications for registration thereof; (iv) trade secrets, confidential information and know-how; (v) domain names registrations; (vi) rights of publicity and privacy, rights to personal information and moral rights; (vii) shop rights; (viii) inventions (whether patentable or unpatentable), improvements, modifications, invention disclosures, mask works, industrial design rights, discoveries, ideas, developments, data, Software, confidential or proprietary technical, business and other information, including, but not limited to processes, techniques, methods, formulae, recipes, drawings, specifications, designs, molds, algorithms, prospect lists, customer lists, supplier lists, sales and customer information, projections, analyses, and market studies, and all rights therein and thereto; (ix) advertisements and materials used in and for promotions, and all rights therein and thereto; (x) websites (including the layout, design and contents of the web pages and underlying codes) and all rights therein and thereto; (xi) all other proprietary information and intellectual property, in all forms and media, and all goodwill associated therewith, and whether or not subject to patent, copyright, trademark, design or other intellectual property registration; (xii) all rights pertaining to any of the foregoing arising under international treaties and convention rights; (xiii) the right and power to assert, defend and recover title to any of the foregoing; and (xiv) all rights to assert, defend and recover for any past, present and future infringement, misuse, misappropriation, impairment, unauthorized use or other violation of any of the foregoing; and (xv) all administrative rights arising from the foregoing, including the right to prosecute applications and oppose, interfere with or challenge the applications of others, the rights to obtain renewals, continuations, divisions, and extensions of legal protection pertaining to any of the foregoing.

 

             (ii) “Company Intellectual Property” means all Intellectual Property that is owned or purported to be owned, in whole or in part, by the Company (excluding any Intellectual Property that is an Excluded Asset).

 

             (iii) “Software” means all computer software, firmware, programs, and data, in any form, including without limitation, development tools, library functions, compilers, and platform and application software, whether in source or object code format.

 

          (b) Schedule 2.11(b) of the Disclosure Schedules contains a true, complete and accurate list, as of the date of this Agreement, of each of the items of Company Intellectual Property comprising issued patents and patent applications, registered trademarks and applications for trademark registration, copyright registrations and applications for registration of copyright, and domain name registrations, setting forth for each such item:  the respective registration or issuance number, application number, filing date, date of issuance or registration, owner(s), and jurisdiction in which such item is registered, issued or pending.

 

          (c) Except as described in Schedule 2.11(c) of the Disclosure Schedules, the Company is the sole and exclusive owner of all right, title and interest in and to the Company Intellectual Property, free and clear of all Liens (other than Permitted Liens and restrictions on Company Intellectual Property that are set forth in the terms and conditions of any licenses of Company Intellectual Property listed in Schedule 2.10(a)(ix) of the Disclosure Schedules).  The Company has the right to use and otherwise exploit, in the manner currently used or exploited by the Company, the Intellectual Property owned, used, or held for use by the Company in the conduct of its business (excluding to the extent exclusively related to the Excluded Businesses), which constitutes all Intellectual Property necessary for the conduct of the business of the Company in the manner it is currently conducted (excluding to the extent exclusively related to the Excluded Businesses), it being understood that the representations and warranties set forth in this Section 2.11(c) shall not be construed as representations or warranties with respect to non-infringement, which are the subject of Section 2.11(e).

 

          (d) Except as set forth in Schedule 2.11(d) of the Disclosure Schedules, (i) the Company Intellectual Property set forth on Schedule 2.11(b) of the Disclosure Schedules that is material to the business of the Company is valid and enforceable and (ii) all other Company Intellectual Property set forth on Schedule 2.11(b) of the Disclosure Schedules is, to the Seller’s Knowledge, valid and enforceable.  Except as set forth in Schedule 2.11(d) of the Disclosure Schedules, the Company Intellectual Property set forth on Schedule 2.11(b) of the Disclosure Schedules is, not the subject of any pending or, to the Seller’s Knowledge, threatened proceeding before any Governmental Authority alleging or determining the invalidity or unenforceability of any item of Company Intellectual Property, or determining, challenging or contesting the Company’s ownership thereof, other than a proceeding where an adverse determination would not be expected to subject the Company to any material liability or otherwise adversely affect the Company in any material respect.

 

          (e) To the Seller’s Knowledge, the conduct of the business of the Company (except to the extent exclusively related to the Excluded Businesses) does not infringe, misappropriate or dilute the Intellectual Property of any Third Person. Except as set forth in Schedule 2.11(e) of the Disclosure Schedules, there are no pending, or to the Seller’s Knowledge threatened, written claims, demands or assertions, proceedings or actions alleging such infringement, misappropriation or dilution, including by way of example and not limitation cease and desist letters or offers of license.

 

          (f) There has not been, to the Seller’s Knowledge, any unauthorized use, exploitation or disclosure of any trade secrets or confidential or proprietary information included within the Company Intellectual Property.

 

          (g) Except as set forth in Schedule 2.11(g) of the Disclosure Schedules, the Company has taken commercially reasonable actions to maintain and protect the confidentiality of any Company Intellectual Property constituting trade secrets or confidential or proprietary information.  Except as set forth in Schedule 2.11(g) of the Disclosure Schedules and except to the extent of the expiration of the natural life of any patent, copyright or other Company Intellectual Property, no material Company Intellectual Property listed on Schedule 2.11(b) of the Disclosure Schedules has been abandoned, cancelled or permitted to lapse.

 

          (h) Except as set forth in Schedule 2.11(h) of the Disclosure Schedules, the consummation of the transaction contemplated by this Agreement will not alter, impair or extinguish any rights of the Company under any Company Intellectual Property.

 

      2.12. Litigation.  Except as set forth on Schedule 2.12-1 of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, (a) there is no suit, claim, litigation, proceeding (administrative, judicial, or in arbitration, mediation or alternative dispute resolution), government or grand jury investigation (any of the foregoing, “Action”) pending or, to the Seller’s Knowledge, threatened against the Company in which the amount in controversy was in excess of $25,000 and which has not been fully resolved without any further liability or obligation to the Company and (b) the Company is not subject to any judgment, order, writ, injunction or decree of any court or other Governmental Authority, other than those of general applicability (each, an “Order”).  Except as set forth on Schedule 2.12-2 of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, since February 17, 2011, none of the Company, Seller, Brown Shoe or any Affiliate controlled by Brown Shoe has received written notice as to any claim or allegation relating to, bodily or personal injury, death, or property or economic damages, any claim for punitive, exemplary or consequential damages, any claim for contribution or indemnification, or any claim for injunctive relief in connection with any product manufactured, sold or distributed by, or in connection with any service provided by, or based on any error or omission or negligent act in the performance of services by, the Company or any of its employees.  Except as set forth on Schedule 2.12-3 of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, since February 17, 2011, no Person affiliated with or on behalf of the Company has been required to file any notification or other report with or provide information to any Government or product safety standards group concerning actual or potential defects or hazards with respect to any product manufactured, sold, distributed or put in commerce by the Company or in connection with their respective businesses, except where failure to so file or provide such information has not subjected the Company to any material liability or otherwise adversely affected the Company in any material respect.

 

      2.13. Absence of Certain Changes.  Since October 27, 2012, there has not been a Company Material Adverse Effect.  Since October 27, 2012 and until the date of this Agreement, except as set forth on Schedule 2.13 of the Disclosure Schedules, to the extent exclusively related to the Excluded Businesses or actions effected pursuant to (and in accordance with) the terms of the Restructuring, there has not been:

 

          (a) Except as may be required by Law or the terms of the Plans, any increase in an amount greater than the lesser of (i) $25,000 in or (ii) 15% of compensation or other remuneration payable to or for the benefit of or committed to be paid to or for the benefit of any equity holder, director, officer, agent, or employee of the Company, or in any benefits granted under any Plan with or for the benefit of any such equity holder, director, officer, agent, or employee (other than increases in wages or salaries required under existing Contracts listed on Schedule 2.17 of the Disclosure Schedules or otherwise not unusual in timing, character or amount made in the Ordinary Course of Business to employees);

 

          (b) Any declaration, setting aside, or payment of any dividend or any distribution (in cash or in kind) to any Person with respect to any securities of the Company;

 

          (c) Any borrowing or incurrence of any other Indebtedness (other than the creation of accounts or trade payable in the Ordinary Course of Business), contingent or otherwise, by or on behalf of the Company (it being understood that the foregoing is not intended to describe obligations of the Company under Contracts to sell or distribute products to others);

 

          (d) Any modification or termination of any material Government license, permit or other authorization issued to the Company (except to the extent related exclusively to the Excluded Businesses);

 

          (e) Any acquisition of or investment by the Company in (by merger, exchange, consolidation, purchase or otherwise) any corporation or partnership or interest in any business organization or entity;

 

          (f) Any sale, transfer, lease or other disposition by the Company of any assets valued at greater than $50,000 other than in the Ordinary Course of Business;

 

          (g) Any waiver by the Company of any claims or rights with respect to any Action or Order if such waiver would involve amounts individually or in the aggregate in excess of $75,000;

 

          (h) Any material change in the manner in which the books of account and records of the Company are kept;

 

          (i) Any material change in any method of accounting or accounting practice or policy of the Company other than those required after the date thereof by GAAP;

 

          (j) Any material change in Tax elections that relates solely to the Company (other than any change made in the Ordinary Course of Business);

 

          (k) Any amendment of any Tax Return relating solely to the Company if such amendment involved amounts in excess of $75,000;

 

          (l) Any settlement of compromise with respect to any Tax controversy, Tax claim, audit or assessment or any right to claim a Tax refund, offset or other reduction in Tax liability solely of the Company if such settlement involved amounts in excess of $75,000;

 

          (m) Any closing agreement with respect to any Tax that relates solely to the Company;

 

          (n) Any consent to any extension or waiver of the limitations period applicable to any material Tax claim or assessment that relates solely to the Company;

 

          (o) Any action or failure to take action if such action or omission would result in: (i) taxable income without an approximately equal amount of cash that relates solely to the Company, or (ii) the impairment of any Tax asset solely of the Company (whether as a result of Section 267, Section 382, Section 383 or Section 384 of the Code); or

 

          (p) Any binding commitment or agreement by the Company to do any of the foregoing items (a) through (o).

 

      2.14. No Breach of Law or Governing Document; Licenses and Permits.

 

          (a) (I) Except as set forth on Schedule 2.14(a) of the Disclosure Schedules or as related exclusively to the Excluded Businesses, the Company is not and, since February 17, 2011 has not been, in default under or in breach or violation of any applicable statute, law, treaty, convention, ordinance, Order, rule, directive, technical standard or regulation of any Governmental Authority, including without limitation the Tariff Act of 1930 (“Law”) or the provisions of any Governmental Authority permit, franchise, or license, or any provision of their respective organizational documents, except for such defaults, breaches or violations which have not subjected the Company to any material liability, individually or in the aggregate, or which have not otherwise adversely affected the Company in any material respect, and (II) all Merchandise is in compliance in all material respects with all applicable Laws and is not subject to any product recalls.  Since February 17, 2011, none of the Company, Seller, Brown Shoe or any Affiliate controlled by Brown Shoe has received any written notice alleging any default, breach or violation of Law or Governmental Authorization by the Company, except for such defaults, breaches or violations which (i) have not subjected the Company to any material liability, individually or in the aggregate, (ii) have not otherwise adversely affected the Company in any material respect or (iii) relate exclusively to the Excluded Businesses.

 

          (b) Schedule 2.14(b)-1 of the Disclosure Schedules contains a complete and accurate list of each authorization, license, certificate, registration, consent, approval, variance, and permit (collectively, “Permits”) issued, granted, given, or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Law that is held as of the date of this Agreement by the Company, and is necessary for the operation of the business of the Company (except as exclusively related to the Excluded Businesses) (each, a “Governmental Authorization”), other than those Permits where the failure to obtain such Permits has not subjected the Company to any material liability, individually or in the aggregate, or has not otherwise adversely affected the Company in any material respect.  Each Governmental Authorization listed on Schedule 2.14(b)-1 of the Disclosure Schedules is currently valid and in full force and effect.  Except as set forth in Schedule 2.14(b)-2 of the Disclosure Schedules:

 

             (i) There has been no default on the part of the Company with respect to, and no event has occurred which, with the giving of notice or the lapse of time, or both, would constitute a breach of, impose any condition to the issuance, maintenance, renewal and/or continuance of any Governmental Authorization necessary for the operation of the business of the Company (except as exclusively related to the Excluded Businesses) except for such defaults or breaches which have not, individually or in the aggregate, subjected the Company to any material liability or otherwise adversely affected the Company in any material respect.

