1 Exhibit 10.1
ASSET PURCHASE AGREEMENT
------------------------
Between
I.D.L. Incorporated
and
▇▇▇▇ ▇▇▇▇▇▇, L.P.
and
Big Red Rooster, Inc.
and
Cloverleaf Group, L.P.
and
the iDL Shareholders
and
the BRR Shareholders
and
Cloverleaf Group, Inc.
and
▇▇▇▇▇▇▇▇ International Corporation
----------------------------------
Dated as of July 19, 2004
2
TABLE OF CONTENTS
Page
ARTICLE I SALE AND PURCHASE OF THE ASSETS 1
1.1. Assets 1
1.2. Excluded Assets 3
ARTICLE II THE CLOSING 4
2.1. Place and Date 4
2.2. Purchase Price 4
2.3. Contingent Consideration 4
2.4. Closing Date Net Asset Statement 8
2.5. Assumption of Liabilities 8
2.6. Excluded Liabilities 9
2.7. Allocation of Purchase Price. 10
ARTICLE III REPRESENTATIONS AND WARRANTIES 10
3.1. Representations and Warranties of Seller 10
3.1.1. Authorization, etc. 10
3.1.2. Corporate Status 10
3.1.3. No Conflicts, etc. 11
3.1.4. Financial Statements 11
3.1.5. Absence of Undisclosed Liabilities 12
3.1.6. Taxes 12
3.1.7. Absence of Changes 13
3.1.8. Litigation 14
3.1.9. Compliance with Laws; Governmental Approvals and
Consents; Governmental Contracts 14
3.1.10. Operation of the Business 15
3.1.11. Assets 15
3.1.12. Contracts 15
3.1.13. Territorial Restrictions 16
3.1.14 Inventories 16
3.1.15. Customers 17
3.1.16. Suppliers; Raw Materials 17
3.1.17. Product Warranties 17
3.1.18. Absence of Certain Business Practices 17
3.1.19. Intellectual Property 17
3.1.20. Insurance 18
3.1.21. Real Property 18
3.1.22. Environmental Matters 19
3.1.23. Employees, Labor Matters, etc. 21
3.1.24. Employee Benefit Plans and Related Matters 21
3.1.25. Confidentiality 22
3.1.26. No Guarantees 23
3.1.27. Records 23
3.1.28. Brokers, Finders, etc. 23
3.1.29. Disclosure 23
3
3.2. Representations and Warranties of Buyer and ▇▇▇▇▇▇▇▇ 23
3.2.1. Corporate Status; Authorization, etc. 23
3.2.2. No Conflicts, etc. 24
3.2.3. Litigation 24
3.2.4. Brokers, Finders, etc. 24
ARTICLE IV COVENANTS 24
4.1. Covenants of Seller, iDL and BRR 24
4.1.1. Further Assurances 24
4.1.2. Liability for Transfer Taxes 25
4.1.3. Use of Business Name 25
4.14. Access to Records. 25
4.2. Covenants of Buyer. 25
4.2.1. Further Assurances 25
4.3. Operation of Business. 25
4.3.1. Operation of Business 25
4.3.2. Board of Directors 25
4.3.3. Board of Advisors 26
4.3.4. Newco Management Team 26
4.3.5. Approval Process 26
4.3.6. Financing and Investment Arrangements 27
4.3.7. BP Inventory 27
4.3.8. Acquisitions 27
4.4. Shareholder Net Worth. 27
ARTICLE V CLOSING DELIVERIES 27
5.1. Deliveries of Seller 27
5.1.1. Collateral Agreements. 27
5.1.2. Opinion of Counsel 28
5.1.3. Authorization 28
5.1.4. Transfer Documents 28
5.1.5. Consents and Estoppels 28
5.2. Deliveries of Buyer 28
5.2.1. Opinion of Counsel 28
5.2.2. Certified Resolutions 28
5.2.3. Collateral Agreements 28
ARTICLE VI EMPLOYEES AND EMPLOYEE BENEFIT PLANS 28
6.1. Employment of Seller's Employees 29
6.2. Employee Benefit Plans, Welfare and Fringe Benefit Plans 29
6.3. Bonus Arrangements. 30
6.4. Workers Compensation 30
6.5. Employment Taxes 30
ARTICLE VII DEFINITIONS, MISCELLANEOUS 31
7.1. Definition of Certain Terms 31
7.2. Indemnification 36
7.3. Survival of Representations and Warranties, etc. 40
7.4. Expenses 40
7.5. Severability 40
4
7.6. Notices 41
7.7. Miscellaneous 42
7.7.1. Headings 42
7.7.2. Entire Agreement 42
7.7.3. Counterparts 42
7.7.4. Governing Law, etc. 42
7.7.5. Binding Effect 42
7.7.6. Assignment 42
7.7.7. No Third Party Beneficiaries 42
7.7.8. Amendment; Waivers, etc. 43
7.7.9. Matters of Construction, Interpretation and the
Like. 43
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SCHEDULES
SCHEDULE 1.2(a)(i) Excluded Cash
SCHEDULE 2.3(a)(iv) Free Cash Flow Example
SCHEDULE 2.3(c) Method of Distributing Contingent Consideration
SCHEDULE 2.5(j) Assumed Loans
SCHEDULE 4.3.5A Approval Process
SCHEDULE 4.3.5B ▇▇▇▇▇▇▇▇ Acquisition Policies
SCHEDULE 6.2 Assumed Employee Benefit Plans
Representations and Warranties
------------------------------
SCHEDULE 3.1.2(b) Qualifications to do Business
SCHEDULE 3.1.3 Conflicts
SCHEDULE 3.1.5 Undisclosed Liabilities
SCHEDULE 3.1.6(a) Contested Covered Taxes
SCHEDULE 3.1.6(b) Tax Extensions
SCHEDULE 3.1.6(c) Current Audits and Deficiencies
SCHEDULE 3.1.6(e) Tax Litigation
SCHEDULE 3.1.7 Absence of Changes
SCHEDULE 3.1.8 Litigation
SCHEDULE 3.1.9(a) Compliance with Laws
SCHEDULE 3.1.9(b) Governmental Approvals and other Consents
SCHEDULE 3.1.9(c) Governmental Contracts
SCHEDULE 3.1.10 Operation of the Business
SCHEDULE 3.1.11 Asset Exceptions
SCHEDULE 3.1.12(a) Contracts
SCHEDULE 3.1.12(c) Defaults and Consents under Contracts
SCHEDULE 3.1.14 Inventory Exceptions
SCHEDULE 3.1.15 Customers
SCHEDULE 3.1.16 Suppliers
SCHEDULE 3.1.17 Product Warranties
SCHEDULE 3.1.19(a) Owned Intellectual Property
SCHEDULE 3.1.19(d) Intellectual Property Licensing Arrangements
SCHEDULE 3.1.20 Insurance
SCHEDULE 3.1.21(a) Leases and Other Leases
SCHEDULE 3.1.22(a) Environmental Permits
SCHEDULE 3.1.22(d) Environmental Disclosure
SCHEDULE 3.1.23 Labor Matters
SCHEDULE 3.1.24(a) Employee Benefit Plans and Related Matters
SCHEDULE 3.1.25 Confidentiality
SCHEDULE 3.1.26 Guarantees
SCHEDULE 3.1.27 Records
SCHEDULE 3.1.30 Receivables
SCHEDULE 3.2.2 Governmental Approvals and other Consents
6
OTHER KEY CLOSING DOCUMENTS
Escrow Agreement
Employment Agreements - ▇▇▇▇▇▇ and ▇▇▇▇
Employment Agreements - Key Employees
Transitional Lease Agreements
7
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of July 19, 2004 between Cloverleaf Group,
Inc., a Pennsylvania corporation (the "Buyer") and a wholly-owned subsidiary
of ▇▇▇▇▇▇▇▇ International Corporation, a Pennsylvania corporation
("▇▇▇▇▇▇▇▇"), ▇▇▇▇▇▇▇▇, Cloverleaf Group, L.P., a Pennsylvania limited
partnership (the "Seller"), I.D.L. Incorporated, a Pennsylvania corporation
("iDL Inc."), ▇▇▇▇ ▇▇▇▇▇▇, L.P., a Pennsylvania limited partnership ("▇▇▇▇
▇▇▇▇▇▇, L.P."), Big Red Rooster, Inc., an Ohio corporation ("BRR Inc."),
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇
▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, C. ▇▇▇▇▇▇▇ ▇▇▇▇▇, 2000 Irrevocable
Trust for Family of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and 2000 Irrevocable Trust for Family of
▇▇▇▇ ▇. ▇▇▇▇▇▇, (the "iDL Shareholders"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇, and Sweet
Clover Group, Inc. (the "BRR Shareholders"). iDL Inc. and ▇▇▇▇ ▇▇▇▇▇▇, L.P.
are sometimes referred to herein together as iDL.
W I T N E S S E T H
WHEREAS, iDL Inc. and BRR Inc. have each contributed certain assets and
liabilities to Seller;
WHEREAS, since the contribution of such assets, Seller has operated the
business contributed by iDL Inc. and the business contributed by BRR Inc.;
and
WHEREAS, Buyer wishes to purchase or acquire from Seller, and Seller wishes
to sell, assign and transfer to Buyer, all of the assets and properties held
by Seller (other than the Excluded Assets), and Buyer has agreed to assume
certain Assumed Liabilities, all for the purchase price and upon the terms
and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants, representations and
warranties made herein, and of the mutual benefits to be derived hereby, and
intending to be legally bound, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE ASSETS
1.1. Assets. Subject to and upon the terms and conditions set forth in this
Agreement, Seller will sell, transfer, convey, assign and deliver to Buyer,
and Buyer will purchase or acquire from Seller, other than the Excluded
Assets, all right, title and interest of Seller in and to properties, assets
and rights of every nature, kind and description, tangible and intangible,
wherever located, whether real, personal or mixed, whether accrued,
8
contingent or otherwise and whether now existing or hereinafter acquired as
the same may exist on the Closing Date (collectively, the "Assets"),
including without limitation the following:
(a) all machinery, equipment, furniture, furnishings, automobiles, trucks,
vehicles, tools, dies, molds and parts and similar property (including, but
not limited to, any of the foregoing purchased subject to any conditional
sales or title retention agreement in favor of any other Person);
(a) all inventories of raw materials, work in process, finished products,
goods, spare parts, replacement and component parts, and office and other
supplies wherever located (collectively, the "Inventories");
(c) all rights in and to products sold or leased (including, but not limited
to, products hereafter returned or repossessed and unpaid sellers' rights of
rescission, replevin, reclamation and rights to stoppage in transit);
(d) all rights (including but not limited to any and all Intellectual
Property rights) in and to the products sold or leased and in and to any
products or other Intellectual Property rights under research or development
prior to or on the Closing Date;
(e) all of the rights of Seller under all Contracts (as hereinafter defined),
including, without limitation, any right to receive payment for products sold
or services rendered, and to receive goods and services, pursuant to such
agreements and to assert claims and take other rightful actions in respect of
breaches, defaults and other violations of such contracts, arrangements,
licenses, leases and other agreements and otherwise;
(f) all credits, prepaid expenses, deferred charges, advance payments,
security deposits and prepaid items;
(g) all notes and accounts receivable held by Seller and all notes, bonds and
other evidences of indebtedness of and rights to receive payments from any
Person held by Seller;
(h) all Intellectual Property and all rights thereunder or in respect thereof
including, but not limited to, rights to ▇▇▇ for and remedies against past,
present and future infringements thereof, and rights of priority and
protection of interests therein under the laws of any jurisdiction worldwide
and all tangible embodiments thereof (together with all Intellectual Property
rights included in the other clauses of this Section 1.1, the "Intellectual
Property Assets");
(i) all books, records, manuals and other materials (in any form or medium),
advertising matter, catalogues, price lists, correspondence, mailing lists,
lists of customers, distribution lists, photographs, production data, sales
and promotional materials and records, purchasing materials and records,
personnel records, manufacturing and quality control records and procedures,
blueprints, research and development files, records, data and laboratory
books, Intellectual Property disclosures, media materials and plates,
accounting records, sales order files and litigation files;
9
(j) to the extent their transfer is permitted by law, all Governmental
Approvals, including all applications therefor;
(k) all Real Property and all licenses, permits, approvals and qualifications
relating to any Real Property issued to Seller by any Governmental Authority;
(l) all rights to causes of action, lawsuits, judgments, claims and demands
of any nature available to or being pursued by Seller with respect to the
ownership, use, function or value of any Asset, whether arising by way of
counterclaim or otherwise; and
(m) all guarantees, warranties, indemnities and similar rights in favor of
Seller with respect to any Asset.
1.2. Excluded Assets.
(a) Seller shall retain and not transfer to Buyer, and Buyer will not
purchase or acquire from Seller the following assets (collectively, the
"Excluded Assets"):
(i) Excess Cash and Cash Equivalents (as defined below) of Seller equal to
the Calculated Amount; as used herein "Calculated Amount" shall mean
$4,115,000 less the following:
(1) distributions to iDL Inc. shareholders for 2004 estimated income tax
liabilities,
(2) all expenses, incurred in 2004, including professional fees and costs, in
connection with the formation of Seller,
(3) all expenses, incurred in 2004, including professional fees and costs,
associated with the proposed PNC financing with respect to Seller,
(4) all expenses, incurred in 2004, including professional fees and costs,
associated with the transactions contemplated by this Agreement and the
Collateral Agreements, and
(5) the $1,000,000 intercompany loan made by iDL Inc. to Seller, which
$1,000,000 was subsequently loaned by Seller to BRR Inc. and then distributed
by BRR Inc. to certain shareholders and employees.
Notwithstanding subsection 1.2(a)(i) above, Seller shall transfer to Buyer
$2,000,000 in cash and cash equivalents, and the cash and cash equivalents
which are the Excluded Assets described in such subsection above shall only
be any cash and cash equivalents in excess of such $2,000,000 amount (such
cash and cash equivalents which are in excess of such $2,000,000 amount are
referred to herein as the "Excess Cash and Cash Equivalents"). If Excess
Cash and Cash Equivalents of Seller are not sufficient to equal the
Calculated Amount, then certain trade accounts receivable to be agreed upon
by Seller and Buyer (the "Retained Accounts Receivable") shall also be
Excluded Assets, such that the Excess Cash and Cash Equivalents plus such
Retained Accounts Receivable on the Closing Date shall equal the Calculated
Amount. If the Excess Cash and Cash Equivalents of Seller exceed the
10
Calculated Amount, then such excess shall be retained by Buyer. A schedule
of how such calculation shall be made under this Section 1.2(a)(i) is
attached hereto as Schedule 1.2(a)(i). Such calculation shall be agreed to
by ▇▇▇▇▇▇▇▇ and Seller within 20 days after the Closing Date.
(ii) the iDL building, land and related improvements in Plum Borough,
Pennsylvania located at ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Plum
Facility");
(iii) the iDL building, land and related improvements in Murrysville,
Pennsylvania located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ (the
"Murrysville Facility");
(iv) two (2) notes receivable, each dated December 31, 2003, in the principal
amounts of $729,240 and $857,148 made by the 2000 Irrevocable Trust for
Family of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and the 2000 Irrevocable Trust for Family of ▇▇▇▇
▇. ▇▇▇▇▇▇, respectively, related to the cash surrender assets of the life
insurance policies of the principal officers of iDL Inc., namely ▇▇▇▇ ▇.
▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇;
(v) a shareholder note receivable from ▇▇▇▇▇▇▇ ▇▇▇▇▇ in the amount of
approximately $986,000;
(vi) an identified lot of finished goods inventory manufactured before
December 31, 2003 that is a component of the reimaging program with iDL's
customer BP having an approximate book value of $1,800,000, if such inventory
has not been shipped on the Closing Date (the "BP Inventory"), or any
accounts receivable related to the BP Inventory if it has been shipped prior
to the Closing Date; and
(vii) iDL's equity interest in Goliath LLC, an Illinois limited liability
company.
(b) Seller shall retain any intercompany accounts receivable or payable
resulting from transactions among iDL Inc., BRR Inc. and Seller, including
the intercompany receivable from BRR Inc. related to the transaction
described in Section 1.2(a)(i)(5) above.
