Framework Agreement.docx

FRAMEWORK AGREEMENTa. This Framework Agreement is entered into on this day 27 of the month of March, 2003, by and betweenb. 1. BENETTON GROUP S.p.A., an Italian company, with registered office in Ponzano Veneto (TV), Villa Minelli, 1, represented by its pro-tempore legal representative Mr. Luigi de Puppi de Puppi (hereinafter referred to as Benetton);c. 2. PRINCE SPORTS, INC., a Delaware company (USA), with registered office in Wilmington, Delaware, represented by its pro-tempore legal representative Mr. Michael Lyons (hereinafter referred to as the Purchaser).WHEREAS:d. Benetton controls indirectly Benetton Sportsystem U.S.A. Inc. (BSS) a company based in the U.S.A. which, among other things, owns and manages a going concern (Business) that researches, develops, designs, markets and distributes tennis, squash and badminton racquets, shoes, apparel and accessories which bear the trademarks Prince and Ektelon or any related trademarks. e. Having received manifestations of the interest to purchase the Business from several subjects, Benetton granted to the merchant bank Merrill Lynch International, Milan Branch (Merrill Lynch) mandate to study the feasibility of divesting of such Business, including the trademarks. f. From 13 May 2002, Merrill Lynch asked the several potentially interested parties to confirm their intention to buy and to make a non-binding offer, so as to make a first evaluation. g. On the basis of the non-binding offers received, Benetton - with the assistance of Merrill Lynch - selected several interested subjects, among which the Purchaser, and allowed them to carry out documentary due diligence activity and to meet some of the managers who have management responsibility in relation to the Business. h. After the above activities were carried out and the contractual documents reviewed, Merrill Lynch asked the selected subjects to make an offer for the purchase of the trademarks and related Business. i. On the basis of such offer, the Parties have negotiated and finally signed this Framework Agreement, which - along with its Schedules - contains and represents all the agreements between the Parties regarding the sale and purchase of the Business including the above mentioned trademarks.THEREFORE, acknowledging that the recitals above constitute an integral and substantial part of the agreement, the Parties hereby agree as follows:1. DEFINITIONSIn this Framework Agreement, the terms defined below, when capitalised, shall have the meaning attributed to them in this Article 1.Escrow Bank means Citibank or any other primary bank as agreed by the Parties to manage the Escrow Account.Assets means the movable assets used only by the Business in the exercise of its activity, and listed, with an indication of the place where they are located, in Schedule 1.Intangible Assets means the Patents, the Trademarks, the Contracts, the goodwill and all the other intangible assets currently used exclusively in connection with the Business, including, without limitation, all and any trade secrets, inventions, designs, copyrights, non-registered trademarks and other intellectual property, know-how, manufacturing methods and processes, domain names and websites, if any.Patents means the patents, utility models, design patents and ornamental designs registered by or issued to the Sellers or their relevant assignors in reference to the Products, as listed in Schedule 2, and patents application already filed by the Sellers or by their relevant assignors or in the process of filing by the Sellers or by their relevant assignors with regards to the Products, including the applications filed after the date of the signature of this Framework Agreement and up to the Closing Date.Closing means the performance of the transactions necessary to transfer the Business in each Jurisdiction.Fixed Component means the amount of Euro 36.500.000,00, which refers to the Intangible Assets and constitutes the fixed, and not subject to adjustments, portion of the Price for the Business.Variable Component means the algebraic sum of the value, ascertained on Closing Date pursuant Article 4 of this Framework Agreement, of Assets, Inventory, Receivables and, where expressly agreed upon by the Parties, Liabilities.Escrow Account means the bank account which shall be opened prior to the Closing Date, with the Escrow Bank in the name of the Purchaser and put on escrow in favour of Benetton pursuant to the Irrevocable Instructions, on which Purchaser shall credit the Deferred Price on the Closing Date.Contracts means the contracts and agreements entered into for the activity of the Business, save for the Excluded Agreements, as per the list under Schedule 3. In the event, subsequent to the execution of this Framework Agreement, certain further agreements not included in said Schedule 3 were identified, the Parties shall agree on the possible inclusion of the same in the Business without any further cost for any of the Parties.Excluded Agreements means those agreements which, although executed in connection with the activities of the Business, the Parties have agreed will not be transferred, and are only those indicated in the list attached under 4.Closing Agreements means those agreements by means of which the transfer of the Business will be completed on the Closing Date in each Jurisdiction, and which will be executed in accordance with Art. 2 below, between the Seller(s) concerned and the Transferee(s) concerned in the form provided by local laws.Lease Agreement means the agreement attached to this Framework Agreement sub 5 and which constitutes an element essential to the transaction contemplated hereunder and will be executed by and between BSS and the Purchaser or its designee on the Closing Date, pursuant to which the Purchaser or its designee, will rent a portion of the Real Property in accordance with what provided in the Article 8Receivables means