EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
Dated October 18, 2002
-----------------------------------------------
BETWEEN THE
INDIVIDUALS AND TRUSTS
SET FORTH IN SCHEDULE A
HERETO, AS SELLERS
AND
▇▇▇▇ INC, AS BUYER
------------------------------------------------
TABLE OF CONTENTS
1. Definitions
2. Sale and Transfer of Shares; Closing
2.1 Shares
2.2 Purchase Price
2.3 Closing
2.4 Closing Obligations
2.5 Adjustment Amount
3. Representations and Warranties of Sellers
3.1 Organization and Good Standing
3.2 Authority; No Conflict
3.3 Capitalization
3.4 Financial Statements
3.5 Books and Records
3.6 Title to Properties; Encumbrances
3.7 Condition and Sufficiency of Assets
3.8 Accounts Receivable
3.9 Inventory
3.10 No Undisclosed Liabilities
3.11 Taxes
3.12 No Material Adverse Change
3.13 Employee Benefits
3.14 Compliance with Legal Requirements; Governmental
Authorizations
3.15 Legal Proceedings; Orders
3.16 Absence of Certain Changes and Events
3.17 Contracts; No Defaults
3.18 Insurance
3.19 Environmental Matters
3.20 Employees
3.21 Labor Relations; Compliance
3.22 Intellectual Property
3.23 Certain Payments
3.24 Disclosure
3.25 Relationships with Related Persons
3.26 Brokers or Finders
i
4. Representations and Warranties of Buyer
4.1 Organization and Good Standing
4.2 Authority; No Conflict
4.3 Certain Proceedings
4.4 Brokers or Finders
5. Certain Covenants
5.1 Access and Investigation
5.2 Operating of the Businesses of the Company
5.3 Negative Covenant
5.4 Required Approvals
5.5 Notification
5.6 Payment of Indebtedness by Related Persons
5.7 No Negotiation
5.8 Actions Regarding Employee Benefits
6. Non-Competition and Non-Solicitation Covenants of Sellers
6.1 Non-Competition by the Sellers
6.2 No-Solicitation by the Sellers
6.3 Confidentiality
6.4 Relief
6.5 Non-Applicability of Section 11
6.6 Anti-Dumping; Countervailing Duty
7. Tax Matters
7.1 Taxes of Other Persons
7.2 Income Tax Returns for Period Through the Closing Date
7.3 Section 338(h)(10) Election
7.4 Other Tax Returns
7.5 Cooperation on Tax Matters
7.6 Certain Taxes
7.7 Allocation of Purchase Price
7.8 S Corporation Status
ii
8. Conditions Precedent to Buyer's Obligations to Close
8.1 Accuracy of Representations
8.2 Seller's Performance
8.3 Consents
8.4 Additional Documents
8.5 No Proceedings
8.6 No Claim Regarding Stock Ownership or Sale Proceeds
8.7 Regulatory Permits
8.8 Tax Clearance Certificate
8.9 Termination of Certain Other Agreements
8.10 Title Insurance
8.11 Repayment of Bank and Other Long Term Debt
8.12 Termination of Guarantees
8.13 Satisfaction of Obligations Under Stock Equivalent Plan
8.14 Anti-Dumping; Countervailing Duty
9. Conditions Precedent to Sellers' Obligations To Close
9.1 Accuracy of Representations
9.2 Buyer's Performance
9.3 Consent
9.4 Additional Documents
9.5 No Injunction
10. Termination
10.1 Termination Events
10.2 Effect of Termination
11. Indemnification Remedies
11.1 Survival; Right to Indemnification Not Affected by Knowledge
11.2 Indemnification and Payment of Damages by Sellers
11.3 Indemnification and Payment of Damages by Sellers--
Environmental Matters
11.4 Indemnification and Payment of Damages by Buyer
11.5 Time Limitations
11.6 Limitations on Amount--Sellers
11.7 Limitations on Amount--Buyer
11.8 Additional Limitation on Amount
11.9 Procedure for Indemnification--Third Party Claims
11.10 Procedure for Indemnification--Other Claims
iii
12. General Provisions
12.1 Expenses
12.2 Public Announcements
12.3 Designation of Sellers' Attorney in Fact and Notices
12.4 Arbitration
12.5 Further Assurances
12.6 Waiver
12.7 Entire Agreement and Modification
12.8 Disclosure Letter
12.9 Assignments; Successors, and No Third-Party Rights
12.10 Severability
12.11 Section Headings, Construction
12.12 Time of Essence
12.13 Governing Law
12.14 Counterparts
iv
EXHIBITS
Exhibit 2.4(a)(ii) Sellers Releases
Exhibit 2.4(a)(iii) Consulting Agreement - ▇▇▇▇▇ ▇. ▇▇▇▇▇
Exhibit 2.4(d) Escrow Agreement
Exhibit 8.4(a) Opinion of ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ PLLC
Exhibit 9.4(a) Opinion of Vorys, ▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇ LLP
Composite Exhibit 12.3 Power of Attorney designating ▇▇▇▇▇ ▇. ▇▇▇▇▇ attorney
in fact
v
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of October 18, 2002, by
▇▇▇▇ Inc, a Tennessee corporation ("Buyer"), and the individuals and trusts set
forth in Schedule "A" hereto, (collectively "Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the issued and
outstanding shares (the "Shares") of capital stock of Crystal Creative Products,
Inc., an Ohio corporation (the "Company"), for the consideration and on the
terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
"Adjustment Amount"--as defined in Section 2.5.
"Applicable Contract"--any Contract (a) under which the Company has or may
acquire any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"Balance Sheet"--as defined in Section 3.4.
"Best Efforts"--the efforts that a reasonably prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible.
"Breach"--a "Breach" of a representation, warranty, covenant, obligation, or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"Buyer"--as defined in the first paragraph of this Agreement.
"Closing"--as defined in Section 2.3.
"Closing Date"--the date and time as of which the Closing actually takes place.
1
"Company"--as defined in the Recitals of this Agreement.
"Company Plan" means all Plans of which the Company or an ERISA Affiliate of the
Company is or was a Plan Sponsor, or to which the Company or an ERISA Affiliate
of the Company otherwise contributes or has contributed, or in which the Company
or an ERISA Affiliate of the Company otherwise participates or has participated,
or for which the Company or an ERISA Affiliate of the Company otherwise has or
may have any liability, directly or indirectly, contingent, or otherwise,
including without limitation, all benefit obligations.
"Company VEBA" means a VEBA whose members include employees of the Company or
any ERISA Affiliate of the Company.
"Consent"--any approval, consent, ratification, waiver, or other authorization
(including any Governmental Authorization).
"Consulting Agreements" -- as defined in Sections 2.4 and 8.4 respectively.
"Contemplated Transactions"--all of the transactions contemplated by this
Agreement, including by way of illustration and not of limitation:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution and delivery of the Employment Agreements, the
Consulting Agreements, the Supply Agreement, the Sellers' Releases, and the
Escrow Agreement;
(c) the performance by Buyer and Sellers of their respective covenants
and obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and exercise of
control over the Company.
"Contract"--any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"CTC"--The Crystal Tissue Company, an Ohio corporation
"Damages"--as defined in Section 11.2.
"Disclosure Letter"--the disclosure letter delivered by Sellers to Buyer
concurrently with the execution and delivery of this Agreement.
"Employment Agreements" -- as defined in Section 8.4.
2
"Encumbrance"--any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"Environment"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities"--any cost, damages, expense
(including reasonable attorneys' and consultants' fees), liability, obligation,
or other responsibility arising from or under Environmental Law or Occupational
Safety and Health Law and consisting of or relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products) and including costs and
expenses relating to the investigation of the same;
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or response
actions ("Cleanup") as may be required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures that may be required under Environmental Law or Occupational Safety and
Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended
("CERCLA").
"Environmental Law"--any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
3
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"ERISA Affiliate" means, with respect to the Company, any other person that,
together with the Company, would be treated as a single employer under the IRC
Section 414 or Section 4001 of ERISA and any general partnership of which the
Company is or has been a general partner.
"Escrow Agreement" -- as defined in Section 2.4.
"Facilities"--any real property, leaseholds, or other interests currently or
formerly owned or operated by the Company and any buildings, plants, structures,
or equipment (including motor vehicles, tank cars, and rolling stock) currently
or formerly owned or operated by the Company.
"401(k) Plan"--The Crystal 401(k) Plan.
"GAAP"--generally accepted United States accounting principles, applied on a
basis consistent with the basis on which the Balance Sheet and the other audited
financial statements referred to in Section 3.4 (a) were prepared.
"Governmental Authorization"--any approval, consent, license, permit, waiver, or
other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"Governmental Body"--any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
▇
(▇) ▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"Hazardous Activity"--the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Company.
"Hazardous Materials"--any waste or other substance that is listed, defined,
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Holdback Amount" -as defined in Section 2.4.
"Indemnified Persons" --as defined in Section 11.2.
"Intellectual Property Assets" --as defined in Section 3.22.
"Interim Balance Sheet"--as defined in Section 3.4.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
to the extent relevant, the United States Department of the Treasury.
"Knowledge"--"Knowledge" of a particular fact or other matter means that any of
the Sellers or as to the Company any of ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ Eve, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
(a) is actually aware of such fact or other matter; or
5
(b) could be expected to discover or otherwise become aware of such
fact or other matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter.
"Legal Requirement"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Maysville Retirement Plan"--The Crystal Tissue Company Employees Retirement
Plan (Maysville Kentucky)
"Multi-Employer Plan" has the meaning given in ERISA Section 3(37)(A).
"Non-Competition Agreements -- as defined in Section 2.4.
"Occupational Safety and Health Law"--any Legal Requirement designed to provide
safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order"--any award, decision, injunction, judgment, order, ruling, subpoena, or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"Ordinary Course of Business"--an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of such
Person; and
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority) and is not required to be specifically authorized by the
parent company (if any) of such Person.
"Organizational Documents"--(a) the articles or certificate of incorporation and
the bylaws or code of regulations of a corporation; (b) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person; and (c) any amendment to any of the foregoing.
"PBCG" means the Pension Benefit Guaranty Corporation, or any successor thereto.
"Pension Plan" means any Company Plan that is a defined benefit pension plan or
that is otherwise subject to Section 412 of the IRC or Title IV of ERISA.
6
"Person"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"Plan" means (i) any pension plan, 401(k) plan, profit-sharing plan, health or
welfare plan, or any other employee benefit plan (within the meaning of Section
3(3) of ERISA), and (ii) any other benefit arrangement, obligation, or practice,
whether or not legally enforceable, to provide benefits other than salary, as
compensation for services rendered, to one or more present or former employees,
directors, agents, or independent contractors, including, without limitation,
employment agreements, severance policies or agreements, executive compensation
arrangements, incentive arrangements VEBAs, sick leave, vacation pay, salary
continuation, consulting or other compensation arrangements, workers'
compensation, bonus plans, stock option, stock grant or stock purchase plans,
medical insurance, life insurance, tuition reimbursement or scholarship
programs, any plans subject to Section 125 of the IRC and any plans providing
benefits or payments in the event of a change of ownership or control."
"Plan Sponsor" has the meaning given in ERISA Section 3(16)(B).
"Proceeding"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Qualified Plan" means any Plan that meets or purports to meet the requirements
of IRC Section 401(a).
"Related Person"--with respect to a particular individual:
(a) each of such individual's parent, spouse, children and siblings;
(b) any Person that is directly or indirectly controlled by such
individual or by one or more of such individual's parents, spouse, children or
siblings; and
(c) any Person with respect to which such individual or one or more of
such individual's parents, spouse, children or siblings serves as a director,
officer, agent, representative, partner, executor, or trustee (or in a similar
capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
(b) each Person that serves as a director, officer, employee, agent,
representative partner, executor, or trustee of such specified Person (or in a
similar capacity); and
(c) each beneficiary of a Person that is a Trust.
7
"Release"--any spilling, leaking, emitting, discharging, depositing, escaping,
leaching, dumping, or other releasing into the Environment, whether intentional
or unintentional.
"Representative"--with respect to a particular Person, any director, officer,
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
"Salaried Pension Plan"--The Crystal Tissue Company Salaried Employees Pension
Plan.
"Securities Act"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Sellers"--as defined in the first paragraph of this Agreement.
"Sellers' Releases"--as defined in Section 2.4.
"Shares"--as defined in the Recitals of this Agreement.
"Supply Agreement"--as described in Section 8.4.
"Tax Return"--any return (including any information return), report, statement,
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any tax
or in connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any tax.
"Threat of Release"--a substantial likelihood of a Release that may require
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"Threatened"--a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"VEBA" means a voluntary employees' beneficiary association under IRC Section
501(c)(9).
"Welfare Plan" has the meaning given in ERISA Section 3(I).
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing, Sellers
will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares
from Sellers.
8
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be $24,250,000
less the sum of amounts (i) payable on the Closing Date to the participants in
the Company's Stock Equivalent Plan, (ii) the sum of $200,000 payable to
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ pursuant to the Company's letter of understanding dated May 9,
2002, as amended, (iii) the sum of $139,000 payable by the Company as bonuses on
the Closing Date in connection with termination of the Company's Key Person
Incentive Plan, and (iv) the amount of any payroll and employment taxes payable
by the Company with respect to the amounts described in clauses (i) through
(iii) (the "Preliminary Purchase Price") less the Adjustment Amount, if any.
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will take
place at the offices of CSS Industries, Inc. ("CSS"), ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ at 10:00 a.m. (local time) on October 18, 2002 or on the
business day thereafter immediately following satisfaction or waiver of all the
conditions set forth in Sections 8 and 9 of this Agreement. The Closing shall be
effective as of 12:01 a.m. on the Closing Date. Subject to the provisions of
Section 10, failure to consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined pursuant to this
Section 2.3 will not result in any termination of this Agreement and not relieve
any party of any of its obligations under this Agreement.
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or accompanied
by duly executed stock powers), with signatures guaranteed by a commercial bank
or by a member firm of the New York Stock Exchange, for transfer to Buyer;
(ii) releases in the form of Exhibit 2.4(a)(ii) executed by Sellers
(collectively, "Sellers' Releases");
(iii) a consulting agreement in the form of Exhibit 2.4 (a) (iii)
executed by ▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "Consulting Agreement"); and
(b) Buyer will deliver to Sellers:
(i) the Preliminary Purchase Price less the sum to be delivered to the
escrow agent as provided in Section 2.4 (b) (ii) and less the retention by the
Buyer of $1,658,841 ("Holdback Amount"), by wire transfer of immediately
available funds in amounts and to accounts specified by the Sellers pursuant to
written wire transfer instructions delivered to the Buyer at least one (1)
business day prior to the Closing Date;
9
(ii) the sum of $2,650,000 to be paid to the Escrow Agent designated in
the Escrow Agreement referred to in Section 2.4(d) by wire transfer of
immediately available funds pursuant to wire transfer instructions delivered to
the Buyer by the Escrow Agent at least one business day prior to the Closing
Date.
(c) Buyer will retain the Holdback Amount until dispersed in accordance
with Section 2.5 (c).
(d) Buyer and Sellers will enter into an escrow agreement with State
Street Bank & Trust Company, N. A., as the Escrow Agent, in the form of Exhibit
2.4(d) (the "Escrow Agreement").