ARTICLE II
THE CLOSING
2.1. Place and Date. The closing of the sale and purchase of the Assets
from Seller (the "Closing") shall take place upon execution and delivery of
this Agreement and all acts and deliveries provided by Article V (such date
and time herein referred to as the "Closing Date").
2.2. Purchase Price. On the terms and subject to the conditions set forth
in this Agreement, Buyer agrees to (a) pay or cause to be paid to Seller an
aggregate of $32,390,000, as such amount may be adjusted in accordance with
Section 1.2(a)(i) (the "Adjusted Payment"), at the Closing, (b) make the
Contingent Consideration Payments to Seller as described in Section 2.3, and
(c) assume the certain Assumed Liabilities as provided in Section 2.5 (the
amounts referred to subsection (a), (b) and (c) above being referred to
11
herein collectively as the "Purchase Price"). The portion of the Purchase
Price described in subsection (a) above shall be payable at the Closing, by
the wire transfer in immediately available funds to such bank account or
accounts as per written instructions of the applicable party given to Buyer
at least five days prior to the Closing as follows:
(i) subject to Section 1.2(a)(i), to Seller in the amount of
$31,890,000; and
(ii) to the Escrow Fund in the amount of $500,000.
The "Escrow Fund" shall be maintained and administered pursuant to the Escrow
Agreement executed and delivered as of the date hereof (the "Escrow
Agreement").
2.3. Contingent Consideration. For the purposes of this Agreement, the
following terms shall have the following meanings:
(a) (i) "Operating Profit" shall mean the earnings of Buyer calculated in
accordance with GAAP, excluding (x) any interest on indebtedness, other than
interest on Temporary Working Capital Infusions (as described in subsection
(b) below), which interest on Temporary Working Capital Infusions shall be
included (i.e. deducted) when calculating Operating Profit, (y) federal and
state income-based taxes, and (z) any adjustments made for purchase
accounting purposes resulting from the transaction contemplated by this
Agreement which have an impact on future reported Operating Profit, including
depreciation and amortization of the re-valuation for purchase accounting
purposes of tangible and intangible assets, and the cost of sales impact
related to the re-valuation of inventory for purchase accounting purposes, in
each case resulting from the transaction contemplated by this Agreement (but
nevertheless including (and not excluding) all purchase accounting
adjustments related to all future acquisitions). For the purposes of
calculating Operating Profit, any direct administrative or financial services
performed by ▇▇▇▇▇▇▇▇ or its Affiliates on behalf of Buyer (including without
limitation accounts receivable, payroll, human resources, ▇▇▇▇ payment,
benefits, retirement or pension plans, etc.) (the "▇▇▇▇▇▇▇▇ Services") shall
be charged as an expense. These ▇▇▇▇▇▇▇▇ Services will only be performed by
▇▇▇▇▇▇▇▇ or its Affiliates on behalf of Buyer if ▇▇▇▇▇▇▇▇ and Buyer agree
that there exists the opportunity for cost savings to both ▇▇▇▇▇▇▇▇ and Buyer
or if any of ▇▇▇▇▇▇▇▇ or its Affiliates (including Buyer) is legally required
to do so. The calculation of Operating Profit shall not include corporate
headquarters building costs, as currently captured in ▇▇▇▇▇▇▇▇ "Department
90" account, and executive management compensation or severance, public
company reporting and related costs, as currently captured in the ▇▇▇▇▇▇▇▇'
"Department 93" account (collectively, "Corporate Overhead"). Although
Corporate Overhead is not included in the calculation of Operating Profit,
Corporate Overhead shall be allocated to Buyer (i) for purposes of creating
segmented financial statements for public disclosure and internal
intercompany financial statements and (ii) for purposes of calculating Free
Cash Flow.
(ii) "Average Operating Profit" shall mean the mathematical average between
the respective Operating Profits of any two applicable fiscal years of Buyer.
12
(iii) "Initial Investment" shall mean the Adjusted Payment
payable as described in Section 2.2(a), plus the actual total amount of
Assumed Loans described in Section 2.5(i).
(iv) "Free Cash Flow" shall mean, for any period, the cash flow of Buyer as
determined in accordance with GAAP, consistently applied, based upon the
Buyer's net income for such period also determined in accordance with GAAP,
consistently applied, plus for such period (A) the Buyer's allocated share of
Corporate Overhead, (B) the Buyer's allocated share of the cost of any
▇▇▇▇▇▇▇▇ Services which were not used by Buyer, (C) the amount of any
Temporary Working Capital Infusions converted to Subsequent Investment Cost
incurred by Buyer during such period, and (D) solely for the first fiscal
quarter in which Free Cash Flow is calculated, the total amount of the
Assumed Loans. An example of a Free Cash Flow calculation is attached hereto
as Schedule 2.3(a)(iv). The line items used on the Schedule are examples of
line items in connection with the Free Cash Flow calculation, but the dollar
amounts used in the example are fictitious.
(v) "Accumulated Free Cash Flow" shall mean the aggregate (positive and
negative) of Free Cash Flows for the period from the effective date of the
Closing Net Assets Statement through the date Accumulated Free Cash Flow is
being measured.
(vi) "Initial Acquisition Cost" shall mean the Initial Investment plus an
amount equal to 15% interest on the Initial Investment, compounded annually
taking into account the number of annual periods or fraction thereof from the
Closing Date until the end of an applicable period.
(vii) "Subsequent Investment Cost" shall mean any Cash Infusions (as defined
in Section 2.3(b)) provided to Buyer by ▇▇▇▇▇▇▇▇ or its Affiliates plus (with
respect to each Cash Infusion) an amount equal to 15% interest on the Cash
Infusion, compounded annually taking into account the number of annual
periods or fraction thereof since the date a Temporary Working Capital
Infusion was converted to a Cash Infusion until the end of an applicable
period.
(viii) "Outstanding Temporary Working Capital Infusions" shall mean the total
outstanding amount of the Temporary Working Capital Infusions not repaid by
Buyer to ▇▇▇▇▇▇▇▇ or its Affiliates as of the end of any Fiscal Quarter.
(ix) "2006 Contingent Acquisition Cost" shall mean the 2006 Contingent
Amount (as defined in Section 2.3(c)(i)) plus an amount equal to 15% interest
on the 2006 Contingent Amount, compounded annually taking into account the
number of annual periods or fraction thereof since each of the two payments
have been made to Seller with respect to the 2006 Contingent Amount, until
the end of an applicable period.
(x) "Fiscal Quarter" shall have the meaning set forth in Section 2.3(b)(i).
(b) (i) Buyer shall be entitled to use its Free Cash Flow to fund its
operations, acquisitions and other capital needs. To the extent Buyer
requires temporary working capital cash or cash funding infusions beyond its
Free Cash Flow (the "Temporary Working Capital Infusions") from ▇▇▇▇▇▇▇▇ or
its Affiliates for any of the reasons set forth in the preceding sentence, or
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to the extent that at the end of any fiscal quarter ending December 31,
March 31, June 30 or September 30 (a "Fiscal Quarter"), Accumulated Free Cash
Flow is calculated to be a negative number (a "Shortfall"), ▇▇▇▇▇▇▇▇ or its
Affiliates will be deemed to have made an advance of funds for such Temporary
Working Capital Infusions to Buyer, in an amount requested by Buyer or to
make up any Shortfall. Temporary Working Capital Infusions shall bear simple
interest at a rate equal to the Prime Rate on the date at the end of a Fiscal
Quarter such Temporary Working Capital Infusion is made, as the case may be,
plus 2%. The interest expense of Buyer for any Temporary Working Capital
Infusions will be charged against Buyer Operating Profit after any such
Temporary Working Capital Infusions are made, for purposes of calculating
Operating Profit for this Agreement, until such time that the Temporary
Working Capital Infusions amount is repaid by Buyer to ▇▇▇▇▇▇▇▇ or its
Affiliates or until such Temporary Working Capital Infusions are converted
into a Cash Infusion (as described below).
(ii) ▇▇▇▇▇▇▇▇ shall prepare a statement of Free Cash Flow for each Fiscal
Quarter, and the then current amount of Temporary Working Capital Infusions
shall be redetermined based upon such statement and shall be deemed to remain
outstanding at least until the end of the next Fiscal Quarter, and thereafter
if so determined based upon the next Free Cash Flow Statement. By way of
example, if Accumulated Free Cash Flow increases as between two successive
Fiscal Quarters, then the amount of Outstanding Temporary Working Capital
Infusions, as of the end of the second such Fiscal Quarter, shall be deemed
to decrease by such amount of increase in Accumulated Free Cash Flow, and if
Accumulated Free Cash Flow decreases as between two successive Fiscal
Quarters, then the amount of Outstanding Temporary Working Capital Infusions
as of the end of the second Fiscal Quarter, shall be deemed to increase by
such amount of decrease in Accumulated Free Cash Flow, and in either case the
then Outstanding Temporary Working Capital Infusions (if any) shall bear
interest at the then applicable Prime Rate as of the date at the end of such
second Fiscal Quarter, plus 2%.
(iii) Temporary Working Capital Infusions which are not repaid within 18
months of the date made shall be deemed to be cash infusions (the "Cash
Infusions"), which are then subject to a 15% cost of capital as described in
the definition of "Subsequent Investment Cost." Conversely, the 15% cost of
capital shall not be applied on Temporary Working Capital Infusions until
they have been outstanding for 18 months and have therefore been converted to
a Cash Infusion. By way of example, if a Temporary Working Capital Infusion
of $100,000 is made as of December 31, 2004, and as of the end of each
successive Fiscal Quarter through June 30, 2006, the Outstanding Temporary
Working Capital Infusions are never below $20,000, then on June 30, 2006,
$20,000 shall be converted from an Outstanding Temporary Working Capital
Infusion into a Cash Infusion.
(c) As additional consideration with respect to the Purchase Price, Seller
shall be eligible for contingent consideration payments (the "Contingent
Consideration Payments") based upon the Operating Profit of Buyer during the
six-year period commencing October 1, 2004 and ending on September 30, 2010
(the "Contingent Payment Period"). Such Contingent Consideration Payments,
if any, shall be made by Buyer to Seller in accordance with written
instructions as to place of delivery to be provided by Seller to ▇▇▇▇▇▇▇▇
before the date of any such payments. Such Contingent Consideration Payments
14
shall be further distributed to the partners of Seller in accordance with the
provisions of Schedule 2.3(c). Such distribution procedures shall not be
modified without the consent of ▇▇▇▇▇▇▇▇. Based on a calculated statement to
determine Contingent Consideration Payments with respect to Buyer for the
applicable periods, which will be prepared and certified by Buyer's Auditors
(the "Calculated Statement"), Seller shall be entitled to the following
Contingent Consideration Payments, if any:
(i) In the event that six (6) multiplied by the Average Operating Profit
for the two fiscal years ended September 30, 2005 and September 30, 2006 is
in excess of the sum of: (A) the Initial Acquisition Cost calculated through
September 30, 2006; (B) any Subsequent Investment Cost calculated through
September 30, 2006; and (C) any Outstanding Temporary Working Capital
Infusions at September 30, 2006, ▇▇▇▇▇▇▇▇ shall contribute to Buyer and Buyer
shall pay fifty percent (50%) of such excess to Seller (the "2006 Contingent
Amount") in two equal installments, the first of which shall be payable on
January 2, 2007 and the second of which, together with simple interest
thereon from January 2, 2007 at the Prime Rate, shall be payable on January
2, 2008.
(ii) In the event that six (6) multiplied by the Average Operating Profit
for the two fiscal years ended September 30, 2007 and September 30, 2008 is
in excess of the sum of: (A) the Initial Acquisition Cost calculated through
September 30, 2008; (B) any 2006 Contingent Acquisition Cost calculated
through September 30, 2008; (C) any Subsequent Investment Cost calculated
through September 30, 2008; and (D) any Outstanding Temporary Working Capital
Infusions at September 30, 2008, ▇▇▇▇▇▇▇▇ shall contribute to Buyer and Buyer
shall pay fifty percent (50%) of such excess to Seller (the "2008 Contingent
Amount") in two equal installments, the first of which shall be payable on
January 2, 2009 and the second of which, together with simple interest
thereon from January 2, 2009 at the Prime Rate, shall be payable on January
2, 2010; and
(iii) In the event that six (6) multiplied by the Average Operating Profit
for the two fiscal years ended September 30, 2009 and September 30, 2010 is
in excess of the sum of: (A) the Initial Acquisition Cost calculated through
September 30, 2010; (B) any 2006 Contingent Acquisition Cost calculated
through September 30, 2010; (C) any 2008 Contingent Amount plus an amount
equal to 15% interest on the 2008 Contingent Amount, compounded annually
taking into effect the number of annual periods or fraction thereof since
each of the two payments have been made to Seller with respect to the 2008
Contingent Amount, calculated through September 30, 2010; (D) any Subsequent
Investment Cost calculated through September 30, 2010; and (E) any
Outstanding Temporary Working Capital Infusions at September 30, 2010,
▇▇▇▇▇▇▇▇ shall contribute to Buyer and Buyer shall pay fifty percent (50%) of
such excess to Seller in two equal installments, the first of which shall be
payable on January 2, 2011 and the second of which, together with simple
interest thereon from January 2, 2011 at the Prime Rate, shall be payable on
January 2, 2012.
(iv) There shall no minimum or maximum Contingent Consideration Payments that
may be earned.
15
2.4 Closing Date Net Asset Statement. As promptly as practicable after the
Closing Date (but in no event later than 60 days after the Closing Date), the
Buyer will deliver to Seller a statement of the net assets for each of the
respective net assets transferred by iDL Inc. and BRR Inc. as of the Closing
Date (the "Closing Net Assets Statements"). The Closing Net Assets
Statements will be prepared and certified on an accrual basis by Buyer's
Auditor in accordance with GAAP. The fees and expenses of Buyer's Auditor in
preparing and certifying the Closing Net Assets Statements shall be shared
equally between Seller and ▇▇▇▇▇▇▇▇.
2.3. Assumption of Liabilities. Subject to the terms and conditions set
forth herein, at the Closing Buyer shall assume and agree to pay, honor and
discharge when due all of the following liabilities relating to the Assets
and existing at or arising on or after the Closing Date (collectively, the
"Assumed Liabilities"):
(a) any and all Working Capital Liabilities (as hereinafter defined) of
Seller that are (i) reflected on the Balance Sheets or (ii) incurred after
the date of the Balance Sheets in the ordinary course of business consistent
with prior practice and in accordance with the terms of this Agreement. For
purposes hereof, "Working Capital Liabilities" shall include trade accounts
payable, accrued compensation and benefits, accrued vacation, other accrued
expenses, all accrued and unpaid interest on the Assumed Loans (as defined
below), and other current liabilities;
(b) any and all liabilities, obligations and commitments accruing and arising
after the Closing Date out of the Contracts set forth on Schedule 3.1.12(a),
but not including any obligation or liability for any breach thereof
occurring prior to the Closing Date; and
(c) liabilities in respect of Transferred Employees and employee benefit
plans to the extent specifically assumed by Buyer pursuant to Article VI;
(d) the equipment financing loan between iDL and the Commonwealth of
Pennsylvania Department of Community and Economic Development Machinery and
Equipment Loan Fund ("MELF") dated October 14, 1998;
(e) the Loan between iDL and PNC Bank N.A. dated as of May 20, 2002;
(f) the equipment financing loan between BRR and Bank One dated September 17,
2002 , as amended December 23, 2002;
(g) the BRR loan from Fifth Third Bank (Chicago), dated October 1, 2003 in
the original principal amount of $400,000;
(h) the BRR loan from Fifth Third Bank (Central Ohio), dated July 1, 2003 in
the original principal amount of $200,000;
(i) the Sweet Clover Group, Inc. loan to BRR dated October 29, 2003 in the
amount of $50,000; and
(j) any other recorded interest-bearing indebtedness (including capitalized
lease obligations) as of the Closing Date (items (d), (e), (f), (g), (h) and
16
(i) being referred to herein as the "Assumed Loans"). The actual amount of
the Assumed Loans on the Closing Date is set forth herein on Schedule 2.5(j).