 

             (ii) All applications required to have been filed for the renewal of any Governmental Authorizations have been duly filed on a timely basis with the appropriate Governmental Authorities, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Authorities, except for such applications and filings the failure of which to file has not, individually or in the aggregate, subjected the Company to any material liability or otherwise adversely affected the Company in any material respect.

 

          (c) This Section 2.14 does not relate to environmental matters or Intellectual Property infringement matters.

 

      2.15. Environmental Matters.

 

          (a) Except as set forth on Schedule 2.15 of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, the Company is in compliance with, and since December 31, 2009 has at all times complied, in all material respects with, all applicable Laws relating to the protection of health, safety or the environment, (including without limitation, any Law relating to storage, handling, transportation and disposal of Hazardous Materials by or for the Company), including without limitation:  the Clean Air Act, the Federal Water Pollution Control Act, the Resource Conservation and Recovery Act, the Federal Solid Waste Disposal Act, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Toxic Substance Control Act, the Registration, Evaluation, Authorization and Restriction of Chemical Substances regulations, and the Occupational Safety and Health Act of 1970 (collectively, “Environmental Law”).  Except as set forth on Schedule 2.15 of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, the Company is not in violation in any material respects of any Environmental Law.

 

          (b) Except as set forth on Schedule 2.15 of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, the Company has properly obtained and is in compliance in all material respects with all Permits necessary or required for the commencement of operations and the conduct of the business of the Company, and has properly made all material filings with and submissions to any Governmental Authority or other Person required by any Environmental Law.  No material deficiencies have been asserted in writing or in unwritten form, by any such Governmental Authority or Person with respect to such items that are pending and unresolved.

 

          (c) Except as set forth on Schedule 2.15 of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, there has been no spill, discharge, leak, leaching, emission, injection, disposal, escape, dumping, or release (“Release”) on, into or from the Leased Real Property or, to Seller’s Knowledge, on, into or from any property previously owned, operated or leased by the Company of any (i) pollutants or contaminants, (ii) hazardous, toxic, infectious or radioactive substances, chemicals, materials or wastes (including without limitation those defined as hazardous under any Environmental Law), (iii) petroleum including crude oil or any derivative or fraction thereof, (iv) asbestos fibers, or (v) radioactive materials ((i) through (v), collectively, “Hazardous Materials”) by the Company, or to the Knowledge of Seller, by any other Person, in material violation of applicable Environmental Laws or in a manner that required or requires remediation by the Company pursuant to applicable Environmental Laws.  To the Seller’s Knowledge, except to the extent exclusively related to the Excluded Businesses, the Company does not sell and has not sold any product or material containing asbestos or that utilizes or incorporates asbestos-containing materials in any way, which would be expected to subject the Company to any material liability, individually or in the aggregate, or which would be expected to otherwise adversely affect the Company in any material respect.

 

          (d) Except as set forth on Schedule 2.15 of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, there are and have been, no (i) ceramic or asbestos fibers or materials or polychlorinated biphenyls on, in, beneath or migrating from the Leased Real Property or, at the time owned, operated or leased by the Company, any property previously owned, operated or leased by the Company or (ii) underground storage tanks operated by the Company located on or beneath the Leased Real Property or any property previously owned, operated or leased by the Company.

 

          (e) The Company has delivered to Buyer or made available for review, prior to the execution and delivery of this Agreement, complete copies of any and all material environmental assessments, reviews, audits, non-routine reports, or other non-routine material analyses including, without limitation, material documents regarding any Release of Hazardous Materials concerning the Leased Real Property or any property previously owned, operated or leased by the Company, issued prior to the date of this Agreement except to the extent exclusively related to the Excluded Businesses.

 

          (f) Except as set forth on Schedule 2.15 of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, there are no pending nor, to the Seller’s Knowledge, threatened civil, criminal or administrative action, suit, summons, citation, complaint, claim, notice, demand, request, judgment, order, Lien, proceeding, hearing, study, inquiry or investigation (“Environmental Claim”) against the Company based on or related to any Environmental Permits or an Environmental Law with respect to the Leased Real Property or any property previously owned, operated or leased by the Company.

 

          (g) Except as set forth on Schedule 2.15 of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, the Company has not received from any Person any written notice, or to Seller’s Knowledge any unwritten notice, of any past or present events, conditions, circumstances, activities, practices, incidents, actions, or agreements that would reasonably be expected to:  (i) prevent the Company’s compliance or continued compliance in any material respect with any Environmental Permits or any renewal or transfer thereof or any Environmental Law or (ii) give rise to any material liability, loss or expense, or form the basis of any material Environmental Claim against the Company based on or relating to the Leased Real Property or any property previously owned, operated or leased by the Company, based on or related to any Environmental Permits or an Environmental Law, or to the presence, production, manufacture, generation, refining, processing, distribution, use, sale, treatment, recycling, receipt, storage, transport, handling, emission, Release or threatened Release of any Hazardous Materials.

 

          (h) Except as set forth on Schedule 2.15 of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, to the Seller’s Knowledge, no Hazardous Materials managed by or on behalf of the Company have been sent for disposal, treatment, recycling or storage to any site which is listed or proposed for listing under CERCLA or any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which would be expected to lead to material claims against the Company for remediation by the Company pursuant to applicable Environmental Laws.

 

       2.16. Labor Matters.

 

          (a) Set forth on Schedule 2.16(a)-1 of the Disclosure Schedules is a complete list of:  (i) all current directors of the Company; (ii) all current officers (with office held) of the Company; (iii) as of April 18, 2013, all employees (active or other) of the Company employed in the United States, whose annual base salary exceeds $75,000, and (iv) as of April 18, 2013, all employees and independent contractors employed by an Affiliate of the Company not described in clause (iii) who devote at least 50% of their working time to the provision of services to or on behalf of the Company (excluding to the extent exclusively related to the Excluded Businesses), together, in each case, with the base salary payable to each and, if any, the amount of incentive or bonus payments due and owing to such persons but not yet paid and the date of employment or appointment of each such person.

 

          (b) Except as set forth on Schedule 2.16(b) of the Disclosure Schedules, (i) all Contracts between the Company and any of the individuals listed on Schedule 2.16(a)-1 of the Disclosure Schedules are terminable at any time on one (1) months’ notice or less without compensation other than wages earned through the date of termination, pay in lieu of accrued and untaken holiday, earned commission and pension or as required by Law; and (ii) none of the individuals listed on Schedule 2.16(a)-1 of the Disclosure Schedules have provided written notice to the Company that he or she intends to resign or retire as a result of the transactions contemplated by this Agreement.

 

          (c) Except as set forth on Schedule 2.16(c) of the Company Disclosure Schedule or to the extent exclusively related to the Excluded Businesses, with respect to the employees or operations of the Company in the United States:  (i) the Company has not entered into any collective bargaining agreement with respect to any of their employees; (ii) there is no labor strike, work stoppage or lockout pending or, to Seller’s Knowledge, threatened against or affecting the Company; (iii) to Seller’s Knowledge, no union organizing campaign is in progress with respect to any of employees of the Company; (iv) no union or other labor organization has filed a petition with the National Labor Relations Board seeking an election or certification as the exclusive collective bargaining representative of any employees of the Company; and (v) there is no unfair labor practice charge or complaint, or union grievance or arbitration proceeding, pending against the Company.

 

          (d) Except as disclosed on Schedule 2.16(d) of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, the Company is in material compliance with all Laws of the United States relating to minimum wages and overtime payments, discrimination in employment, fair employment practices (including wrongful termination), the employment of individuals who are not citizens of the United States, family leave and occupational safety and health standards.

 

          (e) Except as set forth on Schedule 2.16(e) of the Disclosure Schedules or to the extent exclusively related to the Excluded Businesses, there are no pending workers compensation claims involving any employees of the Company in the United States and, since February 17, 2011, there have not been any workers’ compensation claims against the Company in the United States relating to the use or existence of asbestos in any of the products, the manufacturing process or workplace setting of the Company.

 

      2.17. Employee Benefit Matters.

 

          (a) Except as set forth on Schedule 2.17 of the Disclosure Schedules, the Company (and, solely with respect to any employee or independent contractor of the Company, Seller, Brown Shoe and each of their Affiliates), does not have outstanding, and the Company (and, solely with respect to any employee or independent contractor of the Company, Seller, Brown Shoe and each of their Affiliates) is not a party to or subject to liability under any, (i) material agreement, arrangement, plan, or policy, qualified or non-qualified, whether or not written and whether or not considered legally binding, that involves (A) any pension, retirement, profit sharing, deferred compensation, bonus, stock option, stock-based, stock purchase, phantom stock, health, welfare, or incentive arrangement, plan or policy; or (B) welfare or “fringe” benefits, including without limitation vacation, severance, disability, medical, hospitalization, dental, life and other insurance, tuition, company car, club dues, sick leave, maternity, paternity or family leave, health care reimbursement, dependent care assistance, cafeteria plan, regular in-kind gifts or other benefits; or (ii) material employment, equity award, consulting, engagement, or retainer agreement or golden parachute arrangement or arrangement ((i)(A) and (i)(B) together the “Plans” and each item thereunder a “Plan”).  For any Plans so disclosed on Schedule 2.17 of the Disclosure Schedules, such disclosure indicates whether such Plans are sponsored or maintained by (x) the Company, or (y) Seller, Brown Shoe or any of their Affiliates other than the Company.  True, correct, and complete copies of all documents creating or evidencing any Plan listed on Schedule 2.17 of the Disclosure Schedules have been provided or made available to Buyer prior to the date of this Agreement.  Other than amendments provided to Buyer, no amendments have been made to or promised with respect to any Plans.  To the extent applicable with respect to each Plan, true, correct, and complete copies of the current summary plan descriptions, including any summaries of material modifications, have been provided or made available to Buyer prior to the date of this Agreement.

 

          (b) Except as where it has not caused the Company to be subjected to any material liability or otherwise adversely affected the Company in any material respect, each Plan covering individuals who are employed by the Company complies with, has been established, administered, operated and maintained in compliance with its terms and in compliance with, and the Company does not have any direct or indirect liability for non-compliance under, ERISA or any other Law applicable to any Plan.  To the extent applicable with respect to each Plan, true, correct and complete copies of the most recent Forms 5500, including without limitation, all schedules thereto, all financial statements with attached opinions of independent accounts and all actuarial reports, have been have been provided or made available to Buyer prior to the date of this Agreement.  Each Plan that is intended to qualify under Section 401(a) or Section 509(c)(9) of the Code has received a determination letter from the Internal Revenue Service (a copy of which has been made available to Buyer prior to the date of this Agreement) to the effect that such Plan and related trusts have been determined to be exempt from taxation.  Nothing has occurred that would reasonably be expected to cause, and no Action is pending or, to the Seller’s Knowledge, threatened in writing, which would reasonably be expected to result in the loss of such exemption or qualification. Except as set forth on Schedule 2.17 of the Disclosure Schedules, to the Seller’s Knowledge, all material reports, returns and similar documents with respect to the Plans required to be filed with any Governmental Authority have been duly and timely filed or distributed.

 

          (c) The Company (i) has not made, does not have and has not had any obligation to make, any contributions to any multiemployer plan (as defined in Section 4001(a)(3) of the Employment Retirement Income Security Act of 1974, as amended (“ERISA”)) or to any pension plan subject to the minimum funding standards of ERISA or Title IV of ERISA, and (ii) is not considered a single employer under Section 414 of the Code with any other entity which contributed to or has had an obligation to contribute to any such plans.