2.5 ADJUSTMENT AMOUNT
(a) Prior to the Closing, the Company shall engage KPMG LLP ("KPMG"),
with the expense shared equally between the Sellers and the Buyer, to perform an
audit of the Company's balance sheet prepared by the Company as of September 30,
2002. In order to complete such an audit, the Sellers, Buyer and the Company
shall cooperate with each other, including, without limitation, making available
and providing reasonable access to the premises, books and records and employees
of the Company. Following the completion of such audit, which the parties
thereto shall cause the Company to use its Best Efforts to complete within
forty-five (45) calendar days after the Closing Date, the Company shall deliver
to the Sellers and the Buyer (i) a true and complete copy of the balance sheet
as of September 30, 2002 and reflecting all audit adjustments which KPMG deems
appropriate to present the financial condition of the Company in accordance with
GAAP as of September 30, 2002 (the "Closing Balance Sheet"), and (ii) a schedule
computing the Adjustment Amount (as defined in Section 2.5(b)) based upon the
Closing Balance Sheet. The Company shall permit the Sellers and the Buyer to
review all work papers and computations used by KPMG in auditing the Closing
Balance Sheet and preparing the schedule computing the Adjustment Amount. Within
fifteen (15) calendar days following the date of delivery of such Closing
Balance Sheet to the Sellers and the Buyer, the Sellers and the Buyer shall
either accept the Closing Balance Sheet and the Adjustment Amount based thereon
(which acceptance shall effect a "Final Determination", as hereinafter defined)
or propose adjustments thereto. In the event the Buyer and the Sellers fail to
agree on all of the adjustments proposed within ten (10) Business Days
thereafter, the parties shall request Ernst & Young LLP or, in the event that
such firm is unavailable to accept this assignment, such other recognized firm
of auditors as the parties mutually agree (the "Final Auditor") to prepare and
deliver to the Buyer and the Sellers a final determination of the Adjustment
Amount (the "Final Determination") adjusting only items in dispute between the
Buyer and the Sellers, which Final Determination shall be binding upon the Buyer
and the Sellers. The services of the Final Auditor shall be paid for equally by
the Buyer and the Sellers unless the Final Auditor resolves all disputed items
in favor of one party, in which case all fees and expenses of the Final Auditor
shall be paid by the other party.
10
(b) Upon a Final Determination, the Preliminary Purchase Price shall be
reduced dollar for dollar by an amount equal to the Adjustment Amount. To
determine the Adjustment Amount, the Closing Balance Sheet shall be adjusted to
give effect to the accounting methodologies, practices and adjustments set forth
in Part 2.5(b) of the Disclosure Letter. The "Adjustment Amount" means the
amount by which $15,500,000 exceeds the net shareholders' equity reflected in
the Closing Balance Sheet as adjusted to give effect to the accounting
methodologies, practices and adjustments set forth in Part 2.5(b) of the
Disclosure Letter, upon a Final Determination or zero, whichever is greater.
(c) On the tenth (10th) business day following the date of the Final
Determination: (i) if the Adjustment Amount exceeds the Holdback Amount, Sellers
will pay the difference to Buyer and the Holdback Amount will be retained by the
Buyer for its own account, and, (ii) if the Holdback Amount exceeds the
Adjustment Amount, the Buyer will pay the difference to Sellers and the
remaining balance of the Holdback Amount, if any, will be retained by the Buyer
for its own account. Such payment of any difference will be made together with
interest thereon at a per annum rate equal to the rate of return actually earned
on the funds held pursuant to the Escrow Agreement during such period compounded
daily beginning on the Closing Date and ending on the date of payment. Any such
payments must be made by immediately available funds by wire transfer to such
bank accounts as Buyer or Sellers, as the case may be, shall specify by delivery
of written wire transfer instructions to Buyer's counsel or Sellers' counsel.
(d) In the event that an adjustment to the Preliminary Purchase Price
is required pursuant to Section 2.5(b) above and the Sellers fail to deliver the
amounts required to be delivered by such Section when due, then the Buyer may,
in its sole and absolute discretion, withdraw the amount due from the funds held
pursuant to the Escrow Agreement; provided, however, that so long as the Buyer
has not elected to withdraw such amounts from funds held pursuant to the Escrow
Agreement, the Buyer shall be entitled to seek payment of such amounts directly
from the Sellers, and provided further that if the Buyer does withdraw such
amounts from the Escrow Agreement, the Sellers shall be required to replenish
the Escrow Amount (as defined in the Escrow Agreement) by depositing an
equivalent amount with the Escrow Agent (as defined in the Escrow Agreement)
within five (5) Business Days of a request from the Buyer.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) Part 3.1 of the Disclosure Letter contains a complete and accurate
list of the Company's jurisdiction of incorporation, other jurisdictions in
which it is authorized to do business, and its capitalization (including the
identity of each shareholder and the number of shares held by each). The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of its jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under Applicable Contracts. Except as set forth in Part 3.1 of the
Disclosure Letter, the Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification.
11
(b) Sellers have delivered to Buyer copies of the Organizational
Documents of the Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation
of Sellers, enforceable against Sellers in accordance with its terms. Upon the
execution and delivery by Sellers of the Escrow Agreement and the Sellers'
Releases, and the execution and delivery by a Seller, ▇▇▇▇▇ ▇. ▇▇▇▇▇, pursuant
to Section 2.4 of this Agreement of the Consulting Agreement, and the execution
and delivery by CTC of the Supply Agreement referred to in Section 8.4 of this
Agreement (collectively, the "Sellers' Closing Documents"), the Sellers' Closing
Documents will constitute the legal, valid, and binding obligations of Sellers
or CTC, as the case may be, enforceable against the respective parties thereto
in accordance with their respective terms. Sellers have the absolute and
unrestricted right, power, authority, and capacity to execute and deliver this
Agreement and those of the Sellers' Closing Documents to which they are parties
and to perform their obligations under this Agreement and under those of the
Sellers' Closing Documents to which they are parties.
(b) Except as set forth in Part 3.2 of the Disclosure Letter, neither
the execution and delivery of this Agreement nor the consummation or performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company, or (B) any resolution
adopted by the board of directors or the stockholders of the Company;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person (other than a party to the Employment
Agreements) the right to challenge any of the Contemplated Transactions (other
than challenges to the Employment Agreements by the parties thereto) or to
exercise any remedy or obtain any relief under, any Legal Requirement or any
Order to which the Company or any of the Sellers, or any of the assets owned or
used by the Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the business of, or any
of the assets owned or used by, the Company;
(iv) cause the Company to become subject to, or to become liable for
the payment of, any tax;
(v) cause any of the assets owned by the Company to be reassessed or
revalued by any taxing authority or other Governmental Body;
12
(vi) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by the Company.
Except as set forth in Part 3.2 of the Disclosure Letter, no Seller or the
Company is or will be required to give any notice to or obtain any Consent from
any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the Contemplated Transactions.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 125,000 shares of
common stock, no par value, of which 104,477 shares are issued and outstanding
and constitute the Shares. Except as set forth on Part 3.3 of the Disclosure
Letter, Sellers are and will be on the Closing Date the record and beneficial
owners and holders of the Shares, free and clear of all Encumbrances. The
respective number of Shares owned by each Seller is set forth on Schedule "A"
hereto, the provisions of which are incorporated by reference herein. Except as
set forth on Part 3.3 of the Disclosure Letter, no legend or other reference to
any purported Encumbrance appears upon any certificate representing equity
securities of the Company. All of the outstanding equity securities of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in Part 3.3 of the Disclosure Letter, there
are no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of the Company. None of the outstanding equity
securities or other securities of the Company was issued in violation of the
Securities Act or any other Legal Requirement. The Company does not own or have
any Contract to acquire, any equity securities or other securities of any Person
or any direct or indirect equity or ownership interest in any other business.
Part 3.3 of the Disclosure Letter sets forth a complete and accurate list of all
participants in the Company's Stock Equivalent Plan, together with the number of
Stock Incentive Units awarded to each such Participant and (ii) all participants
in the Company's 2002 Key Person Incentive Plan.
3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer: (a) balance sheets of the Company as of
December 31 in each of the years 1998 through 2000 (including the notes
thereto), and the related statements of income, changes in shareholders' equity,
and cash flow for each of the fiscal years then ended, together with the report
thereon of Deloitte & Touche LLP, independent certified public accountants
("DT"), (b) a balance sheet of the Company as of December 31, 2001 (including
the notes thereto, the "Balance Sheet") and the related statement of income,
changes in Shareholders' equity, and cash flow for the fiscal year then ended,
together with the report thereon of DT, (c) an unaudited balance sheet of the
Company as of August 31, 2002 (the "Interim Balance Sheet") and the related
unaudited statements of income, changes in shareholders' equity, and cash flow
for the eight months then ended, (d) unaudited balance sheets of the Company as
of March 31, 2002, April 30, 2002, May 31, 2002, June 30, 2002 and July 31, 2002
and the related unaudited statements of income, change in shareholders' equity
and cash flow for the respective three, four, five, six and seven months then
ended. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in shareholders' equity, and
cash flow of the Company as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP, subject,
in the case of interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be
materially adverse), the absence of notes that, if presented, would not differ
materially from those included in the Balance Sheet, and the matters described
in Part 3.4 of the Disclosure Letter. The financial statements referred to in
this Section 3.4 reflect the consistent application of such accounting
principles throughout the periods involved. No financial statements of any
Person other than the Company is required by GAAP to be included in the
financial statements of the Company.
13
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other records of the
Company, all of which have been made available to Buyer, are complete and
correct and have been maintained in accordance with sound business practices and
satisfy the requirements of Section 13(b)(2) of the Securities Exchange Act of
1934, as amended (regardless of whether or not the Company is subject to that
Section), including the maintenance of an adequate system of internal controls.
The minute books of the Company contain accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the Boards of
Directors, and committees of the Boards of Directors of the Company, and no
meeting of any such stockholders, Board of Directors, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books. At the Closing, all of those books and records will be in the possession
of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Part 3.6 of the Disclosure Letter contains a complete and accurate list of all
real property, leaseholds, or other interests therein owned by the Company.
Sellers have delivered or made available to Buyer copies of the deeds and other
instruments (as recorded, if applicable) by which the Company acquired such real
property and interests, and copies of all title insurance policies, opinions,
abstracts, surveys, engineering reports or studies and environmental reports or
studies in the possession of Sellers or the Company relating to such property or
interests. The Company owns (with good and marketable title in the case of real
property, subject only to the matters permitted by the following sentence) all
the properties and assets (whether real, personal, or mixed and whether tangible
or intangible) that it purports to own, including without limitation (but
subject to the exceptions set forth in Part 3.6 of the Disclosure Letter) all
properties and assets located at the Facilities and those properties and assets
reflected as owned in the books and records of the Company, including all of the
properties and assets reflected the Interim Balance Sheet (except for assets
held under capitalized leases disclosed or not required to be disclosed in Part
3.6 of the Disclosure Letter and personal property sold since the date of the
Interim Balance Sheet, as the case may be, in the Ordinary Course of Business),
and all of the properties and assets purchased or otherwise acquired by the
Company since the date of the Balance Sheet (except for personal property
acquired and sold since the date of the Balance Sheet in the Ordinary Course of
Business, which subsequently purchased or acquired properties and assets (other
than inventory and short-term investments) are listed in Part 3.6 of the
Disclosure Letter. All properties and assets reflected in the Interim Balance
Sheet are free and clear of all Encumbrances and are not, in the case of real
property, subject to any rights of way, building use restrictions, exceptions,
variances, reservations, or limitations of any nature except, with respect to
all such properties and assets, (a) mortgages or security interests shown on the
Interim Balance Sheet as securing specified liabilities or obligations, with
respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date of
the Interim Balance Sheet (such mortgages and security interests being limited
to the property or assets so acquired), with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a default)
exists, (c) liens for current taxes not yet due, (d) with respect to real
property, (i) minor imperfections of title, if any, none of which is substantial
in amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of the Company, and (ii) zoning laws
and other land use restrictions that do not impair the present or anticipated
use of the property subject thereto, and (e) as described in Part 3.6 of the
Disclosure Letter. Except as set forth on Part 3.6 of the Disclosure Letter, all
buildings, plants, and structures owned by the Company lie wholly within the
boundaries of the real property owned by the Company and do not encroach upon
the property of, or otherwise conflict with the property rights of, any other
Person.
14
To the extent that any tangible assets owned or utilized by the Company are not
located in the Facilities, a description of such assets and the location thereof
is set forth in Part 3.6 of the Disclosure Letter.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
Except as set forth in Part 3.7 of the Disclosure Letter, the buildings, plants,
structures, and equipment of the Company are structurally sound, are in good
operating condition and repair, and are adequate for the uses to which they are
being put, and none of such buildings, plants, structures, or equipment is in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs. The building, plants, structures, and equipment of the Company are
sufficient for the continued conduct of the Company's business after the Closing
in substantially the same manner as conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Company that are reflected on the Balance Sheet
or the Interim Balance Sheet or on the accounting records of the Company as of
the Closing Date (collectively the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. The Accounts Receivable
as of the Closing Date will be collectible net of reserves shown on the Closing
Balance Sheet (which reserves are adequate and calculated consistent with past
practice and, will not represent a greater percentage of the Accounts Receivable
as of the Closing Date than the reserve reflected in the Interim Balance Sheet
represented of the Accounts Receivable reflected therein and will not represent
a material adverse change in the composition of such Accounts Receivable in
terms of aging). Subject to such reserves, each of the Accounts Receivable
either has been or will be collected in full, without any set-off, within one
hundred twenty (120) days following the Closing Date provided that the Company
uses its Best Efforts to collect such Accounts Receivable during such period.
Except as set forth in Part 3.8 of the Disclosure Letter, there is no contest,
claim, or right of set-off, other than returns and customer claims for
adjustment in the Ordinary Course of Business, under any Contract with any
obligor of Accounts Receivable relating to the amount or validity of such
Accounts Receivable. Part 3.8 of the Disclosure Letter contains a complete and
accurate list of all Accounts Receivable as of the date of the Interim Balance
Sheet, which list sets forth the aging of such Accounts Receivable.
15
3.9 INVENTORY
Except as set forth in Part 3.9 of the Disclosure Letter:
(a) all inventory of the Company, whether or not reflected in the
Balance Sheet or the Interim Balance Sheet, consists of a quality and quantity
usable and salable in the Ordinary Course of Business, except for obsolete items
and items of below-standard quality, all of which have been reserved to net
realizable value in the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date, as the case may be;
(b) all inventories not written off have been priced at the lower of
cost or market on a last in, first out basis; and
(c) the quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable in the
present circumstances of the Company.
3.10 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 3.10 of the Disclosure Letter, the Company has no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Interim Balance Sheet and
current liabilities incurred in the Ordinary Course of Business since the date
thereof.
3.11 TAXES
Except as set forth in Part 3.11 of the Disclosure Letter:
(a) The Company has filed or caused to be filed all Tax Returns that
are or were required to be filed by the Company, either separately or as a
member of a group of corporations, pursuant to applicable Legal Requirements.
Sellers have delivered to Buyer copies of, and Part 3.11 of the Disclosure
Letter contains a complete and accurate list of, all such Tax Returns filed
since December 31, 1998. The Sellers have filed or caused to be filed all Tax
Returns that are or were required to be filed by or with respect to each of them
pursuant to applicable Legal Requirements to the extent the same relate to their
interest in the Company. The Sellers and the Company have paid, or made
provision for the payment of, all taxes that have or may have become due
pursuant to the aforementioned Tax Returns or otherwise, or pursuant to any
assessment received by Sellers or the Company, except such taxes, if any, as are
listed in Part 3.11 of the Disclosure Letter and are being contested in good
faith and as to which adequate reserves (determined in accordance with GAAP)
have been provided in the Balance Sheet and the Interim Balance Sheet.