2.4. Excluded Liabilities. Notwithstanding the provisions of Section 2.5 or
any other provision hereof or any schedule or exhibit hereto and regardless
of any disclosure to Buyer, Buyer shall not assume any liabilities,
obligations or commitments of Seller relating to or arising out of the
operation of Seller's business or the ownership of the Assets prior to the
Closing other than the Assumed Liabilities (the "Excluded Liabilities")
including, without limitation, the following:
(i) any intercompany accounts payable resulting from transactions among
Seller, iDL Inc. and BRR Inc., including the intercompany payable from Seller
to iDL Inc. related to the transaction described in Section 1.2(a)(i)(5);
(ii) income tax liabilities of iDL, BRR Inc., or Seller or their shareholders
or partners respectively;
(iii) any liabilities associated with the formation of Seller, including
without limitation the PNC loan to Seller, if any, as of the Closing Date;
(iv) any liabilities not contained on the Balance Sheets; and
(v) any liabilities arising under any applicable Environmental Laws, relating
in any way to the Seller's operation of the business or to any environmental
conditions on, at, under or from the Real Property, the Assets or other
properties or assets owned, leased or used by Seller existing at or prior to
the Closing Date.
2.7. Allocation of Purchase Price.
(a) The parties agree to allocate the Purchase Price among the Assets in
accordance with an allocation schedule reasonably acceptable to Seller which
shall be prepared by Buyer. Buyer intends to obtain an appraisal with
respect to the Assets. Such allocation schedule shall be prepared in
accordance with section 1060 of the Code and in accordance with such
appraisal.
(b) In connection with the determination of the foregoing allocation
schedule, the parties shall cooperate with each other and provide such
information as any of them shall reasonably request. The parties will each
report the federal, state and local and other Tax consequences of the
purchase and sale contemplated hereby (including the filing of Internal
Revenue Service Form 8594) in a manner consistent with such allocation
schedule.
17
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of Seller. The parties acknowledge that
the Assets are contemporaneously being transferred from iDL Inc. and BRR Inc.
to Seller, and then to Buyer. In view of the foregoing, and for the
avoidance of doubt, the use of the term "Seller" in this Article III shall
include each of the corporate entities iDL Inc. and BRR Inc., as the case may
be, and shall refer to the Assets as held by Seller and as held by each of
IDL Inc. and BRR Inc., as the case may be. Each of Seller and the BRR Group
jointly and severally represent and warrant to Buyer with respect to the
Assets which were owned by BRR Inc., and each of Seller and the iDL Group
jointly and severally represent to Buyer with respect to the Assets which
were owned by iDL, as follows:
3.1.1. Authorization, etc. Each of the Seller, iDL Inc., ▇▇▇▇ ▇▇▇▇▇▇,
L.P., BRR Inc., the iDL Shareholders and BRR Shareholders has the requisite
applicable power and authority to execute and deliver this Agreement and each
of the Collateral Agreements to which it will be a party, to perform fully
its obligations thereunder, and to consummate the transactions contemplated
hereby and thereby. The execution and delivery by such parties of this
Agreement and the Collateral Agreements to which it is a party, and the
consummation of the transactions contemplated hereby and thereby, have been
duly authorized by all requisite action of such parties. Such parties have
duly executed and delivered this Agreement and the Collateral Agreements to
which it is a party. This Agreement and each of the Collateral Agreements is
a legal, valid and binding obligations of such parties, enforceable against
such parties in accordance with their respective terms.
3.1.2. Corporate Status.
(a) Seller is a limited partnership duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania, with full
partnership power and authority to carry on its business and to own or lease
and to operate its properties as and in the places where such business is
conducted and such properties are owned, leased or operated.
(b) Seller is duly qualified or licensed to do business and is in good
standing in each of the jurisdictions specified opposite its name in Schedule
3.1.2(b), which are the only jurisdictions in which the operation of its
business or the character of the properties owned, leased or operated by it
makes such qualification or licensing necessary unless the failure to so
qualify would not result in a Material Adverse Effect.
(c) Seller has delivered to Buyer complete and correct copies of its
certificate of limited partnership and partnership agreement or other
organizational documents, in each case, as amended and in effect on the date
hereof. Seller is not in violation of any of the provisions of its
certificate of limited partnership or other organizational documents.
3.1.3. No Conflicts, etc. The execution, delivery and performance by
each of the Seller, iDL Inc., ▇▇▇▇ ▇▇▇▇▇▇, L.P., BRR Inc., the iDL
Shareholders and the BRR Shareholders of this Agreement and each of the
18
Collateral Agreements to which it is a party, and the consummation of the
transactions contemplated hereby and thereby, do not and will not conflict
with or result in a violation of or a default under (with or without the
giving of notice or the lapse of time or both) (i) any Applicable Law
applicable to such party or any of the properties or assets of such party
(including but not limited to the Assets), (ii) the certificate of formation
or operating agreement or other organizational documents of such party or
(iii) except as set forth in Schedule 3.1.3, any Contract or other material
contract, agreement or other instrument to which such party is a party or by
which such party or any of its properties or assets, including but not
limited to the Assets, may be bound or affected. Except as specified in
Schedule 3.1.3, no Governmental Approval or other Consent is required to be
obtained or made by such party in connection with the execution and delivery
of this Agreement and the Collateral Agreements or the consummation of the
transactions contemplated hereby or thereby.
3.1.4. Financial Statements. The Buyer has been delivered (a)
(i) audited consolidated financial statements of iDL as at and for the
periods ended January 3, 2004 (the "Audited Balance Sheet Date"), together
with a report thereon by iDL's accountants (the "Audited Financial
Statements"), (ii) unaudited consolidated financial statements of iDL as at
and for the period ended March 31, 2004 (the "Unaudited Quarterly iDL
Financial Statements"), (iii) unaudited consolidated financial statements of
iDL as at and for the monthly periods ended April 30 and May 31, 2004 (the
"Monthly iDL Unaudited Financial Statements"), including in each of clauses
(i), (ii) and (iii) a balance sheet, statements of income and retained
earnings and in clause (i) a statement of cash flows and (b) (i) unaudited
consolidated financial statements of BRR as at and for the periods ended
December 31, 2003 (the "Unaudited Balance Sheet Date") (the "Unaudited Annual
Financial Statements"), (ii) unaudited consolidated financial statements of
BRR as at and for the period ended March 31, 2004 (the "Unaudited Quarterly
BRR Financial Statements"), (iii) unaudited consolidated financial statements
of BRR as at and for the monthly periods ended April 30 and May 31, 2004 (the
"Monthly BRR Unaudited Financial Statements"), including in each of clauses
(i), (ii) and (iii) a balance sheet, statements of income and retained
earnings and in clause (i) a statement of cash flows (the Audited Financial
Statements, Unaudited Annual Financial Statements, the Unaudited Quarterly
iDL Financial Statements, the Unaudited Quarterly BRR Financial Statements,
the Monthly iDL Unaudited Financial Statements and the Monthly BRR Unaudited
Financial Statements are referred to herein collectively the "Financial
Statements"). The Audited Financial Statements are complete and correct in
all material respects and have been prepared in accordance with GAAP applied
throughout the periods indicated. The Unaudited Quarterly iDL Financial
Statements and the Monthly iDL Unaudited Financial Statements have been
prepared in all material respects on a basis consistent with the Audited
Financial Statements, except that the Unaudited Quarterly iDL Financial
Statements and the Monthly iDL Unaudited Financial Statements do not contain
notes and may be subject to normal audit adjustments and, in the case of the
Monthly iDL Unaudited Financial Statements, normal annual adjustments. The
Unaudited Annual Financial Statements are complete and correct in all
material respects and have been prepared in accordance with GAAP applied
throughout the periods indicated. The Unaudited Quarterly BRR Financial
Statements and the Monthly BRR Unaudited Financial Statements have been
prepared in all material respects on a basis consistent with the Unaudited
Annual Financial Statements, except that the Unaudited Quarterly BRR
19
Financial Statements and the Monthly BRR Unaudited Financial Statements do
not contain notes and may be subject to normal audit adjustments and, in the
case of the Monthly BRR Unaudited Financial Statements, normal annual
adjustments. The balance sheets included in the Financial Statements do not
include any material assets or liabilities not intended to constitute a part
of the Assets after giving effect to the transactions contemplated hereby,
and present fairly the financial condition of Seller as at their respective
dates. The statements of income and retained earnings and statements of cash
flows included in the Financial Statements do not reflect the operations of
any entity or business not intended to constitute a part of Seller's business
after giving effect to all such transactions, reflect all costs that
historically have been incurred by Seller (other than the Excluded
Liabilities) and present fairly the results of operations and cash flows of
Seller for the periods indicated.
3.1.5. Absence of Undisclosed Liabilities. Seller has no liabilities or
obligations of any nature, whether known or unknown, absolute, accrued,
contingent or otherwise and whether due or to become due, except as and to
the extent reflected or reserved against in the Balance Sheets (excluding the
notes thereto) and for liabilities and obligations that (i) were incurred
after the date of the Balance Sheets in the ordinary course of business
consistent with prior practice and (ii) individually and in the aggregate are
not material to the Seller and have not had or resulted in, and will not have
or result in, a Material Adverse Effect. None of the Seller's employees are
now or will by the passage of time hereinafter become entitled to receive any
vacation time, vacation pay or severance pay attributable to services
rendered prior to such date except as disclosed on the Balance Sheets
(excluding the notes thereto) or otherwise described on Schedule 3.1.5.
3.1.6. Taxes.
(a) Seller has (or by the Closing will have) duly and timely filed
all Tax Returns with respect to Taxes to be filed on or before the Closing
Date ("Tax Returns"). Except for Taxes set forth on Schedule 3.1.6(a), which
are being contested in good faith and by appropriate proceedings, the
following Taxes have (or by the Closing Date will have) been duly and timely
paid: (i) all Taxes shown to be due on the Returns, (ii) all deficiencies and
assessments of Taxes of which notice has (or by the Closing Date will have)
been received by Seller that are or may become payable by Buyer chargeable as
a lien upon the Assets and (iii) all other Taxes due and payable on or before
the Closing Date for which neither filing of Tax Returns nor notice of
deficiency or assessment is required, if Seller is or reasonably should be
(or by the Closing Date will be or reasonably should be) aware that are or
may become payable by Buyer or chargeable as a lien upon the Assets. All
Taxes required to be withheld by or on behalf of Seller in connection with
amounts paid or owing to any employee, independent contractor, creditor or
other party ("Withholding Taxes") have been withheld, and such withheld taxes
have either been duly and timely paid to the proper Governmental Authorities
or set aside in accounts for such purpose.
(b) Except as set forth on Schedule 3.1.6(b), no agreement or other
document extending, or having the effect of extending, the period of
assessment or collection of any Taxes or Withholding Taxes, and no power of
20
attorney with respect to any such Taxes, has been filed with the IRS or any
other Governmental Authority.
(c) Except as set forth on Schedule 3.1.6(c), (i) there are no Taxes
or Withholding Taxes asserted in writing by any Governmental Authority to be
due and (ii) no issue has been raised in writing by any Governmental
Authority in the course of any audit with respect to Taxes or Withholding
Taxes. Except as set forth on Schedule 3.1.6(c), no Taxes and no Withholding
Taxes are currently under audit by any Governmental Authority. Except as set
forth on Schedule 3.1.6(c), neither the IRS nor any other Governmental
Authority is now asserting or, to the best knowledge of Seller, threatening
to assert against Seller any deficiency or claim for additional Taxes or any
adjustment of paid Taxes that would, if paid by Buyer, have a Material
Adverse Effect, and there is no reasonable basis for any such assertion of
which Seller is or reasonably should be aware.
(d) Buyer will not be required to deduct and withhold any amount
pursuant to section 1445(a) of the Code upon the transfer of the Assets to
Buyer.
(e) Except as set forth on Schedule 3.1.6(e), there is no litigation
or administrative appeal pending or, to the knowledge of Seller, threatened
against or relating to Seller in connection with paid Taxes.
3.1.7. Absence of Changes. Except as set forth in Schedule 3.1.7, since
May 31, 2004, Seller has conducted its business only in the ordinary course
consistent with prior practice and has not, on behalf of, in connection with
or relating to the business or the Assets:
(a) suffered any Material Adverse Effect;
(b) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except current
liabilities for trade or business obligations incurred in connection with the
purchase of goods or services in the ordinary course of business consistent
with prior practice, none of which liabilities, in any case or in the
aggregate, could have a Material Adverse Effect;
(c) discharged or satisfied any Lien other than those then required
to be discharged or satisfied, or paid any obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to become due, other than
current liabilities shown on the Balance Sheets and current liabilities
incurred since the date thereof in the ordinary course of business consistent
with prior practice;
(d) mortgaged, pledged or subjected to Lien, any property, business
or assets, tangible or intangible;
(e) sold, transferred, leased to others or otherwise disposed of any
of the Assets, except for inventory sold in the ordinary course of business,
or cancelled or compromised any debt or claim, or waived or released any
right of substantial value,
21
(f) received any notice of termination of any contract, lease or
other agreement or suffered any damage, destruction or loss (whether or not
covered by insurance) which, in any case or in the aggregate, has had a
Material Adverse Effect;
(g) transferred or granted any rights under, or entered into any
settlement regarding the breach or infringement of, any Intellectual
Property, or modified any existing rights with respect thereto;
(h) made any change in the rate of compensation, commission, bonus or
other direct or indirect remuneration payable, or paid or agreed or orally
promised to pay, conditionally or otherwise, any bonus, incentive, retention
or other compensation, retirement, welfare, fringe or severance benefit or
vacation pay, to or in respect of any shareholder, director, officer,
employee, salesman, distributor or agent of Seller;
(i) encountered any labor union organizing activity, had any actual
or threatened employee strikes, work stoppages, slowdowns or lockouts, or had
any material change in its relations with its employees, agents, customers or
suppliers;
(j) failed to replenish inventories and supplies in a normal and
customary manner consistent with its prior practice and prudent business
practices prevailing in the industry, or made any purchase commitment in
excess of the normal, ordinary and usual requirements of its business or at
any price in excess of the then current market price or upon terms and
conditions more onerous than those usual and customary in the industry, or
made any change in its selling, pricing, advertising or personnel practices
inconsistent with its prior practice and prudent business practices
prevailing in the industry;
(k) made any capital expenditures or capital additions or
improvements in excess of an aggregate of $50,000;
(l) instituted, settled or agreed to settle any litigation, action or
proceeding before any court or governmental body other than in the ordinary
course of business consistent with past practices but not in any case
involving amounts in excess of $50,000;
(m) entered into any transaction, contract or commitment other than
in the ordinary course of business or paid or agreed to pay any legal,
accounting, brokerage, finder's fee, Taxes or other expenses in connection
with, or incurred any severance pay obligations by reason of, this Agreement
or the transactions contemplated hereby;
(n) made any dividend, equity redemption or other distribution other
than dividends for 2003 taxes made prior to April 15, 2004, and dividends for
2004 estimated tax payments, in each case as previously disclosed to
▇▇▇▇▇▇▇▇; or
(o) taken any action or omitted to take any action that would result
in the occurrence of any of the foregoing.
22
3.1.8. Litigation. Except as set forth on Schedule 3.1.8, there is no
action, claim, demand, suit, proceeding, arbitration, grievance, citation,
summons, subpoena, inquiry or investigation of any nature, civil, criminal,
regulatory or otherwise, in law or in equity, pending or threatened against
or relating to Seller or against or relating to the transactions contemplated
by this Agreement, and Seller does not know and has no reason to be aware of
any basis for the same. Except as set forth in such Schedule 3.1.8, no
citations, fines or penalties have been asserted against Seller under any
Environmental Law or any foreign, federal, state or local law relating to
occupational health or safety.
3.1.9. Compliance with Laws; Governmental Approvals and Consents;
Governmental Contracts.
(a) Except as disclosed in Schedule 3.1.9(a), Seller has complied in
all material respects with all Applicable Laws, and Seller has not received
any notice alleging any such conflict, violation, breach or default.
(b) Schedule 3.1.9(b) sets forth all Governmental Approvals and other
Consents necessary for, or otherwise material to, the conduct of its
business. Except as set forth in Schedule 3.1.9(b), all such Governmental
Approvals and Consents have been duly obtained and are in full force and
effect, and Seller is in compliance with each of such Governmental Approvals
and Consents held by it.