 

          (d) Except as set forth on Schedule 2.17 of the Disclosure Schedules, with respect to each Plan, no prohibited transactions (as defined in ERISA Section 406 or Code Section 4975) and no violations of ERISA Section 407 for which an applicable statutory or administrative exemption does not exist have occurred and for which the Company has any unsatisfied material liability.

 

          (e) Except as where such failure to comply or operate has not caused the Company to be subjected to any material liability or otherwise adversely affected the Company in any material respect, each Plan which is a group health plan (as such term is defined in Code Section 5001(b)) complies and has been operated in accordance with the requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Health Insurance Portability and Accountability Act of 1996, as amended and any substantially similar state and local laws, to the extent applicable.

 

          (f) Except as set forth on Schedule 2.17 of the Disclosure Schedules, the Company has no liability or obligation to provide any material life, medical or other welfare benefits to former or retired employees, other than as required by COBRA or any substantially similar state and local laws.

 

          (g) Except as has not had and would not reasonably be expected to have a Company Material Adverse Effect, full payment has been made of all amounts due under each of the Plans and to each person employed or formerly employed by the Company that are required under the terms of the Plans to be paid.

 

          (h) Except as set forth on Schedule 2.17 of the Disclosure Schedules and except as where such failure to timely contribute has not caused the Company to be subjected to any material liability or otherwise adversely affected the Company in any material respect, all contributions to the Plans have been made on a timely basis in accordance with ERISA and the Code.

 

          (i) Except as where such failure to pay in full has not caused the Company to be subjected to any material liability or otherwise adversely affected the in any material respect, to the Seller’s Knowledge, all insurance premiums have been paid in full, subject only to normal retroactive adjustments in the ordinary course, to the extent applicable to the Plans for policy years or other applicable policy periods ending on or before the date hereof.

 

          (j) Except as has not had and would not reasonably be expected to have a Company Material Adverse Effect, there is no pending or, to the Seller’s Knowledge, threatened legal action, proceeding or investigation, suit, grievance, arbitration or other manner of litigation, or claim against or involving any Plan described in Schedule 2.17 of the Disclosure Schedules and to Seller’s Knowledge, no facts exist that would reasonably be expected to give rise to any legal action, proceeding or investigation, suit, grievance, arbitration or other manner of litigation, or claim, other than routine claim for benefits.

 

          (k) Except as set forth on Schedule 2.17 of the Disclosure Schedules, all material expenses and material liabilities relating to all of the Plans described on Schedule 2.17 of the Disclosure Schedules have been fully and properly accrued on the books and records of the Company and the Financial Statements reflect all of such liabilities in a manner satisfying the requirements of Financial Accounting Standards 87 and 88. The statements of assets and liabilities of the Plans as of the end of the most recent three fiscal years for which information is available, and the statements of change in fund balances, financial position and net assets available for benefits under the Plans for such fiscal years, fairly represent the financial condition of such Plans as of such date and the results of operations thereof for the year ended on such date, all in accordance with GAAP applied on a consistent basis.

 

          (l) Except as set forth on Schedule 2.17 of the Disclosure Schedules, each material Plan may be unilaterally amended, varied, modified or terminated in whole or in part by the Company on or at any time after the Closing Date, subject to applicable Law and the terms of such Plan.

 

          (m) Except as set forth on Schedule 2.17 of the Disclosure Schedules, the Company does not maintain any Plan or other material benefit arrangement covering any employee or former employee outside of the United States nor has it ever been obligated to contribute to any such Plan.

 

          (n) Except as where it has not caused the Company to be subjected to any material liability or otherwise adversely affected the Company in any material respect, each Plan, agreement or arrangement which provides for the deferral of compensation subject to Code Section 409A is, and has been since January 1, 2010, documented in writing in accordance with the Treasury Regulations promulgated thereunder and has, since January 1, 2009, been operated in good faith compliance with Code Section 409A.

 

          (o) Except as set forth on Schedule 2.17 of the Disclosure Schedules, the consummation of the transaction contemplated by this Agreement, other than by reason of actions taken by Buyer following the consummation of the Closing, will not (i) entitle any current or former employee or independent contractor of the Company to severance pay or any other payment, (ii) accelerate the time of payment or vesting, or increase the amount of any compensation due to any current or former employee or independent contractor of the Company, or (iii) give rise to the payment of any amount that would not be deductible pursuant to Code Section 280G.

 

      2.18. Customers and Suppliers.  Schedule 2.18 of the Disclosure Schedules sets forth a true, complete and correct list of the ten (10) largest customers of the Company and the ten (10) largest suppliers of the Company (excluding those customers and suppliers related exclusively to the Excluded Businesses), by volume of sales and purchases, respectively (by dollar volume) for the year ended December 31, 2011 and the ten (10) largest customers of the Company and the ten (10) largest suppliers of the Company (excluding those customers and suppliers related exclusively to the Excluded Businesses), by volume of sales and purchases, respectively (by dollar volume) for the year ended December 31, 2012.  Except as disclosed on Schedule 2.18 of the Disclosure Schedules, since January 1, 2012 none of the Company, Seller, Brown Shoe or any Affiliate controlled by Brown Shoe (a) has received any written notice from any supplier listed on Schedule 2.18 of the Disclosure Schedules to the effect that such supplier will terminate or materially decrease its relationship with the Company or (b) is in material dispute with the Company under any Contract between the Company and such supplier (except to the extent exclusively related to the Excluded Businesses).  Except as disclosed on Schedule 2.18 of the Disclosure Schedules, since January 1, 2012 none of the Company, Seller, Brown Shoe or any Affiliate controlled by Brown Shoe (a) has received any written notice from any customer listed on Schedule 2.18 of the Disclosure Schedules to the effect that such customer will terminate or materially decrease its relationship with the Company or (b) is in material dispute with the Company under any Contract between the Company and such customer (except to the extent exclusively related to the Excluded Businesses).

 

      2.19. Foreign Operations and Export/Import Compliance.

 

          (a) Except to the extent exclusively related to the Excluded Businesses, the Company has since February 17, 2011 acted:

 

             (i) pursuant to valid qualifications to do business in all jurisdictions outside the United States where such qualification is required by local Law and the nature of the Company’s activities in such jurisdictions, except where failure to have such valid qualifications would not reasonably be expected to have a Company Material Adverse Effect;

 

             (ii) in material compliance with all applicable foreign Laws, including without limitation Laws relating to foreign investment, foreign exchange control, immigration, employment and taxation;

 

             (iii) in material compliance with all applicable export-control, sanctions and anti-boycott laws, rules, and regulations of the United States, including but not limited to the U.S. Commerce Department’s Export Administration Regulations and all sanctions and anti-boycott laws, rules and regulations monitored or enforced by the U.S. Treasury Department’s Office of Foreign Assets Control and other Treasury agencies, and in material compliance with all applicable export-control, sanctions and anti-boycott laws, rules and regulations maintained by other jurisdictions, but only to the extent that such laws, rules, regulations, or sanctions programs of such other jurisdiction are not in contravention of any U.S. law, rule or regulation, or sanction program and without violation of and in compliance with the requirements of any applicable general licenses or license exceptions, and any required export or reexport licenses or authorizations granted under such laws, regulations or orders;

 

             (iv) in all material respects without violation and in compliance with the requirements of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any other applicable anti-bribery or anti-corruption law;

 

             (v) without written notice of material violation of and in material compliance with any and all applicable U.S. and foreign import Laws, orders or regulations of any applicable jurisdiction, including but not limited to all applicable customs, antidumping and countervailing duty laws, orders or regulations, as amended from time to time, and without notice of violation of and in material compliance with any required import permits, licenses, authorizations and general licenses granted under such Laws; and

 

          (b) Except as set forth on Schedule 2.19 of the Disclosure Schedules, the Company, since December 31, 2011, has not been the subject of a focused assessment or other audit conducted by U.S. Customs and Border Protection.  No penalty or liquidated damages claims have been initiated by U.S. Customs and Border Protection (formerly U.S. Customs Service) against the Company.

 

      2.20. Brokers, Finders.  No finder, broker, agent, or other intermediary, acting on behalf of the Company, Seller or Brown Shoe, is entitled to a commission, fee, or other compensation or obligation in connection with the negotiation or consummation of this Agreement or any of the transactions contemplated hereby.

 

      2.21. No Undisclosed Liabilities.

 

          (a) Except for the Excluded Liabilities, the Company does not have any liabilities or obligations whatsoever, whether known or unknown, accrued, absolute, contingent, unliquidated or otherwise, other than:

 

             (i) liabilities or obligations to the extent and for the amount such liabilities or obligations are reflected as a “liability” on the unaudited balance sheet of the Company as of February 2, 2013;

 

             (ii) current liabilities or other current obligations incurred in the Ordinary Course of Business since February 2, 2013;

 

             (iii) obligations for performance (but not for breach) under Contracts disclosed on Schedule 2.10(a)(i)-(x) of the Disclosure Schedules and under such other Contracts which are not required to be disclosed on Schedule 2.10(a)(i)-(x) of the Disclosure Schedules; and

 

             (iv) the other liabilities and obligations specifically disclosed on Schedule 2.21(a) of the Disclosure Schedules.

 

 

      2.22. Company Material Adverse Effect.  For purposes of this Agreement, “Company Material Adverse Effect” means any change, event, effect, occurrence or circumstance that, individually or in the aggregate, (1) has or results in, or would reasonably be expected to have or result in, a material adverse effect upon the financial condition, business, or results of operations of the Company (except to the extent exclusively related to the Excluded Businesses); provided, however, that “Company Material Adverse Effect” shall not take into account any adverse change, event or effect to the extent arising from:  (i) conditions generally affecting the United States economy or generally affecting the industries in which the Company operate; (ii) national or international political or social conditions, including terrorism or the engagement by the United States in hostilities or acts of war; (iii) financial, banking or securities markets (including any disruption thereof and any decline in the price of any security or any market index); (iv) the License Agreement for Avia Trademarks dated December 12, 2012 by and between the Company and Galaxy Brands LLC (provided that this clause (iv) shall only apply with respect to the reference to Company Material Adverse Effect in the first sentence of Section 2.13 and for no other purpose) and (v) any failure, in and of itself, by the Company to meet any internal or disseminated projections, forecasts or revenue or earnings predictions for any period (it being understood that the change, effect, event, occurrence or circumstance giving rise or contributing to such failure may be taken into account in determining whether there has been a Company Material Adverse Effect), except to the extent such change, effect, event, occurrence or circumstance in the cases of clauses (i) through (iii) above has or would reasonably be expected to have a disproportionate effect on the Company relative to other participants in the industry in which the Company operate (in which event the extent of such disproportionate effect may be taken into account in determining whether there has been a Company Material Adverse Effect); or (2) does, or would reasonably be expected to, impair or materially delay the ability of Seller or Brown Shoe to consummate the transactions contemplated by, or promptly perform their respective obligations under, this Agreement or any Ancillary Agreement.

 

      2.23. Acknowledgement by Seller and Brown Shoe.  Seller, on its own behalf and on behalf of Brown Shoe, acknowledges that none of Buyer or its Affiliates, officers, directors, employees, agents or representatives (collectively, the “Buyer Parties”) are making any representations or warranties other than those set forth in Article 3, whether or not any such representations or warranties were made in writing or orally.  Seller, on its own behalf and on behalf of Brown Shoe, acknowledges that no Buyer Party has made any representation or warranty, express or implied, as to the accuracy or completeness of any information regarding Buyer or the transactions contemplated hereby except for the representations and warranties of Buyer set forth in Article 3, and, Seller, on its own behalf and on behalf of Brown Shoe, has not relied on any other representation, warranty or statement other than the representations and warranties set forth in Article 3.

 

      2.24. No Additional Representations.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN ARTICLE 2 OF THIS AGREEMENT, NONE OF SELLER, BROWN SHOE OR ANY OTHER PERSON MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES ON BEHALF OF SELLER, BROWN SHOE OR THE COMPANY, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, WITH RESPECT TO THE MATTERS CONTEMPLATED HEREBY.

 

ARTICLE 3.

REPRESENTATIONS AND WARRANTIES OF BUYER

 

       Buyer hereby represents and warrants to Seller that the statements contained in this Article 3 are true and correct on the date hereof (except for those representations and warranties which address matters only as of a particular date or period, which shall be true and correct as of such date or period).

