STOCK PURCHASE AGREEMENT
Agreement entered into as of July 1, 2000, by and among The ▇▇▇▇▇ Group, Inc.,
a Tennessee corporation ("▇▇▇▇▇"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇") and the
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ Charitable Remainder Unitrust and the ▇▇▇▇▇▇
▇. ▇▇▇▇▇ Loving Trust (the "Trusts") (▇▇▇▇▇▇▇▇ and the Trusts collectively, the
"Stockholders"). ▇▇▇▇▇ and the Stockholders are sometimes each referred to
separately herein as a "Party" and are sometimes collectively referred to
herein as the "Parties."
W I T N E S S E T H:
WHEREAS, Stockholders own 90 % of the outstanding capital stock of Fabrica
International, a California corporation (hereinafter "Fabrica"); and
WHEREAS, subject to the terms and conditions of this Agreement, Stockholders
desire to sell, or cause to be sold, and ▇▇▇▇▇ desires to purchase, all of the
outstanding capital stock of Fabrica;
NOW, THEREFORE, in consideration of the premises and the mutual promises and
conditions contained herein, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
Section 1. Definitions.
1.1 Defined Terms. The following capitalized terms used herein and in the
agreements and other documents collateral hereto which incorporate the terms
set forth below by reference shall have the meanings set forth opposite such
term below:
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Bonus Period" has the meaning set forth in Section 7.6.
"Business Day" has the meaning set forth in Section 12.6.
"Change in Control" means (a) the failure of ▇▇▇▇▇ (or a wholly owned entity
thereof) to own, legally and beneficially, 100% of the aggregate ordinary
voting power represented by the issued and outstanding capital stock of Fabrica
or (b) the occurrence of any event or the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of
which is that any "person" or "group" (within the meaning of section 13(d) and
14(d)(2) of the Exchange Act other than the ▇▇▇▇▇▇▇▇ Family, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act), except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of more than 30% of the
voting stock of ▇▇▇▇▇
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(measured by voting power rather than number of shares) unless the
▇▇▇▇▇▇▇▇ Family continues to own and control more than 50% of the voting stock
of ▇▇▇▇▇ (measured by voting power rather than number of shares) following such
event or the consummation of such transaction.
"Chroma" means Chroma Systems Partners, a California general partnership.
"Chroma Interest" means the entire ownership of ChromaTech in Chroma.
"ChromaTech" has the meaning set forth in Section 8.7.
"ChromaTech Agreement" has the meaning set forth in Section 8.7.
"Closing Date Payment" has the meaning set forth in Section 2.2(a).
"Closing Date" has the meaning set forth in Section 4.
"Closing" has the meaning set forth in Section 4.
"Closing Total Debt" has the meaning set forth in Section 2.3.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA and
Code Section 4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contingent Payments" means the Contingent Sales Payment Payment and the
Contingent EBIT Payment.
"Contingent EBIT Payment" has the meaning set forth in Section 2.2(b)(ii).
"Contingent Sales Payment" has the meaning set forth in Section 2.2(b)(i).
"Contracts" has the meaning set forth in Section 5.14.
"Cumulative EBIT" has the meaning set forth in Section 2.2(b)(ii).
"Contingency Trigger Date" has the meaning set forth in Section 2.2(b)(i).
"Controlled Groups" has the meaning set forth in Code Section 1563.
"Deferred Losses" has the meaning set forth in Section 10.2.
"▇▇▇▇▇ Common Stock" has the meaning set forth in Section 7.7.
"EBIT" has the meaning set forth in Section 2.2(b)(ii).
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"Eligible Losses" has the meaning set forth in Section 10.2.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement, (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare
Benefit Plan or material fringe benefit or other retirement, bonus, or
incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1).
"Employment Agreements" has the meaning set forth in Section 8.8.
"Environmental, Health, and Safety Requirements" shall mean all federal, state,
local and foreign statutes, regulations, ordinances and similar provisions
having the force or effect of law, all judicial and administrative orders and
determinations, and all common law concerning public health and safety, worker
health and safety, and pollution or protection of the environment, including
without limitation all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, and specifically including without limitation
the Comprehensive Environmental Response, Compensation, and Liability Act (42
U.S.C. P9601 et seq.) ("CERCLA"), the Hazardous Material Transportation Act
(49 U.S.C. P5101 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. P6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C.
P1251 et seq.), the Clean Air Act (42 U.S.C. P7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. P2601 et seq.), the Safe Drinking Water Act
(42 U.S.C. P300f et seq.), as such laws and regulations thereunder have been
amended or supplemented, and each similar federal, provincial, state, municipal
or local statute, and each rule and regulation promulgated under such federal,
state, municipal and local laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" means each entity which is treated as a single employer with
Seller for purposes of Code Section 414.
"Excess Compensation Amount" has the meaning set forth in Section 2.3(b).
"Excess Eligible Losses" has the meaning set forth in Section 10.2
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Determination" has the meaning set forth in Section 2.4.
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"Financial Statements" has the meaning set forth in Section 5.6.
"First Phase Limit" has the meaning set forth in Section 10.2.
"▇▇▇▇▇▇▇▇ Family" means the descendents of ▇.▇. ▇▇▇▇▇▇▇▇ and their spouses.
"▇▇▇▇▇" has the meaning set forth in Section 2.3(b).
"GAAP" means United States generally accepted accounting principles as in
effect from time to time, consistently applied.
"Gross Sales" means gross sales of Fabrica for the period indicated, utilizing
the same accounting policies and procedures used in the preparation of the
Fabrica statement of income for the fiscal year ended December 31, 1999.
"▇▇▇▇▇▇▇▇" has the meaning set forth in the preface above.
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
of 1976, as amended.
"Hazardous Materials" shall mean and include each substance identified or
designated as a hazardous substance or hazardous material under CERCLA as well
as any other substance or material meeting any one or more of the following
criteria: (i) it is or contains a substance designated as a hazardous waste,
hazardous substance, hazardous material, pollutant, contaminant or toxic
substance under any Environmental, Health and Safety Requirements; (ii) it is
toxic, reactive, corrosive, infectious, radioactive or otherwise hazardous; or
(iii) it is or contains, without limiting the foregoing, petroleum
hydrocarbons.
"Income Tax" means any federal, state, local, or foreign income tax, including
any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Income Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Indemnified Party" has the meaning set forth in Section 10.6.
"Indemnifying Party" has the meaning set forth in Section 10.6.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with
all reissuances, continuations, continuations-in-part, revisions, extensions,
and reexaminations thereof, (b) all trademarks, service marks, trade dress,
logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and
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all applications, registrations, and renewals in connection therewith, (d) all
mask works and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) all computer
software (including data and related documentation), (g) all other proprietary
rights, and (h) all copies and tangible embodiments thereof (in whatever form
or medium).
"Knowledge" means (i) in the case of Fabrica or Stockholders, actual knowledge
of any of the persons listed on Schedule 1.1 who have made a reasonable
inquiry of their relevant subordinates and (b) in the case of ▇▇▇▇▇, actual
knowledge of any of the persons listed on Schedule 1.1 who have made a
reasonable inquiry of their relevant subordinates.
"Leased Property" has the meaning set forth in Section 5.11.
"Leased Real Property" has the meaning set forth in Section 5.9(b).
"Losses" has the meaning set forth in Section 10.2.
"Material Adverse Effect" means the occurrence of any act or event, or the
existence of any circumstance or fact, the result of which would reasonably be
expected to have a material adverse effect on the business, financial
condition, operations, results of operations or prospects of Fabrica.
"Mid-Year Bonuses" has the meaning set forth in Section 2.3(b).
"Most Recent Balance Sheet" means the balance sheet contained within the Most
Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section 5.6.
"Most Recent Fiscal Month End" has the meaning set forth in Section 5.6.
"Most Recent Fiscal Year End" has the meaning set forth in Section 5.6.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Net Income" means the net income of Fabrica, as calculated by Fabrica in
accordance with historical practice, which practice has been disclosed by
Stockholders to ▇▇▇▇▇ prior to the date hereof.
"Ordinary Course of Business" means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).
"Owned Real Property" has the meaning set forth in Section 5.9(a).
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"Party" and "Parties" each has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Price" has the meaning set forth in Section 2.2.
"Purchase Price Adjustments" has the meaning set forth in Section 2.3.
"Real Property" has the meaning set forth in Section 5.9(a).
"▇▇▇▇▇▇▇" means ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Rules" has the meaning set forth in Section 12.5(a).
"Sales Contingency" has the meaning set forth in Section 2.2(b)(i).
"Security Agreement" has the meaning set forth in Section 2.2(b)(i).
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or
other security interest, other than (a) mechanic's, materialmen's, and similar
liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"Shares" has the meaning set forth in Section 2.1.
"Significant Customer" has the meaning set forth in Section 5.31.
"Significant Supplier" has the meaning set forth in Section 5.31.
"Stockholder Losses" has the meaning set forth in Section 10.4.
"Stockholders" has the meaning set forth in the preface above.
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"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of
the directors.
"Tax" or "Taxes" has the meaning set forth in Section 5.21.
"Tax Claim" has the meaning set forth in Section 10.7.
"Tax Returns" has the meaning set forth in Section 5.21.
"Third Party Claim" has the meaning set forth in Section 10.6.
"Trusts" has the meaning set forth in the preface above.
1.2 Construction. As used herein or in any document which incorporates the
terms hereof:
(a) the plural form of the noun shall include the singular and the singular
shall include the plural, unless the context requires otherwise;
(b) each of the masculine, neuter and feminine forms of any pronoun shall
include all forms unless the context otherwise requires;
(c) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument
or other document as from time to time amended, supplemented or otherwise
modified (subject to any restrictions on such amendments, supplements or
modifications set forth herein);
(d) the words "herein", "hereof" and hereunder", and words of similar import,
shall be construed to refer to this Agreement in its entirety and not to any
particular provision hereof;
(e) all references to Sections, Exhibits and Schedules shall be construed to
refer to Sections of, and Exhibits and Schedules to this Agreement; and
(f) words of inclusion shall not be construed as terms of limitation, so that
references to included matters shall be regarded as non-exclusive,
non-characterizing illustrations.
1.3 Headings. The table of contents and article and section headings contained
herein and in any document which incorporates the terms hereof are for
convenience only and shall not control or affect the meaning or construction of
any provisions of this Agreement or such document.
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Section 2. Purchase of Shares.
2.1 Transfer of Shares. Subject to the terms and conditions hereof and in
reliance upon the representations and warranties herein contained, Stockholders
agree to sell or cause to be sold to ▇▇▇▇▇ all the shares of common stock of
Fabrica held by them (the number of shares being sold by Stockholders and their
percentage ownership is set forth on Exhibit A), and ▇▇▇▇▇ agrees to purchase
the shares (all of the shares being sold hereunder being hereinafter referred
to as the "Shares") from Stockholders, for the Purchase Price.
2.2 Purchase Price. On the terms and subject to the conditions set forth in
this Agreement, ▇▇▇▇▇ agrees that the total purchase price for the Shares shall
be comprised of the following, subject to the Purchase Price Adjustments
described in Section 2.3 below (such price, as adjusted, being hereinafter
referred to as the "Purchase Price"):
(a) Closing Date Payment. At the Closing, ▇▇▇▇▇ shall pay to the Stockholders
Seven Million Dollars ($7,000,000) (as allocated in the amounts set forth in
Exhibit A) by wire transfer of immediately available funds to bank accounts
designated by Stockholders as set forth in Exhibit A (the "Closing Date
Payment").
(b) Contingent Payments.
(i) Sales Contingency. Subject to Section 10.2, on the later to occur of
April 1, 2003 and five (5) Business Days following the date that the Sales
Contingency is met (the "Contingency Trigger Date"), ▇▇▇▇▇ shall pay to the
Stockholders $45,000,000 in immediately available funds (the "Contingent Sales
Payment"), provided that the cumulative Gross Sales for the thirty-nine (39)
month period commencing April 1, 2000 and ending on June 30, 2003 is greater
than or equal to (i) $120,000,000 less (ii) the portion of the Chroma pre-tax
income allocable to the Chroma Interest for the period beginning April 1, 2000
and ending on the Contingency Trigger Date (the "Sales Contingency"). The right
to the Contingent Sales Payment shall survive a Change in Control, a merger or
consolidation of Fabrica with another entity (including ▇▇▇▇▇ or a subsidiary
thereof), any sale, lease or transfer of all or substantially all of the assets
of Fabrica, a sale of the capital stock of Fabrica to any Person (other than a
wholly owned subsidiary of ▇▇▇▇▇) and/or any termination without "Cause" or
for "Good Reason" (as such terms are defined in the Employment Agreements) of
one of the Employment Agreements; provided, however, that in any such event,
Stockholders' right to the Contingent Sales Payment shall immediately vest
without regard to the Sales Contingency. The Contingent Sales Payment shall be
allocated among the Stockholders in the amounts set forth in Exhibit A and
shall be paid to the bank accounts specified in writing by the Stockholders to
▇▇▇▇▇. Stockholders shall be granted a security interest in the Shares as
security for payment of the Contingent Sales Payment obligation pursuant to a
security agreement substantially in the form attached hereto as Exhibit B (the
"Security Agreement").