(c) Schedule 3.1.9(c) sets forth all Contracts with any Governmental
Authority.
(d) There are no proposed laws, rules, regulations, ordinances,
orders, judgments, decrees, governmental takings, condemnations or other
proceedings which would be applicable to the business, operations or
properties of Seller and which might adversely affect the properties, assets,
liabilities, operations or prospects of Seller either before or after the
Closing Date.
3.1.10. Operation of the Business. Except as set forth in Schedule
3.1.10, the Assets (a) constitute all of the assets, tangible and intangible,
necessary to operate Seller's business in the manner presently operated by
Seller and (b) include all the operating assets of Seller.
3.1.11. Assets. Except as disclosed in Schedule 3.1.11, Seller has good
title to all the Assets free and clear of any and all Liens other than
Permitted Liens. Except for Excluded Assets, there are no assets or
properties used in the operation of Seller's business and owned by any Person
other than Seller that will not be leased or licensed to Buyer under valid,
current leases or license arrangements. The Assets are in all material
respects adequate for the purposes for which such assets are currently used
or are held for use, and are in reasonably good repair and operating
condition (subject to normal wear and tear) and, to the knowledge of Seller,
there are no facts or conditions affecting the Assets which could,
individually or in the aggregate, interfere in any material respect with the
use, occupancy or operation thereof as currently used, occupied or operated,
or their adequacy for such use.
23
3.1.12. Contracts.
(a) Schedule 3.1.12(a) contains a complete and correct list of all
agreements, contracts, commitments and other instruments and arrangements
(whether written or oral) of the types described below (x) under which Seller
has or may acquire any rights or benefits (y) under which Seller has or may
become subject to any obligation or liability; or (z) by which Seller or any
of the Assets is or may be bound (the "Contracts"):
(i) leases, licenses, permits, franchises, insurance policies,
Governmental Approvals and other contracts concerning or relating to the Real
Property;
(ii) employment, consulting, agency, collective bargaining or other
similar contracts, agreements, and other instruments and arrangements
relating to or for the benefit of current, future or former employees,
officers, directors, sales representatives, distributors, dealers, agents,
independent contractors or consultants;
(iii) loan agreements, indentures, letters of credit, mortgages,
security agreements, pledge agreements, deeds of trust, bonds, notes,
guarantees, and other agreements and instruments relating to the borrowing of
money or obtaining of or extension of credit;
(iv) licenses, licensing arrangements and other contracts providing
in whole or in part for the 'use of, or limiting the use of, any Intellectual
Property;
(v) brokerage or finder's agreements;
(vi) joint venture, partnership and similar contracts involving a
sharing of profits or expenses (including but not limited to joint research
and development and joint marketing contracts);
(vii) asset purchase agreements and other acquisition or divestiture
agreements, including but not limited to any agreements relating to the sale,
lease or disposal of any Assets (other than sales of inventory in the
ordinary course of business) or involving continuing indemnity or other
obligations;
(viii) orders and other contracts for the purchase or sale of
materials, supplies, products or services, each of which involves aggregate
payments in excess of $50,000;
(ix) contracts with respect to which the aggregate amount that could
reasonably expected to be paid or received thereunder in the future exceeds
$50,000 per annum or $500,000 in the aggregate;
(x) sales agency, manufacturer's representative, marketing or
distributorship agreements;
24
(xi) contracts, agreements or arrangements with respect to the
representation of Seller in foreign countries;
(xii) master lease agreements providing for the leasing of personal
property used by Seller;
(xiii) contracts, agreements or commitments with any employee,
director, officer, stockholder or Affiliate of Seller; and
(xiv) any other contracts, agreements or commitments that are material
to the Seller.
(b) Seller has delivered to Buyer complete and correct copies of all
written Contracts, together with all amendments thereto, and accurate
descriptions of all material terms of all oral Contracts, set forth or
required to be set forth in Schedule 3.1.12(a).
(c) All Contracts are in full force and effect and enforceable
against each party thereto. There does not exist under any Contract any
event of default or event or condition that, after notice or lapse of time or
both, would constitute a violation, breach or event of default thereunder on
the part of Seller or, to the best knowledge of Seller, any other party
thereto except as set forth in Schedule 3.1.12(c) and except for such events
or conditions that, individually and in the aggregate, (i) has not had or
resulted in, and will not have or result in, a Material Adverse Effect and
(ii) has not and will not materially impair the ability of Seller to perform
its obligations under the this Agreements and under the Collateral
Agreements. Except as set forth in Schedule 3.1.12(c), no consent of any
third party is required under any Contract as a result of or in connection
with, and the enforceability of any Contract will not be affected in any
manner by, the execution, delivery and performance of this Agreement, or any
of the Collateral Agreements or the consummation of the transactions
contemplated hereby or thereby.
3.1.13. Territorial Restrictions. Seller is not restricted by any
written agreement or understanding with any other Person from carrying on its
business anywhere in the world. Buyer, solely as a result of its purchase of
the Assets from Seller pursuant hereto and the assumption of the Assumed
Liabilities, will not thereby become restricted in carrying on any business
anywhere in the world.
3.1.14. Inventories. All Inventories are of good, usable and
merchantable quality in all material respects and, except as set forth on
Schedule 3.1.14, do not include obsolete or discontinued items. Except as
set forth on Schedule 3.1.14, (a) all Inventories are of such quality as to
meet the quality control standards of Seller and any applicable governmental
quality control standards, (b) all Inventories that are finished goods are
saleable as current inventories at the current prices thereof in the ordinary
course of business, (c) all Inventories are recorded on the books of Seller
at the lower of cost or market value determined in accordance with GAAP and
(d) no write-down in inventory has been made or should have been made
pursuant to GAAP during the past two years.
25
3.1.15. Customers. Schedule 3.1.15 sets forth (a) the names and
addresses of all customers of Seller that ordered goods and services from
Seller with an aggregate value for each such customer of $50,000 or more
during the twelve-month period ended May 31, 2004 and (b) the amount for
which each such customer was invoiced during such period. Seller has not
received any notice or has any reason to believe that any significant
customer of Seller (i) has ceased, or will cease, to use the products, goods
or services of Seller, (ii) has substantially reduced or will substantially
reduce, the use of products, goods or services of Seller or (iii) has sought,
or is seeking, to reduce the price it will pay for products, goods or
services of Seller, including in each case after the consummation of the
transactions contemplated hereby. To the best knowledge of Seller, no
customer described in clause (a) of the first sentence of this Section has
otherwise threatened to take any action described in the preceding sentence
as a result of the consummation of the transactions contemplated this
Agreement and the Collateral Agreements.
3.1.16. Suppliers; Raw Materials. Schedule 3.1.16 sets forth (a) the
names and addresses of all suppliers (including without limitation Seller and
any Affiliates thereof) from which Seller ordered raw materials, supplies,
merchandise and other goods and services with an aggregate purchase price for
each such supplier of $50,000 or more during the twelve-month period ended
May 31, 2004 and (b) the amount for which each such supplier invoiced Seller
during such period. Seller has not received any notice or has any reason to
believe that there has been any material adverse change in the price of such
raw materials, supplies, merchandise or other goods or services, or that any
such supplier will not sell raw materials, supplies, merchandise and other
goods to Buyer at any time after the Closing Date on terms and conditions
similar to those used in its current sales to Seller, subject to general and
customary price increases. To the best knowledge of Seller, no supplier of
Seller described in clause (a) of the first sentence of this Section has
otherwise threatened to take any action described in the preceding sentence
as a result of the consummation of the transactions contemplated by this
Agreement, and the Collateral Agreements.
3.1.17. Product Warranties. Except as set forth in Schedule 3.1.17 and
for warranties under Applicable Law, (a) there are no warranties express or
implied, written or oral, with respect to the products of Seller and (b)
there are no pending or threatened claims with respect to any such warranty,
and Seller has no liability with respect to any such warranty, whether known
or unknown, absolute, accrued, contingent or otherwise and whether due or to
become due.
3.1.18. Absence of Certain Business Practices. Neither Seller, any
officer, employee or agent of Seller, nor any other person acting on their
behalf, has, directly or indirectly, within the past five years given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help
or hinder Seller (i) which subjected or might have subjected Seller to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) which if not given in the past, might have had a Material
Adverse Effect, (iii) which if not continued in the future, might have a
Material Adverse Effect or subject Seller to suit or penalty in any private
or governmental litigation or proceeding, (iv) for any of the purposes
26
described in Section 162(c) of the Code or (y) for the purpose of
establishing or maintaining any concealed fund or concealed bank account.
3.1.19. Intellectual Property. Schedule 3.1.19(a) sets forth a complete
and correct list of all material Intellectual Property that is owned by
Seller (the "Owned Intellectual Property"). The Owned Intellectual Property
constitutes all material Intellectual Property used or held for use in
connection with, necessary for the conduct of, or otherwise material to
Seller's business, except as set forth on Schedule 3.1.19(b). Immediately
after the Closing, Buyer will have the right to use all Intellectual Property
described on Schedule 3.1.19(a) and will own all Owned Intellectual Property,
free from any Liens (other than Permitted Liens). Schedule 3.1.19(c) sets
forth a complete and correct list of all material written or oral licenses
and arrangements, (i) pursuant to which the use by any Person of Intellectual
Property is permitted by Seller and (ii) pursuant to which the use by Seller
of Intellectual Property is permitted by any Person (collectively, the
"Intellectual Property Licenses"). All Intellectual Property Licenses are in
full force and effect in accordance with their terms, and are free and clear
of any Liens (other than Permitted Liens). Seller is not in default under
any Intellectual Property License, and no such default is currently
threatened. To the knowledge of Seller, the conduct of Seller's business
does not infringe the rights of any third party in respect of any
Intellectual Property, except as set forth on Schedule 3.1.19(d). To the
knowledge of Seller, none of the Intellectual Property is being infringed by
third parties. Except as set forth on Schedule 3.1.19(e), there is no claim
or demand of any Person pertaining to, or any proceeding which is pending or,
to the knowledge of Seller, threatened, that challenges the rights of Seller
in respect of any Intellectual Property, or claims that any default exists
under any Intellectual Property License. None of the Owned Intellectual
Property or, to the knowledge of Seller, the Intellectual Property Licenses
is subject to any outstanding order, ruling, decree, judgment or stipulation
by or with any court, tribunal arbitrator, or other Governmental Authority.
The Owned Intellectual Property has been duly registered with, filed in or
issued by, as the case may be, the United States Patent and Trademark Office
and United States Copyright Office or other filing offices, domestic or
foreign, to the extent commercially necessary or commercially desirable and
the same remain in full force and effect.
3.1.20. Insurance. Schedule 3.1.20 contains a complete and correct list
and summary description of all insurance policies maintained by Seller for
the benefit of or in connection with the Assets. Seller has delivered to
Buyer complete and correct copies of all such policies together with all
riders and amendments thereto. Such policies are in full force and effect,
and all premiums due thereon have been paid. Seller has complied in all
material respects with the terms and provisions of such policies. The
insurance coverage provided by such policies is adequate and customary.
Schedule 3.1.20 sets out all claims made by Seller under any policy of
insurance during the past two years and in the opinion of Seller reasonably
formed and held, there is no basis on which a claim should or could be made
under any such policy with respect to it.
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3.1.21. Real Property.
(a) Leases. Schedule 3.1.21(a) contains a complete and correct list
of (i) all Leases setting forth the address, landlord and tenant for each
Lease and (ii) all Other Leases, setting forth the address, landlord and
tenant for each Other Lease. Seller has delivered to Buyer correct and
complete copies of the Leases and the Other Leases. Each Lease and Other
Lease is legal, valid, binding, enforceable, and in full force and effect,
except as may be limited by bankruptcy, insolvency, reorganization and
similar Applicable Laws affecting creditors generally and by the availability
of equitable remedies. Neither Seller nor any other party is in default,
violation or breach in any respect under any Lease or Other Lease, and no
event has occurred and is continuing that constitutes or, with notice or the
passage of time or both, would constitute a default, violation or breach in
any respect under any Lease or Other Lease. Each Lease grants the tenant
under the Lease the exclusive right to use and occupy the demised premises
thereunder. Seller has good and valid title to the leasehold estate under
each Lease free and clear of all Liens other than Permitted Liens. Seller
enjoys peaceful and undisturbed possession under its respective Leases for
the Real Property.
(b) Fee and Leasehold Interests, etc. Other than the Plum Facility
and the Murrysville Facility, the Real Property constitutes all the fee and
leasehold interests in real property held for use in connection with,
necessary for the conduct of, or otherwise material to, Seller's business.
(c) No Proceedings. There are no eminent domain or other similar
proceedings pending or threatened affecting any portion of the Real Property.
There is no writ, injunction, decree, order or judgment outstanding, nor any
action, claim, suit or proceeding, pending or threatened, relating to the
ownership, lease, use, occupancy or operation by any Person of any Real
Property.
(d) Current Use. The use and operation of the Real Property by
Seller does not violate in any material respect any instrument of record or
agreement affecting the Real Property. To the knowledge of Seller, there is
no violation of any covenant, condition, restriction, easement or order of
any Governmental Authority having jurisdiction over such property or of any
other Person entitled to enforce the same affecting the Real Property or the
use or occupancy thereof. No damage or destruction has occurred with respect
to any of the Real Property since December 31, 2003 that would, individually
or in the aggregate, have a Material Adverse Effect.
(e) Compliance with Real Property Laws. The Real Property is in full
compliance with all applicable building, zoning, subdivision and other land
use and similar Applicable Laws affecting the Real Property (collectively,
the "Real Property Laws"), and Seller has received no notice of violation or
claimed violation of any Real Property Law. There is no pending or to the
knowledge of Seller, anticipated change in any Real Property Law that will
have or result in a material adverse effect upon the ownership, alteration,
use, occupancy or operation of the Real Property or any portion thereof. No
current use by Seller of the Real Property is dependent on a nonconforming
use or other Governmental Approval the absence of which would materially
28
limit the use of such properties or assets held for use in connection with,
necessary for the conduct of, or otherwise material to, Seller's business.
3.1.22. Environmental Matters.
(a) Permits. All Environmental Permits are identified in Schedule
3.1.22(a), and Seller currently holds, and at all times has held, all such
Environmental Permits necessary to conduct its business, and all such
Environmental Permits shall be validly transferred to Buyer on the Closing
Date. Seller has not been notified by any relevant Governmental Authority
that any Environmental Permit will be modified, suspended, cancelled or
revoked, or cannot be renewed in the ordinary course of business without any
material change in any of the terms or conditions.
(b) No Violations. Seller has complied and is in compliance in all
respects with all Environmental Permits and all applicable Environmental
Laws. No Person has alleged any violation by Seller of any Environmental
Permits or any applicable Environmental Law relating to the conduct of its
business or the use, ownership or transferability of the Real Property.
(c) No Actions. Except as set forth in Schedule 3.1.22(c), Seller
has not caused or taken any action that has resulted or may result in, or has
been or is subject to, any liability or obligation relating to (i) the
environmental conditions on, at, under, from or about any Real Property, the
Assets or other properties or assets owned, leased or used by Seller or (ii)
the past or present use, management, handling, transport, treatment,
generation, storage or Release of any Hazardous Substances, except for any
such liabilities and obligations that, individually and in the aggregate, are
not material to Seller and have not had or resulted in, and will not have or
result in, a Material Adverse Effect.
(d) Other. Except as set forth in Schedule 3.1.22(d):
(i) None of the current or past operations, or any by-product
thereof, and none of the currently or formerly owned property or assets of
Seller, including without limitation the Assets and the Real Property, is
related to or subject to any investigation or evaluation by any Governmental
Authority, as to whether any Remedial Action is needed to respond to a
Release or threatened Release of any Hazardous Substances.
(ii) Seller is not subject to any outstanding order, judgment,
injunction, decree or writ from, or contractual or other obligation to or
with, any Governmental Authority or other Person in respect of which Buyer
may be required to incur any Environmental Liabilities and Costs arising from
the Release or threatened Release of a Hazardous Substance.