 

      3.1. Organization; Authorization.

 

          (a) Buyer is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of Delaware.

 

          (b) Buyer has requisite corporate power and authority to enter into this Agreement and each Ancillary Agreement to which Buyer is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and each Ancillary Agreement to which Buyer is a party by Buyer has been duly authorized by all requisite corporate action on the part of Buyer, and no other corporate or stockholder action on the part of Buyer or its stockholders is necessary to authorize the execution, delivery and performance of this Agreement and each Ancillary Agreement to which Buyer is a party and the consummation by Buyer of the transactions contemplated hereby and thereby.  This Agreement and each Ancillary Agreement to which Buyer is a party, assuming due and valid authorization, execution and delivery by Seller and Brown Shoe, constitutes a legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its respective terms, except to the extent that enforceability hereof may be affected by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting the rights and remedies of creditors generally and general equitable principles.

 

      3.2. Non-Contravention; Consents.

 

          (a) Buyer is not a party to, subject to or bound by any note, bond, mortgage, indenture, deed of trust, agreement, Lien, lease, Contract or other instrument or written obligation or any statute, law, rule, regulation, judgment, order, writ, injunction, or decree of any court, administrative or regulatory body, governmental agency, arbitrator, mediator or similar body, franchise or license, which would be breached or violated or the rights or the obligations thereunder accelerated, increased, extinguished or terminated (whether or not with notice or lapse of time or both) by the execution, delivery or performance by it of this Agreement or any Ancillary Agreement to which Buyer is a party, except where any of the foregoing would not reasonably be expected to materially impair Buyer’s ability to consummate the transactions contemplated hereby or thereby.

 

          (b) No permit, consent, waiver, approval or authorization of, or declaration to or filing or registration with, any third Person or Governmental Authority is required in connection with the execution, delivery or performance of this Agreement by Buyer or any Ancillary Agreement to which Buyer is a party, or the consummation by Buyer of the transactions contemplated hereby or thereby, except for such permit, consent, waiver, approval or authorization of, or declaration to or filing or registration, the failure of which to make or obtain would not reasonably be expected to materially impair Buyer’s ability to consummate the transactions contemplated hereby.

 

          (c) The execution of this Agreement and any Ancillary Agreement to which Buyer is a party will not result in the creation of any Liens against Buyer or any of the properties or assets of Buyer, except for such Liens that would not reasonably be expected to materially impair Buyer’s ability to consummate the transactions contemplated hereby.

 

          (d) None of the execution and delivery of this Agreement by Buyer or any Ancillary Agreement to which Buyer is a party, the performance by Buyer of its obligations hereunder or thereunder, nor the consummation of the transactions contemplated hereby or thereby will violate or result in any breach of any provision of the organizational documents of Buyer.

 

       3.3. Brokers, Finders.  Except for Houlihan Lokey Capital, Inc., no finder, broker, agent, or other intermediary, acting on behalf of Buyer, is entitled to a commission, fee, or other compensation or obligation in connection with the negotiation or consummation of this Agreement or any of the transactions contemplated hereby.

 

       3.4. Litigation.  As of the date of this Agreement, there is no Action or Order pending or, to the knowledge of Buyer, threatened against Buyer challenging, enjoining or preventing this Agreement or the consummation of the transactions contemplated hereby.

 

      3.5. Acknowledgement by Buyer.  Buyer acknowledges that none of Seller, Brown Shoe, the Company or their respective Affiliates, officers, directors, employees, agents or representatives (collectively, the “Company Parties”) are making any representations or warranties other than those set forth in Article 2, whether or not any such representations or warranties were made in writing or orally.  Buyer acknowledges that no Company Party has made any representation or warranty, express or implied, as to the accuracy or completeness of any information regarding the Company or the transactions contemplated hereby except for the representations and warranties of Seller set forth in Article 2, and, except in the case of fraud, Buyer has not relied on any other representation, warranty or statement other than the representations and warranties set forth in Article 2.

 

       3.6. No Additional Representations.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN ARTICLE 3 OF THIS AGREEMENT, NONE OF BUYER OR ANY OTHER PERSON MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES ON BEHALF OF BUYER, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, WITH RESPECT TO THE MATTERS CONTEMPLATED HEREBY.

 

ARTICLE 4.

COVENANTS

 

       4.1. Public Announcements.  Each of Brown Shoe and Buyer agrees to issue a joint press release with respect to the transactions contemplated hereby on a date mutually acceptable to Brown Shoe and Buyer.  Each of Seller, Brown Shoe and Buyer shall refrain from issuing any other press release in addition to the joint press release, scheduling any press conference or conference call with investors or analysts with respect to this Agreement or the transactions contemplated hereby, without, with respect to Seller and Brown Shoe, the prior consent of Buyer and, with respect to Buyer, the prior written consent of Brown Shoe, except in each case to the extent and as may be required by applicable Law or any listing agreement with or rule of any national securities exchange or association, provided that the non-disclosing Party shall be afforded a reasonable opportunity to review and comment on any press release or talking points and the disclosing Party shall reasonably reflect any such comments in such press release or talking points.

 

      4.2. Further Assurances.  From and after the Closing, the Parties shall, and cause their controlled Affiliates to, do such acts, execute such documents and instruments and cooperate with each other as may be reasonably required to make effective the transactions contemplated hereby.

 

       4.3. Taxes.

 

          (a) Each of Seller and Buyer agree to furnish or cause to be furnished to each other, upon request, as promptly as practical, such information (including reasonable access to books and records, Tax Returns and Tax filings) and assistance as is reasonably requested for the filing of any Tax Return, the conduct of any Tax audit, and for the prosecution or defense of any claim, suit or proceeding relating to any Tax matter.  Seller and Buyer shall cooperate with each other in the conduct of any Tax audit or other Tax proceedings and each shall execute and deliver such powers of attorney and other documents as are necessary to carry out the intent of this Section 4.3.  Any Tax audit wherein Buyer reasonably believes, that, more likely than not, there will be an assertion of liability against the Company or other Tax proceeding for which indemnification may be available under this Agreement shall be deemed to be a Third Person Claim subject to the procedures set forth in Section 5.6 of this Agreement.

 

          (b) All transfer, documentary sales, use, stamp, registration and other such Taxes together with all conveyance fees, recording charges and other fees and charges, including penalties and interest (all such taxes, fees, charges, penalties and interest collectively, “Transfer Taxes”), whether imposed on Seller, Brown Shoe, Buyer, or the Company, incurred in connection with consummation of the transaction contemplated by this Agreement or, solely as among the parties hereto, the Inventory Purchase Agreement, shall be paid by Buyer when due (except to the extent such Transfer Taxes are related to the Restructuring in which case such Transfer Taxes shall be paid by Seller when due), and Buyer will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such Taxes, fees and charges (except to the extent such Taxes, fees or charges are related to the Restructuring, in which case Seller shall file all necessary Tax Returns and other documentation in connection therewith), and if required by applicable Law, Brown Shoe will join in the execution of any such Tax Returns and other documentation.

 

          (c) Seller shall prepare or cause to be prepared, and file or cause to be filed, all Income Tax Returns of the Company for any Tax year or period ending on or before the Closing Date (“Pre-Closing Periods”) that are filed after the Closing Date.  All other Pre-Closing Period Tax Returns of the Company required to be filed after the Closing Date shall be prepared by Buyer.  No elections shall be made or positions taken with respect to Pre-Closing Periods that are inconsistent with past practice and have the effect of deferring income into a post-Closing period or accelerating items of deduction, loss or credit into a Pre-Closing Period, except as otherwise required by applicable Law.  Except to the extent provided in Section 4.3(g), all Taxes reflected on Pre-Closing Period Tax Returns shall be borne by Seller and promptly remitted to Buyer.

 

          (d) Buyer shall prepare or cause to be prepared, and file or cause to be filed, all Tax Returns of the Company for all Taxable periods beginning on or before and ending after the Closing Date (“Straddle Period”).  All such Tax Returns with respect to Straddle Periods shall be prepared and filed in a manner that is consistent with the past practices of the Company (including, without limitation, prior Tax elections and accounting methods or conventions), except as otherwise required by applicable Law.  Buyer shall provide Seller with a copy of such Tax Returns for review and comment at least fifteen (15) calendar days prior to the filing of such Tax Returns and Seller shall be entitled to provide comments and suggested revisions thereto.  Buyer shall make such revisions as are reasonably requested by Seller, except to the extent such revisions are inconsistent with past practice and have the effect of deferring income into a taxable period (or portion thereof) beginning after the Closing Date or accelerating items of deduction, loss or credit into the pre-closing portion of such Straddle Period.  Except to the extent provided in Section 4.3(g), Seller shall pay to the Buyer (or, at Buyer’s request, to the Company) within fifteen (15) calendar days after the date on which Taxes are paid with respect to such Straddle Periods an amount equal to the portion of such Taxes reflected on such Straddle Period Tax Return that relates to the portion of the Tax period ending on or before the Closing Date.  For the purposes of this Section 4.3(d), in the case of any such Taxes that are payable for a Tax period that includes (but does not end on) the Closing Date, the portion of such Tax that relates to the portion of such Tax period ending on the Closing Date shall (i) in the case of any property Taxes, be deemed to be the amount of such Tax for the entire Tax period multiplied by a fraction, the numerator of which is the number of days in the Tax period ending on the Closing Date, and the denominator of which is the number of days in the entire Tax period, and (ii) in the case of any Tax other than a property tax, be deemed to be equal to the amount that would be payable if the relevant Tax period ended on the Closing Date.  Any credits relating to a Straddle Period Tax shall be taken into account in the same manner as Straddle Period Taxes.  All determinations necessary to give effect to the allocations described in this Section 4.3(d) shall be made in a manner consistent with the prior practice of the Company, except for changes required by Law.  To the extent Seller has made a deposit or other payment of Taxes, including amounts paid in respect of estimated Taxes, in excess of its liability for Taxes for a Straddle Period under this Section 4.3(d), Buyer will, as soon as is reasonably practicable thereafter, repay to Seller the amount of such excess.

 

          (e) Notwithstanding the foregoing, the Tax consequences of any transaction occurring on or before the Closing Date that are caused to occur by Buyer and not incurred in the Ordinary Course of Business with respect to a Pre-Closing Period or Straddle Period shall not be treated as occurring during the Pre-Closing Period, it being understood that the Restructuring and the transactions contemplated thereby and the Pre-Closing Cash Dividend are not caused to occur by Buyer.

 

          (f) Except to the extent required by applicable Law, Buyer shall not amend the Tax Returns of the Company that relate to any Tax period or portion thereof ending on or before the Closing Date in a manner that would increase the Tax liability of Seller or its Affiliates without the prior written consent of Seller, which consent shall not be unreasonably withheld or delayed.

 

          (g) Seller shall not be liable under Sections 4.3(c) and (d) above to the extent that:

 

             (i) such Taxes have been paid by the Company, Seller or any of its Affiliates prior to the Closing Date, including amounts paid in respect of estimated Taxes;

 

             (ii) such Taxes are included as a liability in the calculation of Closing Working Capital;

 

             (iii) any such liability would not have arisen but for any act or omission voluntarily effected by Buyer or the Company on or after the Closing Date other than (1) pursuant to a legally binding commitment created before the Closing Date, (2) in the Ordinary Course of Business as conducted by the Company prior to Closing, (3) in connection with the Restructuring and the transactions contemplated thereby, or (4) as required by applicable Law with respect to a taxable period that ends after the Closing Date;

 

             (iv) the liability relates to any fine, penalty, surcharge, addition or interest arising by reason of any failure or delay on the part of Buyer or the Company in paying over to the relevant Tax authority any payment made hereunder by Seller or in keeping, preserving, maintaining or submitting any Tax Return on or after the Closing Date; or

 

             (v) the liability would not have arisen but for a cessation of or any change in the nature or conduct of the business of the Company occurring on or after the Closing Date (except to the extent related to the Restructuring or the transactions contemplated thereby or as required by applicable Law with respect to a taxable period that ends after the Closing Date).

