ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
Asset Purchase Agreement
On December 18, 2019, Genesco Brands NY, LLC, a Delaware limited liability company (“Purchaser”) and a wholly-owned subsidiary of Genesco Inc., a Tennessee corporation (the “Company”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Togast LLC, a Delaware limited liability company (“Togast”), Togast Direct, LLC, a New York limited liability company (“Togast Direct”), TGB Design, LLC, a New Jersey limited liability company (“TGB Design”), Quanzhou TGB Footwear Co. Ltd., an entity organized under the laws of China (“TGB China” and, together with Togast, Togast Direct and TGB Design, the “Sellers”), and Anthony LoConte (the “Unitholder”). Pursuant to the Purchase Agreement, subject to the satisfaction or waiver of certain conditions, Purchaser has agreed to purchase and acquire substantially all of the assets, and assume certain liabilities, of each Seller for an aggregate base purchase price of $33.7 million in cash at closing with an additional two-part earnout provision of up to an additional $17.0 million in cash following the Company’s fiscal 2022 and an additional $17.0 million in cash following the Company’s fiscal 2024, contingent upon the Sellers’ business achieving certain earnings targets over multi-year periods, plus a potential further payment following fiscal 2022 of 10% of earnings in excess of the earnings target (the “Transaction”). The Company has agreed to guarantee payment of any earnout consideration set forth above.
The Company’s Board of Directors has unanimously approved the Purchase Agreement and the Transaction. The closing of the Transaction is expected to be effective in January 2020, provided that the acquisition of the assets of TGB China is anticipated to occur in the first quarter of the Company’s fiscal 2021 following receipt of certain Chinese regulatory approvals, and in each case, following the satisfaction of closing conditions set forth in the Purchase Agreement. The transaction is expected to be accretive to next year’s earnings. TGB China and the Purchaser have agreed to enter into a transition services agreement pending the acquisition of the assets of TGB China.
The Purchase Agreement contains customary representations, warranties and covenants by each party. The consummation of the Transaction is subject to customary closing conditions, including, but not limited to, (i) the absence of certain legal impediments to the consummation of the Transaction, (ii) the accuracy of the representations and warranties of the parties, subject to materiality exceptions, and (iii) compliance by the parties with their respective obligations under the Purchase Agreement.
The Sellers, the Unitholder and the Purchaser have agreed to indemnify the other party(ies) for losses arising from certain breaches of representations, warranties and covenants of the parties and for certain other matters, subject to applicable limitations set forth in the Purchase Agreement.
The Purchase Agreement also contains certain termination rights for each of Purchaser and the Unitholder (on behalf of himself and the Sellers) subject to the conditions set forth in the Purchase Agreement.
A copy of the Purchase Agreement is attached as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein by reference. The foregoing summary of the Purchase Agreement and the Transaction does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Purchase Agreement.
The Purchase Agreement is not intended to modify or supplement any factual disclosures about the Company or its subsidiaries in the Company’s public reports filed with the Securities and Exchange Commission and is not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to the Company or its subsidiaries. In particular, the representations, warranties and covenants set forth in the Purchase Agreement (i) were made solely for purposes of the Transaction and solely for the benefit of the contracting parties (except with respect to the rights of specific third parties enumerated in the Purchase Agreement), (ii) may be subject to limitations agreed upon by the contracting parties, including certain disclosure schedules, (iii) are qualified in certain circumstances by a materiality standard which may differ from what may be viewed as material by investors, (iv) were made only as of the date(s) specified in the Purchase Agreement, and (v) may have
been included in the Purchase Agreement for the purpose of allocating risk between the parties rather than establishing matters as facts. Investors are not third-party beneficiaries under the Purchase Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions of the parties. Moreover, information concerning the subject matter of the representations and warranties may change after the dates of the Purchase Agreement.
Trademark License Agreement
On December 17, 2019, the Company entered into a Trademark License Agreement (the “License Agreement”) with Levi Strauss & Co. (“LS&Co.”) for the license of certain Levi’s® trademarks for footwear and the extension of the Dockers® trademarks for men’s footwear. Effectiveness of the License Agreement is conditioned on the closing of the Transaction. The territories included in the Levi’s® license are the United States and the Caribbean, provided that the Caribbean is only an included territory in the First Annual Period (as defined below). The territories included in the Dockers® license are the United States, Canada, Mexico, certain countries in Latin America and the Caribbean, provided that Mexico, Latin America and the Caribbean are only included territories in the First Annual Period. The initial term of the License Agreement with respect to the Levi’s® trademarks is through November 30, 2024 with one additional four year renewal term. The term of the License Agreement with respect to the Dockers® trademarks is through November 30, 2024.
Pursuant to the License Agreement, the Company has agreed to pay an annual guaranteed minimum royalty for the Levi’s® and Dockers® trademarks.
The Company may renew the License Agreement with respect to the Levi’s® trademarks for the renewal term discussed above if certain conditions are met including meeting certain minimum annual sales amounts and sales channel mix requirements. If the renewal conditions are met and the Company elects to renew the License Agreement, LS&Co. has the option to terminate the agreement at the end of the initial term and pay a buyout amount based on certain mutually agreed upon parameters to the Company to forego the renewal term.
Upon an event of default under the License Agreement which is not permitted to be cured or remains uncured following the applicable cure period, LS&Co. may, in addition to pursuing all other rights and remedies it may have, remove the exclusivity of the license granted pursuant to the License Agreement or terminate the License Agreement.
In the event that the Transaction is not consummated, the Company and LS&Co. have agreed to extend the current Dockers® license until February 28, 2020, at which point the license will terminate.