(iii) None of the Real Property is, and Seller has not
transported or arranged for transportation (directly or indirectly) of any
Hazardous Substances relating to the Assets or the Real Property to any
location that is, listed or proposed for listing under CERCLA, or on any
similar state list, or the subject of federal, state or local enforcement
actions or investigations or Remedial Action.
29
(iv) No work, repair, construction or capital expenditure is
required or planned in respect of the Assets pursuant to or to comply with
any Environmental Law, nor has Seller received any notice of any such
requirement, except for such work, repair, construction or capital
expenditure as is not material to the ordinary course of business.
(v) The Seller has not received written notice of any past,
present or future events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with or prevent continued
compliance by the Seller with applicable Environmental Laws, or which may
give rise to any common law or legal liability, or otherwise form the basis
of any claim, action, suit, proceeding, hearing or investigation under
applicable Environmental Laws, the subject of which is unresolved and which
would have a Material Adverse Effect.
(vi) There are no Hazardous Substances or underground storage
tanks in, on, or under any real property owned or leased by the Seller as of
the date hereof, except those that are both (i) in compliance with all
applicable Environmental Laws and Environmental Permits and (ii) fully
disclosed to Buyer in writing.
(vii) There are no past, present or threatened Releases of
Hazardous Substances in, on, under or from any real property owned or leased
by the Seller.
(viii) To the best knowledge of the Seller, there is no
Release or threat of any Release of Hazardous Substances migrating to any
real property owned or leased by the Seller.
(ix) To the best of the knowledge of the Seller, there has been
no Release of Hazardous Substances for which Seller could have any liability
under any applicable Environmental Law at any real property formerly owned,
operated or leased by the Seller.
(x) There is no statute or regulation which requires any
disclosure of environmental conditions to any Governmental Authority or to
Buyer, or any deed notice or other filing as a result of the contemplated
transaction.
(e) Full Disclosure. Seller has disclosed and made available to
Buyer all information, including without limitation all studies, analyses and
test results, in the possession, custody or control of Seller relating to (i)
the environmental conditions on, under or about the Real Property, and (ii)
Hazardous Substances used, managed, handled, transported, treated, generated,
stored or Released by Seller or any other Person at any time on any Real
Property, or otherwise in connection with the use or operation of the
properties or assets of Seller.
3.1.23. Employees, Labor Matters, etc. Except as set forth in Schedule
3.1.23, Seller is not a party to or bound by any collective bargaining
agreement and there are no labor unions or other organizations representing,
purporting to represent or attempting to represent any employees employed by
Seller. Since December 31, 2003 there has not occurred or, to the best
knowledge of Seller after due inquiry, been threatened any material strike,
30
slowdown, picketing, work stoppage, concerted refusal to work overtime or
other similar labor activity with respect to any employees employed by
Seller. There are no labor disputes currently subject to any grievance
procedure, arbitration or litigation and there is no representation petition
pending or, to the best knowledge of Seller after due inquiry, threatened
with respect to any employee employed by Seller. Seller has complied with
all provisions of Applicable Law pertaining to the employment of employees,
including, without limitation, all such Laws relating to labor relations,
equal employment, fair employment practices, entitlements, prohibited
discrimination or other similar employment practices or acts, except for any
failure so to comply that, individually or together with all such other
failures, has not and will not result in a material liability or obligation
on the part of Buyer, and has not had or resulted in, and will not have or
result in, a Material Adverse Effect.
3.1.24. Employee Benefit Plans and Related Matters.
(a) Employee Benefit Plans. Schedule 3.1.24(a) sets forth a true and
complete list of each "employee benefit plan" as such term is defined in
section 3(3) of the ERISA, whether or not subject to ERISA, and each bonus,
incentive or deferred compensation, severance, termination, retention, change
of control, stock option, stock appreciation, stock purchase, phantom stock
or other equity-based, performance or other employee or retiree benefit or
compensation plan, program, arrangement, agreement, policy or understanding,
whether written or unwritten, that provides or may provide benefits or
compensation in respect of any employee or former employee employed or
formerly employed by Seller or the beneficiaries or dependents of any such
employee or former employee (such employees, former employees, beneficiaries
and dependents collectively, the ("Employees") or under which any Employee is
or may become eligible to participate or derive a benefit and that is or has
been maintained or established by Seller or any other trade or business,
whether or not incorporated, which, together with Seller is or would have
been at any date of determination occurring within the preceding six years
treated as a single employer under Section 414 of the Code (such other trades
and business collectively, the "Related Persons"), or to which Seller or any
Related Person contributes or is or has been obligated or required to
contribute or with respect to which Seller may have any liability or
obligation (collectively, the "Plans"). With respect to each such Plan,
Seller has provided Buyer complete and correct copies of: all written Plans;
descriptions of all unwritten Plans; all trust agreements, insurance
contracts or other funding arrangements; the two most recent actuarial and
plan asset valuation reports; the most recent Forms 5500 and all schedules
thereto; the most recent IRS determination letter; current summary plan
descriptions; all material communications received from or sent to the IRS,
the Pension Benefit Guaranty Corporation or the Department of Labor
(including a written description of any oral communication); an actuarial
study of any post-employment life or medical benefits provided under any such
Plan, if any; statements or other communications regarding withdrawal or
other multiemployer plan liabilities, if any; and all amendments and
modifications to any such document. Seller has not communicated to any
Employee any intention or commitment to modify any Plan or to establish or
implement any other employee or retiree benefit or compensation arrangement.
31
(b) Qualification. Each Plan intended to be qualified under section
401(a) of the Code, and the trust (if any) forming a part thereof, has
received a favorable determination letter from the IRS as to its
qualification under the Code and to the effect that each such trust is exempt
from taxation under section 501(a) of the Code, and nothing has occurred
since the date of such determination letter that could adversely affect such
qualification or tax-exempt status.
(c) Compliance; Liability.
(i) No Plan, other than a Seller Pension Plan, is subject to
section 412 of the Code or section 302 or Title IV of ERISA. As of the last
day of the most recently ended fiscal year of the Seller Pension Plan, the
"accumulated benefit obligations" (within the meaning of the Financial
Accounting Standards Board Statement No. 87) under such Plan did not exceed
the fair market value of the assets of such Plan allocable to such
"accumulated benefit obligations," determined on the basis of the actuarial
assumptions specified for financial statement purposes in the actuarial
report prepared for such fiscal year of such Plan, each of which assumptions
is reasonable.
(ii) No liability has been or is expected to be incurred by
Seller or any Related Person (either directly or indirectly, including as a
result of an indemnification obligation) under or pursuant to Title I or IV
of ERISA or the penalty, excise tax or joint and several liability provisions
of the Code relating to employee benefit plans that could, following the
Closing, become a liability of Buyer or of any employee benefit plan
established or contributed to by Buyer and, to the best knowledge of Seller
after due inquiry, no event, transaction or condition has occurred or exists
that could result in any such liability to Seller or, following the Closing,
Buyer.
(iii) Each of the Plans has been operated and administered in all
respects in compliance with all Applicable Laws, except for any failure so to
comply that, individually or together with all other such failures, has not
and will not result in a material liability or obligation on the part of
Seller, or, following the Closing, Buyer, and has not had or resulted in, and
will not have or result in, a Material Adverse Effect. There are no material
pending or, to the best knowledge of Seller after due inquiry, threatened
claims by or on behalf of any of the Plans, by any Employee or otherwise
involving any such Plan or the assets of any Plan (other than routine claims
for benefits).
(iv) No Plan is a "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA or is a "multiple employer plan" within the
meaning of section 4063 or 4064 of ERISA.
(v) All contributions required to have been made by Seller and
each Related Person to any Plan under the terms of any such Plan or pursuant
to any applicable collective bargaining agreement or Applicable Law have been
made within the earliest time prescribed by any such Plan, agreement or
Applicable Law.
32
(vi) No Transferred Employee is or may become entitled to post-
employment benefits of any kind by reason of employment by Seller, including,
without limitation, death or medical benefits (whether or not insured), other
than (a) coverage provided pursuant to the terms of any Plan specifically
identified as providing such coverage in Schedule 3.1.24(a) or mandated by
section 4980B of the Code, (b) retirement benefits payable under any Plan
qualified under section 401(a) of the Code or (c) deferred compensation
accrued as a liability on the Balance Sheets or incurred after December 31,
2003 in the ordinary course of business consistent with the prior practice of
Seller, pursuant to the terms of a Plan. The consummation of the
transactions contemplated by this Agreement or the Collateral Agreements will
not result in an increase in the amount of compensation or benefits or the
acceleration of the vesting or timing of payment of any compensation or
benefits payable to or in respect of any Transferred Employee.
3.1.25. Confidentiality. Except as set forth on Schedule 3.1.25, Seller
has taken all steps necessary to preserve the confidential nature of all
material confidential information (including, without limitation, any
proprietary information) of Seller including but not limited to the
manufacturing or marketing of any of Seller's products or services.
3.1.26. No Guarantees. Except as set forth on Schedule 3.1.26, none of
the obligations or liabilities of Seller incurred in connection with the
operation of its business is guaranteed by or subject to a similar contingent
obligation of any other Person. Seller has not guaranteed or become subject
to a similar contingent obligation in respect of the obligations or
liabilities of any other Person. There are no outstanding letters of credit,
surety bonds or similar instruments of Seller or any of its Affiliates in
connection with the Assets.
3.1.27. Records. Except as set forth on Schedule 3.1.27, the minute
books of Seller are substantially complete and correct in all material
respects. The books of account of Seller are sufficient to prepare the
Financial Statements in accordance with GAAP.
3.1.28. Brokers, Finders, etc. Except for the engagement of
▇▇▇▇▇▇/▇▇▇▇▇▇, Inc., the fees and expenses of which will be paid by Buyer,
all negotiations relating to this Agreement, the Collateral Agreements, and
the transactions contemplated thereby, have been carried on without the
participation of any Person acting on behalf of Seller in such manner as to
give rise to any valid claim against Buyer or any of its subsidiaries for any
brokerage or finder's commission, fee or similar compensation, or for any
bonus payable to any officer, director, employee, agent or sales
representative of or consultant to Seller or their respective Affiliates upon
consummation of the transactions contemplated hereby or thereby.
3.1.29. Disclosure. No representation or warranty by Seller contained in
this Agreement nor any statement or certificate furnished or to be furnished
by or on behalf of Seller to Buyer or its representatives in connection
herewith or pursuant hereto contains or will contain any untrue statement of
a material fact, or omits or will omit to state any material fact required to
make the statements contained herein or therein not misleading. There is no
fact (other-than matters of a general economic or political nature which do
not affect Seller uniquely) known to Seller that has not been disclosed by
33
Seller to Buyer that might reasonably be expected to have or result in a
Material Adverse Effect.
3.1.30. Receivables. All of Seller's receivables (including accounts
receivable, loans receivable and advances) which are reflected in the
Financial Statements, and all such receivables which will have arisen since
the Balance Sheet Dates, shall have arisen only from bona fide transactions
in the ordinary course of business. Seller has no knowledge of any facts or
circumstances generally (other than general economic conditions) which would
result in any material increase in the uncollectability of such receivables
as a class in excess of the reserves therefor set forth on the Financial
Statements. Schedule 3.1.30 hereto accurately lists as of May 31, 2004 all
receivables arising of Seller in excess of $5,000, the amount owing and the
aging of such receivable, the name and last known address of the party from
whom such receivable is owing, and any security in favor of Seller for the
repayment of such receivable which Seller purports to have. Seller has
delivered to Buyer complete and correct copies of all instruments, documents
and agreements evidencing such receivables and of all instruments, documents
or agreements creating security therefor ("Security"). Seller has valid and
perfected security interests in such Security (to the extent such priority
may be obtained under applicable law by possession of such Security or the
filing of financing statements or similar documents with respect thereto).
3.2. Representations and Warranties of Buyer and ▇▇▇▇▇▇▇▇. Each of Buyer
and ▇▇▇▇▇▇▇▇ represents and warrants to Seller as follows:
3.2.1. Corporate Status; Authorization, etc. Each of Buyer and ▇▇▇▇▇▇▇▇
is a corporation duly organized, validly existing and in good standing, under
the laws of the Commonwealth of Pennsylvania with full corporate power and
authority to execute and deliver this Agreement and the Collateral Agreements
to which it is a party, to perform its obligations thereunder and to
consummate the transactions contemplated hereby and thereby. The execution
and delivery by such parties of this Agreement and the Collateral Agreements
to which it is a party, and the consummation of the transactions contemplated
hereby and thereby, have been authorized by all requisite corporate action of
such parties. Such parties have duly executed and delivered this Agreement
and the Collateral Agreements to which it is a party. This Agreement and
each of the Collateral Agreements are the valid and legally binding
obligations of such parties, enforceable against such parties in accordance
with their respective terms.
3.2.2. No Conflicts, etc. The execution, delivery and performance by
each of Buyer and ▇▇▇▇▇▇▇▇ of this Agreement and each of the Collateral
Agreements to which it is a party, and the consummation of the transactions
contemplated hereby and thereby, do not and will not conflict with or result
in a violation of or under (with or without the giving of notice or the lapse
of time, or both) (i) the articles of incorporation or by-laws or other
organizational documents of such parties, (ii) any Applicable Law applicable
to such parties or any of their properties or assets or (iii) any contract,
agreement or other instrument applicable to such parties or any of their
properties or assets, except, in the case of clause (iii), for violations and
defaults that, individually and in the aggregate, have not and will not
materially impair the ability of such parties to perform its obligations
under this Agreement or under any of the Collateral Agreements to which it is
34
a party. Except as specified in Schedule 3.2.2, no Governmental Approval or
other Consent is required to be obtained or made by such parties in
connection with the execution and delivery of the this Agreement or the
Collateral Agreements or the consummation of the transactions contemplated
hereby and thereby.
3.2.3. Litigation. There is no action, claim, suit or proceeding
pending, or to Buyer's or ▇▇▇▇▇▇▇▇' knowledge threatened, by or against or
affecting Buyer or ▇▇▇▇▇▇▇▇ in connection with or relating to the
transactions contemplated by this Agreement or of any action taken or to be
taken in connection herewith or the consummation of the transactions
contemplated hereby.
3.2.4. Brokers, Finders, etc. Except for the engagement of
▇▇▇▇▇▇/Hunter, Inc., the fees and expenses of which will be paid by Buyer,
all negotiations relating to this Agreement and the transactions contemplated
hereby have been carried on without the participation of any Person acting on
behalf of Buyer or ▇▇▇▇▇▇▇▇ in such manner as to give rise to any valid
claim against Seller for any brokerage or finder's commission, fee or similar
compensation.
ARTICLE IV
COVENANTS
4.1. Covenants of Seller, iDL and BRR .
4.1.1. Further Assurances. Following the Closing, each of Seller, iDL
and BRR Inc. shall, and shall cause each of its Affiliates to, from time to
time, execute and deliver such additional instruments, documents, conveyances
or assurances and take such other actions as shall be necessary, or otherwise
reasonably requested by Buyer, to confirm and assure the rights and
obligations provided for in this Agreement and in the Collateral Agreements
and render effective the consummation of the transactions contemplated
thereby.
4.1.2. Liability for Transfer Taxes. Seller shall be responsible for
the timely payment of, and shall indemnify and hold harmless Buyer against,
all sales (including, without limitation, bulk sales), use, value added,
documentary, stamp, gross receipts, registration, transfer, conveyance,
excise, recording, license and other similar Taxes and fees ("Transfer
Taxes"), arising out of or in connection with or attributable to the
transactions effected pursuant to this Agreement and the Collateral
Agreements. Seller shall prepare and timely file all Tax Returns required to
be filed in respect of Transfer Taxes (including, without limitation, all
notices required to be given with respect to bulk sales taxes), provided that
Buyer shall be permitted to prepare any such Tax Returns that are the primary
responsibility of Buyer under applicable law. Buyer's preparation of any
such Tax Returns shall be subject to Seller's approval, which approval shall
not be withheld unreasonably.
4.1.3. Use of Business Name. After the Closing, each of Seller, iDL and
BRR Inc. will not, directly or indirectly, do business, or allow any
Affiliate to do business, or assist any third party in using or doing
35
business, under the names and marks "Cloverleaf," "iDL" or "Big Red Rooster"
(or any other name confusingly similar to such names and marks) except that
Seller may continue to use the word "cloverleaf" (but not in connection with
the word "group") as part of its legal name. Promptly after Closing iDL and
BRR Inc. shall change their corporate names to not include "iDL" or "Big Red
Rooster".