(ii) EBIT Contingency. On April 1, 2005, ▇▇▇▇▇ shall pay to the
Stockholders in immediately available funds (the "Contingent EBIT Payment") one
of the following payments:
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1. $2,250,000 if the cumulative EBIT of Fabrica for the five (5) fiscal year
period beginning January 1, 2000 and ending in December 2004 (the "Cumulative
EBIT") is greater than or equal to $63,000,000;
2. $1,800,000 if the Cumulative EBIT is greater than or equal to $60,000,000,
but less than $63,000,000;
3. $1,350,000 if the Cumulative EBIT is greater than or equal to $57,000,000,
but less than $60,000,000;
4. $900,000 if the Cumulative EBIT is greater than or equal to $54,000,000, but
less than $57,000,000; or
5. $0 if the Cumulative EBIT is less than $54,000,000.
As used herein, "EBIT" shall mean, for any period, the Net Income, before
interest expense and provision for federal and state income taxes (whether paid
or deferred), as determined from the statements of income of Fabrica, and
without giving effect to (A) any extraordinary gains or losses, (B) any other
one-time, unusual charges or gains or losses from sales of assets other than
inventory sold in the ordinary course of business, all as determined in
accordance with GAAP (C) any expenses of Fabrica and/or Stockholders relating
to this transaction and paid by Fabrica, as the term "expenses" applies to (x)
fiscal 2000, adjusted upward by the Excess Compensation Amount, if any and (y)
any fiscal year during which the 401(k) plan with respect to the employees of
Fabrica is a 401(k) plan different from that in effect on the date hereof,
adjusted upward by the amount of the increased cost, if any, to (or allocated
to) Fabrica as a result of providing such new 401(k) plan as compared to the
cost to Fabrica of providing the existing 401(k) plan (determined by reference
to the cost to Fabrica of the existing 401(k) plan during the last complete
fiscal year during which the existing 401(k) plan was in effect) and (D)
expenses of the bonus plan described in Section 7.6. Furthermore, for purposes
of the EBIT calculation, following the Closing, Fabrica shall not be charged
for general corporate overhead allocations of ▇▇▇▇▇ or any other Person
controlled by, or under common control with, ▇▇▇▇▇ that are not directly
related to actual services provided to Fabrica. In addition, the Parties
acknowledge that during fiscal 2000, 2001 and 2002, annual capital expenditures
for Fabrica are expected to average $2,500,000 during such three (3) year
period and working capital shall be consistent with historical levels and that
such amounts are acceptable and expected to be satisfactory to provide the
results of operations of the Fabrica business at levels anticipated by both
Stockholders and ▇▇▇▇▇. It is also understood by the Parties that during the
same period, Fabrica shall purchase its yarn requirements, as agreed upon by
the Parties, from Candlewick Yarns, Inc. (to the extent that Candlewick Yarns,
Inc. can meet Fabrica's needs on a timely basis) at competitive market prices;
provided, however, that a transition from Fabrica's current suppliers to
Candlewick Yarns, Inc. will take place during a reasonable time frame designed
to avoid any interruption of supply or any compromise in product quality or
customer service. In addition, ▇▇▇▇▇ acknowledges that Fabrica shall be
allowed to source yarns not produced by Candlewick Yarns, Inc. which enhance
overall product quality or contribute to improved creativity in product
development which determination shall be made in the reasonable discretion of
Stockholders. The Parties acknowledge that concurrent with the Closing of the
transactions contemplated hereby, ▇▇▇▇▇ is purchasing
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ChromaTech pursuant to the ChromTech Agreement and that any earnings derived
therefrom or from Chroma Systems Partners shall not be taken into consideration
in the calculation of EBIT for purposes of this Agreement.
The Contingent EBIT Payment shall be allocated among the Stockholders in the
amount set forth in Exhibit A and shall be paid to the bank accounts specified
by the Stockholders.
2.3 Adjustments to Purchase Price. The Purchase Price will be subject to the
following adjustments (such adjustments in this Section 2.3 being collectively
referred to as the "Purchase Price Adjustments"):
(a) Closing Total Debt. The Purchase Price shall be adjusted downward to the
extent total debt (including capital leases having terms in excess of one year
but excluding any drawdown or advances from factors), as determined in
accordance with Section 2.4 ("Closing Total Debt") exceeds $980,000.
(b) Excess Compensation. The Purchase Price shall be subject to downward
adjustment for aggregate distributions or payments during the period January 1,
2000 to the Closing Date from Fabrica to the Stockholders, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇. ▇▇▇▇▇ ("▇▇▇▇▇") (other than the $610,000 repayment of a note payable to
▇▇▇▇▇) in excess of the sum of (A) the monthly salary payments made to ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ during such period based on aggregate annual salaries of
$1,300,000 plus (B) the aggregate mid-year bonuses to ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and
▇▇▇▇▇ ("Mid-Year Bonuses") in excess of $2,400,000 in the aggregate (whether or
not paid prior to July1, 2000) (any such excess being the "Excess Compensation
Amount").
(c) Deferred Tax Liability. Stockholders hereby agree to make the election
for installment sales treatment in respect of the Contingent Payments
hereunder. The Purchase Price shall be subject to upward adjustment for (and
▇▇▇▇▇ shall pay to Stockholders promptly following notification from
Stockholders of the amount thereof, but in any event not later than five (5)
Business Days prior to the due date of the payment of such amount) an amount
equal to (i) the interest imposed under IRC Section 453A (if any) on
Stockholders' deferred tax liability relating to the sale of the Shares and
(ii) any Taxes imposed with respect to the receipt of any payments pursuant to
this Section 2.3(c). In addition, following a final determination that the
installment sales method to the Stockholders is not available with respect to
any portion of the Purchase Price received after the close of the taxable year
in which the Closing Date occurs, ▇▇▇▇▇ shall pay to the Stockholders or on
their behalf any penalty and interest owing in respect thereof within five (5)
Business Days prior to the due date of the payment of such amount.
2.4 Determination of the Closing Total Debt. Within sixty (60) days subsequent
to the Closing or as soon as reasonably practical thereafter, Stockholders
shall prepare, and submit to ▇▇▇▇▇, calculations (together with supporting
documentation) as of the Closing Date of the Closing Total Debt and the Excess
Compensation Amount. Unless ▇▇▇▇▇ gives written notice to the Stockholders of a
good faith objection to the Closing Total Debt and the Excess Compensation
Amount calculations within twenty (20) Business Days after actual receipt
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thereof, such amounts shall become binding upon ▇▇▇▇▇ and the Stockholders.
If ▇▇▇▇▇ in good faith objects to such amounts during such twenty (20) Business
Day period, then only those aspects of the calculations as to which the good
faith objection was made shall not become binding, and ▇▇▇▇▇ and the
Stockholders shall discuss the objections, and if they are able to reach an
agreement, the determination as adjusted shall become binding upon ▇▇▇▇▇ and
the Stockholders. If they are unable to reach an agreement as to all aspects
within ten (10) Business Days after receipt of the notice of objection, then
the Parties shall select a mutually acceptable "big 6" certified public
accounting firm to verify the accuracy of the calculations, and such firm's
determination shall be a conclusive and final determination of the Closing
Total Debt and the Excess Compensation Amount and shall be binding upon all
Parties ("Final Determination"). The cost of such determination shall be borne
equally by the Parties. Any payment owing in respect of the Closing Total Debt
shall be paid by wire transfer of immediately funds within five (5) Business
Days following the Final Determination.
Section 3. Instruments of Conveyance.
3.1 Transfer of Shares; Pledge of Shares. At the Closing, Stockholders shall
deliver to ▇▇▇▇▇ all stock certificates representing the Shares, duly endorsed
in blank. Whereupon, following notation of such transfer on the Fabrica
stock ▇▇▇▇▇▇, ▇▇▇▇▇ shall deliver such certificates back to Stockholders to be
held by Stockholders in connection with its pledge thereof as collateral under
the Security Agreement.
3.2 Further Assurances. Stockholders shall at the Closing Date, and from time
to time thereafter at Dixie's request and without further consideration,
execute and deliver to ▇▇▇▇▇ such instruments of transfer, conveyance and
assignment, in addition to those delivered pursuant to Section 3.1 hereof, as
▇▇▇▇▇ shall reasonably request to transfer, convey and assign more effectively
the Shares to ▇▇▇▇▇ and effectuate the transactions contemplated by this
Agreement.
Section 4. Closing.
The delivery of the Shares held by ▇▇▇▇▇▇▇▇ and the Trusts, the payment of the
Closing Date Payment in respect thereof and the delivery of the other
instruments, and certificates required hereunder and relating thereto (the
"Closing"), shall take place at the offices of White & Case LLP, Los Angeles,
California at 9:00 a.m. Pacific Time on Saturday, July1, 2000 or following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing themselves)
or on such other date or at such other time or place as the Parties hereto
shall agree to in writing (the date and time of the Closing hereunder being
referred to herein as the "Closing Date").
Section 5. Representations and Warranties of Stockholders.
In order to induce ▇▇▇▇▇ to enter into this Agreement, Stockholders represent
and warrant that as of the date hereof and as of the Closing Date, the
following representations and warranties
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are true, complete and accurate, and all such representations and warranties
shall be continuing and shall survive the Closing pursuant to Section 10.1
hereof:
5.1 Ownership of and Title to the Shares, etc. Each Stockholder represents and
warrants that he or it is the lawful owner of the Shares as set forth in
Exhibit A hereof opposite such Stockholder's name; that each Stockholder has
good and marketable title to the Shares opposite such Stockholder's name, free
and clear of all taxes, liens, encumbrances, restrictions on transfer, options,
warrants, purchase rights, contracts, commitments, charges, security
interests, equities, claims and demands whatsoever; that each Stockholder has
the full legal right and power to execute, deliver and perform this Agreement;
that this Agreement constitutes a legal, valid and binding obligation of such
Stockholder according to its terms; that each Stockholder has full legal right
and power to sell, transfer and deliver the Shares opposite such Stockholder's
name in the manner provided in this Agreement; that upon delivery of, and
payment for, such Shares pursuant to this Agreement, ▇▇▇▇▇ will acquire good
and marketable title thereto, free and clear of all liens, encumbrances,
restrictions on transfer, options, charges, security interests, equities and
claims whatsoever; and that such Shares are at the date hereof and will on the
Closing Date be duly authorized, validly issued and outstanding and fully-paid
and non-assessable, with no personal liability attaching to the ownership
thereof.
5.2 Existence, Power and Good Standing. Fabrica is a corporation validly
existing and in good standing under the laws of the State of California and is
duly qualified as a foreign corporation in good standing in each state in which
such qualification is required in order to conduct its business, except where
the failure to be so qualified would not have a Material Adverse Effect, and
has full corporate power and authority to conduct the business in which it is
engaged and to own and use its properties.
5.3 Capitalization. Fabrica's authorized capital stock consists solely of (i)
540,000 shares of Class A Common Stock no par value per share, of which 43,844
shares are duly and validly issued and outstanding, all of which are fully
paid and non-assessable as of the date hereof and (ii) 10,000 shares of Class B
Common Stock no par value per share, of which no shares are duly and validly
issued and outstanding, all of which are fully paid and non-assessable as of
the date hereof. Except for shares of Fabrica held by ▇▇▇▇▇▇▇, the Shares
constitute all of the issued and outstanding capital stock of Fabrica. There
are no outstanding options, warrants, contracts, preemptive rights, proxies,
calls, commitments or demands of rights of any character obligating Fabrica to
issue any shares of capital stock of Fabrica or options or rights with respect
thereto, and there are not existing or outstanding securities of any kind
convertible into or exchangeable for shares of capital stock of Fabrica.
There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to Fabrica. There are no
outstanding obligations of Fabrica to repurchase, redeem or otherwise acquire
any outstanding capital stock of Fabrica. No former stockholder of Fabrica or
of any corporation heretofore merged with or into Fabrica has any claim or
cause of action whatsoever against Fabrica arising out of or in any way
connected with any occurrence or state of facts in existence prior to the date
hereof, and no such former stockholder shall come to have any claim or cause of
action whatsoever against Fabrica, or any officer, director or stockholder of
Fabrica or of any such corporation, by virtue of, or in any way connected with,
the transactions contemplated by this Agreement or otherwise. By the
execution of this Agreement, Stockholders hereby waive
12
any and all rights, options, calls, equities or other claims which Stockholders
may have against Fabrica whatsoever prior to the Closing Date.
5.4 Organizational Documents; Books and Records. The Articles of
Incorporation, By-laws, and stock books of Fabrica which have been furnished to
▇▇▇▇▇ are true and complete and contain all amendments thereto to date, and a
record of all stock issuances and transfers (in the case of the stock books).
Schedule 5.4 contains a true and complete list of all of the current officers
and directors of Fabrica. Fabrica has maintained and kept its financial and
accounting books and records current and such books and record accurately
reflect and/or support the historical results of operations and the financial
condition of Fabrica as set forth in the Financial Statements. The minutes and
minute books of Fabrica supplied to ▇▇▇▇▇ contain all the minutes taken and
resolutions passed by the stockholders and directors of Fabrica since its
formation.
5.5 Subsidiaries. Except as set forth in Note 6 to the audited balance sheet
at December 31, 1999 and the related audited statements of income, changes in
stockholders' equity and cash flows for the fiscal year ended December 31,
1999, Fabrica does not own directly or indirectly, any capital stock or other
equity security or interest in any other corporation or in any partnership,
joint venture, cooperative, or other association.