16
(b) The United States federal and state income Tax Returns of each
Seller and the Company subject to such taxes have been audited by the IRS or
relevant state tax authorities or are closed by the applicable statute of
limitations for all taxable years through December 31, 1998. Part 3.11 of the
Disclosure Letter contains a complete and accurate list of all audits of all
such Tax Returns, including a reasonably detailed description of the nature and
outcome of each audit. All deficiencies proposed as a result of such audits have
been paid, reserved against, settled, or, as described in Part 3.11 of the
Disclosure Letter, are being contested in good faith by appropriate proceedings.
Part 3.11 of the Disclosure Letter describes all adjustments to the United
States federal income Tax Returns filed by any Seller or the Company or any
group of corporations including the Company for all taxable years since December
31, 1998, and the resulting deficiencies proposed by the IRS. No Seller or the
Company has given or been requested to give waivers or extensions (or is or
would be subject to a waiver or extension given by any other Person) of any
statute of limitations relating to the payment of taxes of the Company or for
which the Company may be liable.
(c) The charges, accruals, and reserves with respect to taxes on the
books of the Company are adequate (determined in accordance with GAAP) and are
at least equal to the Company's liability for taxes. There exists no proposed
tax assessment against the Company except as disclosed in the Balance Sheet. No
consent to the application of Section 341(f)(2) of the IRC has been filed with
respect to any property or assets held, acquired, or to be acquired by the
Company. All taxes that the Company is or was required by Legal Requirements to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis)
the Company are true, correct, and complete. There is no tax sharing agreement
that will require any payment by the Company after the date of this Agreement.
(e) The Company has, since January 1, 1997, duly and properly filed an
election to be treated as an S corporation within the meaning of Section 1361 of
the IRC and any comparable provisions of state and local law and the Company
will be an S corporation up to the Closing Date and, except for the termination
of the S corporation election caused by this transaction, would be an S
corporation through the Closing Date.
3.12 NO MATERIAL ADVERSE CHANGE
Except as set forth in Part 3.12 of the Disclosure Letter, since the date of the
Balance Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of the Company, and no
event has occurred or circumstance exists that may result in such a material
adverse change.
17
3.13 EMPLOYEE BENEFITS
(a) [Intentionally omitted]
(b) Except as set forth in Part 3.13(I) and (II) of the Disclosure
Letter:
(i) Part 3.13(I) of the Disclosure Letter contains a complete and
accurate list of all Company Plans, and identifies each Company Plan that is a
Qualified Plan and each Company Plan that is a Pension Plan.
(ii) Part 3.13(II) of the Disclosure Letter contains a complete and
accurate list of (A) all ERISA Affiliates of the Company, and (B) all Plans of
which any such ERISA Affiliate is or was a Plan Sponsor, in which any such ERISA
Affiliate participates or has participated, or to which any such ERISA Affiliate
contributes or has contributed or for which any such ERISA Affiliate otherwise
has or may have any liability, direct or indirect, contingent, or otherwise.
(iii) Part 3.13(III) of the Disclosure Letter sets forth, for each
Multi-Employer Plan, as of its last valuation date, the amount of potential
withdrawal liability of the Company and the Company's other ERISA Affiliates,
calculated according to information made available pursuant to ERISA Section
4221(e).
(iv) Part 3.13(IV) of the Disclosure Letter sets forth a calculation of
the liability of the Company for post-retirement benefits other than pensions,
made in accordance with Financial Accounting Statement 106 of the Financial
Accounting Standards Board, regardless of whether the Company is required by
this Statement to disclose such information.
(v) Part 3.13(V) of the Disclosure Letter identifies each obligation
owed by the Company under each Company Plan as of the Closing Date, and sets
forth the financial cost of each such obligation, to the extent quantifiable.
(c) Except as set forth in Part 3.13(VI) of the Disclosure Letter, and
except with respect to Company Plans or agreements that apply exclusively to
employees or former employees of CTC and their beneficiaries, Sellers have
delivered to Buyer:
(i) (A) all documents constituting the Company Plans, including but not
limited to, trust agreements, insurance policies, service agreements, and formal
and informal amendments relating thereto, (B) the most recent summary plan
descriptions and any amendments or modifications thereof with respect to each
Company Plan, (C) all summaries and descriptions furnished to employees, former
employees, beneficiaries, or dependents regarding Company Plans for which a
summary plan description is not required, (D) written descriptions of all
non-written agreements relating to the Company Plans, and (E) to the Knowledge
of Sellers and the Company, all memoranda, minutes, resolutions, and similar
documents describing the manner in which each Company Plan is or has been
administered or describing corrections to the administration of a Company Plan;
18
(ii) all personnel, payroll, and employment manuals and policies;
(iii) all collective bargaining agreements pursuant to which
contributions have been made or obligations incurred (including both pension and
welfare benefits) by the Company and the ERISA Affiliates of the Company, and
all collective bargaining agreements pursuant to which contributions are being
made or obligations are owed by such entities;
(iv) a written description of any Company Plan or Company Other Benefit
Obligation that is not otherwise in writing;
(v) all registration statements filed with respect to any Company Plan;
(vi) all insurance policies purchased by or to provide benefits under
any Company Plan;
(vii) all contracts with third party administrators, actuaries,
investment managers, consultants, and other independent contractors that relate
to any Company Plan, Company Other Benefit Obligation, or Company VEBA;
(viii) all reports submitted within the four years preceding the date
of this Agreement by third party administrators, actuaries, investment managers,
consultants, or other independent contractors with respect to any Company Plan,
Company Other Benefit Obligation, or Company VEBA;
(ix) the format for notifying medical plan service providers of COBRA
qualifying events under ERISA Section 601 et seq. and IRC Section 4980B;
(x) the Form 5500 filed in each of the most recent three plan years
with respect to each Company Plan, including all schedules thereto and the
opinions of independent accountants;
(xi) all notices that were either given by the Company to, or issued to
the Company by the IRS, U. S Department of Labor, PBGC, or any other
governmental entity with respect to a Company Plan, within the past six (6)
years;
(xii) all notices that were given by the IRS, the PBGC, or the
Department of Labor to the Company, any ERISA Affiliate of the Company, or any
Company Plan within the six (6) years preceding the date of this Agreement;
(xiii) with respect to Qualified Plans, the most recent determination
letter for each Plan of the Company that is a Qualified Plan; and
(xiv) with respect to Pension Plans, the Form PBGC-1 filed for each of
the two most recent plan years.
19
(xv) a list of each participant in each Company Plan who is or was an
employee of the Company, including those individuals who became former employees
of the Company at the time it was a division of CTC. Such list includes all
former participants in each Company Plan who retired from the creative division
of CTC prior to 1997, who would have become employees of the Company upon its
creation in 1997, but for their prior retirement.
(d) Except as set forth in Part 3.13(vi) of the Disclosure Letter:
(i) The Company has performed all of its respective obligations under
all Company Plans and Company VEBAs. The Company has made appropriate entries in
their financial records and statements for all obligations and liabilities under
such Plans.
(ii) The Company has made no plan or commitment, whether or not legally
binding, to create any Company Plan or, except as provided by Buyer or as
otherwise agreed herein, to modify or change any existing Company Plan. To the
Knowledge of Sellers and the Company, no statement, either written or oral, has
been made by the Sellers, the Company, an ERISA Affiliate, or any representative
of such persons, to any person with regard to any Company Plan that was not in
accordance with the Company Plan and that could have an adverse economic
consequence to the Company. Any or all Company Plans assumed by the Buyer in
accordance with this Agreement, or any part thereof, may be terminated without
penalty by the Buyer at any time on or after Closing.
(iii) Each Company Plan is in compliance with ERISA, the IRC, and all
other applicable Laws, including, but not limited to the Laws expressly
referenced below, in all material respects.
(A) The Company has never maintained or contributed to any
other Plan intended to be qualified under Section 401(a) of the IRC other than
the Qualified Plans identified on Part 3.13(i) of the Disclosure Letter. Each
Qualified Plan has been determined by the IRS to be qualified under section
401(a) of the IRC and exempt from tax under section 501(a) of the IRC, and each
such determination remains in effect and has not been revoked. Nothing has
occurred with respect to the design or operation of any Qualified Plan that
could cause the loss of such qualification or exemption or the imposition of any
liability, lien, penalty, or tax under ERISA or the IRC, and the Qualified Plans
have been timely amended to comply with current law.
(B) The Company has no liability with respect to any benefit
plan or arrangement other than the Company Plans. All Company Plans conform (and
have at all times conformed) to the requirements of ERISA, the IRC, and all
other applicable laws, in all material respects. Each Company Plan has been
maintained, in all material respects, in accordance with its documents and with
all applicable provisions of the IRC, ERISA and all other applicable laws,
including, but not limited to, federal and state securities laws.
(C) With respect to each Company Plan, there has occurred no
"prohibited transaction" (with the meaning of Section 4975 of the IRC or Section
406 of ERISA), or breach of any fiduciary duty described in Section 404 of ERISA
that could, if successful, result in any liability, direct or indirect, for the
Company or any shareholder, officer, director, or employee of the Company.
20
(D) The Company has not incurred any liability for any excise,
income or other taxes or penalties with respect to any Company Plan, and no
event has occurred and no circumstance exists or has existed that could give
rise to any such liability. There are no pending or threatened claims by or on
behalf of any Company Plan, or by or on behalf of any participant, beneficiary,
or dependent under any Company Plan or other person, alleging any breach of
fiduciary duty on the part of the Company or any of its officers, directors, or
employees under ERISA or any applicable law, or claiming benefit payments other
than those made in the ordinary operation of such plans, nor to the Knowledge of
Sellers or the Company, is there any basis for any such claim. No Company Plan
is presently under audit or examination nor has notice been received of a
potential audit or examination by the IRS, the Department of Labor, or any other
governmental entity, no matters are pending with respect to any Company Plan
under any IRS program. With respect to any such prior audits or examinations,
all matters were resolved in favor of the Company and the Company has no
obligation of any kind outstanding to the governmental entity that conducted
such audit or examination.
(E) All reporting, disclosure and notice requirements of
ERISA, the IRC, and all other applicable laws have been fully and completely
satisfied, in all material respects, with respect to each Company Plan.
(F) The Company has paid all amounts that the Company is
required to pay as contributions to the Company Plans as of the last day of the
most recent fiscal year of each of the Plans; all benefits accrued under any
funded or unfunded Company Plan will have been paid, accrued, or otherwise
adequately reserved in accordance with GAAP as of the date of the Balance Sheet;
all monies withheld from employee paychecks with respect to the Company Plans
have been transferred to the appropriate Plan in a timely manner as required by
applicable law; and all contributions and payments made or accrued with respect
to each Company Plan are deductible in accordance with section 162 or section
404 of the IRC. No amount, or any asset of any Company Plan is subject to tax as
unrelated business taxable income.
(v) [intentionally omitted]
(vi) To the Knowledge of Sellers and the Company, no event has occurred
or circumstance exists that could result in a material increase in premium costs
of Company Plans that are insured, or a material increase in benefit costs of
such Plans that are self-insured.
(vii) [intentionally omitted]
(viii) [intentionally omitted]
(ix) [intentionally omitted]
(x) With respect to each Company Plan, the Company and each ERISA
Affiliate of the Company has met the minimum funding standard, and has made all
contributions required, under ERISA Section 302 and IRC Section 402.
21
(xi) [intentionally omitted]
(xii) None of the Company Plans is a Multi-Employer Plan and neither
the Company nor any ERISA Affiliate contributes to, or has ever contributed to
or has, or has ever had, any other liability with respect to a Multi-Employer
Plan.
(xiii) There have been no accumulated funding deficiencies (as defined
in Section 412 of the IRC or Section 302 of ERISA) with respect to any Company
Plan and no request for a waiver from the IRS with respect to any minimum
funding requirement under Section412 of the IRC.
(xiv) Neither the Company nor any ERISA Affiliate of the Company has
filed a notice of intent to terminate any Plan or has adopted any amendment to
treat a Plan as terminated. The PBGC has not instituted proceedings to treat any
Company Plan as terminated. No event has occurred or circumstance exists that
may constitute grounds under ERISA Section 4042 for the termination of, or the
appointment of a trustee to administer, any Company Plan.
(xv) No amendment has been made, or is reasonably expected to be made,
to any Plan that has required or could require the provision of security under
ERISA Section 307 or IRC Section 401(a)(29).
(xvi) No accumulated funding deficiency, whether or not waived, exists
with respect to any Company Plan; no event has occurred or circumstance exists
that may result in an accumulated funding deficiency as of the last day of the
current plan year of any such Plan.
(xvii) The actuarial report for each Pension Plan of the Company and
each ERISA Affiliate of the Company fairly presents the financial condition and
the results of operations of each such Plan in accordance with GAAP.
(xviii) [intentionally omitted]
(xix) The Company has not incurred any liability to the PBGC under
Section 4001 et seq. of ERISA, and no condition exists that could reasonably be
expected to result in the Company incurring liability under Title IV of ERISA,
either directly or with respect to any ERISA Affiliate. All premiums payable to
the PBGC have been paid when due.
(xx) There has not been, with regard to any Company Plan, any
reportable event, as defined in Section 4042 of ERISA, that is required to be
reported to the PBGC by law or regulation. As of the date of this Agreement and
as of the Closing Date, the fair market value of assets (excluding for this
purpose any accrued but unpaid contributions) of the Salaried Pension Plan
exceeds the present value of all benefits accrued under such Plan, whether or
not vested, based on the actuarial assumptions that would be used by the PBGC if
the Pension Plan were then terminated.
(xxi) Neither the Company nor any ERISA Affiliate of the Company has
ever established, maintained, or contributed to or otherwise participated in, or
had an obligation to maintain, contribute to, or otherwise participate in, any
Multi-Employer Plan.
(xxii) Neither the Company nor any ERISA Affiliate of the Company has
withdrawn from any Multi-Employer Plan with respect to which there is any
outstanding liability as of the date of this Agreement. No event has occurred or
circumstance exists that presents a risk of the occurrence of any withdrawal
from, or the participation, termination, reorganization, or insolvency of, any
Multi-Employer Plan that could result in any liability of either the Company or
Buyer to a Multi-Employer Plan.
22
(xxiii) Neither the Company nor any ERISA Affiliate of the Company has
received notice from any Multi-Employer Plan that it is in reorganization or is
insolvent, that increased contributions may be required to avoid a reduction in
plan benefits or the imposition of any excise tax, or that such Plan intends to
terminate or has terminated.
(xxiv) No Multi-Employer Plan to which the Company or any ERISA
Affiliate of the Company contributes or has contributed is a party to any
pending merger or asset or liability transfer or is subject to any proceeding
brought by the PBGC.
(xxv) Except to the extent required under ERISA Section 601 et seq. and
IRC Section 4980B, the Company does not provide health or welfare benefits for
any retired or former employee or is obligated to provide health or welfare
benefits to any active employee following such employee's retirement or other
termination of service.
(xxvi) To the Knowledge of Sellers and the Company, the Company has the
right to modify and terminate benefits to retirees (other than pensions) with
respect to both retired and active employees.
(xxvii) Sellers and the Company have complied, in all material
respects, with the provisions of ERISA Section 601 et seq. and IRC Section
4980B.