4.1.4. Access to Records. During the period in which Contingent
Consideration is being calculated in accordance with Section 2.3, Buyer shall
provide Seller and its representatives reasonable access during normal
business hours to all of the books and records of Buyer to the extent that
such access may reasonably be required by Seller in connection with matters
relating to or affected by the operations of the business prior to the
Closing. Seller shall be solely responsible for any costs or expenses
incurred by it pursuant to this Section 4.1.4.
4.2. Covenants of Buyer.
4.2.1. Further Assurances. Following the Closing, Buyer shall, and
shall cause its Affiliates to, from time to time, execute and deliver such
additional instruments, documents, conveyances or assurances and take such
other actions as shall be necessary, or otherwise reasonably requested by
Seller, to confirm and assure the rights and obligations provided for in this
Agreement and in the Collateral Agreements and render effective the
consummation of the transactions contemplated thereby.
4.3. Operation of Business. The following covenants in Section 4.3 shall
remain in effect during the period in which Contingent Consideration is being
calculated in accordance with Section 2.3.
4.3.1. Operation of Business. After Closing, Buyer will consolidate the
Assets and Assumed Liabilities of Seller under the name "Cloverleaf Group,
Inc." Buyer shall continue to operate as an operating unit using the names
Cloverleaf, iDL and Big Red Rooster during the term of the Contingent Payment
Period. Buyer shall be required to adhere to the internal control standards
and codes of conduct as defined by the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002,
established regulatory standards and published ▇▇▇▇▇▇▇▇' policies. All
financial and administrative functions of Buyer shall be required to report
directly to ▇▇▇▇▇▇▇▇' corporate administration.
4.3.2. Board of Directors. After Closing, the Board of Directors of
Buyer shall consist of such persons as are designated by ▇▇▇▇▇▇▇▇ and shall
initially consist of ▇▇▇▇▇ ▇▇▇▇▇ as sole director.
4.3.3. Board of Advisors. After Closing, the operational management of
Buyer will be directed by a "Buyer Board of Advisors," subject to the
authority of the Board of Directors of Buyer. The Buyer Board of Advisors
shall initially consist of ▇▇▇▇▇ ▇▇▇▇▇▇, the Chairman of Buyer; ▇▇▇▇▇▇ ▇▇▇▇,
the President and Chief Executive Officer of Buyer; and ▇▇▇▇▇ ▇. ▇▇▇▇▇, the
Chief Executive Officer of ▇▇▇▇▇▇▇▇. The Buyer Board of Advisors shall be
responsible for: (a) reviewing and assisting in establishing the strategies
and goals for Buyer and assuring their achievement; (b) evaluating and
recommending capital requests, including acquisitions; (c) reviewing and
assisting in the formulation of Buyer's operating forecasts and budgets; and
36
(d) identifying areas where ▇▇▇▇▇▇▇▇' existing administrative,
manufacturing, operational and distribution resources may be leveraged to
result in synergistic savings for Buyer.
4.3.4. Newco Management Team. After Closing, the daily operational
management of Buyer shall reside with the "Buyer Management Team." The
President and CEO of Buyer shall be appointed by the Board of Directors. The
initial President and CEO of Buyer shall be ▇▇▇▇▇▇ ▇▇▇▇. The Buyer
Management Team shall be chosen by the President of Buyer with review and
approval thereof by the Chief Executive Officer of ▇▇▇▇▇▇▇▇. The Buyer
Management Team shall be responsible for: (a) developing the strategic focus
and organizational culture of Buyer; (b) evaluating internal and acquisition
growth strategies for Buyer; (c) developing operating budgets and forecasts
for Buyer to be presented and reviewed at annual strategic management
meetings; (d) formulating, evaluating and conveying capital requests to
▇▇▇▇▇▇▇▇; (e) reporting financial and operating results on a monthly basis to
▇▇▇▇▇▇▇▇; (f) evaluating and reviewing key personnel decisions; and (g)
meeting regularly with ▇▇▇▇▇▇▇▇' management to discuss progress.
4.3.5. Approval Process. In accordance with the requirements set forth
herein, Buyer shall be required to submit to ▇▇▇▇▇▇▇▇ for review and
approval:
(a) all individual capital expenditures of Buyer in excess of
$25,000, and annual capital expenditures in excess of $100,000 in the
aggregate;
(b) all acquisitions to be made by Buyer;
(c) all operating and capital budgets and forecasts of Buyer;
(d) all changes to key management positions of Buyer, and the
compensation and benefits of such key management positions;
(e) operating leases with a net present value in excess of $25,000;
(f) disposition of any assets with a remaining net book value of more
than $25,000; and
(g) the making of any charitable contributions.
Such approval process will be consistent with the approval process
applied to ▇▇▇▇▇▇▇▇' existing business units, as applicable. Notwithstanding
the foregoing, (i) ▇▇▇▇▇▇▇▇ hereby agrees that approval of the items above
shall not be withheld for reasons unrelated to the business of Buyer and
(ii) ▇▇▇▇▇▇▇▇ management shall recommend to the Board of Directors of
▇▇▇▇▇▇▇▇ for approval such items so long as (x) with respect to items (a) and
(e) above, the proposals meet the capital project and appropriation request
criteria set forth on Schedule 4.3.5A hereto as determined by ▇▇▇▇▇▇▇▇ and
(y) Buyer is achieving a 10% cumulative annual growth rate in Operating
Profit from the consolidated operating profit of the Seller for the year end
December 31, 2003, which the parties agree is $4,208,000.
37
▇▇▇▇▇▇▇▇ shall evaluate acquisitions at a cost of capital of 15%. The
Buyer Management Team, in consultation with the Buyer Board of Advisors and
▇▇▇▇▇▇▇▇, shall determine the financial characteristics and valuation matters
of potential acquisition targets, in accordance with policies in existence
from time to time of ▇▇▇▇▇▇▇▇, which current policies are attached hereto as
Schedule 4.3.5B.
4.3.6. Financing and Investment Arrangements. Buyer shall not be
permitted to enter into any debt, capital lease or other financing
arrangement with any entity other than ▇▇▇▇▇▇▇▇. Buyer shall not be
permitted to invest in any marketable securities.
4.3.7 BP Inventory. Buyer will warehouse and insure the BP Inventory at no
costs to iDL. Buyer will receive and fulfill usage orders from BP related to
the BP Inventory at a cost to iDL equal to the amount currently being paid by
BP for this service. Buyer will coordinate the billing for the BP Inventory,
along with the related collection of such ▇▇▇▇▇▇▇▇. Buyer will remit amounts
collected with respect to the ▇▇▇▇▇▇▇▇ for the BP Inventory to iDL at no cost
to iDL.
4.3.8. Acquisitions. During the Contingent Payment period, if ▇▇▇▇▇▇▇▇
intends to expand internally or make acquisitions in the line of business in
which Buyer operates, it shall do so only through Buyer.
4.4. Shareholder Net Worth. None of the iDL Shareholders or the BRR
Shareholders shall gift or transfer assets such that their personal net worth
becomes less than the proceeds received by such shareholder in connection
with the transactions contemplated by this Agreement, or, if greater, the
personal net worth of such shareholder as of the Closing Date (including the
proceeds of the transactions contemplated by this Agreement), for a period of
eighteen (18) months from the Closing Date; provided, however, that the
maximum net worth required to be maintained by any such shareholder shall be
the maximum liability of such shareholder considering Section 7.2(g) hereof.
ARTICLE V
CLOSING DELIVERIES
5.1. Deliveries of Seller. On the Closing Date in addition to the Assets,
Seller shall deliver to Buyer the following:
5.1.1. Collateral Agreements. The following agreements (the "Collateral
Agreements"):
(a) the Escrow Agreement;
(b) transitional lease agreements, pursuant to which iDL Inc. will
provide to Buyer a lease of the Plum Facility and the Murrysville Facility.
(c) An employment agreement with each of ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇;
(d) An employment agreement with each of the Key Employees.
38
5.1.2. Opinions of Counsel. An opinion, addressed to Buyer and dated
the Closing Date, of ▇▇▇▇▇▇▇▇ Ingersoll PC, special counsel to Seller and
(ii) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLC, each in substance
and form reasonably satisfactory to Buyer.
5.1.3. Authorization. Certified resolutions of Seller, iDL Inc. and BRR
Inc. approving this Agreement and the Collateral Agreements and all documents
and instruments incident thereto.
5.1.4. Transfer Documents. The following transfer documents of Seller:
(a) a ▇▇▇▇ of sale, assignment and general conveyance, in form and
substance reasonably satisfactory to Buyer, dated the Closing Date, with
respect to the Assets (other than any Asset to be transferred pursuant to any
of the instruments referred to in any other clause of this Section 5.1.4);
(b) an assignment of lease, dated as of the Closing Date, with
respect to each Lease, and each Other Lease in form and substance reasonably
satisfactory to Buyer, dated the Closing Date; and
(c) certificates of title to all motor vehicles included in the
Assets to be transferred to Buyer hereunder, duly endorsed for transfer to
Buyer as of the Closing Date.
5.1.5. Consents and Estoppels. Buyer shall have received consents from
the lessor of each Lease listed on Schedule 3.1.21(a) to the assignment of
such Lease to Buyer. Buyer shall also have received estoppel certificates
addressed to Buyer from the lessor of each Lease, identifying the Lease
documents and any amendments thereto, stating that the Lease is in full force
and effect and, to the best knowledge of the lessor, that the tenant is not
in default under the Lease and no event has occurred that, with notice or
lapse of time or both, would constitute a default by the tenant under the
Lease and containing any other information reasonably requested by Buyer.
5.2. Deliveries of Buyer. On the Closing Date, Buyer shall deliver to
Seller the following:
5.2.1. Opinion of Counsel. An opinion, addressed to Seller and dated
the Closing Date, of ▇▇▇▇ ▇▇▇▇▇ LLP, counsel for Buyer and ▇▇▇▇▇▇▇▇, in form
and substance reasonably satisfactory to Seller.
5.2.2. Certified Resolutions. Certified resolutions of Buyer and
▇▇▇▇▇▇▇▇ approving this Agreement and the Collateral Agreements and the
transactions contemplated thereby, and all documents and instruments incident
thereto.
5.2.3. Collateral Agreements. Buyer shall have entered into each of the
Collateral Agreements to which it is a party.
39
ARTICLE VI
EMPLOYEES AND EMPLOYEE BENEFIT PLANS
6.1. Employment of Seller's Employees.
(a) Seller will, and will cause each of its Affiliates to, use all
reasonable efforts to cause the employees employed by Seller to make
available their employment services to Buyer. For a period of two years from
the Closing Date, Seller, iDL Inc. and BRR Inc. will not, and will not permit
any of its Affiliates to, solicit, offer to employ or retain the services of
or otherwise interfere with the relationship of Buyer with any Person
employed by or otherwise engaged to perform services for Buyer.
(b) Effective as of the Closing Date, Buyer shall offer employment to
those employees selected by Buyer who are employed by Seller at compensation
and vested benefits that are similar to those of such employees on the date
hereof. Buyer shall offer employment to ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇ on the
terms of the Employment Agreement described in connection herewith and to the
Key Employees on the terms of the Employment Agreement described in
connection herewith. Those employees who accept such offers of employment
effective as of the Closing Date shall be referred to herein as the
"Transferred Employees". Effective as of the Closing Date, Buyer shall
assume the liability of Seller in respect of the Transferred Employees for
accrued but unpaid salaries, wages, vacation and sick pay and incentive
compensation, but only to the extent such liability is reflected on the
Balance Sheets or relates to services rendered and arose after the Balance
Sheet Dates in the ordinary course of business, consistent with the prior
practice of Seller. Seller shall remain responsible for payment of any and
all severance, retention, change in control or other similar compensation or
benefits which are or may become payable in connection with the consummation
of the transactions contemplated by this Agreement or the Collateral
Agreements.
(c) Neither Buyer nor any of its Affiliates shall have any Benefit
Liability with respect to any Employee or Plan or any claim thereof or
related thereto except to the extent expressly provided in this Article VI
with respect to the Transferred Employees. From and after the Closing,
Seller shall, remain solely responsible for any and all Benefit Liabilities
in respect of the Employees, including the Transferred Employees and their
beneficiaries and dependents, relating to or arising in connection with or as
a result of (i) the employment or the actual or constructive termination of
employment of any such Employee by Seller (including, without limitation, in
connection with the consummation of the transactions contemplated by this
Agreement or the Collateral Agreements), (ii) the participation in or accrual
of benefits or compensation under, or the failure to participate in or to
accrue compensation or benefits under, any Plan or other employee or retiree
benefit or compensation plan, program, practice, policy, agreement or
arrangement of Seller or (iii) accrued but unpaid salaries, wages, bonuses,
incentive compensation, vacation or sick pay or other compensation or payroll
items (including, without limitation, deferred compensation), except, in any
such case, to the extent any such Benefit Liability is (x) specifically
assumed by Buyer pursuant to this Article VI or reflected on the Balance
Sheets or relates to services rendered and arose after the Balance Sheet
40
Dates in the ordinary course of business, consistent with the prior practice
of Seller and in accordance with this Agreement.
6.2. Employee Benefit Plans, Welfare and Fringe Benefit Plans. (a)
Effective as of the Closing, Buyers shall assume each "employee benefit plan"
in which Transferred Employees and their dependents and beneficiaries
participate, as listed on Schedule 6.2, including any welfare and fringe
benefit plans, programs, policies or arrangements established by Buyer for
such Persons, provided that, from and after the Closing Date, Seller shall
remain solely responsible for any and all Benefit Liabilities to or in
respect of the Transferred Employees or their beneficiaries or dependents
relating to or arising in connection with any claims, whether such claims are
asserted before, on or after the Closing Date, for life, disability,
accidental death or dismemberment, supplemental unemployment compensation,
medical, dental, hospitalization, other health or other welfare or fringe
benefits or expense reimbursements which claims relate to or are based upon
an occurrence on or before the Closing Date (including claims for continuing
treatment in respect of any illness, accident, disability, condition or
confinement which occurs or commences on or before the Closing Date).
(b) From and after the Closing, Seller shall remain solely
responsible for any and all Benefit Liabilities in respect of any Employee
(i) under any Plan that is an "employee welfare benefit plan" (within the
meaning of section 3(1) of ERISA) that provides post-employment benefits of
any kind (a "Seller Retiree Welfare Plan"), other than as relates to ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇ pursuant to the Letter Agreement dated July 12, 2003 listed on
Schedules 3.1.24(a) and 6.2 or (ii) otherwise in connection with the
provision of, or the failure to provide, post-employment welfare benefits or
coverage to or in respect of any such Employee.
(c) From and after the Closing Date, Seller shall remain solely
responsible for any and all Benefit Liabilities relating to or arising in
connection with the requirements of section 4980B of the Code to provide
continuation of health care coverage under any Plan in respect of (A)
Employees, other than the Transferred Employees and their covered dependents,
and (B) to the extent related to a qualifying event occurring on or before
the Closing Date, Transferred Employees and their covered dependents.
6.3. Bonus Arrangements. After the Closing Date, Buyer shall provide
certain Transferred Employees eligibility for participation in a bonus plan.
The determination of which employees receive any such bonuses shall be made
by the Buyer Management Team, subject to the approval of the President of
▇▇▇▇▇▇▇▇. Any bonuses paid by Buyer shall be deducted from the Operating
Profit of Buyer for purposes of Section 2.3.
6.4. Workers Compensation. From and after the Closing Date, Seller shall
remain solely responsible for any and all Benefit Liabilities to or in
respect of any Employee relating to or arising in connection with any and all
claims for workers' compensation benefits arising in connection with any
occupational injury or disease occurring or existing on or prior to the
Closing Date.
41
6.5. Employment Taxes.
(a) Seller and Buyer will (i) treat Buyer as a "successor employer"
and Seller as a "predecessor," within the meaning of Sections 3121(a)(1) and
3306(b) (1) of the Code, with respect to Transferred Employees who are
employed by Buyer for purposes of Taxes imposed under the United States
Federal Unemployment Tax Act ("FICA") or the United States Federal Insurance
Contributions Act ("FUTA") and (ii) cooperate with each other to avoid, to
the extent possible, the filing of more than one IRS Form W-2 with respect to
each such Transferred Employee for the calendar year within which the Closing
Date occurs.
