EXHIBIT 10.4
ASSET ACQUISITION AGREEMENT
BY AND BETWEEN
TERRACE HOLDINGS, INC.
A DELAWARE CORPORATION,
AND
DOWNEAST FROZEN DESSERTS, LLC
TABLE OF CONTENTS
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Page
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1. DEFINITIONS.................................................. 1
1.1 Affiliate......................................... 1
1.2 Ancillary Documents............................... 1
1.3 Assets............................................ 1
1.4 Code.............................................. 3
1.5 Commitments....................................... 3
1.6 Rights............................................ 3
1.7 Liabilities....................................... 3
2. SALE OF ASSETS AND EXCHANGE OF STOCK......................... 3
2.1 Purchase and Sale of Assets and Rights............ 3
2.2 Delivery of Possession and Instruments
of Transfer....................................... 3
3. EXCHANGE OF STOCK............................................ 4
3.1 Issuance of THI Shares of Common Stock............ 4
3.2 Exchange of Notes................................. 4
3.3 Other Consideration............................... 4
3.4 Allocation of Consideration for Tax Purposes...... 4
4. CLOSING...................................................... 5
4.1 Closing and Closing Date.......................... 5
4.2 Effect of Not Closing............................. 5
5. REPRESENTATIONS AND WARRANTIES OF DE......................... 5
5.1 Organization, Good Standing, Power, Etc........... 5
5.2 Capital Position.................................. 6
5.3 Certificate of Formation and Operating Agreement.. 6
5.4 Subsidiaries, Divisions and Affiliates............ 6
5.5 Equity Investments................................ 6
5.6 Authorization of Agreement.......................... 6
5.7 Effect of Agreement............................... 7
5.8 Restrictions; Burdensome Agreements............... 7
5.9 Governmental and Other Consents................... 7
5.10 Financial Statements.............................. 7
5.11 Absence of Certain Changes or Events.............. 8
5.12 Title to Assets; Absence of Liens
and Encumbrances.................................. 8
5.13 Equipment......................................... 9
5.14 Insurance......................................... 9
5.15 Agreements, Arrangements, Etc..................... 10
5.16 Patents, Trademarks, Copyrights, Etc.............. 12
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5.17 Permits, Licenses, Etc............................ 13
5.18 Compliance with Applicable Laws................... 13
5.19 Litigation........................................ 13
5.20 No Interest in Competitors........................ 14
5.21 Customers, Suppliers, Distributors and Agents..... 14
5.22 Books and Records................................. 14
5.23 Employee Benefit Plans............................ 15
5.24 Powers of Attorney................................ 15
5.25 Sufficiency of Assets and Commitments............. 15
5.26 Labor Disputes, Unfair Labor Practices............ 16
5.27 Past Due Obligations.............................. 16
5.28 Environmental Compliance.......................... 16
5.29 Tax and Other Returns and Reports................. 17
5.30 Recent Dividends and Other Distributions.......... 18
5.31 Inventory......................................... 18
5.32 Purchase and Sale Obligations..................... 18
5.33 Other Information................................. 18
5.34 Knowledge of DE and Its Members................... 18
5.35 Approval of Transaction by Members................ 18
6. REPRESENTATIONS AND WARRANTIES OF THI........................ 19
6.1 Organization...................................... 19
6.2 Authorization of Agreement........................ 19
6.3 Effect of Agreement............................... 19
6.4 Litigation........................................ 19
6.5 Submission of Transactions to Stockholder Vote.... 19
6.6 Capital Position.................................. 20
6.7 Certificate of Incorporation and By-Laws.......... 20
6.8 Subsidiaries, Divisions and Affiliates............ 20
6.9 Equity Investments................................ 20
6.10 Restrictions; Burdensome Agreements............... 20
6.11 Governmental and Other Consents................... 21
6.12 Financial Statements.............................. 21
6.13 Absence of Certain Changes or Events.............. 21
6.14 Insurance......................................... 22
6.15 Agreements, Arrangements, Etc..................... 22
6.16 Patents, Trademarks, Copyrights, Etc.............. 24
6.17 Permits, Licenses, Etc............................ 25
6.18 Compliance with Applicable Laws................... 25
6.19 No Interest in Competitors........................ 26
6.20 Books and Records................................. 26
6.21 Employee Benefit Plans............................ 26
6.22 Powers of Attorneys............................... 27
6.23 Tax and Other Returns and Reports................. 27
6.24 Recent Dividends and Other Distributions.......... 27
6.25 Other Information................................. 27
6.26 Knowledge of THI.................................. 28
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7. PRE-CLOSING COVENANTS OF DE.................................. 28
7.1 Conduct of Business Until Closing Date............ 28
7.2 Approvals, Consents and Further Assurances........ 29
7.3 Access to Properties, Records, Suppliers,
Agents, Etc....................................... 29
7.4 Advice of Changes................................. 29
7.5 Conduct........................................... 30
7.6 Employee Benefit Plans............................ 30
7.7 Satisfaction of Conditions by DE.................. 30
7.8 Non-Disclosure of Negotiations and
Non-Usage of Documents of THI..................... 30
8. PRE-CLOSING COVENANTS OF THI................................. 30
8.1 Conduct of Business Until Closing Date............ 31
8.2 Access to Properties, Records, Suppliers,
Agents, Etc....................................... 32
8.3 Advice of Changes................................. 32
8.4 Conduct........................................... 32
8.5 Employee Benefit Plans............................ 32
8.6 Satisfaction of Conditions by THI................. 32
8.7 Confidentiality................................... 33
9. POST-CLOSING COVENANTS....................................... 33
9.1 Further Assurances................................ 33
9.2 Composition of Board.............................. 33
9.3 Confidentiality................................... 33
9.4 Cooperation....................................... 34
9.5 Registration of Certain Shares.................... 34
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THI............... 34
10.1 Accuracy and Representations and Warranties....... 34
10.2 Performance of Agreements......................... 34
10.3 Litigation, Etc................................... 35
10.4 Approvals and Consents............................ 35
10.5 Manager's Certificate............................. 35
10.6 Officer's Certificate............................. 35
10.7 Good Standing Certificates........................ 36
10.8 No Material Adverse Change........................ 36
10.9 Actions, Proceedings, Etc......................... 36
10.10 Opinion of Counsel to DE.......................... 36
10.11 Licenses, Permits, Consents, Etc.................. 36
10.12 Documentation of Rights........................... 36
10.13 Employment of Namiot.............................. 36
10.14 Officers' Financial Certificate................... 37
10.15 Accountants Letter................................ 37
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10.16 Net Worth......................................... 37
10.17 Completion of Due Diligence....................... 37
10.18 Update of Exhibits................................ 37
10.19 Agreement to Sell or Purchase Certain Businesses.. 38
10.20 Assignments of Passover Contracts................. 38
11. CONDITIONS PRECEDENT TO THE OBLIGATION
OF DE........................................................ 38
11.1 Accuracy of Representations and Warranties........ 39
11.2 Performance of Agreements......................... 39
11.3 Secretary's Certificate........................... 39
11.4 Actions, Proceedings, Etc......................... 39
11.5 No Injunction..................................... 39
11.6 Opinion of Counsel to Buyer....................... 39
11.7 Completion of Schedules and Exhibits.............. 39
11.8 No Material Adverse Change........................ 39
12. SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION.................................. 40
12.1 Survival.......................................... 40
12.2 Indemnification by DE............................. 40
12.3 Indemnification by THI............................ 40
12.4 Right to Defend................................... 41
12.5 Subrogation....................................... 41
13. MISCELLANEOUS................................................ 41
13.1 Expenses.......................................... 41
13.2 Termination of Agreement.......................... 42
13.3 Waivers........................................... 42
13.4 Binding Effect; Benefits.......................... 42
13.5 Assignment........................................ 42
13.6 Notices........................................... 42
13.7 Entire Agreement.................................. 43
13.8 Headings; Certain Terms........................... 43
13.9 Counterparts...................................... 44
13.10 Governing Law..................................... 44
13.11 Severability...................................... 44
13.12 Amendments........................................ 44
13.13 Transaction Taxes................................. 44
13.14 Disclosures....................................... 44
13.15 Section References................................ 44
13.16 Brokers and Finders; Consultant................... 44
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SCHEDULE AND EXHIBIT INDEX
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1. Exhibit 1.3(b) Inventory
2. Exhibit 1.3(c) Equipment
3. Exhibit 1.3(d) Rights (Patents, Trademarks, Copyrights, etc.)
4. Exhibit 1.3(g) Accounts Receivable
5. Exhibit 1.3(h) Real Property (owned or leased)
6. Exhibit 1.3(j) Excluded Assets
7. Exhibit 3.2 Promissory Notes - Holders and Amounts
8. Exhibit 3.3 Form of "Class C" Warrant
9. Exhibit 3.4 Allocation of Consideration
10. Exhibit 4.1 Form of Closing Memorandum
11. Exhibit 5.1 Good Standing Certificates - DE
12. Exhibit 5.2(a) Equity Securities of DE Reserved for Issuance
or Outstanding
13. Exhibit 5.2(b) Outstanding Offers, Options, Warrants, Equity
Securities, Etc.
14. Exhibit 5.2(c) Membership Interests
15. Exhibit 5.3 Certificate of Formation and Operating
Agreement of DE
16. Exhibit 5.4 Subsidiaries, Divisions and Affiliates of DE
17. Exhibit 5.5 Equity Investments
18. Exhibit 5.10 Financial Statements of DE
19. Exhibit 5.11 Material Adverse Changes
20. Exhibit 5.12 Liens and Encumbrances of DE
21. Exhibit 5.14 Insurance Policies
22. Exhibit 5.15.1 Commitments
23. Exhibit 5.16 Patents, Trademarks, Copyrights
24. Exhibit 5.17 Permits, Licenses, Etc.
25. Exhibit 5.19 Material Litigation
26. Exhibit 5.20 5% Interest Ownership Table
27. Exhibit 5.21 Interest in Competitors
28. Exhibit 5.23 Employee Benefit Plans
29. Exhibit 5.24 Powers of Attorney
30. Exhibit 5.25 Sufficiency of Assets & Commitments
31. Exhibit 5.26 Material Labor Disputes
32. Exhibit 5.27 Past Due Obligations
33. Exhibit 5.28.A Environmental Compliance
34. Exhibit 5.28.B Assignment of Indemnification
35. Exhibit 5.29.A Tax Examination Dates
36. Exhibit 5.29.B Examinations of Tax Returns by Governmental
Agency
37. Exhibit 5.29.C Proposal by Governmental Entity of Deficiency,
Assessment or Claim of Taxes
38. Exhibit 5.31.A Inventory
39. Exhibit 5.31.B Non-useable Inventory
40. Exhibit 6.6.A Equity Securities of THI that are Reserved for
Issuance
41. Exhibit 6.6.B Outstanding Offers, Options, Warrants, Rights,
Calls, Commitments, Obligations
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42. Exhibit 6.7 Certificate of Incorporation and By-Laws of
THI
43. Exhibit 6.8 Subsidiaries, Divisions, or Affiliates of THI
44. Exhibit 6.9 Equity Investments
45. Exhibit 6.12 Form 10-KSB, Forms 10-QSB
46. Exhibit 6.13 Material Adverse Changes
47. Exhibit 6.14 Insurance Policies
48. Exhibit 6.15.1 Agreements, Etc.
49. Exhibit 6.16 Patents, Trademarks, Etc.
50. Exhibit 6.17 Permits, Licenses, Etc.
51. Exhibit 6.19 Interest in Competitors
52. Exhibit 6.21 Employee Benefit Plans
53. Exhibit 6.22 Powers of Attorney
54. Exhibit 6.23.A Tax Examination Dates
55. Exhibit 6.23.B Examined Tax Returns of THI
56. Exhibit 6.23.C Proposed by Governmental Entity of Tax
Deficiency
57. Exhibit 10.10 Opinion of Counsel to DE
58. Exhibit 10.13 ▇▇▇▇▇▇ ▇▇▇▇▇▇ Employment Agreement
59. Exhibit 10.14 Officer's Financial Certificate
60. Exhibit 10.15 Accountant's Letter
61. Exhibit 10.18 Amendment to Exhibits
62. Exhibit 10.19 Agreement to Sell and ▇▇▇▇▇▇▇▇
▇▇. Exhibit 10.20 Assignment of Passover Agreements
64. Exhibit 11.3 Secretary's Certificate of THI
65. Exhibit 11.4(a) Consent of Biltmore Securities, Inc.
66. Exhibit 11.4(b) "Fairness Opinion" of ▇.▇. ▇▇▇▇▇▇▇▇ & Co.,
Inc.
67. Exhibit 11.6 Opinion of Counsel to THI
68. Exhibit 13.16.2.A Settlement Agreement and General Release of
All Claims between DE and ▇▇▇▇▇▇▇ Partners,
LLC
69. Exhibit 13.16.2.B Letter Agreement between THI and ▇▇▇▇▇▇▇
Partners, LLC
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ASSET ACQUISITION AGREEMENT
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THIS ASSET ACQUISITION AGREEMENT ("Agreement") is made and entered into as
of this 9th day of December, 1996, by and between Terrace Holdings, Inc., a
Delaware corporation, or its assignee under Section 13.5 of this Agreement
("THI") and DownEast Frozen Desserts, LLC, a Delaware limited liability company
whose sole business is the ownership and operation of ▇▇▇▇▇▇▇ Ice Cream Company
of Portland, Maine (collectively "DE").
RECITALS:
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WHEREAS, DE owns and operates the Assets (as hereinafter defined);
WHEREAS, THI desires to purchase from DE, and DE desires to sell to THI,
the Assets on the terms and conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the foregoing the mutual covenants and
agreements of the parties hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. DEFINITIONS
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1.1 "Affiliate". As used in this Agreement, the term "Affiliate" shall
mean, as applied to any person, any other person directly or indirectly
controlling, controlled by, or under common control with, that person. For
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling", "controlled by", and "under common control with") as
applied to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of that
person or entity, whether through the ownership of voting securities, by
contract, or otherwise.
1.2 "Ancillary Documents" shall have the meaning set forth in Section 9.1
hereof.
1.3 "Assets". As used in this Agreement, the term "Assets" shall mean the
assets of DE (as of the Closing) as follows:
(a) the business of DE as a going concern, the goodwill pertaining
thereto and all of DE's right, title and interest in and to the name
"▇▇▇▇▇▇▇ Ice Cream", and all other names used by DE, as well as all logos
relating thereto;
(b) all items of inventory owned by DE including, without limitation,
all raw materials, work-in-progress and
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finished products of DE (all of which are collectively referred to
hereinafter as "Inventory"), including those items of Inventory set forth
in Exhibit 1.3(b);
(c) all vehicles, machinery, equipment (including equipment which has
previously been fully depreciated by DE and all equipment loaned to
customers), furniture, fixtures and non-inventory supplies of DE (including
containers, packaging and shipping material, tools and spare parts and
other similar tangible personal property owned by DE, which are listed on
Exhibit 1.3(c), all of which are collectively referred to hereinafter as
the "Equipment");
(d) all of DE's right, title and interest in and to the United States
and foreign rights of DE currently owned or used by DE (and the rights
proposed to be used) which are set forth on Exhibit 1.3(d), in the conduct
of the business of DE, with respect to copyrights, licenses, trademarks,
trademark rights, service ▇▇▇▇ rights, and trade secrets, shop rights,
know-how, technical information, techniques, discoveries, designs,
proprietary rights and non-public information and registrations, reissues
and extensions thereof and applications and licenses therefor, including
the items listed on Exhibit 1.3(d) (all of such rights being collectively
referred to hereinafter as the "Rights");
(e) all books and records of DE including all in-house mailing lists,
other customer and supplier lists, trade correspondence, production and
purchase records, promotional literature, data storage tapes and computer
disks, computer software, order forms, accounts payable records (including
invoices, correspondence and all related documents), accounts receivable
ledger from January 1, 1996 through the Closing Date, all documents
relating to uncollected invoices, and all shipping records from January 1,
1996 through the Closing Date;
(f) all contracts, agreements and orders for goods;
(g) all trade receivables of DE ("Accounts Receivable") and all
advance payments, prepaid items, rights to offset and credits of all kinds
of DE, including those items listed in Exhibit 1.3(g);
(h) all real property owned or leased by DE together with all
fixtures attached thereto, including those items listed in Exhibit 1.3(h)
(the "Real Property");
(i) all real property and all tangible personal property owned by DE
which is not specifically included in, or specifically excluded by, the
foregoing subsections (a) through (j); and
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(j) all other assets of DE, including rights arising from Commitments
and Rights, except as specifically excluded on Exhibit 1.3(j) ("Excluded
Assets").
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended,
and/or superseded.
1.5 "Commitments" shall mean all agreements, indentures, mortgages, plans,
policies, arrangements, and other instruments, including all amendments thereto
(or where they are verbal, written summaries of the materials terms thereof),
fixed or contingent, required to be disclosed on Exhibit 5.15.1.
1.6 "Rights" shall mean copyrights, licenses, patents, trademarks,
trademark rights, tradenames, service marks, service ▇▇▇▇ rights, and trade
secrets, shop rights, know-how, technical information, techniques, discoveries,
designs, proprietary rights and non-public information of DE and registrations,
reissues and extensions thereof and applications and license therefor.
1.7 "Liabilities" shall mean all indebtedness, liabilities, obligations
and Commitments of DE directly related to the Assets and shown on the balance
sheet of DE included in the Financial Statements (as defined in Section 5.10)
and which are outstanding at the time of Closing, and all such indebtedness,
liabilities, obligations and Commitments incurred by DE since the date of the
aforesaid Financial Statements in the ordinary course of business and consistent
with the terms and provisions of this Agreement which remain outstanding at the
time of Closing hereunder.
2. SALE OF ASSETS AND EXCHANGE OF STOCK
------------------------------------
2.1 Purchase and Sale of Assets and Rights. In exchange for the shares of
Common Stock of THI and other consideration set forth in Section 3 specified
herein, and upon and subject to the terms and conditions of this Agreement, THI
agrees to purchase and acquire from DE, and DE agrees to sell, assign, transfer,
convey and deliver to THI or its assignee under Section 13.5 at the Closing, all
rights, title and interest in and to the Assets subject to the Liabilities.
2.2 Delivery of Possession and Instruments of Transfer. At the Closing,
DE shall deliver to THI warranty bills of sale and such other instruments of
transfer requested by and satisfactory to THI and its counsel for the
consummation of the transactions contemplated under this Agreement and as are
necessary to vest in THI all of DE's rights, title and interest in and to the
Assets, free and clear of any lien, encumbrance, security agreement, equity,
option, claim, charge or restriction other than the applicable Liabilities to
which the Assets are subject.
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3. EXCHANGE OF STOCK
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3.1 Issuance of THI Shares of Common Stock. Subject to the conditions
precedent set forth in this Agreement, at the Closing, THI shall issue to DE an
aggregate of up to 1,000,000 shares of THI common stock, par value $.001 per
share ("Shares"). Except as otherwise expressly provided in this Agreement,
none of such shares shall be registered. Except as otherwise expressly provided
for in this Agreement, certificates evidencing the Shares shall have stop
transfer orders placed against them on the books of THI's transfer agent and
each shall bear substantially the following legend:
"The securities represented by this Certificate were acquired on
_________________________ without registration under the Securities Act of
1933, as amended, or any applicable state securities law. No transfer, sale
or other disposition of these securities or any interest therein may be
made except under an effective registration statement under said Act
covering such securities unless the Corporation has received an opinion of
counsel satisfactory to it that such transfer or resale does not require
registration under said Act."
3.2 Exchange of Notes. Of the 1,000,000 Shares to be issued under Section
3.1 above, up to 400,000 Shares shall be issued to those Members of DE holding
DE Promissory Notes in the aggregate of $525,000 principal amount, plus accrued
but unpaid interest thereon (approximately $37,000) in exchange therefor, as
their interests appear (on Exhibit 3.2 hereto). To the extent any Member of DE
notifies THI in writing at least thirty days prior to Closing that such Member
of DE desires to be repaid on the applicable Member's Note, then, THI at Closing
shall pay such Member the full unpaid principal amount, plus accrued but unpaid
interest of such Member's Note, and the number of Shares to be issued by THI
shall be reduced one share of THI Common Stock for each $1.405 of principal plus
interest so paid at Closing.
3.3 Other Consideration. In further consideration of the sale by DE, and
the purchase by THI, of the Assets, subject to the condition precedent set forth
in this Agreement, at the Closing, THI shall issue to DE warrants to purchase
250,000 shares of THI common stock at an exercise price of $2.50 per share
("Warrants") and shall reserve such number of shares of its common stock for
issuance upon exercise thereof. The Warrants shall be in the form and contain
the terms and conditions attached hereto as Exhibit 3.3. Except as otherwise
expressly provided in this Agreement or Exhibit 3.3, none of such Warrants or
the shares issuable upon exercise thereof shall be registered and certificates
evidencing such Warrants or shares shall bear a legend substantially similar to
that set forth in Section 3.1.
3.4 Allocation of Consideration for Tax Purposes. The parties agree to
allocate the consideration paid pursuant to this
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Agreement in the manner and in accordance with the values specified in Exhibit
3.4 for tax purposes. None of the parties shall, at any time hereafter, in any
tax or information return filed with any state or federal agency or in any
audit, other tax proceeding or otherwise, take a position which is contrary to
such allocation.
4. CLOSING
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4.1 Closing and Closing Date. Subject to the provisions of this
Agreement, the consummation of the transactions contemplated by this Agreement
(the "Closing") shall be held at the offices of Terrace Holdings, Inc., at 2:00
p.m. (local time), February 17, 1997, or at such later date, place or time as
the parties shall otherwise mutually agree upon or as shall be necessitated by
Section 6.5 (the date of the Closing being referred to herein as the "Closing
Date"). All Closing transactions shall be deemed to take place simultaneously,
and no Closing transaction shall be deemed consummated until all transactions to
take place at the Closing have been consummated. Provided the Closing Date is
on or prior to the date set forth in Section 13.2(b), the effective date of the
Closing of the transactions contemplated by this Agreement shall be as of
January, 1997. The actions and documents necessary for the consummation of
transactions contemplated by this Agreement shall be set forth in the Closing
Memorandum attached hereto as Exhibit 4.1.
4.2 Effect of Not Closing. If there is no Closing and consummation
hereunder solely because (i) the Members of DE have not affirmatively approved
as required by Section 5.35, or (ii) the stockholders of THI have not
affirmatively approved as required by Section 6.5, then the party whose Members
or stockholders do not so approve, as the case may be, thereupon shall pay to
the other party $50,000 as a "break-up" fee and this Agreement shall be deemed
terminated.
5. REPRESENTATIONS AND WARRANTIES OF DE
------------------------------------
As an inducement to THI to enter into this Agreement and perform its
obligations hereunder, DE hereby represents and warrants to THI as follows, each
of which representation and warranty is material and is being relied upon by
THI, and each of which is true as of the date hereof and shall be true as of the
Closing, with the same effect as if said representations and warranties had been
made at and as of the Closing Date:
5.1 Organization, Good Standing, Power, Etc. DE is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware. DE is authorized or licensed to do business as a foreign
limited liability company and is in good standing in each jurisdiction (set
forth in Exhibit 5.1) in which the character and location of its Assets or the
nature of the business transacted by DE makes such qualification
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necessary. DE has all requisite power and authority to (i) execute, deliver and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby and (ii) to own or lease and operate its properties and
assets, and carry on its business as it is presently being conducted.
5.2 Capital Position.
----------------
(a) DE has authorized ten Membership Interests, all of which are issued
and outstanding, duly authorized, validly issued, fully paid, and were issued in
compliance with all federal and applicable state securities laws. Except as set
forth in Exhibit 5.2(a), there are no equity securities of DE that are reserved
for issuance or are outstanding.
(b) Except as set forth in Exhibit 5.2(b) hereof, there are no outstanding
offers, options, warrants, rights, calls, commitments, obligations (verbal or
written), conversion rights, plans or other agreements (conditional or
unconditional) of any character providing for, requiring or permitting the
offer, sale, purchase or issuance of any Membership Interests of DE or any other
securities (as such term is defined in the Securities Act of 1933, as amended).
(c) Except as set forth in Exhibit 5.2(c) hereof, Membership Interests are
owned by the Members of DE free and clear of all liens, charges, encumbrances or
claims of any kind whatsoever.
5.3 Certificate of Formation and Operating Agreement. Attached as Exhibit
5.3 hereto are correct and complete copies of the Certificate of Formation of
DE, as amended to date, and the Operating Agreement of DE, as amended to date.
Such Certificate of Formation and Operating Agreement are in full force and
effect.
5.4 Subsidiaries, Divisions and Affiliates. Except as set forth on
Exhibit 5.4, there are no subsidiaries, divisions or Affiliates of DE. Except
as set forth on Exhibit 5.4, the business of DE has been conducted solely by DE
and not through any Affiliate, joint venture or other entity, person or under
any other name.
5.5 Equity Investments. Except as set forth in Exhibit 5.5, DE does not
own or have any rights to any equity interest, directly or indirectly, in any
corporation, partnership, joint venture, firm or other entity.
5.6 Authorization of Agreement. The execution, delivery and performance
of this Agreement has been, and the Ancillary Documents will be, duly and
validly executed and delivered by DE. This Agreement constitutes a valid and
binding obligation of DE enforceable in accordance with its terms, except that
such enforcement may be limited by bankruptcy, insolvency or other
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similar laws affecting the enforcement of creditor's rights generally.
5.7 Effect of Agreement. The execution, delivery and performance of this
Agreement by DE, and the consummation by DE of the transactions contemplated
hereby, will not, with or without the giving of notice and the lapse of time, or
both, (a) violate any provision of law, statute, rule, regulation or executive
order to which DE is subject; (b) violate any judgment, order, writ or decree of
any court applicable to DE; or (c) result in the breach of or conflict with any
term, covenant, condition or provision of, result in the modification or
termination of, constitute a default under, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
Assets pursuant to, any corporate charter, organizational document, operating
agreement, by-law, commitment, contract or other agreement or instrument,
including any of the Commitments, to which DE is a party or by which any of the
Assets is or may be bound or affected or from which DE derives benefit, which
breach, conflict, modification, termination, default or encumbrance described in
this clause (c) would be material to the business of DE or any of the Assets.
5.8 Restrictions; Burdensome Agreements. DE is not a party to any
contract, commitment or agreement, nor is DE or the Assets subject to, or bound
or affected by, any provision of the Articles of Organization, Operating
Agreement or other company restriction, or any order, judgment, decree, law,
statute, ordinance, rule, regulation or other restriction of any kind or
character, which would, individually or in the aggregate, materially adversely
affect DE's business or any of the Assets.
5.9 Governmental and Other Consents. No consent, authorization or
approval of, or exemption by, any governmental or public body or authority is
required in connection with the execution, delivery and performance by DE of
this Agreement or of any of the instruments or agreements herein referred to, or
the taking of any action herein contemplated.
5.10 Financial Statements. DE has delivered to THI, and included in
Exhibit 5.10 hereto are, correct and complete copies of financial statements of
DE for the period from inception through October 31, 1996 (the "Financial
Statements"). The Financial Statements were audited by ▇▇▇▇▇, ▇▇▇▇▇▇▇ & Sweat.
The Financial Statements are in accordance with the books and records of DE,
have been prepared in accordance with generally accepted accounting principles
and practices consistently applied and accurately present and financial position
of DE at their respective dates and the results of operations and cash flows for
the respective periods covered thereby, and all items that could have a material
adverse effect on the willingness of a prospective purchaser to acquire DE
7
have been disclosed in the Financial Statements or in the Exhibits to this
Agreement.
5.11 Absence of Certain Changes or Events. Except as set forth on Exhibit
5.11, since January 1, 1996, DE has not: (a) suffered any adverse change in, or
the occurrence of any events which, individually or in the aggregate, has or
have had, or might reasonably be expected to have, a material adverse effect on,
DE's financial condition, results of operations or business or the value of the
Assets; (b) incurred damage to or destruction of any material Asset or material
portion of the Assets, whether or not covered by insurance; (c) incurred any
material obligation or liability (fixed or contingent) except (i) current trade
or business obligations incurred in the ordinary course of business, none of
which were entered into for grossly inadequate consideration, (ii) obligations
or liabilities under the Commitments to the extent required thereby, and (iii)
obligations and liabilities under this Agreement; (d) made or entered into
contracts or commitments to make any capital expenditures in excess of Five
Thousand Dollars ($5,000.00); (e) mortgaged, pledged or subjected to lien or any
other encumbrance any of the Assets (except for purchase money liens used in the
acquisition of the Assets, as set forth on Exhibit 5.11); (f) sold, transferred
or leased any material Asset or material portion of the Assets, or canceled or
compromised any debt or material claims, except in each case, in the ordinary
course of business; (g) sold, assigned, transferred or granted any rights under
or with respect to any licenses, agreements, patents, inventions, trademarks,
trade names, copyrights or formulae or with respect to know-how or any other
intangible asset including, but not limited to, the Rights; (h) amended or
terminated any of the contracts, agreements, leases or arrangements which
otherwise would have been set forth on Exhibit 5.15.1 hereto; (i) waived or
released any other rights of material value; (j) entered into any transactions
not in the ordinary course of business which would, individually or in the
aggregate, materially adversely affect the Assets or the business of DE; or (k)
done or suffered anything material to invalidate or jeopardize its plant's or
products' kosher certification by The Union of Orthodox Jewish Congregations of
America.