(xxviii) No Company Plan contains any provision or is subject to any
law that would prohibit the transactions contemplated by this Agreement or that
would give rise to any vesting of benefits, severance, termination, or other
payments or liabilities as a result of the transaction contemplated by this
Agreement, and no payments or benefits under any Company Plan or other agreement
of the Company will be considered "excess parachute payments" under Section 280G
of the IRC. The Company has not declared or paid any bonus compensation in
contemplation of the transactions contemplated by this Agreement. No payments or
benefits under any Company Plan or other agreement of the Company are, or are
expected to be, subject to the disallowance of a deduction under Section 162(m)
of the IRC.
(xxix) With respect to any Company Plan that is a Welfare Plan, (A)
each Welfare Plan for which contributions are claimed as deductions under any
provision of the IRC is in compliance with all applicable requirements
pertaining to such deductions, (B) with respect to any welfare benefit fund
(within the meaning of Section 419 of the IRC) related to a Welfare Plan, there
is no disqualified benefit (within the meaning of Section 4976(b) of the IRC)
that would result in the imposition of tax under Section 4976(b) of the IRC, (C)
any Company Plan that is a group health plan (within the meaning of Section
4980B(g)(2) of the IRC) complies, and in each and every case has complied, in
all material respects, with all of the requirements of Section 4980B of the IRC,
ERISA Title XXII of the Public Health Service Act, the applicable provisions of
the Social Security Act, the Health Service Act, the applicable provision of the
Social Security Act, the Health Insurance Portability and Accountability Act of
1996, and other applicable laws, and (D) no Welfare Plan provides health or
other benefits after an employee or former employee's retirement or other
termination of employment except as required by Section 4980B of the IRC.
23
(xxx) All persons classified by the Company as independent contractors
satisfy and have at all times satisfied the requirements of applicable law to be
so classified; the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so; and the Company had no obligations to
provide benefits with respect to such person under Company Plans or otherwise.
No individuals are currently providing, or have provided since January 1, 1999,
services to the Company pursuant to a leasing agreement or similar type of
arrangement, nor has the Company entered into any arrangement whereby services
will be provided by such individuals.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) the Company is, and at all times since September 1, 1996, has been,
in full compliance with each Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use of any of
its assets;
(ii) no event has occurred or circumstance exists that (with or without
notice or lapse of time) (A) may constitute or result in a violation by the
Company of, or a failure on the part of the Company to comply with, any Legal
Requirement, or (B) may give rise to any obligation on the part of the Company
to undertake, or to bear all or any portion of the cost of, any remedial action
of any nature; and
(iii) the Company has not received, at any time since September 1,
1996, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply with, any Legal
Requirement, or (B) any actual, alleged, possible, or potential obligation on
the part of the Company to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature.
(b) Part 3.14 of the Disclosure Letter contains a complete and accurate
list of each Governmental Authorization that is held by the Company or that
otherwise relates to the business of, or to any of the assets owned or used by,
the Company. Each Governmental Authorization listed or required to be listed in
Part 3.14 of the Disclosure Letter is valid and in full force and effect. Except
as set forth in Part 3.14 of the Disclosure Letter:
24
(i) the Company is, and at all times since September 1, 1996, has been,
in full compliance with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in Part 3.14 of the
Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result directly or indirectly
in a violation of or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Part 3.14 of the
Disclosure Letter, or (B) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation, or termination of, or any modification to,
any Governmental Authorization listed or required to be listed in Part 3.14 of
the Disclosure Letter;
(iii) the Company has not received, at any time since September 1,
1996, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed in Part 3.14 of
the Disclosure Letter have been duly filed on a timely basis with the
appropriate Governmental Bodies, 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 Bodies.
The Governmental Authorizations listed in Part 3.14 of the Disclosure Letter
collectively constitute all of the Governmental Authorizations necessary to
permit the Company to lawfully conduct and operate their businesses in the
manner they currently conduct and operate such businesses and to permit the
Company to own and use their assets in the manner in which they currently own
and use such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 3.15 of the Disclosure Letter, there is
no pending Proceeding:
(i) that has been commenced by or against the Company or that otherwise
relates to or may affect the business of, or any of the assets owned or used by,
the Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the Knowledge of Sellers and the Company, (1) except as set forth in Part
3.15 of the Disclosure Letter, no such Proceeding has been Threatened, and (2)
no event has occurred or circumstance exists that may give rise to or serve as a
basis for the commencement of any such Proceeding. Sellers have delivered to
Buyer copies of all pleadings, correspondence, and other documents relating to
each Proceeding listed in Part 3.15 of the Disclosure Letter. The Proceedings
listed in Part 3.15 of the Disclosure Letter will not have a material adverse
effect on the business, operations, assets, condition, or prospects of the
Company.
25
(b) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) there is no Order to which the Company, or any of the assets owned
or used by the Company, is subject;
(ii) none of the Sellers is subject to any Order that relates to the
business of, or any of the assets owned or used by, the Company; and
(iii) to the Knowledge of Sellers and the Company, no officer,
director, agent, or employee of the Company is subject to any Order that
prohibits such officer, director, agent, or employee from engaging in or
continuing any conduct, activity, or practice relating to the business of the
Company.
(c) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) the Company is, and at all times since September 30, 1996, has
been, in full compliance with all of the terms and requirements of each Order to
which it, or any of the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute
or result in (with or without notice or lapse of time) a violation of or failure
to comply with any term or requirement of any Order to which the Company, or any
of the assets owned or used by the Company, is subject; and
(iii) the Company has not received, at any time since September 30,
1996, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding any actual, alleged, possible,
or potential violation of, or failure to comply with, any term or requirement of
any Order to which the Company, or any of the assets owned or used by the
Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 3.16 of the Disclosure Letter, since the date of the
Balance Sheet, the Company has conducted its businesses only in the Ordinary
Course of Business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant
of any stock option or right to purchase shares of capital stock of the Company;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
the Company of any shares of any such capital stock; or declaration or payment
of any dividend or other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the Company;
26
(c) payment or increase by the Company of any bonuses, salaries, or
other compensation to any stockholder, director, officer, or (except in the
Ordinary Course of Business) employee or entry into any employment, severance,
or similar Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Company;
(e) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely affecting
the properties, assets, business, financial condition, or prospects of the
Company, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to the Company of at least $10,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of the Company
or mortgage, pledge, or imposition of any lien or other encumbrance on any
material asset or property of the Company, including the sale, lease, or other
disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to the
Company in excess of $10,000;
(i) material change in the accounting methods used by the Company; or
(j) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.17 CONTRACTS; NO DEFAULTS
(a) Part 3.17(a) of the Disclosure Letter contains a complete and
accurate list, and Sellers have delivered to Buyer true and complete copies, of:
(i) each Applicable Contract that involves performance of services or
delivery of goods or materials by the Company of an amount or value in excess of
$10,000;
(ii) each Applicable Contract that involves performance of services or
delivery of goods or materials to the Company of an amount or value in excess of
$10,000;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business;
27
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $10,000 and with terms of less than one year);
(v) each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property, including
agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and other Applicable Contract
to or with any labor union or other employee representative of a group of
employees;
(vii) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or liabilities by
the Company with any other Person;
(viii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of the Company or any Related Person
of the Company or limit the freedom of the Company or any Related Person of the
Company to engage in any line of business or to compete with any Person;
(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments for
goods;
(x) each power of attorney that is currently effective and outstanding;
(xi) each Applicable Contract entered into other than in the Ordinary
Course of Business that contains or provides for an express undertaking by the
Company to be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess of
$10,000;
(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the Company
other than in the Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
Part 3.17(a) of the Disclosure Letter sets forth reasonably complete details
concerning such Contracts, including the parties to the Contracts, the date
thereof, the amount of the remaining commitment of the Company under the
Contracts, and the Company's office where details relating to the Contracts are
located.
(b) Except as set forth in Part 3.17(b) of the Disclosure Letter:
28
(i) none of the Sellers (and no Related Person of any Seller) have or
may acquire any rights under, and none of the Sellers has or may become subject
to any obligation or liability under, any Contract that relates to the business
of, or any of the assets owned or used by, the Company; and
(ii) to the Sellers' and the Company's Knowledge, no officer, director,
agent, employee, consultant, or contractor of the Company is bound by any
Contract that purports to limit the ability of such officer, director, agent,
employee, consultant, or contractor to (A) engage in or continue any conduct,
activity, or practice relating to the business of the Company, or (B) assign to
the Company or to any other Person any rights to any invention, improvement, or
discovery.
(c) Except as set forth in Part 3.17(c) of the Disclosure Letter, each
Contract identified or required to be identified in Part 3.17(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(d) Except as set forth in Part 3.17(d) of the Disclosure Letter:
(i) the Company is, and at all times since September 1, 1996, has been,
in full compliance with all applicable terms and requirements of each Contract
under which the Company has or had any obligation or liability or by which the
Company or any of the assets owned or used by the Company is or was bound;
(ii) each other Person that has or had any obligation or liability
under any Contract under which the Company has or had any rights is, and at all
times since September 1, 1996, has been, in full compliance with all applicable
terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give the Company or other Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable Contract; and
(iv) the Company has not given to or received from any other Person, at
any time since September 1, 1996, any notice or other communication (whether
oral or written) regarding any actual, alleged, possible, or potential violation
or breach of, or default under, any Contract.
(e) Except as set forth in Part 3.17 (e) of the Disclosure Letter,
there are no renegotiations of, attempts to renegotiate, or outstanding rights
to renegotiate any material amounts paid or payable to the Company under current
or completed Contracts with any Person and, to the Knowledge of Sellers and the
Company, no such Person has made written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Company have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
29
(g) Except as set forth in Part 3.17(g) of the Disclosure Letter, each
Applicable Contract required to be listed in Part 3.17(a) of the Disclosure
Letter pursuant to clause (ix) of Section 3.17(a) is terminable by the Company
without premium or penalty upon not more than sixty (60) days prior written
notice by the Company to the other party.
3.18 INSURANCE
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of insurance to which the
Company is a party or under which the Company, or any director of the Company,
is or has been covered at any time within the six years preceding the date of
this Agreement;
(ii) true and complete copies of all pending applications for policies
of insurance; and
(iii) any statement by the auditor of the Company's financial
statements with regard to the adequacy of such entity's coverage or of the
reserves for claims.
(b) Part 3.18(b) of the Disclosure Letter describes:
(i) any self-insurance arrangement by or affecting the Company,
including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance, for
the transfer or sharing of any risk by the Company; and
(iii) all obligations of the Company to third parties with respect to
insurance (including such obligations under leases and service agreements) and
identifies the policy under which such coverage is provided.
(c) Part 3.18(c) of the Disclosure Letter sets forth, by year, for the
current policy year and each of the five preceding policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance policy for an
amount in excess of $10,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance, and period of
coverage; and
(C) the amount and a brief description of the claim; and
30
(iii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Part 3.18(d) of the Disclosure Letter:
(i) All policies to which the Company is a party or that provide
coverage to either Seller, the Company, or any director or officer of the
Company:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is to the Sellers' and the Company's
Knowledge, financially sound and reputable;
(C) taken together, provide adequate insurance coverage for the assets and the
operations of the Company;
(D) are sufficient for compliance with all Legal Requirements and Contracts to
which the Company is a party or by which any of them is bound;
(E) will continue in full force and effect following the consummation of the
Contemplated Transactions; and
(F) do not provide for any retrospective premium adjustment or other
experienced-based liability on the part of the Company.
(ii) No Seller or the Company has received (A) any refusal of coverage
or any notice that a defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any insurance policy is
no longer in full force or effect or will not be renewed or that the issuer of
any policy is not willing or able to perform its obligations thereunder.
(iii) The Company has paid all premiums due, and has otherwise
performed all of its respective obligations, under each policy to which the
Company is a party or that provides coverage to the Company or a director
thereof.
(iv) The Company has given notice to the insurer of all claims that may
be insured thereby.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in Part 3.19 of the Disclosure Letter:
(a) The Company is, and at all times has been, in full compliance with,
and has not been and is not in violation of or liable under, any Environmental
Law. No Seller or the Company has any basis to expect, nor has any of them or
any other Person for whose conduct they are or may be held to be responsible
received, any actual or Threatened order, notice, or other communication from
(i) any Governmental Body or private citizen acting in the public interest, or
(ii) the current or prior owner or operator of any Facilities, of any actual or
potential violation or failure to comply with any Environmental Law, or of any
actual or Threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which Sellers or the Company has had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by Sellers, the
Company, or any other Person for whose conduct they are or may be held
responsible, or from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.
31
(b) There are no pending or, to the Knowledge of Sellers and the
Company, Threatened claims, Encumbrances, or other restrictions of any nature,
resulting from any Environmental, Health, and Safety Liabilities or arising
under or pursuant to any Environmental Law, with respect to or affecting any of
the Facilities or any other properties and assets (whether real, personal, or
mixed) in which Sellers or the Company has or had an interest.
(c) No Seller or the Company has Knowledge of any basis to expect, nor
has any of them or any other Person for whose conduct they are or may be held
responsible, received, any citation, directive, inquiry, notice, Order, summons,
warning, or other communication that relates to Hazardous Activity, Hazardous
Materials, or any alleged, actual, or potential violation or failure to comply
with any Environmental Law, or of any alleged, actual, or potential obligation
to undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other properties or
assets (whether real, personal, or mixed) in which Sellers or the Company had an
interest, or with respect to any property or facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used, or
processed by Sellers, the Company, or any other Person for whose conduct they
are or may be held responsible, have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(d) No Seller or the Company, or any other Person for whose conduct
they are or may be held responsible, has any Environmental, Health, and Safety
Liabilities with respect to the Facilities or with respect to any other
properties and assets (whether real, personal, or mixed) in which Sellers or the
Company (or any predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any such other
property or assets.
(e) There are no Hazardous Materials present on or in the Environment
at the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon. No
Seller, the Company, any other Person for whose conduct they are or may be held
responsible, or any other Person, has permitted or conducted, or is aware of,
any Hazardous Activity conducted with respect to the Facilities or any other
properties or assets (whether real, personal, or mixed) in which Sellers or the
Company has or had an interest.
32
(f) There has been no Release or, to the Knowledge of Sellers and the
Company, Threat of Release, of any Hazardous Materials at or from the Facilities
or at any other locations where any Hazardous Materials were generated,
manufactured, refined, transferred, produced, imported, used, or processed from
or by the Facilities, or from or by any other properties and assets (whether
real, personal, or mixed) in which Sellers or the Company has or had an
interest, or to the Knowledge of Sellers and the Company any geologically or
hydrologically adjoining property, whether by Sellers, the Company, or any other
Person.
(g) Sellers have delivered to Buyer true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by Sellers or the Company pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the Facilities, or concerning compliance
by Sellers, the Company, or any other Person for whose conduct they are or may
be held responsible, with Environmental Laws.
3.20 EMPLOYEES
(a) Part 3.20 of the Disclosure Letter contains a complete and accurate
list of the following information for each employee or director of the Company,
including each employee on leave of absence, layoff status or otherwise not
actively at work: employer; name; job title; current compensation paid or
payable and any change in compensation since January 1, 2001; vacation accrued;
and service credited for purposes of vesting and eligibility to participate
under the Company's pension, retirement, profit-sharing, thrift-savings,
deferred compensation, stock bonus, stock option, cash bonus, employee stock
ownership (including investment credit or payroll stock ownership), severance
pay, insurance, medical, welfare, or vacation plan, other Employee Pension
Benefit Plan or Employee Welfare Benefit Plan, or any other employee benefit
plan or any similar plan benefiting the directors of the Company.
(b) Except as set forth in Part 3.20 (b) of the Disclosure Letter, to
the Sellers' and the Company's Knowledge, no employee or director of the Company
is a party to, or is otherwise bound by, any agreement or arrangement, including
any confidentiality, noncompetition, or proprietary rights agreement, between
such employee or director and any other Person ("Proprietary Rights Agreement")
that in any way adversely affects or will affect (i) the performance of his
duties as an employee or director of the Company, or (ii) the ability of the
Company to conduct its business, including any Proprietary Rights Agreement with
Sellers or the Company by any such employee or director. To Sellers' and the
Company's Knowledge, no director, officer, or other key employee of the Company
intends to terminate his or her employment with the Company.
(c) Part 3.20 of the Disclosure Letter also contains a complete and
accurate list of the following information for each retired employee or director
of the Company, or their dependents, receiving benefits or scheduled to receive
benefits in the future: name, pension benefit, pension option election, retiree
medical insurance coverage, retiree life insurance coverage, and other benefits.
33
3.21 LABOR RELATIONS; COMPLIANCE
Except as set forth in Part 3.21 of the Disclosure Letter:
Since September 1, 1996, the Company has not been and it is not presently a
party to any collective bargaining or other labor Contract. Since September 1,
1996, there has not been, there is not presently pending or existing, and to
Sellers' and the Company's Knowledge there is not Threatened, (a) any strike,
slowdown, picketing, work stoppage, or employee grievance process, (b) any
Proceeding against or affecting the Company relating to the alleged violation of
any Legal Requirement pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable Governmental Body, organizational activity, or other labor or
employment dispute against or affecting the Company or its premises, or (c) any
application for certification of a collective bargaining agent. To Sellers' and
the Company's Knowledge, no event has occurred or circumstance exists that could
provide the basis for any work stoppage or other labor dispute. There is no
lockout of any employees by the Company, and no such action is contemplated by
the Company. The Company has complied in all respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. The Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets--The term "Intellectual Property
Assets" includes by way of illustration and not of limitation:
(i) "Crystal Creative Products", "Crystal Tissue", "Crystal Tissue
Company", "Crystal", "Pomps" and all fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) all patents, patent applications, and inventions and discoveries
that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished works
(collectively, "Copyrights");
(iv) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "Trade Secrets");
owned, used, or licensed by the Company as licensee or licensor.
34
(b) Agreements--Part 3.22(b) of the Disclosure Letter contains a
complete and accurate list and summary description, including any royalties paid
or received by the Company, of the Intellectual Property Assets and of all
Contracts relating to the Intellectual Property Assets to which the Company is a
party or by which the Company is bound, except for any license implied by the
sale of a product and perpetual, paid-up licenses for commonly available
software programs with a value of less than $10,000 under which the Company is
the licensee. There are no outstanding and, to the Sellers' and the Company's
Knowledge, no Threatened disputes or disagreements with respect to any such
Contract.
(c) Know-How Necessary for the Business
(i) The Intellectual Property Assets are all those necessary for the
operation of the Company's businesses as it is currently conducted. The Company
is the owner of all right, title, and interest in and to each of the
Intellectual Property Assets, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims, and has the right to
use without payment to a third party all of the Intellectual Property Assets.
(ii) Except as set forth in Part 3.22(c) of the Disclosure Letter, all
former and current employees of the Company have executed written Contracts with
the Company that assigns to the Company all rights to any inventions,
improvements, discoveries, or information relating to the business of the
Company. No employee of the Company has entered into any Contract that restricts
or limits in any way the scope or type of work in which the employee may be
engaged or requires the employee to transfer, assign, or disclose information
concerning his work to anyone other than to the Company.
(d) Patents
(i) Part 3.22(d) of the Disclosure Letter contains a complete and
accurate list and summary description of all Patents. The Company is the owner
of all right, title, and interest in and to each of the Patents, free and clear
of all liens, security interests, charges, encumbrances, entities, and other
adverse claims.
(ii) All of the issued Patents are currently in compliance with formal
legal requirements (including payment of filing, examination, and maintenance
fees and proofs of working or use), are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling due within ninety
(90) days after the Closing Date.
(iii) No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding. To the Sellers' and the
Company's Knowledge, there is no potentially interfering patent or patent
application of any third party.
(iv) No Patent is infringed or, to the Sellers' and the Company's
Knowledge, has been challenged or threatened in any way. None of the products
manufactured and sold, nor any process or know-how used, by the Company
infringes or is alleged to infringe any patent or other proprietary right of any
other Person.
35
(v) All products made, used, or sold under the Patents have been marked
with the proper patent notice.
(e) Trademarks
(i) Part 3.22(e) of Disclosure Letter contains a complete and accurate
list and summary description of all Marks. The Company is the owner of all
right, title, and interest in and to each of the Marks, free and clear of all
liens, security interests, charges, encumbrances, equities, and other adverse
claims.
(ii) All Marks that have been registered with the United States Patent
and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits of use
and incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
ninety (90) days after the Closing Date.
(iii) No ▇▇▇▇ has been or is now involved in any opposition,
invalidation, or cancellation and, to the Sellers' and the Company's Knowledge,
no such action is Threatened with the respect to any of the Marks.
(iv) To the Sellers' and the Company's Knowledge, there is no
potentially interfering trademark or trademark application of any third party.
(v) No ▇▇▇▇ is infringed or, to the Sellers' and the Company's
Knowledge, has been challenged or threatened in any way. None of the Marks used
by the Company infringes or is alleged to infringe any trade name, trademark, or
service ▇▇▇▇ of any third party.
(vi) All products and materials containing a ▇▇▇▇ ▇▇▇▇ the proper
federal registration notice where permitted by law.
(f) Copyrights
(i) Part 3.22(f) of the Disclosure Letter contains a complete and
accurate list and summary description of all Copyrights. The Company is the
owner of all right, title, and interest in and to each of the Copyrights, free
and clear of all liens, security interests, charges, encumbrances, equities, and
other adverse claims.
(ii) All the Copyrights have been registered and are currently in
compliance with formal legal requirements, are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety (90) days after the date of Closing.
(iii) No Copyright is infringed or, to the Sellers' and the Company's
Knowledge, has been challenged or threatened in any way. None of the subject
matter of any of the Copyrights infringes or is alleged to infringe any
copyright of any third party or is a derivative work based on the work of a
third party.
36
(iv) All works encompassed by the Copyrights have been marked with the
proper copyright notice.
(g) Trade Secrets
(i) With respect to each Trade Secret, the documentation relating to
such Trade Secret is current, accurate, and sufficient in detail and content to
identify and explain it and to allow its full and proper use without reliance on
the knowledge or memory of any individual.
(ii) The Company has taken all reasonable precautions to protect the
secrecy, confidentiality, and value of their Trade Secrets.
(iii) The Company has good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the
public knowledge or literature, and, to the Sellers' and the Company's
Knowledge, have not been used, divulged, or appropriated either for the benefit
of any Person (other than the Company) or to the detriment of the Company. No
Trade Secret is subject to any adverse claim or has been challenged or
threatened in any way.
3.23 CERTAIN PAYMENTS
Neither the Company nor any director, officer, agent, or employee of the
Company, or to Sellers' and the Company's Knowledge, any other Person associated
with or acting for or on behalf of the Company, has directly or indirectly (a)
made any contribution, gift, bribe, rebate, payoff, influence payment, kickback,
or other payment to any Person, private or public, regardless of form, whether
in money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect of the Company or a Related Person of the Company, or (iv) in
violation of any Legal Requirement, or (b) established or maintained any fund or
asset that has not been recorded in the books and records of the Company.
3.24 DISCLOSURE
(a) No representation or warranty of Sellers in this Agreement and no
statement in the Disclosure Letter omits to state a material fact necessary to
make the statements herein or therein, in light of the circumstances in which
they were made, not misleading.
(b) Except as set forth on Part 3.4 of the Disclosure Letter, there is
no fact known to any Seller that has specific application to any of the Sellers
or the Company (other than general economic or industry conditions) and that
materially adversely affects or, as far as any Seller can reasonably foresee,
materially threatens, the assets, business, prospects, financial condition, or
results of operations of the Company (on a consolidated basis) that has not been
set forth in this Agreement or the Disclosure Letter.
37
3.25 RELATIONSHIPS WITH RELATED PERSONS
Except as set forth in Part 3.25 of the Disclosure Letter: No Seller or any
Related Person of a Seller or of any the Company has, or has had, any interest
in any property (whether real, personal, or mixed and whether tangible or
intangible), used in or pertaining to the Company's business. No Seller or any
Related Person of a Seller or of the Company is, or has owned (of record or as a
beneficial owner) an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial interest
in any transaction with the Company other than business dealings or transactions
conducted in the Ordinary Course of Business with the Company at substantially
prevailing market prices and on substantially prevailing market terms, or (ii)
engaged in competition with the Company with respect to any line of the products
or services of the Company (a "Competing Business") in any market presently
served by the Company except for less than one percent of the outstanding
capital stock of any Competing Business that is publicly traded on any
recognized exchange or in the over-the-counter market. Except as set forth in
Part 3.25 of the Disclosure Letter, no Seller or any Related Person of a Seller
or of the Company is a party to any Contract with, or has any claim or right
against, the Company.
3.26 BROKERS OR FINDERS
Except as set forth in Part 3.26 of the Disclosure Letter, Sellers and their
agents have incurred no obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Tennessee.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation
of Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Escrow Agreement, and by the Company or
the Buyer, as the case may be, of the Employment Agreements, the Consulting
Agreements and the Supply Agreement (collectively, the "Buyer's Closing
Documents"), the Buyer's Closing Documents will constitute the legal, valid, and
binding obligations of the Buyer or the Company, as the case may be, enforceable
against Buyer or the Company in accordance with their respective terms. Buyer
has the absolute and unrestricted right, power, and authority to execute and
deliver this Agreement and those of the Buyer's Closing Documents of which it is
a party and to perform its obligations under this Agreement and those of the
Buyer's Closing Documents of which it is a party.
38
(b) Except as set forth in Schedule 4.2, neither the execution and
delivery of this Agreement by Buyer nor the consummation or performance of any
of the Contemplated Transactions by Buyer will give any Person the right to
prevent, delay, or otherwise interfere with any of the Contemplated Transactions
pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject; or
(iv) any Contract to which Buyer is a party or by which Buyer may be
bound.
Except as set forth in Schedule 4.2, Buyer is not and will not be required to
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
4.4 BROKERS OR FINDERS
Buyer and its officers and agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement and will indemnify
and hold Sellers harmless from any such payment alleged to be due by or through
Buyer as a result of the action of Buyer or its officers or agents.
5. CERTAIN COVENANTS
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company and its Representatives to, (a) afford Buyer and its
Representatives (collectively, "Buyer's Advisors") full and free access to the
Company's personnel, properties (including subsurface testing), contracts, books
and records, and other documents and data, (b) furnish Buyer and Buyer's
Advisors with copies of all such contracts, books and records, and other
existing documents and data as Buyer may reasonably request, and (c) furnish
Buyer and Buyer's Advisors with such additional financial, operating, and other
data and information as Buyer may reasonably request.
39
5.2 OPERATING OF THE BUSINESSES OF THE COMPANY
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company to:
(a) conduct the business of the Company only in the Ordinary Course of
Business;
(b) use their Best Efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers, employees, and agents of the Company, and maintain the relations and
good will with suppliers, customers, landlords, creditors, employees, agents,
and others having business relationships with the Company;
(c) notify the Buyer promptly after becoming aware of the termination
of employment of any employee of the Company;
(d) confer with Buyer concerning operational matters of a material
nature; and
(e) otherwise report periodically to Buyer concerning the status of the
business, operations, and finances of the Company.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the date of
this Agreement and the Closing Date, Sellers will not, and will cause the
Company not to, without the prior consent of Buyer, take any affirmative action,
or fail to take any reasonable action within their or its control, as a result
of which any of the changes or events listed in Section 3.16 is likely to occur.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Sellers will, and
will cause the Company to, make all filings required by Legal Requirements to be
made by them in order to consummate the Contemplated Transactions. Between the
date of this Agreement and the Closing Date, Sellers will, and will cause the
Company to, (a) cooperate with Buyer with respect to all filings that Buyer
elects to make or is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Buyer in obtaining all
consents identified in Schedule 4.2.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, the Sellers will
promptly notify Buyer in writing if any of the Sellers or the Company becomes
aware of any fact or condition that causes or constitutes a Breach of any of
Sellers' representations and warranties as of the date of this Agreement, or if
any of such Sellers or the Company becomes aware of the occurrence after the
date of this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Disclosure Letter if the Disclosure
Letter were dated the date of the occurrence or discovery of any such fact or
condition, Sellers will promptly deliver to Buyer a supplement to the Disclosure
Letter specifying such change. During the same period, each Seller will promptly
notify Buyer of the occurrence of any Breach of any covenant of Sellers in this
Section 5 or of the occurrence of any event that may make the satisfaction of
the conditions in Section 9 impossible or unlikely.
40
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Except as expressly provided in this Agreement or as described in Part 5.6 of
the Disclosure Letter, Sellers will cause all indebtedness owed to the Company
by any of the Sellers or any Related Person of a Seller to be paid in full prior
to Closing.
5.7 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to Section 10,
Sellers will not, and will cause the Company and each of its Representatives not
to, directly or indirectly solicit, initiate, or encourage any inquires or
proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
Person (other than Buyer) relating to any transaction involving the sale of the
business or assets (other than in the Ordinary Course of Business) of the
Company, or any of the capital stock of the Company, or any merger,
consolidation, business combination, or similar transaction involving the
Company.
5.8 ACTIONS REGARDING EMPLOYEE BENEFITS
(a) Before the Closing Date, Sellers will cause the Company:
(i) to transfer the sponsorship of the 401(k) Plan and all Pension
Plans of which the Company is the Plan Sponsor to CTC, and to provide the Buyer
with copies of all documents effectuating such transfer. Such transfer shall be
effective on or before the Closing Date;
(ii) to file all notices with the IRS and any other governmental
entities and prepare and distribute all employee communications necessary to
effectuate a legally compliant spin-off of the Salaried Pension Plan, including,
but not limited to notices described under Section 6058(b) of the IRC and
Section 204(h) of ERISA, as applicable, and to provide the Buyer with copies of
all such notices and communications. Such notices and communications shall
provide for spin-off no earlier than the later of (A) the Closing Date or (B)
the date on which all advance notice, communication, and amendment requirements
and amendments relating to such spin-off have been satisfied. Such spin-off
shall relate solely to the portion of the Salaried Pension Plan covering
individuals identified in Section 3.13(c)(xv) and their beneficiaries;
(iii) to amend the 401(k) Plan and the Salaried Pension Plan to provide
for full vesting of all benefits and account balances under such Plans
attributable to individuals identified in Section 3.13(c)(xv) and their
beneficiaries, effective as of the Closing Date or any earlier date;
41
(iv) to take all action necessary to cease benefit accruals under the
Salaried Pension Plan and contributions under the 401(k) Plan, with respect to
the portion of each such Qualified Plan that covers individuals identified in
Section 3.13(c)(xv) and their beneficiaries, including but not limited to, Board
action effectuating such cessation, timely adoption of required plan amendments,
timely distribution of notices required under Section 204(h) of ERISA, and to
provide the Buyer with copies of all such actions. Cessation of benefit accruals
under the Salaried Pension Plan shall be effective fifteen (15) days after
distribution of the notice of the cessation (as prescribed under Section 204(h)
of ERISA) is provided to affected individuals. Cessation of contributions under
the 401(k) Plan shall be effective on or before the Closing Date;
(v) to take all action necessary to spin-off the portion of the 401(k)
Plan that benefits individuals identified in Section 3.13(c)(xv) and their
beneficiaries from CTC to the Company as of the Closing Date and to provide the
Buyer with copies of all documents relating to such action on or before the
Closing Date;
(vi) with respect to each Company Plan pursuant to which amounts have
been deferred from employee paychecks by the Company, to transfer to the
appropriate Plan in a timely manner, as required by applicable law, but in no
event later than the Closing Date, all such monies deferred prior to the Closing
Date and to deposit any matching contributions due to a Plan in relation to such
deferred amounts to the appropriate Plan in a timely manner, as required by
applicable law, but in no event later than the Closing Date;
(vii) to the extent a Company VEBA relates, as of the Closing Date, to
any employee or former employee of the Company or their beneficiaries, to take
all action necessary to terminate each VEBA maintained with respect to any
Company Plan and to provide the Buyer with copies of all documents relating to
such action. Such termination shall be effective on or before the Closing Date.
(b) After the Closing Date, Sellers shall cause CTC to spin-off that
portion of the assets and liabilities of the Salaried Pension Plan that benefits
individuals identified in Section 3.13(c)(xv) and their beneficiaries from CTC
to the Company, and, in addition, any assets exceeding the assets needed to
satisfy the liabilities for benefits of all individuals covered under the
Salaried Pension Plan, including, but not limited to, benefits of employees and
former employees of CTC and their beneficiaries, when computed on a termination
basis as of the spin-off date in compliance with Section 414(l) of the IRC. The
spin-off date pursuant to this section shall be the date mutually agreed upon
Buyer and Sellers, provided that such date shall not be earlier than the later
of (A) the Closing Date or (B) the date which is thirty days after the date on
which the notice required under Section 6058(b) of the IRC was filed with
respect to such spin-off pursuant to Section 5.8(a)(ii) above.
(c) Buyer agrees to the following:
(i) to provide Sellers with evidence of action taken with
regard to the adoption of a plan and establishment of a trust relating to the
spin-off of the 401(k) Plan, as prescribed in Section 5.8 (a)(v) above,
immediately after the taking of such action on the Closing Date and, prior to
the spin-off of the Salaried Pension Plan, as prescribed in Section 5.8(b)
above, Buyer shall provide Sellers with evidence of action taken with the regard
to the adoption of a plan and establishment of a trust relating to such
spin-off;
42
(ii) to cause the Company to provide, with respect to periods
after the Closing Date, for the repayment of loans outstanding to participants
in that portion of the 401(k) Plan spun-off in accordance with Section 5.8(a)(v)
above through payroll deduction, to the extent provided under the 401(k) Plan;
provided, however, that the Buyer reserves the right to amend or terminate the
401(k) Plan at any time.
(d) With respect to any period beginning on or after the Closing Date,
Sellers and the Buyer mutually agree that:
(i) (A) the Buyer shall cause the Company to provide
continuation health coverage as required under Part 6 of Subtitle B of Title I
of ERISA and Section 4980B of ERISA ("COBRA Continuation Coverage"), applicable
to the health plan maintained by the Company, with respect to any individual who
is an employee or former employee of the Company, or their beneficiaries, who
(I) incurs a COBRA Continuation Coverage qualifying event on or after the
Closing Date, (II) as of the Closing Date, was receiving COBRA Continuation
Coverage, or (III) on or before the Closing Date, made (or was eligible to make
and does make) a timely election to elect to receive COBRA Continuation, and (B)
the Sellers shall cause CTC to provide COBRA Continuation Coverage, as
applicable to the health plan maintained by the Company, to any other
individual.
(ii) the completion of the transaction to which this Agreement relates
shall trigger a shift in sponsorship of any Company Plan or portion of a Company
Plan from the Company to CTC to the extent such Company Plan or portion thereof
benefits individuals other than employees or former employees of the Company and
any other individuals identified in Section 3.13(c)(xv) (and their
beneficiaries) and to the extent such transfer was not otherwise effectuated by
action set forth above in this Agreement. The mutual intent of both parties is
that, after Closing, the Company shall not retain any responsibility regarding a
Company Plan to the extent it does not relate to individuals identified in
Section 3.13(c)(xv) and their beneficiaries.
6. NON-COMPETITION AND NON-SOLICITATION COVENANTS OF SELLERS
6.1 NON-COMPETITION BY THE SELLERS
(a) For a period of five (5) years from the Closing Date, each of the
Sellers covenants and agrees that without the prior written consent of the
Buyer, each Seller shall not directly or indirectly, own, manage, operate, join,
control, finance or participate in the ownership, management, operating, control
or financing of, or be connected as an officer, director, employee, partner,
principal, agent, representative, consultant or otherwise with or use or permit
such Seller's name to be used in connection with, any business or enterprise
anywhere in the world that is competitive with the business as now conducted by
the Company; provided, however, CTC, a Related Person of the Sellers, may
manufacture, distribute, sell and otherwise deal in non-printed, undecorated
tissue roll stock. It is recognized by each Seller that the business of the
Company is or will be involved in activity throughout the entire world, and that
more limited geographical limitations on this non-competition covenant (and the
non-solicitation covenant set forth in Section 6.2 hereof) are therefore not
appropriate.
43
(b) The foregoing restriction shall not be construed to prohibit the
ownership by any Seller of not more than five percent (5%) of any class of
securities of any corporation which is engaged in any aspect of the foregoing
business of the Company having a class of securities registered pursuant to the
Securities Exchange Act of 1934, provided that such ownership represents a
passive investment and that neither such Seller nor any Related Person of such
Seller nor any group of persons including such Seller or Related Persons in any
way, either directly or indirectly, manages or exercises control of any such
corporation, guarantees any of its financial obligations, otherwise takes any
part in its business, other than exercising rights as a shareholder or seeks to
do any of the foregoing.
6.2 NO SOLICITATION BY THE SELLERS
(a) For a period of five (5) years from the Closing Date, each of the
Sellers covenants and agrees that each such Seller shall not, directly or
indirectly, call on or solicit with respect to the business of the Company any
person, firm corporation or other entity who or which, as of the Closing Date,
was, or within five (5) years prior thereto had been, a customer of the Company.
(b) For a period of five (5) years from the Closing Date, each of the
Sellers covenants and agrees that each such Seller shall not either directly or
indirectly, solicit the employment or services of any person who was employed by
the Company prior to the Closing or by the Company subsequent to the Closing on
a full or part-time basis or as an independent contractor engaged by the Company
prior to the Closing or by the Company or its Related Persons subsequent to the
Closing, unless such person (i) prior to such solicitation was involuntarily
discharged by the Company or such Related Persons; or (ii) prior to the date of
such solicitation voluntarily terminated his or her relationship with the
Company or its Related Persons.
6.3. CONFIDENTIALITY
The Sellers recognize and acknowledge that each of them has had access to
confidential information relating to the Company and its business and the
transactions contemplated by this Agreement, including without limitation,
information and knowledge pertaining to products and services offered,
innovations, designs, ideas, plans, trade secrets, proprietary information,
advertising, distribution and sales methods and systems, sales and profit
figures, customer and client lists, and relationships with dealers,
distributors, wholesalers, customers, clients, suppliers and others who have
business dealings with the Company ("Confidential Information"). Each of the
Sellers acknowledges that such Confidential Information is a valuable and unique
asset and covenants that he, she or it will not disclose any such Confidential
Information for any reason whatsoever, without the consent of the Buyer, (a)
unless such information is in the public domain through no wrongful act of the
Sellers, or (b) except as may be required by law.
44
6.4 RELIEF
(a) The Sellers acknowledge that the restrictions contained in Sections
6.1, 6.2, 6.3 and 6.6 hereof are reasonable and necessary to protect the
legitimate interests of the Buyer and its affiliates, that the Buyer would not
have entered into this Agreement in the absence of such restrictions, and that
any violation of any provision of those Sections will result in irreparable
injury to the Buyer and its Related Persons.
(b) In the event that any of the provisions of Sections 6.1, 6.2 and
6.3 hereof should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations permitted by
applicable law.
(c) Each of the Sellers agrees that in the event of any breach of the
restrictions set forth in Sections 6.1, 6.2, 6.3 and 6.6 of this Agreement, the
Buyer would be entitled to preliminary and permanent injunctive relief, without
the necessity of proving actual damages, which rights shall be cumulative and
not alternative and in addition to any other rights or remedies to which the
Buyer may be entitled, including by way of illustration and not of limitation,
money damages and an accounting. The obligations of the Sellers under this
Section 6 are their several obligations.
(d) If any Seller breaches any of the provisions set forth in Sections
6.1, 6.2, 6.3 or 6.6 of this Agreement, the time period for compliance with such
breached provision shall be extended for an additional time period equal to the
duration of the breach.
(e) The Sellers agree that the Buyer may provide a copy of Sections
6.1, 6.2, 6.3 or 6.6 of this Agreement to any business or enterprise (i) which
any Seller or any Related Person of such Seller may directly or indirectly own,
manage, operate, finance, join, participate in the ownership, management,
operation, financing, control or control of, or (ii) with which any Seller or
any Related Person of such Seller may be connected as an officer, director,
employee, partner, principal, agent, representative, consultant or otherwise, or
in connection with which any Seller or any Related Person of such Seller may use
or permit his, her or its name to be used; provided, however, that this
provision shall not apply after expiration of the time periods set forth
therein.
6.5 NON-APPLICABILITY OF SECTION 11
The provisions of Section 11 of this Agreement shall not be applicable
to any claimed breach of any of the provisions of Section 6 and the Buyer shall
be entitled to all of its remedies in law and equity as to any such breach.
6.6 ANTI-DUMPING; COUNTERVAILING DUTY
During the five-year period commencing on the Closing Date, neither the
Sellers, nor their Related Persons shall participate as a petitioner in the
initiation of, or otherwise provide support for an anti-dumping or
countervailing duty investigation by the International Trade Administration of
the U. S. Department of Commerce and/or the International Trade Commission,
relating to tissue paper imported from China.
45
7. TAX MATTERS
The following provisions shall govern the allocation of responsibility as
between Buyer and Seller for certain tax matters following the Closing Date:
7.1 TAXES OF OTHER PERSONS
Each of the Sellers agrees to indemnify the Buyer from and against the entirety
of any Adverse Consequences for tax periods ending through the Closing Date
which the Buyer or the Company may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any liability of any of the Sellers
or the Company for taxes of any person other than the Company.
7.2 INCOME TAX RETURNS FOR PERIOD THROUGH THE CLOSING DATE. The Sellers will
include the income of the Company on their federal, state and local income tax
returns, as appropriate, for all periods through the Closing Date and pay any
federal, state and local income taxes attributable to such income. Buyer will
cause the Company to furnish tax information to the Sellers for inclusion in the
Sellers' federal income tax returns and any state and local income tax returns,
as appropriate, for the period which includes the Closing Date in accordance
with the Company's past custom and practice. The Sellers shall also prepare all
federal and state income tax returns for all periods through the Closing Date,
whether or not consolidated, of the Company. Buyer shall cause the Company to
assist in the preparation, sign and file such tax returns as so prepared in a
timely manner so as not to give rise to penalties and interest, and the Sellers
shall make all payments due in respect of such tax returns.
7.3 SECTION 338(h) (10) ELECTION. Each of the Sellers will join with the Buyer
in making an election pursuant to Section 338(h)(10) of the IRC (and any
corresponding elections under state and local law) with respect to the purchase
and sale of the Stock of the Company hereunder (collectively, the "Section
338(h)(10) Election"), and each of the Sellers hereby agrees to execute prior to
the Closing, at the request of Buyer, a duly completed IRS Form 8023 in
connection with the Section 338(h)(10) Election. Such duly completed and
executed IRS Form 8023 shall be delivered to the Buyer at the Closing, and the
Buyer is authorized to thereafter complete the portions of such Form that are to
be completed by the "Purchasing Corporation" and to execute such Form and cause
it to be filed with the IRS. The Buyer will deliver a copy of such completed IRS
Form 8023 to the Sellers not less than ten (10) days prior to filing the same
with the IRS. The Sellers shall include any income, gains, loss, deduction or
other tax item resulting from the Section 338(h)(10) Election to the extent
required by applicable law, and shall pay any federal, state, local or foreign
taxes imposed on the Company (and shall indemnify the Buyer and the Company
against any Adverse Consequences arising out of the failure to pay such taxes)
attributable to the making of the Section 338(h)(10) Election, including without
limitation (i) any tax imposed under Section 1374 of the IRC, (ii) any tax
imposed under Treasury Regulation Section 1.338(h)(10)-1(d)(5), or (iii) any
state, local or foreign tax imposed on the Company's gain.
46
7.4 OTHER TAX RETURNS. The Buyer shall prepare or cause to be prepared and file
or cause to be filed, in a timely manner so as not to give rise to penalties and
interest, all tax returns for the Company not based upon income which are due to
be filed after the Closing Date.
7.5 COOPERATION ON TAX MATTERS.
(a) The Buyer, the Company and the Sellers shall cooperate fully, as
and to the extent reasonably requested by another party, in connection with the
filing of tax returns pursuant to this Section and any audit, litigation or
other proceeding with respect to taxes. Such cooperation shall include the
retention and (upon the other party's request) the provisions of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. The Buyer and the Sellers agree (i) to retain all books and records
with respect to tax matters pertaining to the Company relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by the Buyer or the Sellers, as the
case may be, any extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any taxing authority,
and (ii) to give all the Buyer or the Sellers (as the case may be) reasonable
written notice prior to transferring, destroying or discarding any such books
and records.
(b) The Buyer and each of the Sellers further agree, upon request, to
provide the other party or parties (as the case may be) with all information to
the extent in such party's possession or control that a party may be required to
report pursuant to Section 6043 of the IRC and all Treasury Department
Regulations promulgated thereunder.
7.6 CERTAIN TAXES. All transfer, documentary, sales, use, stamp and registration
taxes and fees (including any penalties and interest) incurred in connection
with this Agreement shall be paid by the Sellers when due, and the Sellers will,
at their own expense, file all necessary tax returns and other documentation
with respect to all such transfer, documentary, sales, use, stamp and
registration taxes. If required by applicable law, the Buyer will, and will
cause its affiliates to, join in the execution of any such tax returns and other
documentation.
7.7 ALLOCATION OF PURCHASE PRICE. The Buyer and the Sellers shall negotiate in
good faith an allocation of the Purchase Price in accordance with Treas. Reg ss.
1.338-1 through 1.338 (h) (10)-1, based on the principles set forth in Part 7.7
of the Disclosure Letter. Within thirty (30) days after the Final Determination,
the Buyer shall deliver to the Sellers the Buyer's proposal for allocation of
the Purchase Price among the assets of the Company for all purposes (including
financial accounting and tax purposes) in a manner consistent with Sections 338
and 1060 of the IRC (the "Allocation Schedule"). In the event that the Sellers
do not object to the Allocation Schedule within thirty (30) days following the
date of Buyers' transmittal to the Sellers of the Allocation Schedule, then the
Sellers shall be deemed to have agreed to the Allocation Schedule and the
Sellers and Buyer shall jointly prepare and file on a timely basis with the IRS
Form 8023, as required by Section 338 (h) (10) of the IRC consistent with the
Allocation Schedule and neither the Sellers nor the Buyer shall take a position
on any Income Tax Return, before any governmental agency charged with the
collection of any Tax, or in any proceeding that is in any way inconsistent with
the Allocation Schedule. In the event that Sellers do object to the Allocation
Schedule, the Sellers shall notify the Buyer within the thirty (30) day period
following the date of Buyers' transmittal of the Allocation Schedule of such
objection and include in such notification a detailed description of the
allocation which the Sellers intend to use. The Sellers shall notify the Buyer
as soon as reasonably practicable of any audit adjustment or proposed audit
adjustment by any governmental agency charged with the collection of any Tax
which affects the allocation of the Purchase Price.
47
7.8. S CORPORATION STATUS.
The Sellers shall, as soon as practicable following the date hereof, prepare or
cause to be prepared such affidavits, filings and other documentation
(collectively the "Automatic Relief Package") as are required under Section 6 of
the Revenue Procedure 98-55, 1998-2 C.B. 643 (the "Revenue Procedure"), to be
filed with the Internal Revenue Service (the "IRS") in order for the Company to
be eligible for automatic relief under the Revenue Procedure in connection with
restoring the Company's status as an S corporation under Section 1361, et seq.
of the Internal Revenue Code of 1986, as amended (the "Code"). The Sellers shall
transmit to the Buyer a draft copy of the Automatic Relief Package no later than
five (5) days after the date hereof, and shall permit the Buyer to review and
comment on such draft, and shall make such revisions to such draft as are
reasonably requested by the Buyer. Upon receipt of the Buyer's requested
revisions, but in no event later than ten (10) days after the date hereof, the
Sellers shall prepare a final version of the Automatic Relief Package and shall
file by certified mail, return receipt requested, or by hand delivery, such
final version with the IRS. The Sellers shall immediately thereafter furnish the
Buyer with a copy of such final Automatic Relief Package and evidence of receipt
thereof by the IRS.
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyers obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All of the Sellers' representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement, and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date, without giving effect to any
supplement to the Disclosure Letter.
8.2 SELLERS' PERFORMANCE
(a) All of the covenants and obligations that Sellers are required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects.
48
(b) Each document required to be delivered by or on behalf of the
Sellers pursuant to this Agreement (including without limitation, each of the
deliveries described in Section 2.4 (a) of this Agreement) must have been
delivered.
8.3 CONSENTS
Each of the Consents identified in the Disclosure Letter and in any Schedule
hereto required to be obtained by the Sellers or as otherwise required in order
for the Applicable Contracts and the Governmental Authorizations in favor of the
Company to remain in full force and effect following the acquisition of the
Shares by the Buyer must have been obtained and must be in full force and effect
without any consideration being payable by the Buyer for such consents.
8.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) an opinion of ▇▇▇▇▇▇▇▇▇▇, Doll & ▇▇▇▇▇▇▇▇ PLLC, dated the Closing
Date, in the form of Exhibit 8.4 (a) hereto;
(b) estoppel certificates executed on behalf of each lessor of the
existing leased Facilities utilized by the Company dated as of a date not more
than three (3) days prior to the Closing Date in form and substance reasonably
satisfactory to the Buyer;
(c) a fully executed counterpart of the Escrow Agreement;
(d) a fully executed counterpart of the KPMG engagement letter referred
to in Section 2.5;
(e) a fully executed counterpart of a Supply Agreement (including a
license and conveyance of intellectual property rights to the names "Crystal",
"Crystal Tissue" and "Crystal Tissue Company") between the Company and CTC,
which has been executed by and delivered to the parties thereto in form and
substance satisfactory to the Buyer;
(f) fully executed counterparts of the Employment Agreements with ▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and the Consulting Agreement with one of the Sellers,
▇▇▇▇▇ ▇. ▇▇▇▇▇;
(g) resignations of all of the Directors and of those Officers of the
Company whose resignations are required by the Buyer dated the Closing Date;
(h) a final copy of the Automatic Relief Package (as defined in Section
7.8), as filed with the IRS; and
(i) evidence, in form and substance satisfactory to the Buyer, that CTC
has satisfied all of its obligations to the Kentucky Development Finance
Authority ("KDFA") under the Loan Agreement dated September 4, 1990 between KDFA
and CTC, that the KDFA has released its liens on the 62" Cameron type 428
Slitter-Rewinder (Serial No. N5943) and the 61" Wolverine Two-Color Flexographic
Printing Press (Serial No. HLRET-2056) (collectively, the "Equipment") and that
title to the Equipment, free and clear of all liens and encumbrances, has been
conveyed to the Company;
49
(j) evidence, in form and substance satisfactory to the Buyer, that all
obligations of the Company to ▇▇▇▇▇ Packaging Services, Inc. ("APSI") under the
Promissory Note dated July 21, 1998, as amended, have been fully repaid and
satisfied and that all obligations of those Sellers and their Related Persons
who are the "Payors" under those certain Promissory Notes dated October 8, 2000
in favor of APSI, the aggregate principal amount of which is approximately
$6,000,000, have been fully repaid and satisfied;
(k) evidence, in form and substance satisfactory to the Buyer, that the
Company has purchased so-called "tail" coverage with respect to its "claims
made" based insurance policies;
(l) evidence, in form and substance satisfactory to the Buyer, that all
obligations of the Company under the agreement dated January 8, 2002 between the
Company and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co. have been assigned to and assumed by the
Sellers and that ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co. has released the Company from all such
obligations;
(m) fully executed payoff letter, in form and substance satisfactory to
the Buyer, between U. S. Bank, National Association and CTC;
(n) evidence, in form and substance satisfactory to the Buyer, that
U.S. Bank, National Association ("Bank") has received and accepted irrevocable
instructions from the person(s) controlling the deposit account (the "Agency
Account") into which the Buyer has been directed by the Sellers to make payment
of the Purchase Price, with such instructions directing the Bank to transfer
from such Agency Account on the Closing Date the amount necessary to repay in
full all of the obligations of CTC to the Bank under the Financing Agreement
dated as of May 27, 1999 (as amended) among the Bank, CTC and the Company, and
further directing the Bank to utilize and apply such amount to satisfy said
obligations;
(o) evidence, in form and substance satisfactory to the Buyer, of the
assignment by CTC to CCP, free and clear of all liens and encumbrances, of all
assets and contracts that are to be assigned by CTC to CCP, as so identified in
the Disclosure Letter, together with any third party consents that may be
required to effectuate such transfers;
(p) powers of attorney, in form and substance satisfactory to the
Buyer, executed by each of the Sellers in favor of ▇▇▇▇▇ ▇. ▇▇▇▇▇;
(q) letter executed by each of the Sellers and, in form and substance
satisfactory to the Buyer, appointing ▇▇▇▇▇ ▇. ▇▇▇▇▇ as the Sellers' agent for
purposes of receiving and disbursing the Purchase Price;
(r) fully executed counterparts of a letter agreement amending and
modifying that certain Lease Agreement dated January 1, 1997 between CCP and CTC
pertaining to portions of the premises located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇, in form and substance satisfactory to the Buyer;
50
(s) fully executed counterparts of (i) the Escrow Agreement and (ii)
the letter agreement dated as of the Closing Date between CTC and CCP pertaining
to transition services;
(t) IRS Form 8023 (Elections Under Section 338 for Corporation Making
Qualified Stock Purchase), in form and substance satisfactory to Buyer, executed
by each of the Sellers;
(u) such other documents as Buyer may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 9.4 (a), (ii) evidencing the accuracy of any of Sellers' representations
and warranties, (iii) evidencing the performance by each Seller of, or the
compliance by each Seller with, any Pre-Closing covenant or obligation required
to be performed or complied with by such Seller, (iv) evidencing the
satisfaction of any condition referred to in this Section 8, or (v) otherwise
facilitating the consummation or performance of any of the Contemplated
Transactions.
8.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened any Proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
8.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim asserting
that such Person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Acquired Companies, or (b)
is entitled to all or any portion of the Purchase Price payable for the Shares.
8.7 REGULATORY PERMITS.
All permits issued by any federal, state or local regulatory authorities,
including but not limited to permits issued by the Environmental Protection
Agency, used in connection with the business of the Company shall be and remain
in full force and effect notwithstanding the Closing of the sale of the Shares.
8.8 TAX CLEARANCE CERTIFICATE.
The Sellers shall have received a tax clearance certificate for the Company in
each State or other jurisdiction in which the Company pays or may be obligated
to pay taxes, provided such a tax clearance certificate is obtainable.
51
8.9 TERMINATION OF CERTAIN OTHER AGREEMENTS.
The obligations of the Company under each of the Amended and Restated Tax
Payment Agreement dated as of May 27, 2002 among the Company and the Sellers,
the Management Agreement (originally dated January, 1997) with CTC, the December
4, 2000 so-called "Close Corporation Agreement", and the "2002 Key Person
Incentive Plan" shall have been fulfilled and each of the same shall have been
terminated with the consent of all of the parties and/or participants thereto
and with evidence of such termination and consents being provided to the Buyer's
satisfaction.
8.10 TITLE INSURANCE.
The Company shall have received at Buyer's expense an ALTA owners' policy of
title insurance in form reasonably satisfactory to Buyer as to the Company's
Maysville, Kentucky facility, free of all exceptions, liens and encumbrances
except those set forth in Section 3.6 of the Disclosure Letter.
8.11 REPAYMENT OF BANK AND OTHER LONG TERM DEBT.
The holder of all bank and other long term debt of the Company shall have agreed
to the repayment in full and discharge without premium or penalty on the Closing
Date and to the release of all liens, mortgages, security interests or assets of
the Company upon such payments.
8.12 TERMINATION OF GUARANTEES.
All guarantees provided by the Company shall have been terminated without cost
to either the Company or the Buyer.
8.13 SATISFACTION OF OBLIGATIONS UNDER STOCK EQUIVALENT PLAN
Each of the participants in the Stock Equivalent Plan shall have
executed and delivered to the Company a letter, in form and substance
satisfactory to the Buyer, acknowledging and agreeing that the Company shall
have fully-performed its obligations under such plan upon payment of the amounts
set forth in such letter in the manner set forth in such letter and releasing
the Company of all further obligations under the Stock Equivalent Plan effective
upon payment of such amounts.
8.14 ANTI-DUMPING; COUNTERVAILING DUTY
Neither the Company, CTC, nor any of their Related Persons shall have
participated as a petitioner in the initiation of an anti-dumping or
countervailing duty investigation by the International Trade Administration
("ITA") of the U. S. Department of Commerce and/or the International Trade
Commission ("ITC") relating to tissue paper imported from China; and neither the
Company, CTC nor any of their Related Persons shall have expressed their support
for any such investigation in communications with the ITA or ITC.
52
9. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligations to sell the Shares and to take the other actions required
to be taken by Sellers at the Closing is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may be
waived by Sellers, in whole or in part):
9.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties considered
individually), must have been accurate in all material respects as of the date
of this Agreement and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
9.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of the covenants and obligations (considered
individually), must have been performed and complied with in all material
respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to this Agreement and must have made the cash
payments required to be made by Buyer pursuant to Sections 2.4 (b) (i) and 2.4
(b) (ii).
9.3 CONSENTS
Each of the Consents required to be obtained by the Buyer pursuant to this
Agreement, if any, must have been obtained and must be in full force and effect.
9.4 ADDITIONAL DOCUMENTS
Buyer must have caused the following documents to be delivered to Sellers:
(a) an opinion of Vorys, ▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇, LLP dated the
Closing Date, in the form of Exhibit 9.4 (a) hereto.
(b) a fully executed counterpart of the Escrow Agreement and a fully
executed counterpart of the Supply Agreement executed by the Company;
(c) a fully executed counterpart of the KPMG engagement letter referred
to in Section 2.5; and
(d) such other documents as Sellers may reasonably request for the
purpose of (i) enabling their counsel to provide the opinion referred to in
Section 8.4(a), (ii) evidencing the accuracy of any representation or warranty
of Buyer, (iii) evidencing the performance by Buyer of, or the compliance by
Buyer with, any Pre-Closing covenant or obligation required to be performed or
complied with by Buyer, (iv) evidencing the satisfaction of any condition
referred to in this Section 9, or (v) otherwise facilitating the consummation of
any of the Contemplated Transactions.
53
9.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or other
Order that (a) prohibits the sale of the Shares by Sellers to Buyer, and (b) has
been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
10. TERMINATION
10.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has not
been waived;
(b) (i) by Buyer if any of the conditions in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such a condition becomes
impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Sellers, if any of the conditions in Section
9 has not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Sellers to
comply with their obligations under this Agreement) and Sellers have not waived
such condition on or before the Closing Date.
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before October 31,
2002, or such later date as the parties may agree upon.
10.2 EFFECT OF TERMINATION
Each party's right of termination under Section 10.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 10.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Section 12.1
will survive; provided, however, that if this Agreement is terminated by a party
because of the Breach of the Agreement by the other party or because one or more
of the conditions to the terminating party's obligations under this Agreement is
not satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
54
11. INDEMNIFICATION; REMEDIES
11.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this Agreement,
the Disclosure Letter, the supplements to the Disclosure Letter and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
11.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Sellers, jointly and severally, will indemnify and hold harmless Buyer, the
Company, and their then respective Representatives and Related Persons
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Sellers in
this Agreement (without giving effect to any supplement to the Disclosure
Letter), the Disclosure Letter, the supplements to the Disclosure Letter, or any
other certificate or document delivered by Sellers pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Sellers in
this Agreement as if such representation or warranty were made on and as of the
Closing Date without giving effect to any supplement to the Disclosure Letter;
(c) any Breach by a Seller of any covenant or obligation of a Seller in
this Agreement;
(d) any product shipped or manufactured by, or any services provided
by, the Company prior to the Closing Date;
(e) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with either one or more of the
Sellers or the Company (or any Person acting on their behalf) in connection with
any of the Contemplated Transactions;
(f) any other adverse matter relating to either the Company or the
Shares in which the principal event giving rise thereto occurred prior to the
Closing and which results from or arises out of any action or inaction of a
Seller or his or her Representatives prior to the Closing;
55
(g) any claim for indemnification under Sections 7.1, 7.2, or 7.3,
including without limitation the failure of the Company to be treated as an S
Corporation for any period of time through the Closing Date;
(h) the design, operation, or administration of a Company Plan prior to
the Closing Date, regardless of whether any such Damages are discovered or
imposed by the Buyer, the IRS, the Department of Labor, the PBCG, a court, or
any other governmental entity or tribunal, or an independent auditor (whether
discovered or imposed in connection with the operation of a Company Plan,
termination of a Company Plan, or otherwise);
(i) the actual or alleged failure of the Company prior to the Closing
Date to qualify to do business as a foreign corporation and to remain in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, required such qualification as disclosed in Part 3.1
of the Disclosure Letter;
(j) with respect to the Company's real property located in Maysville,
Kentucky, (i) the existence of concrete and asphalt structures that extend
beyond the property line on the east side of the parcel and (ii) the existence
of a permanent drainage and utility easement under the south-west corner of the
building constructed on such property, in each case, as disclosed in Part 3.6 of
the Disclosure Letter and as depicted in the Survey dated September 9, 2002,
prepared by Kleingers & Associates, West ▇▇▇▇▇▇▇, Ohio;
(k) the Company's sponsorship of, or status as a fiduciary or
contributing employer with respect to, The Crystal Tissue Company Hourly
Employee Pension Plan on or before the Closing Date;
(l) the incident that resulted in an injury to ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇, an
employee of the Company, as disclosed in Part 3.10 and elsewhere in the
Disclosure Letter;
(m) the use by the Company of software in excess of the number of
authorized software licenses possessed by the Company, as disclosed in Part 3.10
of the Disclosure Letter;
(n) The Company's actual or alleged liability for Kentucky Use Tax, as
disclosed in Part 3.10 of the Disclosure Letter;
(o) the actual or alleged failure by S&K International Co., Ltd., a
supplier to the Company, to comply with the social compliance policies of
Wal-Mart Stores, Inc., as disclosed in Parts 3.10, 3.17 (D) and elsewhere in the
Disclosure Letter.
(p) any claim asserted against the Company by ▇▇▇▇▇▇ Paper Company of
Mass, Inc or its affiliates ("▇▇▇▇▇▇") arising out of or relating to the verbal
agreement between the Company and ▇▇▇▇▇▇ relating to the Anti-Dumping Claim, as
described in Part 3.12 of the Disclosure Letter, including without limitation
any such claim arising out of the termination prior to the Closing Date or
within forty-five (45) days thereafter of such verbal agreement and/or the
failure or refusal of the Company to support or to participate as a petitioner
in the filing of, or opposition by the Company of, the Anti-Dumping Claim,
regardless of whether such termination, or failure or refusal by the Company or
opposition occurs prior to or subsequent to the Closing Date, but in the case of
termination of said verbal agreement, within forty-five (45) days after the
Closing Date;
56
(q) the actual or alleged failure by the Company prior to the Closing
Date to fully comply with each Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use of any of
its assets, as described in Part 3.14 and elsewhere of the Disclosure Letter;
(r) the omission from the Company's Close Corporation Agreement of a
statement that the shareholders intend to be bound by ORC ss.1701.591, as
disclosed in Part 3.17(C) of the Disclosure Letter;
(s) claims relating to any actual or alleged failure by the Company to
comply with the provisions of its Close Corporation Agreement, in each case, as
disclosed in Part 3.17 (D) of the Disclosure Letter;
(t) the actual or alleged failure of CTC to comply with its NPDES
permit and the State of Ohio's air pollution controls and laws, as disclosed in
Part 3.19 of the Disclosure Letter.
Other than as to either any breach of a covenant of the Sellers set forth in
Section 6 of the Agreement, the remedies set forth in Section 11.3 hereof or any
claim based on fraud or intentional misrepresentation, the indemnification
provided in this Section 11 is exclusive of any other remedies that may be
available to Buyer or the other Indemnified Persons.
11.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS--ENVIRONMENTAL MATTERS
In addition to the provisions of Section 11.2, Sellers, jointly and severally,
will indemnify and hold harmless Buyer, the Company, and the other Indemnified
Persons for, and will pay to Buyer, the Company, and the other Indemnified
Persons the amount of, any Damages (including costs of cleanup, containment, or
other remediation) arising, directly or indirectly, from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising out of or
relating to: (i) the ownership, operation, or condition at any time on or prior
to the Closing Date of the Facilities or any other properties and assets
(whether real, personal, or mixed and whether tangible or intangible) in which
Sellers or the Company has or had an interest, or (ii) any Hazardous Materials
or other contaminants that were present on the Facilities or such other
properties and assets at any time on or prior to the Closing Date; or (iii) any
Hazardous Materials or other contaminants, wherever located, that were, or were
allegedly, generated, transported, stored, treated, Released, or otherwise
handled by Sellers or the Company or by any other Person for whose conduct they
are or may be held responsible at any time on or prior to the Closing Date, or
(iv) any Hazardous Activities that were, or were allegedly, conducted by Sellers
or the Company or by any other Person for whose conduct they are or may be held
responsible; or
57
(b) any bodily injury (including illness, disability, and death, and
regardless of when any such bodily injury occurred, was incurred, or manifested
itself), personal injury, property damage (including trespass, nuisance,
wrongful eviction, and deprivation of the use of real property), or other damage
of or to any Person, including any employee or former employee of Sellers or the
Company or any other Person for whose conduct they are or may be held
responsible, in any way arising from or allegedly arising from any Hazardous
Activity conducted or allegedly conducted with respect to the Facilities or the
operation of the Company prior to the Closing Date, or from Hazardous Material
that was (i) present or suspected to be present on or before the Closing Date on
or at the Facilities (or present or suspected to be present on any other
property, if such Hazardous Material emanated or allegedly emanated from any of
the Facilities and was present or suspected to be present on any of the
Facilities on or prior to the Closing Date) or (ii) Released or allegedly
Released by Sellers or the Company or any other Person for whose conduct they
are or may be held responsible, at any time on or prior to the Closing Date.
Buyer will be entitled to control any Cleanup, any related Proceeding, and,
except as provided in the following sentence, any other Proceeding with respect
to which indemnity may be sought under this Section 11.3. The procedure
described in Sections 11.9 or 11.10, as the case may be, will apply to any claim
solely for monetary damages relating to a matter covered by this Section 11.3.
11.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers the
amount of any Damages arising, directly or indirectly, from or in connection
with (a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any breach of any representation or warranty made by Buyer in this Agreement
as if such representation or warranty was made on and as of the Closing Date,
(c) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement, (d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions, (e) the Breach
by the Buyer of any obligation it may have pursuant to Section 2.5(c) of the
Agreement or (f) any other adverse matter relating to the Company in which the
principal event giving rise thereto occurred after the Closing and which results
from or arises out of any action or inaction of the Buyer after the Closing.
Other than a claim based on fraud or intentional misrepresentation, the remedies
provided in this Section 11.4 are exclusive of any other remedies that may be
available to any of the Sellers.
11.5 TIME LIMITATIONS
Following Closing, Sellers will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, other
than those Breached by reason of a fraudulent act or intentional
misrepresentation and those in Sections 3.1, 3.2, 3.3, 3.5, 3.6, 3.11, 3.13,
3.14, 3.19, 11.2(g), 11.2(h), 11.2(j), 11.2(k), 11.2(m), 11.2(n), 11.2(o),
11.2(p), 11.2(q), 11.2(t) or 11.3, unless on or before the second anniversary of
the Closing Date, Buyer notifies Sellers of a claim specifying the factual basis
of that claim in reasonable detail to the extent then known by Buyer. A claim
with respect to Section 3.3 shall survive without limitation as to time. A claim
with respect to either Sections 3.1, 3.2, 3.5, 3.6, 3.11, 3.13, 3.14, 11.2 (g),
11.2(h), 11.2(j), 11.2(k), 11.2(m), 11,2(n), 11.2(p), 11.2(q), and 11.2(t) or a
claim for indemnification or reimbursement based upon any covenant or obligation
to be performed and complied with following the Closing Date, may be made at any
time up to the expiration of any applicable statute of limitations, except that
to the extent the same relates to Sections 3.11 or 7, a claim may be made within
sixty (60) days following the expiration of any applicable statute of
limitations. A claim with respect to Sections 3.19 or 11.3 may be made on or
before the tenth anniversary of the Closing Date. A claim with respect to
Section 11.2(o) may be made on or prior to the first anniversary of the Closing
Date. However, if any of the foregoing claims relates to a Breach by reason of a
fraudulent act or intentional misrepresentation, such claim may be made at any
time up to the expiration of any applicable statute of limitations.
58
Following Closing, Buyer will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, unless
on or before the second anniversary of the Closing Date, Sellers notify Buyer of
a claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Sellers.
11.6 LIMITATIONS ON AMOUNT--SELLERS
Sellers will have no liability (for indemnification or otherwise) with respect
to the matters described in Sub-Sections 11.2 (a), (b), (f), (i), (l), (m) and
(s) until the total of all Damages with respect to such matters exceeds
$265,000, and then and thereafter the Sellers shall have liability for such
Damages exceeding $265,000. To the extent that the Company collects an Accounts
Receivable as to which Sellers theretofore had in fact paid a claim for
indemnification to the Buyer in accordance with this Section 11, the net amount
so received by the Company on such claim for indemnification (net of all of its
expenses relating to the cost of collection) as to such Account Receivable shall
be paid to the Sellers. However, this Section 11.6 limitation will not apply to
(a) any Breach of any of Sellers' representations and warranties of which any
Seller had Knowledge at any time prior to the date on which such representation
and warranty is made; or (b) relating to any intentional Breach or fraudulent
act by any Seller; or (c) as to any Breach of Sellers' representations and
warranties with respect to either Sections 3.1, 3.2, 3.3, 3.5, 3.6, 3.11, 3.13,
3.14 or 3.19. Sellers will be jointly and severally liable for all Damages with
respect to each such Breach described in the immediately preceding sentence.
This Section 11.6 limitation will also not apply as to a Breach by the Buyer of
any obligation it may have pursuant to Section 2.5(c) of the Agreement.
11.7 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with respect to
the matters described in Section 11.4 until the total of all Damages with
respect to such matters exceeds $265,000, and then and thereafter the Buyer
shall have liability for such Damages exceeding $265,000. However, this Section
11.7 limitation will not apply to (a) any Breach of any of Buyer's
representations and warranties of which Buyer had Knowledge at any time prior to
the date on which such representation and warranty is made; or (b) relating to
any intentional Breach or fraudulent act by Buyer, or (c) as to any Breach of
any covenant or other obligations of the Buyer set forth herein. Buyer will be
liable for all Damages with respect to such Breaches described in the
immediately preceding sentence.
59
11.8 ADDITIONAL LIMITATION ON AMOUNT - Other than by reason of an act of fraud
or an intentional Breach of this Agreement, the Sellers on the one hand, and the
Buyer on the other hand shall not be liable for Damages exceeding $2,650,000.
However, anything of the foregoing to the contrary notwithstanding, the
limitation on Damages set forth in the immediately preceding sentence shall not
apply to any Breach of Sellers' representations and warranties with respect to
either Sections 3.1, 3.2, 3.3, 3.5, 3.6, 3.11, 3.13 or 3.14 (however, as to
Section 3.14, the non-applicability of the limitation on Damages shall only be
effective as to any claimed violation of a Legal Requirement by a Governmental
Body) or with respect to any Breach of any covenant or obligation of any Seller
in either Sections 11.2(g), 11.2(h), 11.2(j), 11.2(k), 11.2(n), 11.2(o),
11.2(p), 11.2(q) or 11.2(r).
11.9 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 11.2,
11.4, or (to the extent provided in the last sentence of Section 11.3) Section
11.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's failure to give
such notice.
(b) If any Proceeding referred to in Section 11.9(a) is brought against
an indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 11 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within ten
(10) days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party.
60
(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Sellers hereby consent to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this Agreement
with respect to such Proceeding or the matters alleged therein, and agree that
process may be served on Sellers with respect to such a claim anywhere in the
world.
11.10 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
12. GENERAL PROVISIONS
12.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. The Sellers will pay all amounts payable to their
investment banker, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co., in connection with this Agreement and
the Contemplated Transactions. Sellers will cause the Company not to incur any
out-of-pocket expenses in connection with this Agreement.
12.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Buyer determines. Unless consented to by Buyer in advance or
required by Legal Requirements, Sellers shall keep this Agreement strictly
confidential and may not make any disclosure of this Agreement to any Person.
61
12.3 DESIGNATION OF SELLERS' ATTORNEY IN FACT AND NOTICES
(a) Attached hereto as Composite Exhibit 12.3 is a power of attorney
executed by each of the Sellers except ▇▇▇▇▇ ▇. ▇▇▇▇▇, designating ▇▇▇▇▇ ▇.
▇▇▇▇▇ as attorney in fact for each of the Sellers for all purposes pursuant to
this Agreement and this contemplated Transaction. Each such power of attorney
shall in accordance with its provisions remain in full force and effect and
Buyer shall be entitled to rely upon the same until the Buyer receives actual
notice of its termination.
(b) All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with confirmation of receipt), provided that a copy is mailed by certified
mail, or (c) when received by the addressee, if sent by a nationally recognized
overnight delivery service, in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties):
Sellers:
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, individually and as attorney in fact
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ PLLC
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
2800 Chemed Center
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Buyer:
▇▇▇▇ Inc
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
62
with a copy to:
CSS Industries, Inc.
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇,
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇.
12.4 ARBITRATION
Except (a) as otherwise provided in Section 2.5 with respect to the Final
Determination and (b) as otherwise provided in Section 6.4 with respect to
equitable relief, all disputes among the parties hereunder shall be settled by
arbitration before one arbitrator pursuant to the Commercial Arbitration Rules
of the American Arbitration Association in Philadelphia, Pennsylvania; provided,
however, that any award pursuant to such arbitration shall be accompanied by a
written opinion of the arbitrator giving the reasons for the award. The award
rendered by the arbitrator shall be conclusive and binding upon the parties
hereto. Nothing herein shall prevent the Buyer and the Sellers from settling any
dispute by mutual agreement at any time. Each party shall pay its own expenses
of arbitration and the expenses of the arbitrator shall be equally shared.
12.5 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
12.6 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by a party, in
whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by all of the other parties; (b) no waiver that may be given by a
party will be applicable except in the specific instance for which it is given;
and (c) no notice to or demand on a party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
63
12.7 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with respect
to its subject matter (including the Letter of Interest between Buyer and
Sellers dated August 2, 2002) and constitutes (along with the documents referred
to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
12.8 DISCLOSURE LETTER
(a) The disclosures in the Disclosure Letter, and those in any
Supplement thereto, must relate only to the representations and warranties in
the Section of the Agreement to which they expressly relate and not to any other
representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
12.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties except that Buyer may assign any of its
rights under this Agreement to any Related Person of the Buyer. Subject to the
preceding sentence, this Agreement will apply to, be binding in all respects
upon, and inure to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement will be construed to
give any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement. This Agreement and all of its provisions and conditions are
for the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
12.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
12.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
64
12.12 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
12.13 GOVERNING LAW
This Agreement will be governed by the laws of the State of Ohio without regard
to conflicts of laws principles.
12.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
65
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
Buyer: Sellers:
▇▇▇▇ Inc
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------- -----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/ Alexandra ▇▇▇▇ ▇▇▇▇▇
-----------------------------------
Alexandra ▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ O'▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------
▇▇▇▇▇ O'▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
66
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
Trust f/b/o ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
u/t/a dated December 1, 2000
By: /s/ C. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
C. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Trustee
Trust f/b/o ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
u/t/a dated December 1, 2000
By: /s/ C. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
C. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Trustee
Trust f/b/o ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
u/t/a dated December 1, 2000
By: /s/ ▇. ▇▇▇▇▇▇▇ FitxHugh
-------------------------------
C. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Trustee
67
Trust f/b/o ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
u/t/a dated December 1, 2000
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee
Trust f/b/o ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
u/t/a dated December 1, 2000
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee
Trust f/b/o ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
u/t/a dated December 1, 2000
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee
Trust f/b/o ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
u/t/a dated December 1, 2000
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇, Trustee
Trust f/b/o ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
u/t/a dated December 1, 2000
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇, Trustee
Trust f/b/▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
u/t/a dated December 1, 2000
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇, Trustee
68
EXHIBITS
Exhibit 2.4(a)(ii) Sellers Releases
Exhibit 2.4(a)(iii) Consulting Agreement - ▇▇▇▇▇ ▇. ▇▇▇▇▇
Exhibit 2.4(d) Escrow Agreement
Exhibit 8.4(a) Opinion of ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ PLLC
Exhibit 9.4(a) Opinion of Vorys, ▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇ LLP
Composite Exhibit 12.3 Power of Attorney designating ▇▇▇▇▇ ▇. ▇▇▇▇▇ attorney
in fact
69