5.6 Financial Statements. Attached hereto as Exhibit C are the following
financial statements (collectively the "Financial Statements"): (i) audited
balance sheets and statements of income, changes in stockholders' equity, and
cash flow as of and for the fiscal years ended December 31, 1996, December 31,
1997, December 31, 1998, and December 31, 1999 (the "Most Recent Fiscal Year
End") for Fabrica; and (ii) unaudited balance sheets and statements of income
(the "Most Recent Financial Statements") as of and for each of the fiscal
months between the Most Recent Fiscal Year End and the most recent month ending
at least twenty (20) days prior to the Closing Date (the "Most Recent Fiscal
Month End") and for the interim period between December 31, 1999 and the Most
Recent Month End for Fabrica. The Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby and present fairly the financial
condition of Fabrica as of such dates and the results of operations of Fabrica
for such periods; provided, however, that the Most Recent Financial Statements
are subject to normal year-end adjustments (which will not be material
individually or in the aggregate) and lack footnotes and other presentation
items.
5.7 Absence of Undisclosed Liabilities; No Material Adverse Change. Except as
set forth on Schedule 5.7 and except to the extent reflected and adequately
reserved against in the Financial Statements (or, with respect to the period
from the Most Recent Month End to the Closing Date, other than in the Ordinary
Course of Business) Fabrica had no material liability or obligation whatsoever,
whether accrued, absolute, contingent or otherwise. For purpose of this
Section 5.7, "material" shall be deemed to be liabilities which exceed
seventy-five thousand dollars ($75,000) or more, in the aggregate. Except as
described on Schedule 5.7, since the Most Recent Fiscal Year End, (i) Fabrica
has not incurred any material liability or obligation whatsoever, whether
accrued, absolute, contingent or otherwise, except for current liabilities and
obligations incurred in the Ordinary Course of Business of Fabrica and (ii)
there has not been any material adverse change in the business, financial
condition, operations, results of operations, or
13
future prospects of Fabrica. Since the Most Recent Fiscal Year End, and except
as disclosed in the Financial Statements or on Schedule 5.7, Fabrica:
(a) has conducted its business in the ordinary and usual course and in a
reasonable business manner;
(b) has not disposed of, leased, transferred, assigned or acquired any
material properties or assets except as disclosed herein or in the Ordinary
Course of Business;
(c) has not borrowed money or incurred any indebtedness other than ordinary
accounts payable, accrued expenses, accrued liabilities and income taxes
payable incurred in the Ordinary Course of Business;
(d) has not incurred or guaranteed any liability, contingent or otherwise,
except in the Ordinary Course of Business;
(e) has not mortgaged, pledged or otherwise subjected to any Security
Interest, material lien or encumbrance any of its properties or assets, or
sold any real property or personal property other than in the Ordinary Course
of Business;
(f) has not incurred extraordinary expenses or entered into or become a party
to any material transaction of any kind whatsoever other than in the ordinary
and usual course of business including any capital investment in or any
material loan to any other Person;
(g) has not modified, terminated, canceled or permitted the lapse of any
material lease, agreement, contract, or insurance policy (except the lapse of
any insurance policy that has been replaced with a comparable policy by a
reputable insurance company provided that there has been no interruption in
coverage);
(h) has not granted any wage increase or bonus (other than normal merit wage
increases for employees who were not officers), entered into any employment,
union or collective bargaining agreement, or made any cash payments or
distributions or transferred any other assets (other than those described on
Schedule 5.7 hereof) to or on behalf of any officer, employee or stockholder,
other than payment of customary salaries and expenses; or
(i) has not made any material capital expenditure in excess of budgeted
expenditures previously disclosed to ▇▇▇▇▇.
5.8 Dividends. As of the date hereof, except as provided in Schedule 5.8
hereto, since December 31, 1999, Fabrica has not made any distribution,
declaration, setting aside or payment of any dividend, or any other
distribution with respect to the capital stock of Fabrica or any direct or
indirect redemption, purchase or other acquisition or sale of any capital stock
of Fabrica.
14
5.9 Real Property.
(a) Schedule 5.9 lists and describes briefly all real property Fabrica owns
("Owned Real Property"). With respect to each such parcel of Owned Real
Property:
(A) Fabrica has good and marketable title to the parcel of Owned Real
Property, free and clear of any Security Interest, easement, covenant, or other
restriction, except for installments of special assessments not yet
delinquent, recorded easements, covenants, and other restrictions, and utility
easements, building restrictions, zoning restrictions, and other easements and
restrictions existing generally with respect to properties of a similar
character which do not affect materially and adversely the current use,
occupancy, or value, or the marketability of title, of the property subject
thereto;
(B) there are no pending or, to the Knowledge of any of the Stockholders,
threatened condemnation proceedings, lawsuits, or administrative actions
relating to the property or other matters affecting materially and adversely
the current use, occupancy, or value thereof;
(C) the legal description for the parcel contained in the deed thereof
describes such parcel fully and adequately, the buildings and improvements are
located within the boundary lines of the described parcels of land, are not in
material violation of applicable setback requirements, zoning laws, and
ordinances (and none of the properties or buildings or improvements thereon are
subject to "permitted non-conforming use" or "permitted non-conforming
structure" classifications), and do not encroach on any easement which may
burden the land;
(D) all facilities have received all approvals of governmental authorities
(including material licenses and permits) required in connection with the
ownership or operation thereof, and have been operated and maintained in
accordance with applicable laws, rules, and regulations in all material
respects;
(E) there are no leases, subleases, licenses, concessions, or other
agreements, written or oral, granting to any party or parties the right of use
or occupancy of any portion of the parcel of real property;
(F) there are no outstanding options or rights of first refusal to purchase
the parcel of Owned Real Property, or any portion thereof or interest therein;
and
(G) there are no parties (other than the Fabrica) in possession of the
parcel of Owned Real Property, other than tenants under any leases disclosed in
Schedule 5.9 who are in possession of space to which they are entitled.
(b) Schedule 5.9 lists and describes briefly all real property leased or
subleased by or to Fabrica (the "Leased Real Property") (the Owned Real
Property and Leased Real Property are sometimes collectively referred to herein
as the "Real Property"). The Stockholders
15
have delivered to ▇▇▇▇▇ correct and complete copies of the leases and subleases
listed in Schedule 5.9 (as amended to date). With respect to each material
lease and sublease listed in Schedule 5.9:
(A) the lease or sublease is legal, valid, binding, enforceable, and in full
force and effect in all material respects;
(B) no party to the lease or sublease is in material breach or default, and
no event has occurred which, with notice or lapse of time, would constitute a
material breach or default or permit termination, modification, or acceleration
thereunder;
(C) no party to the lease or sublease has repudiated any material provision
thereof;
(D) there are no material disputes, oral agreements, or forbearance programs
in effect as to the lease or sublease;
(E) Fabrica has not assigned, transferred, conveyed, mortgaged, deeded in
trust, or encumbered any interest in the leasehold or subleasehold; and
(F) all facilities leased or subleased thereunder have received all
approvals of governmental authorities (including material licenses and permits)
required in connection with the operation thereof, and have been operated and
maintained in accordance with applicable laws, rules, and regulations in all
material respects.
5.10 Tangible Assets. Except as otherwise disclosed on Schedule 5.10, Fabrica
owns all of the tangible assets (other than Owned Real Property) currently
employed in its business, free and clear of any lien, encumbrance, charge,
equity or restriction whatsoever except to the extent any such lien,
encumbrance, charge, equity or restriction does not materially impair the use
or value of the asset covered thereby. The buildings, machinery, equipment,
and other tangible assets (other than Owned Real Property) that Fabrica owns
and leases are free from material defects (patent and latent), have been
maintained in accordance with normal industry practice, are fit for the purpose
for which such assets are being used, are in good operating condition and
repair and are adequate to conduct the business of Fabrica as it is presently
being conducted (subject to normal wear and tear). Prior to the date hereof,
Fabrica has delivered to ▇▇▇▇▇ a list of fixed assets owned by Fabrica. Except
as set forth in Schedule 5.10, Fabrica has not purchased any additional or
disposed of any of its fixed assets since the date of preparation of such fixed
asset list.
5.11 Leased Property. Schedule 5.11 contains a true and complete list of all
personal property leased by Fabrica with a monthly rental payment in excess of
$1,500 (the "Leased Property"). Each lease, license, rental or other agreement
by which Fabrica is bound with regard to any of the Leased Property is valid
and in full force and effect, and neither Fabrica nor any other party thereto
is in default thereunder in any material respect, nor is there any event which,
with notice or lapse of time, or both, would constitute a material default
thereunder. Neither Stockholders nor Fabrica have received notice that any
party to any such lease, license, rental or other agreement intends to cancel
or terminate the same. Fabrica is not bound by any
16
sublease of the Leased Property, and Fabrica's interest therein is not subject
to any material lien, pledge, security interest, charge or encumbrance of any
kind.
5.12 Accounts Receivable. The accounts receivable of Fabrica are reflected
properly on Fabrica's books and records, are valid receivables subject to no
setoffs or counterclaims (other than returns, allowances and claims in the
Ordinary Course of Business consistent with historical levels), are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of Fabrica and returns, allowances and claims in
the Ordinary Course of Business consistent with historical levels.
5.13 Inventory. The value of the inventory (on and as of the date of the Most
Recent Balance Sheet) is fairly valued in accordance with GAAP as set forth on
the face of the Most Recent Balance Sheet and there has been no material change
in the aggregate value of the inventory since the date of the Most Recent
Balance Sheet other than those which may occur in the Ordinary Course of
Business.
5.14 Contracts. Schedule 5.14 contains a complete and accurate list of all
contracts, agreements, instruments or other commitments or understandings to
which Fabrica or its assets are subject in which Fabrica has a monetary
obligation in excess of $50,000 total per contract or in excess of $4,167 per
month (the "Contracts"). Each of the Contracts is valid, in full force and
effect, and enforceable against Fabrica and, to Stockholders' or Fabrica's
Knowledge, the other parties thereto in accordance with its terms. Except as
set forth on Schedule 5.14, Fabrica is not bound by any written, oral, or
implied Contract. True and complete copies of all written contracts and other
documents noted on Schedule 5.14 have been furnished to ▇▇▇▇▇ prior to the
execution hereof and any corrections to this information shall be provided to
▇▇▇▇▇ promptly upon such information being changed and in all events prior to
the Closing. Other than as disclosed in Schedule 5.14, Fabrica is not a party
to any Contract in which it has agreed to guarantee, indemnify or in any manner
become liable for the obligations or liabilities of another. Except as
disclosed on Schedule 5.14, Fabrica is neither a party to nor bound by any
executory or presently existing contract, agreement or other arrangement which
has had, or which to Stockholders' or Fabrica's Knowledge have, an adverse
effect upon the business or earnings of Fabrica. Fabrica has duly complied in
all respects with all provisions of every Contract (whether written or oral) to
which Fabrica is a party and is not in default in any respect as to any such
agreement. No condition or state of facts exists which, with notice or the
passage of time, or both, would constitute a default by Fabrica under any
Contract to which Fabrica is a party. All Contracts to which Fabrica is a
party are in full force and effect and are enforceable by Fabrica against all
other parties thereto in all respects. Except as specifically noted in
Schedule 5.14, neither the execution, delivery and performance of this
Agreement nor the consummation of the transactions contemplated hereunder, will
conflict with or cause any default in or breach of any provision of Fabrica's
Articles of Incorporation, By-Laws or any contract, agreement or commitment to
which Fabrica is a party or by which Fabrica is bound, and none of such actions
will grant to any party to any such contract, agreement or commitment any
cancellation or termination rights, acceleration rights, or any similar right.
17
5.15 Litigation. Except as disclosed on Schedule 5.15, there is no claim,
suit, action, governmental investigation or litigation, or legal,
administrative, arbitration or other proceeding, of any kind pending, directly
relating to or involving, or, to the best of Stockholders' Knowledge,
threatened against, Fabrica (whether as plaintiff or defendant), or its
property or business, nor do Stockholders or Fabrica have Knowledge of any
ground for any such claim, suit, action, investigation, litigation or
proceeding. Fabrica is not subject to any order, writ or decree of any court
or other governmental authority.
5.16 Labor Relations. Except to the extent set forth in Schedule 5.16:
(a) Fabrica is in compliance in all material respects with all applicable laws
and collective bargaining agreements respecting employment, wages, hours, and
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of any applicable law;
(b) there is no unfair labor practice, charge or complaint or any other matter
against or involving Fabrica pending or, to the Knowledge of Stockholders,
threatened before any labor relations board or equivalent agency having
jurisdiction or any court of law or arbitration board;
(c) there is no labor strike, dispute, slowdown, or stoppage whether actual,
pending or to Stockholders' Knowledge threatened against Fabrica;
(d) no certification or decertification question or organizational drive with
respect to a collective bargaining organization exists or has existed within
the past twelve months respecting employees of Fabrica;
(e) no grievance or arbitration proceeding arising out of or under any
collective bargaining agreement is pending against Fabrica, or, to the
Knowledge of Fabrica or Stockholders, threatened; and, to the Knowledge of
Fabrica or Stockholders, no basis for any claim therefore exists;
(f) no agreement (including any collective bargaining agreement), arbitration
or court decision or governmental order which is binding on Fabrica in any way
limits or restricts Fabrica from relocating or closing any of its operations;
(g) Fabrica has not experienced any organized work stoppage or other labor
difficulty since January 1, 1996; and
(h) there are no charges, investigations, administrative proceedings or formal
complaints of discrimination (including but not limited to discrimination
based upon sex, age, marital status, race, national origin, sexual preference,
disability, handicap, veteran status, religious affiliation, or upon any other
prohibited basis) pending or, to the Knowledge of Stockholders, threatened
before any federal, state or local agency or court against Fabrica. There have
been no audits of the employment practices of Fabrica, and,
18
to the Knowledge of Fabrica and Stockholders, no basis for any such charges,
investigations, administrative proceedings or formal complaints of
discrimination exists.