(b) At the request of Buyer with respect to any particular applicable
Tax law relating to employment, unemployment insurance, social security,
disability, workers' compensation, payroll, health care or other similar Tax
other than Taxes imposed under FICA and FUTA, Seller and Buyer will (i) treat
Buyer as a successor employer and Seller as a predecessor employer, within
the meaning of the relevant provisions of such Tax law, with respect to
Transferred Employees who are employed by Buyer and (ii) cooperate with each
other to avoid, to the extent possible, the filing of more than one
individual information reporting form pursuant to each such Tax law with
respect to each such Transferred Employee for the calendar year within which
the Closing Date occurs.
ARTICLE VII
DEFINITIONS, MISCELLANEOUS
7.1. Definition of Certain Terms. The terms defined in this Section 7.1,
whenever used in this Agreement (including in the Schedules), shall have the
respective meanings indicated below for all purposes of this Agreement. All
references herein to a Section, Article or Schedule are to a Section, Article
or Schedule of or to this Agreement, unless otherwise indicated.
Adjusted Payment: as defined in Section 2.2.
Affiliate: of a Person means a Person that directly or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, the first Person. "Control"
(including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management policies of a person, whether
through the ownership of voting securities, by contract or credit
arrangement, as trustee or executor, or otherwise.
Agreement: this Asset Purchase Agreement, including the
Schedules hereto.
Applicable Law: all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including the common law),
rules, regulations, ordinances, codes or orders of any Governmental
Authority, (ii) Governmental Approvals and (iii) orders, decisions,
injunctions, judgments, awards and decrees of or agreements with any
Governmental Authority.
42
Assets as defined in Section 1.1.
Assumed Liabilities: as defined in Section 2.5.
Audited Balance Sheet: the balance sheet contained in the
Audited Financial Statements.
Audited Balance Sheet Date: as defined in Section 3.1.4.
Audited Financial Statements: as defined in Section 3.1.4.
Balance Sheets: the Audited Balance Sheet and the Unaudited
Balance Sheet, respectively.
Balance Sheet Dates: the Audited Balance Sheet Date and the
Unaudited Balance Sheet Date, respectively.
Benefit Liabilities: liabilities, obligations, commitments, costs
and expenses, including reasonable fees and disbursements of attorneys
and other advisors, including any such expenses incurred in connection
with the enforcement of any applicable provision of this Agreement.
BRR Group: BRR Inc. and the BRR Shareholders.
Business Day: shall mean a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or
required to close.
Buyer: as defined in the first paragraph of this Agreement.
Buyer Indemnitees: as defined in Section 7.2(a).
Buyer's Accountants: PriceWaterhouse Coopers LLP.
Buyer Group: Buyer and ▇▇▇▇▇▇▇▇.
CERCLA: the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, 42 U.S.C. 9601 et seq.
Closing: as defined in Section 2.1.
Closing Date: as defined in Section 2.1.
Closing Net Assets Statement: as defined in Section 2.4.
Code: the Internal Revenue Code of 1986, as amended.
Collateral Agreements: the agreements and other documents and
instruments described in Sections 5.1.1 and 5.1.4.
Consent: any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, exemption or order
of, registration, certificate, declaration or filing with, or report or
43
notice to, any Person, including but not limited to any Governmental
Authority.
Contract: as defined in Section 3.1.12(a).
$ or dollars: lawful money of the United States.
Employees: as defined in Section 3.1.24(a).
Environmental Laws: all Applicable Laws relating to the
protection of the environment, to human health and safety, or to any
emission, discharge, generation, processing, storage, holding,
abatement, existence, Release, threatened Release or transportation of
any Hazardous Substances, including, without limitation, (i) CERCLA,
the Resource Conservation and Recovery Act, and the Occupational Safety
and Health Act, (ii) all other requirements pertaining to reporting,
licensing, permitting, investigation or remediation of emissions,
discharges, releases or threatened releases of Hazardous Substances
into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport or handling of Hazardous Substances, and
(iii) all other requirements pertaining to the protection of the health
and safety of employees or the public.
Environmental Liabilities and Costs: all Losses, whether direct
or indirect, known or unknown, current or potential, past, present or
future, imposed by, under or pursuant to Environmental Laws, including,
without limitation, all Losses related to Remedial Actions, and all
fees, disbursements and expenses of counsel, experts, personnel and
consultants based on, arising out of or otherwise in respect of: (i)
the ownership or operation of its business, Real Property or Other
Leases or any other real properties, assets, equipment or facilities,
by Seller, or any of their predecessors or Affiliates; (ii) the
environmental conditions existing on the Closing Date on, at, under,
from, above, or about any Real Property or property subject to Other
Leases or any other real properties, assets, equipment or facilities
currently or previously owned, leased or operated by the Seller, or any
of their predecessors or Affiliates; and (iii) the transportation,
disposal or other disposition prior to the Closing Date of any
Hazardous Substances, other wastes or recycled or reclaimed materials
generated by Seller; and (iv) expenditures necessary to cause any Real
Property or any aspect of Seller's Business to be in compliance with
any and all requirements of Environmental Laws as of the Closing Date,
including, without limitation, all Environmental Permits issued under
or pursuant to such Environmental Laws, and reasonably necessary to
make full economic use of any Real Property.
Environmental Permits: any federal, state and local permit,
license, registration, consent, order, administrative consent order,
certificate, approval or other authorization with respect to Seller
necessary for the conduct of its business as currently conducted or
previously conducted under any Environmental Law.
44
ERISA: the Employee Retirement Income Security Act of 1974, as
amended.
Excluded Assets: as defined in Section 1.2.
Excluded Liabilities: as defined in Section 2.6.
Financial Statements: each of the financial statements required
to be provided by Section 3.1.4.
GAAP: generally accepted accounting principles as in effect in
the United States.
Governmental Approval: any Consent of, with or to any
Governmental Authority.
Governmental Authority: any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any government
authority, agency, department, board, commission or instrumentality of
the United States, any State of the United States or any political
subdivision thereof, and any tribunal or arbitrator(s) of competent
jurisdiction, and any self-regulatory organization.
Hazardous Substances: any substance that: (i) is or contains
asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls,
petroleum or petroleum derived substances or wastes, radon gas or
related materials, lead-based paint or microbial matter, (ii) requires
investigation, removal or remediation under any Environmental Law, or
is defined, listed or identified as a "hazardous waste," "hazardous
substance," "solid waste," "pollutant" or "contaminant" thereunder, or
(iii) is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is
regulated by any Governmental Authority or Environmental Law.
iDL Group: iDL, Inc., ▇▇▇▇ ▇▇▇▇▇▇, L.P. and the iDL
Shareholders.
Indemnified Party: as defined in Section 7.2(e).
Indemnifying Party: as defined in Section 7.2(e).
Intellectual Property: any and all United States and foreign:
(a) patents (including design patents, industrial designs and utility
models) and patent applications (including docketed patent disclosures
awaiting filing, reissues, divisions, continuations-in-part and
extensions), patent disclosures awaiting filing determination,
inventions and improvements thereto; (b) trademarks, service marks,
trade names, trade dress, logos, business and product names, slogans,
and registrations and applications for registration thereof; (c)
copyrights (including software) and registrations thereof; (d)
45
inventions, processes, designs, formulae, trade secrets, know-how,
industrial models, confidential and technical information,
manufacturing, engineering and technical drawings, product
specifications and confidential business information; (e) intellectual
property rights similar to any of the foregoing; (f) copies and
tangible embodiments thereof (in whatever form or medium, including
electronic media).
Intellectual Property Assets: as defined in Section 1.1(h).
Inventories: as defined in Section 1.1(b).
IRS: the Internal Revenue Service.
Key Employees: C. ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇.
Leases: means the real property leases, subleases, licenses and
occupancy agreements pursuant to which either Seller is the lessee,
sublessee, licensee or occupant.
Lien: any mortgage, pledge, hypothecation, right of others,
claim, security interest, encumbrance, lease, sublease, license,
occupancy agreement, adverse claim or interest, easement, covenant,
encroachment, burden, title defect, title retention agreement, voting
trust agreement, interest, equity, option, lien, right of first
refusal, charge or other restrictions or limitations of any nature
whatsoever, including but not limited to such as may arise under any
Contracts.
Losses: as defined in Section 7.2(a).
Material Adverse Effect: any event, occurrence, fact, condition,
change or effect that is materially adverse to the business,
operations, prospects, results of operations, prospects, condition
(financial or otherwise), properties (including intangible properties),
assets (including intangible assets) or liabilities of Seller.
Multiemployer Plan: as defined in Section 3.1.24(c)(iv).
Other Leases: the leases, subleases, licenses and occupancy
agreements pursuant to which either Seller is a lessor, sublessor or
licensor of any part of the Real Property.
Owned Intellectual Property: as defined in Section 3.1.19(a).
Pension Plan: a pension plan as defined in section 3(2) of ERISA
which is not an individual account plan as defined in section 3(34) of
ERISA.
Permitted Liens: (i) Liens reserved against in the Balance
Sheets, to the extent so reserved, (ii) Liens for Taxes not yet due and
payable or which are being contested in good faith and by appropriate
46
proceedings if adequate reserves with respect thereto are maintained on
Seller's books in accordance with GAAP, or (iii) Liens that,
individually and in the aggregate, do not and would not materially
detract from the value of any of the property or assets of Seller or
materially interfere with the use thereof as currently used or
contemplated to be used or otherwise.
Person: any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Authority or
other entity.
Plan: as defined in Section 3.l.24(a).
Prime Rate: the "Prime Rate" as set forth in the Wall Street
Journal from time to time.
Purchase Price: as defined in Section 2.2.
Real Property: all interests leased pursuant to the Leases.
Real Property Laws: as defined in Section 3.1.21(e).
Related Persons: as defined in Section 3.l.24(a).
Release: any releasing, disposing, discharging, injecting,
spilling, leaking, leaching, pumping, dumping, emitting, escaping,
emptying, seeping, dispersal, migration, transporting, placing and the
like, including without limitation, the moving of any materials
through, into or upon, any land, soil, surface water, ground water or
air, or otherwise entering into the environment.
Remedial Action: all actions required to (i) clean up, remove,
treat or in any other way remediate any Hazardous Substances; (ii)
prevent the release of Hazardous Substances so that they do not
migrate or endanger or threaten to endanger public health or welfare or
the environment; or (iii) perform studies, investigations and care
(including any financial responsibility requirement) related to any
such Hazardous Substances.
Security: as defined in Section 3.1.30.
Seller: as defined in the first recital of this Agreement.
Seller Indemnitees: as defined in Section 7.2(c).
Seller Group: the Seller, iDL Inc., ▇▇▇▇ ▇▇▇▇▇▇, L.P., BRR Inc.,
the iDL Shareholders and the BRR Shareholders.
Subsidiaries: each corporation or other Person in which a Person
owns or controls, directly or indirectly, capital stock or other equity
interests representing at least 50% of the outstanding voting stock or
other equity interests.
47
Tax: any federal, state, provincial, local, foreign or other
income, alternative, minimum, accumulated earnings, personal holding
company, franchise, capital stock, net worth, capital, profits,
windfall profits, gross receipts, value added, sales, use, goods and
services, excise, customs duties, transfer, conveyance, mortgage,
registration, stamp, documentary, recording, premium, severance,
environmental (including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles, rent, occupancy,
license, occupational, employment, unemployment insurance, social
security, disability, workers' compensation, payroll, health care,
withholding, estimated or other similar tax, duty or other governmental
charge or assessment or deficiencies thereof (including all interest
and penalties thereon and additions thereto whether disputed or not).
Tax Return: any return, report, declaration, form, claim for
refund or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment
thereof.
Transaction Expenses: as defined in Section 7.4.
Transferred Employees: as defined in Section 6.1(b).
Transfer Taxes: as defined in Section 4.1.2.
Treasury Regulations: the regulations prescribed pursuant to the
Code.
Unaudited Annual Balance Sheet: the balance sheet contained in
the Unaudited Annual Financial Statements.
Unaudited Balance Sheet Date: as defined in Section 3.1.4.
Unaudited Annual Financial Statements: as defined in Section
3.1.4.
Withholding Taxes: as defined in Section 3.1.6(a).
Working Capital Liabilities: as defined in Section 2.5(a).
7.2. Indemnification. (a) By iDL Group. Each of Seller and the iDL Group
jointly and severally covenant and agree to defend, indemnify and hold
harmless Buyer, its officers, directors, employees, agents, advisers,
representatives and Affiliates (collectively, "Buyer Indemnitees") from and
against, and pay or reimburse Buyer Indemnitees for, any and all claims,
liabilities, obligations, losses, fines, costs, royalties, proceedings,
deficiencies or damages (whether absolute, accrued, conditional or otherwise
and whether or not resulting from third party claims), including out-of-
pocket expenses and reasonable attorneys' and accountants fees incurred in
the investigation or defense of any of the same or in asserting any of their
respective rights hereunder (collectively, "Losses"), with respect to the
48
business or Assets which were previously owned by iDL, resulting from or
arising out of:
(i) any inaccuracy of any representation or warranty made by a
member of the iDL Group or Seller herein or in any Collateral Agreement or in
connection herewith or therewith;
(ii) any failure of a member of the iDL Group or Seller to perform
any covenant or agreement hereunder or any Collateral Agreement or fulfill
any other obligation in respect hereof or of any Collateral Agreement;
(iii) any Excluded Liabilities or Excluded Assets;
(iv) the operation of the business by a member of the iDL Group or
Seller or their ownership of the Assets prior to the Closing Date;
(v) any and all Benefit Liabilities in respect of Employees,
except, with respect to Transferred Employees, to the extent assumed by Buyer
pursuant to Article VI;
(vi) all Environmental Liabilities and Costs in any way related to
iDL Group's or Seller's operation of the business or any environmental
conditions in, on, under, from or about the Real Property, the Assets or
other properties or assets owned, lease or used by Seller which were created,
existed or arose prior to the Closing Date or relating to the Excluded
Assets;
(vii) any product liability claim with respect to products
manufactured or sold or events occurring prior to the Closing;
(viii) any failure of Seller to comply with applicable bulk sales
laws (in consideration of which indemnification obligation Buyer hereby
waives compliance by Seller with any applicable bulk sales laws); and
(ix) any claims by a landlord with respect to any Lease of the iDL
Group related to the failure to obtain a required consent to the transactions
contemplated hereby or in any Collateral Agreement.
(b) By BRR Group. Each of Seller and the BRR Group jointly and
severally covenant and agree to defend, indemnify and hold harmless the Buyer
Indemnitees, from and against, and pay or reimburse Buyer Indemnitees for,
any and all claims, liabilities, obligations, losses, fines, costs,
royalties, proceedings, deficiencies or damages (whether absolute, accrued,
conditional or otherwise and whether or not resulting from third party
claims), including out-of-pocket expenses and reasonable attorneys' and
accountants fees incurred in the investigation or defense of any of the same
or in asserting any of their respective rights hereunder (collectively,
"Losses"), with respect to the business or Assets which were previously owned
by BRR Inc., resulting from or arising out of:
49
(i) any inaccuracy of any representation or warranty made by a
member of the BRR Group or Seller herein or in any Collateral Agreement or in
connection herewith or therewith;
(ii) any failure of a member of the BRR Group or Seller to perform
any covenant or agreement hereunder or any Collateral Agreement or fulfill
any other obligation in respect hereof or of any Collateral Agreement;
(iii) any Excluded Liabilities or Excluded Assets;
(iv) the operation of the business by a member of the BRR Group or
Seller or their ownership of the Assets prior to the Closing Date;
(v) any and all Benefit Liabilities in respect of Employees,
except, with respect to Transferred Employees, to the extent assumed by Buyer
pursuant to Article VI;
(vi) all Environmental Liabilities and Costs in any way related to
BRR Group's or Seller's operation of the business or any environmental
conditions in, on, under, from or about the Real Property, the Assets or
other properties or assets owned, lease or used by Seller which were created,
existed or arose prior to the Closing Date or relating to the Excluded
Assets;
(vii) any product liability claim with respect to products
manufactured or sold or events occurring prior to the Closing;
(viii) any failure of Seller to comply with applicable bulk sales
laws (in consideration of which indemnification obligation Buyer hereby
waives compliance by Seller with any applicable bulk sales laws); and
(ix) any claims by a landlord with respect to any Lease of the BRR
Group related to the failure to obtain a required consent to the transactions
contemplated hereby or in any Collateral Agreement.