5.12 Title to Assets; Absence of Liens and Encumbrances. Except as set
forth on Exhibit 5.12, (a) DE has good title to, and owns outright, the Assets,
which include substantially all of DE's assets reflected in the Financial
Statements (except (i) as sold, used or otherwise disposed of in the ordinary
course of business, and (ii) as disclosed in the Financial Statements), free and
clear of all mortgages, claims, liens, charges, encumbrances, security
interests, restrictions on use or transfer or other defects as to title; and (b)
immediately following the Closing, THI will have good and marketable title to
all Assets, free and clear of all mortgages, claims, liens, charges,
encumbrances, security interests, restrictions on use or transfer, or other
defects of any
8
nature. The leases and other agreements or instruments under which DE holds,
leases or is entitled to the use of any real or personal property included in
the Assets (a correct and complete list of such leases and other agreements or
instruments being set forth on Exhibit 5.15.1) are in full force and effect and
all rentals, royalties or other payments accruing thereunder prior to the date
hereof have been duly paid. DE enjoys peaceable and undisturbed possession under
all such leases, and the change in ownership of the Assets will not adversely
affect such leases, other agreements and instruments.
5.13 Equipment. Set forth on Exhibit 1.3(c) is a correct and complete
list as of October 31, 1996 of all of the Equipment (as defined in Section
1.3(c)), indicating for each piece of Equipment whether it is owned or leased
and setting forth where it is located. None of the Equipment has been disposed
of since June 1, 1996. Except as noted on Exhibit 1.3(c), all of the Equipment
(a) is in good working condition, with no material defects, and generally has
been suitable to DE for the uses for which it was designed or has been employed
by DE, and (b) conforms in all material respects with any laws, ordinances,
regulations, orders or other similar governmental requirements relating to its
use, as the same are currently in effect.
5.14 Insurance. There are no outstanding or unsatisfied written
requirements or repeated verbal recommendations imposed or made by any of DE's
current insurance companies with respect to current policies covering any of the
Assets, or by any governmental authority requiring or recommending, with respect
to any of the Assets, that any repairs or other work be done on or with respect
to, or requiring or recommending any equipment or facilities be installed on or
in connection with, any of the Assets. DE carries, and (with respect to any
period for which a claim against DE may still arise) has always carried product
liability insurance, worker's compensation insurance in reasonable amounts, and
other insurance which is reasonably necessary to the conduct of the DE's
business. On Exhibit 5.14 is set forth a correct and complete list of (a) all
currently effective insurance policies and bonds covering the Assets or the
business of DE, and their respective annual premiums (as of the last renewal or
purchase of new insurance), and (b) for the five-year period ending on the date
hereof, (i) all accidents, casualties or damage occurring on or to the Assets or
relating to the business or products of DE which in the aggregate are in excess
or One Thousand Dollars ($1,000.00), and (ii) claims for product liability,
damages, contribution or indemnification and settlements (including pending
settlement negotiations) relating thereto which in the aggregate are in excess
of one Thousand Dollars ($1,000.00). Except as set forth on Exhibit 5.14, as of
the date hereof there are no disputes with underwriters of any such policies or
bonds, and all premiums due and payable have been paid. There are no pending or
threatened terminations or premium increases with respect to any of such
9
policies or bonds and there is no condition or circumstance applicable to the
business of DE which may result in such termination or increase. DE and the
Assets are in compliance with all conditions contained in such policies or
bonds, except for non-compliance which, individually or in the aggregate, would
not have a material adverse affect on the business of DE or the Assets.
5.15 Agreements, Arrangements, Etc.
-----------------------------
5.15.1 Except as set forth on Exhibit 5.15.1, DE is not a party to, nor
are DE or any of the Assets bound by any:
(a) lease agreement (whether as lessor or lessee) of the Assets;
(b) license agreement, assignment or contract (whether as licensor or
licensee, assignor or assignee) relating to trademarks, trade names,
patents, or copyrights (or applications therefor), unpatented designs or
processes, formulae, know-how or technical assistance, or other proprietary
rights;
(c) employment or other contract or agreement with an employee or
independent contractor which (i) may not be terminated without liability to
DE upon notice to the employee or independent contractor of not more than
30 days, or (ii) provides payments (contingent or otherwise) of more than
$10,000 per year (including all salary, bonuses and commissions);
(d) agreement, contract or order with any buying agent, supplier or
other individual or entity who assists, provides or is otherwise involved
in the acquisition, supplying or providing Assets or other goods to DE;
(e) non-competition, secrecy or confidentiality agreements;
(f) agreement or other arrangement for the sale of goods or services
by DE to any third party (including the government or any other
governmental authority);
(g) agreement with any labor union;
(h) policy of insurance (including bonds) in force with respect to DE
or any of its operations, properties, assets or executive officers;
(i) agreement, contract or order with any distributor, dealer, sales
agent or representative, other than contracts or orders for the purchase,
sale or license of goods made in the usual and ordinary course of business
at an aggregate price
10
per contract or more than $5,000 and a term of more than six months under
any such contract or order;
(j) agreement, contract or order with any manufacturer, supplier or
customer (including those agreements which allow discounts or allowances or
extended payment terms);
(k) agreement with any food distributor or brokerage company,
management company or any other individual or entity who assists, places,
brokers or otherwise is involved with the marketing or distribution of DE's
products to its customers;
(l) joint venture or partnership agreement with any other person;
(m) agreement guaranteeing, indemnifying or otherwise becoming liable
for the obligations or liabilities of another;
(n) agreement with any banks or other persons, other than its
employees or its Members (as listed on Exhibit 3.2), for the borrowing or
lending of money or payment or repayment of draws on letters of credit or
currency swap or exchange agreements (other than purchase money security
interests which may, under the terms of invoices from its suppliers, be
granted to suppliers with respect to goods so purchased);
(o) agreement with any bank, finance company or similar organization
which acquires from DE receivables or contracts for sales on credit;
(p) agreement granting any person a lien, security interest or
mortgage on any of the Assets, including, without limitation, any factoring
or agreement for the assignment of receivables or inventory;
(q) agreement for the incurrence of any capital expenditure in excess
of $5,000;
(r) advertising, publication or printing agreement;
(s) agreement which restricts DE from doing business anywhere in the
world;
(t) agreement or statute or regulation giving any party the right to
renegotiate or require a reduction in prices or the repayment of any amount
previously paid; or
(u) other agreement or contract, not included in or expressly
excluded from the terms of the foregoing clauses (a) through (t),
materially affecting the Assets or DE's business, except contracts or
purchase orders for the purchase or sale
11
of goods or services made in the usual and ordinary course of business.
Correct and complete copies of all Commitments required to be shown on Exhibit
5.15.1 have been separately delivered to THI prior to the date hereof.
5.15.2 Each of the Commitments is valid, in full force and effect and
enforceable by DE in accordance with its terms.
5.15.3 Except as set forth on Exhibit 5.15.1, DE has fulfilled, or has
taken all action reasonably necessary to enable it to fulfill when due, all of
its obligations under the Commitments and Liabilities, except where the failure
to do so would not, individually or in the aggregate, have a material adverse
affect on the business of DE or the Assets. Furthermore, there has not occurred
any default by DE or any event which, with the lapse of time or the election of
any person other than DE, will become a default, nor has there occurred any
default by others or any event which, with the lapse of time or the election of
DE, will become a default under any of the Commitments or Liabilities, except
for such defaults, if any, which (a) have not resulted and will not result in
any material loss to or liability of DE or any of its successors or assigns or
(b) have been indicated on Exhibit 5.15.1. DE is not in arrears in any material
respect with respect to the performance of satisfaction of the terms or
conditions to be performed or satisfied by it under any of the Commitments or
Liabilities and no waiver or variance has been granted by any of the parties
hereto.
5.15.4 After the Closing, except as set forth on Exhibit 5.15.1, each of
the Commitments and Liabilities related to the Assets does not require the
consent of the other parties thereto and, with respect to any of the Commitments
or Liabilities which do require the consent of the other parties thereto, DE has
obtained such consent and has provided or will provide THI with copies thereof.
5.16 Patents, Trademarks, Copyrights, Etc. Exhibit 1.3(d) sets forth (i)
the registered and beneficial owner and the expiration date, to the extent
applicable, for each of the Rights set forth on such Exhibit and (ii) the
product, service, or products or services of DE which make use of, or are sold,
licensed or made under, each such Right. All of the Rights are included in the
Assets and constitute all Rights necessary for the conduct of the business of
DE, as such business is currently being conducted. Except as set forth on
Exhibit 5.16, DE has not sold, assigned, transferred, licensed, sub-licensed or
conveyed the Rights, or any of them, or any interest in the Rights, or any of
them, to any person, and has the entire right, title and interest (free and
clear of all security interests, liens and encumbrances of every nature) in and
to the Rights necessary to the conduct of the
12
business of DE as currently being conducted; neither has the validity of such
items been, nor is the validity of such items, nor the use thereof by DE, the
subject of any pending or threatened opposition, interference, cancellation,
nullification, conflict, concurrent use, litigation or other proceeding. The
conduct of the business of DE as currently operated, and the use of the Assets
does not and will not conflict with, or infringe, legally enforceable rights of
third parties. Except as set forth on Exhibit 5.16, the Rights owned by or
licensed to DE have not been used, and no use is now being made, by any entity
except DE and other entities duly licensed to use the same. Except as set forth
on Exhibit 5.16, there is no infringement of any proprietary right owned or
licensed by DE.
5.17 Permits, Licenses, Etc. There are no permits, licenses,
registrations, memberships, orders or approvals of governmental or
administrative authorities or required to permit DE to carry on its business as
currently conducted (other than (i) permits, licenses, registrations, trade
memberships, orders or approvals which are set forth on Exhibit 5.17, all of
which are in full force and effect, and (ii) other permits, licenses, orders or
approvals, the failure to obtain which would not, individually or in the
aggregate, have a material adverse affect on the Assets or on DE's business).
5.18 Compliance with Applicable Laws. The conduct of DE of its business
does not violate or infringe, and there is no basis for any claims of violation
or infringement of, any law, statute, ordinance, regulation or executive order
(including, without limitation, the Federal Food, Drugs and Cosmetics Act, as
amended, the Occupational Safety and Health Act, the National Environmental
Policy Act and the Foreign Corrupt Practices Act and the respective regulations
thereunder and similar applicable state laws and regulations, including but not
limited to agriculture) currently in effect, except in each case for violations
or infringements which do not and will not, individually or in the aggregate,
have a material adverse affect on the Assets or DE's business. DE is not in
default under any governmental or administrative registration, membership or
license issued to it, under any governmental or administrative order or demand
directed to it, or with respect to any order, writ, injunction or decree of any
court which, in any case, materially adversely affects the financial condition,
results of operations or business of DE or the value of the Assets.
5.19 Litigation. Except as set forth on Exhibit 5.19, there is no claim,
action, suit, proceeding, arbitration, reparation, investigation or hearing or
notice of hearing, pending or threatened, before any court or governmental,
administrative or other competent authority or private arbitration tribunal
against or relating to or affecting (directly or indirectly, including by way of
indemnification) the business of DE or any of the Assets, or the transactions
contemplated by this Agreement; nor are any facts known to DE, which it believes
could reasonably give rise to any
13
such claim, action, suit, proceeding, arbitration, investigation or hearing,
which may have any adverse affect, individually or in the aggregate in excess of
Five Thousand Dollars ($5,000) upon the business of DE, the value of the Assets
or the transactions contemplated by this Agreement. DE has not waived any
statute of limitations or other affirmative defense with respect to any of its
obligations. There is no continuing order, injunction or decree of any court,
arbitrator or governmental, administrative or other competent authority to which
DE is a party, or to which DE is subject. Neither DE nor any current officer,
director, Member, partner or employee of DE or any Affiliate of DE has been
permanently or temporarily enjoined or barred by order, judgment or decree of
any court or other tribunal or any agency or other body from engaging in or
continuing any conduct or practice in connection with the business engaged in by
DE. DE's worker's compensation experience rating for the five-year period ending
on the Closing Date is set forth in Exhibit 5.19.
5.20 No Interest in Competitors. Set forth on Exhibit 5.20 is a list
describing the extent to which DE, any of its Members or any officer, manager or
director of DE or any Affiliate of any of the foregoing, directly or indirectly,
owns more than a five percent (5%) interest in or controls or is an employee,
officer, director, or partner of or participant in (but only to the extent such
a participation exceeds one percent), or consultant to any corporation,
partnership, limited partnership, limited liability company, joint venture,
association or other entity which is a competitor, supplier or customer of DE or
has any type of business or professional relationship with DE.
5.21 Customers, Suppliers, Distributors and Agents. Except as set forth
on Exhibit 5.21, DE has no knowledge or reason to believe that any customer,
client, distributor, supplier or any other person or entity with material
business dealings with DE, will or may cease to continue such relationship with
DE, or will or may substantially reduce the extent of such relationship, at any
time prior to or after the Closing Date. Except for such common public
information, DE has no knowledge of (1) any other existing or contemplated
modification or change in the business relationship of DE with, or (2) any
existing condition or state of facts or circumstances which has affected
adversely, will adversely affect (in more than a minimal manner), or has a
reasonable likelihood of adversely affecting the business of DE with its
customers, clients, suppliers or other persons or entities with material
business dealings with DE or which has prevented or will prevent such business
from being carried on by DE under its new ownership after the Closing in
essentially the same manner as it is currently carried on.
5.22 Books and Records. The books of account and other financial and
corporate records of DE are in all material respects complete, correct and up to
date, with all necessary signatures,
14
and are in all material respects accurately reflected in the Financial
Statements.
5.23 Employee Benefit Plans. Except as described in Exhibit 5.23, DE does
not have any hospitalization, health insurance, pension, retirement, profit
sharing, stock option or similar plans. Exhibit 5.23 sets forth a correct and
complete list of each and every employee benefit plan, including each pension,
profit sharing, stock bonus, bonus, deferred compensation, severance, stock
option or purchase plan, or other retirement plan or arrangement, covering
employees of DE (the "Employee Benefit Plans"). For each such employee pension
plan, multi-employer plan or welfare plan as those terms are defined in Section
3 of the Employee Retirement Income Security Act of 1974 ("ERISA") and for each
Employee Benefit Plan with respect to which DE is a "party in interest" as
defined in Section 3 of ERISA, or a "disqualified person" as defined in Section
4975 of the Code, DE has delivered to THI complete and accurate copies of (i)
all Employee Benefit Plans and all amendments thereto; (ii) the trust instrument
or insurance contract, if any, forming a part of the plans, and all amendments
thereto; (iii) the most recent and preceding year's Internal Revenue Service
Form 5500 and all schedules thereto; (iv) the most recent Internal Revenue
Service determination letter, or if no letter has been issued, any pending
application to the Internal Revenue Service for a determination letter regarding
qualified status; (v) any bond required by Section 412 of ERISA; and (vi) the
summary plan description. DE has complied with all of the rules and regulations
governing each of the Employee Benefit Plans maintained for the benefit of DE's
employees, including, without limitation, rules and regulations promulgated
pursuant to ERISA and the Code, by the Department of Treasury, Department of
Labor, and the Pension Benefit Plans Guaranty Corporation, and each of the
Employee Benefit Plans now operated has since its inception been operated in
accordance with its provisions and is in compliance with such rules and
regulations. Neither DE nor any Employee Benefit Plans maintained by DE or any
fiduciaries thereof have engaged in any prohibited transaction, as that term is
defined in Section 406 of ERISA or Section 4975 of the Code, nor have any of
them committed any breach of fiduciary responsibility with respect to any of the
Employee Benefit Plans, and DE does not have any knowledge that any other person
has not complied with these rules and regulations.
5.24 Powers of Attorney. Except as set forth on Exhibit 5.24, no person
has any power of attorney to act on behalf of DE in connection with any of DE's
properties or business affairs other than such powers to so act as normally
pertain to the officers of DE.
5.25 Sufficiency of Assets and Commitments. Except as set forth in
Exhibit 5.25, the Assets and the Commitments, taken in the aggregate, are
sufficient, and constitute all of the property and
15
Rights necessary, for the continuation of the business and operations of DE on a
basis consistent with past operations.
5.26 Labor Disputes, Unfair Labor Practices. Except as set forth on
Exhibit 5.26, neither DE nor any Shareholder is engaged in any labor practice
which would have a material adverse affect on the Assets or DE's business. There
is no pending or affirmatively threatened (i) unfair labor practice complaint,
charge, labor dispute, strike, slowdown, walkout or work stoppage before the
National Labor Relations Board or any other authority or (ii) grievance or
arbitration proceeding arising out of or under a collective bargaining agreement
involving employees of DE. There have been no strikes, labor disputes, slow-
downs, walkouts, or work stoppages involving employees of DE. No union
representation question exists with respect to the employees of DE and no union
organizing activities are taking place. DE has not received notice from any of
its employees of such employee's intent to terminate his or her employment or
bring any action against DE or any Shareholder for any reason related to the
transactions contemplated by this Agreement or for any other reason.
5.27 Past Due Obligations. Except as set forth on Exhibit 5.27, no past
due obligations of DE over $500 have given rise or shall give rise within 5 days
after the Closing Date (except as such will be performed by DE prior to the
Closing so as to relieve THI of all liability therefor) to any additional
liability to THI on account of their being past due.
5.28 Environmental Compliance. Except as set forth in Exhibit 5.28.A, (i)
DE has not generated, used, transported, treated, stored, released or disposed
of, nor has suffered or permitted anyone else to generate, use, transport,
treat, store, release or dispose of any Hazardous Substance in violation of any
laws or governmental regulation; (ii) there has not been any generation, use,
transportation, treatment, storage, release or disposal of any Hazardous
Substance in connection with the conduct of the business of DE or the use of any
property, facility or Assets of DE or to the knowledge of DE any nearby or
adjacent properties or facilities, which has created or might reasonably be
expected to create any liability under any laws or governmental regulation or
which would require reporting to or notification of any governmental entity;
(iii) no asbestos or polychlorinated biphenyl or underground storage tank is
contained in or located at any facility of DE; and (iv) any Hazardous Substance
handled or dealt with in any way in connection with the business of DE has been
and his being handled or dealt with in all respects in compliance with
applicable local, state and federal laws. For purposes of this Section,
"Hazardous Substance" means (but shall not be limited to) substances that are
defined or listed in, or otherwise classified pursuant to, any applicable Laws
as "hazardous substances", "hazardous materials", "hazardous wastes" or "toxic
substances", or any other formulation intended to define, list or
16
classify substances by reason of deleterious properties such as ignitibility,
corrosivity, toxicity or "EP toxicity", and petroleum and drilling fluids,
produced waters and other wastes associated with the exploration, development,
or production or crude oil, natural gas or geothermal energy.
Each item listed on Exhibit 5.28.A occurred/existed prior to or at the time
the facility at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇, was first leased to DE by
▇▇▇▇▇▇, Inc. (the "Lessor"). Except where otherwise indicated, DE has no
knowledge about any of the listed items, and reports only that which has been
conveyed to it by the Lessor and other sources. The Lessor of the property has
represented and warranted to DE that no hazardous substances or hazardous wastes
were on the property as of the date of the lease, except as may be listed on
Exhibit 5.28.A. The Lessor has also agreed to indemnify, defend and hold DE
harmless from and against any and all environmental claims, demands, damages,
environmental liabilities, and costs, actions, orders, expenses, liens or any
other liability, and for any resulting judgments, settlements, fines, penalties,
attorney's fees, and other litigation expenses arising from and caused by any
and all adverse environmental conditions whether known or unknown, existing on
or at the leased premises prior to the date of the lease, so long as DE, its
employees, agents and contractors, did not contribute to any such liabilities,
and the assignment of such indemnification to THI from and after Closing is
attached hereto as Exhibit 5.28.B.
5.29 Tax and Other Returns and Reports. DE has timely filed or will file
all federal, state and local tax returns and information returns ("Tax Returns")
required to be filed by DE and has paid all taxes due for all periods ending on
or before December 31, 1995. Adequate provision has been made in the books and
records of DE and in the Financial Statements referred to in Section 5.10 above,
for all taxes whether or not due and payable and whether or not disputed.
Exhibit 5.29.A lists the date or dates through which the IRS and any other
governmental entity have examined the United States federal income tax returns
and any other Tax Returns of DE. All required Tax Returns, including amendments
to date, have been prepared in good faith without negligence or willful
misrepresentation and are complete and accurate and in all material respects.
Except as set forth in Exhibit 5.29.B, no governmental entity has, during the
past three years, examined or is in the process of examining any Tax Returns of
DE. Except as set forth on Exhibit 5.29.C, no Governmental Entity has proposed
(tentatively or definitively), asserted or assessed or threatened to propose or
assert, any deficiency, assessment, lien, or other claim for taxes and there
would be no basis for any such delinquency, assessment, lien or claim. There are
no agreements, waivers or other arrangements providing for an extension of time
with respect to the assessment of any tax or deficiency against DE or with
respect to any tax return filed or to be filed by DE.
17
5.30 Recent Dividends and Other Distributions. There has been no dividend
or other distribution of assets or securities whether consisting or money,
property or any other thing of value, declared, issued or paid to or for the
benefit of DE's Members subsequent to the date of the most recent financial
statements described in Section 5.10 by DE.
5.31 Inventory. Except as set forth in Exhibits 5.31A and B, all of the
Inventory has been received within 18 months of December 1, 1996 and is of a
quantity and quality saleable at regular prices or usable in the ordinary course
of business during 1996. Exhibit 5.31A shall specify all Inventory that was
received more than 18 months before the Closing Date, including the calendar
month in which such Inventory was received, by quantity and product family.
Exhibit 5.31B shall specify all Inventory which is not of a quality or quantity
saleable or usable in the ordinary course of business during 1996.
5.32 Purchase and Sale Obligations. All purchase, sales and orders and
all other commitments for purchases, sales and orders made by or on behalf of DE
have been made in the usual and ordinary course of its business in accordance
with normal practices. On the Closing Date, DE shall deliver to THI a schedule
of all such uncompleted purchase and sale orders and other commitments with
respect to any of DE's obligations as of a date not earlier than ten (10) days
prior to the Closing.
5.33 Other Information. None of the information which has been or may be
furnished by DE or any of its representatives to THI or any of its
representatives in connection with the transactions contemplated hereby, which
is contained in this Agreement (including the Exhibits hereto) or any Ancillary
Document or any certificate or instrument delivered or to be delivered by or on
behalf of DE in connection with the transactions contemplated hereby, does or
will contain any untrue statement of a material fact or omit a material fact
necessary to make the information contained herein or therein not misleading.
5.34 Knowledge of DE and its Members. As to each representation and
warranty made by DE under this Article 5, any fact or information known to any
Member of DE or notice received by any Member of DE related to the business and
operations of DE, shall be imputed to DE as if such fact or information were
known to DE or such notice received by DE.
5.35 Approval of Transaction by Members. Within ten (10) days of the
execution of this Agreement, the transactions contemplated in this Agreement
shall be submitted to the Members of DE to consider and vote thereon and the
Closing hereunder shall be subject to such Members' affirmative vote as required
under its Certificate of Formation and Operating Agreement.
18
6. REPRESENTATIONS AND WARRANTIES OF THI
-------------------------------------
THI hereby represents and warrants to DE as follows, each of which
representation and warranty shall be true as of the Closing Date:
6.1 Organization. THI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. THI has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby.
6.2 Authorization of Agreement. The execution, delivery and performance
of this Agreement by THI, and the consummation of the transactions contemplated
hereby have been duly and effectively authorized by THI's Board of Directors.
Subject to Section 6.5, this Agreement has been duly and validly authorized,
executed and delivered on behalf of THI. Subject to Section 6.5, this Agreement
constitutes a valid and binding obligation of THI, enforceable in accordance
with its terms, except that such enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors, rights
generally.
6.3 Effect of Agreement. The execution, delivery and performance of this
Agreement by THI and consummation by THI of the transactions contemplated hereby
will not, with or without the giving or notice and the lapse of time, or both,
(a) violate any provision of law, statute, rule, regulation or executive order
to which the THI is subject; (b) violate any judgment, order, writ or decree of
any court applicable to THI; or (c) result in the breach of or conflict with any
term, covenant, condition or provision of the Certificate of Incorporation of
THI or any commitment, contract or other agreement on instrument to which THI is
a party.
6.4 Litigation. To the best knowledge of THI, there are no actions,
suits, proceedings or governmental investigations or inquiries pending or
threatened against it which, in its reasonable judgment, would prevent the
consummation of the transactions contemplated hereby.
6.5 Submission of Transactions to Stockholder Vote. THI has been advised
that it is required to submit the acquisition transactions contemplated herein
to its stockholders for approval. As soon as is practicable hereafter, and
consistent with applicable state corporate and federal securities law and
regulation, the transactions contemplated in this Agreement shall be submitted
to the THI stockholders to consider and vote thereon and the Closing hereunder
shall be subject to such stockholder consideration. DE hereby agrees fully to
cooperate with THI and at its expense provide all reasonable assistance and
documentation as may be necessary for THI fully to comply with the applicable
requirements under the proxy or other applicable reporting rules promulgated by
19
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, and for the NASDAQ SmallCap Market, with respect to any such
submission to stockholders, any required reporting of the transactions
contemplated in this Agreement and for continued NASDAQ eligibility.
6.6 Capital Position.
----------------
(a) THI has authorized 10,000,000 shares of common stock, par value $.001,
of which 3,312,000 are issued and outstanding, duly authorized, validly issued,
fully paid, and were issued in compliance with all federal and applicable state
securities laws. Except as set forth in Exhibit 6.6(a), there are no equity
securities of THI that are reserved for issuance or are outstanding.
(b) Except as set forth in Exhibit 6.6(b) hereof, there are no outstanding
offers, options, warrants, rights, calls, commitments, obligations (verbal or
written), conversion rights, plans or other agreements (conditional or
unconditional) of any character providing for, requiring or permitting the
offer, sale, purchase or issuance of any shares of THI or any other securities
(as such term is defined in the Securities Act of 1933, as amended).
6.7 Certificate of Incorporation and By-Laws. Attached as Exhibit 6.7
hereto are correct and complete copies of the Certificate of Incorporation of
THI, as amended to date, and the By-Laws of THI, as amended to date. Such
Certificate of Incorporation and By-Laws are in full force and effect.
6.8 Subsidiaries, Divisions and Affiliates. Except as set forth on
Exhibit 6.8, there are no subsidiaries, divisions or Affiliates of THI. Except
as set forth on Exhibit 6.8, the business of THI has been conducted solely by
THI and not through any Affiliate, joint venture or other entity, person or
under any other name.
6.9 Equity Investments. Except as set forth in Exhibit 6.9, DE does not
own or have any rights to any equity interest, directly or indirectly, in any
corporation, partnership, joint venture, firm or other entity.
6.10 Restrictions; Burdensome Agreements. THI is not a party to any
contract, commitment or agreement, nor is THI subject to, or bound or affected
by, any provision of the Certificate of Incorporation, By-Laws or other company
restriction, or any order, judgment, decree, law, statute, ordinance, rule,
regulation or other restriction of any kind or character, which would,
individually or in the aggregate, materially adversely affect THI's business or
any of the Assets.
20
6.11 Governmental and Other Consents. Except in connection with Section
6.5, no consent, authorization or approval of, or exemption by, any governmental
or public body or authority is required in connection with the execution,
delivery and performance by DE of this Agreement or of any of the instruments or
agreements herein referred to, or the taking of any action herein contemplated.
6.12 Financial Statements. THI has delivered to DE, and included in
Exhibit 6.12 hereto are, correct and complete copies of its Form 10-KSB for the
year ended December 31, 1995, and its Forms 10-QSB for the periods ended March
31, 1996, June 30, 1996 and September 30, 1996. THI has also delivered to DE the
separate unaudited financial statements of its wholly owned subsidiaries The
Lasko Companies, Inc., A&E Management, Inc., and Prime Concern Kosher Foods,
Inc. for the same periods as the aforesaid Forms 10-QSB (the "Stand Alone
Financials"). The Forms 10-QSB and the Stand Alone Financials are in accordance
with the books and records of THI, have been prepared in accordance with
generally accepted accounting principles and practices consistently applied and
accurately present and financial position of THI (or the separate subsidiaries,
as the case may be) at their respective dates and the results of operations for
the respective periods covered thereby.
6.13 Absence of Certain Changes or Events. Except as set forth on Exhibit
6.13, since October 1, 1996, THI has not: (a) suffered any adverse change in, or
the occurrence of any events which, individually or in the aggregate, has or
have had, or might reasonably be expected to have, a material adverse effect on,
THI's financial condition, results of operations or business; (b) incurred
damage to or destruction of any material asset, whether or not covered by
insurance; (c) incurred any material obligation or liability (fixed or
contingent) except (i) current trade or business obligations incurred in the
ordinary course of business, none of which were entered into for grossly
inadequate consideration, and (ii) obligations and liabilities under this
Agreement; (d) made or entered into contracts or commitments to make any capital
expenditures in excess of Five Thousand Dollars ($5,000.00); (e) mortgaged,
pledged or subjected to lien or any other encumbrance any material assets of THI
(except for purchase money liens used in the acquisition of the such assets, as
set forth on Exhibit 6.13); (f) sold, transferred or leased any material asset,
or canceled or compromised any debt or material claims, except in each case, in
the ordinary course of business; (g) sold, assigned, transferred or granted any
rights under or with respect to any licenses, agreements, patents, inventions,
trademarks, trade names, copyrights or formulae or with respect to know-how or
any other intangible asset; (h) amended or terminated any material contracts,
agreements, leases or arrangements; (i) waived or released any other rights of
material value; (j) entered into any transactions not in the ordinary course of
business which would, individually or in the aggregate, materially adversely
21
affect the business of THI; or (k) done or suffered anything material to
invalidate or jeopardize its kosher certification by Orthodox Rabbinical Board
of Broward and Palm Beach Counties.
6.14 Insurance. There are no outstanding or unsatisfied written
requirements or repeated verbal recommendations imposed or made by any of THI's
current insurance companies with respect to current policies covering its
assets, or by any governmental authority requiring or recommending, with respect
to any of its assets, that any repairs or other work be done on or with respect
to, or requiring or recommending any equipment or facilities be installed on or
in connection with, any of its assets. THI carries, and (with respect to any
period for which a claim against THI may still arise) has always carried product
liability insurance, worker's compensation insurance in reasonable amounts, and
other insurance which is reasonably necessary to the conduct of the THI's
business. On Exhibit 6.14 is set forth a correct and complete list of (a) all
currently effective insurance policies and bonds covering the business of THI,
and their respective annual premiums (as of the last renewal or purchase of new
insurance), and (b) for the five-year period ending on the date hereof, (i) all
accidents, casualties or damage occurring relating to the business or products
of THI which in the aggregate are in excess or One Thousand Dollars ($1,000.00),
and (ii) claims for product liability, damages, contribution or indemnification
and settlements (including pending settlement negotiations) relating thereto
which in the aggregate are in excess of one Thousand Dollars ($1,000.00). Except
as set forth on Exhibit 6.14, as of the date hereof there are no disputes with
underwriters of any such policies or bonds, and all premiums due and payable
have been paid. There are no pending or threatened terminations or premium
increases with respect to any of such policies or bonds and there is no
condition or circumstance applicable to the business of THI which may result in
such termination or increase. THI IS in compliance with all conditions contained
in such policies or bonds, except for non-compliance which, individually or in
the aggregate, would not have a material adverse affect on the business of THI.
6.15 Agreements, Arrangements, Etc.
-----------------------------
6.15.1 Except as set forth on Exhibit 6.15.1, THI is not a party to, nor
is THI bound by any:
(a) lease agreement (whether as lessor or lessee);
(b) license agreement, assignment or contract (whether as licensor or
licensee, assignor or assignee) relating to trademarks, trade names,
patents, or copyrights (or applications therefor), unpatented designs or
processes, formulae, know-how or technical assistance, or other proprietary
rights;
22
(c) employment or other contract or agreement with an employee or
independent contractor which (i) may not be terminated without liability to
THI upon notice to the employee or independent contractor of not more than
30 days, or (ii) provides payments (contingent or otherwise) of more than
$10,000 per year (including all salary, bonuses and commissions);
(d) agreement, contract or order with any buying agent, supplier or
other individual or entity who assists, provides or is otherwise involved
in the acquisition, supplying or providing goods to THI;
(e) non-competition, secrecy or confidentiality agreements;
(f) agreement or other arrangement for the sale of goods or services
by THI to any third party (including the government or any other
governmental authority);
(g) agreement with any labor union;
(h) policy of insurance (including bonds) in force with respect to
THI or any of its operations, properties, assets or executive officers;
(i) agreement, contract or order with any distributor, dealer, sales
agent or representative, other than contracts or orders for the purchase,
sale or license of goods made in the usual and ordinary course of business
at an aggregate price per contract or more than $5,000 and a term of more
than six months under any such contract or order;
(j) agreement, contract or order with any manufacturer, supplier or
customer (including those agreements which allow discounts or allowances or
extended payment terms);
(k) agreement with any food purveying company, management company or
any other individual or entity involved with the marketing or distribution
of THI's products or services to its customers;
(l) joint venture or partnership agreement with any other person;
(m) agreement guaranteeing, indemnifying or otherwise becoming liable
for the obligations or liabilities of another;
(n) agreement with any banks or other persons, other than its
employees, for the borrowing or lending of money or payment or repayment of
draws on letters of credit or currency swap or exchange agreements (other
than purchase money
23
security interests which may, under the terms of invoices from its
suppliers, be granted to suppliers with respect to goods so purchased);
(o) agreement with any bank, finance company or similar organization
which acquires from THI receivables or contracts for sales on credit;
(p) agreement granting any person a lien, security interest or
mortgage on any of THI's material assets, including, without limitation,
any factoring or agreement for the assignment of receivables;
(q) agreement for the incurrence of any capital expenditure in excess
of $5,000;
(r) advertising, publication or printing agreement;
(s) agreement which restricts THI from doing business anywhere in the
world;
(t) agreement or statute or regulation giving any party the right to
renegotiate or require a reduction in prices or the repayment of any amount
previously paid; or
(u) other agreement or contract, not included in or expressly
excluded from the terms of the foregoing clauses (a) through (t),
materially affecting THI's business, except contracts or purchase orders
for the purchase or sale of goods or services made in the usual and
ordinary course of business.
6.15.2 Except as set forth on Exhibit 6.15.1, THI has fulfilled, or has
taken all action reasonably necessary to enable it to fulfill when due, all of
its obligations under the agreements or arrangements therein listed, except
where the failure to do so would not, individually or in the aggregate, have a
material adverse affect on the business of THI. Furthermore, there has not
occurred any default by THI or any event which, with the lapse of time or the
election of any person other than THI, will become a default, nor has there
occurred any default by others or any event which, with the lapse of time or the
election of THI, will become a default under any of them, except for such
defaults, if any, which (a) have not resulted and will not result in any
material loss to or liability of THI or any of its successors or assigns or (b)
have been indicated on Exhibit 6.15.1. THI is not in arrears in any material
respect with respect to the performance of satisfaction of the terms or
conditions to be performed or satisfied by it under any of its material
obligations and no waiver or variance has been granted by any of the parties
hereto.
6.16 Patents, Trademarks, Copyrights, Etc. Exhibit 6.16 sets forth (i) the
registered and beneficial owner and the expiration
24
date, to the extent applicable, for each of the patents, trademarks, copyrights,
etc., set forth on such Exhibit and (ii) the product, service, or products or
services of THI which make use of, or are sold, licensed or made under, each
such right. All of said rights constitute all such rights necessary for the
conduct of the business of THI, as such business is currently being conducted.
Except as set forth on Exhibit 6.16, THI has not sold, assigned, transferred,
licensed, sub-licensed or conveyed any such rights, or any interest in them, to
any person, and has the entire right, title and interest (free and clear of all
security interests, liens and encumbrances of every nature) in and to them
necessary to the conduct of the business of THI as currently being conducted;
neither has the validity of such items been, nor is the validity of such items,
nor the use thereof by THI, the subject of any pending or threatened opposition,
interference, cancellation, nullification, conflict, concurrent use, litigation
or other proceeding. Except as set forth on Exhibit 6.16, such rights owned by
or licensed to THI have not been used, and no use is now being made, by any
entity except THI and other entities duly licensed to use the same. Except as
set forth on Exhibit 6.16, there is no infringement of any proprietary right
owned or licensed by THI.
6.17 Permits, Licenses, Etc. There are no permits, licenses,
registrations, memberships, orders or approvals of governmental or
administrative authorities or required to permit THI to carry on its business as
currently conducted (other than (i) permits, licenses, registrations, trade
memberships, orders or approvals which are set forth on Exhibit 6.17, all of
which are in full force and effect, and (ii) other permits, licenses, orders or
approvals, the failure to obtain which would not, individually or in the
aggregate, have a material adverse affect on THI's business).
6.18 Compliance with Applicable Laws. The conduct of THI of its business
does not violate or infringe, and there is no basis for any claims of violation
or infringement of, any law, statute, ordinance, regulation or executive order
(including, without limitation, the Federal Food, Drugs and Cosmetics Act, as
amended, the Occupational Safety and Health Act, the National Environmental
Policy Act and the Foreign Corrupt Practices Act and the respective regulations
thereunder and similar applicable state laws and regulations, including but not
limited to agriculture) currently in effect, except in each case for violations
or infringements which do not and will not, individually or in the aggregate,
have a material adverse affect on THI's business. THI is not in default under
any governmental or administrative registration, membership or license issued to
it, under any governmental or administrative order or demand directed to it, or
with respect to any order, writ, injunction or decree of any court which, in any
case, materially adversely affects the financial condition, results of
operations or business of THI.
25
6.19 No Interest in Competitors. Set forth on Exhibit 6.19 is a list
describing the extent to which THI, or any officer, or director of THI or any
Affiliate of any of the foregoing, directly or indirectly, owns more than a five
percent (5%) interest in or controls or is an employee, officer, director, or
partner of or participant in (but only to the extent such a participation
exceeds one percent), or consultant to any corporation, partnership, limited
partnership, limited liability company, joint venture, association or other
entity which is a competitor, supplier or customer of THI or has any type of
business or professional relationship with THI.
6.20 Books and Records. The books of account and other financial and
corporate records of THI are in all material respects complete, correct and up
to date, with all necessary signatures, and are in all material respects
accurately reflected in its filings with the Securities and Exchange Commission.
6.21 Employee Benefit Plans. Except as described in Exhibit 6.21, THI
does not have any hospitalization, health insurance, pension, retirement, profit
sharing, stock option or similar plans. Exhibit 6.21 sets forth a correct and
complete list of each and every employee benefit plan, including each pension,
profit sharing, stock bonus, bonus, deferred compensation, severance, stock
option or purchase plan, or other retirement plan or arrangement, covering
employees of THI (the "Employee Benefit Plans"). For each such employee pension
plan, multi-employer plan or welfare plan as those terms are defined in Section
3 of the Employee Retirement Income Security Act of 1974 ("ERISA") and for each
Employee Benefit Plan with respect to which THI is a "party in interest" as
defined in Section 3 of ERISA, or a "disqualified person" as defined in Section
4975 of the Code, THI has delivered to THI complete and accurate copies of (i)
all Employee Benefit Plans and all amendments thereto; (ii) the trust instrument
or insurance contract, if any, forming a part of the plans, and all amendments
thereto; (iii) the most recent and preceding year's Internal Revenue Service
Form 5500 and all schedules thereto; (iv) the most recent Internal Revenue
Service determination letter, or if no letter has been issued, any pending
application to the Internal Revenue Service for a determination letter regarding
qualified status; (v) any bond required by Section 412 of ERISA; and (vi) the
summary plan description. THI has complied with all of the rules and
regulations governing each of the Employee Benefit Plans maintained for the
benefit of THI's employees, including, without limitation, rules and regulations
promulgated pursuant to ERISA and the Code, by the Department of Treasury,
Department of Labor, and the Pension Benefit Plans Guaranty Corporation, and
each of the Employee Benefit Plans now operated has since its inception been
operated in accordance with its provisions and is in compliance with such rules
and regulations. Neither THI nor any Employee Benefit Plans maintained by THI
or any fiduciaries thereof have engaged in any prohibited transaction, as that
term is defined
26
in Section 406 of ERISA or Section 4975 of the Code, nor have any of them
committed any breach of fiduciary responsibility with respect to any of the
Employee Benefit Plans, and THI does not have any knowledge that any other
person has not complied with these rules and regulations.
6.22 Powers of Attorney. Except as set forth on Exhibit 6.22, no person
has any power of attorney to act on behalf of THI in connection with any of
THI's properties or business affairs other than such powers to so act as
normally pertain to the officers of THI.
6.23 Tax and Other Returns and Reports. THI has timely filed or will file
all federal, state and local tax returns and information returns ("Tax Returns")
required to be filed by THI and has paid all taxes due for all periods ending on
or before December 31, 1995. Adequate provision has been made in the books and
records of THI, for all taxes whether or not due and payable and whether or not
disputed. Exhibit 6.23.A lists the date or dates through which the IRS and any
other governmental entity have examined the United States federal income tax
returns and any other Tax Returns of THI. All required Tax Returns, including
amendments to date, have been prepared in good faith without negligence or
willful misrepresentation and are complete and accurate and in all material
respects. Except as set forth in Exhibit 6.23.B, no governmental entity has,
during the past three years, examined or is in the process of examining any Tax
Returns of THI. Except as set forth on Exhibit 6.23.C, no Governmental Entity
has proposed (tentatively or definitively), asserted or assessed or threatened
to propose or assert, any deficiency, assessment, lien, or other claim for taxes
and there would be no basis for any such delinquency, assessment, lien or claim.
There are no agreements, waivers or other arrangements providing for an
extension of time with respect to the assessment of any tax or deficiency
against THI or with respect to any tax return filed or to be filed by THI.
6.24 Recent Dividends and Other Distributions. There has been no dividend
or other distribution of assets or securities whether consisting or money,
property or any other thing of value, declared, issued or paid to or for the
benefit of THI's stockholders subsequent to the date of the most recent
financial statements described in Section 6.12 by THI.
6.25 Other Information. None of the information which has been or may be
furnished by THI or any of its representatives to DE or any of its
representatives in connection with the transactions contemplated hereby, which
is contained in this Agreement (including the Exhibits hereto) or any Ancillary
Document or any certificate or instrument delivered or to be delivered by or on
behalf of THI in connection with the transactions contemplated hereby, does or
will contain any untrue statement of a material
27
fact or omit a material fact necessary to make the information contained herein
or therein not misleading.
6.26 Knowledge of THI. As to each representation and warranty made by THI
under this Article 6, any fact or information known to any executive officer of
DE or notice received by any executive officer of THI related to the business
and operations of THI, shall be imputed to THI as if such fact or information
were known to THI or such notice received by THI.
7. PRE-CLOSING COVENANTS OF DE
---------------------------
DE hereby covenants and agrees with THI that DE shall do, or cause to be
done, the following, between the date of this Agreement and the Closing Date or
date of termination of this Agreement, as the case may be:
7.1 Conduct of Business Until Closing Date. Except as permitted or
required hereby or as THI may otherwise consent in writing, DE shall:
7.1.1 operate the business of DE only in the usual, regular and
ordinary manner, and use its best efforts to (a) preserve the present
business organization of DE intact, (b) keep available the services of the
present employees of DE, and (c) preserve the current business
relationships of DE with customers, clients, suppliers, distributors and
others having business dealings with it;
7.1.2 bear the risk of loss or damage to the Assets on and prior to
the Closing where such risk of loss is not the legal obligation of another,
and maintain all properties necessary for the conduct of the business of
DE, whether owned or leased;
7.1.3 maintain the books, records and accounts of DE in the usual,
regular and ordinary manner, on the basis consistent with prior periods;
7.1.4 duly comply with all laws, rules and regulations applicable to
DE and to the conduct of its business;
7.1.5 perform all of the obligations of DE without default, unless
such default is of no significance to DE and could have no adverse impact
on DE, its Assets or business;
7.1.6 neither (a) amend DE's Articles of Organization or Operating
Agreement; (b) merge with or into, consolidate, amalgamate or otherwise
combine with, any other entity; nor (c) change the character of the
business of DE;
28
7.1.7 neither (a) encumber, mortgage, or voluntarily subject to lien
any of the existing Assets; (b) transfer, sell, lease, license or otherwise
dispose of any of, or any part of, the Assets (other than in the ordinary
course of business); (c) convey, transfer or acquire any material Asset or
property to, for or on behalf of DE other than in the ordinary course of
business; (d) enter into any arrangement, agreement or undertaking, with
respect to any of the employees relating to the payment of bonus,
severance, profit-sharing or special compensation or any increase in the
compensation payable or to become payable to any such employee; nor (e)
incur any material fixed or contingent obligation or enter into any
agreement, commitment, contract or other transaction or arrangement
relating to the business of DE or the Assets;
7.1.8 not make any distributions or dividends of Assets or
securities, nor any changes to the capital structure of DE; and
7.1.9 neither modify, change or terminate any of its material
obligations other than in the ordinary course of business, nor grant any
power of attorney with respect to the business of DE or the Assets to any
party except THI.
7.2 Approvals, Consents and Further Assurances. DE shall use its best
efforts to obtain in writing as promptly as possible all approvals, consents and
waivers required in order to effectuate the transactions contemplated hereby,
including but not limited to the consents of any lessors to or co-packer
customers of DE, and shall deliver to THI copies, reasonably satisfactory in
form and substance to counsel to THI, of such approvals and consents. DE shall
use its best efforts to assist THI, its counsel and accountants fully to comply
with the matters described in Section 6.5. DE shall also use its best efforts
to assure that the other conditions set forth in Article 10 hereof are satisfied
by the Closing Date.
7.3 Access to Properties, Records, Suppliers, Agents, Etc. DE shall give
to THI and to THI's counsel, financiers, accountants and other representatives
access to and copies of such of DE's properties, personnel, books, tax returns,
contracts, commitments and records as relate to the Assets, suppliers, agents,
distributors, etc. or other aspects of the business of DE; and shall furnish to
THI and such representatives all such additional instruments, contracts,
documents or other written obligations (certified by officers of DE, if so
requested) and financial and other information concerning such business, Assets,
suppliers, agents, etc. as THI or its representatives may from time to time
request.
7.4 Advice of Changes. If DE becomes aware of any fact or facts which, if
known at the date hereof, would have been required
29
to be set forth or disclosed in or pursuant to this Agreement or which,
individually or in the aggregate, could materially adversely affect the business
or Assets of DE, it shall promptly advise THI in writing thereof.
7.5 Conduct. Except as permitted or required hereby or as THI may
otherwise consent in writing, neither DE nor any of its Members shall enter into
any transaction or take any action which would result in any of the
representations and warranties of DE contained in this Agreement or in any
Ancillary Document not being true and correct as of the time immediately after
such transaction has been entered into or such event has occurred and on the
Closing Date.
7.6 Employee Benefit Plans. Except for payment of DE's current
obligations, DE shall not incur any additional obligations or liabilities,
including (i) all liabilities for all claims incurred, whether or not reported,
on or before the Closing Date under all "employee welfare benefit plans," within
the meaning of Section 3(l) of ERISA, (ii) all liabilities or obligations for
vacations or sick leave or retiree, medical or life benefits to employees or
former employees of DE, and (iii) all liabilities of DE for all benefits accrued
under any "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA under each Employee Benefit Plan.
7.7 Satisfaction of Conditions by DE. DE hereby covenants and agrees with
THI that, between the date of this Agreement and the Closing Date or date of
termination of this Agreement, as the case may be, it shall use its best efforts
to assure that the conditions set forth in Article 10 hereof are satisfied by
the Closing Date.
7.8 Non-Disclosure of Negotiations and Non-Usage of Documents of THI. DE
hereby covenants and agrees with THI that it shall not use, show, display,
describe or otherwise disclose, directly or indirectly, in any manner, this
Agreement, any Exhibits hereto or any other document created by THI's counsel,
in whole or in part, which was the subject of negotiations between THI and the
Shareholders, or any of the terms or other aspects of the negotiations between
THI and DE, in the event that the Closing shall not occur for any reason. DE
further agrees that it will return and cause all of its advisors,
representatives and other parties, over which it has control, to return to THI
all documents or other written materials regarding this transaction that were
obtained from THI or its counsel during the course of the negotiations
(including all drafts of all documents).
8. PRE-CLOSING COVENANTS OF THI
THI hereby covenants and agrees with DE that THI shall do, or cause to be
done, the following, between the date of this Agreement
30
and the Closing Date or date of termination of this Agreement, as the case may
be:
8.1 Conduct of Business Until Closing Date. Except as permitted or
required hereby or as DE may otherwise consent in writing, THI shall:
8.1.1 operate the businesses of THI only in the usual, regular and
ordinary manner, and use its best efforts to (a) preserve the present
business organization of THI intact, (b) keep available the services of the
present employees of THI, and (c) preserve the current business
relationships of THI with customers, clients, suppliers, distributors and
others having business dealings with it;
8.1.2 provide DE with copies of unaudited pro forma combined
statements of operations of THI and DE as of December 31, 1995 and
September 30, 1996 and an unaudited pro forma combined balance sheet of DE
and THI as of September 30, 1996, as well as unaudited consolidated
statements of cash flows of THI for each calendar month between the date of
this Agreement and the Closing Date;
8.1.3 maintain the books, records and accounts of THI in the usual,
regular and ordinary manner, on the basis consistent with prior periods;
8.1.4 duly comply with all laws, rules and regulations applicable to
THI and to the conduct of its businesses;
8.1.5 neither (a) amend THI's Certificate of Incorporation or By-
Laws; (b) merge with or into, consolidate, amalgamate or otherwise combine
with, any other entity; nor (c) change the character of the business of
THI;
8.1.6 neither (a) materially encumber, mortgage, or voluntarily
subject to material lien any of its material assets; (b) transfer, sell,
lease, license or otherwise dispose of any of, or any part of, its material
assets (other than in the ordinary course of business); (c) convey,
transfer or acquire any material asset or property to, for or on behalf of
THI other than in the ordinary course of business; (d) enter into any
arrangement, agreement or undertaking, with respect to any of the employees
relating to the payment of bonus, severance, profit-sharing or special
compensation or any increase in the compensation payable or to become
payable to any such employee; nor (e) incur any material fixed or
contingent obligation or enter into any agreement, commitment, contract or
other transaction or arrangement relating to the business of THI;
31
8.1.7 not make any distributions or dividends in kind or of
securities, nor any changes to the capital structure of THI; and
8.1.8 neither modify, change or terminate any of its material
obligations other than in the ordinary course of business, nor grant any
power of attorney with respect to the businesses of THI to any party.
8.2 Access to Properties, Records, Suppliers, Agents, Etc. THI shall give
to DE and to DE's counsel, financiers, accountants and other representatives
access to and copies of such of THI's properties, personnel, books, tax returns,
contracts, commitments, records, suppliers, agents, distributors, etc. or other
aspects of the business of THI; and shall furnish to DE and such representatives
all such additional instruments, contracts, documents or other written
obligations (certified by officers of THI, if so requested) and financial and
other information concerning such business, suppliers, agents, etc. as DE or its
representatives may from time to time request.
8.3 Advice of Changes. If THI becomes aware of any fact or facts which,
if known at the date hereof, would have been required to be set forth or
disclosed in or pursuant to this Agreement or which, individually or in the
aggregate, could materially adversely affect the business of THI, it shall
promptly advise DE in writing thereof.
8.4 Conduct. Except as permitted or required hereby or as DE may
otherwise consent in writing, neither THI nor any of its Members shall enter
into any transaction or take any action which would result in any of the
representations and warranties of THI contained in this Agreement or in any
Ancillary Document not being true and correct as of the time immediately after
such transaction has been entered into or such event has occurred and on the
Closing Date.
8.5 Employee Benefit Plans. Except for payment of THI's current
obligations, THI shall not incur any additional obligations or liabilities,
including (i) all liabilities for all claims incurred, whether or not reported,
on or before the Closing Date under all "employee welfare benefit plans," within
the meaning of Section 3(l) of ERISA, (ii) all liabilities or obligations for
vacations or sick leave or retiree, medical or life benefits to employees or
former employees of THI, and (iii) all liabilities of THI for all benefits
accrued under any "employee pension benefit plan," within the meaning of Section
3(2) of ERISA under each Employee Benefit Plan.
8.6 Satisfaction of Conditions by THI. THI hereby covenants and agrees
with DE that, between the date of this Agreement and the Closing Date or date of
termination of this Agreement, as the case
32
may be, THI shall use its best efforts to assure that the conditions set forth
in Article 11 hereof are satisfied by the Closing Date.
8.7. Confidentiality. Prior to the Closing, THI will use its best efforts
to keep confidential any and all information furnished to it by DE in the course
of negotiations, except (i) to the extent any such information must be disclosed
to any lenders interested in the transaction, (ii) to the extent such
information must be disclosed to comply with the applicable securities laws,
rules and regulations, and (iii) for information that is available to THI from
sources other than DE without violating the law. If for any reason the Closing
shall not occur, THI, to the extent such information has not then already been
publicly disclosed, will continue to use its best efforts to keep such
information confidential, to the extent that it is protectable by law, and will
not use it and will return to DE all documents or other written materials
regarding DE and any copies thereof obtained from DE or made by it through DE
during the course of the negotiations.
9. POST-CLOSING COVENANTS
----------------------
9.1. Further Assurances. After the Closing hereunder, DE, at the request
of THI, shall execute, acknowledge and deliver to THI, without further
consideration, all such further assignments, conveyances, endorsements, deeds,
powers of attorney, consents and other documents (together with the instruments
referred to in Section 1.3, referred to herein collectively as the "Ancillary
Documents") and take such other action as THI may reasonably request (a) to
confirm the transfer to and fully vest in THI, and protect THI's right, title
and interest in and to all of DE's right, title and interest in and to the
Assets, and (b) otherwise to consummate the transactions contemplated by this
Agreement.
9.2. Composition of Board. Following the Closing hereunder, Messrs.
▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall be appointed additional members of the
Board of Directors of THI. Thereupon, the Board of Directors shall designate
and appoint ▇▇▇▇▇▇ ▇▇▇▇▇ as Chairman of the Board, ▇▇▇▇▇▇ ▇▇▇▇▇▇ as President
and Chief Executive Officer and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ as Executive Vice President and
Chief Operating Officer.
9.3 Confidentiality. DE shall use its best efforts to keep confidential
any and all information concerning THI and its principals and Affiliates, except
for information that may be available from sources generally available to the
public. If for any reason the Closing shall not occur, DE will continue to use
its best efforts to keep the information concerning THI and its principals and
Affiliates confidential and will not use it for any purpose and will return to
THI all documents or other written materials and any copies thereof obtained or
made by it during the
33
course of the negotiations concerning THI and its principals and Affiliates.
9.4 Cooperation. DE shall cooperate with THI and shall cause its Members
to cooperate with THI in arranging or participating in meetings between THI and
suppliers, co-packing customers, agents, distributors and others who have or
have had a business relationship with DE, at times that are non-injurious in a
material way to the operations of DE.
9.5 Registration of Certain Shares. As soon as is practicable following
the Closing, THI shall use its best efforts to register for public sale (i) the
shares of Common Stock underlying the Warrants described in Section 3.3, (ii)
the shares of Common Stock underlying the Warrants described in Section 13.16,
(iii) 250,000 shares beneficially owned by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, (iv) 250,000 shares
beneficially owned by ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, and (v) the shares of Common Stock
underlying the Warrants described in Section 10.19. With the exception of the
shares described in clauses (iii), (iv) and (v) above, all of such shares, if
and when registered, shall be subject to acceptable lock-up provisions and sale
restrictions for up to 18 months with Biltmore Securities, Inc.
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THI
The obligations of THI pursuant to this Agreement are subject to the
satisfaction at the Closing of each of the following conditions, any or all of
which conditions may be waived by THI in its sole discretion:
10.1 Accuracy of Representations and Warranties. All representations and
warranties made by DE (contained in this Agreement, any Exhibit or Schedule
hereto, or any certificate or instrument delivered to THI or its representatives
by DE or its representatives) shall be true on and as of the Closing Date with
the same force and effect as though made on and as of the Closing Date (i.e.,
with respect to representations that a state of facts exists on or as of the
date hereof, it is a condition that such state of facts exists on or as of the
Closing Date; and with respect to a representation that a state of facts has or
has not changed between a date prior to the date hereof and the date hereof, it
is a condition that such state of facts has or has not changed between such
prior date and the Closing Date), except as affected by transactions
contemplated hereby.
10.2 Performance of Agreements. DE shall have performed and complied with
all covenants, obligations and agreements to be performed or complied with by it
on or before the Closing Date pursuant to this Agreement.
34
10.3 Litigation, Etc.
10.3.1 Except as set forth on Exhibit 5.19, no claim, action, suit,
proceeding, arbitration, investigation or hearing or note of hearing shall
be pending or threatened against or affecting THI or DE or any of the
Assets, which (a) might result either in an action or enjoin or prevent the
consummation of the transactions contemplated by this Agreement; (b) in the
reasonable judgment of THI would materially adversely affect the business
of DE or the ability of THI to consummate the transactions contemplated by
this Agreement or to own the Common Stock or to operate the business of DE.
10.3.2 DE shall not be in violation of any law, statute, ordinance,
rule, regulation or executive order, the enforcement of which would,
individually or in the aggregate, materially adversely affect the Assets or
the business of DE; or which would individually or in the aggregate,
materially adversely affect the ability of THI to consummate the
transactions contemplated by this Agreement or to own the Assets or to
operate the business of DE.
10.3.3 No law, regulation or decree shall have been proposed, adopted
or promulgated, or have become effective, the enforcement of which would
materially adversely affect the ability of THI to consummate the
transactions contemplated by this Agreement or to own the Assets or to
operate any such business.
10.4 Approvals and Consents. DE shall have obtained, and THI shall have
received copies of, all of the approvals and consents referred to in Section
7.2, each of which approvals and consents shall be in full force and effect and
reasonably satisfactory in form and substance to THI and its counsel.
10.5. Manager's Certificate. THI shall have received an accurate
certificate of the Manager of DE, dated the Closing Date, satisfactory in form
and substance to THI and its counsel, certifying (a) as to the fulfillment of
the matters specified in Sections 10.1 through 10.3, and (b) any changes that
THI is required to be notified of pursuant to Section 7.4, or that previously
had not been disclosed to THI.
10.6 Officer's Certificate. THI shall have received an accurate
certificate, dated the Closing Date, of ▇▇▇▇▇▇ ▇▇▇▇▇▇, President and Chief
Executive Officer of DE, dated as of the Closing Date, stating, among other
things, that he is not aware of any material omissions or facts that would
materially alter any of the Financial Statements, nor is he aware of any facts
or factors that are reasonably likely to occur, or if known to other parties,
that could have a material adverse effect on the financial
35
condition, business, operations, Assets, liabilities, management or prospects of
DE.
10.7 Good Standing Certificates. THI shall have received (a) a certificate
of the office of the Secretary of State of Delaware, dated within 5 days before
the Closing Date, certifying that the records of such state regarding DE
organized in such state reflect neither a certificate of dissolution, a court
order declaring dissolution, a business combination which terminated its
existence, nor suspension of its powers, rights and privileges, and that in
accordance with the records of such state, such company is authorized to
exercise all of its powers, rights and privileges in such state and (b) a
telegram or other document from one or more appropriate officials of the State
of Delaware or an affidavit of counsel with respect to telephone conversations
with such officials, dated within two days before the Closing Date, to the same
effect.
10.8 No Material Adverse Change. THI shall confirm to its sole
satisfaction that (i) there have been no material adverse changes in the
financial condition, business, operations, assets, liabilities, management or
prospects of DE; and (ii) there are no material adverse tax consequences to any
of the parties to the agreement described in Section 10.19.
10.9 Actions, Proceedings, Etc. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
shall have been completed in a manner reasonably satisfactory to THI, such
approval not to be unreasonably withheld.
10.10 Opinion of Counsel to DE. THI shall have received an opinion of
Messrs. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇, counsel to DE, addressed to THI, dated the
Closing Date, to the effect set forth in, and substantially in the form, of
Exhibit 10.10.
10.11 Licenses, Permits, Consents, Etc. THI shall have received evidence,
in form and substance reasonably satisfactory to counsel for THI, that such
licenses, permits, consents, approvals, authorizations or orders of governmental
authorities as are necessary to the consummation of the transactions
contemplated by this Agreement and the continued operation of the business of DE
have been obtained.
10.12 Documentation of Rights. DE shall have delivered to THI true and
complete copies of all of the documentation held by DE relating to each of the
Rights.
10.13 Employment of Namiot. THI shall have entered into an Employment
Agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇ of Portland, Maine ("Namiot"), under which Namiot
from and after Closing shall be the President and Chief Executive Officer of THI
and DE for at least
36
three years at a base salary of $175,000 per annum. Said Employment Agreement
shall be substantially in the form of Exhibit 10.13 attached hereto.
10.14 Officers' Financial Certificate. THI shall have received an
accurate certificate as set forth in Exhibit 10.14 from Namiot and ▇▇▇▇▇▇
▇▇▇▇▇▇▇, officers of DE, dated as of the Closing Date, satisfactory in form and
substance to THI and its counsel, certifying that the Financial Statements are
true and correct, and accurately present the financial position of DE during
that interim period.
10.15 Accountants Letter. THI shall have received, to THI's sole
satisfaction, a "comfort" letter in the form as set forth in Exhibit 10.15 from
▇▇▇▇▇▇▇, Sweat & ▇▇▇▇▇, independent public accountants for DE, dated as of the
Closing Date, stating, among other things, that such accountants are not aware
of any material omissions or facts that would materially alter any of the
Financial Statements, nor are they aware of any as of the Closing Date, or the
breach of any agreement, covenant or condition required by this Agreement to be
performed or complied with by DE prior to the Closing Date.
10.16 Net Worth. The net worth (net assets - net liabilities) of DE at
the Closing shall be a deficit not greater than $(180,000). For purposes of
calculation under this Section 10.16, the Promissory Notes (plus accrued unpaid
interest thereon) listed on Exhibit 3.2 shall be deemed a part of Members'
Equity and not Liabilities of DE.
10.17 Completion of Due Diligence. To THI's sole satisfaction, THI shall
have received sufficient information and access to such information on a timely
basis regarding DE. As of the date of this Agreement, certain Exhibits or
Schedules required of DE to be attached hereto have not yet been prepared or
assembled. Receipt and approval by THI and its counsel in THI's sole discretion
at or prior to Closing, of all Exhibits and Schedules hereto is a further
condition to the obligations of THI hereunder and the Closing hereof.
10.18 Update of Exhibits. DE shall have furnished to THI as Exhibit
10.18, immediately prior to the Closing Date, an amendment to the Exhibits to
this Agreement which shall update as of the Closing Date all information
specifically required to be contained in the Exhibits as of the date hereof
together with complete originals or copies of the documents of the kinds
referred to in Section 1.2 which have come into existence between the date
hereof and the Closing Date, and the information supplied in the amendment to
the Exhibits shall not show the incorrectness or untruthfulness or lack of
completeness in any respect of any representation or warranty made by DE as of
the date hereof or as of the Closing Date, or the breach of any agreement,
covenant or condition
37
required by this Agreement to be performed or complied with by DE prior to the
Closing Date.
10.19 Agreement to Sell and Purchase Certain Businesses. At the Closing,
THI shall have received an executed agreement executed by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ substantially in the form of Exhibit 10.19 attached hereto
under which THI shall sell to Messrs. Lasko or their designee the businesses,
assets or capital stock of those entities, as the case may be, currently
conducting the businesses of THI under the name "The Lasko Family Kosher Tours"
or "Terrace-Oceanside Restaurant" or in THI's wholly-owned subsidiaries, The
Lasko Family Kosher Tours, Inc. The Lasko Companies, Inc., and A&E Management,
Inc., and at Closing shall issue to each of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇ Warrants to purchase 150,000 shares of THI Common Stock, such Warrants to
be of like form and tenor as is set forth in Exhibit 3.3 attached hereto. In
consideration therefor, Messrs. Lasko, and each of them, shall surrender their
respective current THI Employment Agreements including but not limited to their
respective options thereunder to purchase shares of THI Common Stock. The
foregoing Agreement to Sell and Purchase shall be subject to the prior approval
and recommendation thereof by a committee of disinterested directors of THI
appointed therefor ("Committee"), the Committee's receipt of a "fairness
opinion" rendered by an independent investment banking or other firm of similar
expertise in appraising and evaluating such transactions, the acceptance of such
"fairness opinion" by Messrs. Lasko and the affirmative vote of a majority of
the THI shares voting at a meeting where such Agreement to Sell and Purchase and
the Committee's recommendations are considered. The cost or expense of securing
such fairness opinion shall be borne solely by THI.
The Agreement to Sell and Purchase shall also provide that all direct
revenues and expenses of the subject businesses, operations or corporations
shall be allocable thereto except that no more than 80% of compensation paid to
or accrued for Messrs. Lasko and none of the legal or accounting fees or
expenses incurred in connection therewith shall be allocable to such businesses,
assets or subsidiary corporations.
10.20 Assignments of Passover Contracts. At or prior to Closing the
current agreements under which THI operates Passover programs at the Bonaventure
Resort & Spa, the Fountainebleu Hilton and the Rye Town Hilton Hotels shall have
been transferred and assigned to THI's wholly owned subsidiary The Lasko Family
Kosher Tours, Inc. without objection or with approval therefor from each of the
respective contraparties thereto.
11. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF DE
---------------------------------------------
The obligations of DE under this Agreement are subject to the satisfaction
at the Closing of each of the following conditions,
38
any or all of which conditions may be waived by DE in its sole discretion.
11.1 Accuracy of Representations and Warranties. All representations and
warranties by THI in this Agreement shall be true as of the Closing Date with
the same force and effect as though made on and as of the Closing Date.
11.2 Performance of Agreements. THI shall have performed and complied in
all material respects with all covenants, obligations and agreements to be
performed or complied with by it on or before the Closing Date pursuant to this
Agreement.
11.3 Secretary's Certificate. DE shall have received a certificate from
the Secretary of THI, substantially in the form of Exhibit 11.3 dated the
Closing Date.
11.4 Actions, Proceedings, Etc. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
shall have been completed in a manner reasonably satisfactory to DE and approved
by its counsel, including but not limited to receipt by THI of the written
consent to Biltmore Securities, Inc. to this Agreement as may be required under
that certain Underwriting Agreement dated December 5, 1995 between THI and
Biltmore Securities, Inc., the affirmative vote of a majority of the THI
shareholders voting at a meeting called for such purpose, and the securing of a
"fairness opinion"; and such counsel shall have been furnished with such other
instruments and documents as they shall have reasonably requested.
11.5 No Injunction. No third party injunction, stay or restraining order
shall be in effect prohibiting the consummation of the transactions contemplated
hereby.
11.6 Opinion of Counsel to Buyer. DE shall have received an opinion of
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., counsel to THI, addressed to DE and dated as of the
Closing Date, to the effect set forth in, and substantially in the form, of
Exhibit 11.6.
11.7 Completion of Schedules and Exhibits. As of the date of this
Agreement, certain Exhibits or Schedules required of THI to be attached hereto
have not yet been prepared or assembled. Receipt and approval by DE and its
counsel, in DE's sole discretion, at or prior to Closing, of all such Exhibits
and Schedules hereto is a further condition to the obligations of DE hereunder
and the Closing hereof.
11.8 No Material Adverse Change. DE shall confirm to its sole
satisfaction that (i) there have been no material adverse changes, business,
operations, assets, liabilities, management or prospects of THI; and (ii) there
are no material adverse tax
39
consequences to any of the parties to the agreement described in Section 10.19.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
12.1 Survival. The representations and warranties set forth in this
Agreement, in any Exhibit or Schedule hereto and in any certificate or
instrument delivered in connection herewith shall survive for a period of two
(2) years after the Closing Date and shall thereupon terminate and expire and
shall be of no force or effect thereafter, except (a) with respect to any claim,
written notice of which shall have been delivered to THI, the Shareholders or
DE, as the case may be, such claim shall survive the termination of such period
and shall survive for as long as such claim is unsettled, and (b) with respect
to any litigation which shall have been commenced to resolve such claim on or
prior to such date. Notwithstanding the foregoing, with respect to taxes, the
period shall be the applicable statute of limitations, and with respect to
customer claims, the period shall be five (5) years.
12.2 Indemnification by DE. DE hereby covenants and agrees with THI that,
regardless of any investigation made at any time by or on behalf of THI or any
information THI may have and, regardless of the Closing hereunder, DE shall
indemnify THI and its respective directors, officers, employees and Affiliates
of THI, and each of their successors and assigns (individually, a "THI
Indemnified Party"), and hold them harmless from, against and in respect of any
and all costs, losses, claims, liabilities, fines, penalties, damages and
expenses (including interest which may be imposed in connection therewith, court
costs and reasonable fees and disbursements of counsel) incurred by any of them
resulting from any misrepresentation, breach of warranty or nonfulfillment of
any agreement, covenant or obligation by DE made in this Agreement (including
without limitation any Exhibit hereto and any certificate or instrument
delivered in connection herewith) or any taxes of any kind whatsoever, or
expenses, interest or penalties relating thereto, including those that arise out
of or result from the transactions contemplated by this Agreement, other than
taxes relating to the conduct of the business using the Assets after the Closing
Date.
If, by reason of the claim of any third party relating to any of the
matters subject to indemnification under this Section 12.2, a lien, attachment,
garnishment or execution is placed upon any of the property or assets of any THI
Indemnified Party, the Shareholders shall promptly furnish an indemnity bond
reasonably satisfactory to THI to obtain the prompt release of such lien,
attachment, garnishment or execution. THI shall be entitled to set off amounts
owed to THI or DE under this Section 12.2 against any amounts owed, owing to or
held by THI or DE to or on behalf of DE.
40
12.3 Indemnification by THI. Subject to the limitations set forth in
Section 12.1, THI hereby covenants and agrees with DE that THI shall indemnify
DE and hold it harmless from, against and in respect of any and all costs,
losses, claims, liabilities, fines, penalties, damages and expenses (including
interest which may be imposed in connection therewith and court costs and
reasonable fees and disbursements of counsel) incurred by it resulting from any
misrepresentation, breach of warranty or the nonfulfillment of any agreement,
covenant or obligation by THI made in this Agreement (including without
limitation any Exhibit hereto and any certificate or instrument delivered in
connection herewith).
12.4 Right to Defend. If the facts giving rise to any such
indemnification shall involve any actual claim or demand by any third party
against a THI Indemnified Party or DE (referred to hereinafter as an
"Indemnified Party"), the indemnifying parties shall be entitled to notice of
and entitled (without prejudice to the right of any Indemnified Party to
participate at its own expense through counsel of its own choosing) to defend or
prosecute such claim at their expense and through counsel of their own choosing
if they give written notice of their intention to do so no later than the time
by which the interest of the Indemnified Party would be materially prejudiced as
a result of its failure to have received such notice; provided, however, that if
the defendants in any action shall include both the indemnifying parties and an
Indemnified Party, and the Indemnified Party shall have reasonably concluded
that counsel selected by the indemnifying parties has a conflict of interest
because of the availability of different or additional defenses to the
Indemnified Party, the Indemnified Party shall cooperate fully in the defense of
such claim and shall make available to the indemnifying parties pertinent
information under its control relating thereto, but shall be entitled to be
reimbursed, as provided in this Article 12, for all costs and expense incurred
by it in connection therewith.
12.5 Subrogation. If the Indemnified Party receives payment or other
indemnification from the indemnifying party hereunder, the indemnifying party
shall be subrogated to the extent of such payment or indemnification to all
rights in respect of the subject matter of such claim to which the Indemnified
Party may be entitled, to institute appropriate action for the recovery thereof,
and the Indemnified Party agrees reasonably to assist and cooperate with the
indemnifying party at no expense to the Indemnified Party in enforcing such
rights.
13. MISCELLANEOUS
13.1 Expenses. Except as and to the extent otherwise provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, DE and THI shall each pay their own respective expenses and the
fees and expenses of their respective counsel and other experts.
41
13.2 Termination of Agreement. This Agreement may be terminated and the
transaction contemplated hereby may be abandoned at any time, but not later than
the Closing Date:
(a) by mutual consent of the parties; or
(b) by DE or THI if, through no material fault of such party so
electing to terminate, the Closing shall not have occurred on or prior to
March 31, 1997.
In the event of the termination of this Agreement by any party as above
provided, without material fault of any party, no party shall have any liability
hereunder, including any liability for damages. In the event that a condition
precedent to a party's obligation is not met, nothing contained herein shall be
deemed to require any party to terminate this Agreement rather than to waive
such condition precedent and proceed with the Closing.
13.3 Waivers. No action taken pursuant to this Agreement, including any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, covenant or agreement contained herein or in any other documents. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach. Any party
hereto may, at or before the Closing, waive any conditions to its obligations
hereunder which are not fulfilled.
13.4 Binding Effect; Benefits. This Agreement shall inure to the benefit
of the parties hereto and shall be binding upon the parties hereto and their
respective successors and assigns. Except as otherwise set forth herein, nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement.
13.5 Assignment. Without limitation, and without the consent, prior,
written or otherwise, of DE, this Agreement and all of the rights and
obligations hereunder may be assigned by THI to any entity owned or controlled
by, or affiliated with it. DE shall consent in writing to any such assignment.
13.6 Notices. All notices, requests, demands and other communications
which are required to be or may be given under this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in person or
upon receipt when transmitted by facsimile or telex or after dispatch by
certified or registered first class mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:
42
If to THI, to:
Terrace Holdings, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇-▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Shareholders or DE, to:
DownEast Frozen Desserts, LLC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., Esq.
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
13.7 Entire Agreement. This Agreement (including the Exhibits hereto) and
the Ancillary Documents constitute the entire agreement and supersede all prior
agreements and understandings, oral and written, among the parties hereto with
respect to the subject matter hereof and supersede all prior agreements,
representations, warranties, statements, promises and understandings, whether
written or oral, with respect to the subject matter hereof. No party hereto
shall be bound by or charged with any written or oral arguments,
representations, warranties, statements, promises or understandings no
specifically set forth in this Agreement or in any Exhibit hereto or any
Ancillary Documents, or in certificates and instruments to be delivered pursuant
hereto on or before the Closing.
13.8 Headings; Certain Terms. The section and other headings contained in
this Agreement are for reference purposes only and shall not be deemed to be a
part of this Agreement or to affect the meaning or interpretation of this
Agreement. As used in this Agreement, the term "including" means "including, but
not limited
43
to" unless otherwise specified; the word "or" means "and/or," and the word
"person" means and refers to any individual, corporation, trust, partnership,
joint venture, government or governmental authority, or any other entity; and
the plural and singular forms are used interchangeably. As used in this
Agreement, the term "DE" means collectively DownEast Frozen Desserts, LLC and
▇▇▇▇▇▇▇ Ice Cream Company, unless the context otherwise requires.
13.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed, shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
13.10 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Florida, without giving effect to the choice of law
principles or rules thereof.
13.11 Severability. If any term or provision of this Agreement shall to
any extent be invalid or unenforceable, the remainder of this Agreement shall
not be affected thereby, and each term and provision of the agreement shall be
valid and enforced to the fullest extent permitted by law.
13.12 Amendments. This Agreement may not be modified or changed except by
an instrument or instruments in writing signed by the party or parties against
whom enforcement of any such modification or amendment is sought.
13.13 Transaction Taxes. The Shareholders shall pay any and all taxes
imposed upon the sale and exchange of the Common Stock and transfer of ownership
thereof.
13.14 Disclosures. Any disclosure by either party hereto pursuant to any
specific provision of this Agreement shall be deemed a disclosure for all other
purposes of this Agreement.
13.15 Section References. All references contained in this Agreement to
any section number are references to sections of this Agreement unless otherwise
specifically stated.
13.16 Brokers and Finders; Consultant.
13.16.1 At or immediately after the Closing, THI shall issue Warrants
to purchase 250,000 shares of its Common Stock to Biltmore Securities, Inc.
as its investment banking fee in connection with this transaction.
Furthermore, in recognition of his efforts successfully to negotiate and
consummate this transaction, THI shall also thereupon issue Warrants to
purchase 50,000 shares of its Common Stock to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, a director
of THI. The aforesaid Warrants shall be of like terms and tenor as set
forth in Exhibit 3.3 attached hereto. Each party represents and warrants
that except as set
44
forth in this Section 13.16, there are no other brokers, finders or similar
persons to whom compensation will be due or owing as a result of
consummation of the transactions contemplated by this Agreement and each
party hereby agrees to indemnify and hold the other party harmless against
any such claims.
13.16.2 Within five days after the execution and delivery of this
Agreement, DE shall pay ▇▇▇▇▇▇▇ the sum of $75,000 in accordance with that
certain Settlement Agreement and General Release of All Claims dated as of
_______________, 1996 by and between them, a copy of which is attached
hereto as Exhibit 13.16.2.A. At or immediately after the Closing, THI shall
issue 75,000 shares of its common stock to ▇▇▇▇▇▇▇ Partners, LLC as and for
an investment banking or finder's fee as required under that certain
agreement by and between THI and ▇▇▇▇▇▇▇ Partners, LLC as set forth in
Exhibit 13.16.2.B. With respect to such shares so issued, THI shall cause
them to be covered by a registration statement subject to the terms and
conditions contained in said Exhibit 13.16.2.B.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement, or have
caused this Agreement to be signed in their respective names by an officer
thereunder duly authorized, on the date first above written.
TERRACE HOLDINGS, INC.
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
DOWNEAST FROZEN DESSERTS, LLC
By:/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇, Manager
45
AMENDMENT TO ASSET ACQUISITION AGREEMENT
BY AND BETWEEN TERRACE HOLDINGS, INC.,
A DELAWARE CORPORATION,
AND DOWNEAST FROZEN DESSERTS LLC
This Amendment ("Amendment") to the Asset Acquisition Agreement dated as of
December 9, 1996 ("Agreement") is made and entered into as of the 7th day of
February, 1997, by and between Terrace Holdings, Inc., a Delaware corporation,
or its assignee under Section 13.5 of the Agreement ("THI"), and DownEast Frozen
Desserts LLC, a Delaware limited liability company whose sole business is the
ownership and operation of ▇▇▇▇▇▇▇ Ice Cream Company of Portland, Maine
(collectively "DE").
Terms not defined herein shall have the meanings ascribed to them in the
Agreement.
RECITALS
WHEREAS, subsequent to the execution of the Agreement, the parties have
determined that it is in their best interests and in the interests of their
respective shareholders and members to amend and modify certain of the terms and
conditions of the Agreement;
WHEREAS, the parties desire to proceed with the transactions contemplated
by the Agreement subject to and as modified by the terms and conditions of this
Amendment;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements of the parties in the Agreement and hereinafter set forth, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby amend the Agreement as follows:
WITNESSETH:
I. Section 3.3 of the Agreement and Exhibit 3.3 thereto are each hereby
amended to provide that the exercise price of the Warrants described therein
shall not be $2.50 but shall be the greater of $1.00 per share or the closing
sale price for THI common stock in the NASDAQ SmallCap Market on the day
immediately prior to Closing.
1. Section 4.1 of the Agreement is hereby amended to make the time of the
Closing at 10:00 a.m. (local time), February 17, 1997, as therein stated.
2. Section 6.5 of the Agreement is deleted in its entirety and the
following inserted in its place and stead:
"6.5 Submission of Transactions to Stockholder Vote Not Required. THI
has been advised that it is not required to submit the acquisition transaction
contemplated herein to its stockholders for approval. DE hereby agrees fully to
cooperate with THI and, at its expense, provide all reasonable
assistance and documentation as may be necessary for THI fully to comply
with the applicable requirements of reporting rules promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, and for the NASDAQ SmallCap Market with respect to any
required reporting of the acquisition transaction contemplated in the
Agreement for continued NASDAQ eligibility."
3. Section 6.6(a) is amended to state that 3,312,500 shares of THI common
stock are issued and outstanding.
4. Section 9.2 of the Agreement is hereby deleted in its entirety and the
following inserted in its place and stead:
"Following the Closing hereunder, Messrs. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
▇▇▇▇▇ shall be appointed additional members of the Board of Directors of
THI. Thereupon, the Board of Directors shall designate and appoint ▇▇▇▇▇▇
▇▇▇▇▇▇▇ as Chairman of the Board, ▇▇▇▇▇▇ ▇▇▇▇▇▇ as Chief Executive Officer,
▇▇▇▇▇▇ ▇▇▇▇▇ as President and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ as Chief Operating Officer.
"The parties agree that at the 1997 annual meeting of THI shareholders
they will nominate for election as directors the following seven persons:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇.
"Following the Closing hereunder, ▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have direct
responsibility and authority to operate the THI subsidiary owning and
operating the Assets of DE and shall be the President and Chief Executive
Officer of such subsidiary. Following the Closing hereunder, Messrs. ▇▇▇▇▇▇
and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ shall have the direct authority and responsibility to
operate the current THI operating subsidiaries or divisions (i.e., The
Lasko Companies, Inc., A&E Management, Inc. and "The Lasko Family Kosher
Tours"). ▇▇▇▇▇▇ ▇▇▇▇▇ shall be the President and Chief Executive Officer of
each thereof and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ shall be the Executive Vice President and
Chief Operating Officer of each thereof."
5. Clauses (iii) and (iv) of Section 9.5 shall each be amended to delete
the number "250,000" and insert the word "all" in each place and stead thereof.
In addition, the following sentence shall be added to the end of Section 9.5:
"With respect to the shares described in clauses (iii), (iv) and (v)
above, all of such shares, if and when registered, shall be subject to
acceptable lock-up provisions and sale restrictions for up to twelve months
with Biltmore Securities, Inc."
6. Section 10.19 of the Agreement is hereby deleted in its entirety and
the following is inserted in its place and stead:
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"10.19 Certain Agreements and Arrangements.
-----------------------------------
"10.19.1. At the Closing, THI shall issue to each of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Warrants to purchase 375,000 shares of THI common
stock, such Warrants to be of like form and tenor as set forth in Exhibit
3.3 (as amended) attached hereto. In consideration thereof, upon issuance
of such Warrants, Messrs. Lasko, and each of them, shall be deemed to have
surrendered their respective options to each purchase up to 750,000 shares
of THI common stock, each contained in their respective Employment
Agreements, and the right to receive such options contained in their
respective Employment Agreements shall be of no further force or effect.
"10.19.2 At the Closing, THI, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
shall each have executed an option agreement substantially in the form of
Exhibit 10.19.2 attached hereto under which THI shall grant to Messrs.
Lasko or their designee(s), the option to purchase the businesses, assets
or capital stock of those entities currently conducting the businesses of
THI under the names "The Lasko Family Kosher Tours" or "Terrace-Oceanside
Restaurant" or in THI's current wholly owned subsidiaries, The Lasko Family
Kosher Tours, Inc., The Lasko Companies, Inc. and A&E Management, Inc. Such
option shall be exercisable by the ▇▇▇▇▇▇, or either of them, at the
earlier of (i) termination of either of their employment by THI; (ii) the
regular time for the filing of the 1997 THI annual report on Form 10-KSB
(i.e., March 31, 1998); (iii) at such time as THI securities are no longer
listed on the NASDAQ Stock Market, or (iv) upon any attempt by THI to sell
any such businesses, assets or capital stock to third parties. The option
price shall be subject to the prior approval and recommendation thereof by
a committee of disinterested directors of THI appointed therefor
("Committee") based upon the Committee's receipt of a "fairness opinion"
rendered by an independent investment banking or other firm of similar
expertise in appraising and evaluating such transactions and the acceptance
of such "fairness opinion" by Messrs. Lasko. The cost and expense of
securing such fairness opinion shall be borne by THI. The option agreement
shall be presented at the 1997 annual meeting of THI shareholders for the
affirmative vote of the majority of the shares present and voting at such
meeting.
"The option agreement further shall provide that if, under clause (iv)
above, THI shall attempt to sell such businesses to any third party (after
Messrs. Lasko shall have declined to exercise their option in connection
therewith) and such third party offers to purchase for an amount less than
the ▇▇▇▇▇▇ would have paid had they so exercised, then THI shall
immediately offer the same to Messrs. ▇▇▇▇▇▇ at such lesser amount and if
Messrs. Lasko accept, they shall be entitled to so purchase.
3
"The option agreement shall also provide that all direct revenues and
expenses of the subject businesses, operations or corporations shall be
allocable thereto, except for the following:
"(a) no more than 80% of compensation paid or accrued for ▇▇▇▇▇▇
▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ shall be allocable to The Lasko Family Kosher
Tours, The Lasko Companies, Inc. and A&E Management, Inc.; and
"(b) a percentage of the legal and accounting fees and overhead
equal to the percentage that the revenues of the subject businesses,
operations or corporations bear to the total of such revenues of THI,
including DE operations, shall be allocable to such businesses,
operations or corporations."
7. Exhibit 10.19 is hereby deleted in its entirety and Exhibit 10.19.2
inserted in its place and stead.
8. As hereby amended, the terms, conditions, rights and obligations of
the Agreement remain in full force and effect. Except as expressly provided in
this Amendment, any conflict or contradiction between this Amendment and the
Agreement shall be controlled by the relevant provisions of the Agreement.
IN WITNESS WHEREOF, the parties hereof have signed this Amendment to the
Agreement, or have caused this Amendment to the Agreement to be signed in their
respective names by an officer thereunder duly authorized on the date and year
first above written.
TERRACE HOLDINGS, INC.
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
DOWNEAST FROZEN DESSERTS, LLC
By:/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇, Manager
4