5.17 Insurance. Schedule 5.17 contains a true and correct list and
description (including coverages and deductibles) of all insurance policies
which are owned by Fabrica relating to the conduct of its business or which
name Fabrica as an insured and which pertain to its assets, operations, or
employees. Except as set forth on Schedule 5.17, in the three (3) year
period ending on the date hereof, Fabrica has not received any written notice
from, or on behalf of, any insurance carrier issuing such policies, to the
effect that insurance rates will hereafter be substantially increased (except
to the extent that insurance rates may be increased for all similarly situated
risks) or that there will hereafter be no renewal of an existing policy.
5.18 Bank Accounts. Schedule 5.18 contains a true and complete list of each
bank and investment account and safe deposit box maintained by Fabrica and the
names of persons authorized to draw thereon or withdraw therefrom.
5.19 Status of Properties; Violation of Laws; Licenses, etc. The prior or
present activities of the Fabrica business do not violate or have not violated
any applicable laws (including rules, regulations, codes, ordinances, plans,
injunctions, judgments, orders, decrees and rulings thereunder) of federal,
state, local, and foreign governments (and all agencies thereof) the violation
of which would have an adverse effect upon the business, financial condition,
operations, results of operations, or future prospects of Fabrica. Schedule
5.19 sets forth a list of all of the material governmental licenses, approvals,
registrations and permits required for Fabrica to carry on its business and
activities as presently conducted. All of said licenses, approvals,
registrations and permits are in full force and effect, and Fabrica has not
received any notices of termination or threatened termination of any such
licenses, approvals, registrations or permits.
5.20 Brokers' and Finders' Fees. Neither Stockholders nor anyone acting on
their behalf has done anything to cause or incur any liability to any party for
any brokers' or finders' fees or the like in connection with this Agreement or
any transaction contemplated hereby.
5.21 Taxes and Tax Returns. Except as disclosed in Schedule 5.21 to this
Agreement, Fabrica has filed or caused to be filed, or will file or cause to
be filed, on or prior to the Closing Date, all federal, state, local and
foreign income and all other tax returns required to be filed by it (including,
but not limited to, any gross receipts, franchise and excise, sales and use
and privilege license tax returns) prior to the Closing Date for periods that
end on or prior to the Closing Date (the "Tax Returns") (taking into account
any extension of time to file granted to or on behalf of Fabrica), and each
such return is complete and accurate in all material respects. Except as set
forth in Schedule 5.21, all taxes of any nature whatsoever, with any related
penalties, interest, deficiencies, assessments, reassessments and liabilities
(any of the foregoing being referred to herein as a "Tax" or "Taxes"), shown to
be due and payable on the Tax Returns described in Section 5.21 have been, or
prior to the Closing Date will be paid or accrued on the balance sheet for the
period in which it was incurred in accordance with GAAP. Except as set forth in
Schedule 5.21, there are no claims, assessments or reassessments or material
disputes (including those contested in good faith and for which adequate
reserves have been provided in the Financial Statements) pending against
Fabrica for any alleged deficiency in Tax, nor to the
19
best Knowledge of Stockholders are there any threatened Tax claims or
assessments against Fabrica. Schedule 5.21 lists all income tax audits by the
Internal Revenue Service and the State of California taxing authorities since
January 1, 1996, involving final adjustments of more than $5,000. Except as
set forth in Schedule 5.21, all liabilities in respect of such audits have been
finally determined. Except as disclosed in Schedule 5.21, Fabrica is neither
a party to nor bound by any tax sharing or similar agreement. Fabrica has not
filed a consent under Section 341(f) of the Internal Revenue Code of 1986, as
amended, concerning collapsible corporations. Except with respect to the
transactions contemplated hereby, the ChromaTech Agreement and/or in the
Employment Agreements, Fabrica has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that would not be
deductible under Section 280G (dealing with "golden parachute" payments) of the
Code. Fabrica has not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to an Tax assessment or
deficiency.
5.22 Employee Benefit Plans.
(a) Except as set forth in Schedule 5.17, the only Employee Pension Benefit
Plan which Fabrica or any ERISA Affiliate of Fabrica has maintained in the
last ten years or to which it has in the last ten years had any obligation to
contribute is the Employees' 401(k) Salary Savings Plan of Fabrica
International (the "401(k) Plan"). Neither the 401(k) Plan nor any plan set
forth in Schedule 5.22 has ever been subject to Title IV of ERISA. Schedule
5.22 lists every other Employee Benefit Plan that Fabrica maintains or to which
it contributes or has any obligation to contribute.
(i) Every Employee Benefit Plan that Fabrica maintains or to which it
contributes or has an obligation to contribute (and each related trust
complies in form and in operation in all material respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
(ii) All required reports and descriptions (including Form 5500 Annual
Reports, summary annual reports, and summary plan descriptions) have been
timely filed and distributed appropriately with respect to each such Employee
Benefit Plan,. The requirements of COBRA have been met in all material respects
with respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(iii) All contributions (including all employer contributions and employee
salary reduction contributions) have been timely paid to the 401(k) Plan and
all contributions and expenses for any period ending on or before the Closing
Date which are not yet due have been paid to the 401(k) Plan or accrued in
accordance with the past custom and practice of Fabrica and in compliance with
ERISA. All premiums or other payments due for all periods ending on or before
the Closing Date have been paid or accrued with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(iv) The 401(k) Plan has received a favorable determination letter from the
Internal Revenue Service that the form of such plan meets the requirements of a
20
"qualified plan," under Sections 401(a) and 401(k) and neither Fabrica nor any
of the Stockholders is aware of any facts or circumstances that could
reasonably result in the revocation of such determination letter.
(v) The market value of assets under the 401(k) Plan equals or exceeds the
present value of all vested and nonvested liabilities thereunder.
(vi) The Stockholders have delivered to ▇▇▇▇▇ correct and complete copies of
the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the three (3)
most recent Form 5500 Annual Reports, and all related trust agreements,
insurance contracts, and other funding agreements which implement each Employee
Benefit Plan.
(b) With respect to each Employee Benefit Plan that Fabrica or any ERISA
Affiliate maintains or ever has maintained or to which any of them contributes,
ever has contributed, or ever has been required to contribute or has any
liability (this provisions of this Section 5.22(b) do not apply with respect
to any Employee Benefit Plan during any time that neither Fabrica nor any ERISA
Affiliate of Fabrica maintained, contributed to, was required to contribute
to, or had any liability with respect to such plan) :
(i) There have been no nonexempt Prohibited Transactions with respect to any
such Employee Benefit Plan that would result in a liability of Fabrica. No
Shareholder, director, officer or employee of Fabrica who is a Fiduciary of
such Employee Benefit Plan, or to the Knowledge of Fabrica, any other Fiduciary
of any such Employee Benefit Plan, has any liability for material breach of
fiduciary duty or any other material failure to act or comply in connection
with the administration or investment of the assets of any such Employee
Benefit Plan. No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is pending or,
to the Knowledge of any of the Stockholders and the directors and officers of
the Fabrica, threatened.
(c) Neither Fabrica nor any ERISA Affiliate of Fabrica contributes to, or has
ever contributed to any Multiemployer Plan and neither Fabrica nor any ERISA
Affiliate of Fabrica has any material liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to
become due), including any withdrawal liability (as defined in ERISA 4201),
under any Multiemployer Plan.
(d) Neither Fabrica nor any ERISA Affiliate of Fabrica maintains or has ever
maintained or contributes, or has ever contributed, or has ever been required
to contribute to any Employee Welfare Benefit Plan providing medical, health,
or life insurance or other welfare-type benefits for current or future retired
or terminated employees, their spouses, or their dependents (other than in
accordance with COBRA).
21
(e) There is not any contract, plan or commitment, that would require ▇▇▇▇▇
to create any additional Employee Benefit Plan to provide or designed to
provide benefits for any of Fabrica's present or former employees or their
dependents or beneficiaries or that would require ▇▇▇▇▇ to make any additional
contribution to or to pay any expense of the 401(k) Plan or to any Employee
Benefit Plan for matters occurring prior to the Closing Date. Every contract
held by or with respect of an Employee Benefit Plan may be terminated without
any material cost to ▇▇▇▇▇, to the Employee Benefit Plan or to any participant
of an Employee Benefit Plan, including but not limited to, termination fees and
market value adjustments.
(f) There is no action, suit, grievance, arbitration or other manner of
litigation, or claim with respect to the assets of any Employee Benefit Plan
(other than routine claims for benefits made in the ordinary course of Employee
Benefit Plan administration) pending, or to the Knowledge of Fabrica,
threatened or imminent against or with respect to the Employee Benefit Plan,
Fabrica, any ERISA Affiliate of Fabrica, or any other Fiduciary (including any
action, suit, grievance, arbitration or other manner of litigation, or claim
regarding conduct which allegedly interferes with the attainment of rights
under any Employee Benefit Plan) that would individually or in the aggregate
result in a liability of Fabrica;
(g) Neither Fabrica nor any other Fiduciary has any Knowledge of any facts
which would reasonably be expected to give rise to to any action, suit,
grievance, arbitration or other manner of litigation, or claim with respect to
any Employee Benefit Plan other than routine claims for benefits.
5.23 Employees. As of the date hereof, Fabrica employs approximately 270
persons in its operations. A list of salaried employees and their respective
salaries are described in Schedule 5.23. Subsequent to the Closing, there will
be no claims against Fabrica made by any third party regarding employment or
alleged employment for periods on or prior to the Closing Date, except to the
extent employees of Fabrica have accrued vacation days prior to the Closing
Date and, under California law are entitled to be paid therefor upon
termination of employment. To the Knowledge of Fabrica and any of the
Stockholders, no executive, key employee, or significant group of employees
plans to terminate employment with Fabrica during the next twelve (12) months.
5.24 No Consents. Except as set forth in Schedule 5.24, all consents
necessary to consummate the transactions contemplated herein on the part of
Stockholders shall have been obtained prior to or on the Closing Date and no
consent or approval of, or declaration, filing or registration with, any
non-governmental third party or any governmental authority is required to be
obtained by Fabrica or Stockholders in connection with the execution of this
Agreement or for the consummation of the transactions contemplated hereby.
5.25 Change in Business. Since January 1, 2000, neither Fabrica nor
Stockholders have Knowledge of any changes in the business operations of
Fabrica, including but not limited to, changes with respect to its products,
customers, employees, equipment needs, markets, suppliers, or legislation to
which the business of Fabrica is subject, which would have a material
22
adverse effect upon Fabrica, its business, its assets or its prospects. Solely
for purposes of this Section 5.25, "material adverse effect" shall mean any
such event which may have a future adverse effect on the Fabrica business in
the amount of $100,000 or more.
5.26 Absence of Certain Payments. Other than for services legitimately and
openly performed under applicable law, business discounts and reabates
customarily granted in the Ordinary Course of Business and nominal non-cash
gifts (with a total per donee retail value of less than $500 in any year),
neither Fabrica, nor, to Stockholders' Knowledge, any agent, employee or
representative of Fabrica has made or offered to make to any customer,
supplier, government official, insurance carrier, referral source, employee or
agent or any other person, any payment, gratuity, gift or thing of material
value. For purposes of this Section, "material" shall mean a fair market value
of five hundred dollars ($500.00) or more.
5.27 Related Party Transactions. Schedule 5.27 describes each: (i) business
relationship relating to or in connection with the conduct of the Fabrica
business (excluding employee compensation and other ordinary incidents of
employment) existing on the date of this Agreement between Fabrica and any
Stockholder, ▇▇▇▇▇▇▇ or ▇▇▇▇▇; (ii) transaction relating to or in connection
with the conduct of the Fabrica business occurring between December 31, 1999
and the date of this Agreement between Fabrica and any Stockholder, ▇▇▇▇▇▇▇ or
▇▇▇▇▇; and (iii) amount owing by or to any Stockholder, ▇▇▇▇▇▇▇ or ▇▇▇▇▇,
respectively, to or from Fabrica relating to or in connection with the conduct
of the Fabrica business as of the date of this Agreement. Except as set forth
in Schedule 5.27, no property or interest in any property (including, without
limitation, designs and drawings concerning machinery) which relates to and is
or will be necessary or useful in the present or currently contemplated future
operation of the Fabrica business, is presently owned by or leased by or to any
Stockholder, ▇▇▇▇▇▇▇ or ▇▇▇▇▇.
5.28 Occupational Safety, Health and Other Filings. Except as disclosed on
Schedule 5.28, Fabrica has previously delivered to ▇▇▇▇▇ all reports and
filings made or filed by it (or a summary thereof) pursuant to all applicable
occupational safety and health legislation, regulations and orders since
January 1, 1996.