 

          (h) If the Company, Buyer or any Affiliate of Buyer receives any refund or other repayment of Taxes which relates to a period or portion thereof ending on or prior to the Closing Date (other than to the extent such refund or other repayment relates to the carryback of items from a period or portion thereof ending after the Closing Date), including without limitation both an actual repayment and a credit to be offset against any other liability to Taxes, Buyer will as soon as is reasonably practicable thereafter repay to Seller the lesser of:

 

             (i) the amount of the repayment of Taxes; and

 

             (ii) the aggregate amount (if any) paid by Seller under Section 4.3 less any part of that amount previously paid to Seller under any provision of this Agreement or otherwise.

 

             (i) The Parties hereby agree that for U.S. federal income tax purposes (and applicable state and local tax purposes), the sale of the Merchandise by the Company to the Inventory Buyer pursuant to the Inventory Purchase Agreement, the Pre-Closing Cash Dividend and the Company’s receipt of the License Fee (as defined in the Galaxy License Agreement, as defined in the Disclosure Schedules) and interest thereon shall be treated by the Parties and the Company as occurring in the taxable year of the Company that ends on (and includes) the Closing Date and that the Parties and the Company shall prepare and file all Tax Returns and determine all Taxes in a manner consistent with such treatment.

 

          (j) If Treasury Regulation Section 1.1502-36 applies to the transactions contemplated by this Agreement, Seller (and its Affiliates) shall make an election pursuant to Treasury Regulation Section 1.1502-36(d)(6)(i) and in accordance with Treasury Regulation Section 1.1502-36(e)(5) electing to reduce the potential for loss duplication to the extent necessary to avoid a step down in the tax basis of any Category D assets (as defined in Treasury Regulation Section 1.1502-36(d)(4)(i)(D)) of the Company.

 

      4.4. Reliance.  Seller acknowledges and agrees that Buyer has relied upon each of the representations and warranties (individually and in the aggregate) made by Seller in this Agreement, including the representations and warranties contained herein with respect to the materials, documents and other information relating to the Company made available to Buyer.

 

      4.5. Restructuring.

 

          (a) Subject to Section 4.5(c), prior to the consummation of the Closing, for no additional consideration from Buyer, on an “as-is”, “where is” basis, without any representations or warranties or any recourse against the Company or Buyer, and in accordance with Schedule 4.5(a)-1, (i) Seller shall have caused the Company to dividend, distribute or transfer all of the assets, rights and interests of the Company exclusively relating to the Excluded Businesses (such assets, rights and interests, the “Excluded Assets”) to Seller or an Affiliate of Seller (other than the Company) and (ii) Seller shall have caused the Company to delegate, and caused Seller or an Affiliate of Seller (other than the Company) to assume all of the liabilities or obligations whatsoever, whether known or unknown, accrued, absolute, contingent, unliquidated or otherwise, of the Company to the extent (x) directly relating to the Excluded Businesses or (y) until November 14, 2014, indirectly relating to the Excluded Businesses (all of such liabilities and obligations described in clause (x) and an amount equal to thirty percent (30%) of such liabilities and obligations described in clause (y), together with the Employee Liabilities and Specified Order Liabilities, the “Excluded Liabilities”).  “Excluded Businesses” means (A) the business or businesses of the Company to the extent relating to any goods, products or services which use, bear or exploit the Intellectual Property set forth in Schedule 4.5(a)-1 and (B) the Excluded Subsidiaries.  “Employee Liabilities” means all of the liabilities or obligations whatsoever, whether known or unknown, accrued, absolute, contingent, unliquidated or otherwise, (i) to the extent relating to the Employee Transfer or the employment or service or termination thereof on or after the Closing Date by Seller or any of its Affiliates (other than the Company) of any Person or (ii) of the type described on Schedule 4.5(a)-2.  “Specified Order Liabilities” means all of the liabilities or obligations whatsoever, whether known or unknown, accrued, absolute, contingent, unliquidated or otherwise, of the Company to the extent relating to the Specified Orders.  “Specified Orders” shall have the same meaning as “Specified Orders” in the Inventory Purchase Agreement.  Buyer shall cause the Company to comply with its obligations under the last sentence of Section 9.10 of the Inventory Purchase Agreement.

 

          (b) Prior to the consummation of the Closing, Seller shall have caused all employees and temporary employees of the Company to cease being employees or temporary employees, as applicable, of the Company, such that such employees and temporary employees will be employed by Seller or one of its Affiliates (other than the Company) as of the Closing (the “Employee Transfer”).

 

          (c) Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to assign or delegate any Excluded Asset or any Excluded Liability, respectively, in each case, if an attempted assignment or delegation, as applicable, without the consent of any Person, would constitute a breach thereunder or adversely affect in any material respect the rights of Buyer, the Company or Seller or any of their respective Affiliates (collectively, the “Non-Assignable Assets”), it being agreed that, following the Closing, Brown Shoe shall indemnify and hold harmless the Company from and against any and all liabilities, losses, damages, claims, costs, expenses, interest, awards, judgments and penalties suffered or incurred by it relating to such Non-Assignable Assets.  If consent with respect to the Non-Assignable Assets is not obtained prior to the consummation of the Closing, Seller and Buyer shall use commercially reasonable efforts to obtain such consent with respect to such Non-Assignable Assets after the consummation of the Closing.

 

          (d) If a consent described in Section 4.5(c) is obtained from such Person with respect to any such Non-Assignable Asset after the consummation of the Closing, such Non-Assignable Asset shall be deemed to have been automatically assigned and transferred to the applicable Affiliate of Seller on the terms set forth in this Agreement, as of immediately prior to the consummation of the Closing, and Buyer shall cause the Company to assign and transfer as soon as practicable such Non-Assignable Asset to the applicable Affiliate of Seller designated by Seller on the terms set forth in this Agreement.

 

          (e) Prior to the consummation of the Closing, Seller shall have taken all actions contemplated by the Restructuring, including but not limited to taking all actions contemplated by that certain Distribution Agreement by and between Seller and the Company, in the form attached hereto as Exhibit B (“Distribution Agreement”).  Following the Closing, the Company and Seller will continue to be obligated to perform their respective obligations under Section 2 of the Distribution Agreement, subject to the terms and conditions of the Distribution Agreement, it being agreed that Brown Shoe shall indemnify and hold harmless the Company from and against any and all liabilities, losses, damages, claims, costs, expenses, interest, awards, judgments and penalties suffered or incurred by it in connection with such performance by the Company.

 

          (f) The transactions described on Schedule 4.5(a)-1 and the transactions contemplated by this Section 4.5 are collectively referred to herein as the “Restructuring”.

 

          (g) Prior to Closing Date, the Company shall have declared a cash dividend in the amount of the Advance (as defined in the Inventory Purchase Agreement) (the “Pre-Closing Cash Dividend”) on the Stock, payable on the Closing Date promptly following the Company’s receipt of the Advance from the Inventory Buyer to the holder of record of the Stock as of 11:59 p.m. (local time) on May 13, 2013.

 

      4.6. Release.

 

          (a) Effective as of the Closing, Seller and Brown Shoe (on behalf of itself and the Affiliates controlled by Brown Shoe) (“Releasing Parties”), release any and all right, title, and interest in, under, or to the Stock.  Releasing Parties further waive, release and discharge the Company and any of its respective directors, officers, employees, agents, representatives, heirs, administrators, predecessors, attorneys, successors and assigns of each of the foregoing in their capacities as such (the “Releasees”) from any and all claims and/or causes of action, known or unknown, which a Releasing Party may have or could claim to have against the Releasees, whether absolute or contingent, liquidated or unliquidated, known or unknown, and whether arising under any agreement or understanding (other than this Agreement or the Ancillary Agreements) or otherwise at law or equity, and Releasing Parties agree that they shall not seek to recover any amounts in connection therewith or thereunder from any of the Releasees; provided, that the waivers contained in this Section 4.6 shall not apply to (i) claims against Buyer asserted pursuant to this Agreement or against the Company or Buyer pursuant to any Ancillary Agreement, or (ii) any claims for which the facts or circumstances giving rise to such claim first occur following Closing.  It is understood and agreed that this release is not intended to prohibit Brown Shoe or its controlled Affiliates from setting off an amount owed by Brown Shoe or its controlled Affiliates to the Company as a result of a short shipment of goods by the Company to Brown Shoe or its controlled Affiliates or delivery of defective merchandise by the Company to Brown Shoe or its controlled Affiliates, in each case, during the 90 day period prior to the Closing.

 

          (b) Releasing Parties affirm that the matters covered by the preceding paragraph include, without limitation, (i) any claims under the securities or other laws of the United States, any state or territory thereof, or any foreign jurisdiction, relating to the transactions contemplated hereby or the ownership of any of the shares of the Stock and (ii) any claims challenging or disputing the validity, enforceability, binding effect or legality of this Agreement or the transactions contemplated hereby.

 

      4.7. Confidentiality.  The Confidentiality Agreement shall, upon the consummation of the Closing, terminate for all purposes without any further liability or obligation. For purposes of this Agreement, “Confidentiality Agreement” means collectively that certain Confidentiality Agreement, dated July 10, 2012, between Brown Shoe and E.S. Originals, Inc.’s, a New York corporation (“ESO”), and that certain Confidentiality Agreement, dated September 2012, between Brown Shoe, ESO and Galaxy Brands LLC.

 

      4.8. Intercompany Accounts.  Seller shall have caused all Intercompany Accounts to be entirely satisfied, retired, repaid, or cancelled effective prior to or as of the Closing (other than receivables and payables between the Company, on the one hand, and Brown Shoe or any Affiliates controlled by Brown Shoe, on the other hand, to the extent provided for in the parenthetical clause of clause (ii) and the parenthetical clause of clause (x), in each case, in the definition of “Working Capital” in Section 1.6(h)(vi)).  For purposes of this Agreement, “Intercompany Accounts” means all payables, receivables or debt between the Company, on the one hand, and Brown Shoe or any Affiliates controlled by Brown Shoe, on the other hand.

 

      4.9. Credit Agreement; UCC; Release.  Seller agrees that prior to or concurrently with the consummation of the Closing, Seller will deliver, or cause to be delivered to the Buyer fully executed copies (to be followed by delivery by Seller to Buyer of originals thereof, promptly following the consummation of the Closing) of each of the following:

 

          (a) a letter agreement, in the form of Exhibit C, between Brown Shoe and Bank of America, N.A. acknowledging the termination of the Company’s rights and obligations under that certain Third Amended and Restated Credit Agreement, dated as of January 7, 2011 (the “Credit Agreement”), among Brown Shoe and certain Affiliates controlled by Brown Shoe, as borrowers, the Lenders party thereto and Bank of America, N.A., as Administrative Agent, Collateral Agent and Lead Issuing Bank, which letter agreement shall be duly executed by Brown Shoe and Bank of America, N.A., as Administrative Agent and Collateral Agent;

 

          (b) an instrument of release of guarantor, in the form of Exhibit D, evidencing the release of the Company as a guarantor under that certain Indenture, dated as of May 11, 2011, under which Brown Shoe issued its 7 1/8% Senior Notes due 2019, duly executed by Wells Fargo Bank, National Association, as Trustee; and

 

          (c) a release of deposit account control agreement with respect to Wells Fargo Bank, National Association account numbers 4121802144 and 4758362040, in the form of Exhibit E, duly executed by Bank of America, N.A. and Wells Fargo Bank, National Association.

 

      4.10. Intercompany Contracts.  Except for the Ancillary Agreements, Seller shall have caused, immediately prior to the consummation of the Closing or at the Closing, all Contracts between the Company, on the one hand, and Seller, Brown Shoe or any Affiliate controlled by Brown Shoe (other than the Company), on the other hand, to be terminated, without any further liability to the Company, Seller, Brown Shoe or any Affiliate controlled by Brown Shoe (other than the Company) (other than the Contracts which relate to the amounts referenced in the parenthetical clause of clause (ii) and the parenthetical clause of clause (x), in each case, in the definition of “Working Capital” in Section 1.6(h)(vi)).