the commercial receivables of the Sellers (other than Benetton Sportsystem Schweiz AG) related to the supply of the Products existing on the Closing Date.Closing Date means 30 April 2003 or, should at such date the conditions that, pursuant to Article 6.1 hereafter, shall be fulfilled prior the Closing Date, not be fulfilled, the fifth business day after the fulfilment of such conditions, subject always to a different written agreement between Parties.Employees means the 91 employees working for the Business, who render services in the USA, in Hong Kong and Switzerland who will be hired by the Purchaser, pursuant to art. 9.1. here below, or who the Purchaser will procure to be hired by the Transferees and which are numerically listed in Schedule 6.Due Diligence Documents means the documents and the information related to the Business made available to the Purchaser during the due diligence activity or subsequently until the date this Framework Agreement is signed, listed in Schedule 7.Jurisdiction means each country in which any element of the Business is located.Irrevocable Instructions means the irrevocable instructions pursuant to which the Purchaser and Benetton (or any of the Sellers designed by Benetton), jointly, shall give mandate to the Escrow Bank to manage the Escrow Account substantially in compliance with the terms set forth under Schedule 8 (safe for any further amendment, non detrimental vis-vis the Purchaser, which shall be negotiated between Benetton and the Escrow Bank).Inventory means the entire inventory held by the Seller (in stock, in transit and related to orders already sent to suppliers) of Products, semi-finished products, raw materials, and other materials existing on the Closing Date, the quantity of which will be ascertained in accordance with the provisions Article 4 of this Framework Agreement.Trademarks means the trademarks Prince and Ektelon, as well as all other trademarks, related to said trademarks, registered by the Sellers or by their relevant assignors, as listed in Schedule 9 and the trademark registration applications filed by the Sellers or by their relevant assignors with regards to the Products until the Closing Date, with explicit exclusion of the trademark Benetton and of all the connected trademarks and intellectual properties.Put Option means the option to sell that will be granted by the Purchaser to BSS on the Closing Date pursuant to the Lease Agreement, on the basis of which BSS shall have the right to sell, and in the event of the exercise of such option the Purchaser, or its designee, shall be under an obligation to buy - the Real Property.Liabilities means all the liabilities of the Business which the Parties will agree to transfer as part of the Business, the entity of which will be ascertained in accordance with Article 4 of this Framework Agreement. All other liabilities, whether connected or not with the Business up to the Closing Date, including, for example, but without limiting the generality of the foregoing, liabilities deriving from the Excluded Agreements or from agreements other than the Contracts, as well as tax, environmental, pension, employment liabilities or those deriving from litigation or infringements of the law, shall be expressly excluded.Losses means all costs, expenses, liabilities and losses suffered by the Transferees or the Sellers as a direct and exclusive result of breaches of the representations and warranties set out in Articles 10.1 and 10.2 hereafter with explicit exclusion of indirect damages and of missed profits.Interim Period means the period from the date this Framework Agreement is signed up to the Closing Date.Permits means all permits, licenses, authorisations and all other similar documents issued by any administrative authorities situated in any Jurisdiction, obtained by the Sellers in connection with the Business, which the Parties shall agree, insofar as allowed by the applicable laws, to transfer without consideration as part of the Business on the Closing Date.Price means the total resulting from the sum of the Fixed Component and Variable Component.Deferred Price means the portion of the Fixed Component, for an amount of Euro 26.500.000,00.Accounting Principles means the accounting principles applied by BSS, as the case may be, in the drawing up of its accounts as at December 31, 2002, as specified in and/or derogating from the accounting principles described in Schedule 10, the valuation criteria having been applied consistently (except where expressly otherwise provided).Products means all the products which display the Trademarks manufactured and sold in the context of the activity of the Business.Real Property means the land and buildings located in Bordentown, (USA), property of Sellers, as identified in the Schedule 11.Business means the totality of the going concern being transferred pursuant to this Framework Agreement, including the Assets, the Contracts, the Receivables, the Employees, the Intangible Assets, the Inventory, and the Liabilities, if any.Auditing Company means KPMG, of Milan, or Pricewaterhouse Coopers of Milan if the former fails to accept or has a conflict of interest or, if the latter company does not wish or cannot accept the mandate to audit, the leading Italian auditing company, independent from the Parties, as will be appointed within fifteen days from Pricewaterhouses refusal, jointly by the Parties, or if no agreement is reached by the Parties, by the President of the Court of Milan.Transferees means the Purchaser, and any of its subsidiaries or affiliates, whether existing or to be incorporated before the Closing Date, which shall be designated by the Purchaser to purchase part of the Business .Sellers means BSS, Benetton Sportsystem Schweiz AG, Benetton Sportsystem Taiwan Ltd and Benetton Far East Ltd.The expression as far as Benetton knows shall be referred to the actual knowledge of the Managing Director or of