5.29 Environmental, Health and Safety Status. Except as set forth in
Schedule 5.29:
(a) As of the Closing, neither the Real Property nor the operations of Fabrica
is in material violation of or subject to any liability or obligation under
Environmental, Health and Safety Requirements as a result of any action by
Fabrica or, to Stockholders' Knowledge, by any adjacent or neighboring
landowner.
(b) (i) There has been no release, threatened release, application, spill,
leak, discharge, disposal or emission of any Hazardous Material by Fabrica to
the air, surface water, groundwater or soil of the Real Property requiring
corrective action and which is a violation of, any of the Environmental, Health
and Safety Requirements.
(ii) Fabrica has duly complied in all respects with all material
Environmental, Health and Safety Requirements.
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(iii) Fabrica does not have any documents or information relating to or
disclosing any release, threatened release, application, spill, leak,
discharge, disposal or emission of any Hazardous Material to the air, surface
water, groundwater or soil of the Real Property.
(iv) Fabrica has been issued or has timely applied for and is in compliance
in all material respects with all environmental permits, a list and copy of
which is set forth on Schedule 5.29.
(v) Fabrica has received no complaint, order, directive, claim, citation,
notice, information request or investigation by any governmental authority or
any other person or entity with respect to any release, threatened release,
application, spill, leak, discharge, disposal or emission of any Hazardous
Material to the air, surface water, groundwater or soil of the Real Property
requiring corrective action and which is a violation or alleged violation of
any Environmental, Health and Safety Requirement at the Real Property.
(vi) Non-hazardous solid waste materials or Hazardous Materials have not been
disposed of or buried at the Real Property by Fabrica.
(vii) There has been no storage, treatment, generation, transportation,
release, disposal, spill or discharge of any Hazardous Material by Fabrica, or
its predecessors in interest, or, to the Knowledge of Fabrica or Stockholders,
by any other person or entity for which Fabrica is or may be held responsible,
or which could give rise to any obligation or liability under Environmental,
Health and Safety Requirements.
(viii) No underground storage tanks are located under the Real Property. No
Hazardous Materials are located on the Real Property (except for those used in
the Ordinary Course of Business and which are stored and used in compliance
with all Environmental, Health and Safety Requirements).
5.30 Warranties. Schedule 5.30 sets forth a true and complete copy of
Fabrica's standard warranty terms and conditions and contains a list of
customer complaints for Fabrica for 1998, 1999, and January 2000 through May
2000. Except as set forth on Schedule 5.30, there are no claims pending or, to
Fabrica's or Stockholders' Knowledge, threatened against Fabrica with respect
to the quality of or absence of defects in the products or services of the
business of Fabrica. During the past three (3) years, none of Fabrica's current
or former products is or has been the subject of a governmental investigation
or voluntary or involuntary recall.
5.31 Significant Customers and Suppliers. Neither Fabrica or Stockholders has
any Knowledge of any intention of or indication by a Significant Customer (as
defined herein) to terminate its business relationship with Fabrica or to limit
or alter its business relationship with Fabrica in any material respect.
Except as set forth in Schedule 5.31, neither Fabrica nor Stockholders have any
Knowledge of any intention or indication by a Significant Supplier (as
25
defined herein) to terminate its business relationship with Fabrica or to limit
or alter its business relationship with Fabrica in any material respect. As
used herein, "Significant Customer" means any of the one hundred (100) largest
customers of Fabrica, measured in terms of sales volume in dollars for the year
ended December 31, 1999, as listed on Schedule 5.31. As used herein, "
Significant Supplier" means any of the ten (10) largest suppliers of Fabrica,
measured in terms of purchasing volume in dollars for the year ended December
31, 1999, as listed on Schedule 5.31.
5.32 Intellectual Property.
(a) Except as set forth in Schedule 5.32, Fabrica owns or has the right to use
in its business pursuant to a written license, a "shrinkwrap" license, a
sublicense or other agreement the Intellectual Property which it uses in its
business. Except as set forth in Schedule 5.32, each item of Intellectual
Property it uses in its business will be owned or available for use by Fabrica
on identical terms and conditions immediately subsequent to the Closing
hereunder. Fabrica has taken all necessary action to protect each of the
patent and registered trademarks it owns and or uses in its business. Except as
set forth in Schedule 5.32, no amendments, responses, fees or any other action
related to any Intellectual Property are due or will be due within sixty (60)
days after the Closing.
(b) With respect to Intellectual Property which Fabrica uses in its business,
Fabrica has not, to its Knowledge, interfered with, infringed upon, or
misappropriated, any Intellectual Property rights of third parties, and,
except as set forth in Schedule 5.32, has not received any charge, complaint,
claim, demand, or notice during the past three (3) years alleging any such
interference, infringement, misappropriation, or violation of any Intellectual
Property rights of a third party (including any claim that Fabrica must
license or refrain from using any Intellectual Property rights of any third
party) which has not been resolved. To the Knowledge of Fabrica, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights owned by Fabrica.
(c) Schedule 5.32 identifies each patent, trademark or copyright registration
in the United States which has been issued to Fabrica with respect to any of
the Intellectual Property which it owns, identifies each pending patent
application or application for trademark or copyright registration in the
United States which Fabrica has made with respect to any of Fabrica's
Intellectual Property, and identifies each license, agreement, or other
permission which Fabrica has granted to any third party in the United States
with respect to any of its Intellectual Property.
(d) Schedule 5.32 identifies each license (other than shrinkwrap licenses),
sublicense, agreement, or permission (other than software) relating to the
Fabrica Intellectual Property. Fabrica has delivered to ▇▇▇▇▇ correct
and complete copies of all such licenses (other than shrinkwrap licenses),
sublicenses, agreements, and permissions (as amended to date). With respect
to each item of Intellectual Property required to be identified in Schedule
5.32, (i) except as set forth in Schedule 5.32 Fabrica is not and, to Fabrica's
Knowledge, no other party to the license, sublicense, agreement, or permission
25
is in breach or default, and to Fabrica's Knowledge no event has occurred which
with notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder; and (ii) to Fabrica's
Knowledge, no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which challenges the
legality, validity, or enforceability of the underlying item of Intellectual
Property.
5.33 Cash Balance. Fabrica shall have an amount of factored accounts
receivable plus cash in its bank accounts as of the Closing in an aggregate
amount of at least $3,200,000 over and above any unpaid Mid-Year Bonuses.
5.34 Disclosure. The representations and warranties contained in this Section
5 do not contain any untrue statement of material fact or omit the statement of
a material fact required to be stated in order to make the statements
contained in Section 5 not misleading. There is no fact peculiar to Fabrica
of which Fabrica or Stockholders have Knowledge which would or may have a
Material Adverse Effect, which is not disclosed herein or in the other
documents furnished to ▇▇▇▇▇.
Section 6. Representations and Warranties by ▇▇▇▇▇.
▇▇▇▇▇ hereby represents, warrants, covenants and agrees to and with
Stockholders as follows:
6.1 Existence, Power and Good Standing. ▇▇▇▇▇ is a corporation validly
existing and in good standing under the laws of the State of Tennessee.
6.2 Authorization. This Agreement and its execution, delivery and performance
have been duly authorized by all necessary corporate action on the part of
▇▇▇▇▇ and is within its corporate powers. This Agreement has been duly
executed and delivered by ▇▇▇▇▇ and constitutes the legal, valid and binding
agreement of ▇▇▇▇▇, enforceable in accordance with its terms. All consents on
the part of ▇▇▇▇▇ necessary to consummate the transactions contemplated herein
shall have been obtained prior to or on the Closing Date and no consent or
approval of, or declaration, filing or registration with, any non-governmental
third party or any governmental authority is required to be obtained by ▇▇▇▇▇
in connection with the execution of this Agreement or for the consummation of
the transactions contemplated hereby. Neither the execution, delivery and
performance of this Agreement nor the consummation of the transactions
contemplated hereunder, will conflict with or cause any default in or breach of
any provision of Dixie's Charter, By-laws or any contract, agreement or
commitment to which ▇▇▇▇▇ is a party or by which ▇▇▇▇▇ is bound, and none of
such actions will grant to any party to any such contract, agreement or
commitment any cancellation or termination rights, acceleration rights, or any
similar right.
6.3 Brokers' and Finders' Fees. Neither ▇▇▇▇▇ nor anyone acting on its behalf
has done anything to cause or incur any liability to any party for any
brokers' or finders' fees or the like in connection with this Agreement or any
transaction contemplated hereby.
26
6.4 Investment. ▇▇▇▇▇ is acquiring the Shares for investment and not with a
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act of 1933, as amended.
6.5 Accuracy of SEC Filings. To the Knowledge of ▇▇▇▇▇, the filings made by
▇▇▇▇▇ pursuant to the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, through the date hereof complied in all
material respects with all applicable requirements of said Acts and the General
Rules and regulations promulgated thereunder, respectively, and did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
6.6 Disclosure. The representations and warranties contained in this Section
6 do not contain any untrue statement of material fact or omit the statement of
a material fact required to be stated in order to make the statements
contained in Section 6 not misleading.
6.7 No Knowledge of Breach. ▇▇▇▇▇ has no actual Knowledge of any fact,
circumstance or occurrence unknown to Stockholders or Fabrica that would cause
any of the representations or warranties of Stockholders set forth in Section 5
to be inaccurate or false. Without limiting the preceding sentence, to the
extent that ▇▇▇▇▇ has actual Knowledge of any fact, circumstance or occurrence
which is unknown to Stockholders or Fabrica that would cause any of the
representations or warranties of Stockholders set forth in Section 5 to be
inaccurate or false and does not disclose the same to the Stockholders prior
to the Closing, ▇▇▇▇▇ hereby waives its right to seek indemnification pursuant
to Section 10 in respect of such inaccuracy or falseness.
Section 7. Covenants.
7.1 Conduct of Business Prior to Closing Date. Except as otherwise set forth
on Schedule 7.1, Stockholders hereby covenant that from and after the date
hereof, and to and including the Closing Date (unless otherwise agreed to in
advance in writing by ▇▇▇▇▇):
(a) Ordinary Course. Fabrica shall have conducted its business in the
ordinary and regular course, and Stockholders shall use their best efforts to
maintain the goodwill of Fabrica's customers, suppliers and others with whom
Fabrica conducts its business;
(b) Amendments. No change or amendments shall have been made in the Articles
of Incorporation or By-Laws of Fabrica;
(c) Capital Changes. Fabrica shall not have issued or sold, or granted
options, warrants, or rights to purchase or subscribe to, or entered into any
arrangement or contract with respect to, the issuance or sale of, any of its
capital stock or any securities or obligations convertible into or exchangeable
for any shares of its capital stock, and shall not have made any changes in
its capital stock;
27
(d) Dividends. Fabrica shall not have declared, paid or set aside for payment
any dividend or other distribution with respect to its capital stock, or
redeemed, purchased or otherwise acquired any shares of its capital stock;
(e) Subsidiaries. Fabrica shall not have organized any subsidiary, acquired
the capital stock or other equity securities of any corporation, or acquired
any equity or ownership interest in any partnership, joint venture or other
association;
(f) Insurance. Fabrica shall have maintained in full force and effect all
insurance then maintained by or on behalf of Fabrica;
(g) Full Access. Fabrica shall have given ▇▇▇▇▇ reasonable access to the
premises and books and records of Fabrica and caused the officers of Fabrica to
furnish to ▇▇▇▇▇ such financial and operating data and other information with
respect to the business and properties of Fabrica as ▇▇▇▇▇ shall from time to
time reasonably have requested;
(h) Consents. Stockholders shall have obtained the consent of all parties
needed to consummate the transactions contemplated hereunder and such consents
will not affect the rights of Fabrica under any material agreement, contract
or commitment of Fabrica which required such consent or under any applicable
material law or regulation relating to the business of Fabrica which required
such consent;
(i) Compliance with Laws. Fabrica shall have duly complied in all material
respects with all laws applicable to the conduct of its business;
(j) Payment of Claims. As of the Closing Date, Stockholders shall have paid
in full, in cash, any and all accounts receivable owing from Stockholders,
affiliated companies, and related parties to Fabrica.;
(k) Compensation, Bonuses, Etc. Fabrica shall not have increased the
compensation payable or to become payable to any of its employees having annual
earnings in excess of $20,000 per year or increased any bonus, insurance,
pension or other employee benefit plan, payment or arrangement for such
employees;
(l) Liabilities. Fabrica shall not have incurred any liability or obligation
(absolute, accrued, contingent or otherwise), not incurred in the Ordinary
Course of Business;
(m) Mortgage, Lien, Etc. Fabrica shall not have permitted any of its assets
to be subjected to any mortgage, lien, Security Interest, restriction or charge
of any kind;
(n) Waiver of Rights. Fabrica shall not have waived or allowed to lapse any
significant claim or right;
(o) Capital Expenditure. Fabrica shall not have made any capital expenditure
or investment which exceeds $1,500,000 in the aggregate;
28
(p) Accounting Methods. Fabrica shall not have made any change in any method,
practice or principle of accounting or application thereof;
(q) Employee Loans. Fabrica shall not have paid, loaned or advanced any
amount or asset to or sold, transferred or leased any asset to, any employee
except for normal compensation involving salary and benefits and all such loans
or advancements having occurred during any prior period shall have been repaid
or written off; and
(r) Commitments. Fabrica shall not have entered into any material commitment
or transaction, other than in the Ordinary Course of Business, affecting the
operations of the Company.