 

      4.11. Shared Contracts.  Each of Buyer and Seller shall use commercially reasonable efforts to cause the Shared Contracts set forth on Schedule 4.11 (the “Specified Shared Contracts”) to be replaced with separate contracts that provide that Seller or its Affiliates receive such rights and obligations under a replacement contract that relate to the Excluded Businesses and that the Company receives such rights and obligations under a replacement contract that relate to the business of the Company other than the Excluded Businesses.  Until a Specified Shared Contract is separated, to the extent permissible under applicable Law and under the terms of such Specified Shared Contract, the Company and Seller shall (i) assume and perform the liabilities and obligations under such Specified Shared Contract that such Party is to receive under a replacement contract in accordance with the immediately preceding sentence (and shall promptly reimburse the other Party for any expenses relating thereto incurred by the other Party or its Affiliates), (ii) hold in trust for the benefit of the other Party, and shall promptly forward to the other Party, any monies or other benefits received by such Party or any of its Affiliates pursuant to such Specified Shared Contract that the other Party is to receive under a replacement contract in accordance with the immediately preceding sentence and (iii) endeavor to institute alternative arrangements intended to put the Parties in substantially the same economic position as if such Specified Shared Contract were separated at the Closing.

 

      4.12. Corporate Names.  From and after the Closing, Brown Shoe and its Affiliates may continue to use “ASG” as a component of the corporate names (in Chinese and English) of its Subsidiaries, including the Excluded Subsidiaries.  Buyer agrees, on behalf of itself, the Company, and their respective Affiliates, that it will not challenge or otherwise object to any such use by Brown Shoe or any of its Affiliates, it being agreed that Brown Shoe shall indemnify and hold harmless Buyer, the Company and their respective Affiliates from and against any and all liabilities, losses, damages, claims, costs, expenses, interest, awards, judgments and penalties suffered or incurred by it in connection with such usage by Brown Shoe or any of its Affiliates.

 

      4.13. Brown Shoe Guaranties.  With respect to each Brown Shoe Guaranty (as defined below), following the Closing, Buyer shall use its reasonable best efforts to arrange for the release, as promptly as reasonably practicable, of Brown Shoe and its Affiliates from their respective obligations arising after the consummation of the Closing under each Brown Shoe Guaranty by offering the beneficiary of such Brown Shoe Guaranty a guaranty from Buyer as reasonably requested by the beneficiary of such Brown Shoe Guaranty.  “Brown Shoe Guaranty” means any guaranty issued by Brown Shoe or any of its Affiliates (other than the Company) or on any of their behalf and any keep well, net worth maintenance agreement, letter of credit, reimbursement obligation or letter of comfort imposing any obligations on Brown Shoe or its Affiliates (other than the Company), in each case relating to the business of the Company (other than the Excluded Businesses) and set forth on Schedule 4.13, it being the intention of the parties that neither Brown Shoe nor any of its Affiliates shall have any obligation whatsoever arising from the Brown Shoe Guaranties to the extent such obligations arise after the consummation of the Closing.

 

       4.14. Performance by Seller.  Brown Shoe shall cause Seller to timely perform Seller’s obligations under this Agreement.

 

      4.15. Credit Agreement.  Immediately following the Closing, Brown shall pay the Closing Payment to the Administrative Agent (as defined in the Credit Agreement) for application to the Obligations (as defined in the Credit Agreement) to the extent required by Section 6.5(f) of the Credit Agreement.

 

ARTICLE 5.

INDEMNIFICATION

 

      5.1. Survival of Representations and Warranties and Covenants.  The representations and warranties of the Parties made herein shall survive the Closing and continue in effect until May 14, 2014; provided, however, that the representations and warranties set forth in (i) Section 2.1 (first and third sentence only) (Organization, Qualification), Section 2.2 (Subsidiaries), Section 2.3 (Capitalization), Section 2.4(a) (Authorization; Enforceability), Section 2.5(c) (Financial Statements; Indebtedness), Section 2.13(b) (Absence of Certain Changes; Distributions), Section 2.20 (Brokers, Finders), Section 3.1(b) (Authorization) and Section 3.3 (Brokers, Finders) (collectively, such representations and warranties the “Fundamental Reps”) shall survive in perpetuity and (ii) Section 2.7 (Tax) shall continue in effect until May 14, 2015.  The covenants made by the Parties herein shall survive in accordance with their respective terms, and if no specific term is specified, in perpetuity.  Any claims under this Agreement with respect to a breach of a representation and warranty or covenant must be asserted by written notice within the applicable survival period contemplated by this Section 5.1, and if such written notice is given in accordance with the provisions hereof, the survival period for such representation and warranty shall continue until the claim is finally resolved.

 

       5.2. Indemnification of Buyer.

 

          (a) Pursuant to this Agreement and subject to the limitations contained in this Article 5, from and after the consummation of the Closing, Buyer and its Affiliates (including, from and after the Closing, the Company) and the members or equity holders, directors, officers, partners, employees, successors, assigns, representatives and agents of each of them in their capacities as such (the “Buyer Indemnified Persons”), shall be indemnified and held harmless by Brown Shoe from and against, and Brown Shoe shall thereby waive any claim for contribution or indemnity from any of the Buyer Indemnified Persons with respect to, any and all claims, losses, Taxes, judgments, orders, damages, liabilities, expenses or costs, including those incurred as a result of the receipt of any payment under this Section 5.2 (“Losses”), minus (i) (a) the amount actually recovered by the Indemnified Party with respect to such Loss under any insurance policies maintained by the Company, net of reasonable expenses incurred by the Indemnified Party in obtaining such recovery and the net present value of any increase in premiums the Indemnified Party incurs as a result of such recovery minus (b) the amount of any Tax benefit that is actually realized as a result of all or part of such Losses, when and as actually realized, plus (ii) reasonable attorneys’ fees and expenses incurred or accrued in connection with Losses and/or enforcement of this Agreement and interest on the amount of such Losses at the Prime Rate, as it appears in the Wall Street Journal, from the date that such Losses were incurred until the day immediately prior to the date of payment to the Indemnified Party, determined based on a 360-day year (such net amount, “Indemnified Losses”) incurred by or sustained by, or imposed upon, any of them resulting from or arising out of:

 

             (i) any breach as of the date of this Agreement of any representation or warranty made by Seller in Article 2 of this Agreement (other than Section 2.7 of this Agreement) or any other Ancillary Agreement;

 

             (ii) any nonfulfillment, nonperformance, nonobservance or other breach or violation, or default in performance by Seller or Brown Shoe of, any covenant or agreement contained in this Agreement (other than Section 4.3 of this Agreement) or any other Ancillary Agreement;

 

             (iii) the Excluded Businesses, the Excluded Assets or the Excluded Liabilities (including, without limitation, with respect to any breach referred to in Section 5.2(a)(i) that results from or arises out of the Excluded Businesses, the Excluded Assets or the Excluded Liabilities);

 

             (iv) any of the matters described in (A) item 1 of Schedule 2.10(c)-2 of the Disclosure Schedules or (B) item 6 of Schedule 2.12-1 of the Disclosure Schedules (collectively, the “Identified Claims”); or

 

             (v) any breach of or inaccuracy in the representation and warranty set forth in Section 9.8 or Section 9.9 of the Inventory Purchase Agreement.

 

          (b) To the extent any Tax benefit relating to a Loss is not realized until after any Buyer Indemnified Person receives indemnification payments pursuant to this Article 5, such Buyer Indemnified Person shall pay over to Brown Shoe an amount equal to any such Tax benefit at such time or times as such benefit is actually realized.  If such payment is not paid by such Buyer Indemnified Person to Brown Shoe within thirty (30) days of such time when such benefit is actually realized, such payment shall include interest on such amount at the Prime Rate, as it appears in the Wall Street Journal, from the date that such amount was actually realized until the day immediately prior to the date of payment to Brown Shoe, determined based on a 360-day year.

 

          (c) A Buyer Indemnified Person shall have no obligation to first submit or to collect upon any applicable insurance coverage as a precondition to making a claim for indemnification hereunder or obtaining indemnification for Indemnified Losses therefor, and the Parties hereto agree, without limiting any other rights any Buyer Indemnified Person may have against Brown Shoe, not to delay in any manner the payment to Buyer or any Buyer Indemnified Person of such indemnification based on Buyer’s failure to submit or to collect upon any applicable insurance coverage.  To the extent that any insurance payment is actually recovered by a Buyer Indemnified Person after the related indemnification payment has been made pursuant to this Agreement, such Buyer Indemnified Person will pay over to Brown Shoe the amounts of such insurance payments promptly after they are actually recovered.  If such payment is not paid by a Buyer Indemnified Person to Brown Shoe within thirty (30) days of such time when such insurance payment is actually recovered, such payment shall include interest on such amount at the Prime Rate, as it appears in the Wall Street Journal, from the date that such amount was actually recovered until the day immediately prior to the date of payment to Brown Shoe, determined based on a 360-day year.

 

          (d) For all Tax purposes, all indemnification payments under this Article 5 shall be treated by the Parties as adjustments to the Final Purchase Price to the extent permitted by applicable Law.

 

      5.3. Tax Indemnification.  (i) In the case of any claim made under Section 5.3(b) below, until May 14, 2015, and (ii) in the case of any claim made in respect of Section 5.3(a) or 5.3(c) below, until 30 days after the applicable statute of limitations expires, from and after the consummation of the Closing, Brown Shoe agrees to indemnify, defend and hold harmless the Buyer Indemnified Parties from and against any Losses, if any:

 

          (a) for Taxes of the Company attributable to any Taxable period (or portion thereof) ending on or before the Closing Date or attributable to the Restructuring, the transactions contemplated thereby, the Excluded Assets, or the Excluded Liabilities, except as otherwise provided in Section 4.3(g); and

 

          (b) resulting from a breach of any of the representations or warranties contained in Section 2.7 of this Agreement or for covenants contained in Section 4.3 of this Agreement; or

 

          (c) for Taxes of any Company Group or any other consolidated, combined, unitary or similar group for purposes of U.S. federal, state, local or non-U.S. tax law of which the Company is or has ever been a member during any year for which the applicable statute of limitations has not closed, except as otherwise provided in Section 4.3(g).

 

For the avoidance of doubt, Brown Shoe’s obligation to indemnify the Buyer Indemnified Persons pursuant to this Section 5.3 is not subject to the limitations on indemnification under Section 5.7 (other than Section 5.7(g)) of this Agreement.  Any claims made under this Section 5.3 must be asserted by written notice within the applicable survival period, and if such written notice is given in accordance with the provisions hereof, the survival period shall continue until the claim is finally resolved.

 

      5.4. Indemnification of Brown Shoe.  Pursuant to this Agreement and subject to the limitations contained in this Article 5, from and after the consummation of the Closing, Brown Shoe and its Affiliates and the stockholders, directors, officers, partners, employees, successors, assigns, representatives and agents of each of them in their capacities as such (the “Brown Shoe Indemnified Persons”) shall be indemnified and held harmless by Buyer from and against, and Buyer shall thereby waive any claim for contribution or indemnity from any of the Brown Shoe Indemnified Persons with respect to, any and all Indemnified Losses incurred or to be incurred by any of them, resulting from or arising out of:

 

          (a) any breach as of the date of this Agreement of any representation or warranty made by Buyer in Article 3 of this Agreement or any Ancillary Agreement;

 

          (b) any nonfulfillment, nonperformance, nonobservance or other breach or violation, or default in performance, by Buyer of any covenant or agreement of Buyer contained in this Agreement or any Ancillary Agreement; or

 

          (c) any Brown Shoe Guaranty to the extent relating to obligations that arise under such Brown Shoe Guaranty after the Closing.