the management of Benetton, of such circumstances referred to by such expression, as shall be proved by the existence of written communications or confirmed by the involved parties; such circumstances as the Managing Director or the management ought to have known using due care shall also be considered to be known by Benetton, but those circumstances (provided that the same are not immaterial) which have not come to the knowledge of the Managing Director or of the management of Benetton as a result of negligence on the part of the American management of the Business shall be expressly excluded.2. OBJECT OF THE AGREEMENT1. At the terms and conditions described in this Framework Agreement, Benetton undertakes to procure, pursuant to the provisions of Article 1381 of the Italian Civil Code, that BSS and the other Sellers will sell the various elements comprising the Business to the Purchaser and to the Transferees and the Purchaser undertakes to purchase and to procure that, pursuant to the provisions of Article 1381 of the Italian Civil Code, the Transferees purchase the Business.2. The transfer of the Business will be perfected on the Closing Date in each Jurisdiction, with the Seller(s) and the relevant Transferee(s) execution of the Closing Agreements.3. The Closing Agreements have the sole function of allowing perfection of the transfer in the manner allowed under the applicable laws. The terms and conditions of this Framework Agreement shall apply, even if not replicated in the Closing Agreements, to any transfer carried out in any Jurisdiction and shall prevail on covenants possibly inconsistent contemplated in the Closing Agreements, even if they are entered into earlier. 4. Thus, any covenant of the Closing Agreements which is inconsistent with any of the provisions of this Framework Agreement shall not constitute an amendment of this Framework Agreement, unless it is so expressly provided in a written addendum signed by Benetton and the Purchaser. Therefore, in absence of such addendum, Benetton and the Purchaser, in the context of their relationship, agree not to apply - and to the extent possible to procure that the Sellers and the Transferees not apply - such inconsistent covenants (even if the same are mandatory pursuant to the relevant law), and agree in their relationship to apply - and procure that the Sellers and the Transferees involved apply in their stead - the covenants of this Framework Agreement. In the event the non-application of the inconsistent covenants between the Sellers and the Transferees is not allowed in some Jurisdictions, Benetton and the Purchaser shall make the necessary adjustments to reach the condition that would have existed if such inconsistent covenants had not been applied and the covenants of this Framework Agreement had been applied instead. 3. PAYMENT OF THE FIXED COMPONENT OF THE PRICE3.1 The Fixed Component shall be paid by the Purchaser to Benetton, also on behalf of the other Sellers, as part of the Closing transactions, as follows:1. For an amount Euro 10.000.000,00 on the Closing Date by wire transfer confirmed, with net value date, on the bank account that will be indicated by Benetton at least five days before the Closing Date;2. for the Deferred Price on 31 January 2004, by payment in favour of Benetton of the balance amount of the Escrow Account.2. In order to ensure the full and timely payment of the Deferred Price the Purchaser, on the Closing Date, shall credit in the Escrow Account an amount equal to the Deferred Price to be managed pursuant to the Irrevocable Instructions. 4. CALCULATION AND PAYMENT OF THE VARIABLE COMPONENT4.1 On the Closing Date Benetton and BSS will prepare a physical check of the Inventory and a list of Receivables and Liabilities, if any.4.2 In the following 15 working days Parties will meet to the end to proceed on mutual agreement to the ascertainment of the Inventory, the Receivables and the Liabilities, if any, keeping valid the evaluations (inclusive of the funds and reserves, if any, relating to the same) made in the respective financial statements on 31 December 2002 of BSS for the elements already existing on that date and the valuations thereof, applying the Accounting Principles to the elements of the Inventory, Receivables and Liabilities, if any, which came into existence after 1 January 2003.4.3 In the event Parties will not reach an agreement within the above deadline, the disputed issues only will be submitted to the Auditing Company on request of the more diligent party. The Auditing Company shall solve the dispute complying with what is contemplated in the Article 4.2 above, within the following thirty days and shall deliver copies of its findings to Benetton and the Purchaser. Except for material errors, the decision of the Auditing Company shall be final and not subject to appeal. The cost of services rendered by the Auditing Company shall be borne by the Party which will loses the dispute; for such purposes the losing Party shall be deemed to be the Party whose last offer prior to submission to the Auditing Company is further from the final decision on the matter of the relevant Auditing Company .4.4 Benetton at any time during the procedure of calculation of the Variable Component and for fifteen days following the completion of the same shall have the right to re-acquire from the Purchaser such items part of the Inventory or included in the list of such Receivables, which came into existence after 1 January 2003 being depreciated by the Auditing Company pursuant to Art. 4.3 here above in respect of the book value of the Sellers on Closing Date, for a price equal to that calculated pursuant the above paragraphs of this Article 4, to be paid to the Purchaser at the same time of re-acquisition in cash or, as the case may be, by cancellation of the corresponding payment obligation of the Purchaser. In such case the Purchaser shall have the right t