Nothing contained in this Section 7.1 shall preclude Fabrica from paying to
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ the Mid-Year Bonuses, provided that the aggregate
amount of all such bonuses does not exceed $2,400,000.
7.2 Waiver of Claims. Stockholders hereby release Fabrica and forever
discharge it upon the Closing from any and all actions, claims, judgments, and
demands whatsoever that such Stockholders may have as a result of any reason or
cause whatsoever whether in law or equity, known or unknown, that have or may
have resulted from any occurrence or event that took place prior to the
Closing, provided that no release is given hereby with respect to (a) any
rights which Stockholders may have with respect to this Agreement or rights
which accrue under any agreement which is expressly consented to by ▇▇▇▇▇ and
states on the face thereof that it is an exception to the provisions of this
Section or (b) any accrued and unpaid salary owing to such Stockholder,
provided that the period for which such salary is owing shall not exceed one
month, subject to the Excess Compensation Amount Purchase Price Adjustment.
7.3 Taxes. Stockholders shall cause to be filed by Fabrica any federal,
state, and local income and other tax return (including, but not limited to,
any gross receipts, franchise and excise, sales and use and privilege license
tax returns) for any period or partial period ending on or prior to the Closing
Date not filed as of the date hereof, and each such tax return shall be
complete and accurate in all material respects.
7.4 Notice of Developments. Stockholders will give prompt written notice to
▇▇▇▇▇ of any material adverse development causing or which with the passage of
time could reasonably be expected to cause a breach of any of the
representations, warranties, or covenants made by Stockholders in this
Agreement prior to the Closing Date.
7.5 Press Releases and Public Announcements. Stockholders acknowledge that
since ▇▇▇▇▇ is a publicly traded company, Stockholders shall not (and shall
cause Fabrica not to) issue any press release or make any public statement
relating to this transaction without the prior approval of ▇▇▇▇▇. ▇▇▇▇▇ agrees
to provide Stockholders with the opportunity, if practical under the
circumstances, to comment on any public release which addresses this Agreement
and the transactions contemplated herein prior to its dissemination.
29
7.6 Benefits to Certain Fabrica Employees. Within thirty (30) days following
the Closing, ▇▇▇▇▇ shall issue to certain key Fabrica employees, who are
designated by Stockholders (and agreed upon by ▇▇▇▇▇), options to acquire up to
150,000 shares of Dixie's common stock, $3 par value per share (the "▇▇▇▇▇
Common Stock") based on the closing market price of ▇▇▇▇▇ Common Stock on the
Closing Date under the Dixie's applicable stock ownership plan. ▇▇▇▇▇ shall
also establish (or otherwise cause Fabrica to establish) an incentive bonus
plan for Fabrica employees, a pool from which aggregate annual bonuses of
$250,000 shall be payable to certain key Fabrica employees who are designated
by Stockholders (and agreed upon by ▇▇▇▇▇) for a five (5) year period following
the Closing (the "Bonus Period") upon Fabrica attaining eighty percent (80%)
of the following EBIT levels in the applicable year:
Fiscal year EBIT
2000 $ 8,500,000
2001 $10,200,000
2002 $12,200,000
2003 $14,600,000
2004 $17,500,000
Such bonus pool for any fiscal year during the Bonus Period shall be subject to
upward adjustment in the amount of $12,500 for each percentage point in which
EBIT exceeds 80% of the relevant EBIT level up to a maximum bonus pool of
$500,000 for such fiscal year.
7.7 Guaranty Release. ▇▇▇▇▇ shall use its best efforts to attain a release of
the guaranties of ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ in respect of (i) the $1,000,000
unsecured line of credit with ▇▇▇▇▇ Fargo Bank, N.A., (ii) the equipment lines
of credit with ▇▇▇▇▇ Fargo Bank, N.A., and (iii) the SunTrust Bank guarantee
relating to the Fabrica factoring agreement; provided that in the event that
▇▇▇▇▇ is unable to obtain such releases, ▇▇▇▇▇ agrees to indemnify and hold
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ harmless from any liability in respect thereof.
7.8 Lease Consents. In the event that either lessor of the Fabrica
facilities located at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇ and ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇. Leased Real Property is successful in evicting
Fabrica based upon a claim that the consent of such lessor was required as a
result of the transactions contemplated by this Agreement, the Stockholders,
on the one hand, and ▇▇▇▇▇, on the other hand, shall share equally in the costs
to Fabrica which relate to such eviction, including but not limited to,
relocation costs.
Section 8. Conditions to Obligations of the Stockholders.
Each and every obligation of Stockholders to be performed in connection with
the Closing on the Closing Date shall be subject to the satisfaction on the
Closing Date of the following conditions precedent:
8.1 Representations and Warranties True on Closing Date. The representations
and warranties made by ▇▇▇▇▇ in this Agreement shall be true and correct as of
the Closing Date
30
with the same effect as though such representations and warranties have been
made or given on and as of the Closing Date; ▇▇▇▇▇ shall perform in all
material respects all obligations and shall have complied with all covenants
and agreements required by this Agreement to be performed or complied with
prior to the Closing Date; and ▇▇▇▇▇ shall have delivered to Stockholders a
certificate, signed by an officer of ▇▇▇▇▇ and dated as of the Closing Date,
to all such effects.
8.2 Purchase Price. ▇▇▇▇▇ shall have paid the Closing Date Payment.
8.3 No Litigation. No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, or local jurisdiction, or before any arbitrator, wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (a)
prevent the consummation of any of the transactions contemplated by this
Agreement or (b) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation.
8.5 Certificate of Corporate Secretary. At the Closing, ▇▇▇▇▇ shall deliver
to Stockholders a copy of Dixie's Charter, Bylaws and the resolutions of
Dixie's Board of Directors which approve this transaction, said copies being
certified by the corporate secretary of ▇▇▇▇▇.
8.6 Security Agreement. The Parties shall have entered into the Security
Agreement.
8.7 ChromaTech Agreement. ▇▇▇▇▇ and the stockholders of Chroma Technologies,
Inc. shall have entered into a Stock Purchase Agreement regarding the purchase
by ▇▇▇▇▇ of all of the capital stock of Chroma Technologies, Inc.("ChromaTech")
in substantially the form attached hereto as Exhibit D (the "ChromaTech
Agreement").
8.8 Employment Agreements. ▇▇▇▇▇ shall have caused Fabrica to enter into
employment agreements with ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ substantially in the
respective forms attached hereto as Exhibit F-1, Exhibit F-2 and Exhibit F-3
(the "Employment Agreements") and ▇▇▇▇▇ shall have entered into a guaranty in
form and substance satisfactory to the Stockholders guaranteeing the
obligations of Fabrica under the Employment Agreements.
8.9 Consents. The consents of all parties to agreements, contracts and
commitments of ▇▇▇▇▇ requiring consent to the consummation of the transactions
contemplated hereby shall have been obtained without materially affecting the
rights of ▇▇▇▇▇ under any such agreement, contract or commitment. Any
approval required by any governmental agency or authority with respect to the
transactions contemplated by this Agreement shall have been obtained.
8.10 No Material Adverse Change. There shall not have occurred any material
adverse change since April 1, 2000 in the business, properties, assets,
liabilities, results of operations or financial condition of ▇▇▇▇▇ or physical
loss or damage to any of the properties or assets (which, if covered by
insurance could not be replaced within thirty (30) days of such loss or
damage) of ▇▇▇▇▇ which materially and adversely affects or impairs the
business now being conducted by ▇▇▇▇▇, and ▇▇▇▇▇ shall have delivered to
Stockholders a certificate, signed by an officer of ▇▇▇▇▇ and dated the Closing
Date, to all such effects.
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Section 9. Conditions to Obligations of ▇▇▇▇▇.
Each and every obligation of ▇▇▇▇▇ to be performed in connection with the
Closing on the Closing Date shall be subject to the satisfaction on the Closing
Dates of the following conditions precedent, any of which may be waived at the
sole option of ▇▇▇▇▇:
9.1 Representations and Warranties True at Closing Date. The representations
and warranties of Stockholders contained herein shall be true and correct in
all material respects on the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the Closing
Date; Stockholders shall perform in all material respects all obligations and
shall have complied with all covenants and agreements required by this
Agreement to be performed or complied with prior to or on the Closing Date; and
Stockholders shall have delivered to ▇▇▇▇▇ a certificate, signed by
Stockholders dated the Closing Date, to all such effects.
9.2 No Material Adverse Change. There shall not have occurred any material
adverse change since December 31, 1999 in the business, properties, assets,
liabilities, results of operations or financial condition of Fabrica or
physical loss or damage to any of the properties or assets (which, if covered
by insurance could not be replaced within thirty (30) days of such loss or
damage) of Fabrica which materially and adversely affects or impairs the
business now being conducted by Fabrica, and Stockholders shall have delivered
to ▇▇▇▇▇ a certificate, signed by Stockholders and dated the Closing Date, to
all such effects.
9.3 Consents. The consents of all parties to agreements, contracts and
commitments of Stockholders requiring consent to the consummation of the
transactions contemplated hereby shall have been obtained without materially
affecting the rights of Fabrica under any such agreement, contract or
commitment. Any approval required by any governmental agency or authority with
respect to the transactions contemplated by this Agreement shall have been
obtained.
9.4 Resignations. ▇▇▇▇▇ shall have received the resignations of each of the
directors of Fabrica. All such resignations shall be in a form attached hereto
as Exhibit E.
9.5 Stock Certificates. ▇▇▇▇▇ shall have received from Stockholders stock
certificates, duly endorsed in blank, evidencing all of the Shares.
9.6 Delivery of Schedules, Minute Book, and Miscellaneous Items. The
Schedules and Exhibits hereto, certified as true and correct by the
Stockholders, shall have been delivered to ▇▇▇▇▇ prior to Closing and such
schedules and exhibits shall be satisfactory in the sole opinion of ▇▇▇▇▇.
Additionally, the corporate minute book, all Fabrica stock certificates (duly
endorsed in blank), other marketable securities owned by Fabrica, as well as
all checkbooks, check stock, books and records (including but not limited to
tax review working papers), and keys to the building and safe deposit box shall
be delivered to ▇▇▇▇▇ or Dixie's designee at the Closing.
9.7 No Litigation. No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, or local
32
jurisdiction (or before any arbitrator) wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (a) prevent consummation of
any of the transactions contemplated by this Agreement, (b) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (c) affect adversely the right of ▇▇▇▇▇ to own the Shares and to
control Fabrica, or (d) affect adversely the right of Fabrica to own its assets
and to operate its business.
9.8 Certificates of Good Standing. Prior to the Closing, Stockholders shall
deliver to ▇▇▇▇▇ a "long form" certificate of good standing from the California
Secretary of State which shall also include a certified copy of the Articles
of Incorporation of Fabrica and all amendments thereto. Additionally, at the
Closing, Stockholders shall deliver a facsimile copy of a "short form"
certificate of good standing from the Secretary of State of each state in which
Fabrica transacts business as a foreign corporation certifying the good
standing of Fabrica as of a date prior to the Closing Date.
9.9 ChromaTech Agreement; ChromaTech certificate. ▇▇▇▇▇ and ChromaTech shall
have entered into the ChromaTech Agreement. In addition, an officer of
ChromaTech shall have delivered a certificate to the effect that the
representations and warranties set forth in the ChromaTech Agreement are true
and correct in all material respects on the Closing Date.
9.10 Employment Agreements. Fabrica and ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ shall have
entered into the Employment Agreements.
Section 10. Indemnification.
10.1 Survival of Representations and Warranties. All representations and
warranties made in this Agreement or contained in any certificate or other
instrument delivered pursuant hereto shall survive the delivery of the Shares
(notwithstanding any investigation at any time made by or on behalf of ▇▇▇▇▇ or
Stockholders) for a period of eighteen (18) months from the Closing Date with
the exception of the representations and warranties set forth in Section 5.1,
the survival of which shall not be subject to the aforesaid limitation or any
other limitation, and with the exception of the representations and warranties
contained in Section 5.29 which representations and warranties shall extend for
three (3) years and the representations and warranties contained in Section
5.21 which representations and warranties shall extend for the duration of
the statute of limitations relating thereto. Any claim for indemnification
shall be initiated during the period of survival of the representation,
warranty, covenant or agreement to which it relates by the filing of a notice
of claim. Expiration of such eighteen (18) month period, three (3) year period
or statutory period of limitation (whichever is applicable) subsequent to the
filing of any claim hereunder and to which such period is applicable shall not
terminate any such claim.