 

      5.5. Notice of Claim.  In the event Buyer seeks indemnification on behalf of a Buyer Indemnified Person, or Brown Shoe seeks indemnification on behalf of a Brown Shoe Indemnified Person, such Party seeking indemnification (the “Indemnified Party”) shall give reasonably prompt written notice in accordance with Section 6.1 to the indemnifying Party (the “Indemnifying Party”) specifying the facts constituting the basis for such claim and the amount, to the extent ascertainable, of the claim asserted; provided, however, that the right of a Person to be indemnified hereunder shall not be adversely affected by a failure to give such notice unless, and then only to the extent that, an Indemnifying Party is actually damaged or prejudiced thereby.  Subject to the terms of this Agreement, the Indemnifying Party shall pay (by wire transfer of immediately available funds) the amount of any claim not more than thirty (30) days after the claim is resolved in accordance with the terms of this Agreement, or to the extent that the Indemnifying Party does not respond to the notice from the Indemnified Party, then thirty (30) days from the delivery of such notice.

 

      5.6. Right to Contest Claims of Third Persons.

 

          (a) Except with respect to an Identified Claim, if an Indemnified Party is entitled to indemnification hereunder because of a claim (a “Third Person Claim”) asserted by any claimant other than an Indemnified Party hereunder (a “Third Person”), the Indemnified Party shall give the Indemnifying Party reasonably prompt notice thereof in accordance with Section 6.1 (a “Third Person Claim Notice”); provided, however, that the right of a Person to be indemnified hereunder in respect of claims made by a Third Person shall not be adversely affected by a failure to give such notice unless, and then only to the extent that, an Indemnifying Party is actually damaged or prejudiced thereby.  Except as otherwise provided in this Section 5.6 in the event that the Third Person Claim seeks recovery of damages in an amount which is less than one hundred percent (100%) of the maximum remaining amount of Indemnified Losses for which the Indemnifying Party may be liable to indemnify the Indemnified Party hereunder (a “Special Third Person Claim”), the Indemnifying Party shall then have the right, upon written notice to the Indemnified Party (a “Defense Notice”) within fifteen (15) days (the “Defense Notice Period”) after receipt from the Indemnified Party of the Third Person Claim Notice, and using counsel reasonably satisfactory to the Indemnified Party, to investigate, contest, or settle the Special Third Person Claim, provided that the Indemnifying Party has unconditionally acknowledged to the Indemnified Party in writing its obligation to indemnify the Persons to be indemnified hereunder with respect to such Third Person Claim subject to the applicable limitations set forth in this Article 5.  The Indemnified Party may thereafter participate in (but not control) the defense of any such Special Third Person Claim with its own counsel at its own expense, unless in the reasonable opinion of counsel, there exists a conflict of interest between the Indemnified Party and the Indemnifying Party that cannot be waived, in which case such representation shall be at the expense of the Indemnifying Party.  In the event that the Indemnifying Party delivers a Defense Notice within the Defense Notice Period with respect to such Special Third Person Claim and thereby elects to conduct the defense of the subject claim, (i) the Indemnifying Party shall be entitled to have control over said defense and, subject to the provisions set forth below, settlement of the subject claim, (ii) the Indemnified Party will, at the Indemnifying Party’s expense, cooperate with and make available to the Indemnifying Party such assistance and materials as it may reasonably request and (iii) the Indemnified Party shall have the right at its expense to participate in the defense assisted by counsel of its own choosing.  Notwithstanding the foregoing, if at any time a Third Person Claim no longer qualifies as a Special Third Person Claim, then the Indemnified Party shall have the right to take control of the defense of such Third Person Claim and investigate, contest, and settle such Third Person Claim, subject to the consent of the Indemnifying Party as set forth in Section 5.6(c) hereof.

 

          (b) Except with respect to an Identified Claim, (i) unless and until the Indemnifying Party sends a Defense Notice within the Defense Notice Period with respect to a Special Third Person Claim or (ii) with respect to any other Third Party Claim, the Indemnified Party shall have the right, at its option, to assume and control defense of the matter and to look to the Indemnifying Party for the full amount, subject to this Article 5, of the reasonable costs of defense.  In the event that the Indemnifying Party shall fail to give the Defense Notice within the Defense Notice Period (x) with respect to such Special Third Person Claim or (y) with respect to any other Third Party Claim, (A) the Indemnified Party shall be entitled to have the control over said defense and settlement of the subject claim (subject to the consent of the Indemnifying Party as set forth in Section 5.6(c) hereof), (B) the Indemnifying Party will cooperate with and make available to the Indemnified Party such assistance and materials as it may reasonably request, and (C) the Indemnifying Party shall have the right at its expense to participate in the defense assisted by counsel of its own choosing, and the Indemnifying Party, if it is required to provide indemnification under this Agreement, will be liable for all costs, including reasonable out of pocket expenses, and settlement amounts, subject to this Article 5, paid or incurred in connection therewith.

 

          (c) Except with respect to an Identified Claim, the Indemnifying Party will not settle the subject claim without the prior written consent of the Indemnified Party, which consent will not be unreasonably withheld, conditioned or delayed, unless (i) there is no finding or admission of any violation of Law or any violation of the rights of any Person; (ii) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party; (iii) the Indemnified Party shall have no liability with respect to any compromise or settlement of such Special Third Person Claims effected without its consent, in which cases the consent of the Indemnified Party shall not be required, and (iv) in the case of a claim relating to Taxes, such settlement will not increase any unindemnified Tax liability of the Indemnified Party or its Affiliates (other than solely as a result of a reduction in loss carryforwards or tax credits attributable to any Taxable period, or portion thereof, ending on or before the Closing Date).

 

          (d) Except with respect to an Identified Claim, notwithstanding anything to the contrary contained in this Section 5.6, the Indemnifying Party shall not be entitled to control, but may participate in, and the Indemnified Party shall be entitled to have sole control, including the right to select defense counsel, over the defense or settlement of any claim (i) that seeks a temporary restraining order, a preliminary or permanent injunction or specific performance against the Indemnified Party, (ii) that involves criminal allegations against the Indemnified Party, (iii) that, if, in the Indemnified Party’s reasonable judgment, it was unsuccessful, (A) would set a precedent that would materially interfere with, or have a material adverse effect on, the business or financial condition of the Indemnified Party or (B) would reasonably be expected to exceed the Buyer Cap or the Brown Shoe Cap, as applicable, in either case as mutually determined by the Indemnifying Party and the Indemnified Party or, if such a determination is not made within fifteen (15) days after the date on which the Indemnified Party responds to the Defense Notice by asserting its rights under this Section 5.6(d), in accordance with its reasonable judgment, or (iv) subject to clause (iii) of this Section 5.6(d), that imposes liability on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder.  In such event, the Indemnifying Party will still be subject to its obligations hereunder but the Indemnified Party will not settle the subject claim without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld, conditioned or delayed.

 

   5.7. Limitations on Indemnity.

 

          (a) From and after the consummation of the Closing, the Buyer Indemnified Persons shall not be entitled to indemnification in respect of Indemnified Losses pursuant to Section 5.2(a)(i) resulting from or arising out of breaches of the representations and warranties contained in Article 2 of this Agreement unless and until such Indemnified Losses (excluding any such Indemnified Losses that are excluded pursuant to the DeMinimis limitation below) exceed nine hundred thousand dollars ($900,000) in the aggregate (the “Indemnification Threshold”), but then only to the extent of any such excess; provided, however, that Brown Shoe shall have no liability in respect of Indemnified Losses pursuant to Section 5.2(a)(i) resulting from or arising out of breaches of the representations and warranties contained in Article 2 of this Agreement, and no claim by any Buyer Indemnified Person shall be so asserted, where the Indemnified Loss related to any individual item or multiple situations exist that give rise to a Indemnified Loss based on the same or substantially the same set of facts and circumstances is, in the aggregate, less than thirty-two thousand dollars ($32,000) (the “DeMinimis”) (but if such Indemnified Loss exceeds the DeMinimis limitation, such Indemnified Loss shall be taken into account in its entirety under this Section 5.7(a) subject to the Indemnification Threshold); provided, however, that the DeMinimis limitation in this Section 5.7(a) shall cease to apply once the aggregate Indemnified Losses subject to the DeMinimis limitation in this Section 5.7(a) and not indemnified hereunder as a result of the DeMinimis limitation in this Section 5.7(a) exceed $300,000.  Notwithstanding the foregoing, neither the Indemnification Threshold limitation nor the DeMinimis limitation in this Section 5.7(a) shall apply in any manner whatsoever to (i) any breach of the Fundamental Reps of Seller, (ii) any breach of the representations and warranties set forth in Section 2.5(c) or (iii) the obligations of Brown Shoe to the extent a breach results from fraud or Willful Misconduct of Seller or Brown Shoe.  For purposes of this Agreement, “Willful Misconduct” shall mean a conscious, voluntary act or omission taken with intentional disregard of legal or contractual duty and knowledge that such action or omission is a breach of such legal or contractual duty.

 

          (b) From and after the consummation of the Closing, Buyer shall have no obligation to indemnify Brown Shoe Indemnified Persons in respect of Indemnified Losses pursuant to Section 5.4(a) resulting from or arising out of breaches of the representations and warranties contained in Article 3 of this Agreement unless and until such Indemnified Losses (excluding any such Indemnified Losses that are excluded pursuant to the DeMinimis limitation below) exceed the Indemnification Threshold, but then only to the extent of any such excess; provided, however, that Buyer shall have no liability in respect of Indemnified Losses pursuant to Section 5.4(a) resulting from or arising out of breaches of the representations and warranties contained in Article 3 of this Agreement, and no claim by any Brown Shoe Indemnified Person shall be so asserted, where the Indemnified Loss related to any individual item or multiple situations exist that give rise to a Indemnified Loss based on the same or substantially the same set of facts and circumstances is, in the aggregate, less than the DeMinimis (but if such Indemnified Loss exceeds the DeMinimis limitation, such Indemnified Loss shall be taken into account in its entirety under this Section 5.7(b) subject to the Indemnification Threshold); provided, however, that the DeMinimis limitation shall cease to apply once the aggregate Indemnified Losses subject to the DeMinimis limitation and not indemnified hereunder as a result of the DeMinimis limitation exceed $300,000.  Notwithstanding the foregoing, neither the Indemnification Threshold limitation nor the DeMinimis limitation in this Section 5.7(b) shall apply in any manner whatsoever to (i) any breach of the Fundamental Reps of Buyer or (ii) the obligations of Buyer to the extent a breach results from fraud or Willful Misconduct of Buyer.

 

          (c) From and after the consummation of the Closing, the aggregate amount of Indemnified Losses that may be recovered by the Buyer Indemnified Persons under Section 5.2(a)(i) may not exceed six million three hundred thousand dollars ($6,300,000.00) (the “Buyer Cap”).  Notwithstanding the first sentence of this Section 5.7(c), the Buyer Cap shall not apply to (A) breaches of the Fundamental Reps of Seller, (B) breaches of the representations and warranties set forth in Section 2.5(c), or (C) the obligations of Brown Shoe to the extent a breach results from fraud or Willful Misconduct.

 

          (d) From and after the consummation of the Closing, the aggregate amount of Indemnified Losses that may be recovered by the Brown Shoe Indemnified Persons under Section 5.4(a) may not exceed six million three hundred dollars ($6,300,000.00) (the “Brown Shoe Cap”).  Notwithstanding the first sentence of this Section 5.7(d), the Brown Shoe Cap shall not apply to (A) breaches of the Fundamental Reps of Buyer or (B) the obligations of Buyer to the extent a breach results from fraud or Willful Misconduct.

 

          (e) The representations and warranties of Seller shall not be affected or diminished by, and no right of indemnification hereunder shall be limited by reason of any investigation or audit conducted by Buyer or its representatives before or after the consummation of the Closing or the actual or constructive knowledge of Buyer or its representatives of any breach of a representation, warranty, covenant or agreement by the other Parties at any time, or the decision of Buyer to complete the Closing.

 

          (f) For purposes of computing the amount of any claim for indemnification hereunder (including for determining whether a breach has occurred), all materiality, Company Material Adverse Effect (except in the first sentence of Section 2.13), material adverse effect and similar qualifications shall be disregarded.

 

          (g) Notwithstanding anything in this Agreement to the contrary, no liability, obligation or other matter shall constitute a breach of any representation or warranty made by Seller or entitle a Buyer Indemnified Person to indemnification hereunder to the extent the liability, obligation or other matter was provided for or taken into account in the calculation of Final Closing Working Capital or Final Inventory Amount.