(c) By Buyer. The members of the Buyer Group jointly and severally
covenant and agree to defend, indemnify and hold harmless Seller and their
officers, directors, employees, agents, advisors, representatives and
Affiliates (collectively, the "Seller Indemnitees") from and against any and
all Losses resulting from or arising out of:
(i) any inaccuracy in any representation or warranty made by
the members of the Buyer Group herein or in any Collateral Agreement or in
connection herewith or therewith; or
(ii) any failure of the members of the Buyer Group to perform
any covenant or agreement hereunder or any Collateral Agreement or fulfill
any other obligation in respect hereof or any Collateral Agreement;
(iii) the Assumed Liabilities;
(iv) the operation of the business by the members of the Buyer
Group or Buyer's use of the Assets following the Closing Date, except, in the
case of the clause (iv), to the extent such Losses result from or arise out
50
of the Excluded Liabilities or constitute Losses for which the Seller Group
is required to indemnify Buyer Indemnitees under Section 7.2(a).
(d) Adjustments to Indemnification Payments. Any payment made by the
Seller Group to Buyer Indemnitees, on the one hand, or by the Buyer Group to
Seller Indemnitees, on the other hand, pursuant to this Section 7.2 in
respect of any claim (i) shall be net of any insurance proceeds realized by
and paid to the Indemnified Party in respect of such claim and (ii) shall be
(A) reduced by an amount equal to any Tax benefits attributable to such claim
and (B) increased by an amount equal to any Taxes attributable to the receipt
of such payment, but only to the extent that such Tax benefits are actually
realized, or such Taxes are actually paid, as the case may be, by the
respective Indemnified Party or by any consolidated, combined or unitary
group of which it is a member. The Indemnified Party shall use its
reasonable efforts to make insurance claims relating to any claim for which
it is seeking indemnification pursuant to this Section 7.2; provided that the
Indemnified Party shall not be obligated to make such an insurance claim if
the Indemnified Party in its reasonable judgment believes that the cost of
pursuing such an insurance claim together with any corresponding increase in
insurance premiums or other chargebacks to the Indemnified Party, as the case
may be, would exceed the value of the claim for which the Indemnified Party
is seeking indemnification.
(e) Indemnification Procedures. In the case of any claim asserted by
a third party against a party entitled to indemnification under this
Agreement (the "Indemnified Party"), notice shall be given by the Indemnified
Party to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and the Indemnified Party shall
permit the Indemnifying Party (at the expense of such Indemnifying Party) to
assume the defense of any claim or any litigation resulting therefrom,
provided that (i) the counsel for the Indemnifying Party who shall conduct
the defense of such claim or litigation shall be reasonably satisfactory to
the Indemnified Party, (ii) the Indemnified Party may participate in such
defense at such Indemnified Party's expense, and (iii) the omission by any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its indemnification obligation under this Agreement
except to the extent that such omission results in a failure of actual
notice to the Indemnifying Party and such Indemnifying Party is materially
damaged as a result of such failure to give notice. Except with the prior
written consent of the Indemnified Party, no Indemnifying Party, in the
defense of any such claim or litigation, shall consent to entry of any
judgment or enter into any settlement that provides for injunctive or other
nonmonetary relief affecting the Indemnified Party or that does not include
as an unconditional term thereof the giving by each claimant or plaintiff to
such Indemnified Party of a release from all liability with respect to such
claim or litigation. In the event that the Indemnified Party shall in good
faith determine that the conduct of the defense of any claim subject to
indemnification hereunder or any proposed settlement of any such claim by the
Indemnifying Party might be expected to affect adversely the Indemnified
Party's Tax liability or the ability of Buyer to conduct its business, or
that the Indemnified Party may have available to it one or more defenses or
51
counterclaims that are inconsistent with one or more of those that may be
available to the Indemnifying Party in respect of such claim or any
litigation relating thereto, the Indemnified Party shall have the right at
all times to take over and assume control over the defense, settlement,
negotiations or litigation relating to any such claim at the sole cost of the
Indemnifying Party, provided that if the Indemnified Party does so take over
and assume control, the Indemnified Party shall not settle such claim or
litigation without the written consent of the Indemnifying Party, such
consent not to be unreasonably withheld. In the event that the Indemnifying
Party does not accept the defense of any matter as above provided, the
Indemnified Party shall have the full right to defend against any such claim
or demand and shall be entitled to settle or agree to pay in full such claim
or demand. In any event, the Indemnifying Party and the Indemnified Party
shall cooperate in the defense of any claim or litigation subject to this
Section 7.2 and the records of each shall be available to the other with
respect to such defense.
(f) Time Limitation. All claims for indemnification under clause (i)
of the first sentence of Section 7.2(a), 7.2(b) or 7.2(c) must be asserted
within 30 days of the termination of the respective survival periods set
forth in Section 7.3.
(g) Dollar Limitation. The Indemnifying Party's liability for all
losses in respect of claims made under: (A) Section 7.2(a)(i) and 7.2(a)(ii)
shall be limited to $13,770,000, (B) Section 7.2(b)(i) and 7.2(b)(ii) shall
be limited to $3,230,000; and (C) Section 7.2(c)(i) and 7.2(c)(ii) (other
than any claim with respect to the failure to perform obligations related to
any Contingent Consideration payments pursuant to Section 2.3) shall be
limited to $17,000,000; provided, however, that the foregoing limitation
shall not apply to claims made with respect to Section 3.1.22.
(h) Set-off.
(i) Buyer shall be entitled to set-off against the Contingent
Consideration Payments due to ▇▇▇▇▇ ▇▇▇▇▇▇, the amount of any outstanding
claims made pursuant to this Section 7.2 with respect to iDL and Seller to
the extent such claim is related to the business or net assets transferred by
iDL.
(ii) Buyer shall be entitled to set-off against the Contingent
Consideration Payments due to ▇▇▇▇▇▇ ▇▇▇▇, the amount of any outstanding
claims made pursuant to this Section 7.2 with respect to BRR Inc. and Seller
to the extent such claim is related to the business or net assets
transferred by BRR Inc.
(iii) Buyer shall not set off against the Contingent
Consideration Payments that will ultimately be received by any partner of
Seller in accordance with Section 2.3(c), the amount of any outstanding
claims made pursuant to this Section 7.2, other than as permitted by
subsections (a) and (b) above; provided, however, that the foregoing shall
not affect the fact that the BRR Shareholders and iDL Shareholders are making
representations and warranties hereunder and may be liable therefor.
52
(i) Accounts Receivable Indemnity. The Seller Group jointly and
severally shall indemnify the Buyer Indemnitees for all accounts receivable
that were outstanding and recorded on the books of the Seller as of the
Closing Date and remain uncollected as of January 1, 2006. The amount of
indemnification will be reduced by the allowance for doubtful accounts
recorded on the books of the Seller as of the Closing Date, with such
allowance to be determined in accordance with generally accepted accounting
principles and consistent with Seller's past accounting practices. Any
accounts receivable indemnified by the Seller Group (including any credit
insurance claim related to such specific receivables) will become the
property of the Seller on the date such indemnification is paid.
(j) Inventory Indemnity. The Seller Group jointly and severally
shall indemnify the Buyer Indemnitees for all inventory items (raw materials,
supplies, work-in-process, finished goods, etc.) that were on-hand (including
consigned inventory, if any) and recorded on the books of the Seller as of
the Closing Date and still on-hand as of January 1, 2006. The amount of
indemnification will be equal to the book value of such inventory items as of
the Closing Date and will be reduced by the reserve (if any) for slow-
moving/obsolete inventory recorded on the books of the Seller as of the
Closing Date, with such reserve to be determined in accordance with generally
accepted accounting principles and consistent with Seller's past accounting
practices. Any inventory indemnified by the Seller Group will become the
property of the Seller on the date such indemnification is paid.
(k) Calculation. For purposes of calculating the indemnification in
subsections (i) and (j) above, the total uncollected accounts receivable and
total obsolete inventory will be measured against the aggregate of the
allowance for doubtful accounts and the reserve for slow-moving/obsolete
inventory.
7.3. Survival of Representations and Warranties, etc. The representations
and warranties contained in this Agreement shall survive the execution and
delivery of this Agreement, any examination by or on behalf of the parties
hereto and the completion of the transactions contemplated herein, but only
to the extent specified below:
(a) except as set forth in clauses (b) and (c) below, the
representations and warranties contained in Section 3.1 and Section 3.2 shall
survive for a period of eighteen months following the Closing Date;
(b) the representations and warranties contained in Sections 3.1.1,
3.1.2, the first sentence of Section 3.1.11, and Section 3.2.1 shall survive
without limitation; and
(c) the representations and warranties contained in
(i) Section 3.1.22 shall survive for a period of ten years following the
Closing Date and (ii) Section 3.1.6 shall survive as to any Tax covered by
such representations and warranties for so long as any statute of limitations
for such Tax remains open, in whole or in part, including without limitation
by reason of waiver of such statute of limitations.
7.4. Expenses. Except as otherwise provided herein, Seller, on the one
hand, and ▇▇▇▇▇▇▇▇, on the other hand, shall bear their respective expenses,
53
costs and fees (including attorneys' and auditors') in connection with the
transactions contemplated hereby, including the preparation, execution and
delivery of this Agreement and compliance herewith (the "Transaction
Expenses"), whether or not the transactions contemplated hereby shall be
consummated.
7.5. Severability. If any provision of this Agreement, including any
phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions
herein contained invalid, inoperative, or unenforceable to any extent
whatsoever.
7.6. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall
be in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail
or delivery or (d) sent by telecopy or telegram.
if to Buyer to,
▇▇▇▇▇▇▇▇ International Corp.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
if to Seller,
Cloverleaf Group, L.P.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
54
with a copy to:
▇▇▇▇▇▇▇▇ Ingersoll PC
One Oxford Centre
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or, in each case , at such other address as may be specified in writing
to the other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail
or delivery, on the day delivered, (z) if by telecopy or telegram, on the
next day following the day on which such telecopy or telegram was sent,
provided that a copy is also sent by certified or registered mail.
7.7. Miscellaneous.
7.7.1. Headings. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
7.7.2. Entire Agreement. This Agreement (including the Schedules hereto)
and the Collateral Agreements (when executed and delivered) constitute the
entire agreement and supersede all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof. Nothing contained in any Consent and Acknowledgement Agreement
signed with any landlord of the Sellers shall be deemed to amend, waive,
modify, or restrict any rights, obligations, representations or warranties of
the parties set forth in this Agreement, and to the extent of any
inconsistency between the provisions of such Consent and Acknowledgement and
this Agreement, this Agreement shall control.
7.7.3. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which
shall together constitute one and the same instrument.
7.7.4. Governing Law, etc. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the
internal laws of the Commonwealth of Pennsylvania, without giving effect to
the conflict of laws rules thereof. The parties hereto hereby irrevocably
submit to the jurisdiction of the courts of the Commonwealth of Pennsylvania
and the Federal courts of the United States of America located in the
Commonwealth and County of Allegheny solely in respect of the interpretation
and enforcement of the provisions of this Agreement and of the documents
referred to in this Agreement, and hereby waive, and agree not to assert, as
a defense in any action, suit or proceeding for the interpretation or
55
enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not
maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any of such document may not be enforced in or by
said courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in such a
Pennsylvania state or Federal court. The parties hereto hereby consent to
and grant any such court jurisdiction over the person of such parties and
over the subject matter of any such dispute and agree that mailing of process
or other papers in connection with any such action or proceeding in the
manner provided in Section 7.6, or in such other manner as may be permitted
by law, shall be valid and sufficient service thereof.
7.7.5. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, successors
and permitted assigns.
7.7.6. Assignment. This Agreement shall not be assignable or otherwise
transferable by any party hereto without the prior written consent of the
other parties hereto, provided that Buyer may assign this Agreement to any
subsidiary of Buyer.
7.7.7. No Third Party Beneficiaries. Except as provided in Section 7.2
with respect to indemnification of Indemnified Parties hereunder, nothing in
this Agreement shall confer any rights upon any person or entity other than
the parties hereto and their respective heirs, successors and permitted
assigns.
7.7.8. Amendment; Waivers, etc. No amendment, modification or discharge
of this Agreement, and no waiver hereunder, shall be valid or binding unless
set forth in writing and duly executed by the party against whom enforcement
of the amendment, modification, discharge or waiver is sought. Any such
waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of
the provisions of this Agreement, nor the failure by any of the parties, on
one or more occasions, to enforce any of the provisions of this Agreement or
to exercise any right or privilege hereunder, shall be construed as a waiver
of any other breach or default of a similar nature, or as a waiver of any of
such provisions, rights or privileges hereunder. The rights and remedies
herein provided are cumulative and are not exclusive of any rights or
remedies that any party may otherwise have at law or in equity. The rights
and remedies of any party based upon, arising out of or otherwise in respect
of any inaccuracy or breach of any representation, warranty, covenant or
agreement or failure to fulfill any condition shall in no way be limited by
the fact that the act, omission, occurrence or other state of facts upon
which any claim of any such inaccuracy or breach is based may also be the
subject matter of any other representation, warranty, covenant or agreement
as to which there is no inaccuracy or breach. The representations and
warranties of the Seller Group shall not be affected or deemed waived by
reason of any investigation made by or on behalf of Buyer (including but not
56
limited to by any of its advisors, consultants or representatives) or by
reason of the fact that Buyer or any of such advisors, consultants or
representatives knew or should have known that any such representation or
warranty is or might be inaccurate. If any payment due hereunder shall be
due on a day which is not a Business Day, such payment shall be made on the
next succeeding Business Day.
7.7.9. Matters of Construction, Interpretation and the Like. The Buyer
Group and the Seller Group have participated jointly in the negotiation and
drafting of this Agreement. If an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted
jointly by the Buyer Group and the Seller Group and no presumption or burden
of proof shall arise favoring or disfavoring either the Buyer Group and the
Seller Group because of the authorship of any of the provisions of this
Agreement. Any reference to any United States Federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
Unless the context of this Agreement otherwise requires, (a) words of any
gender are deemed to include each other gender; (b) words using the singular
or plural number also include the plural or singular number, respectively;
(c) the terms "hereof," "herein," "hereby," "hereto," and derivative or
similar words refer to this entire Agreement; (d) the terms "ARTICLE" or
"Section" refer to the specified ARTICLE or Section of this Agreement;
(e) the term "or" means "and/or"; (f) the term "party" means, on the one
hand, the Buyer Group, on the other hand, the Seller Group, (g) the word
"including" means "including without limitation"; and (h) all references to
"dollars" or "$" refer to currency of the United States of America. The
exhibits and schedules specified in this Agreement are incorporated herein by
reference and made a part hereof.
57
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
Cloverleaf Group, L.P.
By: Cloverleaf Group, LLC,
General Partner
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Title: Manager
------------------------------
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------------
Title: Manager
------------------------------
I.D.L. Incorporated
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Title: President
------------------------------
▇▇▇▇ ▇▇▇▇▇▇, L.P.
By: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLC,
General Partner
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Title: Manager
-------------------------------
Big Red Rooster Inc.
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
Title: President
-------------------------------
58
Cloverleaf Group, Inc. (Buyer)
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Title: President
--------------------------------
▇▇▇▇▇▇▇▇ International Corporation
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Title: President
--------------------------------
[additional signatures follow]
59
IDL Shareholders
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
C. ▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------------------
C. ▇▇▇▇▇▇▇ ▇▇▇▇▇
2000 Irrevocable Trust for Family of
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee
By: D. ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
D. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Trustee
60
2000 Irrevocable Trust for Family of
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee
BRR Shareholders
▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇
Sweet Clover Group, Inc.
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------
Title: President
---------------------------------
_____________________
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