10.2 Indemnification by Stockholders. Except to the extent waived by ▇▇▇▇▇ in
accordance with Section 6.6, Stockholders agree severally and not jointly to
defend, indemnify and hold ▇▇▇▇▇ harmless from and against and with respect to
any and all loss, damage, liability, deficiency, cost, obligation, or expense,
including reasonable attorneys' fees and court costs resulting from or with
respect to (i) a breach of any representation or warranty of Stockholders
33
contained in this Agreement or any certificate or document delivered to ▇▇▇▇▇
by Stockholders pursuant to Section 9 of this Agreement; and (ii) the failure
of Stockholders to perform or comply with any covenant, agreement or obligation
required by this Agreement to be performed or complied with by Stockholders
(collectively, "Losses"). Each claim for Losses (as distinguished from claims
to defend) shall, if not paid when due, bear interest at a rate equal to ten
percent (10%) from the date the Stockholders are required to pay such claim
until the date such claim is satisfied in full; provided, that any claim for
indemnity made with respect to this Section 10.2 must be made by ▇▇▇▇▇ by
notice in accordance with Section 12.6 hereof within the applicable periods of
time as set forth in Section 10.1. Expiration of the applicable limitation
period subsequent to the filing of any claim hereunder and to which such
period is applicable shall not terminate any such claim.
Notwithstanding anything else to the contrary, contained in this Section 10.2
the obligations of the Stockholders shall be limited as follows:
(a) Stockholders shall not be required to indemnify ▇▇▇▇▇ (A) for any
individual Loss which is less than $5,000 and (B) until the aggregate amount of
all Losses hereunder (together with Losses incurred under the ChromaTech
Agreement) exceeds $1,000,000 (after which point Stockholders shall be
severally obligated to indemnify ▇▇▇▇▇ from and against further Losses, subject
to (A) immediately above, in excess of such amount) (all Losses meeting both
(A) and (B) being "Eligible Losses"); and
(b) The maximum aggregate liability of the Stockholders under this Section 10.2
shall be limited to $3,083,000 (apportioned among the Stockholders based on
the relevant percentages set forth in Schedule 10.2) less any Losses paid
under the ChromaTech Agreement (the "First Phase Limit"); provided, however,
that if the aggregate amount of Eligible Claims that are timely made by ▇▇▇▇▇
exceeds $3,083,000 (such excess amount, "Excess Eligible Losses") and if the
Sales Contingency is met, that portion of Excess Eligible Losses up to an
additional maximum amount of $7,718,000 (apportioned among the Stockholders
based on the relevant percentages set forth in Schedule 10.2) less any Losses
under the ChromaTech Agreement not applied to the First Phase Limit shall be
deferred (the "Deferred Losses"), without a claim for interest during the
deferral period, until the later to occur of (i) the payment of the Contingent
Sales Payment (at which time the Deferred Losses shall be setoff against the
Contingent Sales Payment) and (ii) the final determination of such Excess
Eligible Loss which amount shall be paid in immediately available funds within
five (5) Business days thereafter;
provided, however, that the limitations contained in Sections 10.2(a) and 10.2
(b) shall not apply to (1) any breach of the representations made in Section
5.1, or (2) any Losses incured in respect of Section 10.2(ii) above.
10.3 Claims by ▇▇▇▇▇.
(a) Notice of Claim. When ▇▇▇▇▇ determines in good faith that it has a claim
or potential claim for indemnification pursuant to this Section it shall
deliver notice thereof to Stockholders at the addresses specified in Section
12.6. Such
34
notice shall set forth the section or sections under this Agreement pursuant to
which such claim or potential claim is made and the amount or estimate of the
claim (provided, however, that Stockholders shall not be prejudiced by any
inaccuracy of any such estimate) and shall state, in reasonable detail, the
basis for such claim or potential claim. Upon resolution of the claim then the
amount attributable to the claim shall be paid to ▇▇▇▇▇ by Stockholders by
wire transfer of immediately available funds within five (5) Business Days
thereafter, the Stockholders being severally liable to ▇▇▇▇▇ for said amount.
Nothing herein shall be deemed to prevent ▇▇▇▇▇ from making a claim for
indemnification hereunder for potential or contingent claims or demands
provided the notice sets forth the specific basis for any such potential or
contingent claim or demand to the extent then feasible and ▇▇▇▇▇ has
reasonable grounds to believe that such a claim or demand may be made,
provided that the Stockholders shall have no obligation to pay any such
potential or contingent claim and no interest shall commence accruing thereon
until such claim becomes an actual quantifiable claim. Expiration of the
applicable limitation period subsequent to the filing of any claim hereunder
and to which such period is applicable shall not terminate any such claim.
(b) Claim Resolution. Stockholders shall have a period of twenty (20) days
after receipt of a notice of claim within which to notify ▇▇▇▇▇ of its
disagreement with all or a portion of said claim or, in the case of a potential
or contingent claim, the estimated amount of such claim. Notice to ▇▇▇▇▇
shall be provided in accordance with Section 12.6 hereof. If ▇▇▇▇▇ has not
received notice of disagreement from Stockholders within the 20-day period, the
amount of the claim shall be compensable in full. If ▇▇▇▇▇ receives within
the 20-day period a notice of disagreement regarding only a portion of a claim,
the portion of the claim, to the extent such claim is actual as opposed to
potential or Most Recent Balance Sheet contingent, not subject to disagreement
shall be compensable in accordance with this Section. If ▇▇▇▇▇ and Stockholders
are unable to resolve such matter within thirty (30) days of Stockholders'
notice, then the dispute may be resolved by arbitration in accordance with
Section 12.5 or by agreement between the parties. The prevailing party to any
such arbitration shall be entitled to indemnification for its reasonable
attorneys' fees and filing fees to the extent awarded by the arbitrator or
arbitrators. To the extent ▇▇▇▇▇ timely delivers a notice of a potential or
contingent claim, ▇▇▇▇▇ shall deliver a subsequent notice to the Stockholders
in accordance with Section 12.6 on or following the date such claim becomes an
actual quantifiable claim. Each such subsequent notice shall, for purposes of
this Section 10.3(b), be treated the same as other notices delivered pursuant
to this Section 10.3(b), i.e., the Stockholders shall have the right to dispute
and arbitrate all or a portion of said claim.
10.4 Indemnification by ▇▇▇▇▇. ▇▇▇▇▇ agrees to defend, indemnify and hold
Stockholders harmless from and against and with respect to any and all loss,
damage, liability, deficiency, cost, obligation, or expense, including
reasonable attorneys' fees and court costs resulting from or with respect to
(i) a breach of any representation or warranty of ▇▇▇▇▇ contained in this
Agreement or any certificate or document delivered to Stockholders by ▇▇▇▇▇
pursuant to
35
Section 8 of this Agreement; and (ii) the failure of ▇▇▇▇▇ to perform or comply
with any covenant, agreement or obligation required by this Agreement to be
performed or complied with by ▇▇▇▇▇ (collectively, " Stockholder Losses").
Each claim for Stockholder Losses (as distinguished from claims to defend)
shall, if not paid when due, bear interest at a rate equal to ten percent (10%)
from the date ▇▇▇▇▇ is required to pay such claim until the date such claim
is satisfied in full; provided, that any claim for indemnity made with respect
to this Section 10.4 must be made by Stockholders by notice in accordance with
Section 12.6 hereof within the applicable periods of time as set forth in
Section 10.1. Expiration of the applicable limitation period subsequent to the
filing of any claim hereunder and to which such period is applicable shall not
terminate any such claim.
Notwithstanding anything else contained herein to the contrary, ▇▇▇▇▇ shall not
be required to indemnify Stockholders (A) for any individual Stockholder Loss
which is less than $5,000 (B) until the aggregate amount of all Stockholder
Losses hereunder (together with Stockholder Losses incurred under the
ChromaTech Agreement) exceeds $1,000,000 (after which point ▇▇▇▇▇ shall be
obligated to indemnify Stockholders from and against further Stockholder Losses
in excess of such amount), and (C) to the extent the aggregate Stockholder
Losses hereunder exceeds $12,000,000.
provided, however, that the limitations contained in this Section 10.4 shall
not apply to any Stockholder Losses incurred in respect Section 10.4(ii) above.
10.5 Claims by Stockholders.
(a) Notice of Claim. When any Stockholder determines in good faith that he or
it has a claim or potential claim for indemnification pursuant to this Section
he or it shall deliver notice thereof to ▇▇▇▇▇ at the address specified in
Section 12.6. Such notice shall set forth the section or sections under this
Agreement pursuant to which such claim or potential claim is made and the
amount or estimate of the claim and shall state, in reasonable detail, the
basis for such claim or potential claim. Upon resolution of the claim then the
amount attributable to the claim shall be paid to Stockholders by ▇▇▇▇▇ by
wire transfer of immediately available funds within five (5) Business Days
thereafter, ▇▇▇▇▇ being liable to Stockholders for said amount. Nothing herein
shall be deemed to prevent Stockholders from making a claim for
indemnification hereunder for potential or contingent claims or demands
provided the notice sets forth the specific basis for any such potential or
contingent claim or demand to the extent then feasible and Stockholders have
reasonable grounds to believe that such a claim or demand may be made, provided
that ▇▇▇▇▇ shall have no obligation to pay any such potential or contingent
claim and no interest shall commence accruing thereon until such claim becomes
an actual quantifiable claim. Expiration of the applicable limitation period
subsequent to the filing of any claim hereunder and to which such period is
applicable shall not terminate any such claim.
36
(b) Claim Resolution. ▇▇▇▇▇ shall have a period of twenty (20) days after
receipt of a notice of claim within which to notify Stockholders of its
disagreement with all or a portion of said claim or, in the case of a potential
or contingent claim, the estimated amount of such claim. Notice to ▇▇▇▇▇
shall be provided in accordance with Section 12.6 hereof. If Stockholders have
not received notice of disagreement from ▇▇▇▇▇ within the 20-day period, the
amount of the claim shall be compensable in full. If Stockholders receive
within the 20-day period a notice of disagreement regarding only a portion of a
claim, the portion of the claim, to the extent such claim is actual as opposed
to potential contingent, not subject to disagreement shall be compensable in
accordance with this Section. If ▇▇▇▇▇ and Stockholders are unable to resolve
such matter within thirty (30) days of Stockholders' notice, then the dispute
may be resolved by arbitration in accordance with Section 12.5 or by agreement
between the parties. The prevailing party to any such arbitration shall be
entitled to indemnification for its reasonable attorneys' fees and filing fees
to the extent awarded by the arbitrator or arbitrators. To the extent
Stockholders timely deliver a notice of a potential or contingent claim,
Stockholders shall deliver a subsequent notice to ▇▇▇▇▇ in accordance with
Section 12.6 on or following the date such claim becomes an actual quantifiable
claim. Each such subsequent notice shall, for purposes of this Section
10.5(b), be treated the same as other notices delivered pursuant to this
Section 10.5(b), i.e., ▇▇▇▇▇ shall have the right to dispute and arbitrate all
or a portion of said claim.
10.6 Third Party Claims Immediately following the receipt of notice by a Party
of a claim from a third party (a "Third Party Claim"), the party receiving the
notice of the Third Party Claim shall (i) notify the other party of its
existence setting forth with reasonable specificity the facts and circumstances
of which such party has received notice and (ii) if the Party giving such
notice is a Party that is entitled to indemnification hereunder in respect of
such Third Party Claim (an "Indemnified Party"), specifying the basis hereunder
upon which the Indemnified Party's claim for indemnification is asserted. The
Indemnified Party may, upon reasonable notice, tender the defense of a Third
Party Claim to the Party required to provide indemnification (an "Indemnifying
Party"). If (a) the defense of a Third Party Claim is so tendered and within
thirty (30) days thereafter such tender is accepted without qualification by
the Indemnifying Party or (b) within thirty (30) days after the date on which
written notice of a Third Party Claim has been given pursuant to this Section
10.6, the Indemnifying Party shall acknowledge in writing to the Indemnified
Party and without qualification its indemnification obligations as provided in
this Section 10; then, except as hereinafter provided, the Indemnified Party
shall not, and the Indemnifying Party shall, have the right to contest, defend,
litigate or settle such Third Party Claim. The Indemnified Party shall have
the right to be represented by counsel at its own expense in any such contest,
defense, litigation or settlement conducted by the Indemnifying Party provided
that the Indemnified Party shall be entitled to reimbursement therefor if the
Indemnifying Party shall lose its right to contest, defend, litigate and settle
the Third Party Claim as herein provided. The Indemnifying Party shall lose
its right to defend, contest, litigate and settle the Third Party Claim if it
shall fail to diligently contest the Third Party Claim. So long as the
Indemnifying Party has not lost its right and/or obligation to defend, contest,
litigate and settle as herein provided, the Indemnifying Party shall have the
exclusive right to contest, defend and litigate the Third Party Claim and shall
have the exclusive right, in
37
its discretion exercised in good faith, and upon the advice of counsel, to
settle any such matter, either before or after the initiation of litigation,
at such time and upon such terms as it deems fair and reasonable, provided that
at least ten (10) days prior to any such settlement, written notice of its
intention to settle shall be given to the Indemnified Party. All expenses
(including without limitation reasonable attorneys' fees) incurred by the
Indemnifying Party in connection with the foregoing shall be paid by the
Indemnifying Party. Notwithstanding the foregoing, in connection with any
settlement negotiated by an Indemnifying Party, no Indemnified Party shall be
required by an Indemnifying Party to (x) enter into any settlement that does
not include as an unconditional term thereof the delivery by the claimant or
plaintiff to the Indemnified Party of a release from all liability in respect
of such claim or litigation, (y) enter into any settlement that attributes by
its terms liability to the Indemnified Party or (z) consent to the entry of any
judgment that does not include as a term thereof a full dismissal of the
litigation or proceeding with prejudice. No failure by an Indemnifying Party
to acknowledge in writing its indemnification obligations under this Section 10
shall relieve it of such obligations to the extent they exist. If an
Indemnified Party is entitled to indemnification against a Third Party Claim,
and the Indemnifying Party fails to accept a tender of, or assume, the defense
of a Third Party Claim pursuant to this Section 10.6, or if, in accordance with
the foregoing, the Indemnifying Party shall lose its right to contest, defend,
litigate and settle such a Third Party Claim, the Indemnified Party shall have
the right, without prejudice to its right of indemnification hereunder, in its
discretion exercised in good faith and upon the advice of counsel, to contest,
defend and litigate such Third Party Claim, and may settle such Third Party
Claim, either before or after the initiation of litigation, at such time and
upon such terms as the Indemnified Party deems fair and reasonable, provided
that at least ten (10) days prior to any such settlement, written notice of its
intention to settle is given to the Indemnifying Party. If, pursuant to this
Section 10.6, the Indemnified Party so contests, defends, litigates or settles
a Third Party Claim, for which it is entitled to indemnification hereunder as
hereinabove provided, the Indemnified Party shall be reimbursed by the
Indemnifying Party for the reasonable attorneys' fees and other expenses of
defending, contesting, litigating and/or settling the Third Party Claim which
are incurred from time to time, forthwith following the presentation to the
Indemnifying Party of itemized bills for said attorneys' fees and other
expenses.