 

          (h) From and after the consummation of the Closing, the Buyer Indemnified Persons shall not be entitled to indemnification in respect of Indemnified Losses pursuant to Section 5.2(a)(iv)(B) unless and until such Indemnified Losses exceed $370,000, but then only to the extent of any such excess.

 

      5.8. Indemnification Procedures for Identified Claims.  With respect to each Identified Claim, Brown Shoe shall have the right to investigate, contest or settle the Identified Claim, subject to the provisions set forth below.  The Indemnified Party may thereafter participate in (but not control) the defense of any such Identified Claim with its own counsel at its own expense.  Brown Shoe will not settle or concede any Identified Claim without the prior written consent of the Indemnified Party (which consent will not be unreasonably withheld, conditioned or delayed) unless the sole relief provided is monetary damages that are paid in full by Brown Shoe.

 

ARTICLE 6.

MISCELLANEOUS PROVISIONS

 

       6.1. Notice.  All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given one (1) Business Day after deposited with an overnight courier service if delivered by overnight courier, email, upon electronic confirmation of receipt if faxed during normal business hours and otherwise upon the opening of business on the next Business Day or five (5) days after depositing in the United States mail, postage prepaid, certified or registered mail, return receipt requested to the respective Parties at the following addresses (or at such other addresses for a Party as shall be specified in a notice given in accordance with this Section 6.1):

 

If to Brown Shoe or Seller:

 

Brown Shoe Company, Inc.

8300 Maryland Avenue

St. Louis, Missouri 63105

Attention:  Michael I. Oberlander

Facsimile:  (314) 854-2044

Email:  moberlander@brownshoe.com

 

 

with a copy to:

 

Bryan Cave LLP

One Metropolitan Square

211 N. Broadway, Suite 3600

St. Louis, MO 63102

Attention:  William F. Seabaugh

Stephanie M. Hosler

Facsimile:  (314) 259-2020

Email:  wfseabaugh@bryancave.com

smhosler@bryancave.com

 

If to Buyer:

 

Galaxy Brand Holdings, Inc.

450 West 33rd Street

New York, New York 10001

Attention:  President

Facsimile:  (212) 564-0624

Email:  ejesses@esoriginals.com

with copies to:

 

Hughes Hubbard & Reed LLP

One Battery Park Plaza

New York, New York 10004

Attention:  Kenneth A. Lefkowitz

Facsimile:  (212) 299-6557

Email:  lefkowit@hugheshubbard.com

 

and

 

Latham & Watkins LLP

555 Eleventh Street, N.W.

Suite 1000

Washington, D.C. 20004

Attention:  Paul F. Sheridan, Jr.

Facsimile:  (202) 637-2201

Email:  paul.sheridan@lw.com

 

       6.2. Entire Agreement.  This Agreement, the Transition Services Agreement, the Confidentiality Agreement, the License Agreement for Avia Trademarks dated December 12, 2012 by and between the Company and the Buyer (the “License Agreement”) and any other Ancillary Agreement, and the Disclosure Schedules, Schedules and Exhibits hereto and thereto embody the entire agreement and understanding of the Parties with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, both written and oral, relative to such subject matter.  For the avoidance of doubt, nothing contained in this Agreement shall effect the obligations of Buyer under Section 4.1 of the License Agreement.

 

      6.3. Assignment; Binding Agreement.  This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise).  Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be transferred, delegated, or assigned (by operation of Law or otherwise) by any Party without the prior written consent of the other Parties (which consent shall not be unreasonably withheld); provided, however that (i) Buyer may, without the prior written consent of Seller or Brown Shoe, assign any of its rights, interests, or obligations hereunder to any Affiliate of Buyer or in connection with any financing of Buyer, it being agreed that no such assignment shall relieve Buyer of its obligations hereunder, and (ii) Brown Shoe may, without the prior written consent of Buyer or the Company, assign its rights under Section 4.12 to a third party purchaser or successor of all or substantially all of the stock or assets of an Excluded Subsidiary, it being agreed that no such assignment shall relieve Brown Shoe of its obligations hereunder.

 

      6.4. Counterparts.  This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

 

      6.5. Headings; Interpretation; Disclosure Schedules.

 

          (a) The Article and Section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of the Agreement.  Each reference in this Agreement to an Article, Section, Schedule or Exhibit, unless otherwise indicated, shall mean an Article or a Section of this Agreement or a Schedule or Exhibit attached to this Agreement, respectively.  References herein to “days,” unless otherwise indicated, are to consecutive calendar days.  Unless the context otherwise requires, (i) “or” is not exclusive and (ii) “including” means “including but not limited to” and “including without limitation.”  Each Party has participated substantially in the negotiation and drafting of this Agreement and each Party agrees that any ambiguity herein should not be construed against the draftsman.  Whenever required by the context, any gender shall include any other gender, the singular shall include the plural and the plural shall include the singular.

 

          (b) The representations and warranties in this Agreement (i) are the product of negotiations among the Parties, (ii) are for the sole benefit of the Parties, (iii) may be intended not as statements of fact, but rather as a way of allocating the risk to one of the Parties if those statements prove to be inaccurate, (iv) subject to Section 6.5(d), have been qualified by reference to the Disclosure Schedules which contain certain disclosures that are not reflected in the text of this Agreement and (v) may apply standards of materiality in a way that is different from what may be viewed as material by Seller or the Company.  Consequently, Persons other than the Buyer Indemnified Persons and the Brown Shoe Indemnified Persons may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.

 

          (c) For purposes of this Agreement, “Person” shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an association, an unincorporated organization, a Governmental Authority and any other entity and “Affiliate” of a Person shall mean any other Person who directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with, such Person.

 

          (d) A disclosure of an item included on a Disclosure Schedule to Article 2 shall be deemed to relate to (i) the representations and warranties of Seller that are contained in the corresponding Section or subsection, as applicable, of this Agreement and (ii) any other representation and warranty of Seller that is contained in another Section or subsection of this Agreement, but only so long as the application to any such other Section or subsection is reasonably apparent on the face of such disclosure that such disclosure is applicable to such other Section or subsection.

 

       6.6. Expenses.  Except as otherwise provided in Section 4.3(b), each Party shall pay its own expenses incident to this Agreement and the transactions contemplated hereby. Notwithstanding the foregoing, Buyer shall pay Seller $150,000 at the Closing for the reasonable and documented out of pocket legal fees and expenses incurred by the Company, Seller or Brown Shoe in connection with the negotiation and documentation of the Inventory Purchase Agreement.  For the avoidance of doubt, Seller shall pay the expenses of the Company incurred prior to the consummation of the Closing in connection with this Agreement.  For the avoidance of doubt, Buyer shall be solely responsible for all fees and expenses owed to Houlihan Lokey Capital, Inc.

 

      6.7. Remedies Cumulative.

 

          (a) Except as otherwise expressly provided herein, all rights and remedies of the Parties under this Agreement are cumulative and without prejudice to any other rights or remedies under Law.

 

          (b) Notwithstanding anything to the contrary contained herein, the Parties acknowledge and agree that following the Closing their sole and exclusive remedy for monetary damages with respect to any and all claims for any breach of any representation, warranty, covenant, agreement or obligation set forth herein shall be pursuant to the indemnification provisions set forth in Article 5; provided, however, that (i) nothing herein will limit in any way any Party’s rights hereunder, or otherwise, to specific performance, injunctive relief or other equitable relief and (ii) none of Seller, Brown Shoe or Buyer shall be deemed to have waived any rights, claims, causes of action or remedies if and to the extent such rights, claims, causes of action or remedies may not be waived under applicable Law or in instances of fraud.

 

      6.8. Governing Law.  This Agreement shall in all respects be construed in accordance with and governed by the substantive laws of the State of Delaware, without reference to its choice of law rules.

 

      6.9. Submission to Jurisdiction; Waivers.

 

          (a) Each of the Parties irrevocably agrees that any legal action or proceeding with respect to this Agreement brought by a Party or its successors or assigns may and shall be brought and determined in the United States District Court for the Southern District of New York or any New York State court in New York County and each of the Parties hereby irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts, provided that any legal action or proceeding for recognition or enforcement of any judgment in respect hereof obtained in accordance with the foregoing may be brought in any court of competent jurisdiction.  Each of the Parties hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim, or otherwise, in any action or proceeding with respect to this Agreement, (a) any claim that a Party is not personally subject to the jurisdiction of the above named court for any reason other than the failure to serve process in accordance with this Section 6.9, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such court (whether through judgment or otherwise), and (c) to the fullest extent permitted by applicable law that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper and (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such court.  Each Party hereto waives all personal service of any and all process upon such Party related to this Agreement and consents that all service of process upon such Party shall be made by hand delivery, certified mail or confirmed telecopy directed to such Party at the address specified in Section 6.1 hereof; and service made by certified mail shall be complete seven (7) days after the same shall have been posted.

 

          (b) Each of the Parties waives any right it may have to a trial by jury in respect of any litigation based on, arising out of, under or in connection with this Agreement or any course of conduct, course of dealing, verbal or written statement or action of any Party.

 

      6.10. No Waiver.  Any failure by any of the Parties to comply with any of the obligations, agreements or conditions set forth herein may be waived by the other Parties; provided, however, that any such waiver shall not be deemed a waiver of any other obligation, agreement or condition.  No failure or delay by any Party in exercising any right hereunder shall operate as a waiver thereof.

 

      6.11. Severability.  If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule or law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible.

 

      6.12. Amendments.  No modification, amendment or waiver of any of the provisions of this Agreement shall be effective unless in writing and signed by the Parties.

 

       6.13. No Third Party Beneficiaries; Recourse.  The Parties hereby agree that there are no third party beneficiaries to this Agreement, other than the Buyer Indemnified Persons and the Brown Shoe Indemnified Persons, and this Agreement is not intended to, and does not, confer upon any Person other than the Parties, the Buyer Indemnified Persons and the Brown Shoe Indemnified Persons, any rights or remedies hereunder, including, without limitation, the right to rely upon the representations and warranties set forth herein. This Agreement may only be enforced against, and any Action based upon, arising out of, or related to this Agreement may only be brought against, the entities that are expressly named as parties hereto and then only with respect to the specific obligations set forth herein with respect to such party. Notwithstanding any provision of this Agreement or otherwise, the parties to this Agreement agree on their own behalf and on behalf of their respective Subsidiaries and Affiliates that no Releasee (other than successors and assigns), including any lender under any debt financing obtained by Buyer or any of its Affiliates in connection with the transactions, that itself is not a party to this Agreement shall have any liability (whether in contract, tort, equity or otherwise) for any one or more of the representations, warranties, covenants, agreements or other obligations or liabilities of any one or more of the named parties under this Agreement (whether for indemnification or otherwise) or for any claim based on, arising out of, or related to this Agreement.

 

       6.14. Specific Performance.  The Parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties shall be entitled, without posting a bond or similar indemnity, to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in the United States District Court for the Southern District of New York or any New York State court in New York County, in addition to any other remedy to which they are entitled at law or in equity.  Each of the Parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that (x) the other Party has an adequate remedy at law or (y) an award of specific performance is not an appropriate remedy for any reason at law or equity.

 

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the Parties and is effective as of the date first herein above written.

 

                    

 

	 	SELLER:
	 	 	 
	 	BROWN SHOE INTERNATIONAL CORP.
	 	 	 
	 	By:	 /s/ Russell C. Hammer
	 	Name:	 Russell C. Hammer
	 	Title:	 Senior Vice President and Chief Financial Officer
	 	 	 
	 	 	 
	 	BROWN SHOE
	 	 	 
	 	BROWN SHOE COMPAN Y, INC.
	 	 	 
	 	By:	 /s/ Russell C. Hammer
	 	Name:	 Russell C. Hammer
	 	Title: 	 Senior Vice President and Chief Financial Officer
	 	 	 
	 	 	 
	 	BUYER:
	 	 	 
	 	GALAXY BRAND HOLDINGS, INC.
	 	 	 
	 	By:	 /s/ Eddie Esses
	 	Name: 	 Eddie Esses
	 	Title:	 President and Chief Executive Officer

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