Exhibit 2.1
STOCK PURCHASE AGREEMENT
dated as of
April 5, 2006
by and among
▇-▇▇▇-▇▇▇▇▇▇▇.▇▇▇, INC.,
FMCB Acquisition Co., Inc.
▇▇▇▇▇▇ MAY CONFECTIONS BRANDS, INC.
(formerly known as ALPINE CONFECTIONS, INC.),
ALPINE CONFECTIONS HOLDINGS, INC.,
ALPINE CONFECTIONS CANADA, ULC,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ COMPANY,
KENCRAFT, INC.,
THE SECURITYHOLDERS OF
▇▇▇▇▇▇ MAY CONFECTIONS BRANDS, INC.
(formerly known as ALPINE CONFECTIONS, INC.)
WHOSE NAMES ARE SET FORTH ON
THE SIGNATURE PAGES HERETO
and
R. ▇▇▇ ▇▇▇▇▇▇, as
THE SELLERS' REPRESENTATIVE
-ii-
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS..................................................1
1.1 Definitions..................................................1
SECTION 2. PURCHASE AND SALE OF SECURITIES.............................10
2.1 Purchase and Sale of Securities.............................10
2.2 Closing.....................................................11
2.3 Purchase Price Adjustment...................................13
2.4 Contingent Payments.........................................15
2.5 Allocation of Purchase Price and Other Amounts..............17
2.6 Withholding.................................................18
SECTION 3. REPRESENTATIONS AND WARRANTIES REGARDING SELLERS............18
3.1 Organization and Good Standing..............................18
3.2 Power and Authorization.....................................18
3.3 No Conflicts................................................18
3.4 Ownership of the Securities.................................19
3.5 Brokers.....................................................19
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY AND
ITS SUBSIDIARIES............................................20
4.1 Organization and Good Standing..............................20
4.2 Power and Authorization.....................................20
4.3 No Conflicts................................................20
4.4 Capitalization..............................................21
4.5 Compliance with Laws........................................22
4.6 Litigation..................................................22
4.7 Financial Statements........................................23
4.8 Accounts Receivable.........................................25
4.9 Inventory...................................................25
4.10 Absence of Certain Changes and Events.......................26
4.11 Product Recalls.............................................27
4.12 Real Property...............................................27
4.13 Personal Property; Bank Accounts............................28
4.14 Material Contracts..........................................28
4.15 Insurance...................................................30
4.16 Intellectual Property.......................................30
4.17 Suppliers...................................................31
4.18 Labor Matters...............................................32
4.19 Employee Benefits...........................................33
4.20 Directors, Officers and Employees...........................34
4.21 Affiliate Agreements........................................34
4.22 Environmental Matters.......................................35
4.23 Books and Records...........................................36
4.24 Brokers.....................................................36
4.25 Condition and Sufficiency of Assets.........................36
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER AND GUARANTOR.......36
5.1 Organization and Good Standing..............................36
5.2 Power and Authorization.....................................37
5.3 No Conflicts................................................37
5.4 Acquisition of Securities for Investment....................38
5.5 Brokers.....................................................38
5.6 Financing...................................................38
5.7 Investigation by Buyer......................................38
5.8 WARN Act....................................................38
SECTION 6. COVENANTS OF THE COMPANY AND SELLERS........................38
6.1 Conduct of Business Pending Closing.........................38
6.2 Negative Covenants Pending Closing..........................39
6.3 Access to Information.......................................41
6.4 Consents and Governmental Authorizations....................42
6.5 Financial Information.......................................42
6.6 No Shop.....................................................42
6.7 Confidential Information....................................43
6.8 Pre-Closing Deliverables....................................43
6.9 Indebtedness; Termination of Agreements.....................43
6.10 Ownership and Change of Name................................44
SECTION 7. ADDITIONAL COVENANTS OF THE PRINCIPAL STOCKHOLDERS AND
THE GUARANTORS..............................................44
7.1 Records.....................................................44
7.2 Post-Closing Agreements.....................................44
SECTION 8. COVENANTS OF BUYER..........................................45
8.1 Governmental Authorizations.................................45
8.2 Notice of Breach; Failure to Satisfy Closing Condition......45
SECTION 9. ADDITIONAL COVENANTS OF BUYER, THE COMPANY AND SELLERS......45
9.1 Further Assurances..........................................45
9.2 Public Announcements........................................45
9.3 HSR Filings.................................................46
9.4 Release.....................................................46
SECTION 10. TAX MATTERS.................................................46
10.1 Tax Representations of the Company..........................46
10.2 Tax Covenants of the Principal Stockholders and the Company.49
10.3 Tax Contests................................................50
10.4 Cooperation.................................................51
10.5 Allocation of Straddle Period Taxes.........................51
10.6 Transfer Taxes..............................................52
SECTION 11. CLOSING CONDITIONS..........................................52
11.1 Conditions to Obligation of Buyer...........................52
11.2 Conditions to Obligation of Sellers.........................54
11.3 Frustration of Closing Conditions...........................55
SECTION 12. TERMINATION AND ABANDONMENT.................................55
12.1 Termination.................................................55
12.2 Procedure for Termination...................................56
SECTION 13. INDEMNIFICATION.............................................56
13.1 Indemnification with Respect to Sellers.....................56
13.2 Indemnification with Respect to the Company.................56
13.3 Indemnification by Buyer....................................58
13.4 Inter-Party Claims..........................................58
13.5 Third Party Claims..........................................58
13.6 Limitations and Requirements................................59
13.7 Calculation and Mitigation of Damages.......................60
13.8 Termination of Indemnification..............................61
13.9 Escrow Account..............................................61
13.10 Right of Set-Off............................................61
13.11 Tax Treatment of Indemnification Payments...................62
SECTION 14. THE SELLERS' REPRESENTATIVE.................................62
14.1 The Sellers' Representative.................................62
14.2 No Reliance.................................................63
SECTION 15. MISCELLANEOUS...............................................63
15.1 Survival of Representations and Warranties..................63
15.2 Costs and Expenses..........................................63
15.3 Notices.....................................................64
15.4 Assignment..................................................65
15.5 Amendment, Modification and Waiver..........................65
15.6 Governing Law...............................................66
15.7 Waiver of Jury Trial........................................66
15.8 Consent to Jurisdiction.....................................66
15.9 Section Headings and Defined Terms..........................66
15.10 Severability................................................66
15.11 Counterparts; Third-Party Beneficiaries.....................67
15.12 Entire Agreement............................................67
15.13 Seller Guaranty.............................................67
15.14 Buyer Guaranty..............................................67
EXHIBITS
Exhibit I Form of Escrow Agreement
Exhibit II Post-Closing Agreements
Exhibit III Consents
Exhibit IV Independent Accounting Firm
Exhibit V Maximum Indemnifiable Damages
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of April 5, 2006 (this
"Agreement"), by and among ▇▇▇▇▇▇ May Confections Brands, Inc. (formerly known
as Alpine Confections, Inc.), a Utah corporation (the "Company"), Alpine
Confections Holdings, Inc., a Utah corporation ("Holdings"), Alpine Confections
Canada, ULC, a Nova Scotia unlimited liability company ("Dynamic"), ▇▇▇▇▇▇▇▇
▇▇▇▇▇ Company, a Utah corporation ("▇▇▇▇▇▇▇▇"), Kencraft, Inc., a Utah
corporation ("Kencraft" and, together with Holdings, Dynamic and ▇▇▇▇▇▇▇▇, the
"Guarantors"), each of the entities and individuals set forth in Section 2.1 of
the Disclosure Schedule (each, a "Seller," and collectively, the "Sellers"),
FMCB Acquisition Co., Inc., a Delaware corporation ("Buyer"), 1-800 ▇▇▇▇▇▇▇.▇▇▇,
Inc., a Delaware corporation ("Parent"), and R. ▇▇▇ ▇▇▇▇▇▇ (the "Sellers'
Representative"), in his capacity as the Sellers' Representative appointed
pursuant to Section 15. Certain terms used herein are defined in Section 1.1
hereof.
BACKGROUND
Collectively, Sellers are the record and beneficial owners of all of
the outstanding shares of capital stock and Warrants of the Company.
The parties hereto desire to provide for the acquisition by Buyer of
the Company through the sale by Sellers to Buyer of all the outstanding shares
of capital stock and Warrants of the Company, and for certain other matters, all
on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1.........DEFINITIONS
1.1 Definitions.
(a) The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person. For purposes of this definition, "control," when used with respect to
any Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have correlative meanings. Notwithstanding the foregoing, for
purposes of this Agreement, neither the Company nor any Subsidiary shall be
considered an Affiliate of any Seller, the Company or any other Subsidiary.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in New York, New York are authorized or required by
Law to close.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Completion Bonus Agreement" means the Completion Bonus Agreement,
dated as of April 5, 2006, between ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and the Company.
"Confidentiality Agreement" means that certain letter agreement, dated
as of October 19, 2005, by and between Paragon Capital Partners, LLC, on behalf
of and as financial advisor to, the Company, and Buyer.
"Consent" means any approval, consent, license, permit, franchise,
grant, waiver, or other authorization (including any Governmental
Authorization).
"Current Assets" with respect to the Company and the Retained
Subsidiaries means, as of the applicable date, without duplication, the sum of
the following items: (i) cash, (ii) accounts receivable, (iii) inventories and
(iv) prepaid expenses and other current assets, except any Tax assets (including
Tax refunds and deferred Tax assets), in each case, as such terms are used and
calculated in accordance with GAAP, applied on a basis consistent with past
practice.
"Current Liabilities" with respect to the Company and Retained
Subsidiaries means, as of the applicable date, without duplication, the sum of
the following items, (i) accounts payable and (ii) accrued current liabilities
and other accrued expenses, including any accrued Taxes, in each case, as such
terms are used and calculated in accordance with GAAP, applied on a basis
consistent with past practice; provided, however, that amounts owed to ▇▇▇▇▇
▇▇▇▇▇▇▇▇ pursuant to the Completion Bonus Agreement shall not be regarded as, or
counted in determining, Current Liabilities.
"Disclosure Schedule" means the Disclosure Schedule attached hereto,
dated as of the date hereof, delivered by the Company, on the one hand, or
Buyer, on the other hand, as the case may be, to the other party pursuant to
this Agreement prior to the execution hereof, as such Disclosure Schedule may be
modified pursuant to Section 6.11.
"Distribution" means the dividend or distribution of all of the capital
stock of KDM Holdings, Inc., and of any other KDM Subsidiary not owned by KDM
Holdings, Inc., to the current shareholders of the Company.
"Earn-Out Period" means, individually, Earn-Out Period One or Earn-Out
Period Two.
"EBITDA" means, with respect to the Company, for any period, the sum
(without duplication) of (i) the aggregate net income (or loss) of the Company
and the Retained Subsidiaries for such period on a consolidated basis,
determined in accordance with GAAP; and (ii) to the extent such net income has
been reduced thereby, (a) all income taxes of the Company and the Retained
Subsidiaries paid or accrued in accordance with GAAP for such period, (b) the
aggregate of the interest expense of the Company and the Retained Subsidiaries
for such period determined on a consolidated basis in accordance with GAAP and
(c) the aggregate depreciation, amortization and other non-cash expenses of the
Company and the Retained Subsidiaries reducing such net income for such period,
determined on a consolidated basis in accordance with GAAP less any such
non-cash items increasing such net income for such period; provided, however,
that EBITDA shall specifically exclude and shall be calculated without regard to
(i) management or similar fees charged to the Company by Buyer or any of its
Affiliates, (ii) fees and expenses incurred by Buyer, the Company or any of the
Retained Subsidiaries in connection with the drafting, negotiation, execution,
delivery, performance and enforcement of this Agreement (including, without
limitation, costs of resolving any disputes related to this Agreement) and the
other Transaction Documents or the consummation of the transactions contemplated
herein or therein, including legal fees and accounting advisory fees, (iii)
expenses discharged by payment to Buyer from the General Escrow Amount, (iv)
allocations of overhead or other intercompany expenses charged to the Company
other than intercompany charges for reasonable out-of-pocket costs incurred by
Buyer or any of its Affiliates on behalf of the Company or either of the
Retained Subsidiaries, and (v) amounts paid to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ pursuant to the
Completion Bonus Agreement.
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"Encumbrance" means any mortgage, deed of trust, pledge, lien, security
interest, charge, encumbrance, community property interest or restriction on
use, voting, transfer or receipt of income.
"Environment" means indoor air, ambient air, surface water,
groundwater, drinking water, land surface, subsurface strata and natural
resources such as wetlands, flora and fauna.
"Environmental Laws" means all Laws concerning or relating to
pollution, the protection of the Environment, including natural resources, or
human health, including, without limitation, those relating to the manufacture,
use, generation, distribution, treatment, storage, disposal, handling,
transport, Release or threat of Release of Hazardous Materials.
"GAAP" means United States generally accepted accounting principles
applied consistently with those used to prepare the Audited Consolidated
Financial Statements.
"Governmental Authorization" means any approval, consent, license,
permit, franchise, grant, waiver, or other authorization issued, granted, given,
or otherwise made available by or under the authority of any Governmental Body
or pursuant to any Laws.
"Governmental Body" means any foreign or United States federal, state,
provincial, local, municipal, or other government, governmental, regulatory or
administrative agency, instrumentality, authority or commission, or any court,
tribunal or judicial or arbitral body.
"▇▇▇▇▇ London NOL" means the net operating loss of $1,425,596 incurred
by ▇▇▇▇▇ London Candies, Inc. prior to August 5, 2003.
"Hazardous Materials" means any chemical, material, waste, pollutant,
contaminant, compound or substance regulated or which can give rise to liability
under any Environmental Laws, including, without limitation, petroleum, crude
oil or any fraction thereof, gasoline, diesel fuel, hydrocarbons, asbestos or
asbestos-containing material or polychlorinated biphenyls.
"Independent Accounting Firm" means a mutually agreeable partner (not
previously engaged by the Company or Buyer) of an accounting firm listed on
Exhibit IV hereto, or such other independent accounting firm as may be mutually
agreed upon by the Sellers' Representative and Buyer.
"Intellectual Property" means all Marks, Patents, Copyrights, Software,
Domain Registrations, and Trade Secrets of the Company and the Retained
Subsidiaries.
"KDM Subsidiaries" means, collectively, KDM Holdings, Inc., a Utah
corporation, Alpine Confections Holdings, Inc., a Utah corporation, Alpine
Confections Canada, ULC, a Nova Scotia unlimited liability company, ▇▇▇▇▇▇▇▇
▇▇▇▇▇ Company, a Utah corporation, and Kencraft, Inc., a Utah corporation.
"Knowledge" means (i) with respect to an individual, any particular
fact or matter of or about which (a) such individual is actually aware or (b) a
prudent individual could be expected to discover or otherwise become aware in
the course of conducting a reasonable inquiry concerning the existence of such
fact or matter and (ii) with respect to any Person (other than an individual)
any particular fact or matter of or about which any individual serving as a
director or senior executive officer of such Person has Knowledge.
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"Laws" means any law (including principles of common law),
constitution, statute, regulation, ordinance, certificate, judgment, order,
award or other decision or requirement of any Governmental Body.
"Line of Credit" means the Second Amended and Restated Credit
Agreement, dated as of December 30, 2005, by and among Alpine Confections, Inc.,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Company, Kencraft, Inc, ▇▇▇▇▇ London Candies, Inc., Alpine
Confections Holdings, Inc., ▇▇▇▇▇▇ May Confections, Inc., Alpine Confections
Canada ULC, the Lenders party thereto, and Delaware Street Capital Master Fund,
L.P, as agent for the Lenders.
"Material Adverse Effect" means a material adverse effect on (i) the
business, operations, properties, assets, liabilities, results of operations,
financial condition or prospects of the Company and the Retained Subsidiaries,
taken as a whole or (ii) the ability of the Company or any Stockholder to enter
into or consummate the transactions contemplated by this Agreement or any other
Transaction Document; provided, however, that any such effect to the extent
primarily attributable to any change, effect, event or condition (a) generally
applicable to financial, banking or securities markets, (b) expressly
contemplated by the terms of this Agreement or any other Transaction Document or
approved by Buyer in writing or (c) resulting from the engagement by the United
States in hostilities, whether or not pursuant to the declaration of a national
emergency or war, or resulting from the occurrence of any military or terrorist
attack upon the United States, in any such case, shall not constitute a
"Material Adverse Effect." Notwithstanding the foregoing, the Company or the
Stockholders may include in the Disclosure Schedule or elsewhere disclosure with
respect to items that would not have a Material Adverse Effect within the
meaning of the previous sentence, and this inclusion shall not be deemed to be
an acknowledgement by the Company or the Stockholders that these items, or any
of them, would have a Material Adverse Effect or further change, amend or define
the meaning of the term Material Adverse Effect for purposes of this Agreement.
"▇▇▇▇▇▇ Family Partnership" means ▇▇▇▇▇▇ Family Partnership, a Utah
Limited Partnership.
"Net Working Capital" means (i) Current Assets minus (ii) Current
Liabilities.
"Ownership Percentage" means, with respect to any Seller, the fraction,
expressed as a percentage, the numerator of which is an amount equal to the
gross proceeds received by such Seller in connection with the sale of the Shares
and Warrants held by such Seller, and the denominator of which is an amount
equal to the Total Purchase Price. Each Seller's Ownership Percentage is set
forth across from each Seller's name on Section 2.1 of the Disclosure Schedule.
"Payoff Amount" means the aggregate amount of all indebtedness and
other amounts (including all related Termination Fees) to be repaid by the
Company or any Subsidiary at the Closing to the parties specified in the Payoff
Letters.
"Payoff Letters" means the payoff letters required to be provided
pursuant to Section 6.8 from: (i) Delaware Street Capital Master Fund, L.P.,
indicating the amount required to discharge in full all amounts and other
obligations due to Delaware Street Capital Master Fund, L.P. as of the Closing
Date under the Line of Credit, in form and substance reasonably satisfactory to
Buyer; (ii) LaSalle Business Credit LLC, indicating the amount required to
discharge in full all amounts and other obligations due to LaSalle Business
Credit LLC as of the Closing Date under the Loan and Security Agreement, dated
as of December 30, 2005, by and among LaSalle Business Credit LLC, ▇▇▇▇▇▇ May
Confections, Inc., Alpine Confections, Inc. Kencraft, Inc., ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Company, Alpine Confections Holdings, Inc., ▇▇▇▇▇ London Candies, Inc. and
Alpine Confections Canada ULC, in form and substance reasonably satisfactory to
Buyer; and (iii) Halperin ▇▇▇▇▇▇▇▇▇ Raicht, LLP (formerly known as Halperin &
4
Associates), as Creditors' Committee Distribution Representative for the benefit
of the holders of Allowed Class 3.1 General Unsecured Claims, indicating the
amount required to discharge in full all amounts and other obligations due to
Halperin ▇▇▇▇▇▇▇▇▇ Raicht, LLP (formerly known as Halperin & Associates), as
Creditors' Committee Distribution Representative for the benefit of the holders
of Allowed Class 3.1 General Unsecured Claims, as of the Closing Date under the
Unsecured Promissory Note dated as of August 5, 2003, between ▇▇▇▇▇ London
Candies, Inc. and Halperin & Associates, in form and substance reasonably
satisfactory to Buyer.
"Per Share Purchase Price" means, with respect to each Share, the
quotient obtained by dividing: (i) the sum of (A) the Total Purchase Price and
(B) the product of (x) the number of shares of Common Stock issuable upon
exercise in full of the Warrants in accordance with their terms as of the
Closing (without giving effect to the cashless or net exercise feature of such
Warrants) and (y) $0.01 by (ii) the sum of (A) the number of Shares outstanding
immediately prior to the Closing and (B) the number of shares of Common Stock
issuable upon exercise in full of the Warrants in accordance with their terms as
of the Closing (without giving effect to the cashless or net exercise feature of
such Warrants).
"Per Warrant Purchase Price" means, with respect to each Warrant, (i)
the product of (A) the number of shares of Common Stock issuable upon the
exercise in full of such Warrant in accordance with its terms as of the Closing
(without giving effect to the cashless or net exercise feature of such Warrant)
and (B) the Per Share Purchase Price minus (ii) the product of (A) the number of
shares of Common Stock issuable upon the exercise in full of such Warrant in
accordance with its terms as of the Closing (without giving effect to the
cashless or net exercise feature of such Warrant) and (B) $0.01.
"Permitted Encumbrances" means (i) Encumbrances for Taxes and other
governmental charges and assessments that are not yet due and payable, and
Encumbrances for current Taxes and other charges and assessments of any
Governmental Body that may thereafter be paid without penalty or that are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been established on the Company's consolidated books and records,
(ii) Encumbrances of landlords and Encumbrances of carriers, warehousemen,
mechanics and materialmen and other like Encumbrances arising in the ordinary
course of business securing payments not yet due and payable or being contested
in good faith by appropriate proceedings and for which adequate reserves have
been established on the Company's consolidated books and records, (iii) other
Encumbrances or imperfections of title to or on property that are not material
in amount and do not individually or in the aggregate materially detract from
the value of or impair in any material respect the existing use of the property
affected by such Encumbrance or imperfection, (iv) all local and other building
and zoning Laws now or hereafter in effect relating to or affecting any real
property; provided they do not individually or in the aggregate materially
detract from the value of the business of the Company or interfere with the
ordinary conduct of the business of the Company, (v) all leases, subleases,
licenses and occupancy and/or use agreements affecting any real property (or any
portion thereof) which are identified on the Disclosure Schedule, (vi) all
service contracts and agreements affecting any real property which are
identified on the Disclosure Schedule, (vii) Encumbrances reflected in the
contracts identified in Section 4.14 of the Disclosure Schedule or which are
disclosed in the notes accompanying the Audited Consolidated Financial
Statements and (viii) Encumbrances securing any of the indebtedness or other
obligations to be repaid pursuant to Section 6.9.
"Person" means 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.
"Personally Identifiable Data" means the names, addresses, email
addresses, telephone numbers, and fax numbers of any individuals, or any other
data likely to substantially identify any individual, together with any other
5
information about an individual which is combined with or linked to any of the
foregoing information, including, but not limited to, customer lists, mailing
lists, telemarketing lists, email lists, customer or prospective customer
databases, credit reports, data regarding purchases of identified customers, and
databases or records of website usage by users who are identified by any of the
foregoing information.
"Post-Closing Period" means any taxable year or other taxable period
that begins after the Closing Date and, with respect to any Straddle Period, the
portion of such Straddle Period beginning after the Closing Date.
"Pre-Closing Period" means any taxable year or other taxable period
that ends on or before the Closing Date and, with respect to any Straddle
Period, the portion of such Straddle Period ending on and including the Closing
Date.
"Principal Stockholders" means, collectively, R. ▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇▇▇.
"Reference Net Working Capital" means $8,484,000.
"Related Party" means (i) any Seller, (ii) any director, officer,
general partner or managing member of a Selling Entity, or of the Company, any
Subsidiary or any of their respective Affiliates and (iii) any member of the
immediate family of a Person included in (i) and (ii). For purposes of this
definition, the "immediate family" of an individual includes only the
individual's spouse, parents, children and siblings.
"Release" means any spilling, leaking, seepage, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, depositing, dispersing or migrating in, into, onto or through the
Environment.
"Representative" means, 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.
"Reserve Amount" means $250,000.
"Retained Subsidiaries" means, collectively, ▇▇▇▇▇ London Candies,
Inc., an Ohio corporation, and ▇▇▇▇▇▇ May Confections, Inc., a Delaware
corporation.
"Selected Management Personnel" means each of ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇.
"Selling Entities" means all Sellers other than Sellers that are
natural persons.
"Software" means all computer programs (whether in source code or
object code form), databases, compilations and data, and all documentation
related to any of the foregoing that is owned, leased, used or held by, granted
to or licensed by the Company or any Subsidiary.
"Stockholders" means, collectively, R. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, the
▇▇▇▇▇▇ Family Partnership, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇.
"Stockholder Agreement" means the Amended and Restated Shareholders'
Agreement, entered into as of November 16, 2005, by and among R. ▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇, the ▇▇▇▇▇▇ Family Partnership, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Capital Advisors, L.P., Delaware Street Capital Advisors Master
Fund, L.P. and Alpine Confections, Inc.
6
"Straddle Period" means any taxable year or other taxable period that
includes but does not end on the Closing Date.
"Subsidiary" means, at any time, any corporation, partnership, joint
venture, business trust or other entity of which the Company, at such time,
directly or indirectly owns or controls more than 50% of the voting stock or
equivalent ownership interest or the assets and liabilities of which, at such
time, are consolidated in the Company's consolidated financial statements.
"Tax" means (i) all federal, state, local or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use, ad
valorem, transfer, franchise, capital, paid-up capital, license, greenmail,
excise, stamp, occupation, premium, escheat, environmental, social security,
employment, unemployment, estimated, withholding, custom duty or other taxes,
governmental fees or other like assessments together with any interest,
additions or penalties with respect thereto; and (ii) all transferee, successor,
joint and several, contractual or other liability (including, without
limitation, liability pursuant to Treasury Regulation Section 1.1502-6 (or any
similar state, local or foreign provision)) with respect to any item described
in clause (i).
"Tax Returns" means all reports, returns, statements, and forms with
respect to Taxes.
"Termination Fees" means all termination, breakage and other fees and
charges, expenses and other amounts in respect of indebtedness (other than
principal amount and accrued interest) required to be paid by the Company or any
of its Subsidiaries in order to discharge fully at Closing all obligations,
liabilities, costs and expenses to the parties identified in the Payoff Letters.
"Total Purchase Price" means an amount equal to the Transaction Value
minus (i) the Transaction Expenses, minus (ii) the Payoff Amount and minus (iii)
the amounts to be paid to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ pursuant to Section 2.2(i) hereof.
"Trade Secrets" means (i) all customer and supplier lists, pricing and
cost information, business and marketing plans and proposals and Personally
Identifiable Data, and (ii) all material proprietary formulas, know-how, trade
secrets, business methods, technical data, and inventions, in each case owned,
leased, used or held by, granted to or licensed by the Company or any
Subsidiary.
"Transaction Documents" means this Agreement, the General Escrow
Agreement and any and all other agreements required to be delivered by any party
hereto pursuant to the terms of this Agreement.
"Transaction Expenses" means (i) the third party fees and expenses
incurred by the Company or any Subsidiary in connection with the drafting,
negotiation, execution, and delivery of this Agreement (including legal fees and
expenses of the Sellers) and the other Transaction Documents and the
consummation of the transactions contemplated herein or therein, including,
without limitation, the Distribution (including the fees and expenses of the
Company's investment bankers, accountants, lawyers, and other advisors), and
(ii) one-half of all filing fees and expenses incurred in connection with the
HSR Act, as set forth in Section 15.2.
"Transaction Value" means $84,250,000, as adjusted by the Estimated
Closing Adjustment pursuant to Section 2.3(b).
"WARN Act" means the Worker Adjustment and Retraining Act of 1988, as
amended.
7
"Warrantholders" means, collectively, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Capital Advisors,
L.P. and Delaware Street Capital Master Fund, L.P.
"Warrants" means, collectively, (i) the warrant, dated November 16,
2005, to purchase 982,571 shares of Common Stock at an exercise price of $0.01
per share, issued to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Capital Advisors, L.P. and (ii) the warrant,
dated November 16, 2005, to purchase 622,295 shares of Common Stock at an
exercise price of $0.01 per share, issued to Delaware Street Capital Master
Fund, L.P.
(a) Each of the following terms is defined in the Section set forth opposite
such term:
Term Section
Accounts Receivable.............................................. 4.8
Aggregate Cash Proceeds.......................................... 2.1(b)
Agreement........................................................Preamble
Audited Combined Balance Sheet....................................4.7(a)
Audited Combined Financial Statements.............................4.7(a)
Audited Consolidated Balance Sheet................................4.7(a)
Audited Consolidated Financial Statements.........................4.7(a)
Auditors..........................................................2.3(c)
Buyer.............................................................Preamble
Buyer Indemnified Party...........................................13.1
Buyer Material Adverse Effect..................................... 5.3(a)
Buyer Obligations..................................................15.14
Buyer Transaction Documents........................................ 5.1
Buyer's Representatives............................................ 6.3
Closing............................................................ 2.2
Closing Date....................................................... 2.2
Common Stock....................................................... 2.1(a)
Company...........................................................Preamble
Company Account................................................... 4.13(b)
Company Transaction Documents..................................... 4.2
Contingent Payments............................................... 2.4
Copyrights........................................................ 4.16(a)
Damages...........................................................13.1
Defined Benefit Plan.............................................. 4.19(e)
Dispute Notice.....................................................2.3(d)
DOJ................................................................9.4
DOL................................................................4.19(a)
Domain Registrations...............................................4.16(a)
Dynamic...........................................................Preamble
Earn-Out Period One............................................... 2.4(a)
Earn-Out Period Two............................................... 2.4(a)
Earn-Out Report................................................... 2.4(b)
EBITDA Dispute Notice............................................. 2.4(e)
Employee Benefit Plans............................................ 4.19(a)
Employee Pension Benefit Plan..................................... 4.19(d)
Employment Agreements.............................................11.1(j)
ERISA.............................................................4.19(a)
ERISA Affiliate...................................................4.19(a)
8
Escrow Agent......................................................2.2(c)
Estimated Closing Adjustment......................................2.3(b)
Estimated Net Working Capital.....................................2.3(a)
Examination Notice................................................2.4(d)
Final Closing Adjustment..........................................2.3(g)
Final Closing Balance Sheet.......................................2.3(f)
Final Net Working Capital.........................................2.3(f)
Final Purchase Price..............................................2.3(g)
FM Properties....................................................13.2(g)
FTC.............................................................. 9.4
General Escrow Account........................................... 2.2(c)
General Escrow Agreement......................................... 2.2(c)
General Escrow Amount............................................ 2.2(c)
Guarantors....................................................... Preamble
Holdings......................................................... Preamble
HSR Act.......................................................... 3.3(b)
Indemnified Party................................................13.4
Indemnifying Party...............................................13.4
Interim Combined Balance Sheet................................... 4.7(a)
Interim Combined Financial Statements............................ 4.7(a)
Interim Consolidated Balance Sheet............................... 4.7(a)
Interim Consolidated Financial Statements........................ 4.7(a)
IRS..............................................................10.1(c)
Kencraft......................................................... Preamble
Marks............................................................ 4.16(a)
Material Contracts............................................... 4.14(b)
▇▇▇▇▇▇▇▇......................................................... Preamble
Multiemployer Plan............................................... 4.19(e)
Nasdaq........................................................... 6.8
Open Claim....................................................... 13.10(b)
OSHA............................................................. 4.6(c)
Parent........................................................... Preamble
Patents.......................................................... 4.16(a)
Period One Contingent Payment.................................... 2.4(a)
Period One EBITDA................................................ 2.4(a)
Period Two Contingent Payment.................................... 2.4(a)
Period Two EBITDA................................................ 2.4(a)
Preliminary Closing Balance Sheet................................ 2.3(c)
Preliminary Net Working Capital................................... 2.3(c)
Preliminary Statement............................................. 2.3(c)
Pro Forma Financial Information................................... 4.7(f)
Property Taxes....................................................10.5(a)
Records........................................................... 7.1
Reimbursement Expenses............................................ 7.3
Released Claim.................................................... 9.5
Released Parties.................................................. 9.5
Reserve Account...................................................14.1(c)
Securities........................................................ 2.1(a)
9
Seller, Sellers...................................................Preamble
Seller Indemnified Party..........................................13.3
Seller Obligations................................................15.13
Seller Transaction Documents...................................... 3.1
Sellers' Representative...........................................Preamble
Shares............................................................ 2.1(a)
Tax Claim.........................................................10.3(a)
Tax Proceeding....................................................10.3(b)
Terminating Buyer Breach..........................................12.1(d)
Terminating Seller Breach.........................................12.1(c)
Third Party Claim.................................................13.5(a)
Threshold Amount..................................................13.6(a)
(b)......Except as otherwise provided or unless the context otherwise requires,
whenever used in this Agreement, (i) any noun or pronoun shall be deemed to
include the plural and the singular, (ii) the use of masculine pronouns shall
include the feminine and neuter, (iii) the terms "include" and "including" shall
be deemed to be followed by the phrase "without limitation," (iv) the word "or"
shall be inclusive and not exclusive, (v) all references to Sections refer to
the Sections of this Agreement, all references to the Disclosure Schedule refer
to the Disclosure Schedule attached hereto or delivered with this Agreement, as
appropriate, and all references to Exhibits refer to the Exhibits attached to
this Agreement, each of which is made a part of this Agreement for all purposes,
(vi) each reference to "herein" means a reference to "in this Agreement," and
(vii) accounting terms which are not otherwise defined in this Agreement shall
have the meanings given to them under GAAP; provided, however, that to the
extent that a definition of a term in this Agreement is inconsistent with the
meaning of such term under GAAP, the definition set forth in this Agreement will
control.
(c) The provisions of this Agreement shall be construed according to their fair
meaning and neither for nor against any party hereto irrespective of which party
caused such provisions to be drafted. Each of the parties hereto acknowledges
that it has been represented by an attorney in connection with the preparation
and execution of this Agreement and the other Transaction Documents.
(d) Unless expressly provided otherwise, the measure of a period of one month or
one year for purposes of this Agreement shall be that date of the following
month or year corresponding to the starting date, provided that if no
corresponding date exists, the measure shall be that date of the following month
or year corresponding to the next day following the starting date. For example,
one month following February 18th is March 18th, and one month following March
31 is May 1.
SECTION 2. PURCHASE AND SALE OF SECURITIES
2.1 Purchase and Sale of Securities.
(a) Upon the terms and subject to the conditions of this Agreement, at the
Closing, each Seller shall sell, transfer and deliver to Buyer, and Buyer shall
purchase from each Seller, (i) all shares of Common Stock, no par value per
share, of the Company ("Common Stock") owned by such Seller (collectively, the
"Shares") and (ii) all Warrants owned by such Seller. The Shares and the
Warrants are collectively referred to herein as the "Securities." The Securities
owned by each Seller are set forth opposite such Seller's name in Section 2.1 of
the Disclosure Schedule. Each Seller's obligation to perform his, her or its
respective obligations under this Agreement shall be several and not joint.
10
(b) Upon the terms and subject to the conditions of this Agreement, including,
without limitation, Section 2.1(c), at the Closing, in consideration for each
Seller's delivery of his, her, or its Securities, Buyer shall pay (i) to the
Sellers' Representative (on behalf of each Stockholder), from the Total Purchase
Price, in cash for each Share purchased from such Stockholder, an amount equal
to the Per Share Purchase Price, and (ii) to each Warrantholder, from the Total
Purchase Price, in cash for each Warrant purchased from such Warrantholder, an
amount equal to the Per Warrant Purchase Price. The aggregate amount of cash
payable to the Sellers pursuant to this Section 2.1(b) shall be referred to
herein as the "Aggregate Cash Proceeds," and the portion of the Aggregate Cash
Proceeds payable to each Seller shall be set forth in Section 2.1 of the
Disclosure Schedule.
(c) The Sellers' Representative and each Seller hereby irrevocably direct Buyer
and the Company to deliver (i) to the Escrow Agent, from the Aggregate Cash
Proceeds, the General Escrow Amount and (ii) to the Reserve Account, from the
Aggregate Cash Proceeds, an amount of cash equal to the Reserve Amount. Each
Seller shall be deemed to have delivered and paid (i) to the Escrow Agent with
respect to the General Escrow Amount and (ii) to the Reserve Account with
respect to the Reserve Amount thereof, in each case, an amount equal to such
Seller's pro rata portion (based on such Seller's Ownership Percentage).
2.2 Closing. The Closing of the purchase and sale of the Securities (the
"Closing") pursuant to this Agreement shall take place at the offices of ▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, on April 30, 2006 or,
if the conditions to the Closing set forth in Section 11 shall not have been
satisfied on such date, as soon as possible thereafter, but in no event later
than three Business Days after the satisfaction or waiver of the conditions set
forth in Section 11, commencing at 10:00 A.M., Eastern Time, or at such other
date, time or place as may be agreed to by Buyer and the Sellers' Representative
(the "Closing Date"). At the Closing, in addition to the other actions
contemplated elsewhere herein:
(a) Each Stockholder shall deliver to Buyer:
(i) certificates representing all of the Shares owned by such Stockholder,
duly endorsed for transfer or with stock powers affixed thereto
executed in blank in proper form for transfer;
(ii) for each Stockholder, a certificate, dated the Closing Date and signed
by such Stockholder (or by the Sellers' Representative on behalf of
such Stockholder), certifying as to Section 11.1(a) (as to such
Stockholder); and
(iii) the other documents and agreements to which such Stockholder is a party
and required to be delivered pursuant to Section 11.1.
(b) Each Warrantholder shall deliver to Buyer an instrument of transfer
with respect to all Warrants owned by such Warrantholder (which may be
a single instrument for all Warrants owned by all Warrantholders), duly
executed by each Warrantholder, which instrument of transfer shall be
in form and substance reasonably satisfactory to Buyer and which,
collectively, shall be effective with respect to all Warrants
outstanding on the date hereof.
(c) The Company shall:
(i) deliver to Buyer a certificate, dated the Closing Date and signed by
the Chief Executive Officer of the Company (in his capacity as such),
certifying as to Sections 11.1(c) and (e) (as to the Company);
11
(ii) deliver to Buyer accurate and complete copies of the Company's and each
Retained Subsidiary's certificate or articles of incorporation and
bylaws (or corresponding organizational documents), and all amendments
thereof to date, certified as of a recent date by the Secretary of
State or corresponding certifying authority of each such entity's
respective jurisdiction of organization and by the Secretary or an
Assistant Secretary of each such entity (in his or her capacity as
such);
(iii) deliver to Buyer certificates of good standing of a recent date for the
Company and each Retained Subsidiary, certified as of a recent date by
the Secretary of State or corresponding certifying authority of each
such entity's respective jurisdiction of organization and of each state
in which such entities are qualified to do business as set forth in
Section 4.1 of the Disclosure Schedule;
(iv) deliver to Buyer copies of the resolutions of the board of directors of
the Company authorizing the execution, delivery and performance of this
Agreement and the other Company Transaction Documents, certified as of
the Closing Date by the Secretary or an Assistant Secretary of the
Company (in each case, in his or her capacity as such);
(v) deliver to Buyer the original corporate seals, minute books and stock
transfer and record books of the Company and each Retained Subsidiary
as they exist on the Closing Date; and
(vi) deliver to Buyer the other documents and agreements required to be
delivered pursuant to Section 11.1.
(d) Each Guarantor shall:
(i) deliver to Buyer a certificate, dated the Closing Date and signed by
the Chief Executive Officer or President of such Guarantor (or Person
performing a similar function for such Guarantor) (in his or her
capacity as such), certifying as to Section 11.1(d) and (e) (as to such
Guarantor) ; and
(ii) deliver to Buyer copies of the resolutions of the board of directors of
such Guarantor authorizing the execution, delivery and performance of
this Agreement, certified as of the Closing Date by the Secretary or
Assistant Secretary of the Company (in his or her capacity as such).
(e) Buyer shall deliver from the Aggregate Cash Proceeds, as contemplated
by Section 2.1(c), (i) by wire transfer to Citibank N.A. or another
escrow agent mutually acceptable to Buyer and the Sellers'
Representative (the "Escrow Agent") to be held in a separate escrow
account (the "General Escrow Account") pursuant to the escrow agreement
(the "General Escrow Agreement") substantially in the form attached
hereto as Exhibit I (with such changes thereto as the Escrow Agent
shall reasonably request), $8,000,000 for the purpose of satisfying any
Final Closing Adjustment payable by the Sellers pursuant to Section
2.3(h)(i) and any rights to indemnification by Buyer Indemnified
Parties pursuant to Sections 13.1 and 13.2 (the "General Escrow
Amount") and (ii) by wire transfer to the Reserve Account (which
account shall be specified by the Sellers' Representative at least two
Business Days prior to Closing), an amount equal to the Reserve Amount.
12
(f) Buyer shall deliver to the Sellers' Representative:
(i) an amount equal to the Total Purchase Price, minus the amount paid by
Buyer from the Aggregate Cash Proceeds, pursuant to Section 2.2(e), by
wire transfer of immediately available funds to such account or
accounts as shall, at least two Business Days before Closing, be
designated by the Sellers' Representative in writing to Buyer;
(ii) certificates, dated the Closing Date and signed by the Chief Financial
Officer or any Vice President of Buyer (in his or her capacity as
such), certifying as to Sections 11.2(a) and (b);
(iii) copies of the resolutions of the board of directors of Buyer,
authorizing the execution, delivery and performance by Buyer of this
Agreement and the other Buyer Transaction Documents, certified as of
the Closing by the Secretary or an Assistant Secretary of Buyer (in his
or her capacity as such); and
(iv) the other documents and agreements required to be delivered pursuant to
Section 11.2.
(g) Buyer shall pay or shall cause the Company to pay the Transaction
Expenses specified in the final invoices delivered pursuant to Section
6.8 in the amounts and pursuant to the wiring instructions set forth in
such final invoices. Any additional unpaid Transaction Expenses,
however arising, shall be paid by the Sellers' Representative on behalf
of the Sellers, without contribution from the Company, its Subsidiaries
or Buyer.
(h) Buyer shall pay or cause to be paid to each holder of indebtedness
specified in the Payoff Letters the portion of the Payoff Amount
payable to such holder as specified in the applicable Payoff Letter
delivered by such holder.
(i) Buyer shall pay or cause the Company to pay to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as
compensation for services rendered to the Company and the stockholders
in connection herewith, all amounts due under the Completion Bonus
Agreement, by wire transfer of immediately available funds to such
account as shall, at least two Business Days before Closing, be
designated by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in writing.
2.3 Purchase Price Adjustment.
(a) No later than five Business Days, and no earlier than ten Business
Days, prior to the Closing Date, the Company shall prepare and deliver
to Buyer a certificate of the Chief Financial Officer of the Company
setting forth its good faith estimate of the Net Working Capital as at
the Closing Date (immediately after giving effect to the Closing and
after giving effect to the Distribution) (the "Estimated Net Working
Capital"). Such certificate shall include a reasonably detailed
calculation and description of how the Estimated Net Working Capital
was determined.
(b) The Transaction Value shall be (i) increased, if the Estimated Net
Working Capital exceeds the Reference Net Working Capital, by an amount
equal to the amount of such excess, or (ii) decreased, if the Reference
Net Working Capital exceeds the Estimated Net Working Capital, by an
amount equal to such excess (such increase or decrease, as the case may
be, being the "Estimated Closing Adjustment").
13
(c) Within 75 days following the Closing Date, the Sellers' Representative,
on behalf of Sellers, shall prepare and deliver to the Buyer the
following (collectively, the "Preliminary Statement"):
(i) a consolidated balance sheet of the Company as at the Closing Date
(immediately after giving effect to the Closing and after giving effect
to the Distribution) (the "Preliminary Closing Balance Sheet"),
prepared in accordance with GAAP, applied on a basis consistent with
past practice, which shall be audited by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP (the
"Auditors"), the cost of which will be borne by the Sellers and paid by
the Sellers' Representative on behalf of the Sellers from the Reserve
Amount; and
(ii) a calculation by the Sellers' Representatives of the Net Working
Capital as at the Closing Date (immediately after giving effect to the
Closing and after giving effect to the Distribution) based on the
Preliminary Closing Balance Sheet (the "Preliminary Net Working
Capital").
The Preliminary Statement shall include a reasonably detailed calculation and
description of how the Preliminary Net Working Capital was determined.
(d) In connection with Sellers' Representative's preparation of the Preliminary
Closing Balance Sheet and the calculation of the Preliminary Net Working
Capital, the Sellers' Representative and its Representatives (including the
Auditors) shall have reasonable access, during normal business hours and upon
reasonable notice, to the books and records of the Company and the Retained
Subsidiaries and to all relevant work papers, schedules, memoranda and other
documents in possession of the Company and the Retained Subsidiaries, and to
finance personnel of the Company and the Retained Subsidiaries and any other
information which the Sellers' Representative reasonably requests and Buyer and
the Company shall cooperate reasonably with the Sellers' Representative and its
Representatives in connection therewith.
(e) Buyer shall have twenty Business Days following receipt of the Preliminary
Statement to review the Preliminary Closing Balance Sheet and the calculation of
the Preliminary Net Working Capital, and to notify the Sellers' Representatives
in writing if Buyer disputes the amount of the Preliminary Net Working Capital
set forth on the Preliminary Statement (the "Dispute Notice"), specifying the
reasons therefor in reasonable detail.
(f) In the event that Buyer shall deliver a Dispute Notice to the Sellers'
Representative, Buyer and the Sellers' Representative shall cooperate in good
faith to resolve such dispute as promptly as practicable and, upon such
resolution, if any, any adjustments to the Preliminary Closing Balance Sheet and
the Preliminary Net Working Capital shall be made in accordance with the
agreement of Buyer and the Sellers' Representative. If Buyer and the Sellers'
Representative are unable to resolve any such dispute within ten Business Days
(or such longer period as Buyer and the Sellers' Representative shall mutually
agree in writing) after Buyer's delivery of such Dispute Notice, such dispute
shall be resolved by the Independent Accounting Firm acting as an expert and not
as an arbitrator, and such determination shall be conclusive, final and binding
on the parties. Any expenses relating to the engagement of the Independent
Accounting Firm in respect of its services pursuant to this Section 2.3(f) shall
be borne 50% by Buyer, on the one hand, and 50% by the Sellers and paid by the
Sellers' Representative on behalf of the Sellers from the Reserve Amount, on the
other hand. The Independent Accounting Firm shall be instructed to use
reasonable best efforts to perform its services within 30 days after submission
of the Preliminary Closing Balance Sheet, the Preliminary Net Working Capital
and the Dispute Notice to it and, in any case, as promptly as practicable after
such submission. The Preliminary Closing Balance Sheet and the Preliminary Net
Working Capital, (i) if no Dispute Notice has been timely delivered by Buyer, as
originally submitted by the Sellers' Representative, or (ii) if a Dispute Notice
has been timely delivered by Buyer, as adjusted pursuant to the resolution of
such dispute in accordance with this Section 2.3(f), shall be, respectively, the
"Final Closing Balance Sheet" and the "Final Net Working Capital."
14
(g) The "Final Purchase Price" shall be equal to the Aggregate Cash Proceeds,
adjusted as follows (such increase or decrease, as the case may be, being
referred to as the "Final Closing Adjustment"): (i) increased, if the Final Net
Working Capital exceeds the Reference Net Working Capital, by the amount of such
excess; or (ii) decreased, if the Reference Net Working Capital exceeds the
Final Net Working Capital, by the amount of such excess.
(h) Within five Business Days after the determination of the Final Net Working
Capital pursuant to this Section 2.3, (i) if the Final Purchase Price exceeds
the Aggregate Cash Proceeds, Buyer shall, or (ii) if the Aggregate Cash Proceeds
exceeds the Final Purchase Price, the Sellers' Representative, on behalf of the
Sellers shall, from the General Escrow, make payment to the other by wire
transfer in immediately available funds of the amount payable by Buyer or the
Sellers, as the case may be, in an amount equal to the Final Closing Adjustment,
together with interest thereon from the Closing Date to the date of payment at a
floating rate equal to the U.S. dollar prime rate per annum, as quoted by
JPMorgan Chase & Co., from time to time during such period (less any
non-resident withholding Tax payable in respect of such interest). Such interest
shall be calculated based on a year of 365 days and the number of days elapsed
since the Closing Date.
(i) For the avoidance of doubt, the parties hereto agree and acknowledge that
Net Working Capital, the Preliminary Statement, the Closing Date Balance Sheet,
the Final Closing Balance Sheet and the Final Net Working Capital shall be
calculated as if the payments made by the Company to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ were never
due, payable or paid, and so such payments shall not constitute liabilities or
expenses for purposes of any of the foregoing financial statements or related
calculations.
2.4 Contingent Payments. Subject to the right of Buyer set forth in Section
13.10, as additional consideration for the delivery by each Seller of his, her
or its Shares and Warrants, Buyer shall pay to the Sellers' Representative (on
behalf of each Stockholder) and to the Warrantholders, contingent payments (the
"Contingent Payments"), if any, at such times and under such conditions as the
Contingent Payments are payable in accordance with this Section 2.4. Any
Contingent Payment will be made to the Sellers' Representative (on behalf of
each Stockholder) and to the Warrantholders based upon each Stockholder's and
each Warrantholder's Ownership Percentage. Unless otherwise required by
applicable law, any Contingent Payment shall be treated as additional Total
Purchase Price, except to the extent such payment is treated as interest under
Section 483 of the Code.
(a) If (i) the EBITDA of the Company (the "Period One EBITDA") with respect
to the twelve-month period ended July 1, 2007 ("Earn-Out Period One")
equals or exceeds $14,250,000, then Buyer shall make a Contingent Payment
(the Period One Contingent Payment") in an amount equal to the product
obtained by multiplying (x) $4,500,000 by (y)the quotient (not greater than
1.0) obtained by dividing the Period One EBITDA by $15,000,000; provided,
however, that in no event shall the Period One Contingent Payment exceed
$4,500,000; and (ii) the EBITDA of the Company (the "Period Two EBITDA")
with respect to the twelve- month period ended June 29, 2008("Earn-Out
Period Two") equals or exceeds $17,575,000, then Buyer shall make a
Contingent Payment (the "Period Two Contingent Payment") in an amount equal
to the product obtained by multiplying (i) $1,500,000 by (ii) the quotient
(not greater than 1.0) obtained by dividing the Period Two EBITDA by
$18,500,000; provided, however, that in no event shall the Period Two
Contingent Payment exceed $1,500,000.
(b) Not later than 60 days following the end of each Earn-Out Period, Buyer
shall deliver to the Sellers' Representative a statement of the EBITDA for
such Earn-Out Period, which will set forth in reasonable detail the
calculation of such EBITDA and the calculation of the Contingent Payment,
if any, with respect to such Earn-Out Period (the "Earn-Out Report").
15
(c) Buyer shall make the Contingent Payment, if any, set forth in such
Earn-Out Report not later than ten days following delivery of such Earn-Out
Report; provided that if the Sellers' Representative delivers an
Examination Notice in accordance with Section 2.4(d), such Contingent
Payment shall be made not later than (i) ten days following the earlier of
(A) the last date on which an EBITDA Dispute Notice may be given by the
Sellers' Representative pursuant to Section 2.4(e) and (B) the date on
which the Sellers' Representative notifies Buyer in writing that the
Sellers' Representative accepts the Earn-Out Report and irrevocably elects
not to deliver an EBITDA Dispute Notice with respect to the EBITDA and/or
the Contingent Payment set forth in such Earn-Out Report or (ii) if the
Sellers' Representative delivers an EBITDA Dispute Notice, the time
determined pursuant to Section 2.4(e) below. In the event that the Sellers'
Representative fails to deliver an EBITDA Dispute Notice on or prior to the
last date on which an EBITDA Dispute Notice may be given pursuant to
Section 2.4(e), the amount of the EBITDA and the amount of the Contingent
Payment set forth on such Earn-Out Report shall be conclusive, final and
binding on the parties.
(d) Buyer agrees to keep and maintain, in accordance with its usual and
customary practice, full and accurate books of account and records of the
Company and the Retained Subsidiaries separate and distinct from the books
and records of Buyer or any of its Affiliates as if the Company and the
Retained Subsidiaries were a stand-alone, unconsolidated business unit of
Buyer, whether or not the Company and the Retained Subsidiaries are so
operated, and such books and records of the Company and the Retained
Subsidiaries shall be sufficient, in all respects, to verify the EBITDA of
the Company for each Earn-Out Period. Buyer grants to the Sellers'
Representative and its Representatives, at the Sellers' sole expense, the
right to examine such books and records, at the location of such books and
records, for the sole purpose of reviewing and verifying the EBITDA of the
Company with respect to the Earn-Out Period that is the subject of the
applicable Earn-Out Report, upon two days' prior written notice delivered
to Buyer not later than 20 days after the delivery of the applicable
Earn-Out Report (the "Examination Notice"), insofar as the books and
records are reasonably necessary to verify the EBITDA set forth in such
Earn-Out Report, for the sole purpose of verifying the amount of EBITDA
with respect to such Earn-Out Report; provided, however, that any such
examination shall be required to be completed prior to the 30th day
following the date on which the applicable Earn-Out Report is delivered to
the Sellers' Representative. In no event shall the Sellers' Representative
or its Representatives be entitled to conduct such examination with respect
to any period other than the Earn-Out Period referenced in the applicable
Earn-Out Report. Buyer shall, with respect to each Earn-Out Period, keep
and maintain all such books and records of the Company and the Earn-Out
Report applicable to such Earn-Out Period for a period of one year after
the conclusion of such Earn-Out Period.
(e) If, with respect to either Earn-Out Report, not later than the earlier
of (i) the date that is 15 days after the completion by the Sellers'
Representative of an examination of the books and records of the Company,
in accordance with Section 2.4(d), for the Earn-Out Period covered by such
Earn-Out Report and (ii) the date that is 30 days after delivery of such
Earn-Out Report, the Sellers' Representative notifies Buyer in writing (an
"EBITDA Dispute Notice") that the Sellers' Representative disputes the
amount of the EBITDA or the amount of the Contingent Payment set forth in
such Earn-Out Report, specifying the reasons therefor in reasonable detail,
the Sellers' Representative and Buyer shall cooperate in good faith to
resolve such dispute as promptly as practicable and, upon such resolution,
if any, any adjustments to the Earn-Out Report shall be made in accordance
with the agreement of the Sellers' Representative and Buyer. If the
16
Sellers' Representative and Buyer are unable to resolve any such dispute
within ten Business Days (or such longer period as the Sellers'
Representative and Buyer shall mutually agree in writing) after the
Sellers' Representative's delivery of such EBITDA Dispute Notice, such
dispute shall be resolved by the Independent Accounting Firm acting as an
expert and not as an arbitrator, and such determination shall be
conclusive, final and binding on the parties; provided, however, that the
engagement of the Independent Accounting Firm shall be limited to reviewing
the calculation of EBITDA and the Contingent Payment set forth in such
Earn-Out Report. The Independent Accounting Firm shall be instructed to use
reasonable best efforts to perform its services and to make its
determination within 30 days after submission of the EBITDA Dispute Notice
and such Earn-Out Report to it and, in any case, as promptly as practicable
after such submission. Any expenses relating to the engagement of the
Independent Accounting Firm in respect of its services pursuant to this
Section 2.4(e) shall be borne by the Sellers and paid by the Sellers'
Representative on behalf of the Sellers from the Reserve Amount; provided,
however, that if the Contingent Payment determined by the Independent
Accounting Firm is more than 5% greater than the Contingent Payment set
forth in such Earn-Out Report, any expenses relating to the engagement of
the Independent Accounting Firm shall be borne by Buyer. Buyer shall,
within ten days after such determination by the Independent Accounting
Firm, pay to the Sellers' Representative the Contingent Payment so
determined by the Independent Accounting Firm, if any. The determination of
any Contingent Payment by the Independent Accounting Firm in accordance
with this Agreement shall by conclusive, final and binding on the parties.
(f) Following the Closing, Buyer shall manage and operate the Company and
the Retained Subsidiaries in a commercially reasonable manner and with a
view toward the long-term growth of their respective businesses. The
Sellers acknowledge and agree that, following the Closing, Buyer shall, in
its sole and absolute discretion, have complete control over all strategic
and operational decisions concerning the Company and the Retained
Subsidiaries and may manage and operate the Company and the Retained
Subsidiaries and their respective businesses as Buyer determines in its
sole and absolute discretion. The Sellers further agree that (i) the rights
of the Sellers to receive the Contingent Payments do not create in the
Sellers any right to control or direct the management and operations of the
Company and the Retained Subsidiaries and (ii) subject to the next
succeeding sentence, the Sellers will have no claim against Buyer or any of
its Affiliates (including the Company and the Retained Subsidiaries), and
Buyer will have no liability to the Sellers, with respect to the management
and operation of the Company, including any impact thereof on the EBITDA of
the Company or on the amount of any Contingent Payment. Notwithstanding the
foregoing, Buyer will not take any action in bad faith, or authorize or
permit any of its Affiliates (including the Company and the Retained
Subsidiaries) to take any action in bad faith, in order to (i) reduce the
amount of EBITDA of the Company, (ii) delay the making of any Contingent
Payment (iii) make any material change in accounting policies or practices
that would reduce EBITDA (except for any such change required by GAAP or by
reason of a change in Law) or (iv) devote excessive amounts of production
capacity of the Company to intercompany sales rather than sales to third
party non-Affiliates.
2.5 Allocation of Total Purchase Price and Other Amounts. The Sellers'
Representative and each Seller hereby acknowledge and direct that (i) all
amounts payable to the Sellers on or prior to Closing shall be paid by Buyer and
the Company to the Sellers' Representative (on behalf of all Stockholders), the
Escrow Agent (on behalf of all Sellers) or the Warrantholders, as applicable, in
accordance with the terms of this Section 2 and (ii) any amounts payable to the
Sellers after Closing shall be paid to the Sellers' Representative and the
Warrantholders in accordance with the terms of this Agreement and the General
Escrow Agreement based upon each Seller's Ownership Percentage.
17
2.6 Withholding. The Buyer shall be entitled to deduct and withhold (or cause to
be deducted and withheld) from the amounts otherwise payable pursuant to this
Agreement such amounts as are required to be deducted and withheld with respect
to the making of such payment under the Code, or any provision of state, local
or foreign Tax law. To the extent that amounts are so withheld, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the person in respect of whom such deduction and withholding was made.
SECTION 3. REPRESENTATIONS AND WARRANTIES REGARDING SELLERS
Each Seller hereby severally represents and warrants to Buyer, on
behalf of himself, herself or itself and not any other Seller, as of the date of
this Agreement and as of the Closing Date that, except as set forth in a
correspondingly enumerated section of the Disclosure Schedule:
3.1 Organization and Good Standing. Such Seller (if a Selling Entity) is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, formation or organization, as applicable, and has
(as applicable) all necessary corporate, partnership or limited liability
company power and authority, as the case may be, to perform all of its
obligations under this Agreement and the other Transaction Documents to which
such Seller is a party (collectively, the "Seller Transaction Documents").
3.2 Power and Authorization. Such Seller has all legal right, power, authority
and legal capacity to execute and deliver this Agreement and the other Seller
Transaction Documents, to perform his, her or its obligations hereunder and
thereunder, and to carry out the transactions contemplated hereby and thereby.
All necessary corporate, partnership or limited liability company action (as
applicable), and all necessary stockholder, partner, member, and other legal
action, as the case may be, have been taken by such Seller (if a Selling Entity)
to authorize the execution, delivery and performance by such Seller of this
Agreement and the other Seller Transaction Documents, and the consummation of
the transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by such Seller and is, and each of the other Seller
Transaction Documents, when duly executed and delivered at Closing by such
Seller, will be, assuming due authorization, execution and delivery by the
Company, the Guarantors and Buyer, as the case may be, the legal, valid and
binding obligations of such Seller, enforceable against such Seller in
accordance with their respective terms, except as enforceability of such
obligations may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or limiting
creditors' rights generally and general principles of equity relating to the
availability of specific performance and injunctive and other forms of equitable
relief.
3.3 No Conflicts.
---------------------
(a) The execution, delivery and performance by such Seller of this
Agreement and the other Seller Transaction Documents and the
consummation by such Seller of the transactions contemplated hereby and
thereby do not and will not (with or without the passage of time or the
giving of notice, or both):
(i) contravene, conflict with, or result in a violation of (A) the
certificate or articles of incorporation or bylaws (or other
organizational documents) of such Seller (if a Selling Entity), (B) any
resolution adopted by the board of directors, the board of managers (or
similar governing body), or equityholders of such Seller (if a Selling
Entity) or (C) any Laws or Governmental Authorizations binding upon or
applicable to such Seller, except, in the case of this clause (C),
where such contravention, conflict or violation would not reasonably be
expected to have a material adverse effect on the ability of such
Seller to enter into or consummate the transactions contemplated by
this Agreement or any other Seller Transactions Document; or
18
(ii) contravene, conflict with, result in a violation or breach of, or
constitute a default under, any agreement or other obligation to which
such Seller is a party or by which he, she or it or any of such
Seller's assets is bound, or give to others any material rights
(including rights of termination, foreclosure, cancellation,
modification or acceleration) in respect thereof or any rights of any
nature in or with respect to any of the Securities, except where such
contravention, conflict, violation, breach, default, loss,
termination, foreclosure, cancellation, modification, acceleration or
rights would not reasonably be expected to have a material adverse
effect on the ability of such Seller to enter into or consummate the
transactions contemplated by this Agreement or any other Seller
Transactions Document.
(b) Except for the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), with respect to the transactions hereunder,
Section 3.3(b) of the Disclosure Schedule contains a complete and
accurate list of each other material Consent of, or material
registration, material notification, material filing or material
declaration with, any Governmental Body, creditor, lessor or other
Person, in each case required to be given or made in connection with
the execution, delivery and performance by such Seller of this
Agreement and the other Seller Transaction Documents. Except as
described in Section 3.3(b) of the Disclosure Schedule, all such
Consents, registrations, notifications, filings and declarations have
been obtained or made or will be obtained or made before the Closing
without payment of premium or penalty by, or loss of benefit to, the
Company or any Subsidiary.
(c) There are no judicial, administrative or other governmental actions,
proceedings or investigations pending or, to the Knowledge of such
Seller, threatened, that challenge or seek to avoid any of the
transactions contemplated by, or the validity of, this Agreement or any
of the other Seller Transaction Documents or which have had or if
adversely determined, would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the
ability of such Seller to enter into or consummate the transactions
contemplated by this Agreement or any other Seller Transaction
Document.
3.4 Ownership of the Securities. Such Seller owns the Securities set forth next
to his, her or its name in Section 2.1 of the Disclosure Schedule beneficially
and of record, free and clear of any Encumbrance and such Seller does not own
any other equity securities of the Company or rights to acquire any other equity
securities of the Company. There are no options, warrants, purchase rights, or
other contracts, commitments or agreements to which such Seller is a party that
could require such Seller to sell, transfer or otherwise dispose of any of the
Securities or that could affect the right of such Seller to convey the
Securities owned by such Seller to Buyer at Closing, and such Seller has the
absolute right, authority, power and capacity to sell, assign and transfer the
Securities owned by him, her or it to Buyer free and clear of any Encumbrance
(except for restrictions imposed generally by applicable securities Laws).
Except as set forth in Section 3.4 of the Disclosure Schedule, such Seller is
not a party to any voting trust, proxy or other agreement or understanding with
respect to the voting of any of the Securities. Upon delivery at the Closing by
such Seller to Buyer of the certificates for the Shares and instruments of
transfer with respect to the Warrants, Buyer will acquire good, valid and
marketable title to such Securities, free and clear of any Encumbrance (except
for applicable securities Laws restrictions).
3.5 Brokers. Other than Paragon Capital Partners, LLC, whose fees shall be, if
not a Transaction Expense identified pursuant to Section 6.10, paid by the
Sellers' Representative on behalf of the Stockholders, there is no investment
banker, broker, finder or other intermediary (other than the Escrow Agent) which
has been retained by or is authorized to act on behalf of any Seller or any of
its Affiliates that might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement or any other Seller
Transaction Document.
19
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY AND ITS
SUBSIDIARIES
Each Principal Stockholder, jointly and severally, the Company and each
Guarantor (severally and solely as to such Guarantor) hereby represents and
warrants to Buyer as of the date of this Agreement and as of the Closing Date
that, except as set forth in a correspondingly enumerated section of the
Disclosure Schedule:
4.1 Organization and Good Standing. The Company and each Subsidiary is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all necessary corporate or other power and
authority to carry on its business as presently conducted, to own and lease the
assets which it owns and leases, and to perform all of its obligations under
each agreement to which it is a party or by which it or its assets are bound.
The Company and each Retained Subsidiary is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction identified in
Section 4.1 of the Disclosure Schedule, which includes each jurisdiction in
which its ownership or leasing of assets or properties or the nature of its
activities requires such qualification, except where the failure to be so
qualified would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
4.2 Power and Authorization. The Company and each Guarantor has all requisite
right, power, and authority to execute and deliver this Agreement and the other
Transaction Documents to which it is a party (collectively, the "Company
Transaction Documents"), to perform its obligations hereunder and thereunder,
and to carry out the transactions contemplated hereby and thereby. All necessary
corporate, stockholder and other legal action has been taken by the Company and
each Guarantor to authorize the execution, delivery and performance by the
Company and such Guarantor of this Agreement and all other Company Transaction
Documents. This Agreement is, and each other Company Transaction Document, when
duly executed and delivered at Closing by the Company and each Guarantor, will
be, assuming due authorization, execution and delivery by the Sellers and Buyer,
as the case may be, the legal, valid and binding obligations of the Company and
such Guarantor, enforceable against it in accordance with their respective
terms, except as enforceability of such obligations may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws now or
hereafter in effect relating to or limiting creditors' rights generally and
general principles of equity relating to the availability of specific
performance and injunctive and other forms of equitable relief.
4.3 No Conflicts.
---------------------
(a) The execution, delivery and performance of this Agreement and the
Company Transaction Documents do not and will not (with or without the
passage of time or the giving of notice, or both):
(i) contravene, conflict with, or result in a violation of (A) the
certificate or articles of incorporation or bylaws (or other
organizational documents) of the Company or any Subsidiary, (B) any
resolution adopted by the board of directors (or similar governing
body), or equityholders of the Company or any Subsidiary or (C) any
Laws or Governmental Authorizations binding upon or applicable to the
Company or any Subsidiary, except, in the case of this clause (C),
where such contravention, conflict or violation would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect;
(ii) contravene, conflict with, result in a violation or breach of, or
constitute a default or otherwise cause any loss of benefit under, any
agreement or other obligation to which the Company or any Subsidiary is
a party or by which they or any of their assets are bound, except where
20
such contravention, conflict, violation, breach, default or loss would
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, or give to others any material rights
(including rights of termination, foreclosure, cancellation,
modification or acceleration), in or with respect to the Company or any
Subsidiary or any of their respective assets; or
(iii) result in, require or permit the creation or imposition of any
Encumbrance upon or with respect to any assets owned or leased by the
Company or any Subsidiary.
(b) Except for the HSR Act with respect to the transactions hereunder,
Section 4.3(b) of the Disclosure Schedule contains a complete and
accurate list of each Consent of, or registration, notification, filing
or declaration with, any Governmental Body, creditor, lessor or other
Person required to be given or made by the Company or any Subsidiary in
connection with the execution, delivery and performance of this
Agreement and the other Company Transaction Documents. Except as set
forth in Section 4.3(b) of the Disclosure Schedule, all such Consents,
registrations, notifications, filings and declarations have been
obtained or made or will be obtained or made before Closing without
payment of any premium or penalty by, imposition of any restriction
upon, or loss of benefit to, the Company or any Subsidiary. Neither the
Company nor any Subsidiary has received any request from any
Governmental Body for information with respect to the transactions
contemplated hereby.
4.4 Capitalization.
(a) The Company's authorized, issued and outstanding capital stock is fully and
accurately described in Section 4.4(a) of the Disclosure Schedule. Except as
described in Section 4.4(a) of the Disclosure Schedule, the Company has not
granted to any Person any preemptive or other similar rights with respect to any
of such capital stock and, other than the Warrants, there are no offers,
options, warrants, rights, agreements or commitments of any kind (contingent or
otherwise) entered into or granted by the Company relating to the issuance,
conversion, exchange, registration, voting, sale or transfer of, any equity
interests or other equity securities of the Company (including the Securities)
or obligating the Company or any other Person to purchase or redeem any of such
equity interests or other equity securities. The Shares (i) constitute all of
the issued and outstanding shares of capital stock of the Company and other
equity securities, (ii) have been duly authorized, (iii) are validly issued and
outstanding, fully paid and nonassessable, and (iv) have been issued in
compliance in all material respects with all applicable securities Laws and
other Laws. The exercise price of the Warrants is $0.01 per share of Common
Stock.
(b) The authorized, issued and outstanding capital stock and other equity
securities of each Retained Subsidiary are fully and accurately described in
Section 4.4(b) of the Disclosure Schedule. All the outstanding capital stock and
other equity securities of each Retained Subsidiary are owned of record and
beneficially by the Company. No Person has any preemptive or other similar
rights with respect to any such capital stock or other equity securities and
there are no offers, options, warrants, rights, agreements or commitments of any
kind (whether written, oral, contingent or otherwise) relating to the issuance,
voting, conversion, exchange, registration, sale or transfer of any capital
stock or other securities of any Retained Subsidiary, or obligating the Company,
any Retained Subsidiary, or any other Person to purchase or redeem any capital
stock or other equity securities or to make capital contributions, advances or
loans to or on behalf of any Retained Subsidiary except for such rights under
the Stockholders' Agreement as have been waived. There are no offers, options,
warrants, rights, agreements or commitments of any kind (whether written, oral,
contingent or otherwise) obligating the Company or any Retained Subsidiary to
purchase or redeem any capital stock or other equity securities of any KDM
Subsidiary or to make any capital contribution, advance or loan to or on behalf
21
of any KDM Subsidiary. All of the issued and outstanding shares of capital stock
(or equivalent equity interests) of each Retained Subsidiary have been duly
authorized and are validly issued and outstanding, fully paid and non-assessable
and have been issued in compliance in all material respects with applicable
securities Laws and other Laws. Except as disclosed in Section 4.4(b) of the
Disclosure Schedule, since July 1, 2004, the Company has not disposed of its
interest in any entity (whether by sale of stock, all or substantially all
assets, merger or similar transaction) of which the Company immediately prior to
such disposition directly or indirectly had owned more than 50% of the voting
stock or equivalent equity ownership interest or the assets and liabilities of
which were consolidated in the Company's consolidated financial statements.
4.5 Compliance with Laws.
(a) The Company and each Retained Subsidiary is, and at all times since April
30, 2005 has been, in compliance with all applicable Laws and Governmental
Authorizations, except where the failure to be in compliance has not had and
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. Neither the Company nor any of the Subsidiaries have,
since July 1, 2004, received any written notice, order or other communication
from any Governmental Body of any alleged, actual, or potential violation of, or
failure to comply with, any Laws or Governmental Authorizations except where
such violation or failure to comply has not had and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
The Company and each Retained Subsidiary is in compliance with all applicable
Laws relating to escheat and unclaimed property, except where the failure to be
in compliance has not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(b) Section 4.5(b) of the Disclosure Schedule contains a complete and accurate
list of all material Governmental Authorizations required for the operation of
the business of the Company and each Retained Subsidiary as currently conducted.
Except as otherwise described in Section 4.5(b) of the Disclosure Schedule, each
Governmental Authorization listed or required to be listed in Section 4.5(b) of
the Disclosure Schedule is in full force and effect without any default or
violation thereunder by the Company, any Retained Subsidiary or, to the
Knowledge of the Principal Stockholders and the Company, by any other party
thereto except for any such default or violation that has not had or would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Except as described in Section 4.5(b) of the Disclosure
Schedule, no proceeding is pending or, to the Knowledge of the Principal
Stockholders and the Company, threatened by any Person to revoke or deny the
renewal of any Governmental Authorization set forth in Section 4.5(b) of the
Disclosure Schedule, and neither the Company nor any Retained Subsidiary has
been notified in writing that any such Governmental Authorization may not in the
ordinary course be renewed upon its expiration or that by virtue of the
transactions contemplated by this Agreement or any other Transaction Document,
any such Governmental Authorization may not be granted or renewed.
4.6 Litigation.
(a) Except as described in Section 4.6(a) of the Disclosure Schedule, since
July 1, 2004, there have not been, nor are there currently pending, any
claims, actions, suits or proceedings (arbitration or otherwise) before
or by any Governmental Body: (i) that challenge any of the transactions
contemplated by, or the validity of, this Agreement or any of the other
Company Transaction Documents or which, if adversely determined, would
reasonably be expected to have, individually or in the aggregate, a
material adverse effect upon the ability of the Company or any
Guarantor to enter into or perform its obligations under this Agreement
or any of the other Company Transaction Documents; or (ii) otherwise
22
involving or affecting the Company or any Retained Subsidiary, their
businesses or assets, or, to the Knowledge of the Principal
Stockholders and the Company involving or affecting the respective
directors, officers or equityholders, in their capacities as such, of
the Company or any Subsidiary. Except as described in Section 4.6(a) of
the Disclosure Schedule, no such claim, action, suit, proceeding or
investigation is presently threatened or, to the Knowledge of the
Principal Stockholders and the Company, is presently contemplated.
There are no unsatisfied material judgments, penalties or awards
against or affecting the Company or any Subsidiary or any of their
businesses, properties or assets.
(b) To the Knowledge of the Principal Stockholders and the Company, no
Intellectual Property owned by or exclusively licensed to the Company
or any of the Retained Subsidiaries is the subject of any outstanding
judgment, injunction, order or decree restricting the use thereof by
the Company or any Retained Subsidiary or restricting the licensing
thereof by the Company or any Retained Subsidiary to any Person. No
▇▇▇▇, Domain Registration, Copyright, Patent, or Software owned by or
exclusively licensed to the Company or any Retained Subsidiary has been
infringed or challenged or threatened in any respect that would
reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect. No ▇▇▇▇ or Patent owned by or exclusively
licensed to the Company or any Retained Subsidiary is currently
involved in any material interference, reissue, re-examination,
opposition, invalidation or cancellation proceeding that would
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect and, to the Knowledge of the Principal
Stockholders and the Company, no such proceeding is threatened.
(c) Neither the Company nor any Subsidiary has, since July 1, 2004, been
cited for violations of the Occupational Safety and Health Act of 1970,
29 U.S.C. sec. 651 et seq. ("OSHA"), any regulation promulgated
pursuant to OSHA, or any other statute, ordinance, rule, or regulation
establishing standards of workplace safety, or paid any fines or
penalties with respect to any such citation. Since July 1, 2004, there
have not been any inspections of any of the facilities of the Company
or any Subsidiary by representatives of the Occupational Safety and
Health Administration or any other Governmental Body vested with
authority to enforce any Law establishing standards of workplace
safety. Since July 1, 2004, neither the Company nor any Subsidiary has
been notified in writing of any complaint or charge filed by any
employee or employee representative with any such Governmental Body
which alleges that the Company or any Subsidiary has violated in any
material respect OSHA or any other Law establishing standards of
workplace safety. Neither the Company nor any Subsidiary maintains any
condition, process, practice or procedure at any of their respective
facilities that in any respect violates OSHA or any other Law
establishing standards of workplace safety except for such violations
that will not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(d) There are not currently, and since July 1, 2004 there have not been,
any proceedings, claims or suits pending or, to the Knowledge of the
Principal Stockholders and the Company, threatened by any Governmental
Body or by any participant or beneficiary against any of the Employee
Benefit Plans (other than routine benefit claims), the assets of any of
the trusts under such Employee Benefit Plans or against the sponsor or
the administrator or any fiduciary of any of such Employee Benefit
Plans with respect to the design or operation of the Employee Benefit
Plans. 4.7 Financial Statements.
(a) Section 4.7(a) of the Disclosure Schedule includes:
(i) the consolidated balance sheets of the Company and the Subsidiaries as
of April 30, 2005 and 2004 (the "Audited Consolidated Balance Sheet")
and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the years then ended, together with
the notes thereto and the report thereon of the Auditors (the "Audited
Consolidated Financial Statements");
23
(ii) the consolidated unaudited balance sheet of the Company and the
Subsidiaries as of January 31, 2006 (the "Interim Consolidated Balance
Sheet") and the related consolidated statements of earnings and cash
flows for the nine-month period then ended (the "Interim Consolidated
Financial Statements");
(iii) the combined balance sheet of the Retained Subsidiaries as of April 30,
2005 (the "Audited Combined Balance Sheet") and the related combined
statement of earnings, stockholder's equity and cash flows for the year
then ended, together with the notes thereto and the report thereon of
the Auditors (the "Audited Combined Financial Statements"); and
(iv) the combined unaudited balance sheet of the Company and the Retained
Subsidiaries as of January 31, 2006 (the "Interim Combined Balance
Sheet") and the related combined statements of earnings and cash flows
for the nine-month period then ended (the "Interim Combined Financial
Statements").
(b) The Audited Consolidated Financial Statements present fairly, in all
material respects, the consolidated financial position of the Company
and the Subsidiaries at of the respective dates thereof, and the
consolidated results of operations and cash flows of the Company and
the Subsidiaries for the years therein referred to, all in accordance
with GAAP consistently applied, except as otherwise stated therein or
in the notes thereto.
(c) The Interim Consolidated Financial Statements present fairly, in all
material respects, the consolidated financial position of the Company
and the Subsidiaries at the date thereof, and the consolidated results
of operations and cash flows of the Company and the Subsidiaries for
the year therein referred to, all in accordance with GAAP consistently
applied, except as otherwise stated therein or in the notes thereto
(subject to normal year-end adjustments, none of which will be material
in amount or effect and the absence of footnotes).
(d) The Audited Combined Financial Statements present fairly, in all
material respects, the combined financial position of the Retained
Subsidiaries as of the date thereof, and the combined results of
operations and cash flows of the Retained Subsidiaries for the year
therein referred to, all in accordance with GAAP consistently applied,
except as otherwise stated therein or in the notes thereto.
(e) The Interim Combined Financial Statements present fairly, in all
material respects, the combined financial position of the Retained
Subsidiaries at the date thereof, and the combined results of
operations and cash flows of the Retained Subsidiaries for the period
therein referred to, all in accordance with GAAP consistently applied,
except as otherwise stated therein or in the notes thereto (subject to
normal year-end adjustments, none of which will be material in amount
or effect, and the absence of footnotes).
(f) At April 30, 2005, after giving pro forma effect to the Distribution
and to the adjustments set forth on the Section 4.7(f) of the
Disclosure Schedule, the Audited Combined Financial Statements present
fairly, in all material respects, the consolidated financial position
of the Company and the Retained Subsidiaries as of April 30, 2005, and
the consolidated results of operations and cash flows of the Company
and the Retained Subsidiaries for the year ended April 30, 2005.
(g) At January 31, 2006, after giving pro forma effect to the Distribution
and to the adjustments set forth on the Section 4.7(g) of the
Disclosure Schedule, the Interim Combined Financial Statements present
fairly, in all material respects, the consolidated financial position
of the Company and the Retained Subsidiaries as of January 31, 2006,
and the consolidated results of operations and cash flows of the
Company and the Retained Subsidiaries for the year ended January 31,
2006.
24
(h) At the date of this Agreement, neither the Company nor any of the
Retained Subsidiaries has any material liabilities or obligations of
any nature, other than (i) as set forth on Section 4.7(h) of the
Disclosure Schedule, (ii) as disclosed, reflected or reserved against
on the Audited Combined Balance Sheet or the notes thereto, (iii)
current liabilities incurred by the Company and the Retained
Subsidiaries since the date of the Audited Combined Balance Sheet in
the ordinary course of business consistent with past practice, (iv)
liabilities and obligations that are not required under GAAP to be
disclosed, reflected or reserved against on the Audited Combined
Balance Sheet or the notes thereto, (v) liabilities or obligations
arising under the Transaction Documents, (vi) the Completion Bonus
Agreement, and (vii) liabilities or obligations that would not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
(i) At the Closing, neither the Company nor any of the Retained
Subsidiaries will have any material liabilities or obligations of any
nature, other than (i) as set forth on Section 4.7(i) of the Disclosure
Schedule, (ii) as disclosed, reflected or reserved against on the
Audited Combined Balance Sheet or the notes thereto, (iii) current
liabilities incurred by the Company and the Retained Subsidiaries since
the date of the Audited Combined Balance Sheet in the ordinary course
of business consistent with past practice, (iv) liabilities and
obligations that are not required under GAAP to be disclosed, reflected
or reserved against on the Audited Combined Balance Sheet, (v)
liabilities or obligations arising under the Transaction Documents,
(vi) the Completion Bonus Agreement, and (vii) liabilities or
obligations that would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect.
(j) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions
engaged in by the Company or any of its Subsidiaries are executed in
material compliance with the general or specific authorizations of
management of the Company and its Subsidiaries, (ii) access to assets
of the Company and its Subsidiaries is permitted only in accordance
with the general or specific authorizations of management of the
Company and its Subsidiaries, and (iii) all intercompany transactions,
charges and expenses among or between the Company, any of its
Subsidiaries, any Seller and/or their respective Affiliates are
accurately reflected at fair arms' length value on the books and
records of the Company and its Subsidiaries.
4.8 Accounts Receivable. All accounts receivable of the Company and each
Retained Subsidiary reflected on the Interim Combined Balance Sheet and, at the
Closing Date, in the accounting records of the Company (collectively, the
"Accounts Receivable"), represent or will represent, as the case may be, valid
obligations from sales made in the ordinary course of business consistent with
past practice. Unless paid prior to the Closing Date, the Accounts Receivable
are or will be as of the Closing Date collectible net of the respective reserves
shown on the Interim Combined Balance Sheet or in the accounting records of the
Company as of the end of the month immediately preceding the Closing Date, as
the case may be (which reserves are or will be as of the Closing Date adequate
and calculated consistent with past practice and, in the case of the reserve as
of the Closing Date, will not represent a greater percentage of the Accounts
Receivable as of the Closing Date than the reserve reflected in the Interim
Combined 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).
4.9 Inventory. All inventory of the Company and the Retained Subsidiaries,
whether or not reflected in the Interim Combined Balance Sheet or in the
accounting records of the Company as of the end of the month immediately
preceding the Closing Date, consists of a quality and quantity usable and
salable in the ordinary course of business consistent with past practice, except
for obsolete items of below-standard quality, all of which have been written off
or written down to net realizable value in the Interim Combined Balance Sheet or
in the accounting records of the Company as of the end of the month immediately
preceding the Closing Date, as the case may be; provided, however, that sales of
inventory of the Company and the Retained Subsidiaries to discount retailers at
25
or above cost shall be considered to be in the ordinary course of business. The
values of all inventories of the Company and the Retained Subsidiaries have been
determined in accordance with the customary valuation policy of the Company
(which is the lower of cost or fair market value thereof).
4.10 Absence of Certain Changes and Events. Except for the Distribution, since
the date of the Audited Combined Balance Sheet, the Company and the Retained
Subsidiaries have in all material respects conducted their businesses only in
the usual and ordinary course of business consistent with past practice and,
except as expressly contemplated by this Agreement or any other Transaction
Document, there has not been any:
(i) event, condition, occurrence, contingency or development that has had
or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(ii) declaration, setting aside or payment of any dividends or other
distributions or payments in respect of any shares of capital stock of
the Company or any Retained Subsidiary, or any repurchase, redemption
or other acquisition by the Company or any Retained Subsidiary of any
of such shares of capital stock or other securities of the Company or
any Retained Subsidiary;
(iii) amendment of any term of any outstanding security of the Company or any
Retained Subsidiary;
(iv) incurrence, assumption or guarantee by the Company or any Retained
Subsidiary of any indebtedness for borrowed money, other than the
incurrence of indebtedness under the Line of Credit in the ordinary
course of business consistent with past practice;
(v) making of any material loan, advance or capital contribution to or
investment in any Person by the Company or any Retained Subsidiary,
other than (A) loans, advances or capital contributions between or
among the Company and its Subsidiaries, (B) travel and similar advances
to employees, (C) advances and extended payment terms to suppliers, and
(D) extended payment terms to customers, in each case in the ordinary
course of business consistent with past practice;
(vi) change in the independent accountants of the Company, any KDM
Subsidiary or any Retained Subsidiary or in any material financial or
Tax accounting methods, principles or practices followed by the
Company, any KDM Subsidiary or any Retained Subsidiary (except for any
such change required by reason of a change in GAAP or applicable Tax
law);
(vii) (A) adoption, amendment or modification of an Employee Benefit
Plan with any director, officer, employee or independent contractor of
the Company or any Retained Subsidiary (or any amendment to any such
existing agreement), (B) grant of any material severance or
termination pay to any director, officer, employee or independent
contractor of the Company or any Retained Subsidiary, (C) increase in
the compensation of, or payment of any bonus to, any director,
officer, employee or independent contractor of the Company or any
Retained Subsidiary, or (D) change with respect to the compensation or
other benefits payable to any director, officer, employee or
independent contractor of the Company or any Retained Subsidiary
except, in the case of clauses (C) and (D), in the ordinary course of
business consistent with past practice with respect to any employee
(excluding any officers) of the Company or any Retained Subsidiary;
26
(viii) material damage, destruction or loss to any material asset or property
of the Company or any Retained Subsidiary, other than damage that has
been repaired, damaged assets that have been replaced or damage for the
repair of which insurance proceeds have been received;
(ix) sale (other than sales of inventory and customer list rentals and
exchanges in the ordinary course of business consistent with past
practice), assignment, transfer, hypothecation, conveyance, lease, or
other disposition of any material asset or property of the Company or
any Retained Subsidiary or mortgage, pledge, or imposition of any
Encumbrance on any material asset or property of the Company or any
Retained Subsidiary (except for Permitted Encumbrances);
(x) incurrence or repayment of any liability or obligation (whether
absolute, accrued, contingent or otherwise) to any Related Party or,
other than in respect of current liabilities incurred in the ordinary
course of business, any incurrence or repayment of any material
liability or material obligation to any other Person or any discharge
or satisfaction of any material Encumbrance other than in the ordinary
course of business consistent with past practice;
(xi) failure to pay when due any material liabilities, except with respect
to any such liabilities being contested in good faith by the Company or
any Retained Subsidiary and which are identified in Section 4.10 of the
Disclosure Schedule;
(xii) cancellation, discharge or satisfaction of any material debts or
material claims to the Company or any Retained Subsidiary or any
amendment, termination, or waiver of any material rights of value to
the Company or any Retained Subsidiary;
(xiii) write down or write off of the value of any material asset of the
Company or any Retained Subsidiary, except for write downs and write
offs of accounts receivable and inventory in the ordinary course of
business consistent with past practice;
(xiv) failure to pay any material amount of accounts payable or collect any
material amount of accounts receivable other than in the ordinary
course consistent with past practice;
(xv) material change in the business or operations of the Company or any
Retained Subsidiary or in the manner of conducting the same or entry by
the Company or any Retained Subsidiary into any material transaction
(other than the transactions contemplated hereby), other than in the
ordinary course of business consistent with past practice; or
(xvi) agreement, whether or not in writing, to do any of the foregoing by the
Company or any Subsidiary.
4.11 Product Recalls. Since July 1, 2004 there has not been, nor is there
currently under consideration by the Company or any Retained Subsidiary, any
recall or withdrawal by or on behalf of the Company or any Retained Subsidiary
of any products manufactured, produced, distributed or sold by or, to the
Knowledge of the Principal Stockholders and the Company, on behalf of the
Company or any Retained Subsidiary or, to the Knowledge of the Principal
Stockholders and the Company, any recall by or on behalf of an entity as a
result of any alleged defect in any product supplied by the Company or any
Retained Subsidiary.
4.12 Real Property. Section 4.12 of the Disclosure Schedule describes each
interest in real property leased or otherwise occupied by the Company or any
Retained Subsidiary, including the location thereof and the lessor of any such
leased property (the "Leased Property") and each lease relating to any Leased
27
Property, including any amendments or supplements thereto. Neither the Company
nor any Retained Subsidiary owns any Real Property. Each of the Company and the
Retained Subsidiaries owns all right, title and interest in all leasehold
estates and occupancy or use rights granted by the leases and other agreements
required to be listed in Section 4.12 of the Disclosure Schedule, in each case
free and clear of all Encumbrances except for Permitted Encumbrances. To the
Knowledge of the Principal Stockholders and the Company, each of the buildings
and structures to the extent of the premises owned or leased by the Company or
any Retained Subsidiary are in good operating order, and each has adequate
rights of ingress and egress and utilities for the operation in the ordinary
course of business consistent with past practice. No such building or structure,
or any appurtenance thereto or equipment therein or the operation or maintenance
thereof, violates in any material respect any restrictive covenant or other
applicable agreement to which the Company or either of the Retained Subsidiaries
is a party. With respect to any real property leased by the Company or any
Retained Subsidiary, no event or condition exists that, with or without the
passage of time or the giving of notice, or both, would constitute a default or
breach by the Company or any Retained Subsidiary pursuant to any lease agreement
governing such property, except for such defaults or breaches that would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. To the Knowledge of the Principal Stockholders and the Company,
each landlord under each such lease agreement has complied with its material
obligations thereunder. Since July 1, 2004, no damage or destruction has
occurred and no condemnation proceeding is pending or, to the Knowledge of the
Principal Stockholders and the Company, threatened with respect to any real
property identified in Section 4.12 of the Disclosure Schedule.
4.13 Personal Property; Bank Accounts.
(a) Except as described in Section 4.13 of the Disclosure Schedule: (i) the
Company and each Retained Subsidiary have good and valid title to, or
enforceable leasehold interests in, all of their material properties and assets
used in the conduct of their respective businesses free and clear of all
Encumbrances (other than Permitted Encumbrances); and (ii) all material
properties and assets owned or leased by the Company or any Retained Subsidiary
are in the possession or under the control of the Company or such Retained
Subsidiary and are in good condition and repair, ordinary wear and tear
excepted.
(b) Section 4.13 of the Disclosure Schedule contains a complete and accurate
list of each bank, checking, money market, investment or similar account (each,
a "Company Account") owned by or used for the business and operations of the
Company and the Retained Subsidiaries and each individual authorized to have
access to and make transactions under each Company Account.
4.14 Material Contracts.
(a) Except as expressly provided by this Agreement or the other Transaction
Documents or as described in a correspondingly enumerated section of
Section 4.14 of the Disclosure Schedule, neither the Company nor any
Retained Subsidiary is a party to or is bound by any:
(i) agreement, indenture or other instrument relating to indebtedness for
money borrowed or capital leases (excluding capital leases providing
for annual payments of less than $75,000) or any guarantee, pledge,
surety, indemnification or similar undertaking in respect of any
indebtedness, liability or other obligation of any Person (other than
the endorsement of negotiable instruments for collection in the
ordinary course of business consistent with past practice);
(ii) Encumbrance of any nature (other than Permitted Encumbrances) relating
to or affecting any of the assets or properties of the Company or any
Retained Subsidiary;
28
(iii) contract, agreement, commitment, undertaking or arrangement relating to
a single capital expenditure of greater than $40,000 or any number of
such agreements, contracts or commitments relating to capital
expenditures of greater than $125,000 in the aggregate;
(iv) loan or advance to, or investment in, any Person (other than loans,
advances and investments by or among the Company and the Retained
Subsidiaries) in any case in an amount in excess of $25,000, or
$150,000 in the aggregate for all such loans, advances and investments
or any agreement, contract or commitment relating to the making of any
such loan, advance or investment, other than travel and similar
advances to employees in the ordinary course of business consistent
with past practice;
(v) management service, sales agency, sales representative, distributorship
or any other similar contract, in each case under which the amount of
payments required to be made thereunder in any fiscal year is greater
than $50,000;
(vi) non-competition, non-solicitation or exclusive dealing agreements
or other agreements or arrangements that restrict or limit or purport
to restrict or limit in any respect the ability of the Company or any
Retained Subsidiaries, or, to the Knowledge of the Company and the
Principal Stockholders, any officer, employee or independent
contractor of the Company or any Retained Subsidiaries, to solicit
customers, potential employees or the manner in which, or the
localities in which, all or any portion of the business of the Company
and the Retained Subsidiaries is or may be conducted, including,
without limitation, any contract, agreement or commitment limiting the
freedom of the Company or any of the Retained Subsidiaries to engage
in any line of business or compete with any Person;
(vii) contract, agreement, purchase order or other commitment involving the
performance of services or delivery of goods or materials (other than
inventory purchased or sold in the ordinary course of business) by or
to the Company or any Retained Subsidiary (A) outside the continental
United States or Canada or (B) pursuant to an agreement that provides
for sales of an aggregate amount in excess of $50,000 and which is not
terminable by the Company or such Retained Subsidiary without payment
of penalty or premium on not more than sixty days notice;
(viii) contract, agreement, commitment, undertaking or arrangement providing
for payments to or by any Person in excess of $25,000 in any fiscal
year, and which payment obligation is based on sales, revenue, purchase
volumes or profits, other than payments for goods;
(ix) contract, agreement, commitment, undertaking or arrangement, pursuant
to which payments would be due in the performance thereof in excess of
$50,000 per year, containing a "change of control" or anti-assignment
provisions that would be triggered by the transactions contemplated by
this Agreement and the other Transaction Documents;
(x) contract, agreement, commitment, undertaking or arrangement between or
among the Company and/or any Retained Subsidiary, on the one hand, and
any KDM Subsidiary, on the other hand;
(xi) joint venture or partnership agreement or arrangement; or
(xii) other contract, agreement, commitment, undertaking or arrangement which
is material to the business, operations, results of operations, assets,
or financial condition of the Company and its Retained Subsidiaries,
taken as a whole.
29
(b) The Company and each Subsidiary have furnished to Buyer true and
complete copies of each agreement, lease, plan and other document
required to be disclosed in Sections 4.12 and 4.14 of the Disclosure
Schedule, including any amendments and supplements thereto. All of the
contracts, agreements, commitments, undertakings, arrangements and
similar items required to be disclosed in Sections 4.12 and 4.14 of the
Disclosure Schedule are referred to herein collectively as the
"Material Contracts."
(c) Each Material Contract is a legal, valid and binding obligation of, and
enforceable against, the Company and/or the Retained Subsidiaries and,
to the Knowledge of the Principal Stockholders and the Company, the
other parties thereto, and is in full force and effect and enforceable
in accordance with its terms, except in each case as enforceability of
such Material Contracts may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws now or hereafter in
effect relating to or limiting creditors' rights generally and general
principles of equity relating to the availability of specific
performance and injunctive and other forms of equitable relief. Except
as would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect, there is no default or breach or
written claim of default or breach by any party under, or dispute in
writing regarding the material terms of, any such Material Contract,
and no event has occurred which with the passage of time or the giving
of notice or both would constitute a default or breach by any party
under any such Material Contract or would permit termination,
modification or acceleration of any such Material Contract or
constitute a similar event permitting the termination of the Company's
or any Retained Subsidiary's rights under any such Material Contract.
4.15 Insurance. Section 4.15 of the Disclosure Schedule contains a true and
complete list of each policy and binder of insurance (including property,
casualty, liability, life, health, accident, workers' compensation and
disability insurance and bonding arrangements) owned by, or maintained for the
benefit of, or respecting which any premiums are paid directly or indirectly by,
the Company or any Retained Subsidiary, in each case identifying: (i) the
respective issuers and expiration dates thereof; (ii) all deductible amounts and
amounts of coverage available and outstanding thereunder; (iii) whether such
policies and binders are "claims made" or "occurrences" policies; (iv) all
self-insurance programs or arrangements; and (v) any retrospective premium
adjustments of which the Principal Stockholders or the Company have Knowledge.
Neither the Company nor any Retained Subsidiary is in material default under any
such insurance policy. All premiums due have been paid on such insurance
policies. Except as described in Section 4.15 of the Disclosure Schedule,
neither the Company nor any Retained Subsidiary has received (i) any written
notice of cancellation of any policy or binder of insurance required to be
identified in Section 4.15 of the Disclosure Schedule or any written notice with
respect to any refusal of coverage thereunder; or (ii) any written notice that
any issuer of such policy or binder has filed for protection under applicable
bankruptcy or insolvency laws or is otherwise in the process of liquidating or
has been liquidated in any material respect.
4.16 Intellectual Property.
(a) Section 4.16(a)(I) of the Disclosure Schedule contains a true and complete
list of each (i) fictitious business name, trade name, registered and
unregistered trademark, service ▇▇▇▇ and related application ("Marks"), (ii)
patent application and issued patent material to the conduct of the business of
the Company and any Retained Subsidiary, taken as a whole, in the manner
conducted immediately prior to the Closing Date (collectively, "Patents"), (iii)
issued and pending copyright registration in published and material unpublished
works of authorship including Software works ("Copyrights"), (iv) Internet
domain name registration and related application (collectively "Domain
Registrations"), in each case, owned by or exclusively licensed to the Company
or any Retained Subsidiary. Except as otherwise described in Section 4.16(a) of
the Disclosure Schedule, (A) the Company and the Retained Subsidiaries are the
30
sole owners of, or have exclusive, legally enforceable rights to use without
consideration, all Intellectual Property (excluding the Marks set forth on
Section 4.16(a)(II) of the Disclosure Schedule) owned by the Company or any
Retained Subsidiary, free and clear of all Encumbrances (other than Permitted
Encumbrances); (B) neither the Company nor any Retained Subsidiary has granted
or licensed to any Person (other than the Company or any Retained Subsidiary)
any rights with respect to any Intellectual Property; (C) no other Person has
any rights in or to any of the Intellectual Property owned by the Company or any
Retained Subsidiary; (D) the rights of the Company and its Retained Subsidiaries
in and to any of such Intellectual Property (excluding the Marks set forth on
Section 4.16(a)(II) of the Disclosure Schedule) owned by or licensed to the
Company and its Retained Subsidiaries will not be limited or otherwise affected
in any material respect by reason of any of the transactions contemplated by
this Agreement or any of the other Transaction Documents; and (E) the
Intellectual Property includes all such proprietary rights necessary for the
conduct of the respective businesses of the Company and the Retained
Subsidiaries after the Closing in the same manner as such businesses were
conducted before the Closing.
(b) All Persons that are not employees of the Company or any Retained Subsidiary
who are involved with the creation, design, or development of any Copyrights of
the Company or any Retained Subsidiary have (a) entered into written agreements
assigning to the Company or a Retained Subsidiary all rights to original works
of authorship contained therein or, alternatively, designating such as "work
made for hire" and/or (b) granted a perpetual, royalty-free license to Company
and/or any of the Retained Subsidiaries permitting the Company and/or any of the
Retained Subsidiaries to use any works created, designed, or developed by such
Persons for the Company and/or any of the Retained Subsidiaries.
(c) The list of Marks set forth in Section 4.16(a) of the Disclosure Schedule
sets forth: (i) the name of the owner of such ▇▇▇▇; (ii) the jurisdictions by or
in which such ▇▇▇▇ has been issued or registered or in which an application for
such issuance or registration has been filed, and (iii) the registration and
application numbers of such ▇▇▇▇. The list of Copyrights set forth in Section
4.16(a) of the Disclosure Schedule sets forth: (i) the name of the author and
copyright claimant of such Copyright; and (ii) the registration numbers of such
Copyright. The list of Patents set forth in Section 4.16(a) of the Disclosure
Schedule sets forth the name of each jurisdiction in which such Patents have
been granted and applied for and all application numbers. The list of Domain
Registrations set forth in Section 4.16(a) of the Disclosure Schedule sets forth
the domain name, registered owner, date of registration and registrar of such
Domain Registrations. Except as otherwise set forth in Section 4.16 of the
Disclosure Schedule, the Company and each Retained Subsidiary have taken all
reasonable precautions to preserve and protect the secrecy, confidentiality and
value of their Trade Secrets and to protect the value of its Marks, Patents,
Copyrights and Domain Registrations. The Personally Identifiable Data contains,
in all material respects, a true, correct and complete list of all the customers
who have actually purchased merchandise from the Company or any of the Retained
Subsidiaries since January 1, 2004.
(d) To the Knowledge of the Principal Stockholders and the Company, the
operations of the Company and each Retained Subsidiary, as currently conducted,
including the sale by the Company or any Retained Subsidiary of products
manufactured by Persons other than the Company or the Retained Subsidiaries, do
not infringe in any material respect any trademark, copyright, patent or other
proprietary right of any Person.
4.17 Suppliers. Section 4.17 of the Disclosure Schedule provides a complete and
accurate list of the names of the 20 suppliers and vendors (other than for
professional services) from whom the Company and the Retained Subsidiaries made
the most purchases (in terms of dollar amounts and determined on a consolidated
basis) during the nine-month period ended January 31, 2006 and a good faith
approximation of the aggregate expenditures attributable to each in such period.
31
Except as disclosed in Section 4.17 of the Disclosure Schedule, no vendor or
supplier (other than for professional services) that accounted for more than of
5% of the purchases of the Company and the Retained Subsidiaries (determined on
a consolidated basis) during the nine-month period ended January 31, 2006 has
terminated or materially reduced, or has given written notice to the Company or
any Retained Subsidiary that it intends to terminate or materially reduce, the
amount of business done with the Company or any Retained Subsidiary. The
Principal Stockholders do not currently have any Knowledge of any such intention
on the part of any such supplier or vendor (other than for professional
services), whether or not in connection with or as a result of, the transactions
contemplated by this Agreement or any other Transaction Document.
4.18 Labor Matters.
(a) Except as described in Section 4.18(a) of the Disclosure Schedule: (i) no
application or petition for certification of a collective bargaining agent is
currently pending, and no union or bargaining representative is currently
certified as a representative of the employees of the Company or any Retained
Subsidiary; (ii) since July 1, 2004, neither the Company nor any Retained
Subsidiary has been the subject of a representation campaign to organize any
group of the Company's or such Retained Subsidiary's employees; and (iii) since
July 1, 2004, there has not been and there is not currently pending any material
labor arbitration or proceeding relating to the grievance of any employee of the
Company or the Retained Subsidiaries, any application, charge or complaint filed
by any such employee or union with the National Labor Relations Board or any
comparable state or local agency, any strike, slowdown, picketing or work
stoppage by any employees at any facility of the Company or any Retained
Subsidiary, any lockout of any such employees, or any other labor related
controversy materially affecting the operations, assets, results of operations,
financial condition or business of the Company or any Retained Subsidiary.
Except for the terms of the real property leases to which the Company or any of
the Retained Subsidiaries is currently a party, no agreement to which the
Company or any of the Retained Subsidiaries is a party restricts in any material
respect the Company or any Retained Subsidiary from relocating, closing or
terminating any of their operations or facilities or any portion thereof.
(b) Section 4.18(b) of the Disclosure Schedule contains true and correct copies
of each OSHA Form No. 300 and each OSHA Form No. 300A completed and maintained
by the Company or any Retained Subsidiary at each of its work establishments
since July 1, 2004.
(c) During the last 90 days prior to the date hereof, neither the Company nor
any Retained Subsidiary has (i) effectuated a "plant closing" (as defined in the
WARN Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of the Company or any
Retained Subsidiary; (ii) effectuated a "mass layoff" (as defined in the WARN
Act) affecting any site of employment or facility of the Company or any Retained
Subsidiary; or (iii) except as set forth in Section 4.18(c) of the Disclosure
Schedule, terminated or announced the termination of the employment of more than
a total of 20 employees (other than "seasonal workers," as defined by the WARN
Act, terminated in the ordinary course of business).
(d) Except as set forth in Section 4.18(d) of the Disclosure Schedule, each of
the Company and the Retained Subsidiaries is in compliance with all laws
pertaining to the hiring, employment and termination of the employment of
employees, labor relations, equal employment opportunities, fair employment
practices, terms and conditions of employment, hours of work and payment of
wages or compensation, granting of leaves of absence, and other similar
employment activities, except for such failure to be in compliance that would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
32
(e) Each of the Company and the Retained Subsidiaries is in compliance with all
workers' compensation laws, except for such failure to be in compliance that
would not reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect. All pending claims against the Company or either
Retained Subsidiary under workers' compensation laws are set forth in Section
4.18(e) of the Disclosure Schedule.
4.19 Employee Benefits.
(a) Section 4.19(a) of the Disclosure Schedule contains a complete and correct
list of each "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and each
profit-sharing, bonus, stock option, stock purchase, stock ownership, pension,
retirement, severance, change in control, retention, deferred compensation,
excess benefit, supplemental unemployment, post-retirement medical or life
insurance, welfare or incentive plan, or sick leave, long-term disability,
medical, hospitalization, life insurance, other insurance plan, or other
employee benefit plan, program, arrangement or agreement, whether written or
unwritten, qualified or non-qualified, funded or unfunded, maintained or
contributed to by the Sellers or the Company or any ERISA Affiliate (as defined
below) for the benefit of present or former officers, directors, employees or
independent contractors of the Company or any ERISA Affiliate or with respect to
which the Company or any ERISA Affiliate could have liability, including, but
not limited to, any individual contract, offer letter or agreement with or
addressed to any officer, director, employee or independent contractor of the
Company or any Retained Subsidiary pursuant to which any Person has any actual
or contingent liability or obligation to provide compensation and/or benefits in
consideration for past, present or future services (collectively, the "Employee
Benefit Plans"). Except as described in Section 4.19(a) of the Disclosure
Schedule, the Company has delivered or made available to Buyer, with respect to
all such Employee Benefit Plans, true, complete and correct copies of the
following: all plan documents and handbooks; the most recent summary plan
descriptions and any subsequent summaries of material modifications; Forms
series 5500 as filed with the United States Department of Labor ("DOL") since
July 1, 2004; all trust agreements with respect to Employee Benefit Plans; plan
contracts with service providers or with insurers providing benefits for
participants or liability insurance for fiduciaries and other parties in
interest or bonding; the most recent annual audit and accounting of plan assets
for all funded plans; and the most recent IRS determination letter for all plans
qualified under Section 401(a) of the Code. As used herein, "ERISA Affiliate"
shall refer to any trade or business, whether or not incorporated, under common
control with the Company within the meaning of Section 414(b), (c), (m) or (o)
of the Code.
(b) Except as described in Section 4.19(b) of the Disclosure Schedule, each
Employee Benefit Plan has been administered in compliance with its terms and is
in compliance in all material respects with the applicable provisions of ERISA,
the Code and all other applicable Laws.
(c) The Company has made, or will make within the prescribed time periods under
the applicable Employee Benefit Plan, full payment of all amounts it is required
under the terms of each Employee Benefit Plan, to have contributed thereto
before the Closing Date for all periods through the Closing Date, and, with
respect to payments not yet due, proper accruals for such contributions have
been made and are reflected in the Audited Consolidated Balance Sheet in the
accounting records of the Company as of the end of the month immediately
preceding the Closing Date.
(d) Each Employee Benefit Plan which is an "Employee Pension Benefit Plan" (as
defined in Section 3(2) of ERISA) and which is intended to be "qualified" within
the meaning of Section 401(a) of the Code has been issued a favorable
determination letter from the IRS, and to the Knowledge of the Principal
Stockholders and the Company, there has been no act or condition that would
reasonably be expected to result in the loss of tax-qualified status of such
Employee Pension Benefit Plan or the loss of exemption from federal income tax
under Section 501(a) of the Code of any trust created pursuant to any such
Employee Pension Benefit Plan.
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(e) Neither the Company nor any ERISA Affiliate maintains or has ever maintained
or been obligated to contribute to a "Multiemployer Plan" (as such term is
defined by Section 3(37) of ERISA) or to a "Defined Benefit Plan" (as such term
is defined by Section 3(35) of ERISA). Neither the Company nor any ERISA
Affiliate has any liability with respect to a Multiemployer Plan or a Defined
Benefit Plan or any liability under Title IV of ERISA.
(f) With respect to each Employee Benefit Plan, no material unsatisfied
liabilities to participants, the IRS, the DOL, the Pension Benefit Guaranty
Corporation or to any other Person have been incurred as a result of the
cessation of contributions under, the transfer of sponsorship of, or the
termination of any Employee Benefit Plan.
(g) Except as described in Section 4.19(g) of the Disclosure Schedule, (i)
neither the Company nor any ERISA Affiliate maintains any retiree life and/or
retiree health insurance plans which provide for continuing benefits or coverage
for any employee or any beneficiary of an employee after such employee's
termination of employment, other than benefits that are required to be provided
pursuant to Title X of the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, or state continuation coverage rights, (ii) no Employee
Benefit Plan is a "multiple employer welfare arrangement" as defined in Section
3(40) of ERISA and (iii) neither the Company nor any Retained Subsidiary has
received any services from an individual whom it treated as an independent
contractor or leased employee, but who has been determined by any Governmental
Body to be a common law employee for purposes of any Employee Benefit Plan.
(h) Except as set forth in Section 4.19(h) of the Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement and the other
Transaction Documents will not, alone or together with any other event: (i)
entitle any Person to severance pay, unemployment compensation or termination
benefits or any other payment, (ii) accelerate the time of payment or vesting
of, or increase the amount of compensation due to any Person, (iii) obligate the
Company or any Retained Subsidiary to pay or otherwise be liable for any
compensation or other benefits to any Person for any periods before the Closing
Date or (iv) result, separately or in the aggregate, in the payment (whether in
connection with any termination of employment or otherwise) of any "excess
parachute payment" within the meaning of Section 280G of the Code with respect
to a current or former employee of, or current or former independent contractor
to, the Company or any Retained Subsidiary.
4.20 Directors, Officers and Employees. Section 4.20 of the Disclosure Schedule
sets forth the following information for each director, officer and employee of
the Company and each Retained Subsidiary and for each consultant, agent and
independent contractor regularly retained, whose aggregate compensation for the
last fiscal year ended exceeded $50,000 or whose current aggregate annual rate
of compensation exceeds such amount (including each such Person on leave or
layoff status): (i) employer and location of employment; (ii) name and job
title; (iii) current annual rate of compensation (identifying bonuses
separately) and any change in compensation since April 30, 2005; (iv) vacation
accrued; and (v) service credited for purposes of vesting and eligibility to
participate in applicable Employee Benefit Plans.
4.21 Affiliate Agreements.
(a) Except as described in Section 4.21(a) of the Disclosure Schedule, since
July 1, 2004, except as set forth in Section 4.19(a) of the Disclosure Schedule,
there have not been and there are not currently in effect any written agreements
or arrangements by and between the Company and any Retained Subsidiary, on the
34
one hand, and any Related Party or KDM Subsidiary, on the other hand. Except as
described in Section 4.21(a) of the Disclosure Schedule, no Related Party or any
KDM Subsidiary has (i) any ownership or leasehold interest in any property
(whether real, personal, or mixed and whether tangible or intangible) used in or
pertaining to the business of the Company or any Retained Subsidiary, other than
the ownership interest of the Sellers in the Securities or (ii) any claim
against the Company or any Retained Subsidiary (other than claims arising out of
or related to the employment by the Company or any Retained Subsidiary of such
Related Party).
(b) No amount of indebtedness is owed to the Company or any Retained Subsidiary
by any Related Party or KDM Subsidiary. No Seller has any right to receive any
dividends, distributions or other payments with respect to any capital stock or
indebtedness of the Company or any Retained Subsidiary, whether as a result of
the transactions contemplated hereby or otherwise, other than each Seller's
respective right to receive such Seller's portion of the Aggregate Cash Proceeds
and the Final Closing Adjustment, if any.
4.22 Environmental Matters. Except as described in Section 4.22(a) of the
Disclosure Schedule:
(a) The Company, the Subsidiaries, and all of their respective operations
and properties, are in compliance in all material respects with all
applicable Environmental Laws, the Company and its Subsidiaries possess
all Governmental Authorizations required under applicable Environmental
Laws and all such Governmental Authorizations are in full force and
effect;
(b) Neither the Company nor any of the Subsidiaries has received any
written claim, complaint, demand, notice of violation, notice of
potential liability or request for information, and, to the Knowledge
of the Company, there is no suit, action, proceeding or investigation
pending, regarding any violation or alleged violation by the Company or
any of the Subsidiaries of, or potential liability of the Company or
any of the Subsidiaries under, any Environmental Law;
(c) Neither the Company nor any of its Subsidiaries is subject to any
liability under any Environmental Law except for liabilities that would
not reasonably be excepted to have, individually or in the aggregate, a
Material Adverse Effect;
(d) There has been no Release or threat of Release of Hazardous Materials
at, on, in under or from any properties or facilities currently or
formerly owned, operated or leased by the Company, any of the
Subsidiaries or any of their respective predecessors in interest which
could reasonably be expected to result in any material liability of the
Company or any of the Subsidiaries under any Environmental Law;
(e) No Hazardous Materials generated by the Company or any of the
Subsidiaries or in connection with any of their respective operations,
properties or facilities, or the operations, properties or facilities
of any of their respective predecessors in interest, have been disposed
of or transported for disposal or treatment to any location that could
reasonably be expected to give rise to material liability of the
Company or any of its Subsidiaries under any Environmental Law;
(f) Neither the Company nor any of the Subsidiaries is currently financing
or conducting any investigation, response or corrective action at any
location pursuant to any Environmental Law, nor are the Company or any
of the Subsidiaries the subject of, or party to, any decree, order or
agreement which could reasonably be expected to result in material
liability of the Company or any of the Subsidiaries under any
Environmental Law:
35
(g) To the Knowledge of the Company, there are no above-ground or
underground storage tanks or related piping, other than tanks for the
storage of edible food products described in Section 4.22 of the
Disclosure Schedule, or asbestos or asbestos-containing materials at
any property or facility currently owned or leased by the Company or
any of the Subsidiaries;
(h) The Company and each of the Subsidiaries has provided to Buyer all
written assessments, audits, reports and other information in its
possession or under its control relating to (i) environmental
conditions at any property or facility now or previously owned,
operated, leased or used by the Company, any of the Subsidiaries or any
of their respective predecessors in interest and (ii) the actual or
potential compliance by the Company and the Subsidiaries with, and the
actual or potential liability of the Company or any of the Subsidiaries
under, any Environmental Law.
(i) Neither the Company nor any of its current or former Subsidiaries nor
any of the respective predecessors in interest of the Company or any of
its current or former Subsidiaries have ever owned any of the FM
Properties.
4.23 Books and Records. True, complete and correct copies of the certificates or
articles of incorporation and bylaws of the Company and each Subsidiary (or
other comparable organizational documents) have been delivered to Buyer, and
such documents, in the form delivered to Buyer, are in full force and effect.
The stock records of the Company and each Retained Subsidiary fairly and
accurately reflect the record ownership of all of their outstanding shares of
capital stock and other equity securities of the Company and its Subsidiaries.
The minute books of the Company and each Retained Subsidiary contain complete
and accurate records in all material respects of all meetings held of, and
corporate action taken by, the stockholders, the boards of directors and each
committee of the boards of directors of the Company and the Retained
Subsidiaries. Copies of such minute books and stock records have been made
available to Buyer, and such records are complete and accurate in all material
respects.
4.24 Brokers. Other than Paragon Capital Partners, LLC, whose fees shall be, if
not a Transaction Expense, paid by Sellers' Representative on behalf of the
Stockholders, there is no investment banker, broker, finder or other
intermediary (other than Escrow Agent) which has been retained by or is
authorized to act on behalf of the Company or any Subsidiary that might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement or any other Transaction Document.
4.25 Condition and Sufficiency of Assets. To the Knowledge of the Principal
Stockholders and the Company, the buildings, plants, structures and equipment
owned or leased by the Company and the Retained Subsidiaries are adequate for
the uses to which they are being put. The buildings, plants, structures and
equipment owned or leased by the Company and the Retained Subsidiaries are
sufficient, subject to routine maintenance in the ordinary course of business
and future ordinary wear and tear from operations, for the continued conduct of
the business of the Company and the Retained Subsidiaries after the Closing in
substantially the same manner as conducted prior to the Closing.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER AND GUARANTOR
Buyer hereby represents and warrants to each Seller as of the date of
this Agreement and as of the Closing Date that:
5.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and has all
necessary corporate power and authority to perform all of its obligations under
this Agreement and the other Transaction Documents to which it is a party
(collectively, the "Buyer Transaction Documents").
36
5.2 Power and Authorization. Buyer has all requisite power and authority to
execute and deliver this Agreement and the other Buyer Transaction Documents, to
perform its obligations hereunder and thereunder and to carry out the
transactions contemplated hereby and thereby. All necessary corporate,
stockholder and other legal action has been taken by Buyer to authorize the
execution, delivery and performance by it of this Agreement and each other Buyer
Transaction Document, and the consummation of the transactions contemplated
hereby and thereby. Buyer has duly executed and delivered this Agreement and, at
or prior to the Closing, will have duly executed and delivered each other Buyer
Transaction Document. This Agreement is, and each other Buyer Transaction
Document, when duly executed and delivered at or prior to the Closing by Buyer
will be, the legal, valid and binding obligation of Buyer enforceable against it
in accordance with its respective terms, except as enforceability of such
obligations may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or limiting
creditors' rights generally and general principles of equity relating to the
availability of specific performance and injunctive and other forms of equitable
relief.
5.3 No Conflicts.
---------------------
(a) The execution, delivery and performance by Buyer of this Agreement and
the other Buyer Transaction Documents and the consummation by Buyer of
the transactions contemplated hereby and thereby do not and will not
(with or without the passage of time or the giving of notice, or both):
(i) contravene, conflict with, or result in a violation of (A) the
certificate of incorporation or bylaws of Buyer, (B) any resolution
adopted by the board of directors or equityholders of Buyer or (C) any
Laws or Governmental Authorizations binding upon or applicable to
Buyer, except, in the case of this clause (C), where such
contravention, conflict or violation would not reasonably be expected
to have a material adverse effect on the ability of Buyer to enter into
or consummate the transactions contemplated by this Agreement or any
other Buyer Transaction Document (a "Buyer Material Adverse Effect");
or
(ii) contravene, conflict with, result in a violation or breach of, or
constitute a default under, any agreement or other obligation to which
Buyer is a party or by which it or any of its assets are bound, or give
to others any material rights (including rights of termination,
foreclosure, cancellation, modification or acceleration) in or with
respect thereto, except where such contravention, conflict, violation,
breach, default, loss, termination, foreclosure, cancellation,
modification or acceleration would not reasonably be expected to have a
material adverse effect on the ability of Buyer to enter into or
consummate the transactions contemplated by this Agreement or any other
Buyer Transaction Document.
(b) Except for the HSR Act, with respect to the transactions hereunder, no
other material Consents of, or material registrations, material
notifications, material filings or material declarations with, any
Governmental Body, creditor, lessor or other Person are required to be
given or made in connection with the execution, delivery and
performance by Buyer of this Agreement or any other Buyer Transaction
Document.
(c) There are no judicial, administrative or other governmental actions,
proceedings or investigations pending or, to the Knowledge of Buyer,
threatened, that question any of the transactions contemplated by, or
the validity of, this Agreement or any of the other Buyer Transaction
Documents or which have had or, if adversely determined, would
reasonably be expected to have, a material adverse effect upon the
ability of Buyer to enter into or consummate the transactions
contemplated by this Agreement or any of Buyer Transaction Documents.
37
5.4 Acquisition of Securities for Investment. Buyer has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of its purchase of the Securities. Buyer confirms that the
Company and the Sellers have made available to Buyer adequate opportunity to ask
questions of and receive answers from the officers, management and employees of
the Company and to acquire additional information about the business and
financial condition of the Company and its Subsidiaries, as further described in
Section 5.7(a) hereof. Buyer is acquiring the Securities for investment and not
with a view toward or for sale in connection with any distribution thereof, or
with any present intention of distributing or selling the Securities. Buyer
agrees that the Securities may not be sold, transferred, offered for sale,
pledged, hypothecated or otherwise disposed of without registration under the
Securities Act of 1933, as amended, or any applicable state securities laws,
except pursuant to an exemption from such registration available under the
Securities Act of 1933, as amended, or any applicable state securities laws.
5.5 Brokers. Other than ThinkEquity Partners, LLC and ▇▇▇▇▇ & Company LLC (whose
fees and commissions will be solely and exclusively the obligation of Buyer),
there is no investment banker, broker, finder or other financial intermediary
(other than the Escrow Agent) that has been retained by or is authorized to act
on behalf of Buyer or any of its Affiliates that might be entitled to any fee or
commission in connection with the transactions contemplated by this Agreement or
any other Transaction Document.
5.6 Financing. As of the Closing Date, Buyer will have such funds available that
will be sufficient to pay the Total Purchase Price and satisfy all other
obligations of Buyer on and after the Closing Date under this Agreement and each
other Buyer Transaction Document.
5.7 Investigation by Buyer.
(a) Buyer acknowledges and agrees that it (i) has conducted its own independent
review, investigation and analysis of the business, operations, assets,
liabilities, results of operations, financial condition, software, technology
and prospects of the Company and its Subsidiaries; and (ii) has relied in
entering into this Agreement solely upon (x) its own review, investigation and
analysis and (y) the provisions of this Agreement, including the representations
and warranties contained herein.
(b) Except for the representations and warranties contained in Section 3 and
Section 4 of this Agreement, Buyer acknowledges and agrees that none of the
Sellers, the Company or its Subsidiaries or any of their respective
Representatives makes or has made any representation or warranty, either express
or implied, with respect to the business, operations, assets, liabilities,
results of operations, financial condition, software, technology and prospects
of the Company and its Subsidiaries, the Securities, the Sellers or otherwise,
or with respect to any information provided to Buyer or any of its Affiliates or
Representatives, whether on behalf of the Sellers, the Company or its
Subsidiaries or any other Person.
5.8 WARN Act. Buyer has no present intention of entering into any layoffs of any
group or class or employees at any of the facilities operated by the Company or
any of the Retained Subsidiaries for a period of 60 days following the Closing
Date.
SECTION 6. COVENANTS OF THE COMPANY AND SELLERS
6.1 Conduct of Business Pending Closing. From the date hereof until the Closing,
except (i) for the Distribution, (ii) as expressly contemplated by this
Agreement or any other Transaction Document or (iii) as set forth in Section 6.1
38
of the Disclosure Schedule, the Principal Stockholders shall cause the Company
to, and the Company shall and shall cause each of the Subsidiaries to, and with
respect to Sections 6.1(f) and (g), each Seller (solely as to such Seller) also
shall:
(a) maintain their corporate (or other organizational) existence, pay and
discharge all of their respective material debts, liabilities and
obligations as they become due, and operate their respective businesses
in all material respects in the ordinary course in a manner consistent
with past practice, and in compliance with all applicable Laws and the
provisions of this Agreement;
(b) maintain the facilities and assets of the Retained Subsidiaries in all
material respects in the same state of repair, order and condition as
they were in on the date hereof, reasonable wear and tear excepted;
(c) maintain their books and records in accordance with past practice in
all material respects, and use reasonable commercial efforts to
maintain in full force and effect all material Consents and material
Governmental Authorizations;
(d) maintain all material insurance policies and binders owned by or
maintained for the benefit of the Company or any Retained Subsidiary in
an amount and scope consistent with any such insurance policies in
effect as of the date hereof;
(e) use their commercially reasonable efforts to preserve intact their
present business organization and maintain their relations and goodwill
with their suppliers, vendors, customers, employees and others having a
business relationship with any of them;
(f) promptly advise Buyer upon obtaining Knowledge of any threat or
commencement of any material dispute, claim, action, suit, proceeding,
arbitration or investigation by, against or affecting any Seller, the
Company, any Subsidiary or any of their operations, properties, assets
or prospects, or which would reasonably be expected to have a material
adverse effect on the Company's or any Seller's ability to consummate
the transactions contemplated by this Agreement and the other
Transaction Documents; and
(g) promptly advise Buyer upon obtaining Knowledge of (i) the existence of
any fact or condition that would constitute a breach of any of the
Sellers' or the Company's representations and warranties contained in
this Agreement, (ii) the occurrence of any breach of any covenant of
the Company or the Sellers in this Agreement, or (iii) the occurrence
of any event that would reasonably be expected to make the satisfaction
of the conditions in Section 11.1 impossible or unlikely; and
(h) use their best efforts to protect the value of their Marks, Patents,
Copyrights and Domain Registrations, and including but not limited to
taking all reasonable steps to prevent unauthorized usages of their
Marks, Patents, Copyrights and Domain Registrations and insuring clear
and current title to their Marks, Patents, Copyrights and Domain
Registrations is recorded with all applicable registrars and
Governmental Bodies.
6.2 Negative Covenants Pending Closing. From the date hereof until the Closing,
except (i) for the Distribution, (ii) as expressly contemplated by this
Agreement or any other Transaction Document or (iii) as set forth in Section 6.2
of the Disclosure Schedule, without the prior written consent of Buyer, the
Principal Stockholders shall cause the Company not to, and the Company shall not
and shall cause each of the Subsidiaries not to:
39
(a) (i) make any change in the Company's or any Subsidiary's authorized or
issued capital stock or other securities, (ii) grant any stock option
or other right to purchase shares of the Company's or any Subsidiary's
capital stock or other securities, (iii) issue or make any commitment
to issue any equity security by the Company or any Subsidiary,
including any security convertible into the Company's or any
Subsidiary's capital stock, (iv) declare, set aside or issue or pay any
dividends, (v) grant any registration rights with respect to the
Company's or any Subsidiary's capital stock or other securities or (vi)
purchase, redeem, retire or make any other acquisition of any shares of
the Company's or any Subsidiary's capital stock or other securities;
(b) adopt or propose any change in the certificate or articles of
incorporation or bylaws (or equivalent governing documents) of the
Company or any Subsidiary;
(c) except as set forth in Section 6.2(c) of the Disclosure Schedule, merge
or consolidate with any other Person or acquire assets from any other
Person, other than (i) the acquisition of inventory, (ii) with respect
to the Company and the Retained Subsidiaries, capital expenditures of
not more than $15,000 per individual expenditure or $100,000 in the
aggregate, (iii) transactions between or among the Company and the
Retained Subsidiaries and (iv) transactions between or among the KDM
Subsidiaries, in the case of each of clauses (i), (ii) and (iii), in
the ordinary course of business consistent with past practice;
(d) sell, lease, license or otherwise dispose of any assets or property of
the Company or any Subsidiary except (i) pursuant to existing contracts
or commitments that are disclosed in the Disclosure Schedule, (ii) the
sale of inventory and customer list rentals and exchanges, (iii)
transactions between or among the Company and the Retained Subsidiaries
and (iv) transactions between or among the KDM Subsidiaries, in the
case of each of clauses (i), (ii) and (iii), in the ordinary course of
business consistent with past practice;
(e) make any material change in the Company's or any Retained Subsidiary's
inventory policies or procedures, operating policies or procedures, or
advertising and promotional policies or procedures;
(f) enter into or materially modify or amend any financing arrangements,
including, without limitation, any credit agreement, loan agreement,
bond, debenture, note or other similar instrument;
(g) enter into or modify or amend any lease or sublease of real property or
terminate or materially amend or cause or permit the extension of the
term of any such lease;
(h) with respect to the Company and the Retained Subsidiaries, enter into
or modify or amend any contract with any Related Party;
(i) make any loan, advance or capital contribution to or investment in any
Person, other than (i) loans, advances or capital contributions between
or among the Company and the Retained Subsidiaries, (ii) loans,
advances or capital contributions between or among the KDM
Subsidiaries, (iii) travel and similar advances to employees and (iv)
advances and extended payment terms to suppliers, in the case of each
of clauses (i), (iii) and (iv), in the ordinary course of business
consistent with past practice;
40
(j) change the independent accountants of the Company or its Subsidiaries
or the accounting methods, principles or practices followed by the
Company or any Subsidiary (except for any such change required by
reason of a change in GAAP or Law);
(k) (i) adopt, amend or modify an Employee Benefit Plan with any
director, officer, employee or independent contractor of the Company
or any Retained Subsidiary, (ii) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ or termination pay to
any director, officer, employee or independent contractor of the
Company or any Retained Subsidiary, (iii) increase the compensation
of, or pay any bonus to, any director, officer, employee or
independent contractor of the Company or any Retained Subsidiary, or
(iv) change the compensation or other benefits payable to any
director, officer, employee or independent contractor of the Company
or any Retained Subsidiary except, in the case of each of clauses
(iii) and (iv), in the ordinary course of business consistent with
past practice with respect to any employee (excluding any officers) of
the Company or any Retained Subsidiary.
(l) (i) with respect to the Company and the Retained Subsidiaries, incur or
repay any liability or obligation (whether absolute, accrued,
contingent or otherwise) to any Related Party, other than liabilities
and obligations to Sellers who are employees of the Company or a
Retained Subsidiary incurred in the ordinary course of business
consistent with past practice or (ii) incur or repay any material
liability or material obligation to any other Person or discharge or
satisfy any material Encumbrance, other than (A) in the ordinary course
of business consistent with past practice and (B) pursuant to the terms
of agreements to which the Company or a Retained Subsidiary is a party
on the date hereof or are entered into on terms permitted hereunder
after the date hereof;
(m) cancel, discharge or satisfy any material debts or other material
amounts owed to the Company or any Retained Subsidiary or amend,
terminate, or waive any other material rights of value to the Company
or any Retained Subsidiary;
(n) write down or write off the value of any material asset of the Company
or any Retained Subsidiary, except for write downs and write offs of
accounts receivable and inventory in the ordinary course of business
consistent with past practice;
(o) Compromise or abandon any claims, actions, suits or proceedings (other
than write offs of accounts receivable in the ordinary course of
business); or
(p) make any commitment to do any of the foregoing.
6.3 Access to Information. From the date hereof to the Closing, the Principal
Stockholders shall cause the Company to, and the Company shall and shall cause
the Retained Subsidiaries to, (i) give Buyer and its Representatives and Buyer's
sources of financing for the transaction contemplated hereby and their
respective Representatives (collectively, "Buyer's Representatives") reasonable
access to all of the personnel, books, records, plants, offices and other
facilities and properties of the Company and the Retained Subsidiaries, and, to
the extent related primarily to the Company and the Retained Subsidiaries, to
the books and records of the Principal Stockholders, during normal business
hours and upon reasonable prior notice, (ii) permit Buyer and Buyer's
Representatives to make such inspections thereof as such Persons may reasonably
request, (iii) furnish to Buyer and Buyer's Representatives such financial,
operating data and other information regarding the respective businesses,
agreements, commitments, liabilities, personnel and properties of the Company
and the Retained Subsidiaries as such Person may reasonably request and (iv)
instruct the Representatives of the Company and each Retained Subsidiary to
reasonably cooperate with Buyer and Buyer's Representatives in their
investigation of the Company and the Retained Subsidiaries. Buyer shall, and
shall cause the Buyer Representatives to, hold any all information obtained
pursuant to this Section 6.3 in confidence to the extent required by, and in
accordance with, the provisions of the Confidentiality Agreement.
41
6.4 Consents and Governmental Authorizations.
(a) As promptly as practicable after the date of this Agreement, the Principal
Stockholder shall cause the Company to, and the Company shall, and shall cause
each Subsidiary to, use its commercially reasonable efforts to (i) obtain all
Consents set forth on Section 4.3(b) of the Disclosure Schedule, including,
without limitation, all Governmental Authorizations necessary for the
consummation by the Company and the Guarantors of the transactions contemplated
by this Agreement and the other Company Transaction Documents, including,
without limitation, the Distribution and (ii) give or make all registrations,
notifications, filings and declarations set forth on Section 4.3(b) of the
Disclosure Schedule, including, without limitation, all registrations,
notifications, filings and declarations required to be given or made by the
Company and the Subsidiaries pursuant to applicable Laws in order to consummate
the transactions contemplated by this Agreement and the other Company
Transaction Documents, including, without limitation, the Distribution. For
purposes of this Section 6.4(a), the term "commercially reasonable efforts"
shall not include any obligation of the Company or any Subsidiary to expend
money (other than filing fees and nominal amounts), commence or participate in
any material claim, action, proceeding or litigation, grant any material
accommodation (financial or otherwise) to any Person, or sell, transfer or
otherwise dispose of any of its assets or properties. This Section 6.4(a) shall
not apply to filings and Governmental Authorizations to be made under the HSR
Act, which are addressed solely in Section 9.3.
(b) As promptly as practicable after the date of this Agreement, each Seller
(solely with respect to such Seller) shall use its commercially reasonable
efforts to (i) obtain all Consents set forth on Section 3.3(b) of the Disclosure
Schedule, including, without limitation, all Governmental Authorizations
necessary for the consummation by such Seller of the transactions contemplated
by this Agreement and the other Seller Transaction Documents and (ii) give or
make all registrations, notifications, filings and declarations set forth on
Section 3.3(b) of the Disclosure Schedule, including, without limitation, all
registrations, notifications, filings and declarations required to be given or
made by such Seller pursuant to applicable Laws in order to consummate the
transactions contemplated by this Agreement and the other Seller Transaction
Documents. For purposes of this Section 6.4(b), the term "commercially
reasonable efforts" shall not include any obligation of such Seller to expend
money (other than filing fees and nominal amounts), commence or participate in
any material claim, action, proceeding or litigation, grant any material
accommodation (financial or otherwise) to any Person, or sell, transfer or
otherwise dispose of any of its assets or properties. This Section 6.4(b) shall
not apply to filings and Governmental Authorizations to be made under the HSR
Act, which are addressed solely in Section 9.3.
6.5 Financial Information. From the date hereof until the Closing, the Company
shall provide Buyer, within 20 days after the end of each month, with an
unaudited combined balance sheet and related combined statements of earnings and
cash flows of the Retained Subsidiaries as of and for the month then ended,
prepared on the same basis as the Interim Combined Financial Statements and
certified as such by the Chief Financial Officer of the Company (in his capacity
as such).
6.6 No Shop. Except solely (i) with respect to Buyer, (ii) with respect to the
Sellers in connection with the Distribution and (iii) with respect to solely the
KDM Subsidiaries, neither the Sellers nor the Company shall, and the Sellers and
the Company will cause the Subsidiaries and their respective Representatives not
to, directly or indirectly, (i) initiate, solicit, encourage or facilitate
(including by way of furnishing information or data) any inquiries or the making
of any proposal or offer with respect to, or a transaction to effect, a merger,
reorganization, consolidation, share exchange, business combination,
42
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of the Subsidiaries, or any purchase or sale of the capital stock
of the Company or any of the Subsidiaries or any of their respective assets or
business (other than sales of inventory in the ordinary course of business) or
(ii) have any discussion with or provide any information or data to any Person
relating to such a transaction, engage in any negotiations concerning such a
transaction, or knowingly facilitate any effort by any Person to make a proposal
with respect to, or complete, any such transaction; provided, however, that this
Section 6.6 shall not prohibit or restrict the Sellers from responding to
unsolicited inquiries from Persons who or which have previously received
information regarding the Company in connection with a possible sale or
recapitalization transaction, to the extent that any such response is solely
limited to a statement that the Sellers, the Company and the Subsidiaries (i)
are bound by an exclusivity obligation with an unidentified Person and (ii) will
be unable to have any discussions with such inquiring Person for so long as the
Sellers, the Company and the Subsidiaries continue to be bound by such
obligation.
6.7 Confidential Information. Each Seller acknowledges and agrees that neither
it nor any of its Affiliates shall use for any purpose or shall disclose to any
Person (other than his, her or its Representatives, the Sellers' Representative
or another Seller), any confidential or proprietary information (including,
without limitation, trade secrets, formulae and recipes) of or relating to
Buyer, the Company or either Retained Subsidiary without the prior written
consent of Buyer; provided, however, that the foregoing restriction shall not
apply to (i) the disclosure of any information which is or becomes publicly
known through no fault of any Seller or which is lawfully obtained from a third
party that is not bound by a contractual, legal or other confidentiality
obligation to or for the benefit of the Company, any Retained Subsidiary or
Buyer, (ii) the disclosure of any information which such Seller is duly
authorized to disclose in connection with such Seller's employment with the
Company post-Closing, (iii) any disclosure required by applicable Law, any final
order or judgment of a Governmental Body or in connection with the enforcement
of such Seller's rights under this Agreement or any other Seller Transaction
Document or (iv) any disclosures required or requested by the FTC or DOJ in
connection with its review of the transactions contemplated hereby under the HSR
Act.
6.8 Pre-Closing Deliverables. At least three Business Days before the Closing
Date, the Company shall cause to be prepared and delivered to Buyer (a) the
Payoff Letters and (b) a final invoice and wire transfer instructions from each
payee of any portion of the Transaction Expenses. Each of the Payoff Letters
provided pursuant to this Section 6.8 shall separately specify all amounts
attributable to principal, accrued interest and Termination Fees, if any, and
shall include an undertaking by such party (which shall, subject to receipt of
the amounts set forth in such letter, be unconditional) to discharge on the
Closing Date any Encumbrances securing such indebtedness. Each of the Payoff
Letters shall also include an undertaking to return marked "Cancelled" any notes
or other instruments evidencing such indebtedness (or, in the alternative, to
provide affidavits of loss reasonably satisfactory to Buyer).
6.9 Indebtedness; Termination of Agreements.
(a) At or prior to the Closing, the Principal Stockholders shall cause the
Company to, and the Company shall, to the extent not set forth in the Payoff
Letters, (i) discharge (or otherwise cause to be extinguished), and shall cause
the KDM Subsidiaries to discharge (or otherwise cause to be extinguished), (A)
any indebtedness for borrowed money of the Company or any Retained Subsidiary
and (B) any indebtedness for borrowed money of any other Person guaranteed by
the Company or any Retained Subsidiary, (ii) obtain the discharge of any
Encumbrances on the properties, assets or shares of the Company the Retained
Subsidiaries securing any such indebtedness to be discharged or extinguished and
(iii) assume all applicable costs, fees, penalties, including for prepayment or
amendment, related to such discharge or extinguishment, and make all necessary
filings in connection therewith.
43
(b) At or prior to the Closing, except the Post-Closing Agreements, all
contracts, agreements, commitments, undertakings and arrangements between or
among any of the Company and the Retained Subsidiaries, on the one hand, and the
KDM Subsidiaries, on the other hand (the "Terminating Contracts"), shall be
terminated as between or among them and shall be without any further force or
effect, and there shall be no further obligations of any of the relevant parties
thereunder. The Principal Stockholders agree to cause the Guarantors to, and the
Guarantors shall, take any action following the Closing that would be required
to give effect to the termination of the Terminating Contracts.
(c) At or prior to the Closing, all inter-company accounts, whether payables or
receivables, between or among the Company and the Retained Subsidiaries, on the
one hand, and the KDM Subsidiaries, on the other hand, shall be settled in cash
or otherwise cancelled. For the purpose of determining the amount of Net Working
Capital, any amounts paid at the Closing in accordance with this Section 6.9(c)
shall be reflected in Current Liabilities and Current Assets, as the case may
be, to the extent applicable. This Section 6.9(c) shall in no way affect the
existence or validity of the Post-Closing Agreements.
6.10 Ownership and Change of Name. Except as set forth in Section 6.10 of the
Disclosure Schedule, neither the Principal Stockholders nor the KDM Subsidiaries
shall use the word "Alpine" or any symbol or logo incorporating such word in
connection with the sale of any goods or services or otherwise in the conduct of
their respective businesses. At or prior to the Closing, the Principal
Stockholders shall cause the Guarantors to, and the Guarantors shall, if
necessary, file with the appropriate Governmental Body an amendment to their
respective charters or other organizational documents so that no KDM Subsidiary
shall have a name which includes the word "Alpine" or any confusingly similar
word.
SECTION 7. ADDITIONAL COVENANTS OF THE PRINCIPAL STOCKHOLDERS AND THE GUARANTORS
7.1 Records. On or before the Closing Date, the Principal Stockholders shall and
shall cause the Guarantors to, and the Guarantors shall, deliver or cause to be
delivered to Buyer all material agreements, documents, books, records and files
relating to the business and operations of the Company and the Retained
Subsidiaries (collectively, "Records"), if any, in the possession of either
Principal Stockholder or any Guarantor, to the extent not then in the possession
of the Company and the Retained Subsidiaries, subject to the following
exceptions:
(a) Buyer recognizes that certain Records may contain incidental
information relating to the Company and the Retained Subsidiaries or
may relate primarily to a Principal Stockholder or a Guarantor and that
the Principal Stockholders and the Guarantors may retain such Records
and shall provide copies of the relevant portions thereof to Buyer; and
(b) the Principal Stockholders and the Guarantors may retain (i) all
Records prepared by the Principal Stockholders, the Guarantors or their
respective Representatives in connection with the transactions
contemplated by this Agreement and the other Transaction Documents,
including analyses relating to the Company and the Retained
Subsidiaries and (ii) copies of all materials received by either
Principal Stockholder that is a director of the Company or either
Retained Subsidiary as of the date hereof in connection with such
Person's acting in such capacity.
7.2 Post-Closing Agreements. On or before the Closing Date, the Principal
Stockholders shall cause each of the Guarantors and each of the Retained
Subsidiaries to, and each of the Guarantors shall, to the extent a designated
party thereto, duly execute and deliver each of the agreements attached as
Exhibit II hereto (collectively, the "Post-Closing Agreements").
44
SECTION 8. COVENANTS OF BUYER
8.1 Governmental Authorizations. As promptly as practicable after the date of
this Agreement, Buyer shall use its commercially reasonable efforts to (i)
obtain all Governmental Authorizations necessary for the consummation by Buyer
of the transactions contemplated by this Agreement and the other Buyer
Transaction Documents and (ii) give or make all registrations, notifications,
filings and declarations required to be given or made by Buyer pursuant to
applicable Laws in order to consummate the transactions contemplated by this
Agreement and the other Buyer Transaction Documents. For purposes of this
Section 8.1, the term "commercially reasonable efforts" shall not include any
obligation of Buyer or any of its Affiliates to expend money (other than filing
fees and nominal amounts), commence or participate in any material claim,
action, proceeding or litigation, grant any material accommodation (financial or
otherwise) to any Person, or sell, transfer or otherwise dispose of any of its
assets or properties. This Section 8.1 shall not apply to filings and
Governmental Authorizations to be made under the HSR Act, which are addressed
solely in Section 9.3.
8.2 Notice of Breach; Failure to Satisfy Closing Condition. From the date hereof
until the Closing, Buyer shall promptly advise the Sellers' Representative and
the Company upon obtaining Knowledge of (a) any threat or commencement of any
dispute, claim, action, suit, proceeding, arbitration or investigation by,
against or affecting Buyer or any of its Affiliates or any of their operations,
properties, assets or prospects, which would have a Buyer Material Adverse
Effect, (b) the existence of any fact or condition that would constitute a
breach of any of Buyer's representations or warranties contained in this
Agreement, (c) the occurrence of any breach of any covenant of Buyer in this
Agreement or (d) the occurrence of any event that would reasonably be expected
to make the satisfaction of the conditions in Section 11.2 impossible or
unlikely.
SECTION 9. ADDITIONAL COVENANTS OF BUYER, THE COMPANY AND SELLERS
9.1 Further Assurances. Subject to the terms and conditions of this Agreement
and the other Transaction Documents, the Company, each Guarantor, each Principal
Stockholder, each Seller other than the Principal Stockholders (solely with
respect to such Seller) and Buyer shall use its commercially reasonable efforts,
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary or desirable under applicable Laws to consummate the
transactions contemplated by this Agreement and the other Transaction Documents,
including using his, her or its commercially reasonable efforts to cause the
Closing to occur on or prior to April 30, 2006, and shall, from time to time and
without further consideration, either before or after the Closing, execute such
further instruments and take such other actions as any other party hereto shall
reasonably request in order to fulfill his, her or its obligations under this
Agreement and the other Transaction Documents, to effectuate the purposes hereof
and thereof and to provide for the orderly and efficient transition of the
ownership of the Company to Buyer. For purposes of this Section 9.1, the term
"commercially reasonable efforts" shall not include any obligation of any party
to expend money (other than filing fees, amounts contemplated by this Agreement
and the other Transaction Documents and other nominal amounts), commence or
participate in any material claim, action, proceeding or litigation or grant any
material accommodation (financial or otherwise) to any Person.
9.2 Public Announcements. Each party hereto agrees that no public release or
announcement concerning the transactions contemplated by this Agreement and the
other Transaction Documents shall be issued by any such party without the prior
consent of the other parties hereto (which consent shall not be unreasonably
withheld or delayed), except (a) press releases by each of Buyer and the Company
regarding the execution of this Agreement, (b) an announcement by the Company to
45
employees of the Company and the Subsidiaries regarding the execution of this
Agreement, (c) a press release by Buyer regarding the Closing and (d) any other
release that may be required by Buyer pursuant to applicable Laws or the rules
or regulations of Nasdaq (including on Form 8-K of the Securities and Exchange
Commission); provided, however, in the case of each of (a)-(c) above, the party
required to make the release or announcement shall, to the extent practicable,
allow the other parties reasonable time to comment on such release or
announcement in advance of such issuance.
9.3 HSR Filings. In furtherance and not in limitation of the Section 9.1, each
of the Principal Stockholders, the Company and Buyer agrees to make appropriate
filings as required pursuant to the HSR Act with respect to the transactions
contemplated by this Agreement and the other Transaction Documents as promptly
as practicable after the date hereof. Each of the Principal Stockholders, the
Company and Buyer shall promptly provide any supplemental information required
or requested by the United States Federal Trade Commission (the "FTC") and the
United States Department of Justice (the "DOJ") in connection with such filings.
Each of Buyer, on the one hand, and the Principal Stockholders and the Company,
on the other hand, shall furnish as promptly as practicable to the other party
such necessary information and reasonable assistance as the other party may
request in connection with its preparation of any supplemental information which
is necessary or desirable under the HSR Act. The Principal Stockholders and the
Company, on the one hand, and Buyer, on the other hand, shall keep each other
apprised of the status of any communications with, and any inquiries or requests
for additional information from, the FTC and the DOJ and shall comply promptly
with any such inquiry or request. Each of the Principal Stockholders, the
Company and Buyer shall, as early as practicable after the completion of all
filings required pursuant to the HSR Act, request early termination under the
HSR Act. Each of the Principal Stockholders, the Company and Buyer shall use
their commercially reasonable efforts to obtain expiration or termination of the
applicable waiting period under the HSR Act with respect to the transactions
contemplated by this Agreement and the other Transaction Documents.
9.4 Release. Except for rights and claims, if any, that Delaware Street Capital,
L.P. may have as a lender under the Line of Credit, from and after the Closing
Date, the Sellers shall have no rights, hereunder or otherwise, to
indemnification or contribution from the Company or any Retained Subsidiary with
respect to any matters occurring prior to Closing, including any inaccuracy in
or breach of any representation or warranty of the Company made in or pursuant
to this Agreement or any Transaction Document, or any breach or nonfulfillment
of any pre-Closing covenant or pre-Closing obligation of the Company contained
in this Agreement or any Transaction Document, and Sellers hereby irrevocably
release the Company and each Retained Subsidiary from any liability for any such
claim. Notwithstanding the foregoing, the terms of this Section 9.4 shall in no
way alter, affect or amend (i) the rights or claims of any Seller against any
Person under this Agreement or any other Transaction Document (including rights
to indemnification pursuant to Section 12); (ii) the obligations of the parties
hereto to comply with their respective agreements, covenants and other
obligations under this Agreement and the other Transaction Documents; or (iii)
the rights of any Seller under any contract or other agreement entered into
after the date hereof in accordance with the terms hereof or pursuant to any
employee arrangement to which such Seller is subject or a party or in relation
to any Seller's status as an employee of the Company or a Retained Subsidiary.
SECTION 10. TAX MATTERS
10.1 Tax Representations of the Company. Each Principal Stockholder, jointly and
severally, and the Company hereby represents and warrants to Buyer as of the
date of this Agreement and as of the Closing Date that, except as set forth in
Section 10.1 of the Disclosure Schedule attached hereto:
46
(a) All material Tax Returns, or extensions relating thereto, required to
be filed by or with respect to the Company or any Subsidiary have been
timely and properly filed, and each such Tax Return is correct and
complete in all material respects.
(b) All material liabilities for Taxes of the Company or any
Subsidiary (including any Tax liabilities relating to other
consolidated group members under Treasury Regulation Section 1.1502-6)
have been fully and timely paid (to the extent due and payable) or, in
the case of Taxes not yet due, fully provided for on the Audited
Consolidated Balance Sheet or the Interim Consolidated Balance Sheet
or, in the case of Taxes accruing after the date of the Interim
Consolidated Financial Statements, on the books and records of the
Company in accordance with past practice. No Encumbrances relating to
Taxes other than in respect of Property Taxes not yet delinquent,
exist or, to the Knowledge of the Company, are threatened or pending
with respect to any asset of the Company or any Subsidiary.
(c) No issues have been raised in writing with the Company or any
Subsidiary (or are currently pending) by the Internal Revenue Service
("IRS") or any other taxing authority in connection with any of the Tax
Returns referred to in Section 10.1(a) (including any assertion by a
taxing authority that a required Tax Return was not filed), and no
waivers of statutes of limitations have been given with respect to any
such Tax Returns or with respect to any Taxes of the Company or any
Subsidiary. No issue previously raised by any taxing authority
reasonably could be expected to result in a material proposed
deficiency or assessment for any prior or subsequent taxable period
(including any taxable period subsequent to the date hereof).
(d) Section 10.1(d) of the Disclosure Schedule identifies all Federal Tax
Returns and all other material Tax Returns of or with respect to the
Company or any Subsidiary that are currently under examination or
audit, or are the subject of a pending or threatened examination or
audit, by the IRS or by other taxing authorities by the IRS or by other
taxing authorities. There are no material unpaid deficiencies asserted
or assessments made by any taxing authority against the Company or any
Subsidiary, other than Property Taxes not yet delinquent.
(e) Neither the Company nor any Subsidiary (i) has agreed to or is
currently required to make any adjustment under Section 481(a) of the
Code because of a change in accounting method, (ii) has made any
transfer of any intangible property with respect to which Code Section
367(d) or 482 will require the recognition of additional income after
the Closing Date or (iii) owns stock in a "passive foreign investment
company" within the meaning of Code Section 1297(a).
(f) Except as set forth in Section 10.1(f) of the Disclosure Schedule, (i)
neither the Company nor any Subsidiary is a party to any agreement,
with any Person other than the Company and the Subsidiaries, providing
for the allocation or sharing of, or indemnity or liability for, Taxes,
(ii) neither the Company nor any Subsidiary has been included in any
"consolidated," "affiliated," "unitary," "combined" or similar Tax
group since January 1, 1996 other than a group of which such entity is
currently a member, and (iii) neither the Company nor any Retained
Subsidiary is a party to any agreement with any of the KDM Subsidiaries
providing for the allocation or sharing of, or indemnity or liability
for, Taxes.
(g) The Company and each Subsidiary have complied with all applicable laws
relating to the payment and withholding of Taxes (including pursuant to
Sections 1441, 1442, 3121 and 3402 of the Code and similar provisions
under state, local or foreign law), except to the extent that such
failure to comply would not result in a material Tax liability.
47
(h) Neither the Company nor any Subsidiary will be required to include
any material item of income in, or exclude any material item of
deduction from, taxable income for any taxable period or portion
thereof ending after the Closing Date as a result of any (i) change in
method of accounting for a taxable period beginning on or prior to the
Closing Date under Section 481(c) of the Code (or any similar
provision of state, local or foreign law), (ii) agreement with a
taxing authority relating to Taxes, (iii) installment sale, open
transaction disposition or intercompany transaction made on or prior
to the Closing Date, (iv) prepaid amount received prior to the Closing
Date, or (v) deferred intercompany gain or excess loss account
described in Treasury regulations under Section 1502 of the Code (or
any similar provision of state, local or foreign law).
(i) Neither the Company nor any Subsidiary has made an election under
Section 341(f) of the Code (or any similar provision of state, local or
foreign law).
(j) Neither the Company nor any Subsidiary has requested a ruling from, or
entered into a closing agreement with, the IRS or any other taxing
authority.
(k) The Company has made available to Buyer true and complete copies of (i)
all Federal income Tax Returns and all other material income and
franchise Tax Returns filed by the Company and its Subsidiaries for the
last three taxable years ending prior to the date hereof; and (ii) any
Federal audit reports and any other material audit reports issued to
the Company with respect to any open Tax periods by the IRS or any
other taxing authority.
(l) In the past five years, no claim has been made in writing by any taxing
authority in a jurisdiction in which the Company or any Subsidiary does
not file Tax Returns that such entity is or may be subject to taxation
by that jurisdiction.
(m) Neither the Company nor any Subsidiary has participated in any "listed
transaction" within the meaning of Treasury Regulation Section
1.6011-4.
(n) Neither the Company nor any Subsidiary has been a "distributing
corporation" or "controlled corporation" in a distribution of stock
intended to qualify under Section 355(a) of the Code within the
five-year period ending on the date hereof.
(o) As of the date of the Distribution, the tax basis of the stock of each
of the KDM Subsidiaries will exceed the respective fair market value of
such stock.
(p) The Company will not incur any Tax liability nor be required to
withhold any Taxes (including in each case Canadian Taxes) as a result
of the Distribution.
(q) None of the assets owned by the Company or any Subsidiary is
"tax-exempt use property" within the meaning of section 168(h) of the
Internal Revenue Code of 1986, as amended from time to time.
(r) None of the assets owned or used by the Company or any Subsidiary is
subject to a lease entered into in accordance with Section 168(f)(8) of
the Internal Revenue Code of 1954, as amended by the Economic Recovery
Tax Act of 1981.
(s) None of the assets of the Company or any Subsidiary directly or
indirectly secures any indebtedness the interest on which is tax-exempt
under Section 103 of the Code, and neither the Company nor any
Subsidiary is directly or indirectly an obligor or guarantor with
respect to any such indebtedness.
48
(t) There is no outstanding power of attorney with respect to any Tax
matter of the Company or any Subsidiary.
(u) No excess loss account will exist with respect to the stock of any of
the KDM Subsidiaries at the time of the Distribution.
(v) No material income or gain will be recognized by the Company or any
Subsidiary from the triggering of any deferred intercompany transaction
as a result of the Distribution.
(w) The Company has not carried back any portion of the ▇▇▇▇▇ London NOL.
For purposes of this Section 10.1 the Subsidiaries of the Company shall
include the KDM Subsidiaries notwithstanding that the Distribution is
consummated prior to Closing.
10.2 Tax Covenants of the Principal Stockholders and the Company.
--------------------------------------------------------------------
(a) The Principal Stockholders shall cause the Company to, and the Company shall
and shall cause the Subsidiaries (including, for purposes of this Section 10.2,
the KDM Subsidiaries) to, duly and timely file all Tax Returns the due date for
which (including extensions) occurs on or before the Closing Date. From the date
hereof until the Closing Date, the Principal Stockholders shall not cause or
permit the Company to, and the Company shall not and shall not cause or permit
any of the Subsidiaries to (i) change any existing, or adopt any new, tax
accounting principle, method of accounting or tax election affecting the Company
or any Subsidiary; (ii) amend any previously filed Tax Return, settle or
compromise any material Tax liability or abandon any Tax claim with respect to
the Company or any Subsidiary without first receiving the written consent of
Buyer, which consent shall not be unreasonably withheld, other than any such
change or amendment as may be required by applicable law; or (iii) carry back
any portion of the ▇▇▇▇▇ London NOL. The Principal Stockholders shall cause the
Company to, and the Company shall and shall cause each Subsidiary to pay when
due all Taxes levied or assessed upon the Company or any of the Subsidiaries or
on any of their respective properties the payment of which is due on or prior to
the Closing Date, unless the Company or Subsidiary is contesting such Taxes in
good faith and has established adequate reserves therefor in accordance with
GAAP.
(b) All Tax Returns of the Company or any Subsidiary due after the Closing Date
(with regard to extensions) shall be prepared and filed by the Company (limited
in the case of the KDM Subsidiaries, to Tax Returns that the KDM Subsidiaries
file as part of a "consolidated," "affiliated," "unitary," "combined" or similar
Tax group of which the Company or any Retained Subsidiary is the common parent).
To the extent that such Tax Returns relate to the Pre-Closing Period, they shall
be filed on a basis consistent with prior Tax Returns of the Company or such
Retained Subsidiary, except as otherwise required by law. Prior to the filing of
any such income Tax Return with respect to any Pre-Closing Period, and no later
than 30 days prior to the due date for filing of such Tax Return, Buyer shall
provide the Sellers' Representative with notice, which notice shall (A) set
forth Buyer's calculations regarding the amount of Taxes for such Pre-Closing
Period in sufficient detail to enable the Sellers' Representative to verify the
amount of such Taxes and (B) include a draft of such Tax Return. No later than
ten days prior to the due date for filing of such Tax Return, the Sellers'
Representative shall notify Buyer of any reasonable objections the Sellers'
Representative may have to Buyer's determination and to any items set forth in
such draft Tax Returns. Buyer and the Sellers' Representative agree to consult
and resolve in good faith any such objection. The Sellers' Representative shall,
on behalf of the Sellers, pay to Buyer (and the Sellers shall be jointly and
49
severally responsible for) an amount equal to any Taxes for the Pre-Closing
Period attributable to each such Tax Return (whether or not the amount is in
dispute) no later than five (5) days prior to the due date of the payment of the
relevant Taxes less any such amounts included as a liability in the calculation
of Final Net Working Capital. After resolution of any dispute described in the
preceding sentence, Buyer shall promptly repay to the Sellers any amount that
the Sellers overpaid, together with interest on such amount from the date of
payment of the disputed amount by the Sellers to Buyer until the date of
repayment by Buyer to the Sellers at a floating rate equal to the U.S. dollar
prime rate per annum, as quoted by JPMorgan Chase & Co., from time to time
during such period (less any non-resident withholding Tax payable in respect of
such interest). Such interest shall be calculated based on a year of 365 days
and the number of days elapsed since the date of payment by the Sellers to
Buyer.
(c) Refunds of Taxes of the Company or any Subsidiary for any Pre-Closing
Period, other than any refunds resulting from carrybacks from any Post-Closing
Period, shall be for the Sellers' account and, if received by Buyer, the Company
or its Subsidiaries, shall be paid over to the Sellers' Representative within 10
Business Days after receipt thereof.
(d) The Sellers shall provide to Buyer at Closing a certification of non-foreign
status, in accordance with Treasury Regulation Section 1.1445-2(b)(2), with
respect to each Seller that is not a foreign person for United States federal
income tax purposes.
(e) The Stockholders shall cause the provisions of any agreement or arrangement
with respect to Taxes, including any Tax sharing agreements, between the Company
or any Retained Subsidiaries, on the one hand, and the KDM Subsidiaries, any
Seller or any of their respective Affiliates, on the other hand, to be
terminated on or before the Closing Date, without any continuing liability on
the part of the Company or any Retained Subsidiaries.
(f) Any net operating loss or other tax attribute of the Company or any Retained
Subsidiary that arises in the taxable year ending April 30, 2006 or any
subsequent taxable year shall be solely for the benefit of Buyer, and Buyer may,
in its sole discretion, elect to waive a carryback of any such net operating
loss or other tax attribute.
10.3 Tax Contests.
(a) If any taxing authority asserts a claim for which a party may seek
indemnification pursuant to Section 13 of this Agreement (a "Tax Claim"), the
party hereto first receiving notice of such Tax Claim shall promptly (and in any
event within fifteen (15) Business Days) provide written notice to the other
party or parties hereto; provided, however, that the failure of such party to
give such prompt notice shall not relieve the other party of any of its
obligations under Section 13 hereof, except to the extent that such other party
is actually and materially prejudiced thereby. Such notice shall specify in
reasonable detail the basis for the Tax Claim and shall include a copy of the
relevant portion of any correspondence received from the taxing authority.
(b) The Sellers' Representative shall have the right to control, at the expense
of the Sellers, any Tax audit, examination, contest, litigation or other
proceeding by or against any taxing authority (a "Tax Proceeding") of the
Company or any Subsidiary for any Pre-Closing Period; provided, however, if any
such Tax Proceeding could be expected to have a material and adverse effect on
Buyer, the Company or any Retained Subsidiary or any of their respective
Affiliates for any Post-Closing Period, the Sellers' Representative shall
consult in good faith with Buyer before taking any significant action in
connection with such proceeding and shall not settle, compromise or abandon such
proceeding without Buyer's prior written consent, which shall not be
unreasonably withheld. Buyer shall be entitled to participate, at its own
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expense, in any Tax Proceeding described in this clause (b). If the Sellers'
Representative elects not to control any Tax Proceeding described in this clause
(b), Buyer shall control such Tax Proceeding, at the Sellers' expense; provided
that, if the Sellers acknowledge in writing that they are obligated to indemnify
Buyer with respect to such Tax Proceeding, Buyer shall not settle, compromise or
abandon such Tax Proceeding without Sellers' prior written consent, which shall
not be unreasonably withheld.
(c) Buyer shall control, at its own expense, any Tax Proceeding for a Straddle
Period; provided, however, that (i) Buyer shall consult with the Sellers'
Representative before taking any significant action in connection with such Tax
Proceeding, (ii) Buyer shall consult with the Sellers' Representative and offer
the Sellers' Representative an opportunity to comment before submitting any
written materials prepared or furnished in connection with such Tax Proceeding,
(iii) the Sellers' Representative shall be entitled to participate in such Tax
Proceeding, at the expense of the Sellers and (iv) Buyer shall not settle,
compromise or abandon any such Tax Proceeding without obtaining the prior
written consent of the Sellers' Representative, which consent shall not be
unreasonably withheld.
(d) Buyer shall control, at its own expense, any Tax Proceeding involving the
Company or any of the Retained Subsidiaries for any Post-Closing Period.
10.4 Cooperation. The Sellers' Representative, the Principal Stockholders, the
KDM Subsidiaries and Buyer will provide each other with such cooperation and
information as any of them reasonably may request of the other in filing any Tax
Return, amended Tax Return or claim for refund, determining a liability for
Taxes or a right to a refund of Taxes, or in conducting any audit or other
proceeding relating to Taxes. Such cooperation and information shall include
providing copies of all relevant Tax Returns or portions thereof, together with
accompanying schedules and related work papers, documents relating to rulings or
other determinations by taxing authorities and records concerning the ownership
and tax basis of property that such party may possess. The Sellers'
Representative, the Principal Stockholders, the KDM Subsidiaries and Buyer shall
make their respective employees available on a mutually convenient basis to
explain any documents or information provided hereunder. The Sellers'
Representative, the Principal Stockholders, the KDM Subsidiaries and Buyer will
retain, and Buyer shall cause the Company and the Retained Subsidiaries to
retain, all Tax Returns, schedules and work papers and all material records or
other documents relating to Taxes of the Company and the Retained Subsidiaries
for all Pre-Closing Periods until the expiration of the statute of limitations
of the tax periods to which such Tax Returns and other documents relate (and, to
the extent notified by the other party in writing, any extension thereof). At
the expiration of such period, each party shall have the right to dispose of any
such Tax Returns or other documents if, after providing 60 days' written notice
to the other party, such other party fails to request copies thereof or to take
possession of such Tax Returns or other documents. Any information obtained
under this Section 10.4 shall be kept confidential, except as may otherwise be
necessary for the filing of Tax Returns or claims for refund, or in conducting
an audit or other proceeding.
10.5 Allocation of Straddle Period Taxes. For purposes of Section 10 and
Section 13:
(a) the portion of any real, personal or intangible ad valorem property
taxes (collectively "Property Taxes") of the Company or any Subsidiary
(including the KDM Subsidiaries) for any Straddle Period that is
attributable to the Pre-Closing Period shall be equal to the amount of
such Taxes for the entire Straddle Period multiplied by a fraction, the
numerator of which is the number of days during the Straddle Period
that are in the Pre-Closing Period and the denominator of which is the
number of days in such Straddle Period; and
(b) the portion of any Taxes of the Company or any Subsidiary (including
the KDM Subsidiaries) other than Property Taxes for any Straddle Period
that is attributable to the Pre-Closing Period shall be computed based
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on a closing of the books as of the end of the Closing Date; provided,
however, that any items of income or deduction taken into account in
calculating Taxes relating to any actions outside the ordinary course
of business taken by Buyer, the Company or any Retained Subsidiary on
the Closing Date, but after the Closing (other than any such actions
required by law or contract to be taken as a result of any action taken
by the Sellers, the Company or any Subsidiary prior to the Closing),
shall be allocated to the day after the Closing Date.
10.6 Transfer Taxes. The Sellers shall pay all sales, use, transfer, real
property transfer, recording, stock transfer and other similar taxes and fees
arising out of or in connection with the Distribution or the transfer of the
Securities effected pursuant to this Agreement.
SECTION 11. CLOSING CONDITIONS
11.1 Conditions to Obligation of Buyer. The obligation of Buyer to purchase the
Securities and to take the other actions required to be taken by Buyer at
Closing is subject to the satisfaction or waiver by Buyer at the Closing of each
of the following conditions:
(a) Performance by Sellers. Each Stockholder (individually or through the
Sellers' Representative) shall have (i) executed and delivered to Buyer
this Agreement and the other Seller Transaction Documents, (ii)
delivered to Buyer certificates representing all of the Shares owned by
such Seller, duly endorsed for transfer or with stock powers affixed
thereto executed in blank in proper form for transfer and, (iii)
delivered to Buyer each other document and agreement and taken such
other actions as are required pursuant to Section 2.2(a).
(b) Performance by Warrantholders. Each Warrantholder shall have delivered
to Buyer an instrument or transfer with respect to all Warrants owned
by such Warrantholder (which may be a single instrument for all
Warrants owned by all Warrantholders), duly executed by such
Warrantholder, which instrument shall be in form and substance
reasonably satisfactory to Buyer and which, collectively, shall be
effective with respect to all Warrants outstanding on the date hereof.
(c) Performance by the Company. The Company shall have (i) executed and
delivered to Buyer this Agreement and the other Company Transactions
Documents and (ii) delivered to Buyer each other document and agreement
and taken such other actions as are required pursuant to Section
2.2(c).
(d) Performance by the Guarantors. Each of the Guarantors shall have (i)
executed and delivered to Buyer this Agreement and (ii) delivered to
Buyer each other document and agreement and taken such other actions as
are required pursuant to Section 2.2(d).
(e) Representations and Warranties. Each of the representations and
warranties of the Company, the Guarantors and the Sellers contained in
this Agreement (read without giving effect to any qualifications or
exceptions contained therein regarding materiality or Material Adverse
Effect) shall be true and correct in all respects on the date of this
Agreement and as of the Closing Date with the same force and effect as
though such representations and warranties had been made on and as of
the Closing Date (except, in each case, to the extent any such
representation or warranty speaks as of a specific date, in which case
such warranty shall be so true and correct as of such specific date),
except for any such failures to be true and correct as would not,
individually or in the aggregate, reasonably be expected to have a
52
Material Adverse Effect, and (ii) the covenants and agreements
contained in this Agreement to be complied with by the Company, the
Guarantors, the Principal Stockholders and all other Sellers on or
before the Closing Date shall have been complied with in all material
respects through the Closing; provided, however, that the
representations and warranties contained in Sections 3.2, 3.4, 3.5,
4.2, 4.4 and 4.24 shall be true and correct in all respects as of the
date of this Agreement and as of the Closing Date.
(f) Approvals. The waiting period under the HSR Act shall have expired or
been terminated. All other Consents, registrations, notifications,
filings and declarations set forth on Exhibit III hereto shall have
been obtained, received, given or made, as the case may be.
(g) Legal Matters. No temporary, preliminary, permanent or final order,
injunction or judgment of a court of competent jurisdiction or other
Governmental Body shall have been issued or rendered that would prevent
or render unlawful the consummation of the transactions contemplated by
this Agreement or any other Transaction Document. There shall be no
pending suit, action, proceeding (including arbitration) or
investigation brought or threatened by any Person (other than Buyer or
an Affiliate of Buyer), wherein an unfavorable judgment in connection
therewith would prevent or render unlawful the consummation of the
transactions contemplated by this Agreement or any other Transaction
Document.
(h) Payoff Letters. Buyer shall have received an executed copy of each
Payoff Letter. Subject to compliance by Buyer with Section 2.2(h),
Buyer shall have received a release of liens, in form and substance
reasonably satisfactory to Buyer, from each holder of indebtedness
specified in the Payoff Letters, evidencing receipt by such holder of
payment from Buyer pursuant to Section 2.2(h).
(i) Distribution. The Distribution shall have been consummated in form and
substance reasonably satisfactory to Buyer.
(j) Escrow Agreement. Buyer shall have received the General Escrow
Agreement, duly executed by the Sellers' Representative and the Escrow
Agent.
(k) Employment Agreements. Each of the Selected Management Personnel shall
have duly executed and delivered to Buyer an employment agreement in
substantially the form agreed to between the Buyer and each of the
Selected Management Personnel (to become effective on the Closing Date)
(the "Employment Agreements").
(l) Post-Closing Agreements. Buyer shall have received each of the
Post-Closing Agreements duly executed by the other party or parties
thereto.
(m) Resignation of Directors. Buyer shall have received resignations from
all of the directors of the Company and each Retained Subsidiary.
(n) Tax Certifications. Buyer shall have received each certification
described in Section 10.2(d).
(o) Stockholders' Agreement. The Stockholders' Agreement shall have been
terminated by the parties thereto and evidence thereof, in form and
substance reasonably satisfactory to Buyer, shall have been delivered
to Buyer.
(p) Material Adverse Change. No change, effect, event, occurrence, state of
facts, development or condition shall have occurred since the date of
the Interim Combined Financial Statements that has had or would
reasonably be likely to have, individually or in the aggregate, a
Material Adverse Effect.
53
(q) Valuation Opinion. Buyer shall have received a letter from Paragon
Capital Partners, LLC, dated as of the date of Closing, reasonably
satisfactory to Buyer, stating that (i) the report entitled "Valuation
Opinion Relating to KDM Submitted to Alpine Confections, Inc. on March
13, 2006" may be disclosed by the Company or any Retained Subsidiary to
a third party in connection with any proceeding involving a
Governmental Body; and (ii) there has been no material increase in the
value of the KDM Subsidiaries from March 13, 2006 through the Closing
Date.
11.2 Conditions to Obligation of Sellers. The obligation of each Seller to sell
the Securities and to take the other actions required to be taken by such Seller
(or by the Sellers' Representative on behalf of the Sellers) at Closing is
subject to the satisfaction or waiver by the Sellers' Representative at the
Closing of each of the following conditions:
(a) Performance. Buyer shall have (i) executed and delivered to the
Sellers' Representative this Agreement and the other Buyer Transaction
Documents, (ii) made the payments required to have been made by Buyer
pursuant to Sections 2.2(e), 2.2(f)(i), (g) and (h) and (iii) delivered
to the Sellers' Representative the other documents and agreements and
taken such other actions as are required in Section 2.2.
(b) Representations and Warranties. Each of (i) the representations
and warranties of Buyer contained in this Agreement (read without
giving effect to any qualifications or exceptions contained therein
regarding materiality or Material Adverse Effect) shall be true and
correct in all respects on the date of this Agreement and as of the
Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing
Date (except, in each case, to the extent any such representation or
warranty speaks as of a specific date, in which case such warranty
shall be so true and correct as of such specific date), except for any
such failures to be true and correct as would not, individually or in
the aggregate, reasonably be expected to have a Buyer Material Adverse
Effect, and (ii) the covenants and agreements contained in this
Agreement to be complied with by Buyer on or before the Closing Date
shall have been complied with in all material respects through the
Closing; provided, however, that the representations and warranties
contained in Sections 5.2 and 5.5 shall be true and correct in all
respects as of the date of this Agreement and as of the Closing Date.
(c) HSR Act. The waiting period under the HSR Act shall have expired or
been terminated.
(d) Legal Matters. No temporary, preliminary, permanent or final order,
injunction or judgment of a court of competent jurisdiction or other
Governmental Body shall have been issued or rendered that would prevent
or render unlawful the consummation of the transactions contemplated by
this Agreement or any other Transaction Document. There shall be no
pending suit, action, proceeding (including arbitration) or
investigation brought or threatened by any Person (other than by the
Company, any Seller, any Guarantor or any Related Party), wherein an
unfavorable judgment in connection therewith would prevent or render
unlawful the consummation of the transactions contemplated by this
Agreement or any other Transaction Document.
(e) Escrow Agreement. The Sellers' Representative shall have received the
General Escrow Agreement, duly executed by Buyer and the Escrow Agent.
54
(f) Employment Agreements. Buyer shall have duly executed and delivered to
each Selected Management Personnel the applicable Employment Agreement
(to become effective on the Closing Date).
(g) Repayment of Indebtedness. Subject to compliance by the Company with
Section 6.8, Buyer shall have paid or cause to be paid, as specified in
Section 2.2(h), to each holder of indebtedness specified in the Payoff
Letter the portion of the Payoff Amount payable to such holder as
specified in the applicable Payoff Letter.
11.3 Frustration of Closing Conditions. Buyer may not rely on the failure of any
condition set forth in Section 11.1 to be satisfied if such failure was caused
by Buyer's failure to act in good faith or to use its commercially reasonable
efforts to cause the Closing to occur as required hereunder. None of the
Sellers, the Company or the Guarantors may rely on the failure of any condition
set forth in Section 11.2 to be satisfied if such failure was caused by any
Seller's, the Company's or any Guarantor's failure to act in good faith or to
use its commercially reasonable efforts to cause the Closing to occur as
required hereunder.
SECTION 12. TERMINATION AND ABANDONMENT
12.1 Termination. This Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time before the Closing:
(a) by Buyer or the Sellers' Representative, if the Closing has not
occurred by May 15, 2006; provided, however, that neither Buyer nor the
Sellers' Representative may terminate this Agreement pursuant to this
Section 12.1(a) if the Closing shall not have been consummated by May
15, 2006 by reason of the failure of such party (including for purposes
of this Section 12.1(a), in the case of the Sellers' Representative,
the Company, any Guarantor or any Seller) to perform in all material
respects any of its or their respective covenants or agreements
contained in this Agreement;
(b) by the mutual consent of Buyer and the Sellers' Representative;
(c) by Buyer in the event that (i) any representation or warranty of the
Company, any Guarantor or any Seller contained in this Agreement shall
be or become untrue or (ii) the Company, any Guarantor, a Principal
Stockholder or any other Seller has breached any covenant or agreement
contained in this Agreement to be performed him, her or it at or prior
to the Closing, in any case such that the conditions set forth in
Section 11.1 would not be satisfied (any such occurrence or breach, a
"Terminating Seller Breach"), Buyer has notified the Sellers'
Representative of such Terminating Seller Breach and either such
Terminating Seller Breach has not been cured, or is not capable of
being cured, prior to May 15, 2006;
(d) by the Sellers' Representative in the event that (i) any representation
or warranty of Buyer contained in this Agreement shall be or become
untrue or (ii) Buyer has breached any covenant or agreement contained
in this Agreement to be performed it at or prior to the Closing, in any
case such that the conditions set forth in Section 11.2 would not be
satisfied (any such occurrence or breach, a "Terminating Buyer
Breach"), the Sellers' Representative has notified Buyer of such
Terminating Buyer Breach and either such Terminating Buyer Breach has
not been cured, or is not capable of being cured, prior to May 15,
2006; or
(e) by either Buyer or Sellers' Representative, if any Governmental Body
shall issue any final, non-appealable judgment, order, decree or ruling
55
or take such other action permanently enjoining, restraining or
otherwise prohibiting the consummation of the transactions contemplated
by this Agreement or by any other Transaction Document.
12.2 Procedure for Termination. A party terminating this Agreement pursuant to
Section 12.1 shall give written notice thereof to each other party hereto,
whereupon this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned without further action by any party. If this Agreement
is terminated as permitted by this Section 12, such termination shall be without
liability of any party (or any of its Affiliates, Representatives or
Representatives of its Affiliates) to any other party to this Agreement;
provided, however, that if such termination is by Buyer pursuant to Section
12.1(a) or (c) as a result of a material breach by the Company, any Guarantor,
any Principal Stockholder or any other Seller of any representation, warranty or
covenant contained in this Agreement, or if such termination is by Sellers'
Representative pursuant to Section 12.1(a) or (d) as a result of a material
breach by Buyer of any representation, warranty or covenant contained in this
Agreement, nothing herein shall affect the non-breaching party's right to (i)
Damages on account of such other party's breach or (ii) to compel specific
performance of the other parties hereto of their obligations under this
Agreement. Notwithstanding the foregoing, the provisions set forth in the last
sentence of Section 6.3, Section 9.2, Section 14, Section 15 and this Section
12.2 shall survive any such termination.
SECTION 13. INDEMNIFICATION
13.1 Indemnification with Respect to Sellers. Subject to the terms and
conditions of this Section 13, each Seller shall severally indemnify and hold
Buyer and its Affiliates (including, after the Closing, the Company and the
Retained Subsidiaries), and each of their respective officers, directors and
shareholders (each such Person, a "Buyer Indemnified Party"), harmless against
and in respect of any and all losses, costs, expenses, claims (including without
limitation, Tax Claims), damages, obligations and liabilities, including
reasonable attorneys fees and disbursements ("Damages"), which such Buyer
Indemnified Party has suffered, incurred or become subject to arising out of,
based upon or otherwise in respect of (i) any breach of any representation or
warranty of such Seller made in Section 3; provided, however, that the Sellers
indemnification obligations pursuant to this Section 13.1(i) shall be determined
without giving effect to any qualification or exception with respect to
Knowledge or with respect to "material," "materiality," "materially," "Material
Adverse Effect" or similar language contained in any representation or warranty
of the Sellers contained in Section 3 or (ii) any breach of any covenant or
obligation of such Seller contained in this Agreement.
13.2 Indemnification with Respect to the Company. Subject to the terms and
conditions of this Section 13, each Seller hereby severally (on a pro rata basis
based on such Seller's Ownership Percentage), and not jointly and severally,
shall indemnify and hold each Buyer Indemnified Party harmless against and in
respect of any and all Damages which such Buyer Indemnified Party has suffered,
incurred or become subject to arising out of, based upon, or otherwise in
respect of:
(a) any breach of any representation or warranty of the Principal
Stockholders, the Company or the Guarantors made in Section 4;
provided, however, that the Sellers' indemnification obligations
pursuant to this Section 13.2(a) shall be determined without giving
effect to any qualification or exception with respect to Knowledge or
with respect to "material," "materiality," "materially," "Material
Adverse Effect" or similar language contained in any representation or
warranty of the Principal Stockholders, the Company or the Guarantors
contained in Section 4;
(b) any breach of any representation or warranty of the Principal
Stockholders or the Company made in Section 10.1; provided, however,
that the Sellers' indemnification obligations pursuant to this Section
13.2(b) shall be determined without giving effect to any qualification
56
or exception with respect to "material," "materiality," "materially,"
"Material Adverse Effect" or similar language contained in any
representation or warranty of the Principal Stockholders or the Company
contained in Section 10.1;
(c) any breach of any covenant or obligation of the Company or the
Guarantors contained in this Agreement that is to be performed at or
prior to the Closing;
(d) (i) all liability for Taxes of the Company or any Subsidiary for
any Pre-Closing Period or resulting from any transaction in any
Pre-Closing Period (including the Distribution and any deferred
intercompany income or gain triggered in connection with the
Distribution), except to the extent included as a liability in the
calculation of the Final Net Working Capital, (ii) all other liability
of the Company or any Subsidiary with respect to Taxes of another
Person under Section 1.1502-6 of the Treasury Regulations (or any
similar provision of state, local or foreign Tax law), as a transferee
or successor, by contract or otherwise as a result of an affiliation,
merger, or other event occurring at any time prior to the Closing, and
(iii) any incremental Tax liability of the Company or any Retained
Subsidiary for any Post-Closing Period attributable to (A) a
disallowance by the IRS or any state or local taxing authority of any
portion of the ▇▇▇▇▇ London NOL or (B) a limitation on the utilization
of any portion of the ▇▇▇▇▇ London NOL as a result of the annual
limitation in effect under Section 382 of the Code being less than
$662,010, provided, however, that no amount shall be payable under
this clause (iii) except to the extent that the total net operating
losses of the Company and the Retained Subsidiaries for taxable
periods ending on or before April 30, 2006 (including the ▇▇▇▇▇ London
NOL) that may be carried forward to any Post-Closing Period without
limitation, other than the annual Section 382 limitation of at least
$662,010 described above and the annual Section 382 limitation that
will result from the transactions contemplated herein, is less than
$1,425,596;
(e) any (i) investigation and/or prosecution of any action or proceeding to
transfer to Buyer any potentially infringing Marks, Patents, Copyrights
and Domain Registrations; (ii) enforcement of the Seller's rights
against any actual or potential infringers in respect of the Marks,
Patents, Copyrights and Domain Registrations; and (iii) obtaining,
filing and recordation of clear and unencumbered title in respect of
the Marks, Patents, Copyrights and Domain Registrations; in the case of
each of (i), (ii) and (iii), as set forth on Section 13.2(e) of the
Disclosure Schedule;
(f) all liability relating to or arising out of (i) the conduct or
operation of the respective businesses of the KDM Subsidiaries, (ii)
the actions of the KDM Subsidiaries or their respective employees or
(iii) the actions of the Company and the Subsidiaries, in each case
prior to the Closing; and
(g) with respect to the real property set forth in Schedule 13.2(g) of
the Disclosure Schedule (the "FM Properties"), any Damages arising
under any Environmental Law arising out of or relating to (i) any
violation or non-compliance with any Environmental Law relating to the
FM Properties at or prior to the Closing; (ii) any activities,
occurrences, facilities (including, without limitation, underground
tanks and tank systems), operations or conditions relating to the FM
Properties at or prior to the Closing, including, without limitation,
the presence of all Hazardous Materials at, on, in, under or emanating
from the FM Properties identified in the Limited Phase II
Environmental Site Assessments prepared in 2004 by ▇▇▇▇▇▇▇ Group
Services and set forth in Exhibit 13.2 of the Disclosure Schedule; and
(iii) the Release or threat of Release of Hazardous Materials at, on,
in, under or from the FM Properties at or prior to the Closing.
57
For purposes of Section 13.2 the Subsidiaries of the Company shall
include the KDM Subsidiaries notwithstanding that the Distribution is
consummated prior to Closing.
13.3 Indemnification by Buyer. Subject to the terms of this Section 13, Buyer
shall indemnify and hold Sellers and their Affiliates, and each of their
respective officers, directors, members, partners and equityholders (each such
Person, a "Seller Indemnified Party"), harmless against and in respect of any
and all Damages which such Seller Indemnified Party has suffered, incurred or
become subject to arising out of, based upon or otherwise in respect of:
(a) any breach of any representation or warranty of Buyer made in Section
5; provided, however, that Buyer's indemnification obligations pursuant
to this Section 13.3(a) shall be determined without giving effect to
any qualification or exception with respect to Knowledge or with
respect to "material," "materiality," "materially," "Buyer Material
Adverse Effect" or similar language contained in any representation or
warranty of Buyer contained in Section 5;
(b) any breach of any covenant or obligation of Buyer contained in this
Agreement; and
(c) any liability of the Company or any of its Subsidiaries for any Taxes
to the extent included as a liability in the calculation of the Final
Net Working Capital.
13.4 Inter-Party Claims. In order for a Buyer Indemnified Party or a Seller
Indemnified Party (each, an "Indemnified Party") to be entitled to any
indemnification pursuant to this Section 13, the Indemnified Party shall, within
30 days after receiving actual notice of the facts or circumstances forming the
basis of such claim, notify the other party or parties from whom such
indemnification is sought (the "Indemnifying Party") in writing specifying in
reasonable detail the basis of such claim; provided, however, that failure to
give such notification shall not affect the indemnification provided hereunder
except to the extent the Indemnifying Party shall have been actually and
materially prejudiced as a result of such failure. The Indemnified Party shall
thereupon give the Indemnifying Party reasonable access to the books, records
and assets of the Indemnified Party which evidence or support such claim or the
act, omission or occurrence giving rise to such claim.
13.5 Third Party Claims.
(a) In order for an Indemnified Party to be entitled to any indemnification
provided for under this Agreement in respect of, arising out of or involving a
claim made by any Person (other than an Indemnifying Party) against the
Indemnified Party (a "Third Party Claim"), such Indemnified Party shall, within
20 days after receiving actual notice of the facts or circumstances forming the
basis of such claim, notify the Indemnifying Party in writing of the Third Party
Claim (which notice shall specify in reasonable detail the events giving rise to
such Third Party Claim); provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the Indemnifying Party shall have been actually and materially
prejudiced as a result of such failure. Thereafter, the Indemnified Party shall
deliver to the Indemnifying Party, promptly following the Indemnified Party's
receipt thereof, copies of all notices and documents (including court papers)
received by the Indemnified Party relating to the Third Party Claim.
(b) The Indemnifying Party may assume the defense of any Third Party Claim with
counsel selected by the Indemnifying Party (provided such counsel is reasonably
acceptable to the Indemnified Party and which shall be deemed acceptable if the
Indemnified Party does not otherwise notify the Indemnifying Party within 10
days after having been notified in writing of the identity thereof) by providing
written notice to the Indemnified Party within 20 days after receiving written
58
notice of the Third Party Claim from the Indemnified Party pursuant to Section
13.5(a). If the Indemnifying Party elects to assume the defense of a Third Party
Claim, the Indemnified Party shall have the right to participate in the defense
thereof and to employ counsel, at its own expense, separate from the counsel
employed by the Indemnifying Party, it being understood and agreed that the
Indemnifying Party shall control such defense, and the Indemnifying Party shall
not be liable to the Indemnified Party for any legal or other expenses of such
separate counsel. If the Indemnifying Party fails to assume the defense of a
Third Party Claim by providing written notice pursuant to this Section 13.5(b),
the Indemnifying Party shall be liable for the fees and expenses of one outside
counsel employed by the Indemnified Party (which outside counsel shall be
reasonably acceptable to the Indemnifying Party and shall be deemed acceptable
if the Indemnifying Party does not otherwise notify the Indemnified Party in
writing within 10 days after having been notified in writing of the identity
thereof) for any period during which the Indemnifying Party has not assumed the
defense thereof. If the Indemnifying Party elects to assume the defense of a
Third Party Claim, all Indemnified Parties shall cooperate in the defense or
prosecution thereof. Such cooperation shall include the retention and (upon the
Indemnifying Party's request) the provision to the Indemnifying Party of records
and information that are reasonably relevant to such Third Party Claim, and
making the Indemnified Parties' respective Representatives available on a
reasonable and mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Provided that the Indemnifying
Party acknowledges in writing that it is obligated to indemnify the Indemnified
Party with respect to a Third Party Claim, the Indemnified Party shall not admit
any liability with respect to, or settle, compromise or discharge, such Third
Party Claim without the Indemnifying Party's prior written consent (which
consent shall not be unreasonably withheld or delayed). No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement, compromise or discharge of any Third Party Claim in respect of which
any Indemnified Party is or could have been a party, or indemnity could have
been sought hereunder by any Indemnified Party, unless such settlement,
compromise or discharge, as the case may be, (i) includes an unconditional
written release of the Indemnified Party, in form and substance reasonably
satisfactory to the Indemnified Party, from all liability on claims that are the
subject matter of such Third Party Claim, (ii) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of any
Indemnified Party and (iii) does not impose any continuing material obligation
or restrictions on any Indemnified Party.
(c) The Sellers' Representative shall act on behalf of the Sellers for the
purposes of this Section 13.5 for any Third Party Claim or other claim which is
the subject of indemnification under this Section 13.
(d) Notwithstanding anything herein to the contrary, this Section 13.5 shall not
pertain to Tax matters, which instead will be subject to the provisions of
Section 10.3.
13.6 Limitations and Requirements.
(a) The Indemnifying Parties shall not be liable for any claim for
indemnification pursuant to Section 13.1(i) or 13.2(a) or (b) unless and until
the aggregate amount of indemnifiable Damages which may be recovered from the
Indemnifying Parties equals or exceeds $450,000 (the "Threshold Amount"), after
which the Indemnifying Parties shall be liable for all such Damages, and not
just the amount by which such Damages exceed the Threshold Amount; provided,
however, that the limitation set forth in this Section 13.6(a) shall not be
applicable to any claim for Damages based upon a breach of any representation or
warranty made in Section 3.2, 3.4, 3.5, 4.2, 4.4. or 4.24. The maximum amount of
indemnifiable Damages that may be recovered from the Indemnifying Parties (i)
pursuant to Section 13.2(e) shall be the amount set forth in Part I of Exhibit V
and (ii) pursuant to Section 13.2(g) and breaches of any representation and
warranty made in Section 4.22 shall be the amount set forth in Part II of
Exhibit V.
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(b) Notwithstanding anything herein to the contrary, no Seller shall in any way
be liable for any amount in excess of such Seller's Ownership Percentage of any
Damages and the aggregate liability of any Seller under this Section 13 for any
Damages shall in no event exceed the amount of (i) the portion of the Aggregate
Cash Proceeds paid to the Sellers' Representative pursuant to Section 2.2(f)(i),
(ii) the portion of the Aggregate Cash Proceeds paid to the Escrow Agent
pursuant to Section 2.2(e) and (iii) the portion of the Aggregate Cash Proceeds
paid to the Reserve Account pursuant to Section 2.2(e), in each case, on behalf
of such Seller; provided, however, that nothing herein shall affect Buyer's
rights pursuant to Section 13.10. Notwithstanding anything in this Agreement to
the contrary, no Seller shall be liable or responsible, directly or indirectly,
for any Damages for any breach of any representation, warranty, covenant or
agreement made by any other Seller (except that each Principal Stockholder shall
be jointly and severally liable for breaches of representations, warranties and
covenants by the other Principal Stockholder) unless such representation,
warranty, covenant or agreement was also made by the Company or the Guarantors.
(c) The Sellers and Buyer acknowledge, on their behalf and on behalf of the
other Seller Indemnified Parties and the other Buyer Indemnified Parties, as the
case may be, that, after the Closing, their sole and exclusive remedy with
respect to the subject matter of this Agreement shall be pursuant to the
indemnification provisions set forth in this Section 13 (other than claims and
causes of action based on fraud or intentional breach); provided, however, that
this shall not affect the right of any party to seek or obtain specific
performance or other equitable remedies. Notwithstanding anything herein to the
contrary, Buyer acknowledges that, solely with respect to the Warrantholders,
after the Closing, Buyer's sole and exclusive remedy with respect to the subject
matter of this Agreement, and sole and exclusive source of satisfaction of any
claim for Damages arising out of this Agreement, shall be (i) the General Escrow
Account, the Reserve Account and (ii) the exercise by Buyer of its rights under
Section 13.10; provided, however, that this shall not affect the right of Buyer
to seek or obtain specific performance or other equitable remedies.
13.7 Calculation and Mitigation of Damages.
(a) The amount of any Damages for which indemnification is provided under this
Section 13 shall be net of any amounts actually recovered by such Indemnified
Party under insurance policies or other collateral sources with respect to such
Damages. In the event any amounts recovered or recoverable under insurance
policies or other collateral sources are not received before any claim for
indemnification is paid pursuant to this Section 13, then, in the event that the
Indemnified Parties receive any such recovery, the amount of such recovery shall
be applied first, to reimburse the Indemnified Parties for their out-of-pocket
expenses (including reasonable attorney's fees and expenses) expended in
pursuing such recovery, second, to refund any payments made by the Indemnifying
Parties which would not have been so paid had such recovery been obtained prior
to such payment, and third, any excess to the Indemnified Parties.
(b) Notwithstanding any provision of this Agreement to the contrary, "Damages"
shall not include any consequential, indirect damages or punitive damages,
except to the extent paid by the Indemnified Party to an unaffiliated third
party. Notwithstanding the foregoing, the Buyer Indemnified Parties shall be
entitled to recover for profits lost or otherwise not realized in respect of the
businesses of the Company and the Retained Subsidiaries following the Closing
Date solely to the extent that the applicable Damages are reasonably foreseeable
in connection with the breach or violation that is the subject of the
indemnification claim. Notwithstanding any provision of this Agreement to the
contrary, "Damages" for purposes of Section 13.2(g) shall not include recovery
for profits lost or otherwise not realized in respect of the businesses of the
Company and the Retained Subsidiaries following the Closing.
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13.8 Termination of Indemnification.
(a) The obligations of Sellers to indemnify and hold harmless any Buyer
Indemnified Party under this Section 13 shall terminate (i) when the applicable
representation or warranty terminates pursuant to Section 15.1, with respect to
claims made pursuant to Sections 13.1(i), 13.2(a) and 13.2(b), (ii) 15 days
after the date on which the obligations of the Sellers under a particular
covenant or agreement contained in this Agreement are terminated or expire
pursuant to the terms of such covenant or agreement, with respect to claims made
under Section 13.1(ii), (iii) 180 days after the Closing Date, with respect to
claims made under Section 13.2(c); (iv) on the eighteen month anniversary of the
Closing Date with respect to claims made pursuant to Sections 13.2(e) and (f);
(v) 60 days after the expiration of the applicable statute of limitations (or
waivers or extensions thereof), with respect to claims made pursuant to Section
13.2(d) and (vi) on the eight year anniversary of the Closing Date with respect
to any claims made pursuant to Section 13.2(g); provided, however, in each case,
that such obligations to indemnify and hold harmless shall not terminate with
respect to any item as to which an Indemnified Party shall have, before the
expiration of the applicable period, previously made a claim by delivering a
notice of such claim pursuant to Section 13.4 or Section 13.5 to the Sellers'
Representative.
(b) The obligation of Buyer to indemnify and hold harmless any Seller
Indemnified Party under this Section 13 shall terminate (i) when the applicable
representation or warranty terminates pursuant to Section 15.1, with respect to
claims made pursuant to Section 13.3(a), (ii) 180 days after the Closing Date,
with respect to claims made under Section 13.3(b); and (iii) after the
expiration of the applicable statute of limitations, with respect to claims made
pursuant to Section 13.3(c).
13.9 Escrow Account. Notwithstanding anything herein to the contrary and without
limitation of Buyer's rights under Section 13.10, from and after the Closing,
any indemnification by any Seller for Damages pursuant to Section 13 shall be
paid first, from the General Escrow Amount pursuant to the terms of the General
Escrow Agreement, and, only after all of such funds have been paid to a Buyer
Indemnified Party or released and returned to the Sellers, second, directly by
the Sellers.
13.10 Right of Set-Off.
(a) To the extent that the Sellers' Representative fails to comply with its
obligations under the General Escrow Agreement or any Seller fails to comply
with its obligations under this Section 13, in addition to any other remedies
provided for in this Agreement, upon prior written notice to the Sellers'
Representative, Buyer may, in its sole discretion, set-off any finally
determined Damages to which Buyer is entitled to indemnification under Section
13.1 or Section 13.2, on a dollar-for-dollar basis, against any unpaid
Contingent Payment.
(b) During the pendency of any Third Party Claim for which Buyer is entitled to
indemnification under Section 13.1 or Section 13.2, unless the Indemnifying
Party shall have acknowledged in writing that it is obligated to indemnify the
Indemnifying Party with respect to such Third Party Claim, the amount of Damages
attributable to such Third Party Claim shall be constitute an "Open Claim" and
Buyer may, in its sole discretion, reserve from any unpaid Contingent Payment,
an amount equal to such Open Claim. Until such Open Claim is finally determined,
such reserved amount shall not be due or payable, and in lieu of such payment to
the Sellers' Representative, Buyer shall pay such reserved amount into an escrow
account established for such purpose. At the time that such Open Claim is
finally determined, Buyer may, in its sole discretion, instruct the escrow agent
for such escrow account to pay such amount to Buyer in satisfaction, in whole or
in part, of such Open Claim and release any remaining amounts to the Sellers'
Representative.
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13.11 Tax Treatment of Indemnification Payments. All amounts paid under Section
13 of this Agreement shall be treated as adjustments to the Total Purchase Price
for all Tax purposes, unless otherwise required by a final determination of a
taxing authority.
SECTION 14. THE SELLERS' REPRESENTATIVE
14.1 The Sellers' Representative.
(a) Each of the Sellers does hereby irrevocably make, constitute and appoint the
Sellers' Representative as his, her or its agent, to act in his or her or its
name, place and stead, as such Seller's attorney-in-fact, to (i) execute and
deliver all documents necessary or desirable to carry out the intent of this
Agreement and the other Transaction Documents (including in the name of, or on
behalf of, such Seller), (ii) make all elections or decisions entered into in
connection with this Agreement and the other Transaction Documents, (iii) hold
such Seller's Securities and transfer such Seller's Securities to Buyer on the
Closing Date, (iv) act on such Seller's behalf in connection with all
obligations and agreements of the Sellers under the Seller Transaction
Documents, (v) amend, waive or otherwise change the terms or conditions of this
Agreement or any other Transaction Document on behalf of such Seller, (vi)
defend, settle and make payments to the Buyer Indemnified Parties on behalf of
such Seller in connection with any claim for indemnification made by any Buyer
Indemnified Party pursuant to Section 13 and to initiate and prosecute any claim
for indemnification made by or on behalf of such Seller pursuant to Section 13,
(vii) receive any payments of the Final Purchase Price or other amounts due to
such Seller under the Seller Transaction Documents, (viii) give and receive on
behalf of Sellers any and all notices from or to any Seller or Sellers under the
Transaction Documents and (ix) otherwise exercise all rights of such Sellers and
otherwise act on behalf of such Seller under the Transaction Documents and in
connection with any of the transactions contemplated by the Transaction
Documents, in each case as if such Seller had personally done such act, and the
Sellers' Representative hereby accepts such appointment. Any proceeds received
by the Sellers' Representative from Buyer on behalf of the Sellers shall be
distributed to the Sellers as promptly as practicable by the Sellers'
Representative, in accordance with the terms and provisions of this Agreement
and the other Transaction Documents. The death, incapacity, dissolution,
liquidation, insolvency or bankruptcy of any Seller shall not terminate such
appointment or the authority and agency of the Sellers' Representative. The
power-of-attorney granted in this Section 14.1 is coupled with an interest and
is irrevocable.
(b) The Sellers' Representative shall be entitled to rely, and shall be fully
protected in relying, upon any statements furnished to it by any Seller, Buyer,
any third Person or any other evidence deemed by the Sellers' Representative to
be reliable, and the Sellers' Representative shall be entitled to act on the
advice of counsel selected by it. The Sellers' Representative shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Transaction Document unless it shall have received such advice or
concurrence of such Sellers as it deems appropriate or it shall have been
expressly jointly and severally indemnified to its satisfaction by the Sellers
appointing it against any and all Damages and other liabilities and expenses
that the Sellers' Representative may incur by reason of taking or continuing to
take any such action.
(c) The Sellers' Representative shall be entitled to retain counsel acceptable
to it and to incur such expenses as the Sellers' Representative deems to be
necessary or appropriate in connection with its performance of its obligations
under this Agreement and the other Transaction Documents, and all such fees and
expenses (including reasonable attorneys' fees and expenses) incurred by the
Sellers' Representative shall be jointly and severally borne by each Seller. The
Sellers' Representative shall have the right to deduct any reimbursement amounts
payable to the Sellers' Representative pursuant to this Section 14.1 from any
reserve account established and maintained by the Sellers' Representative in
connection with the transactions contemplated hereby (the "Reserve Account")
without any prior or further approval from the Sellers.
62
(d) The Sellers hereby agree to jointly and severally indemnify the Sellers'
Representative (in its capacity as such) against, and to hold the Sellers'
Representative (in its capacity as such) harmless from, any and all Damages and
other liabilities and expenses of whatever kind which may at any time be imposed
upon, incurred by or asserted against the Sellers' Representative in such
capacity in any way relating to or arising out of its action or failures to take
action pursuant to this Agreement or any other Transaction Document.
(e) R. ▇▇▇ ▇▇▇▇▇▇ shall be the initial Sellers' Representative and shall serve
as the Sellers' Representative until his resignation. Upon the resignation of R.
▇▇▇ ▇▇▇▇▇▇, the Sellers representing a majority of the aggregate Ownership
Percentages of all Sellers shall select a new Sellers' Representative. Each time
a new Sellers' Representative is appointed pursuant to this Agreement, such
Person, as a condition precedent to the effectiveness of such appointment, shall
accept such position in writing.
(f) The provisions of this Section 14 shall in no way impose any obligations on
Buyer. In particular, notwithstanding any notice received by Buyer to the
contrary, and absent bad faith or willful misconduct, Buyer (i) shall be fully
protected in relying upon and shall be entitled to rely upon, and shall have no
liability to the Sellers with respect to, actions, decisions and determinations
of the Sellers' Representative and (ii) shall be entitled to assume that all
actions, decisions and determinations of the Sellers' Representative are fully
authorized by all of the Sellers.
14.2 No Reliance. The decision of each Seller to sell Securities pursuant to
this Agreement has been made by such Seller independently of any other Seller
and independently of any information, materials, statements or opinions as to
the terms and conditions of any Transaction Document that may have been made or
given by the Sellers' Representative, any other Seller or by any Representative
of the Sellers' Representative, and neither the Sellers' Representative nor any
Seller nor any of their respective Representatives shall have any liability to
any other Seller (or any other Person) relating to or arising from any such
information, materials, statements or opinions, except as expressly provided in
a written agreement, if any, between or among the Sellers.
SECTION 15. MISCELLANEOUS
15.1 Survival of Representations and Warranties. The representations and
warranties made by the parties in this Agreement shall survive the consummation
of the transactions herein contemplated but will terminate at, and will have no
further force and effect after, the close of business on the date that is 18
months following the Closing Date; provided, however, that: (i) the
representations and warranties of the Sellers contained in Sections 3.2, 3.4 and
3.5 will survive the Closing indefinitely; (ii) the representations and
warranties of the Company and the Guarantors contained in Sections 4.2, 4.4.
4.22 and 4.24 shall survive the Closing indefinitely, (iii) the representations
and warranties of the Company contained in Section 10.1 shall survive the
Closing until 30 days after the expiration of the applicable statute of
limitations periods (or extensions or waivers thereof) and (iv) the
representations and warranties of Buyer contained in Section 5.2 and Section 5.5
shall survive the Closing indefinitely.
15.2 Costs and Expenses. Except to the extent otherwise expressly provided
herein, all costs and expenses incurred in connection with the Transaction
Documents shall be paid by the party incurring such cost or expense, except that
(i) all Transaction Expenses shall be paid by the Company at or prior to the
Closing (and to the extent not paid, shall be paid by the Sellers) and (ii) all
filing fees and expenses incurred in connection with the HSR Act shall be paid
one-half by Buyer and one-half by the Sellers.
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15.3 Notices. All notices or other communications permitted or required under
this Agreement shall be in writing and shall be sufficiently given if and when
hand delivered to the persons set forth below or if sent by documented overnight
delivery service or registered or certified mail, postage prepaid, return
receipt requested, or by telegram, telex or telecopy, receipt acknowledged,
addressed as set forth below or to such other Person or Persons and/or at such
other address or addresses as shall be furnished in writing by any party hereto
to the other parties hereto. Any such notice or communication shall be deemed to
have been given as of the date received, in the case of personal delivery, or on
the date shown on the receipt or confirmation therefor in all other cases.
To Buyer:
▇-▇▇▇-▇▇▇▇▇▇▇.▇▇▇., Inc.
▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to (which shall not constitute notice):
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To the Company or the Guarantors:
▇▇▇▇▇▇ May Confections Brands, Inc.
▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to (which shall not constitute notice):
Fulbright & ▇▇▇▇▇▇▇▇ L.L.P.
Fulbright Tower
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To Stockholders or Sellers' Representative:
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: R. ▇▇▇ ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
64
With a copy to (which shall not constitute notice):
Fulbright & ▇▇▇▇▇▇▇▇ L.L.P.
Fulbright Tower
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To the Warrantholders:
Delaware Street Capital Master Fund, L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Capital Advisors, L.P.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Capital Advisors, L.P.,
with a copy to (which shall not constitute notice):
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
15.4 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned, by operation of Law or otherwise, by any
party hereto to any other Person without the prior written consent of Buyer and
the Sellers' Representative, and any such attempted assignment shall be null and
void; provided, however, that (i) Buyer may assign its rights and obligations
under this Agreement in whole or in part to any Affiliates without the prior
written consent of the Sellers (provided that Buyer shall remain primarily
liable hereunder following any such assignment) and (ii) Buyer may grant a
security interest in its rights under this Agreement and any other Transaction
Document to its lenders. Subject to the foregoing, this Agreement and the rights
and obligations set forth herein shall inure to the benefit of, and be binding
upon, the parties hereto, and each of their respective successors, heirs, and
assigns.
15.5 Amendment, Modification and Waiver. Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by Buyer and the Sellers' Representative. Any such amendment,
modification, extension or waiver shall be in writing. The waiver by a party of
any breach of any provision of this Agreement shall not constitute or operate as
65
a waiver of any other breach of such provision or of any other provision hereof,
nor shall any failure to enforce any provision hereof operate as a waiver of
such provision or of any other provision hereof. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
15.6 Governing Law. This Agreement is made pursuant to, and shall be construed
and enforced in accordance with, the laws of State of New York (and the United
States federal law, to the extent applicable), irrespective of the principal
place of business, residence or domicile of the parties hereto, and without
giving effect to otherwise applicable principles of conflicts of Law.
15.7 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT TO ANY PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT ENTERED INTO IN
CONNECTION HEREWITH OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. EACH
PARTY (A) CERTIFIES THAT NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY
CLAIM, ACTION OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER AGREEMENTS CONTEMPLATED HEREBY, AS APPLICABLE,
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
15.7.
15.8 Consent to Jurisdiction. Each party hereto irrevocably submits to the
exclusive jurisdiction of (a) the Supreme Court of the State of New York, County
of Nassau and (b) the United States District Court for the Eastern District of
New York, for purposes of any claim, action or proceeding arising out of this
Agreement or any transaction contemplated hereby. Each party hereto agrees to
commence any such claim, action or proceeding only in the United States District
Court for the Eastern District of New York or, if such claim, action or
proceeding cannot be brought in such court for jurisdictional reasons, in the
Supreme Court of the State of New York, County of Nassau. Each of the parties
hereby waives, and agrees not to assert in any such dispute, to the fullest
extent permitted by applicable Law, any claim that (a) such party is not
personally subject to the jurisdiction of such courts, (b) such party and such
party's property is immune from any legal process issued by such courts or (c)
any claim, action or proceeding commenced in such courts is brought in an
inconvenient forum. Each party hereto further agrees that service of any
process, summons, notice or document by United States registered mail to such
party's address set forth in Section 15.3 above shall be effective service of
process for any claim, action or proceeding with respect to any matters to which
it has submitted to jurisdiction in this Section 15.8 or otherwise.
15.9 Section Headings and Defined Terms. The section headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. The terms defined herein and in any other
Transaction Document include the plural as well as the singular and the singular
as well as the plural. Except as otherwise indicated, all agreements defined
herein refer to the same as from time to time amended or supplemented or the
terms thereof waived or modified in accordance herewith and therewith. All
references to "$" or "dollars" shall be to United States dollars and all
references to "days" shall be to calendar days unless otherwise specified.
15.10 Severability. If any term or other provision of this Agreement (or portion
thereof) or the application of any such term or other provision (or portion
thereof) to any Person or circumstance is determined by a court of competent
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jurisdiction to be invalid, illegal or incapable of being enforced pursuant to
any applicable Law or public policy, all other terms and provisions of this
Agreement (or remaining portion of such term or other provision) will
nevertheless remain in full force and effect. Upon such determination by a court
of competent jurisdiction that any term or other provision (or portion thereof)
of this Agreement is invalid, illegal or incapable of being enforced, the
parties hereto will negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible.
15.11 Counterparts; Third-Party Beneficiaries. This Agreement may be executed in
two or more counterparts, including by facsimile transmission, each of which
shall be deemed an original; and any Person may become a party hereto by
executing a counterpart hereof, but all of such counterparts together shall be
deemed to be one and the same agreement. This Agreement will be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or will confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
15.12 Entire Agreement. This Agreement, together with the Disclosure Schedule,
the General Escrow Agreement, the Confidentiality Agreement and the agreements,
exhibits, schedules and certificates referred to herein or delivered pursuant
hereto, constitute the entire agreement between the parties hereto with respect
to the purchase and sale of the Securities and supersede all prior and
contemporaneous agreements and understandings, both written and oral, with
respect to the subject matter hereof and thereof, including the letter of
intent, dated as of February 10, 2006, among ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇ and Buyer.
15.13 Seller Guaranty. Each of the Guarantors, jointly and severally, hereby
absolutely, unconditionally and irrevocably guarantees, as principal obligor,
and not merely as surety, to Buyer and its successors and permitted assigns, all
indemnification obligations of the Sellers under Section 13.2(b) 13.2(d)
(collectively, the "Seller Obligations"); provided that the foregoing guarantees
shall not apply to any Seller Obligation resulting from a breach of the
representations in Section 10.1 or arising pursuant to Section 13.2(d) to the
extent (in either case) that the underlying Tax giving rise to such Obligation
is a Tax attributable to the pre-Closing operations of a Retained Subsidiary;
provided, further (for the avoidance of doubt), that the foregoing proviso shall
not limit or diminish any guarantee of any Seller Obligation related to any Tax
imposed in connection with the Distribution (regardless of whether such Tax is
imposed on a Retained Subsidiary or another Person). The foregoing obligations
of the Guarantors constitute a continuing guaranty of payment, and not of
collection, and are and shall be absolute and unconditional under any and all
circumstances, including without limitation, circumstances which might otherwise
constitute a legal or equitable discharge of a surety or guarantor. The
obligations of the Guarantors hereunder shall not be discharged, impaired or
otherwise affected by the failure of any Indemnified Party to assert any claim
or demand against the Sellers or to enforce any remedy hereunder.
Notwithstanding the foregoing, (i) nothing in this Section 15.13 shall create
any liabilities or obligations for the Guarantors to the extent the Sellers
would not have liability or otherwise be responsible to any Indemnified Party
hereunder and (ii) the Guarantors shall have the right to assert as a defense
(including rights of set off and counterclaim) to any of their obligations
hereunder any defense that would be available to them had they duly authorized
and entered into the Seller Obligations directly. Each of the Guarantors hereby
expressly agrees to the terms of Section 15.7 and Section 15.8 and acknowledges
that such Sections personally bind such Guarantor.
15.14 Buyer Guaranty. Parent hereby absolutely, unconditionally and irrevocably
guarantees, as principal obligor, and not merely as surety, to each Seller and
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his, her or its successors and permitted assigns, all obligations of Buyer under
Sections 2.1, 2.2(e), 2.2(f)(i), 2.2(g) 2.2(h), 2.2(i) and 2.3(h) (collectively,
the "Buyer Obligations"). The foregoing obligation of Parent constitutes a
continuing guaranty of payment, and not of collection, and is and shall be
absolute and unconditional under any and all circumstances, including without
limitation, circumstances which might otherwise constitute a legal or equitable
discharge of a surety or guarantor. The obligation of Parent hereunder shall not
be discharged, impaired or otherwise affected by the failure of any Seller to
assert any claim or demand against Buyer or to enforce any remedy hereunder.
Notwithstanding the foregoing, (i) nothing in this Section 15.14 shall create
any liabilities or obligations for Parent to the extent Buyer would not have
liability or otherwise be obligated to any Seller hereunder and (ii) Buyer shall
have the right to assert as a defense (including rights of set off and
counterclaim) to any of its obligations hereunder any defense that would be
available to it had it duly authorized and entered into the Buyer Obligations
directly. Parent hereby expressly agrees to the terms of Section 15.7 and
Section 15.8 and acknowledges that such Sections bind Parent.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement, to
be signed the day and year first above written.
COMPANY:
▇▇▇▇▇▇ MAY CONFECTIONS BRANDS, INC.
(formerly known as ALPINE CONFECTIONS, INC.)
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Co-President
GUARANTORS:
ALPINE CONFECTIONS HOLDINGS, INC.
/s/ R. ▇▇▇ ▇▇▇▇▇▇
Title: Co-President
ALPINE CONFECTIONS CANADA, ULC
/s/R. ▇▇▇ ▇▇▇▇▇▇
Title: CEO
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ COMPANY
/s/R. ▇▇▇ ▇▇▇▇▇▇
Title: CEO
KENCRAFT, INC.
/s/R. ▇▇▇ ▇▇▇▇▇▇
Title: Vice President
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BUYER:
FMCB Acquisition Co., INC.
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Corporate Secretary
PARENT:
▇-▇▇▇-▇▇▇▇▇▇▇.▇▇▇, INC.
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
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SELLERS' REPRESENTATIVE:
/s/R. ▇▇▇ ▇▇▇▇▇▇
SELLERS:
/s/R. ▇▇▇ ▇▇▇▇▇▇
/s/▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ FAMILY PARTNERSHIP
/s/▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Capital Advisors, L.P.
/s/▇▇▇▇ ▇▇▇▇▇
Title: Senior Managing Director
Delaware Street Capital Master Fund, L.P.
/s/▇▇▇▇ ▇▇▇▇
Title: Director