10.7 Certain Tax Matters. From and after the Closing, ▇▇▇▇▇ shall have the
exclusive obligation and authority to file or cause to be filed all Tax Returns
for all taxable years or other taxable periods of Fabrica. ▇▇▇▇▇ shall allow
Stockholders to review and participate in the preparation of such Tax Returns
and the filing of any such Tax Returns that indicate a Basis for a claim for a
Tax, penalty and/or interest liabilities for which Stockholders are obligated
to indemnify ▇▇▇▇▇ under this Section 10 (a "Tax Claim") and any such filing
shall require the consent of the Stockholders which shall not be unreasonably
withheld. Likewise Stockholders shall have the right to participate in any tax
audit and/or proceeding which involves, in whole or in part, a Tax Claim.
Section 11. Termination.
11.1 Conditions of Termination. The obligations of the parties with respect to
the Closing shall terminate:
38
(a) At the election of ▇▇▇▇▇ if the Closing shall not have occurred by August
31, 2000 by reason of the failure of any condition precedent under Section 9
hereof (unless the failure results primarily from ▇▇▇▇▇ itself breaching any
representation, warranty or covenant contained in this Agreement).
(b) At the election of Stockholders if the Closing shall not have occurred by
August 31, 2000 by reason of the failure of any condition precedent under
Section 8 hereof (unless the failure results primarily from Stockholders
breaching any representation, warranty or covenant contained in this
Agreement).
(c) By mutual written consent of Stockholders and ▇▇▇▇▇.
(d) At the election of ▇▇▇▇▇ in accordance with Section 12.7.
11.2 Effect of Termination. In the event of termination in accordance with
Section 11.1: (i) this Agreement shall become null and void and of no further
force or effect, except as otherwise provided herein, (ii) this Agreement shall
be deemed to be rescinded, (iii) each Party shall pay all costs and expenses
incurred by it in connection with this Agreement and the transactions
contemplated herein, and (iv) no Party shall have any further liability to any
other party because of the failure to consummate the transactions contemplated
hereby except in the event that (A) Stockholders terminate this Agreement
pursuant to Section 11.1(b) or (B) ▇▇▇▇▇ terminates this Agreement pursuant to
Section 11.1(d) in which event ▇▇▇▇▇ shall pay to Stockholders a "break-up
fee" in the aggregate amount of $250,000 which the parties agree shall be
Stockholders' sole remedy.
Section 12. Miscellaneous.
12.1 Binding Effect. This Agreement shall inure to the benefit of and shall
be binding upon the parties hereto and their respective successors and assigns;
provided, however, that ▇▇▇▇▇ shall not assign this Agreement or its
obligations hereunder (except to a wholly owned entity whose performance is
guaranteed by ▇▇▇▇▇) without the prior written consent of the Stockholders .
12.2 Governing Law. This Agreement shall be deemed to be made in, and in any
and all respects shall be interpreted, construed and governed by and in
accordance with, the law of the State of California.
12.3 Survival of Representations. Subject to Section 10.1, all
representations, warranties, covenants and agreements (including
indemnification) made by the parties in this Agreement and pursuant to the
terms hereof shall survive the consummation of the transactions contemplated
by this Agreement, notwithstanding any investigation heretofore or hereafter
made by any of them or on behalf of any of them.
12.4 Expenses. Each party hereto shall pay the expenses incurred by it in
connection with the preparation and execution of this Agreement and in
connection with the transactions
39
contemplated hereby; provided, however, that ▇▇▇▇▇, on the one hand, and
Stockholders, on the other hand, shall share equally in any and all filings
fees required by the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act.
12.5 Arbitration. Any dispute between the parties concerning this Agreement
shall be submitted to binding arbitration before a single arbitrator in
accordance with the following provisions:
(a) If a dispute arises concerning this Agreement, the disputed shall be
resolved through binding and non-appealable arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration Association (the
"Rules"), except where the Rules conflict with the provisions of this Section
12.5, in which event the provisions of this Section 12.5 shall prevail. The
arbitration shall be before one (1) arbitrator selected by the parties, or if
the parties cannot agree upon a single arbitrator within thirty (30) days of a
party giving notice to the other of a proposed choice for an arbitrator, then
by a single arbitrator selected by the New York City office of the American
Arbitration Association, who shall be a person (i) who is admitted to practice
law in the State of New York, (ii) who is a partner in a law firm having at
least one hundred attorneys, and (iii) who is familiar with the terms of stock
purchase agreements entered into in the context of acquisitions. Any
arbitrator so appointed shall be neutral and subject to disqualification for
the reasons specified in Section 19 of the Rules.
(b) Each party shall pay the fees of his or its own attorneys, expenses of
witnesses and all other expenses connected with the preparation and
presentation of such party's case. The cost of the arbitration, including the
cost of the record or transcripts thereof, if any, administrative fees, and all
other fees involved, shall be shared equally, unless the arbitrators otherwise
direct.
(c) The parties agree to request that the arbitrator appointed pursuant to
the procedure agreed upon above shall, as soon as reasonably practicable after
his or her appointment, and after consultation with the parties, set an
arbitration date of no later than thirty (30) days after his or her
appointment. If that arbitrator is unable to conduct the arbitration during
such 30-day period then the parties shall select a new arbitrator in accordance
with Section 12.5(a).
(d) The arbitration shall be conducted pursuant to the Rules, as then in
effect. Without limitation of the arbitrator's general authority, the
arbitrator shall have the right to order reasonable discovery in accordance
with the California Rules of Civil Procedure. Conformity to the legal rules
of evidence shall not be required in the arbitration. At any oral hearing
of evidence in connection with the arbitration, each party thereto or its legal
counsel shall have the right to examine its witnesses and to cross-examine the
witnesses of any opposing party. No evidence of any witness shall be
presented in written form unless the opposing party shall have the opportunity
to cross-examine such witness, except as the parties to the dispute otherwise
agree in writing or except under extraordinary circumstances where the
interests of justice require a different procedure.
(e) The decision of the arbitrator shall be binding upon all parties and no
appeal may be taken therefrom; provided, however, that no decision by such
arbitrator shall include the
40
award of punitive damages. The decision of the arbitrator shall be enforced
and honored by the parties hereto without the necessity of confirmation by a
court. The parties hereby waive, to the extent permitted by law, any rights to
appeal or to review of any such decision by any court or tribunal.
(f) This arbitration shall be conducted in New York, New York. In the event
a party desires to obtain judicial confirmation of an arbitration award, the
parties consent to the exclusive jurisdiction of the appropriate state court in
New York, New York for the entry and enforcement of a judgment upon any
arbitration award rendered in connection with any state law, and of the United
States District Court for the Southern District of New York, for the entry and
enforcement of judgment upon any arbitration award rendered in connection with
any federal law, and the parties agree to both subject matter and in personam
jurisdiction for those purposes.
(g) Notwithstanding any provision of this Section, the requirement to
arbitrate disputes under this Section shall not apply to any application for
interim injunctive or other equitable relief from any court of competent
jurisdiction with respect to this Agreement or any matter it contemplates.
12.6 Notices, Demands and Communications. Any and all notices or demands
permitted or required to be made under this Agreement shall be in writing
signed by the Party giving such notice or demand, and shall be delivered
personally, or sent by (i) facsimile transmission, (ii) recognized overnight
delivery service or (iii) registered or certified mail to the other Party or
Parties at the address or addresses set forth below, or at such other address
or addresses as may be supplied in writing pursuant to the terms of this
section. The recipient of such notice shall be deemed to have received the
notice (i) on the date of delivery or the date of transmission if the notice
was personally delivered or sent by facsimile transmission on a Business Day
(or if not a Business Day then the next succeeding Business Day), (ii) on the
Business Day after dispatch if the notice was sent by recognized overnight
delivery service (and marked for delivery on the next Business Day) or (iii)
five (5) days after dispatch if sent by registered or certified mail. For
purposes of this Agreement, a "Business Day" is 8 A.M. to 5:30 P.M. Eastern
Time, on any day when the Federal Reserve Bank in Atlanta, Georgia and in San
Francisco California are both open for business. The rejection or inability
to deliver because of a change of address of which no notice has been given
shall not effect the validity of any notice or demand sent in accordance with
the provisions hereof. For purposes of this Agreement:
41
If to ▇▇▇▇▇▇▇▇:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If to the Trusts:
▇▇▇▇▇▇ ▇▇▇▇▇, Trustee
▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
In each case with a copy to:
▇▇▇▇ ▇. ▇▇▇▇
White & Case LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Dixie:
The ▇▇▇▇▇ Group, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇ ▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a required copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇- ▇▇▇-▇▇▇▇
12.7 Schedules and Exhibits. The following schedules when delivered as set
forth herein will become a part of this Agreement by reference, and the
following exhibits are attached hereto and are hereby made a part of this
Agreement by this reference:
Exhibit A Stockholders; Shares; Percentages; Payments; Bank Accounts
Exhibit B Security Agreement
Exhibit C Financial Statements
Exhibit D ChromaTech Agreement
Exhibit E Form of Resignations
Exhibit F-1 ▇▇▇▇▇▇▇ Employment Agreement
42
Exhibit F-2 ▇▇▇▇▇▇▇▇ Employment Agreement
Exhibit F-3 ▇▇▇▇▇ Employment
Schedule 1.1 Knowledge
Schedule 5.4 Current Officers and Directors
Schedule 5.7 Liabilities
Schedule 5.9 Real Property
Schedule 5.10 Tangible Assets
Schedule 5.11 Leased Property
Schedule 5.14 Contracts
Schedule 5.15 Litigation
Schedule 5.16 Labor Relations
Schedule 5.17 Insurance
Schedule 5.18 Bank Accounts of Fabrica
Schedule 5.19 Licenses and Permits
Schedule 5.21 Taxes and Tax Returns
Schedule 5.22 Employee Benefit Plans
Schedule 5.23 Names and Salaries of Employees
Schedule 5.24 Consents
Schedule 5.27 Related Party Transactions
Schedule 5.28 Occupational Safety, Health and Other Filings
Schedule 5.29 Environmental Health and Safety Status
Schedule 5.30 Warranties
Schedule 5.31 Significant Customers and Suppliers
Schedule 5.32 Intellectual Property
Schedule 7.1 Future Dividends
Schedule 10.2 Allocation
Notwithstanding anything else to the contrary contained herein, if any
information set forth in any Schedule (or, as the case may be, omitted) is, in
the sole discretion of ▇▇▇▇▇ reasonably adverse to the operation or financial
condition of Fabrica, then ▇▇▇▇▇ may at its option terminate this Agreement.
12.8 Headings. The section and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
12.10 Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter. This Agreement may be modified or amended only by a written
instrument signed by each of the Parties hereto. The actions, course of
dealing or customs of the Parties hereto shall not operate to modify this
Agreement except in conformity with the preceding sentence.
43
12.11 Severability. If any provision of this Agreement or the application
thereof to any person, entity, or circumstance shall be invalid or
unenforceable to any extent, then such provision or application shall be
modified to the minimum extent necessary to render it valid and enforceable,
and the remainder of the Agreement and the application of such provisions to
the parties hereto and the transactions contemplated hereby shall not be
affected and shall be enforced to the greatest extent permitted by law, unless
such provision cannot be modified without materially impairing the ability of
the respective Parties to enjoy the benefit of their respective bargain
hereunder.
12.12 Interpretation. Should the provisions of this Agreement require
judicial interpretation, it is agreed that the judicial body interpreting or
construing the same shall not apply the assumption that the terms hereof shall
be more strictly construed against one party by reason of the rule of
construction that an instrument is to be construed more strictly against the
party which itself or through its agents prepared the same, it being agreed
that the agents of both parties have participated in the preparation hereof
equally.
12.13 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person or entity other than the parties hereto and
their respective successors and assigns.
44
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
THE ▇▇▇▇▇ GROUP, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President & CFO
STOCKHOLDERS:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇
Charitable Remainder Unitrust
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Independent Special Trustee
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Loving Trust
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee