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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 000-23033
Authentic Specialty Foods, Inc.
(Exact name of the Registrant as specified in its charter)
Texas 75-1782453
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1313 Avenue R
Grand Prairie, Texas 75050
(Address of principal executive offices)
972-933-4100
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
----- -----
Number of shares of Common Stock outstanding as of the latest
practicable date, November 14, 1997: 7,786,500.
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<PAGE> 2
AUTHENTIC SPECIALTY FOODS, INC.
INDEX
<TABLE>
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Page
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<S> <C>
Part I. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet
at September 30, 1997 and December 31, 1996
Condensed Consolidated Statement of Operations
for the three and nine months ended September 30, 1997 and 1996
Condensed Consolidated Statement of Cash Flows
for the nine months ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements
Supplemental Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 6. Exhibits
Signatures
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTHENTIC SPECIALTY FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 30, December 31,
1997 1996
--------------------------------
ASSETS (unaudited)
Current Assets
Cash and cash equivalents $ 3,673,053 $ 200,479
Accounts receivable 3,703,959 1,474,753
Inventories (5) 14,270,065 780,222
Prepaid expenses 609,084 108,104
------------ ------------
TOTAL CURRENT ASSETS 22,256,161 2,563,558
------------ ------------
Property and Equipment, net of depreciation and amortization 12,050,029 2,822,537
Other Assets (principally goodwill and other intangibles) (3 and 4) 22,330,834 1,703,043
------------ ------------
TOTAL ASSETS $ 56,637,024 $ 7,089,138
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable to bank $ -- $ 1,319,442
Current portion of long-term debt 1,385,949 766,432
Accounts payable 2,913,025 1,723,999
Accrued expenses 2,718,679 310,244
------------ ------------
TOTAL CURRENT LIABILITIES 7,017,653 4,120,117
------------ ------------
Long-Term Debt Less Current Maturities 5,938,710 919,866
Deferred Income Taxes (3) 2,865,000 --
Commitments and Contingencies -- --
Stockholders' Equity (1)
Preferred stock, $.01 par value, authorized 5,000,000 shares,
no shares issued or outstanding -- --
Common stock, $1.00 par value, authorized 20,000,000 shares,
7,786,500 shares issued and outstanding 7,786,500 1,700,000
Additional paid-in capital 34,199,004 1,860,152
Accumulated deficit (1,169,843) (1,510,997)
------------ ------------
Total Stockholders' Equity 40,815,661 2,049,155
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 56,637,024 $ 7,089,138
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
AUTHENTIC SPECIALTY FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 1996 1997 1996
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net sales $ 8,381,324 $ 5,202,673 $ 19,342,931 $ 15,730,219
Cost of sales 5,032,444 3,468,669 12,222,907 10,395,358
--------- --------- ---------- ----------
GROSS PROFIT 3,348,880 1,734,004 7,120,024 5,334,861
Operating expenses 3,032,094 1,616,221 6,278,644 4,930,142
--------- --------- --------- ---------
INCOME FROM OPERATIONS 316,786 117,783 841,380 404,719
--------- --------- --------- ---------
Other income and expense:
Interest expense (135,727) (80,056) (301,339) (246,721)
Other income (expense) 26,479 235 27,490 (20,055)
-------- ------- -------- --------
(109,248) (79,821) (273,849) (266,776)
-------- ------- -------- --------
INCOME BEFORE INCOME TAXES 207,538 37,962 567,531 137,943
Income tax expense 103,889 12,907 226,377 46,901
------- ------ ------- ------
NET INCOME $ 103,649 $ 25,055 $ 341,154 $ 91,042
============ ============ ============ ============
Earnings per common share $ 0.03 $ 0.01 $ 0.17 $ 0.05
=========== ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 3,619,870 1,700,000 2,041,504 1,700,000
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
AUTHENTIC SPECIALTY FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (362,089) $ 422,404
Cash Flows From Investing Activities
Purchase of property and equipment (433,788) (480,801)
Proceeds on disposal of property and equipment 50,750 115,486
Purchase of La Victoria (12,000,000) --
Purchase of La Monita (2,753,018) --
------------ ---------
NET CASH USED IN INVESTING ACTIVITIES (15,136,056) (365,315)
------------ ---------
Cash Flows From Financing Activities
Increase (decrease) in line of credit (1,319,442) 298,421
Payments on long-term debt (6,413,500) (262,679)
Payments on note payable to officer -- (80,000)
Net proceeds upon issuance of stock 32,570,101 --
Redemption of common stock (5,866,440) --
------------ ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 18,970,719 (44,258)
------------ ---------
INCREASE IN CASH AND CASH EQUIVALENTS 3,472,574 12,831
Cash and Cash Equivalents
Beginning of period 200,479 9,027
------------ ---------
Ending of period $ 3,673,053 $ 21,858
============ =========
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 301,339 $ 203,745
============ =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
AUTHENTIC SPECIALTY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted, pursuant to such rules and regulations, although
management believes the disclosures are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Registration Statement on Form S-1, as amended
(Registration No. 333-29959), filed with the Securities and Exchange
Commission, which became effective August 27, 1997.
The financial statements presented herein as of September 30, 1997 and for the
three and nine months ended September 30, 1997 and 1996 reflect, in the opinion
of management, all material adjustments consisting only of normal recurring
adjustments necessary for a fair presentation of the financial position, results
of operations and cash flows for these interim periods.
2. INITIAL PUBLIC OFFERING
On September 2, 1997 the Company sold 4,000,000 shares of its common stock in
an initial public offering resulting in net proceeds to the Company of
approximately $28.1 million. On September 9, 1997, the Company sold an
additional 600,000 shares of common stock to the underwriters pursuant to the
exercise of the underwriters' over-allotment option. This resulted in
additional net proceeds to the Company of approximately $4.5 million.
3. ACQUISITION OF LA VICTORIA FOODS, INC.
On September 2, 1997, pursuant to a contribution and exchange agreement, the
Company acquired beneficial ownership of 100% of the capital stock of La
Victoria Foods, Inc. (La Victoria) for $12 million in cash, Company common
stock with a value of $10.8 million, the assumption of approximately $5 million
in liabilities, and direct acquisition costs of $0.5 million, for an aggregate
purchase price of $28.3 million. The Company used a portion of the proceeds
from the initial public offering to make the cash payment and to repay certain
assumed liabilities.
The acquisition has been accounted for as a purchase. Accordingly, the purchase
price is being allocated to assets and liabilities based on their estimated fair
values as of the date of the acquisition and is summarized as follows (in
millions):
<TABLE>
<C> <C>
Current assets $15.5
Property and equipment 7.8
Current liabilities (4.5)
Long-term debt (5.8)
-------
$13.0
=======
</TABLE>
The cost in excess of the net assets acquired of approximately $15.3 million has
been allocated to intangibles assets of $19 million and deferred tax liabilities
of $3.7 million, $0.8 of which was recorded as a direct addition to additional
paid-in capital. The intangible assets consist primarily of La Victoria's
tradename and goodwill and are being amortized on a straight-line basis over
<PAGE> 7
AUTHENTIC SPECIALTY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
their estimated useful lives of 40 years. The Company has not yet completed its
evaluation of the purchase price and accordingly, the preliminary purchase
price allocation could change as additional information becomes known. The
Company's condensed consolidated statements of operations for the three months
and nine months ended September 30, 1997 includes La Victoria's results of
operations since its acquisition on September 2, 1997. The following unaudited
pro forma summary represents the consolidated results of operations as if the
acquisition had occurred at the beginning of the periods presented and does not
purport to be indicative of what would have occurred had the acquisition been
made as of those dates or of results that may occur in the future. The
following pro forma summary does not include the results of operations for La
Monita (see Note 4), as they are not considered material (in thousands except
per share data).
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- ------------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 15,652 $ 14,506 $ 45,591 $ 44,184
Cost of Sales 8,459 8,148 24,883 24,917
----------------------------------- ------------------------------------
Gross Profit 7,193 6,358 20,708 19,267
Operating Expenses 5,887 5,153 17,961 17,314
----------------------------------- ------------------------------------
Income from Operations 1,306 1,205 2,747 1,953
Other Expenses (net) 158 290 547 837
Income Tax Expense 518 434 1,013 517
----------------------------------- ------------------------------------
Net Income $ 630 $ 481 $ 1,187 $ 599
=================================== ====================================
Net Income per
Common Share $ 0.09 $ 0.07 $ 0.16 $ 0.08
=================================== ====================================
</TABLE>
4. ACQUISITION OF LA MONITA MEXICAN FOOD PRODUCTS, INC.
On September 30, 1997, the Company acquired the net assets of La Monita Mexican
Food Products, Inc. (La Monita) for approximately $2.8 million in cash, $850,000
of which was paid directly to the former owner, with the remainder used to
retire certain debt. The acquisition has been accounted for as purchase. The
purchase price has been allocated approximately as follows: fixed assets of $1.4
million, current assets of $0.4 million and current liabilities of $0.8 million.
The cost in excess of the net assets acquired of approximately $1.8 million has
been allocated to intangibles. The Company has not yet completed its evaluation
of the purchase price and accordingly, the preliminary purchase price allocation
could change as additional information becomes known. The Company's condensed
consolidated statements of operations for the quarter and nine months ended
September 30, 1997 do not include any results of La Monita's operations as the
acquisition was effective September 30, 1997.
<PAGE> 8
AUTHENTIC SPECIALTY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in, first-out
(FIFO) basis, or market. Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
- ------------------------------------------------------
<S> <C> <C>
Raw materials $ 398,232 $ 83,265
Packaging materials 762,991 246,849
Finished goods 13,108,842 450,108
----------- --------
$14,270,065 $780,222
=========== ========
</TABLE>
6. EARNINGS PER SHARE
Earnings per common share are determined by dividing the net income by the
weighted average number of shares of common stock outstanding including common
stock equivalents.
The FASB has issued Statement No. 128, Earnings Per Share, which supersedes APB
Opinion No. 15. Statement No. 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such as
options, warrants and convertible securities, outstanding that trade in a
public market. Those entities that have only common stock outstanding are
required to present basic earnings per share amounts. All other entities are
required to present basic and diluted per share amounts. Diluted per share
amounts assume the conversion, exercise or issuance of all potential common
stock instruments unless the effect is to reduce a loss or increase the income
per common share from continuing operations. All entities required to present
per share amounts must initially apply Statement No. 128 for annual and interim
periods ending after December 15, 1997. Earlier application is not permitted.
The adoption of Statement No. 128 would have had no material affect on reported
earnings per share.
7. SUBSEQUENT EVENTS
On October 31, 1997, the Company acquired all of the capital stock of Sauces
Unlimited, Inc., a manufacturer of picante and other sauces located in Texas.
The $2.9 million purchase price included a $2.4 million payment to two former
stockholders, $0.3 million to retire a term loan and revolving credit facility,
and the assumption of $0.2 million in long-term debt.
<PAGE> 9
ITEM 2. AUTHENTIC SPECIALTY FOODS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(UNAUDITED)
The following discussion and analysis provides information that the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the accompanying unaudited condensed consolidated
financial statements and the notes thereto and with the financial statements
and notes thereto included in the Company's Registration Statement on Form S-1,
as amended (Registration Number 333-29959), filed with the Securities and
Exchange Commission, which became effective August 27, 1997.
<PAGE> 10
ITEM 2. AUTHENTIC SPECIALTY FOODS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (UNAUDITED)
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Authentic Specialty Foods, Inc. acquired La Victoria effective upon the closing
of the initial public offering on September 2, 1997. Accordingly, only one
month of La Victoria's operations are included in the Company's actual results
for the three months and nine months ended September 30, 1997. Because the
acquisition of La Victoria was presented as an integral part of the initial
public offering and due to the material level of La Victoria's annual sales
relative to that of the Company's, all results and discussion are presented pro
forma on a consolidated basis.
NET SALES. Net sales consists of gross sales less the amount of discounts,
returns and allowances. Net sales for the three months ended September 30, 1997
were $15,652,000 compared to $14,506,000 for the three months ended September
30,1996, an increase of $1,146,000, or 7.9%. $933,000 of the net sales increase
occurred
<PAGE> 11
ITEM 2. AUTHENTIC SPECIALTY FOODS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (UNAUDITED)
at La Victoria and was primarily due to increased sales volume. This additional
sales volume was largely attributable to more effective use of in-store
promotions and advertising expenditures. The remainder of the increase in net
sales resulted from meat and cheese sales in two independent Dallas grocery
chains served by the Company's Calidad Foods operation ("Calidad").
COST OF SALES AND GROSS MARGIN. Cost of sales consists primarily of labor, raw
materials and overhead used in the production of the products manufactured by
Calidad and La Victoria. Calidad also incurs costs to purchase various products
(such as meats, cheeses and shelf-stable products) that have been manufactured
by third parties for distribution through Calidad's direct store delivery
("DSD") system. Gross margin for the three months ended September 30, 1997 was
$7,193,000 compared to $6,358,000, for the three months ended September 30,
1996, an increase of $835,000, or 13.1%. As a percentage of net sales, gross
margin increased from 43.8% for the three months ended September 30,1996 to
46.0% for the three months ended September 30, 1997. The increase in gross
margin was attributable to increased sales levels and a continued emphasis on
cost controls and efficiencies at La Victoria.
OPERATING EXPENSES. Operating expenses consist primarily of commissions,
promotional expenses and advertising, sales and administrative salaries, fleet
expenses and general overhead. Operating expenses for the three months ended
September 30, 1997 were $5,887,000 compared to $5,153,000 for the three months
ended September 30,1996, an increase of $734,000, or 14.2%. As a percentage of
net sales, operating expenses increased from 35.5% for the three months ended
September 30,1996 to 37.6% for the three months ended September 30, 1997. The
increase in operating expenses was primarily due to increased advertising and
promotional expenses at La Victoria, higher transportation expenses to new
markets (Arkansas and Louisiana) served by Calidad and the increased
administrative costs involved in operating as a public company.
OTHER EXPENSES. Other expenses consist primarily of interest expense and gain
or loss on the disposal of property and equipment. Other expenses for the three
months ended September 30, 1997, were $158,000 compared to $290,000 for the
three months ended September 30,1996, a decrease of $132,000, or 45.5%. As a
percentage of net sales, other expenses decreased from 2.0% for the three
months ended September 30, 1996 to 1.0% for the three months ended September
30, 1997. The decrease was due to reduced working capital borrowings and a
lower term debt balance at La Victoria, interest income generated by funds
raised from the initial public offering and a $58,000 write-off of equipment
that was incurred in 1996 but not in 1997.
NET INCOME. For the reasons described above, pro forma net income for the three
months ended September 30, 1997 was $630,000 compared to $481,000 for the three
months ended September 30,1996, an improvement of $149,000, or 31.0%. As a
percentage of net sales, net income improved from 3.3% for the three months
ended September 30,1996 to 4.0% for the three months ended September 30, 1997.
<PAGE> 12
ITEM 2. AUTHENTIC SPECIALTY FOODS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (UNAUDITED)
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
NET SALES. Net sales for the first nine months of 1997 were $45,591,000 compared
to $44,184,000 for the first nine months of 1996, an increase of $1,407,000, or
3.2%. Calidad experienced a net sales increase of $647,000 primarily due to meat
and cheese sales to two independent Dallas grocery chains. The remainder of the
sales increase occurred at La Victoria and was primarily due to increased third
quarter sales volume. This additional sales volume was largely attributable to
more effective use of in-store promotions and advertising expenditures.
Partially offsetting the third quarter sales increase at La Victoria was a
slight sales decrease for the first six months of 1997 that was due to the
withdrawal from certain less profitable markets in the eastern and central
United States.
COST OF SALES AND GROSS MARGIN. Gross margin for the first nine months of 1997
was $20,708,000 compared to $19,267,000 for the first nine months of 1996, an
increase of $1,441,000, or 7.5%. As a percentage of net sales, gross margin
increased from 43.6% in the first nine months of 1996 to 45.4% in the first
nine months of 1997. The increase in gross margin was attributable to increased
sales and improved manufacturing efficiencies due to cost controls at La
Victoria.
OPERATING EXPENSES. Operating expenses for the first nine months of 1997 were
$17,961,000 compared to $17,314,000 for the first nine months of 1996, an
increase of $647,000, or 3.9%. As a percentage of net sales, operating expenses
increased from 39.2% for the first nine months of 1996 to 39.4% for the first
nine months of 1997. The increase in operating expenses was due to increased
advertising and promotional expenses at La Victoria and higher transportation
expenses to new markets (Arkansas and Louisiana) served by Calidad, offset
partially by a $144,000 decrease in non-compete and consulting payments to two
former shareholders that were incurred in the first nine months of 1996 but not
in the first nine months of 1997.
OTHER EXPENSES. Other expenses for the first nine months of 1997 were $547,000
compared to $837,000 for the first nine months of 1996, a decrease of $290,000,
or 34.6%. As a percentage of net sales, other expenses decreased from 1.9% for
the first nine months of 1996 to 1.2% for the first nine months of 1997. The
decrease was due to reduced working capital borrowings at La Victoria, interest
income generated by funds raised from the public offering and a $70,000
write-off of equipment that was incurred in 1996 but not in 1997.
<PAGE> 13
ITEM 2. AUTHENTIC SPECIALTY FOODS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (UNAUDITED)
NET INCOME. For the reasons described above, pro forma net income for the first
nine months of 1997 was $1,187,000 compared to $599,000 for the first nine
months of 1996, an improvement of $588,000, or 98.2%. As a percentage of net
sales, net income improved from 1.4% for the first nine months of 1996 to 2.6%
for the first nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The initial public offering was consummated on September 2, 1997 and raised
$28.1 million net of underwriting discounts and offering expenses. As was
contemplated in the prospectus for the initial public offering, $2.5 million
was utilized to retire the Company's revolving credit facility, term loan
facility and a note to a former shareholder, $12 million was paid to Robert
Tanklage pursuant to the La Victoria acquisition and $5.9 million was used to
repurchase 788,500 shares owned by The Shansby Group. On September 17, 1997,
the underwriters exercised their option to purchase 600,000 shares to cover
over-allotments. The sale of these shares raised an additional $4.5 million,
net of the underwriters' discount.
Included in the La Victoria purchase was the assumption of a $5 million note
payable to a former shareholder of that company. The offering prospectus
indicated an intent to refinance this note after the offering, and the note
was refinanced under the La Victoria credit facility described below. To
provide the Company with the ability and flexibility to pursue future
acquisitions, the Company executed a $10 million credit facility with Union
Bank of California on October 16, 1997. This facility accrues interest at the
lower of the bank's prime rate or LIBOR plus 1.50 points and requires the
bank's approval for any acquisition that requires access to more than $5
million of the facility. As of November 14, 1997, approximately $9.8 million
was available under this facility.
On September 30, 1997, the Company completed the transactions contemplated by
an Asset Purchase Agreement with Gilbert Moreno Enterprises, Inc. in which
certain assets of the company doing business as La Monita Mexican Food
Products, Inc. ("La Monita") in Houston, Texas were purchased and selected
liabilities were assumed. The $2.8 million purchase price included an $850,000
payment to the former owner of La Monita, with the remainder used to retire
certain debt. The cash payments were made with available cash reserves
resulting from the offering.
On October 31, 1997 the Company completed the transactions contemplated by a
Stock Purchase Agreement with Sauces Unlimited, Inc., a manufacturer of picante
and other sauces located in Texas. The $2.9 million purchase price included a
$2.4 million payment to two former stockholders, $314,000 to retire a term loan
and revolving credit facility and the assumption of $207,000 in long-term debt.
The cash payments were made with available cash reserves.
The Company's available cash balances after the acquisition of Sauces Unlimited,
Inc. were minimal. It is therefore likely that the credit facility with Union
Bank of California will be accessed to fund any short-term working capital needs
or additional acquisitions.
FORWARD-LOOKING INFORMATION
Information included in this Quarterly Report on Form 10-Q, including
information incorporated by reference herein, contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including projections, estimates and expectations. Those statements by their
nature are subject to certain risks, uncertainties and assumptions and will be
influenced by various factors. Should one or more of these statements or their
underlying assumptions prove to be incorrect, actual results could vary
materially. Although the Company believes that such projections, estimates and
expectations are based on reasonable assumptions, it can give no assurance that
such projections, estimates and expectations will be achieved. Important factors
that could cause actual results to differ materially from those in the
forward-looking statements herein include economic developments, federal and
state regulatory developments, conditions of the capital markets and equity
markets during the periods covered by the forward-looking statements and changes
in customer consumption trends, in the demographics of the Company's primary
markets and in the price of raw materials used in the Company's manufacturing of
products. In addition, certain of such projections and expectations are based on
historical results, which may not be indicative of future performance.
<PAGE> 14
PART II. OTHER INFORMATION
Item 6. Exhibits
1.1 Underwriting Agreement between the Company, Cruttenden Roth
Incorporated, Sutro & Co. Incorporated and Wedbush Morgan Securities
Inc., dated August 27, 1997.
2.1 Asset Purchase Agreement made and entered into as of September 23,
1997, by and among the Company, La Monita Mexican Food Products, Inc.,
Gilbert Moreno Enterprises, Inc. and Gilbert G. Moreno.
2.2 Stock Purchase Agreement made and entered into as of October 29, 1997,
by and among the Company, Sauces Unlimited, Inc., Lawrence L. Amstutz,
Ruth C. Amstutz and Barry L. Brock.
3.1 Bylaws of the Company, adopted June 19, 1997.
27 Financial Data Schedule
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AUTHENTIC SPECIALTY FOODS, INC.
Date: November 14, 1997 /s/ Samuel E. Hillin, Jr.
------------------------------------------
Samuel E. Hillin, Jr.
Vice President and Chief Financial Officer
(Principal Financial Officer)
<PAGE> 16
INDEX TO EXHIBITS
Exhibit No. Description
---------- -----------
1.1 Underwriting Agreement between the Company, Cruttenden Roth
Incorporated, Sutro & Co. Incorporated and Wedbush Morgan
Securities Inc., dated August 27, 1997.
2.1 Asset Purchase Agreement made and entered into as of September 23,
1997, by and among the Company, La Monita Mexican Food Products,
Inc., Gilbert Moreno Enterprises, Inc. and Gilbert G. Moreno.
2.2 Stock Purchase Agreement made and entered into as of October 29,
1997, by and among the Company, Sauces Unlimited, Inc., Lawrence L.
Amstutz, Ruth C. Amstutz and Barry L. Brock.
3.1 Bylaws of the Company, adopted June 19, 1997.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 1.1
AUTHENTIC SPECIALTY FOODS, INC.
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
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UNDERWRITING AGREEMENT
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August 27, 1997
CRUTTENDEN ROTH INCORPORATED
SUTRO & CO. INCORPORATED
WEDBUSH MORGAN SECURITIES INC.
As Representatives of the several
Underwriters named in Schedule I hereto,
c/o Cruttenden Roth Incorporated
18301 Von Karman
Irvine, CA 92612
Dear Ladies and Gentlemen:
Authentic Specialty Foods, Inc., a corporation organized under the
laws of the State of Texas (the "Company"), proposes to issue and sell to the
several Underwriters named in Schedule I hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 6) 4,000,000 shares (the "Firm Shares") of
Common Stock, $1.00 par value per share (the "Common Stock"), of the Company,
all of which are to be issued and sold by the Company (the "Firm Shares"), and,
in addition to the Firm Shares, for the sole purpose of covering
over-allotments in connection with the sale of the Firm Shares, the Company
proposes to grant to the Underwriters an option to purchase up to an additional
600,000 shares (the "Option Shares"). The Firm Shares and any Option Shares
purchased pursuant to this Agreement are hereinafter called the "Shares."
This is to confirm the agreement concerning the sale and the purchase
of the Shares from the Company by the Underwriters. The Company understands
that the Underwriters propose to make a public offering of the Shares as soon
as you deem advisable after the Registration Statement (as defined below)
becomes effective.
1. Representations, Warranties and Agreements of the Company. The
Company represents and warrants to, and agrees with, each Underwriter that:
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(a) A registration statement on Form S-1 (File No.
333-29959) relating to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Rules and Regulations (as defined below) of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. Copies of such registration statement and any
amendments, and all forms of the related prospectuses contained therein,
previously filed by the Company with the Commission have been delivered to you
and the Company has consented to the Underwriter's use of such copies for the
purposes permitted by the Securities Act. Such registration statement,
including the prospectus, Part II and all exhibits thereto, as amended at the
time when it shall become effective, is herein referred to as the "Registration
Statement," and the prospectus included as part of the Registration Statement
on file with the Commission that discloses all the information that was omitted
from the prospectus on the effective date pursuant to Rule 430A of the Rules
and Regulations with any changes contained in any prospectus filed with the
Commission by the Company with your consent after the effective date of the
Registration Statement, is herein referred to as the "Final Prospectus." Such
amendments to such Registration Statement as may have been required prior to
the date hereof have been filed with the Commission; and the Company will file
such additional amendments to such Registration Statement and such amended
prospectuses as may hereafter be required. If the Registration Statement has
been declared effective under the Securities Act by the Commission, the Company
has prepared and will promptly file with the Commission the information omitted
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations as part of an amendment or supplement to the prospectus pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part
of a post-effective amendment to the Registration Statement (including an
amended prospectus); otherwise the Company has prepared and will promptly file
an amendment to the Registration Statement (including an amended prospectus).
The prospectus included as part of the Registration Statement on the date when
the Registration Statement became effective is referred to herein as the
"Effective Prospectus"; any prospectus included in the Registration Statement
of the Company and in any amendments thereto prior to the effective date of the
Registration Statement is referred to herein as a "Pre-Effective Prospectus."
For purposes of this Agreement, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
applicable, and "affiliate" shall have the definition specified in Rule 405 of
the Rules and Regulations.
(b) No stop order or other order preventing or suspending
the use of any Pre-Effective Prospectus has been issued by the Commission nor
any "Blue Sky" or securities authority of any jurisdiction and each
Pre-Effective Prospectus, at the time of filing thereof, conformed in all
material respects with the requirements of the Securities Act and the Rules and
Regulations, did not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; except that the foregoing shall not apply to statements
in or omissions from any Pre-Effective Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by you, or by any
Underwriter through you, specifically for use in the preparation thereof.
(c) As of the Closing Date (as defined herein), the
Registration Statement will have been declared effective under the Securities
Act, and no post-effective amendment to the
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Registration Statement will have been filed as of the Closing Date or Option
Closing Date (as defined herein), as the case may be, without the
Representatives' approval as provided in Section 3(a) hereof. When the
Registration Statement becomes effective and at all times subsequent thereto,
the Registration Statement, any post-effective amendment thereto and the
Effective Prospectus and the Final Prospectus as amended or supplemented shall
comply in all material respects with the requirements of the Securities Act and
the Rules and Regulations. No such document shall contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that the
foregoing shall not apply to statements in, or omissions from, any such
document, in reliance upon, and in conformity with, written information
furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof. There is no contract or
document required to be described in the Registration Statement or Effective
Prospectus or Final Prospectus or to be filed as an exhibit to the Registration
Statement which is not in all material respects accurately described in the
Effective Prospectus or Final Prospectus and filed as an exhibit to the
Registration Statement or Final Prospectus, or both, as the case may be. As of
the Closing Date or Option Closing Date, as the case may be, no stop order or
other order suspending the effectiveness of the Registration Statement or
preventing or suspending the use of the Effective Prospectus or the Final
Prospectus or any amendment or supplement thereto, has been issued by the
Commission or any "Blue Sky" or securities authority of any jurisdiction.
(d) McGladrey & Pullen, LLP, whose reports appear in the
Registration Statement, the Pre-Effective Prospectus, the Effective Prospectus
and the Final Prospectus, are independent auditors as required by the
Securities Act and the Rules and Regulations.
(e) Rylander, Clay & Opitz, L.L.P., whose report appears
in the Registration Statement, the Pre-Effective Prospectus, the Effective
Prospectus and the Final Prospectus, are independent auditors as required by
the Securities Act and the Rules and Regulations.
(f) The financial statements (including the related
schedules and notes) of the Company and La Victoria Foods, Inc., a California
corporation ("La Victoria"), included in the Registration Statement and/or
Final Prospectus, together with the unaudited financial information of the
Company and La Victoria forming part of the Registration Statement and/or Final
Prospectus, present fairly the financial condition, the results of the
operations and changes in cash flows and equity of the entities purported to be
shown thereby at the dates and for the periods indicated and have been prepared
in conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated. The selected and summary
financial data included in the Registration Statement, the Effective
Prospectus, and the Final Prospectus present fairly the information shown
therein and have been compiled on a basis substantially consistent with the
financial statements presented in the Registration Statement, the Effective
Prospectus, and the Final Prospectus.
(g) The pro forma financial information included in the
Registration Statement and/or Final Prospectus presents fairly the information
shown therein, has been prepared in accordance with generally accepted
accounting principles and the Rules and Regulations with respect to pro forma
information, has been properly compiled on the pro forma basis described
therein and,
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in the opinion of the Company, the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate under the
circumstances.
(h) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Texas, with full corporate power and corporate authority to own, lease and
operate its properties and conduct its business as described in the
Registration Statement and Final Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the character of the business conducted by it or the location of the
properties owned or leased by it makes such qualification necessary, except for
those failures to be so qualified or in good standing which will not in the
aggregate have a material adverse effect on the financial condition, results of
operations, business or prospects of the Company and La Victoria, taken as a
whole; and the Company holds all licenses, certificates, permits, consents,
orders, approvals and other authorizations from governmental authorities
necessary or appropriate for the conduct of its business and to own or lease,
as the case may be, and to operate its properties as described in the
Registration Statement and Final Prospectus. The expiration or revocation of
any such licenses, certificates, permits, consents, orders, approvals or other
governmental authorizations would not materially affect the operations of the
Company. None of the activities or businesses of the Company is in violation
of, or could reasonably be expected to cause the Company to violate, any law,
rule, regulation or order of the United States, any state, county, city or
locality, or of any agency or body of the United States or of any state,
county, city or locality of any foreign jurisdiction, which violation could
reasonably be expected to have a material adverse effect on the financial
condition, results of operations, business or prospects of the Company and La
Victoria, taken as a whole.
(i) La Victoria has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
California, with full corporate power and corporate authority to own, lease and
operate its properties and conduct its business as described in the
Registration Statement and Final Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the character of the business conducted by it or the location of the
properties owned or leased by it makes such qualification necessary except for
those failures to be so qualified or in good standing which will not in the
aggregate have a material adverse effect on the financial condition, results of
operations, business or prospects of the Company and La Victoria, taken as a
whole; and La Victoria holds all licenses, certificates, permits, consents,
orders, approvals and other authorizations from governmental authorities
necessary or appropriate for the conduct of its business and to own or lease,
as the case may be, and to operate its properties as described in the
Registration Statement and Final Prospectus. The expiration or revocation of
any such licenses, certificates, permits, consents, orders, approvals or other
governmental authorizations would not materially affect the operations of La
Victoria. None of the activities or businesses of La Victoria is in violation
of, or could reasonably be expected to cause La Victoria to violate, any law,
rule, regulation or order of the United States, any state, county, city or
locality, or of any agency or body of the United States or of any state,
county, city or locality of any foreign jurisdiction, which violation could
reasonably be expected to have a material adverse effect on the financial
condition, results of operations, business or prospects of the Company and La
Victoria, taken as a whole.
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(j) The Contribution and Exchange Agreement, by and among
the Company, Robert C. Tanklage ("Tanklage"), TSG2 L.P., a Delaware limited
partnership ("TSG2"), TSG2 Management, L.L.C., a Delaware limited liability
company ("TSG2 Management"), and Keith Lively ("Lively"), and Lively comprising
all of the members of LV Foods, L.L.C., a Delaware limited liability company
("LV Foods"), (TSG2, TSG2 Management and Lively collectively, the "Members"),
entered into as of June 20, 1997 (the "Contribution Agreement"), pursuant to
which (A) the Company shall acquire all of the membership interests in and to
LV Foods (the "LV Foods Purchase"), (B) the Company shall acquire 106 shares of
the outstanding common stock, $100.00 par value, of La Victoria (the "Tanklage
Purchase"), and the transactions contemplated therein, have been duly and
validly authorized by the Company and the Members, and the Contribution
Agreement has been duly and validly executed and delivered by the Company and
the Members and is enforceable against the Company and the Members in
accordance with its terms, except insofar as indemnification and contribution
provisions may be limited by Federal or state securities laws or equitable
principles, and except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights
generally.
(k) Upon the consummation of the transactions
contemplated in the Contribution Agreement, which shall occur immediately
following the closing of the purchase of the Firm Shares, the Company will own
directly 50% of the outstanding capital stock of La Victoria and will own
indirectly, through its ownership of 100% of the beneficial interests of LV
Foods, the remaining 50% of the outstanding capital stock of La Victoria, free
and clear of all liens, encumbrances, equities or claims except as set forth in
Final Prospectus. The Company does not own any interest in or control any
other corporation association or entity.
(l) The Pro-Forma and As Adjusted capitalization of the
Company as of June 30, 1997 is as set forth under the caption "Capitalization"
in the Registration Statement and Final Prospectus, and the Common Stock
conforms to the description thereof contained under the caption "Description of
Capital Stock" in the Registration Statement and Final Prospectus; the
outstanding shares of Common Stock (including the Shareholder Shares) have been
and are, and the Shares to be sold by the Company, upon issuance and delivery
and payment therefor in the manner herein described, will be, duly authorized,
validly issued, fully paid and nonassessable and are not subject to any
preemptive or similar rights. Except as described in the Registration Statement
and Final Prospectus, there are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the voting or transfer
of, any shares of Common Stock pursuant to the Company's Articles of
Incorporation, Bylaws or other governing documents or any agreement, contract
or other instrument to which the Company is a party or by which it may be
bound. Neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock; and any such waivers, to the best
of the Company's knowledge, were duly and validly given. The description of
the Company's outstanding stock options and other stock plans or arrangements
and the options or other rights granted and exercised thereunder set forth in
the Registration Statement and/or Final Prospectus accurately and fairly
presents in all material respects the information required to be shown with
respect to such options, plans, arrangements, and rights.
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(m) The redemption by the Company of the shares of its
Common Stock held by The Shansby Group ("Shansby") and TSG International
("TSGI") has been duly and validly authorized by the Company, Shansby and TSGI,
and the consummation of the redemption will not result in a violation of, or
constitute a default under, the Articles of Incorporation, Bylaws or other
governing documents of the Company, or any contract, indenture, mortgage, deed
of trust, loan or credit agreement, bond debenture, note, lease or other
agreement or instrument to which the Company, Shansby or TSGI is a party or by
which any of them is bound, or to which any of their properties is subject, nor
will the redemption violate any law, rule, administrative regulation, judgment,
order, writ or decree of any court, or any governmental agency or body having
jurisdiction over the Company, Shansby or TSGI or any of their property, or
result in the creation or imposition of any lien, charge, claim or encumbrance
upon any property or asset of the Company, Shansby or TSGI; provided, however,
that no representation is given in this paragraph with respect to any of the
foregoing that will be fully repaid contemporaneously with the purchase of the
Firm Shares pursuant hereto.
(n) All offers and sales of (i) the Common Stock by the
Company (other than the Shares); and (ii) the capital stock of La Victoria were
at all relevant times exempt from the registration requirements of the
Securities Act and were the subject of an available exemption from the
registration requirements of applicable state securities or Blue Sky laws.
(o) When duly countersigned by the Company's transfer
agent and registrar and delivered to the Underwriters in accordance with the
provisions of this Agreement, good and marketable title to the unissued Shares
to be issued and sold by the Company to the Underwriters hereunder will pass to
the Underwriters free and clear of any liens, security interests, adverse
claims, equities or other encumbrances of any kind or character, except as may
be created by any Underwriter.
(p) Except as described in or contemplated by the
Registration Statement and Final Prospectus, (i) there has not been any
material adverse change in, or any adverse development which materially
affects, the business, properties, financial condition, results of operations
or prospects of any of the Company and La Victoria, taken as a whole, whether
or not arising in the ordinary course of business, from the date as of which
information is given; (ii) none of the Company, LV Foods or La Victoria has,
directly or indirectly, incurred any liabilities or obligations, direct or
contingent, not in the ordinary course of business, or which is material in
amount whether or not in the ordinary course of business, or entered into any
transactions not in the ordinary course of business, or which is material to
the business of the Company and La Victoria, taken as a whole, whether or not
in the ordinary course of business; (iii) the agreements to which the Company,
LV Foods or La Victoria is a party, described in the Registration Statement and
Final Prospectus, are valid and enforceable by the Company, LV Foods or La
Victoria and, to the knowledge of the Company, the other party or parties
thereto are not in material breach or default under any such agreement; (iv)
there has not been any change in the capital stock of or any incurrence of
long-term debt by, the Company, LV Foods or La Victoria, or any issuance or
grant of options, warrants or rights to purchase the capital stock of the
Company, LV Foods or La Victoria, or any security convertible into, exercisable
for, or exchangeable for capital stock of the Company, LV Foods or La Victoria,
or any declaration or payment of any dividend or other distribution on any
class of the
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capital stock of the Company, LV Foods or La Victoria from the date as of which
information is given in the Registration Statement and Final Prospectus; (v)
there is outstanding no security or other instrument which by its terms is
convertible into or exchangeable for capital stock of the Company, LV Foods or
La Victoria; and (vi) there is no commitment, plan or arrangement to change or
alter the rights, preferences or privileges of any outstanding class or series
of the capital stock of the Company, LV Foods or La Victoria.
(q) Except as described in the Registration Statement
and/or Final Prospectus, none of the Company, LV Foods or La Victoria is, or
with the giving of notice or lapse of time or both would be, in violation of or
in default under, or will the execution or delivery of this Agreement or the
Contribution Agreement or consummation of the transactions contemplated hereby
or thereby result in a violation of, or constitute a default under, the
Articles of Incorporation, Bylaws or other governing documents of the Company,
or any contract, indenture, mortgage, deed of trust, loan or credit agreement,
bond, debenture, note, lease or other agreement or instrument, to which any of
the Company, LV Foods or La Victoria is a party or by which any of them is
bound, or to which any of their properties is subject, nor will the performance
by the Company of its obligations under this Agreement or under the
Contribution Agreement violate any law, rule, administrative regulation,
judgment, order, writ or decree of any court, or any governmental agency or
body having jurisdiction over the Company or any of its properties, or result
in the creation or imposition of any lien, charge, claim or encumbrance upon
any property or asset of the Company. Except for permits and similar
authorizations or notifications required under the Securities Act, the
securities or "Blue Sky" laws of certain jurisdictions, the necessary approvals
under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended,
and for such permits, authorizations and notifications which have been
obtained, no consent, approval, authorization or order of any court,
governmental agency or body, financial institution or other person or entity is
required in connection with the consummation of the transactions contemplated
by this Agreement or the Contribution Agreement, including, without limitation,
the valid sale and delivery of the Shares.
(r) The Company has all requisite corporate power and
corporate authority to execute, deliver and perform its obligations under this
Agreement and the Contribution Agreement, and this Agreement and the
Contribution Agreement have been duly authorized, executed and delivered by the
Company and constitute legal, valid and binding agreements of the Company and
are enforceable against the Company in accordance with their respective terms
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally.
(s) The Company, LV Foods and La Victoria have good and
marketable title in fee simple to all items of real property and good and
marketable title to all personal property owned by them, in each case free and
clear of all liens, charges, claims, encumbrances and defects except such as
are described or referred to in the Registration Statement and Final Prospectus
or such as do not materially affect the value of such property and do not
interfere with the use made or proposed to be made of such property by the
Company, LV Foods or La Victoria, and any real property and buildings held
under lease by the Company, LV Foods or La Victoria are held by them under
valid, existing and enforceable leases with such exceptions as are not material
and do not interfere with the use made or proposed to be made of such property
and buildings by the Company, LV Foods or La
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Victoria and except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally.
(t) Except as described in the Registration Statement
and/or Final Prospectus, there is no litigation or governmental proceeding to
which the Company, LV Foods or La Victoria is a party or to which any of their
property is subject or which is pending or, to the Company's knowledge,
threatened against or affecting the Company, LV Foods or La Victoria, which
could reasonably be expected to result in any material adverse change in the
financial condition, results of operations, business or prospects of the
Company and La Victoria, taken as a whole, which is required to be disclosed in
the Registration Statement and Final Prospectus or which could reasonably be
expected to have a material adverse effect on the consummation of the
transactions contemplated by this Agreement, nor are there any actions, suits
or proceedings related to environmental matters or related to discrimination on
the basis of age, sex, religion, race, or physical or mental disability, and no
labor disturbance by the employees of the Company, LV Foods or La Victoria
exists or is imminent which could be expected to affect adversely the financial
condition, results of operations, business or prospects of the Company and La
Victoria, taken as a whole, or which is required to be disclosed in the
Registration Statement and Final Prospectus.
(u) None of the Company, LV Foods or La Victoria is in
violation of any law, ordinance, governmental rule or regulation or court
decree to which any of them may be subject, which violation could reasonably be
expected to have a material adverse effect on the financial condition, results
of operations, business or prospects of the Company and La Victoria, taken as a
whole.
(v) Except as described in the Registration Statement
and/or Final Prospectus, the Company and La Victoria comply in all material
respects with all Environmental Laws (as defined below), except to the extent
that failure to comply with such Environmental Laws would not have a material
adverse effect on the financial condition, results of operation, business or
prospects of the Company and La Victoria, taken as a whole. Except as
described in the Registration Statement and/or Final Prospectus, the Company
and La Victoria (i) are not the subject of any pending or, to the knowledge of
the Company, threatened federal, state or local investigation evaluating
whether any remedial action by the Company or La Victoria is needed to respond
to a release of any Hazardous Materials (as defined below) into the
environment, resulting from the Company's or La Victoria's business operations
or ownership or possession of any of their properties or assets, or (ii) is not
in contravention of any Environmental Law that could reasonably be expected to
have a material adverse effect on the financial condition, results of
operation, business or prospects of the Company and La Victoria, taken as a
whole. Except as described in the Registration Statement and/or Final
Prospectus, neither the Company nor La Victoria has received any notice or
claim, nor are there pending or, to the knowledge of the Company, threatened
lawsuits against them, with respect to violations of an Environmental Law or in
connection with any release of Hazardous Materials into the environment that,
in the aggregate, if the subject of any unfavorable decision, ruling or
finding, could reasonably be expected to have a material adverse effect on the
financial condition, results of operation, business or prospects of the Company
and La Victoria, taken as a whole. As used herein, "Environmental Laws" means
any federal, state, city or local law or regulation applicable to the Company's
or La Victoria's business operations or ownership or
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possession of any of their properties or assets relating to environmental
matters, and "Hazardous Materials" means those substances that are regulated by
or form the basis of liability under any Environmental Laws.
(w) The Company has not taken and shall not take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares.
(x) The Company, LV Foods and La Victoria have timely
(giving effect to permitted extensions) filed and properly prepared all
necessary federal, state, local and foreign income, franchise and any other
required tax returns and have paid all taxes shown as due thereon, and the
Company has no knowledge of any tax deficiency which has been or might be
asserted against the Company, LV Foods or La Victoria which could reasonably be
expected to have a material adverse effect on the financial condition, results
of operations, business or prospects of the Company and La Victoria, taken as a
whole.
(y) Neither the Company, La Victoria nor any officers,
directors, employees or agents or any other persons associated with or acting
on behalf of the Company or La Victoria has at any time (i) made any
contributions to any candidate for political office in violation of law, or
failed to disclose fully any contributions to any candidate for political
office in accordance with any applicable statute, rule, regulation or ordinance
requiring such disclosure, (ii) made any payment to any local, state, federal
or foreign governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or allowed
by applicable law, (iii) violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, (iv) made any payment outside the ordinary
course of business to any purchasing or selling agent or person charged with
similar duties of any entity to which the Company or La Victoria sells or from
which the Company or La Victoria buys products for the purpose of influencing
such agent or person to buy products from or sell products to the Company or La
Victoria, (v) made any other bribe, rebate, payoff, influence payment, kickback
or other unlawful payment or (vi) engaged in any transaction, maintained any
bank account or used any corporate funds except for transactions, bank accounts
and funds which have been and are reflected in the normally maintained books
and records of the Company or La Victoria.
(z) Except for the several Underwriters and the
Representatives or as disclosed in the Registration Statement and/or Final
Prospectus, there are no claims for services in the nature of and no person has
any right to receive a finder's fee, brokerage fee or similar fee with respect
to this Agreement, the Contribution Agreement, the transactions contemplated
hereby or thereby or the acquisition by LV Foods of its interest in La
Victoria, for which the Company or any of the several Underwriters may be
responsible.
(aa) The Company and La Victoria have their properties
adequately insured against loss or damage by fire and maintain such other
insurance as is prudent or customarily maintained by companies in the same or
similar business and in the same or similar locality.
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(bb) The Company and La Victoria own or possess rights to
use all material patents, patent rights, inventions, proprietary software
(whether represented by source code, object code or in any other manner),
trademarks, service marks, trade names and copyrights (collectively, the
"Intangibles") necessary for the conduct of their respective businesses as
described in the Registration Statement and Final Prospectus and have taken all
reasonable security measures to protect the secrecy, confidentiality and value
of their trade secrets and know-how that are valid and protectable and are not
part of the public knowledge or literature. All of the Intangibles that the
Company or La Victoria own or have pending, or under which they are licensed,
are in good standing and uncontested. Any of the Company's or La Victoria's
employees and any other person who, either alone or in concert with others,
developed, invented, discovered, derived, programmed or designed these secrets,
or who have knowledge of or access to information relating to them, have been
put on notice that these secrets are proprietary to the Company or La Victoria,
as the case may be, and are not to be divulged or misused. Neither the Company
nor La Victoria has received any notice of infringement of or conflict with,
and to the best of the Company's knowledge, neither the Company nor La Victoria
is infringing or in conflict with, asserted rights of others with respect to
any Intangibles which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could reasonably be expected to have a
material adverse effect on the financial condition, results of operations,
business or prospects of the Company and La Victoria, taken as a whole. To the
knowledge of the Company, there is no infringement by others of Intangibles of
the Company or La Victoria.
(cc) There are no outstanding loans or advances or
guarantees of indebtedness by the Company, LV Foods or La Victoria to or for
the benefit of any affiliate of the Company, LV Foods or La Victoria, any of
the officers or directors of the Company, LV Foods or La Victoria, or any of
the members of the families of any of them, or any other business relationships
or related-party transaction of the nature described in Item 404 of Regulation
S-K involving the Company, LV Foods or La Victoria and any other persons
referred to in said Item 404, which are required by the Rules and Regulations
to be described in the Registration Statement and Final Prospectus except such
that are so described.
(dd) The Company is eligible to use Form S-1 for the
registration of the Shares.
(ee) Application for quotation of the Common Stock on the
National Association of Securities Dealers Automated Quotations (herein called
Nasdaq) National Market has been approved, subject to notice of issuance.
(ff) The Company and La Victoria have each complied with
all provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws of
Florida), relating to doing business with the Government of Cuba or any person
or affiliate located in Cuba.
(gg) The Company and La Victoria each maintains a system
of internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in
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<PAGE> 11
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(hh) The Company is not, and upon the consummation of the
transactions contemplated hereby will not be, an "investment company" or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
2. Purchase, Sale and Delivery of Shares.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell the Firm Shares to the several Underwriters,
and each Underwriter agrees, severally and not jointly, to purchase from the
Company, at a purchase price of $7.44 per share, the respective number of Firm
Shares set forth opposite their names on Schedule I hereto (subject to
adjustment as provided in Section 6 hereof).
(b) Subject to the terms and conditions and in reliance
upon the representations and warranties and agreements set forth herein, the
Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to 600,000 Option Shares, at the same purchase
price per share as the Underwriters shall pay for the Firm Shares. Said option
may be exercised only to cover over-allotments in the sale of the Firm Shares
by the Underwriters. Said option may be exercised in whole or in part at any
time (but not more than once) on or before the 30th day after the date of the
Effective Prospectus upon written or telegraphic notice by the Underwriters to
the Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the option and the settlement date, which shall not
be earlier than the Closing Date (as defined below). Delivery of certificates
for the Option Shares by the Company and payment therefor shall be made as
provided in Section 2(c) hereof. The number of Option Shares to be purchased by
each Underwriter shall be the same percentage of the total number of Option
Shares to be purchased by the several Underwriters as such Underwriter is
purchasing of the Firm Shares, subject in each case to such adjustments as the
Underwriters in their absolute discretion shall make to eliminate any
fractional shares.
(c) Delivery of definitive certificates for the Firm
Shares and the Option Shares (if the option provided for in Section 2(b) hereof
shall have been exercised on or before the second business day prior to the
Closing Date) shall be made to you for the respective accounts of the
Underwriters against payment to the Company of the purchase price therefor by
wire transfer in immediately available funds. Payment of the purchase price
for, and delivery of certificates for, the Firm Shares shall be made at the
offices of Vinson & Elkins L.L.P., 2300 First City Tower, 1001 Fannin, Houston,
Texas 77002 (or at such other place as may be agreed upon between you and the
Company) at 9:00 a.m. Houston, Texas, time, on the third full business day
following the date of this Agreement or at such other time and date not later
than seven full business days thereafter as you and the Company may determine,
such time and date of payment and delivery being herein called the "Closing
Date." The certificates for the Shares will be registered in such name or names
and denominations as you request in writing at least two full business days
prior to the Closing Date.
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<PAGE> 12
The Company will permit you to examine and package such certificates for
delivery at least three full business days prior to the Closing Date.
It is understood that each Underwriter has authorized you,
individually and not as Representatives of the several Underwriters, to accept
delivery and receipt of, for its account, the Shares that it has agreed to
purchase, and each Underwriter has further authorized you (but not obligated
you) to make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the Closing Date or Option Closing Date, as the case may be, for the Shares to
be purchased by such Underwriter or Underwriters. Any such payment by you shall
not relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder or under any other underwriting arrangement relating to
the Shares, including, without limitation, the Agreement Among Underwriters.
If the option provided for in Section 2(b) hereof is exercised after
the second business day prior to the Closing Date, the Company will deliver (at
the expense of the Company) to the Underwriters, at Irvine, California, on the
date specified by the Underwriters (which shall be no earlier than the second
business day and no later than the third business day after the exercise of
said option), certificates for the Option Shares in such names and
denominations as the Underwriters shall have requested against payment to the
Company of the purchase price thereof by wire transfer in immediately available
funds. If settlement for the Option Shares occurs after the Closing Date, the
Company will deliver to the Underwriters on the settlement date for the Option
Shares (such date and time of delivery and payment for the Option Shares being
herein called the "Option Closing Date" and, together with the Closing Date,
the "Closing Dates"), and the obligation of the Underwriters to purchase the
Option Shares shall be conditioned on receipt of supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 4 hereof.
3. Covenants. The Company covenants and agrees with each
Underwriter that:
(a) The Company shall use its reasonable best efforts to
cause the Registration Statement to become effective and, if the procedure in
Rule 430A of the Rules and Regulations is utilized, to comply with the
provisions of, and make all requisite filings with the Commission pursuant to,
Rule 430A of the Rules and Regulations and to notify you promptly (in writing,
if requested) of all such filings. The Company shall notify you promptly of the
receipt of any comments from the Commission and any request by the Commission
for any amendment of or supplement to the Registration Statement or the
Effective Prospectus or the Final Prospectus or for additional information.
The Company shall prepare and file with the Commission, promptly upon your
request, any amendments of or supplements to the Registration Statement or the
Effective Prospectus or the Final Prospectus which, in your opinion, may be
necessary or advisable in connection with the distribution of the Shares. The
Company shall not file any amendment of or supplement to the Registration
Statement or the Effective Prospectus or the Final Prospectus (including any
post-effective amendment), which is not approved by you after reasonable notice
thereof, such approval not to be unreasonably withheld or delayed. The Company
shall advise you promptly of the issuance by the Commission or any State or
other regulatory body of any stop order or other order suspending the
effectiveness of the Registration Statement, suspending or preventing the use
of any Pre-
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<PAGE> 13
Effective Prospectus, Effective Prospectus or Final Prospectus or suspending
the qualification of the Shares for offering or sale in any jurisdiction, or of
the institution of any proceedings for any such purpose. The Company shall use
its reasonable best efforts to prevent the issuance of any stop order or other
such order and, should a stop order or other such order be issued, to obtain as
soon as possible the lifting thereof.
(b) If the Company has elected to rely upon Rule 430A, it
will take such steps as it deems necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will promptly
file such prospectus.
(c) The Company shall furnish to the Underwriters, from
time to time and without charge, a reasonable number of copies of the
Registration Statement and of each amendment and supplement thereto, of which
two of each such Registration Statement and each amendment and supplement
thereto for the Representatives and one for counsel for the Underwriters
("Underwriters' Counsel") shall be originally signed and shall include
exhibits. During the period in which a prospectus is required to be delivered
under the Securities Act and the Rules and Regulations, the Company shall
furnish to each Underwriter, from time to time and without charge, such number
of copies of the Pre-Effective Prospectus, Effective Prospectus and Final
Prospectus as such Underwriter may reasonably request and the Company hereby
consents to the use of such copies for purposes permitted by the Securities
Act.
(d) Within the time during which a Final Prospectus
relating to the Shares is to be delivered under the Securities Act, the Company
shall comply with all requirements imposed upon it by the Securities Act, as
now and hereafter amended, and by the Rules and Regulations, as from time to
time in force, so far as is necessary to permit the continuance of sales of or
dealings in the Shares as contemplated by the provisions hereof and the Final
Prospectus. If during such period any event occurs or condition exists as a
result of which in the opinion of Underwriters' Counsel or counsel for the
Company, the Final Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances then existing,
not misleading, or if during such period it is necessary in the opinion of
Underwriters' Counsel or counsel for the Company, to amend the Registration
Statement or supplement the Final Prospectus to comply with the Securities Act,
the Company shall promptly notify you and shall amend the Registration
Statement or supplement the Final Prospectus (at the expense of the Company),
subject to Section 3(a), so as to correct such statement or omission or effect
such compliance, provided that the Company shall determine the final terms of
any such amendment or supplement only after considering such changes in any
such documents as the Underwriters may reasonably request.
(e) The Company shall take or cause to be taken all
necessary actions and furnish to whomever you may direct such information as
may be required for sale of the Shares under the laws of such jurisdictions
which you shall designate; except that in no event shall the Company be
obligated in connection therewith to qualify as a foreign corporation or to
execute a general consent to service of process.
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<PAGE> 14
(f) The Company shall make generally available to its
security holders, in the manner contemplated by Rule 158(b) under the
Securities Act, as soon as practicable but in any event not later than 45 days
after the end of its fiscal quarter in which the first anniversary date of the
effective date of the Registration Statement occurs, an earnings statement
satisfying the requirements of Section 11(a) of the Securities Act covering a
period of at least twelve (12) consecutive months beginning after the effective
date of the Registration Statement.
(g) For a period of 180 days following the date of the
Effective Prospectus (the "Lock-Up Period"), the Company will not, without the
prior written consent of Cruttenden Roth Incorporated, offer, issue, sell,
transfer, grant options to purchase or otherwise dispose of, for value or
otherwise, directly or indirectly, any shares of Common Stock or other equity
securities of the Company except (A) the Shares, (B) pursuant to the exercise
of options or warrants of the Company outstanding immediately prior to the
Closing Date, as described in the Final Prospectus, (C) the exercise or grant
of options currently outstanding or authorized pursuant to the Company's
existing employee benefit plans, as described in the Final Prospectus, up to a
total of 350,000 shares of Common Stock, (D) shares of Common Stock currently
authorized to any existing 401(k) benefit plan of the Company, as described in
the Final Prospectus, or (E) in connection with a merger of another corporation
into, or an acquisition of all or substantially all of the assets or stock of
another entity by, the Company where the Company or a subsidiary is the
surviving entity; provided, the recipient of such shares of Common Stock or
equity securities of the Company agrees in writing to also abide by the
restrictions set forth in this Section 3(g) for the duration of the Lock-Up
Period.
(h) The Company shall take all actions, necessary or
appropriate, to validly consummate the LV Foods Purchase and the Tanklage
Purchase immediately following the closing of the sale of the Firm Shares.
(i) The Company shall apply the net proceeds of the sale
of the Shares as set forth under the caption "Use of Proceeds" in the Final
Prospectus.
(j) The Company shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the
Securities Act.
(k) The Company will furnish to you as early as
practicable prior to the Closing Date and Option Closing Date, as the case may
be, but not less than two full business days prior thereto, a copy of its
latest available unaudited interim financial statements that have been read by
the Company's independent certified public accountants, as stated in their
letters to be furnished pursuant to Section 4(g).
(l) The Company will comply with all provisions of all
undertakings contained in the Registration Statement.
(m) The Company shall pay or cause to be paid (A) all
expenses (including any capital duties, stamp duties and stock transfer taxes)
incurred in connection with the delivery to the several Underwriters of the
Shares, (B) all fees and expenses (including, without limitation, fees and
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<PAGE> 15
expenses of the Company's accountants and counsel) in connection with the
preparation printing, filing, delivery and shipping of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), each Pre-Effective Prospectus, the Effective Prospectus and
the Final Prospectus as amended or supplemented and the printing, delivery and
shipping of this Agreement and other underwriting documents, including
Underwriters' Questionnaires, Underwriters' Powers of Attorney, Blue Sky
Memoranda, Agreements Among Underwriters and Selected Dealer Agreements and any
letters transmitting the offering material to Underwriters or selling group
members (including costs of mailing and shipment) and the cost of furnishing
copies thereof to the Underwriters, (C) all legal fees, filing fees and fees
and disbursements of Underwriters' Counsel incurred in connection with the
qualification of the Shares under state securities laws as provided hereof and
in the review of the offering by the NASD, (D) the filing fee of the NASD, (E)
any applicable listing fees, including the fee for including the Company's
Common Stock for quotation on the Nasdaq National Market, (F) the cost of
printing certificates representing the Shares, (G) the cost and charges of any
transfer agent or registrar, (H) the costs of preparing, promoting and
distributing bound volumes for the Representatives and their counsel, and (I)
all other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise provided for in this section; provided,
however, that except as expressly provided in clause (C) above, all legal fees
and disbursements of Underwriters' Counsel shall be the sole responsibility of
the Underwriters. If the sale of the Shares provided for herein is not
consummated prior to December 31, 1997 and (i) the failure to complete the
offering is due to a reason other than the failure of the Underwriters to
satisfy all of their obligations under this Agreement, (ii) there is a material
adverse change in the business, financial conditions, results of operations or
prospects of the Company or La Victoria or (iii) the Underwriters discover in
the course of their due diligence, including during the marketing of the
Offering, material facts or circumstances relating to the Company which render
the contemplated Offering impracticable, the Company shall pay for all
reasonable out-of-pocket expenses (including fees and disbursements of
Underwriters' Counsel) incurred by the Underwriters in connection with the
investigation, preparing to market and marketing the Shares or in contemplation
of performing their obligations hereunder, all "Blue Sky" filing fees and
expenses, legal fees incurred in qualifying the Shares under State Securities
or "Blue Sky" laws and in the review of the offering by the NASD, and any
expenses incurred by the Company including printing expenses and its accounting
and legal fees. The Company shall not in any event be liable to any of the
Underwriters for loss of anticipated profits from the transactions covered by
this Agreement.
(n) The Company, at its expense, will furnish to its
shareholders an annual report (including financial statements prepared in
accordance with generally accepted accounting principles audited by independent
certified public accountants), and, as soon as practicable after the end of
each of the first three quarters of each fiscal year, a statement of operations
of the Company for such quarter (which may be in summary form), all in
reasonable detail, and during the five year period after the date hereof, at
its expense, will furnish you, with copies for each of the several
Underwriters, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of the Company and any subsidiaries as at the end of such fiscal
year, together with statements of income or operations, shareholders' equity
and changes in cash flows of the Company and any consolidated subsidiaries, and
of any non-consolidated significant subsidiary, for such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report
thereon of independent certified public accountants, (ii) as soon as they are
available, a copy of all reports (financial or other) mailed to
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<PAGE> 16
security holders, (iii) as soon as they are available, a copy of all reports
and financial statements furnished to or filed with the Commission, and (iv)
such other information as you may from time to time reasonably request. In
addition, during such five-year period the Company will furnish you, with
copies for each of the several Underwriters, every material press release and
every material news item or article in respect of the Company or its affairs
that is released or prepared by the Company.
(o) If the Company has an active subsidiary or
subsidiaries, the financial Statements provided for in Section 3(n) will be on
a consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
shareholders generally. Separate financial statements shall be furnished for
all subsidiaries whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Rules and Regulations.
(p) At or before the Closing Date, you shall receive from
the Company's officers, directors and affiliates, officers and directors of any
significant subsidiary of the Company and certain other current and prospective
holders of the Company's Common Stock and other equity securities, in each case
as reasonably requested by you, including without limitation Tanklage and the
Members ("Insiders"), a written agreement (i) to not, during the Lock-Up
Period, directly or indirectly, offer, sell, contract to sell, transfer,
pledge, or otherwise dispose of any Common Stock (or other securities
substantially similar to the Common Stock or securities convertible or
exchangeable into or exercisable for, or any rights to purchase or acquire,
Common Stock or substantially similar securities) now owned or to be owned in
the future (beneficially or of record) without the prior written consent of
Cruttenden Roth Incorporated, which consent will not be unreasonably withheld,
except that an Insider may pledge his Common Stock to a commercial financial
institution in the ordinary course of business and may exercise any stock
options granted to him pursuant to and in accordance with the Authentic
Specialty Foods, Inc. 1997 Stock Plan, provided, that the sale, transfer, or
other disposition of the Common Stock acquired as a result thereof shall be
restricted in accordance with this section (i); (ii) waive all preemptive
rights, rights of first refusal and similar rights (to the extent the Insider
has any) under any agreement or arrangement with respect to the offering and
sale of the Shares and agreeing that, during the Lock-Up Period, the Insider
will not exercise any such rights or require that any Common Stock or other
securities be included in the Offering or registered under the Securities Act,
either in connection with the Offering or otherwise; and (iii) representing
that the Insider has not taken and will not take, directly or indirectly, any
action which constitutes, or is intended or might reasonably be expected to
result in, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares, or which constitutes a
bid for a purchase of, or an attempt to induce any person to purchase, the
Shares or any related security that is prohibited by Regulation M under the
Exchange Act.
(q) The Company shall continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally
accepted accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in
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<PAGE> 17
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(r) The Company shall comply with all registration,
filing and reporting requirements of the Exchange Act which may from time to
time be applicable to the Company. Without limiting the generality of the
foregoing, within 30 days following the Closing Date, the Company will file a
registration statement for the Common Stock under Section 12(g) of the Exchange
Act, will use its best efforts to cause such registration statement to become
effective and will supply copies of the Form 8-A and any amendments or
supplements thereto, to the Representatives and their counsel, together with
copies for each of the several Underwriters within five days of its filings
with the Commission.
(s) The Company shall make all filings required,
including registration under the Exchange Act, to obtain and maintain the
inclusion of the Common Stock on the Nasdaq National Market concurrently with
the effective date of the Registration Statement (with Nasdaq Symbols mutually
acceptable to the Company and the Representatives).
(t) The Company will file timely with the Commission and
the NASD, if required, a report on Form SR in accordance with the Rules and
Regulations of the Commission under the Securities Act.
(u) Prior to the first day of trading, the Company shall
obtain a CUSIP number for the Common Stock.
(v) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(w) The Company shall, for at least one year after the
date hereof, purchase and maintain directors and officers liability insurance
in a coverage amount and with such deductible as deemed adequate in the good
faith judgment of the Board of Directors of the Company.
(x) If any time during the 25-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Final Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above, forthwith prepare, consult with you concerning the substance of,
and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication or
event.
(y) Prior to the Closing Date and during the period for
which a prospectus is required to be delivered pursuant to the Rules and
Regulations under the Securities Act, the Company shall not issue any press
release or other publicity about the Company, except to the extent
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<PAGE> 18
required by law or applicable rules of the Nasdaq National Market, without the
prior approval of the Representatives and Underwriters' Counsel, which consent
shall not be unreasonably withheld.
4. Conditions of Underwriters' Obligations. The obligations of
the several underwriters hereunder are subject to the accuracy, as of the date
hereof and on each Closing Date and Option Closing Date, as if made on the
dates thereof, of the representations and warranties of the Company contained
herein, to the performance by the Company of its obligations hereunder and to
the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and all filings required by Rule
424 and Rule 430A of the Rules and Regulations shall have been made; at each
Closing Date, no stop order or other order suspending the effectiveness of the
Registration Statement or any amendment or supplement thereto shall have been
issued; no proceedings for the issuance of such an order shall have been
initiated or threatened; and any request of the Commission for additional
information (to be included in the Registration Statement or the Final
Prospectus or otherwise) shall have been disclosed to you and complied with to
the reasonable satisfaction of you and your counsel.
(b) No Underwriter shall have advised the Company that
the Registration Statement or Effective Prospectus or Final Prospectus, or any
amendment or supplement thereto, contains an untrue statement of fact which, in
your opinion, is material, or omits to state a fact which, in your opinion, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.
(c) On or prior to each Closing Date, you shall have
received from Gardere & Wynne, L.L.P., Underwriters' Counsel, such opinion or
opinions with respect to the sufficiency of all corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you reasonably may require and Underwriters' Counsel shall have
received such papers and information as they request to enable them to pass
upon such matters. In rendering such opinion, Underwriters' Counsel may rely
upon the opinion to be delivered to the Underwriters by the counsel for the
Company pursuant to Section 4(d) herein.
(d) On each Closing Date there shall have been furnished
to you the opinion (addressed to the Underwriters) of Vinson & Elkins L.L.P.,
counsel for the Company, dated as of such Closing Date and in form and
substance satisfactory to Underwriters' Counsel and stating that it may be
relied upon by Underwriters' Counsel in giving their opinion, to the effect
that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization, with full corporate power and authority to
own, lease, license or use its properties and conduct its business as described
in the Registration Statement and Final Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the character of the business conducted by it or the location of the
properties owned, leased licensed or used by it makes such qualification
necessary, except for jurisdictions in which the failure to so qualify would
not
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<PAGE> 19
have a material adverse effect on the financial condition, results of
operations or business of the Company and La Victoria, taken as a whole.
(ii) The authorized, issued and outstanding
capital stock of the Company as of June 30, 1997 is as set forth under the
caption "Capitalization" in the Final Prospectus and there have been no changes
in the authorized and outstanding capital stock of the Company since such date.
The Common Stock of the Company conforms to the description thereof contained
in the Final Prospectus. The outstanding shares of Common Stock have been and
are, and the Shares to be issued and sold by the Company, upon issuance and
delivery and payment therefor in the manner herein described (assuming the
certificates for such Shares have been duly and validly countersigned by the
Company's transfer agent) will be, duly authorized, validly issued, fully paid
and nonassessable and were not issued in violation of any statutory or to such
counsel's knowledge, any other preemptive rights or other rights to subscribe
for or purchase any securities. Except as described in the Final Prospectus,
there are no preemptive or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock pursuant
to the Company's Articles of Incorporation, Bylaws other governing documents or
any agreement, contract or other instrument known to us to which the Company is
a party or by which it is bound; neither the filing of the Registration
Statement nor the offering or sale of the Shares as contemplated by this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock;
and such waivers were duly and validly given.
(iii) Except as described in the Registration
Statement and/or the Final Prospectus, none of the Company, La Victoria or LV
Foods is nor with the giving of notice or lapse of time or both will any of
them be in violation of or in default under, nor will the execution or delivery
of this Agreement or the Contribution Agreement or consummation of the
transactions contemplated hereby or thereby result in a violation of, or
constitute a default under, the Articles of Incorporation, Bylaws or other
governing documents of the Company, La Victoria or LV Foods or any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, bond, debenture,
note, lease or other agreement or instrument to which the Company, La Victoria
or LV Foods is a party or by which any of them is bound, or to which any of
their properties is subject, nor will the performance by the Company, La
Victoria or LV Foods of their obligations under this Agreement or the
Contribution Agreement violate any existing law, rule, administrative
regulation, judgment, order, writ or decree of any court or any governmental
agency or body having jurisdiction over the Company, La Victoria or LV Foods or
their properties, or result in the creation or imposition of any lien, charge,
claim or encumbrance upon any property or asset of the Company, La Victoria or
LV Foods, where such violation, default or lien would have a material adverse
effect on the financial condition, results of operations or business of the
Company and La Victoria, taken as a whole. Except for permits and similar
authorizations or notifications required under the Securities Act, the
Securities or "Blue Sky" laws of certain jurisdictions and from the NASD,
approvals under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as
amended, and for such permits, authorizations and notifications which have been
obtained, no consent, approval, authorization or order of any court,
governmental agency or body or financial institution is required in connection
with the consummation of the transactions
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<PAGE> 20
contemplated by this Agreement and the Contribution Agreement, including,
without limitation, the valid sale and delivery of the Shares.
(iv) The redemption by the Company of the shares
of its Common Stock held by Shansby and TSGI has been duly and validly
authorized by the Company and, to the knowledge of such counsel, Shansby and
TSGI, and the consummation of the redemption will not result in a violation of,
or constitute a default under, the Articles of Incorporation, Bylaws or other
governing documents of the Company and, to the knowledge of such counsel,
Shansby or TSGI, or any material contract, indenture, mortgage, deed of trust,
loan or credit agreement, bond, debenture, note, lease or other agreement or
instrument to which, to the knowledge of such counsel, the Company, Shansby or
TSGI is a party or by which any of them is bound, or to which any of their
properties is subject, nor will the redemption violate any law, rule,
administrative regulation, judgment, order, writ or decree of any court, or any
governmental agency or body having jurisdiction over the Company and, to the
knowledge of such counsel, Shansby or TSGI, or any of their property, or result
in the creation or imposition of any lien, charge, claim or encumbrance upon
any property or asset of the Company and, to the knowledge of such counsel,
Shansby or TSGI.
(v) The descriptions in the Registration
Statement and Final Prospectus of the statutes, regulations, legal or
governmental proceedings, contracts and other documents therein described, to
the extent that such descriptions constitute summaries of matters of law,
documents or proceedings, or legal conclusions, have been reviewed by such
counsel and fairly present the information disclosed therein in all material
respects.
(vi) The Registration Statement and all
post-effective amendments thereto have become effective under the Securities
Act and no stop order or other order suspending the effectiveness of the
Registration Statement or preventing or suspending the use of any Pre-Effective
Prospectus, the Effective Prospectus, the Final Prospectus or any amendment or
supplement thereto has been issued and to such counsel's knowledge, no
proceedings for that purpose have been instituted or are pending before or
contemplated by the Commission or any "Blue Sky" or securities authority of any
jurisdiction and all filings required by Rule 424 and Rule 430A of the Rules
and Regulations have been (or will be) made within the required time period;
the Registration Statement and Final Prospectus and any amendment or supplement
thereto, as of their respective effective dates, comply in all material
respects with the requirements of the Securities Act and the Rules and
Regulations (except that counsel need express no opinion on the financial
statements or other financial or statistical data) and all amendments to the
Registration Statement required to be filed have been so filed.
(vii) To such counsel's knowledge and other than as
set forth in the Final Prospectus, there are no legal or governmental
proceedings pending to which the Company, LV Foods or La Victoria is a party or
of which any property of the Company, LV Foods or La Victoria is the subject
which, if determined adversely to the Company, LV Foods or La Victoria, would
individually or in the aggregate have a material adverse effect on the
financial condition, results of operation or business of the Company and La
Victoria, taken as a whole; to such counsel's knowledge, no such proceedings
are threatened by governmental authorities or threatened by others; and, to
such counsel's knowledge no pending or threatened litigation or governmental
action, suit
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or proceeding, statute or regulation required to be described in the Final
Prospectus is not so described.
(viii) To such counsel's knowledge, all descriptions
in the Final Prospectus of statutes, regulations, contracts and other documents
and trademarks, and the statements under the captions "Dividend Policy," "The
Shansby Group," "Management," "Certain Transactions," "Description of Capital
Stock" and "Shares Eligible for Future Sale" are accurate in all material
respects and fairly present the information set forth therein; and such counsel
does not know of any contracts or documents of a character required to be
summarized or described in the Final Prospectus, or required to be filed as
exhibits to the Registration Statement, which are not so summarized, described
or filed.
(ix) Except as disclosed or described in the
Effective Prospectus and the Final Prospectus, there are no outstanding
options, warrants or other rights of the Company, La Victoria or LV Foods
calling for the issuance of, and no commitments or obligations to issue, any
shares of capital stock or membership interests of the Company, La Victoria or
LV Foods or any security convertible into or exchangeable for capital stock or
membership interests of the Company, La Victoria or LV Foods.
(x) The Company has the corporate power to enter
into and perform its obligations under this Agreement and the Contribution
Agreement and this Agreement and the Contribution Agreement have been duly
authorized, executed and delivered by the Company and constitute the valid and
binding agreements of the Company and are enforceable against the Company in
accordance with their terms, except insofar as indemnification and contribution
provisions may be limited by Federal or state securities laws, public policy or
equitable principles, and except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally.
(xi) The Members have the power, in the case of
TSG2, partnership, and in the case of TSG2 Management, limited liability
company, to enter into and perform their obligations under the Contribution
Agreement and the Contribution Agreement has been duly authorized, executed and
delivered by Members and constitute the valid and binding agreements of the
Members and are enforceable against the Members in accordance with their terms,
except insofar as indemnification and contribution provisions may be limited by
Federal or state securities laws or equitable principles, and except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting creditors' rights generally.
(xii) Tanklage has the capacity to enter into and
perform his obligations under the Contribution Agreement and the Contribution
Agreement has been duly executed and delivered by Tanklage and constitutes the
valid and binding agreement of Tanklage and is enforceable against Tanklage in
accordance with its terms, except insofar as indemnification and contribution
provisions may be limited by Federal or state securities laws, public policy or
equitable principles, and except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally.
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(xiii) Except as described in the Registration
Statement, the Effective Prospectus and/or the Final Prospectus, Tanklage is
not nor with the giving of notice or lapse of time or both will he be in
violation of or in default under, nor will the execution or delivery of the
Contribution Agreement or consummation of the transactions contemplated thereby
result in a violation of, or constitute a default under, any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, bond, debenture,
note, lease or other agreement or instrument to which Tanklage is a party or by
which he is bound, or to which any of his property is subject, nor will the
performance by Tanklage of his obligations under the Contribution Agreement
violate any existing law, rule, administrative regulation, judgment, order,
writ or decree of any court or any governmental agency or body having
jurisdiction over Tanklage or his property, or result in the creation or
imposition of any lien, charge, claim or encumbrance upon any property or asset
of Tanklage, where such violation, default or lien would have a material
adverse effect on the financial condition, results of operations or business of
the Company and La Victoria, taken as a whole.
(xiv) Upon the consummation of the transactions
contemplated in the Contribution Agreement, which shall occur immediately
following the closing of the purchase of the Firm Shares, the Company will own
directly 50% of the outstanding capital stock of La Victoria and will own
indirectly, through its ownership of 100% of the beneficial interests of LV
Foods, the remaining 50% of the outstanding capital stock of La Victoria, free
and clear of all liens, encumbrances, equities or claims except as set forth in
the Final Prospectus. The Company does not own any interest in or control any
other corporation, association or entity.
(xv) The offer and sale of all securities of the
Company made within the last three years as set forth in Part II, Item 15 of
the Registration Statement were exempt from the registration requirements of
the Securities Act and from the registration or qualification requirements of
all relevant state securities laws.
(xvi) The Company is not an "investment company" or
a company controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
In rendering such opinion, such counsel may rely (A)
as to matters involving the application of laws other than the laws of the
United States and jurisdictions in which they are admitted, to the extent such
counsel deems proper and to the extent specified in such opinion, if at all,
upon an opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters'
Counsel, familiar with the applicable laws, provided that copies of any such
opinions shall be delivered to Underwriters' Counsel; and (B) as to matters of
fact, to the extent they deem proper, on certificates of responsible officers
of the Company, La Victoria, LV Foods and the Members and certificates or other
written statements of officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or good standing of the
Company, La Victoria, LV Foods and the Members, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel.
The opinion of such counsel for the Company shall state that the opinion
22
<PAGE> 23
of any such other counsel is in form satisfactory to such counsel for the
Company and, in their opinion, you and they are entitled in relying thereon.
Because the primary purpose of such counsel's engagement was not to
establish or confirm factual matters or financial, accounting or statistical
matters and because of the wholly or partially non-legal character of many of
the statements contained in the Registration Statement and Final Prospectus,
such counsel shall not be required to pass upon and shall not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or Final Prospectus (except to the
extent expressly set forth in section viii above), and such counsel shall not
be required to independently verify the accuracy, completeness or fairness of
such statements (except as aforesaid). Without limiting the foregoing, such
counsel shall assume no responsibility for and shall not be required to
independently verify the accuracy, completeness or fairness of the financial
statements and schedules, and other financial and statistical data included in
the Registration Statement and Final Prospectus and such counsel shall not be
required to examine the accounting, financial or statistical records from which
such statements and data are derived. Although certain portions of the
Registration Statement and Final Prospectus have been included therein on the
authority of "experts" within the meaning of the Securities Act, such counsel
shall not be deemed experts with respect to any portion of the Registration
Statement or Final Prospectus. However, such counsel shall state in its
opinion that it has participated in conferences with officers, legal counsel
and other representatives of the Company, representatives of the independent
accountants of the Company, and with representatives of, and legal counsel for,
the Underwriters, at which the contents of the Registration Statement and Final
Prospectus and related matters were discussed. Such counsel shall state that
it has reviewed all documents referred to in the Registration Statement and the
Final Prospectus or annexed as an exhibit to the Registration Statement. Such
counsel shall also state that it has reviewed certain other corporate documents
furnished to them by the Company. Based on such participation and review, and
subject to the limitations described above, such counsel shall advise you that
no facts have come to their attention that cause them to believe that the
Registration Statement, at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Final Prospectus, as of its date or as of the date hereof, contained
or contains an untrue statement of a material fact or omitted or omits to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(e) On each Closing Date there shall have been furnished
to you the opinion addressed to the Underwriters) of Weissmann, Wolff,
Bergman, Coleman & Silverman, dated as of such Closing Date and in the form and
substance satisfactory to Underwriters' Counsel in giving their opinion, to the
effect that:
(i) La Victoria has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of California, with full corporate power and authority to own, lease, license
or use its properties and, to such counsel's knowledge, conduct its business as
described in the Registration Statement and Final Prospectus, and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the character of the business conducted by it or the
location of the properties owned, leased, licensed or used by
23
<PAGE> 24
it makes such qualification necessary, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect on the financial
condition, results of operations or business of the Company and LaVictoria,
taken as a whole.
(ii) LV Foods has been duly formed and is validly
existing as a limited liability company under the laws of the State of
Delaware, with full power and authority to own, lease, license or use its
properties and conduct its business as described in the Registration Statement
and Final Prospectus, and is duly qualified to do business as a foreign limited
liability company and, to such counsel's knowledge, is in good standing in each
jurisdiction in which the character of the business conducted by it or the
location of the properties owned, leased, licensed or used by it makes such
qualification necessary, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the financial condition,
results of operations or business of the Company and LaVictoria, taken as a
whole.
(iii) The authorized, issued and outstanding
capital stock of the La Victoria as of June 30, 1997 is as set forth within the
Financial Statements of La Victoria in the Final Prospectus and there have been
no changes in the authorized and outstanding capital stock of La Victoria since
such date. The outstanding shares of capital stock of La Victoria are duly
authorized, validly issued, fully paid and nonassessable and were not issued in
violation of any statutory or, to such counsel's knowledge, any other
preemptive rights or other rights to subscribe for or purchase any securities.
Except as described in the Final Prospectus, there are no preemptive or other
rights to subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of capital stock of La Victoria pursuant to La
Victoria's Articles of Incorporation, Bylaws, other governing documents or any
agreement, contract or other instrument known to us to which La Victoria is a
party or by which it is bound.
(iv) All of the authorized, issued and outstanding
membership interests of LV Foods are beneficially owned by the Members and
there have been no changes in the authorized and, to such counsel's knowledge,
outstanding membership interests of LV Foods since its formation, other than
the assignments of certain interests in LV Foods from TSG2 to Lively. The
outstanding membership interests of LV Foods are duly authorized, validly
issued, fully paid and nonassessable and were not issued in violation of any
statutory or, to such counsel's knowledge, other preemptive rights or other
rights to subscribe for or purchase any securities. Except as described in the
Final Prospectus or the Limited Liability Company Operating Agreement of LV
Foods, there are no preemptive or other rights to subscribe for or to purchase,
or any restriction upon the voting or transfer of, any of the membership
interests pursuant to LV Foods' Certificate of Formation or other governing
documents or any agreement, contract or other instrument known to us to which
LV Foods is a party or by which it is bound.
(f) There shall have been furnished to you on the Closing
Date and on the Option Closing Date, if any, a certificate, dated such Closing
Date and addressed to you, signed by the President and by the Chief Financial
Officer of the Company to the effect that: (i) the representations and
warranties of the Company in this Agreement are true and correct in all
material respects, as if made on and as of such Closing Date, and the Company
has complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to such Closing Date;
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<PAGE> 25
(ii) no stop order or other order suspending the effectiveness of the
Registration Statement or preventing or suspending the use of any Pre-Effective
Prospectus, the Effective Prospectus or Final Prospectus or any amendment or
supplement thereto has been issued by the Commission or any "Blue Sky" or
securities authority of any jurisdiction, and no proceedings for that purpose
has been initiated or threatened; (iii) all filings required by Rule 424 and
Rule 430A of the Rules and Regulations have been made; (iv) the signers of said
certificate have carefully examined the Registration Statement and the
Effective Prospectus and the Final Prospectus, and any amendments or
supplements thereto, and such documents contain all statements and information
required to be included therein, and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; (v) there has been
no material adverse change in the general affairs, business key personnel,
earnings, capitalization, financial position or net worth of the Company since
the effective date of the Registration Statement; and (vi) since the effective
date of the Registration Statement, there has occurred no event required to be
set forth in an amendment or supplement to the Registration Statement or the
Effective Prospectus and the Final Prospectus which has not been so set forth.
(g) Since the effective date of the Registration
Statement, none of the Company, LV Foods or La Victoria shall have sustained
any loss or interference with its business from flood, accident or other
calamity (whether or not covered by insurance) or from any labor dispute or
court or governmental action, order or decree, nor shall the Company, LV Foods
or La Victoria have become a party to or the subject of any litigation, nor
shall there have been a change in the general affairs, business, key personnel,
earnings, capitalization, financial position or net worth of the Company, LV
Foods or La Victoria, whether or not arising in the ordinary course of
business, which loss, litigation or change is so material and adverse to the
Company that, in your judgment, shall render it inadvisable to proceed with the
delivery of the Shares.
(h) On the date of this Agreement and on each Closing
Date you shall have received letters of each of McGladrey & Pullen, LLP, and
Rylander, Clay & Optiz, L.L.P., dated such date and each Closing Date,
addressed to you as Representatives, containing statements and information of
the type ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial information
contained in the Registration Statement and the Effective Prospectus and Final
Prospectus, in such form and substance satisfactory to you, including without
limitation the statements set forth in Annex I and Annex II hereto.
(i) At or prior to the Closing Date, you shall have
received the written agreements described in Section 3(p) hereof.
(j) All proceedings taken in connection with the
issuance, sale, transfer and delivery of the Shares shall be satisfactory in
form and substance to you and to Underwriters' Counsel, and you shall have been
furnished such additional documents and certificates as you may reasonably
request.
(k) You shall have been furnished evidence in usual
written or telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in Section 3(e) above.
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(l) Prior to the Closing Date, the Shares shall have been
duly authorized for quotation on the Nasdaq National Market upon official
notice of issuance.
(m) The NASD, upon review of the terms of the public
offering of the Shares, shall not have objected to your participation in such
offering.
(n) On or after the date hereof there shall not have
occurred any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange, American Stock
Exchange or Nasdaq; (ii) a general moratorium on commercial banking activities
declared by either federal or California authorities; or (iii) a material
adverse change in the financial markets in the United States or internationally
or any outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the effect
of any such outbreak or escalation of hostilities specified in this Clause
(iii) in your judgment makes it impracticable to proceed with the delivery of
the Shares.
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and the Underwriters' Counsel. Any
certificate or document signed by any officer of the Company and delivered to
you or the Underwriters' Counsel shall be deemed a representation and warranty
by such officer individually and by the Company hereunder to the Underwriters
as to the statements made therein. The Company shall furnish you with such
number of conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request. If any of the conditions specified
in this Section 4 shall not have been fulfilled when and as required by this
Agreement, this Agreement and all obligations of the Underwriters hereunder may
be cancelled at, or at any time prior to, each Closing Date, by you. Any such
cancellation shall be without liability of the Underwriters to the Company.
Notice of such cancellation shall be given to the Company in writing, or by
telegraph or telephone and confirmed in writing.
5. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless the Underwriters, any member of
the selling group, and each of such entities' officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any one
of the Underwriters or selling group members within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act (each an
"Indemnified Underwriter") against any and all loss, claim, damage, expense or
liability, joint or several, to which such Indemnified Underwriter may become
subject, under the Securities Act or otherwise, insofar as such loss, claim,
damage, expense or liability (or action in respect thereof) arises out of or is
based upon (i) the inaccuracy of any of the representations or warranties made
by the Company in Section 1 thereof or otherwise, or (ii) any untrue statement
or alleged untrue statement of a material fact contained (A) in the
Registration Statement, any Pre-Effective Prospectus, the Effective Prospectus
or the Final Prospectus or any amendment or supplement thereto, or (B) in any
application or other document or communication (in this Section 5, collectively
called an "Application") executed by or on behalf of the Company or based upon
written information furnished by or on behalf of the Company in any
jurisdiction in order to qualify the Shares under the "Blue Sky" or securities
laws thereof or filed
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<PAGE> 27
with the Commission or any securities exchange or national market system, such
as the Nasdaq National Market, or (iii) the omission or alleged omission to
state, in the Registration Statement, any Pre-Effective Prospectus, the
Effective Prospectus or Final Prospectus or any amendment or supplement thereto
or in any Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iv) any breach of
any representation, warranty, covenant or agreement of the Company contained in
this Agreement; and shall pay each Indemnified Underwriter for any and all
costs and expenses, including reasonable attorneys' fees, as and when incurred
by such Indemnified Underwriter in connection with investigating or defending
against or appearing as a third-party witness in connection with any
litigation, commenced or threatened, and any and all amounts paid in settlement
of any claim or litigation of any such loss, claim, damage, liability or action
whatsoever, notwithstanding the possibility that payments for such expenses
might later held to be improper; except that the Company shall not be liable in
any such case to the extent, but only to the extent, that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company through you
by or on behalf of any Underwriter specifically for use in the preparation of
the Registration Statement, any Pre-Effective Prospectus, the Effective
Prospectus or Final Prospectus or any amendment or supplement thereto, or any
Application, nor shall the Company be liable to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission in any
Pre-Effective Prospectus which is corrected in the Final Prospectus if a
sufficient number of copies of such Final Prospectus were provided to the party
seeking indemnification and such party failed to send or deliver a copy and
such Final Prospectus to the person asserting any such loss, claim, damage or
liability at or prior to the written confirmation of the sale of such shares to
such person, if such delivery was required by law. In addition to its other
obligations under this Section 5(a), the Company agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, or any inaccuracy in the representations and
warranties of the Company herein or the failure to perform its obligations
hereunder, it will pay each Indemnified Underwriter on a monthly basis for all
costs and expenses, including reasonable attorneys' fees, incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to indemnify hereunder or to pay each Indemnified Underwriter for
such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent that
any such interim payment is so held to have been improper, each Indemnified
Underwriter shall promptly return it to the Company, together with interest
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by Bank of America NT&SA, San Francisco, California (the
"Prime Rate"). Any such interim payment which is not made to an Indemnified
Underwriter within 30 days of a request for payment, shall bear interest at the
Prime Rate from the date of such request. The foregoing agreement to indemnify
shall be in addition to any liability which the Company may otherwise have,
including liabilities arising under this Agreement.
(b) Each Underwriter severally, but not jointly, shall
indemnify and hold harmless the Company, each director of the Company, each
officer of the Company who has signed the
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Registration Statement and any person who controls the Company within the
meaning of the Securities Act against any loss, claim, damage or liability to
which the Company may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage or liability (or action in respect thereof)
arises out of or is based upon (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in the Registration Statement, any
Pre-Effective Prospectus, the Effective Prospectus or Final Prospectus or any
amendment or supplement thereto, or (B) in any Application, or (ii) the
omission or alleged omission to state in the Registration Statement, any
Pre-Effective Prospectus, the Effective Prospectus or Final Prospectus or any
amendment or supplement thereto or in any Application a material fact required
to be stated therein or necessary to make the statements therein not
misleading; except that such indemnification shall be available in each such
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company
through you by or on behalf of such Underwriter specifically for use in the
preparation thereof; and shall pay the Company for any and all costs and
expenses, including reasonable attorneys' fees, as and when incurred by it in
connection with investigating or against or appearing as a third-party witness
in connection with any such loss, claim, damage, liability or action. This
indemnity agreement shall be in addition to any liability which any Underwriter
may otherwise have. The Company acknowledges that the statements set forth in
the last paragraph of the cover page (insofar as such information relates to
the Underwriters), the paragraph on page 2 with respect to stabilization and
under the heading "Underwriting" in any Pre-Effective Prospectus, Effective
Prospectus and/or the Final Prospectus constitute the only information
furnished in by or on behalf of the several Underwriters, for inclusion in any
such Prospectus, and you, as the Underwriters, confirm that such statements are
correct.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) of notice of any claim or the commencement of any action,
the indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the claim or the commencement of that action; the failure
to notify the indemnifying party shall not relieve it from any liability which
it may have to an indemnified party. If any such claim or action shall be
brought against an indemnified party, and it shall notify the indemnifying
party thereof, the indemnifying party shall be entitled to participate therein
and, to the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory the indemnified party. After notice from the indemnifying party
to the indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under such subsection for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof other than
reasonable costs of investigation; except that you shall have the right to
employ counsel to represent you and other Indemnified Underwriters who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by the Indemnified Underwriters against the Company under such
subsection if, in your reasonable judgment, it is advisable for you and those
Indemnified Underwriters to be represented by separate counsel, and in that
event the fees and expenses of such separate counsel shall be paid by the
Company. The Company agrees promptly to notify the Underwriters and the
Representatives of the commencement of any litigation or proceedings against
the Company, respectively, or against any of their officers or directors in
connection with the sale of the Shares, the Registration Statement, any
Pre-Effective
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Prospectus, the Effective Prospectus or the Final Prospectus or any amendment
or supplement thereto, or any Application. To the extent any provision of this
Section 5 entitles the indemnified party to reimbursement of fees and expenses,
such obligations may be billed by the indemnified party monthly and shall be
due and payable within ten (10) days of the date thereof.
(d) If the indemnification provided for in this Section 5
is unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand, and the Underwriters on the other, from the
offering of the Shares or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand, and the Underwriters on the
other, in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand,
and the Underwriters on the other, shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Shares (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Final Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriters agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities referred to in the first sentence
of this subsection (d) shall be deemed to include any and all costs and
expenses, including reasonable attorneys' fees, incurred by such indemnified
party in connection with investigating or defending against any action or claim
which is the subject of this subsection (d). Notwithstanding the provisions of
this subsection (d), no Underwriter shall be required to contribute any amount
in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint. Each party entitled to contribution agrees that
upon the service of a summons or other initial legal process upon it in any
action instituted against it in respect of which contribution may be sought, it
shall promptly give written notice of such service to the party or parties from
whom contribution may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom contribution
may be sought from any obligation it may have hereunder or otherwise. For
purposes
29
<PAGE> 30
of this Section 5(d), each person, if any, who controls an Underwriter within
the meaning of the Securities Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement, and each person, if any, who controls
the Company within the meaning of the Securities Act, shall have the same
rights to contribution as the company. This Section 5(d) is intended to
supersede any right to contribution under the Securities Act, the Exchange Act,
or otherwise.
(e) It is agreed that any controversy arising out of the
operation of the interim payment arrangements set forth in Section 5(a) hereof,
including the amounts of any requested payments and method of determining such
amounts, shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the National
Association of Securities Dealers, Inc. Any such arbitration shall be commenced
by service of a written demand for arbitration or written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the
party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Such an arbitration shall be limited to the
operation of the interim payment provisions contained in Section 5(a) hereof
and shall not resolve the ultimate propriety or enforceability of the
obligation to indemnify or pay expenses which is created by the provisions of
such Section 5(a) hereof.
6. Substitution of Underwriters. If any Underwriter defaults in
its obligation to purchase the number of Shares which it has agreed to purchase
under this Agreement, the non-defaulting Underwriters shall be obligated to
purchase (in the respective proportions which the number of Shares set forth
opposite the name of each non-defaulting Underwriter in Schedule I hereto bears
to the total number of Shares set forth opposite the names of all the non-
defaulting Underwriters in Schedule I hereto) the Shares which the defaulting
Underwriter agreed but failed to purchase; except that the non-defaulting
Underwriters shall not be obligated to purchase any of the Shares if the total
number of Shares which the defaulting Underwriter or Underwriters agreed but
failed to purchase exceeds 9.09% of the total number of Shares, and any
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of Shares set forth opposite its name in Schedule I hereto plus the
total number of Option Shares purchasable by it pursuant to the terms of
Section 2(b); provided, further, that the non-defaulting Underwriters shall not
be obligated to purchase any Shares if such additional purchase would cause any
non-defaulting Underwriter to be in violation of the net capital rule of the
Commission or other applicable law. If the foregoing maximums are exceeded,
(i) the non-defaulting Underwriters, and any other underwriters satisfactory to
you who so agree, shall have the right, but shall not be obligated, to purchase
(in such proportions as may be agreed upon among them) all the Shares which the
defaulting Underwriter agreed but failed to purchase. If the non-defaulting
Underwriters or the other underwriters satisfactory to you do not elect to
purchase the Shares which the defaulting Underwriter or Underwriters agreed but
failed to purchase, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriter or the Company except for the payment of
expenses to be borne by the Company and the Underwriters as provided in Section
3(m) and the indemnity and contribution agreements of the Company and the
Underwriters contained in Section 5 hereof.
30
<PAGE> 31
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have for damages caused by its default. If the other
underwriters satisfactory to you are obligated or agree to purchase the Shares
of a defaulting Underwriter, either you or the Company may postpone the Closing
Date for up to seven full Business Days in order to effect any changes that may
be necessary in the Registration Statement, the Effective Prospectus or the
Final Prospectus or in any other document or agreement, and to file promptly
any amendments or any supplements to the Registration Statement or the
Effective Prospectus or the Final Prospectus which in your opinion may thereby
be made necessary. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 6.
7. Effective Date and Termination.
(a) This Agreement shall become effective at whichever of
the following times first occur: (i) at 8:00 A.M., Los Angeles time, on the
first full Business Day following the day upon which the Registration Statement
becomes effective, or (ii) the time after the Registration Statement becomes
effective as you, in your discretion, shall first release the Shares for sale
to the public. For purposes of this Section 7, the Shares shall be deemed to
have been released for sale to the public upon release by you for publication
of a newspaper advertisement relating to the Shares or upon release by you of
communications offering the Shares for sale to securities dealers, whichever
shall first occur. Until this Agreement is effective, it may be terminated by
the Company by giving notice as hereinafter provided to you or by you by giving
notice as hereinafter provided to the Company, except that the provisions of
Section 3(m) and Section 5 shall at all times be effective.
(b) Until the Closing Date, this Agreement may be
terminated by you by giving notice as hereinafter provided to the Company, if
(i) the Company shall have, in any material respect, failed, refused or been
unable, at or prior to the Closing Date, to perform any agreement on its part
to be performed hereunder; (ii) any other condition of the obligations of the
Underwriters hereunder is not fulfilled; (iii) if there has been since the date
as of which the information is given in the Final Prospectus, any material
adverse change, or any development involving a prospective material adverse
change, in the financial condition, results of operation, business or prospects
of the Company or La Victoria; (iv) trading in the Shares has been suspended by
the Commission or trading in securities generally on either the New York Stock
Exchange, American Stock Exchange or Nasdaq shall have been suspended or a
material limitation on trading shall have been established; (v) a general
moratorium on commercial banking activities shall have been declared by Federal
or California authorities; or (vi) if there has occurred any material adverse
change in the financial markets in the United States or internationally or any
outbreak of hostilities or escalation of existing hostilities involving the
United States or the declaration by the United States of a national emergency
or war or other calamity or crisis that, in your reasonable judgment, is
material and adverse. Any termination of this Agreement pursuant to this
Section 7 shall be without liability on the part of the Company or any
Underwriter, except as otherwise provided in Sections 3(m) and 5 hereof.
Any notice referred to above may be given at the address
specified in Section 9 hereof in writing or by telegraph or telephone, and if
by telegraph or telephone, shall be immediately confirmed in writing.
31
<PAGE> 32
8. Survival of Indemnities, Contribution, Warranties and
Representations. The indemnity and contribution agreements contained in
Section 5 and the representations, warranties and agreements of the Company in
Sections 1 and 3 shall survive the delivery of the Shares to the Underwriters
hereunder and shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement or any investigation made by or
on behalf of any indemnified party.
9. Notices. Except as otherwise provided in this Agreement, (a)
whenever notice is required by the provisions of this Agreement to be given to
the Company such notice shall be in writing (and may be telecopied if confirmed
by letter) addressed to the Company at 1313 Avenue R, Grand Prairie, Texas
75050, telecopier number (972) 933-4120, Attention: President, with a copy to
be addressed to The Shansby Group, 250 Montgomery Street, San Francisco,
California 94104, telecopier number (415) 421-5120, Attention: Charles H.
Esserman; and (b) whenever notice is required by the provisions of this
Agreement to be given to the several Underwriters, such notice shall be in
writing addressed to the Underwriters in care of Cruttenden Roth Incorporated,
13301 Von Karman, Suite 100, Irvine, California 92715, telecopier number (714)
852-9603, Attention: President.
10. Information Furnished by Underwriters. The statements set
forth in the last paragraph on the cover page, the paragraph on page 2 with
respect to stabilization, and under the caption "Underwriting" in any
Pre-Effective Prospectus and in the Effective Prospectus and the Final
Prospectus, constitute the written information furnished by or on behalf of any
Underwriter referred to in paragraph (b) and (c) of Section 1 hereof and in
paragraph (b) of Section 5 hereof.
11. Parties. This Agreement is made solely for the benefit of the
several Underwriters, the Company, any officer, director or controlling person
referred to in Section 5 hereof. The term "successors and assigns," as used in
this Agreement, shall not include any purchaser of any of the Shares from any
of the Underwriters merely by reason of such purchase.
12. Definition of "Business Day." The purposes of this Agreement,
"Business Day" means any other than Saturday, Sunday, a federal holiday or a
day on which the New York Stock Exchange is closed.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO THE CHOICE OF LAW OR CONFLICT OF LAWS PRINCIPLES THEREOF.
14. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
[THE NEXT PAGE IS THE SIGNATURE PAGE.]
32
<PAGE> 33
If the foregoing is in accordance with your understanding, please sign
and return to us seven counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination, upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
AUTHENTIC SPECIALTY FOODS, INC.
By: /s/ Keith R. Lively
------------------------------
Name:
Title: Chief Executive Officer
Accepted as of the date hereof:
CRUTTENDEN ROTH INCORPORATED
SUTRO & CO. INCORPORATED
WEDBUSH MORGAN SECURITIES INC.
By:/s/Byron C. Roth
--------------------------------------
(Cruttenden Roth Incorporated)
On behalf of each of the Underwriters
<PAGE> 34
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL
TOTAL SHARES TO BE
NUMBER OF PURCHASED IF
FIRM MAXIMUM
SHARES TO BE OPTION
UNDERWRITER PURCHASED EXERCISED
----------- --------- ---------
<S> <C> <C>
Cruttenden Roth Incorporated. . . . . . . . . . . . . . . . 1,000,000 150,000
Sutro & Co. Incorporated . . . . . . . . . . . . . . . . . 1,000,000 150,000
Wedbush Morgan Securities Inc. . . . . . . . . . . . . . . 500,000 75,000
Montgomery Securities . . . . . . . . . . . . . . . . . . . 300,000 45,000
Josephthal Lyon & Ross Incorporated . . . . . . . . . . . . 200,000 30,000
McDonald & Company Securities, Inc. . . . . . . . . . . . . 200,000 30,000
Morgan Keegan & Company, Inc. . . . . . . . . . . . . . . . 200,000 30,000
Principal Financial Securities, Inc. . . . . . . . . . . . 200,000 30,000
L.H. Friend, Weinress, Prankson & Presson, Inc. . . . . . . 100,000 15,000
RAF Financial Corporation . . . . . . . . . . . . . . . . . 100,000 15,000
Rodman & Renshaw, Inc. . . . . . . . . . . . . . . . . . . 100,000 15,000
Southwest Securities, Inc. . . . . . . . . . . . . . . . . 100,000 15,000
--------- --------
Total . . . . . . . . . . . . . . . . . . . . . . 4,000,000 600,000
========= =======
</TABLE>
I-1
<PAGE> 35
ANNEX I
Pursuant to Section 4(g) of the Underwriting Agreement, McGladrey &
Pullen, LLP shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants
with respect to the Company and La Victoria within the meaning of the
Securities Act and the applicable published Rules and Regulations;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules of the Company and
La Victoria audited (and, if applicable, prospective financial
statements and/or pro forma financial information examined) by them
and included in the Prospectus or the Registration Statement comply as
to form in all material respects with the applicable accounting
requirements of the Securities Act and the related published Rules and
Regulations; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified
Public Accountants of the unaudited consolidated interim financial
statements, selected financial data, pro forma financial information,
prospective financial statements and/or condensed financial statements
derived from audited financial statements of the Company and La
Victoria for the periods specified in such letter, as indicated in
their reports thereon, copies of which have been furnished to the
representatives of the Underwriters (the "Representatives");
(iii) On the basis of limited procedures, not constituting
an audit in accordance with generally accepted auditing standards,
consisting of, in the case of the Company and La Victoria, a reading
of the unaudited financial statements and other information referred
to below, a reading of the latest available interim financial
statements of the Company and La Victoria, inspection of the minute
books of the Company and La Victoria since the date of the latest
audited financial statements included in the Prospectus, inquiries of
officials of the Company and La Victoria responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused
them to believe that:
(A) any unaudited consolidated statements of
income, consolidated balance sheets and consolidated
statements of cash flows as of dates or for periods beginning,
in the case of the Company, after June 30, 1997 and, in the
case of La Victoria, May 31, 1997, included in the Prospectus
do not comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and
the related published Rules and Regulations, or are not in
conformity with generally accepted accounting principles
applied on a basis substantially consistent basis for the
audited consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows
included in the Prospectus;
II-1
<PAGE> 36
(B) any other unaudited income statement data and
balance sheet items for the periods or as of the dates
referred to in Clause (A) above included in the Prospectus do
not agree with the corresponding items in the unaudited
consolidated financial statements from which such data and
items were derived, and any such unaudited data and items were
not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited
consolidated financial statements included in the Prospectus;
(C) the unaudited financial statements which were
not included in the Prospectus but from which were derived any
unaudited condensed financial statements as of dates or for
periods beginning, in the case of the Company, after June 30,
1997 and, in the case of La Victoria, May 31, 1997, and any
unaudited income statement data and balance sheet items
included in the Prospectus and referred to in Clause (B) were
not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements
included in the Prospectus;
(D) any unaudited pro forma consolidated
condensed financial statements included in the Prospectus do
not comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and
the published Rules and Regulations or the pro forma
adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five
days prior to the date of such letter, there have been any
changes in the consolidated capital stock (other than
issuances of capital stock upon exercise of options and stock
appreciation rights, upon earn-outs of performance shares and
upon conversions of convertible securities, in each case which
were outstanding on the date of the latest financial
statements included in the Prospectus) or any increase in the
consolidated long-term debt of the Company or La Victoria, or
any decreases in consolidated net current assets or net assets
or other items specified by the Representatives or any
increases in any items specified by the Representatives, in
each case as compared with amounts shown in the latest balance
sheet included in the Prospectus; except in each case for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such
letter; and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (E) there were any
decreases in consolidated net revenues or operating profit or
the total or per share amounts of consolidated net income or
other items specified by the Representatives, or any increases
in any items specified by the Representatives, in each case as
compared with the comparable period of the preceding year and
with any other period of corresponding length specified by the
Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
II-2
<PAGE> 37
(iv) In addition to the audit referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraph (iii) above, they have carried out certain specified
procedures, not constituting an audit in accordance with generally
accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the
Representatives, which are derived from the general accounting records
of the Company and La Victoria, which appear in the Prospectus, or in
Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and La Victoria and have found them
to be in agreement.
II-3
<PAGE> 38
ANNEX II
Pursuant to Section 4(g) of the Underwriting Agreement, Rylander, Clay
& Optiz, L.L.P., shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants
with respect to the Company and its subsidiaries within the meaning of
the Securities Act and the applicable published Rules and Regulations;
and
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules of the Company
audited (and, if applicable, prospective financial statements and/or
pro forma financial information examined) by them and included in the
Prospectus or the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act and the related published Rules and Regulations; and,
if applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited consolidated interim financial statements, selected
financial data, pro forma financial information, prospective financial
statements and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have
been furnished to the representatives of the Underwriters (the
"Representatives").
II-4
<PAGE> 1
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of September 23, 1997, by and among LA MONITA MEXICAN FOOD PRODUCTS,
INC., a Delaware corporation ("Acquisition Sub"), and AUTHENTIC SPECIALTY
FOODS, INC., a Texas corporation ("ASFD," and together with the Acquisition
Sub, the "Purchaser"), GILBERT MORENO ENTERPRISES, INC., a Texas corporation
(the "Company"), and GILBERT G. MORENO, an individual residing in Houston,
Texas ("Moreno," and together with the Company, the "Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers desire to sell, and the Purchaser desires to
purchase the Business (as defined herein) on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of and subject to the mutual
agreements, terms and conditions herein contained, the parties hereto agree as
follows:
ARTICLE I
SALE OF BUSINESS
1.1 Certain Definitions.
(a) Affiliate. The term "Affiliate" shall mean with
respect to a specified entity, an entity that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with the entity specified.
(b) Assumed Liabilities. The term "Assumed Liabilities"
shall mean, except for the Excluded Liabilities, (a) all liabilities and
long-term debt of the Company, in each case to the extent attributable to the
Business and in each case to the extent expressly shown on Appendix II and (b)
all accounts payable of the Company attributable to the Business incurred in
the ordinary course of business on or after the Statement Date (as defined
herein) that would be required to be recorded on its balance sheets prepared in
accordance with generally accepted accounting principles. Without limiting the
generality of the foregoing, the term "Assumed Liabilities" shall not include
any liabilities arising from or relating to any Excluded Assets or any
transaction expenses or other amounts expressly provided to be paid by the
Sellers pursuant to the provisions hereof.
(c) Business. The term "Business" shall mean, except for
the Excluded Assets, all of the assets, goodwill, and rights (contractual or
otherwise) purportedly owned or used by the Sellers relating to the business
and operations of the Company, including, without limitation, the
manufacturing, packaging, supply, distribution and sales of corn and flour
tortillas, tortilla chips and related products under the names "La Monita," "El
Rey" and "Celebre" and any derivations thereof.
<PAGE> 2
(d) Excluded Assets. The term "Excluded Assets" shall
mean those assets set forth on Appendix III attached hereto.
(e) Excluded Liabilities. The term "Excluded
Liabilities" shall mean (i) those liabilities described on Appendix IV attached
hereto and (ii) all liabilities arising from or relating to any Excluded Assets
or any transaction expenses or other amounts expressly provided to be paid by
Sellers pursuant to the provisions hereof.
1.2 Purchase Price. At the Closing (as defined below), the
Sellers will sell, transfer, convey and deliver to Purchaser, in accordance
with the provisions of Section 4.8, the Business, in exchange for the following
aggregate consideration: (a) $850,000 payable at the Closing by wire transfer
or other delivery of immediately available funds and (b) the assumption or
discharge by the Purchaser of the Assumed Liabilities, all of which are fully
described on Appendix II attached hereto. Except for the Assumed Liabilities,
the Purchaser shall not assume or otherwise be liable for, and shall be
indemnified with respect to in accordance with the provisions of Section 7.2
hereof, all other liabilities and obligations of the Company.
1.3 Closing. The closing ("Closing") of the sale and purchase of
the Business shall take place at the offices of Vinson & Elkins L.L.P., 1001
Fannin, Houston, Texas, at 10:00 a.m. on September 30, 1997, or at such other
place, time and date upon which the parties hereto may agree (the "Closing
Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS
The Sellers jointly and severally warrant and represent to the
Purchaser as follows:
2.1 Approval and Authority; Title to Business. The Sellers have
the full right, power and authority to enter into this Agreement and to perform
all of their obligations under this Agreement, and the execution and delivery
of this Agreement and the performance by Sellers of their obligations under
this Agreement require no further action or approval of any other person in
order to constitute this Agreement as a binding and enforceable obligation of
Sellers. Except as fully described in Schedule 2.1, the Sellers have good and
indefeasible title to the Business, free and clear of any claim, pledge, lien,
charge, encumbrance, mortgage or other adverse claim.
2.2 No Adverse Changes. Except as expressly permitted by this
Agreement or fully described in Schedule 2.2, since July 31, 1997 (the
"Statement Date"), there have been no material adverse changes (whether or not
within the control of the Sellers) to, or relating to, the Business.
2.3 Assets.
(a) The assets and rights constituting the Business (and
the current owner of each component thereof) are listed and described
separately on Appendix I attached hereto. The assets and rights set forth on
Appendix I represent all of the assets and rights necessary to operate the
2
<PAGE> 3
Business consistent with past practice. Except as fully described in Schedule
2.3(a), the Sellers have good and indefeasible title to the real property
located at 611 Crosstimbers, Houston, Texas (the "Real Property"), free and
clear of any mortgage, pledge, lien, charge, encumbrance, or other adverse
claim and there are no outstanding options or rights of first refusal to
purchase the Real Property. None of Sellers use (or permit any third party to
use) the Business for any purpose other than the ownership or operation of the
business of the Company. Except for the assets and rights described on
Appendix I, there are no other assets or rights (contractual or otherwise)
relating to the Business or the business, assets, prospects or operations of
the Company in which any Seller, or any other person, has any rights
whatsoever. With respect to the corn tortilla line that was acquired from
Sierra Blanca and then exchanged for a corn tortilla line from Retama, the
Purchaser will not be required to pay Sierra Blanca and its affiliates more
than $15,000, including transaction costs (it being acknowledged that any
amounts paid in excess of $15,000 shall be deemed a "Loss" for purposes of
Section 7.2 hereof).
(b) Except as fully described in Schedule 2.3(b), there
are no parties in possession of any portion of the Real Property as lessees,
licensees, tenants at sufferance, trespassers or otherwise, other than the
Company.
(c) There is no pending or, to the best of Sellers'
knowledge, threatened condemnation or similar proceeding or special assessment
affecting the Real Property, or any part thereof, nor has any Seller received
notification that any such proceeding or assessment is contemplated by any
Governmental Authority.
(d) Neither the location, occupancy, operation nor use of
the Real Property (including the buildings, improvements, fixtures and
equipment forming a part thereof) violates any applicable law, statute,
ordinance, rule, regulation, order or determination of any Governmental
Authority or any board of fire underwriters (or other body exercising similar
functions), or any restrictive covenant or deed restriction (recorded or
otherwise) affecting any of the Real Property, including, without limitation,
all applicable zoning ordinances and building codes, flood disaster laws and
health laws and regulations (hereinafter sometimes collectively called
"Applicable Laws").
(e) No Real Property is within any area determined by the
Department of Housing and Urban Development to be flood prone under the Federal
Flood Disaster Protection Act of 1973.
(f) Except as set forth on Schedule 2.3(f), (i) there are
no unpaid and presently due charges, debts, liabilities, claims or obligations
arising from the construction, occupancy, ownership, use or operation of any
Real Property, or the business operated thereon, that could give rise to any
mechanic's or materialmen's or other statutory lien against such Real Property,
or any part thereof, and (ii) the Sellers have not entered into any agreement
the performance of which could give rise to a lien or other encumbrance against
the Real Property.
(g) There exists no action or proceeding to modify or
terminate the present zoning, if any, of any Real Property.
(h) There exists no judicial, quasi-judicial,
administrative or other proceeding or court order, building code provision,
deed restriction or restrictive covenant (recorded or otherwise)
3
<PAGE> 4
or other private or public limitation that, to the best of Sellers' knowledge,
could in any way impede or adversely affect the use of such Real Property by
the Company as currently used.
(i) The Real Property is connected to and serviced by
water, septic tank or sewage disposal (as applicable), gas, telephone and
electric facilities that are adequate for current use of such Real Property and
is in compliance with all Applicable Laws. All public utilities required for
the operation of such Real Property enter such Real Property through adjoining
public streets or, if they pass through adjoining private land, do so in
accordance with valid public easements. Each Real Property abuts on and has
direct vehicular access to a public road, or has access to a public road via a
permanent, irrevocable appurtenant easement.
(j) There exists no (i) change contemplated in any
Applicable Laws or any judicial or administrative action, (ii) pending or, to
the best of Sellers' knowledge, threatened action by adjacent landowners, (iii)
pending or, to the best of Sellers' knowledge, threatened administrative
action, (iv) natural or artificial conditions upon the Real Property or (v)
significant adverse fact or condition, relating to the Real Property or its
current use by the Company, that would prevent, limit, impede or render more
costly the Company's use of the Real Property.
(k) Except as set forth on Schedule 2.3(k) and except for
body damage to any vehicle that does not and could not reasonably be expected
to interfere with or otherwise adversely affect the operation of such vehicle,
the equipment used in connection with the Company's business and operations, is
in good condition and repair, subject only to normal wear and tear, free of any
patent structural defects or, to the knowledge of Sellers, any latent
structural defects.
(l) Permanent certificates of occupancy, all licenses,
permits, authorizations and approvals required by all governmental authorities
having jurisdiction, and the requisite certificates of the local board of fire
underwriters (or other body exercising similar functions) have been issued for
such buildings and improvements constituting a part of the Real Property and
have been paid for and all of the foregoing are in full force and effect.
(m) The Real Property, including building and
improvements, is in good condition and repair.
(n) No commitments have been made by any Seller or other
person to any Governmental Authority, utility company, school board, church or
other religious body, or any homeowners or homeowners' association, or any
other organization, group or individual, relating to any Real Property that
would impose an obligation upon the Purchaser or its successors or assigns to
make any contribution or dedication of money or land or to construct, install
or maintain any improvements of a public or private nature on or off such Real
Property. Each Real Property's compliance with all Applicable Laws does not
depend on, and no zoning, subdivision or other governmental approval for such
Real Property depends on, any real property, or rights appurtenant thereto,
other than such Real Property. No Governmental Authority has imposed any
requirement that any developer of any Real Property pay directly or indirectly
any special fees or contributions or incur any expenses or obligations in
connection with any development of such Real Property or any part thereof. The
provisions of this subparagraph shall not apply to any regular or
nondiscriminatory local real estate or school taxes assessed against any such
Real Property.
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2.4 Litigation, Judgments, Etc. Except as fully described in
Schedule 2.4, there are no actions, suits, proceedings or investigations
pending or, to the best of Sellers' knowledge, threatened against or affecting
the Business in any court or before or by any federal, state or other
Governmental Authority, or before any arbitrator, and the Sellers have no
reason to believe that any such action, suit, proceeding or investigation will
be brought or threatened.
2.5 Environmental Matters.
(a) Except as set forth in Schedule 2.5(a):
(i) the Business and the Real Property do not materially
violate any Environmental Laws;
(ii) without limitation of clause (i) above, neither the
Business nor the Real Property are in violation of or subject to any
existing, pending or threatened action, suit, investigation, inquiry
or proceeding by or before any court or Governmental Authority or to
any remedial obligations under Environmental Laws;
(iii) all material notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed in connection
with the ownership, operation or use of the Business and the Real
Property under Environmental Laws have been duly obtained or filed,
and the Business and the Real Property are in material compliance with
the terms and conditions of all such notices, permits, licenses and
similar authorizations;
(iv) since the effective date of the relevant requirements
of RCRA (as hereinafter defined) all hazardous substances or solid
wastes generated at any Real Property and requiring disposal have
been, to the extent required by any Environmental Law, transported
only by carriers maintaining valid authorizations under RCRA and any
other Environmental Laws and treated and disposed of only at
treatment, storage and disposal facilities maintaining valid
authorizations under RCRA and any other Environmental Law, and such
carriers and facilities have been and are operating in compliance with
such authorizations and are not the subject of any existing, pending
or threatened action, investigation or inquiry by any Governmental
Authority in connection with any Environmental Laws;
(v) to the best of Sellers' knowledge, there are no
underground storage tanks or other underground containers on or under
any of the Real Property; and
(vi) no hazardous substances or solid waste has been
disposed of or otherwise released and, to the best of Seller's
knowledge, there has been no threatened release of any hazardous
substances on or to the Business except in compliance with
Environmental Laws.
(b) Copies of all environmental reports prepared for or
by Seller, or on Seller's behalf, that address the environmental condition of
the Business or the Real Property are attached hereto as Schedule 2.5(b).
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For purposes of this Agreement, the term "Environmental Laws"
shall mean any and all laws, statutes, ordinances, rules, regulations, orders
or determinations of any Governmental Authority pertaining to health or the
environment currently or hereafter in effect in any and all jurisdictions in
which the Business is located, including without limitation, the Clean Air Act,
as amended, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Hazardous & Solid Waste Amendments Act of 1984, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as amended,
the Hazardous Materials Transportation Act, as amended, any state laws
pertaining to the handling of wastes or the use, maintenance, and closure of
pits and impoundments, and other environmental conservation or protection laws.
For purposes of this Agreement, the terms "hazardous substance" and "release"
(or "threatened release") have the meanings specified in CERCLA, and the terms
"solid waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; provided, however, that to the extent the laws of the state in which the
property is located or the operations are conducted establish a meaning for
"hazardous substance," "release," "solid waste" or "disposal" that is broader
than that specified in either CERCLA or RCRA, such broader meaning shall apply.
For purposes of this Agreement, the term "Governmental Authority" includes the
United States, the state, county, city and political subdivisions in which the
Business is located or which exercises jurisdiction over the Business, and any
agency, department, commission, board, bureau or instrumentality of any of them
that exercises jurisdiction over the Business.
2.6 Authorization of Agreement - No Violation - No Consents.
Each of the Sellers has full power and authority to enter into this Agreement
and the other documents delivered pursuant to this Agreement (collectively, the
"Documents"). Except as set forth in Schedule 2.6, neither the execution or
delivery of the Documents nor the consummation of the transactions contemplated
herein or therein (a) will conflict with or result in a breach, default or
violation of any agreement, document, instrument, judgment, decree, order,
governmental permit, certificate, license, law, statute, rule or regulation to
which any Seller is a party or to which it or any asset or right constituting
the Business is subject, (b) will result in the creation of any lien, charge or
other encumbrance on such asset or right or (c) will require any Seller to
obtain the consent of any private nongovernmental third party not already
obtained. Except as expressly contemplated by the Documents, no consent,
action, approval or authorization of, or registration, declaration or filing
with, any governmental department, commission, agency or other instrumentality
or any other person or entity is required to authorize, or is otherwise
required in connection with, the execution and delivery of the Documents by any
Seller their performance of the terms of the Documents or the validity or
enforceability of the Documents. This Agreement and each Document delivered
pursuant hereto constitutes the legal, valid and binding obligation of each
Seller enforceable against each such person in accordance with its terms.
2.7 Brokerage Agreements. No Seller has entered (directly or
indirectly) into any agreement, with any person, firm or corporation for the
payment of any commission, brokerage or "finder's fee" in connection with the
transactions contemplated herein.
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2.8 No Material Omissions. Neither this Agreement nor any of the
documents delivered in connection therewith contains any untrue statement of a
material fact, nor does this Agreement or any such document omit to state any
fact necessary to make the statements contained therein not misleading in light
of the circumstances under which they were made. There is no fact that would
materially adversely affect the Business that has not been disclosed in this
Agreement or any Schedule hereto.
2.9 Assumed Liabilities. There are no Assumed Liabilities except
as described in Appendix II. Except as set forth on Schedule 2.9, the Sellers
are not, and but for a requirement that notice be given or a period of time
elapse or both would not be, in default under any agreements, or documents
delivered in connection therewith, relating to the Assumed Liabilities,
including any mortgages or security interests securing the debt created
thereunder. Except for regular mortgage payments that have become due on the
Real Property, since July 31, 1997, neither the Company's funds nor any Assumed
Liability has been directly or indirectly used or incurred, as the case may be,
in connection with any Excluded Asset or to reduce any Excluded Liability.
Without limiting the generality of the foregoing, except for regular mortgage
payments that have become due on the Real Property, since July 31, 1997, the
Company's funds and Assumed Liabilities have been used or incurred, as the case
may be, solely for the purpose of the Business.
2.10 Intellectual Property.
(a) Marks. Schedule 2.10(a) lists all foreign and
domestic trademarks, service marks, trade dress and trade names (collectively,
the "Marks"), and registrations therefor, used by Company in connection with
the conduct of the Business. The Company is the sole owner of all right, title
and interest in the Marks and there exist no facts that would invalidate the
Marks in the areas in which the Business is presently being conducted. Except
as disclosed in Schedule 2.10(a), the Marks, as currently being used, do not
infringe upon any rights of a third party. Neither of the Sellers has received
notice from a third party asserting that one or more of the Marks are
infringing, or would infringe if used in a geographic area outside the area in
which the Business is presently conducted. Except as disclosed in Schedule
2.10(a), there are no third party uses of the Marks or colorable imitations
thereof. Neither of the Sellers nor any of their affiliates, nor any other
person, has granted any rights or license whatsoever with respect to the use of
the Marks "La Monita," "El Rey," "Celebre," or any derivation thereof, or any
other Marks. No person other than the Company has any rights or license with
respect to any of the Marks. Except as contemplated by this Agreement, no
rights in any of the Marks listed in Schedule 2.10(a) will be affected in any
way by virtue of the execution of this Agreement or the consummation of the
transactions contemplated hereby. No Mark is the subject of any pending or, to
Seller's knowledge, threatened litigation, arbitration, interference or protest
proceeding.
(b) Patents. There are no foreign or domestic patents or
applications therefor used in the conduct of the Business or in which the
Company has rights (collectively, the "Patents"). No patent rights other than
those granted to the Company by its purchase of equipment are necessary to
conduct the business of the Company as now conducted.
(c) Copyrights. There are no foreign or domestic
copyright registrations or applications for registration thereof used in the
conduct of the Business or in which the Company
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has rights. All copyrights used in the conduct of the Business, including all
copyrights with respect to advertising, software and photographs (collectively,
the "Copyrights"), are solely owned by the Company. Neither Company nor any
Seller has received any notice from a third party asserting any allegations of
infringement of any Copyrights. Neither the Company nor any Seller has sold,
licenced or transferred to any Seller, employee or other person or entity any
rights to any of the Copyrights.
(d) Trade Secrets. All trade secrets, confidential
information and know-how used in the conduct of the Business, including but not
limited to customer information and supplier information, are owned by the
Company and can be used or sold by the Company without infringing trade secret
or other rights of others. Schedule 2.10(d) contains a list of all current
employees who have (or could reasonably be expected to have) knowledge of the
trade secrets, confidential information and know-how. No Seller has sold,
licensed or otherwise transferred to any Seller, employee or any other person
any right to use or disclose any trade secrets, confidential information and
know-how. All such trade secrets, confidential information and know-how are
presently valid and protectable and, to the best of Sellers' knowledge, none of
the trade secrets, confidential information and know-how are a part of the
public domain.
2.11 Suppliers and Customers. Schedule 2.11 sets forth the 10 most
significant third party suppliers and the 15 most significant third party
customers of the Company (in terms of payments to or by such persons) during
the twelve-month period ended the Statement Date. Except as set forth on
Schedule 2.11, the relationships of the Company with its suppliers and
customers are satisfactory.
2.12 Accounts Receivable. All accounts and notes receivable of
the Company in excess of $5,000 arose in the ordinary and usual course of its
business, represent valid obligations due, and either have been collected or
there is no legal impediment to their collection (subject only to bankruptcy
stays sought by account debtors) in the ordinary and usual course of business
in the aggregate recorded amounts as reflected in the books of account of the
Company in accordance with their terms.
2.13 Governmental Authorizations. The Company holds, and after the
consummation of the transactions contemplated hereby will hold, such licenses,
permits, consents, authorizations and orders of such Governmental Authorities
as are necessary to carry on the Business as presently being conducted, and
such licenses, permits, consents, authorizations and orders are in full force
and effect and have been and are being fully complied with by the Company.
Schedule 2.13 lists and briefly describes all such licenses, permits, consents,
authorizations, and orders.
2.14 Financial Statements.
(a) Attached as Schedule 2.14 are copies of the statement
of assets, liabilities and capital of the Company as of July 31, 1997 (the
"Statement Date") and the related statements of revenues and expenses and
statements of cash flows of the Company for the ten-month period ended on the
Statement Date (the financial statements described herein are collectively
referred to herein as the "Financial Statements"). The Financial Statements
fairly present the assets, liabilities and capital of the Company as of the
dates indicated therein, and the revenues and expenses and cash
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flows for the ten-month period ended on the Statement Date, and have been
prepared in conformity with generally accepted accounting principles,
consistently applied.
(b) There are no debts, liabilities or other obligations
of any nature, whether accrued, absolute, contingent or otherwise, of the
Company as of the Statement Date not reflected in the Financial Statements.
2.15 Directors, Officers and Key Employees; Affiliate
Transactions; Compensation.
(a) Schedule 2.15(a) contains a true and complete list
of the name, address and salary, as well as the title or functional position,
of each current director and officer of the Company, and each other current
employee, consultant, representative, salesman or agent employed or under
contract with the Company who received or accrued or on an annualized basis
would have received or accrued aggregate direct cash remuneration as reflected
on such person's Form W-2 at the rate of $40,000 or more per annum from the
Company in respect of the 24 months ended on the Statement Date. Except as set
forth in Schedule 2.15(a), none of the persons listed in Schedule 2.15(a) has
received any wage or salary increase or bonus since the Statement Date, nor
have any such increases or bonuses been adopted since the Statement Date. None
of the officers or directors of the Company has ever been convicted of a
felony. None of any Seller or any of the persons set forth in Schedule
2.15(a), and no relative or affiliate of any such person, has had in the last
five years any transaction with the Company involving the receipt by or payment
by the Company of more than $5,000 in cash, property or services or the
increase in the debt or other liabilities of the Company, except in the
ordinary course of their employment as set forth in Schedule 2.15(a) or as
otherwise fully disclosed in Schedule 2.15(a). Without limiting the generality
of the foregoing, Schedule 2.15(a) describes all accruals, expenses, assets,
and liabilities reflected in the Financial Statements that relate to any such
affiliate transaction.
(b) Schedule 2.15(b) contains copies of (i) all currently
effective agreements or arrangements with regard to the payment of compensation
(including without limitation bonuses), profit-sharing, pension, vacation,
retirement or other compensation benefits to, or providing for the
indemnification of, current or former directors, officers or employees of the
Company whose compensation exceeds $40,000 per year, regardless of whether said
agreements or arrangements are legally binding, and (ii) all currently
effective contracts or commitments with unions or other groups or otherwise
with respect to wages, working conditions, work rules or employee benefits
(including without limitation severance benefits).
2.16 Insurance. Schedule 2.16 sets forth the following information
with respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) related to the business and operations of the Company:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
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(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(e) a description of any retrospective premium
adjustments or other loss-sharing arrangements.
True and complete copies of each such insurance policy (or if applicable,
insurance binder summarizing each such insurance policy) are attached to this
Agreement in Schedule 2.16.
2.17 Legal Compliance. The Business has been owned and operated in
compliance with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings and charges thereunder)
of federal, state, local and foreign governments (and all agencies thereof),
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced alleging any failure to so
comply.
2.18 Taxes.
(a) Except as set forth in Schedule 2.18(a), (i) all
returns and reports ("Tax Returns") of or with respect to any Tax (as
hereinafter defined) that are required to be filed on or before the
Closing Date by or with respect to the Company or the Business have
been or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes that have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full or expressly reflected in the Financial
Statements, (iv) all withholding Tax requirements imposed on or with
respect to the Company or the Business have been or will be satisfied
in full in all respects, and (v) no penalty, interest or other charge
is or will become due with respect to the late filing of any such Tax
Return or late payment of any such Tax. For purposes of this
Agreement, "Taxes" shall mean any federal, state, local, foreign and
other taxes, assessments, fees and other governmental charges,
including without limitation income, gross receipts, net proceeds,
alternative or add-on minimum, ad valorem, value added, turnover,
sales, use, property (tangible and intangible), stamp, lease, user,
excise, duty, franchise, transfer, license, withholding, payroll,
employment, fuel, excess profits, occupational, interest equalization,
windfall profit, severance, and other similar governmental charges
(including interest and penalties).
(b) No Tax Returns of or with respect to the Company or
the Business have been audited by the applicable Governmental
Authority. The applicable statute of limitations has expired for all
periods up to and including the periods set forth in Schedule 2.18(b).
(c) There is no claim against the Company or the Business
for any Taxes, and no assessment, deficiency or adjustment has been
asserted or proposed with respect to any Tax
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Return of or with respect to the Company or the Business, other than
those disclosed (and to which are attached true and complete copies of
all audit or similar reports) in Schedule 2.18(c).
(d) Except as set forth in Schedule 2.18(d), there is not
in force any extension of time with respect to the due date for the
filing of any Tax Return of or with respect to the Company or the
Business or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company or
the Business.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Financial Statements are sufficient to cover
the payment of all Taxes, whether or not assessed or disputed, which
are, or are hereafter found to be, or to have been, due by or with
respect to the Company and the Business up to and through the periods
covered thereby.
(f) Neither the execution or deliver of this Agreement
nor the performance by any Seller of its obligations hereunder has
resulted or will result in the imposition of any Tax (or the
requirement to file any Tax Return) on the Company.
2.19 Employee Benefit Plans. (a) The Company does
not sponsor, maintain, contribute to or have an obligation to contribute to,
and has not at any time within six years prior to the Closing Date sponsored,
maintained, contributed to or had an obligation to contribute an employee
benefit plan, as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including a
multiemployer plan within the meaning of Section 3(37) of ERISA;
(b) With respect to any employee benefit plan, within the meaning
of Section 3(3) of ERISA, which is sponsored, maintained or contributed to, or
has been sponsored, maintained or contributed to within six years prior to the
Closing Date, by any corporation, trade, business or entity under common
control with the Company, within the meaning of Section 414(b), (c) or (m) of
the Internal Revenue Code of 1986, as amended (the "Code") or Section 4001 of
ERISA ("Commonly Controlled Entity"), (1) no withdrawal liability, within the
meaning of Section 4201 of ERISA, has been incurred, which withdrawal liability
has not been satisfied, (2) no liability to the Pension Benefit Guaranty
Corporation has been incurred by any Commonly Controlled Entity, which
liability has not been satisfied, (3) no accumulated funding deficiency,
whether or not waived, within the meaning of Section 302 of ERISA or Section
412 of the Code has been incurred, and (4) all contributions (including
installments) to such plan required by Section 302 of ERISA and Section 412 of
the Code have been timely made;
(c) Schedule 2.19(c) sets forth by number and employment
classification the approximate numbers of employees employed by the Company as
of the date of this Agreement, and none of said employees are subject to union
or collective bargaining agreements with the Company. The Company has not at
any time on or after January 1, 1997 had or, to the knowledge of Seller, been
threatened with any work stoppages or other labor disputes or controversies
with respect to its employees which had a material adverse effect on the
Company.
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2.20 Absence of Certain Changes. Except as disclosed in Schedule
2.20, since the Statement Date, no event has occurred with respect to the
Company which, if it had occurred after the execution hereof, would have
constituted a violation of Section 4.1 of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
ASFD and Acquisition Sub hereby jointly and severally represent and
warrant to the Sellers as follows:
3.1 Organization and Qualification. Each of Acquisition Sub and
ASFD is a corporation duly organized, validly existing and in good standing
under the laws of its respective state of incorporation, with corporate power
and authority to own, operate and lease its properties and to carry on its
business as now conducted and as contemplated to be conducted, and is not
required to qualify to do business as a foreign corporation in any
jurisdiction.
3.2 Authorization of Agreement - No Violation - No Consents. The
Purchaser has full power and authority to enter into the Documents and to make
the representations, warranties, covenants and agreements made herein and
therein. Except as expressly provided in this Agreement, neither the execution
or delivery of the Documents by the Purchaser nor the consummation of the
transactions contemplated herein by the Purchaser (a) will conflict with or
result in a breach, default or violation of (i) any of the terms, provisions or
conditions of the articles of incorporation or bylaws of the Purchaser or (ii)
any agreement, document, instrument, judgment, decree, order, governmental
permit, certificate, license, law, statute, rule or regulation to which the
Purchaser is a party or to which it is subject, (b) will result in the creation
of any lien, charge or other encumbrance on any property or assets of the
Purchaser or (c) will require the Purchaser to obtain the consent of any
private nongovernmental third party. No consent, action, approval or
authorization of, or registration, declaration or filing with, any governmental
department, commission, agency or other instrumentality or any other person or
entity is required to authorize, or is otherwise required in connection with,
the execution and delivery of the Documents by the Purchaser or its performance
of the terms hereof by the Purchaser or the validity or enforceability hereof
or thereof against the Purchaser. This Agreement and the Documents delivered
by the Purchaser pursuant hereto constitute the legal, valid and binding
obligations of the Purchaser enforceable against the Purchaser in accordance
with their respective terms.
3.3 Brokerage Agreements. The Purchaser has not entered
(directly or indirectly) into any agreement under which Seller or any affiliate
of Seller could be liable to any person, firm or corporation providing for the
payment of any commission, brokerage or "finder's fee" in connection with the
transactions contemplated herein.
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ARTICLE IV
COVENANTS OF THE SELLERS
The Sellers further agree, jointly and severally, except as set forth
in or contemplated by this Agreement or as otherwise approved by the Purchaser
in writing, that from the date hereof through the Closing Date:
4.1 Conduct of Business Pending Closing.
(a) Sellers will operate the Business in the same manner
as presently being operated, and will refrain from entering into any
transaction or contract other than in the ordinary course of business.
(b) Sellers (i) will not take any action with respect to
the Business that could reasonably be expected to change the manner in which
such Business is presently being operated and (ii) will use all reasonable
efforts to maintain the Business' existing relationships and goodwill with
customers, suppliers and employees.
(c) Seller will not, directly or indirectly, do any of
the following: (i) sell, pledge, dispose of or encumber any of the Business
other than in the ordinary course of business and consistent with past practice
and not relating to the borrowing of money, (ii) enter into any transaction
with any of its affiliates or any stockholder of the Company, or (iii) enter
into any contract, agreement, commitment or arrangement with respect to any of
the matters prohibited by this Section 4.1.
(d) Sellers shall use commercially reasonable efforts to
perform its obligations under all contracts relating to the operation of the
Business, except for such obligations as the Company in good faith may dispute.
(e) Sellers will not increase the salary, benefits, stock
options, bonus or other compensation to any officer, director or employee
involved in the Business, and Seller shall not take any action with respect to
the grant of any severance or termination pay to any such person.
(f) The Sellers shall not commit waste of the Business.
4.2 Obtaining Consents. The Sellers and the Company will use all
reasonable efforts to obtain, and to assist the Purchaser in obtaining, all
consents, resignations, authorizations and approvals and making all filings
necessary for the consummation of the transactions contemplated by this
Agreement, including, without limitation, all authorizations, registrations and
filings necessary to give the Purchaser exclusive right to all Marks, Patents
and Copyrights effective as of the Closing Date or as soon thereafter as is
practicable.
4.3 Access by the Purchaser. During the period from the date of
this Agreement to the Closing Date or the prior termination of this Agreement
pursuant to Section 6.3, the Purchaser and its employees, representatives and
agents shall be given access to all books and records of the Sellers
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relating to the Business for the purpose of conducting an investigation of the
condition of the Business; provided, however, that such investigation shall be
conducted in a manner that does not interfere with normal operations of the
Company. The Sellers will cause the employees, counsel, accountants and other
representatives of the Company to be available to the Purchaser and its
employees and agents at all reasonable times for such purposes.
4.4 Exclusive Agreement. Except to the extent otherwise expressly
contemplated by this Agreement, unless this Agreement is terminated prior to
Closing, none of Sellers nor any affiliate of any Seller will directly or
indirectly (a) encourage, solicit or engage in discussions or any negotiations
with, or provide any information to, any person or entity (other than the
Purchaser or affiliates of the Purchaser) concerning any possible disposition
of all or a portion of the Business, or (b) do anything or enter into any
agreement or take any action that by its terms or effect could reasonably be
expected to adversely affect the ability of the parties to consummate the
transactions contemplated by this Agreement on the terms and conditions set
forth herein or that would be contrary to or breach any of the terms or
provisions of this Agreement or that would cause any of the representations or
warranties contained herein to be or become untrue in any material respect.
4.5 Confidentiality Agreements. The Sellers shall use their best
efforts to cause each employee of Seller listed on Schedule 2.10(d) to execute
agreements for maintaining the confidentiality of the trade secrets,
confidential information and know-how used in the conduct of the Business.
4.6 Satisfaction of Closing Conditions. The Sellers shall use all
reasonable efforts to satisfy the conditions to Closing set forth in Article VI
relating to the Sellers in an expeditious manner.
4.7 Delivery of Documents at Closing. At the Closing, subject to
satisfaction of the conditions set forth in Article VI, Sellers shall execute
and deliver to the Purchaser all documents required to be delivered pursuant to
Section 6.1.
4.8 Actions at Closing. At the Closing, the Sellers will sell,
transfer, convey and deliver, all of their rights, ownership and interest in
all of the Business to the Purchaser, free and clear of any mortgage, pledge,
lien, charge, encumbrance or other adverse claim. Such transfer shall be
effected pursuant to conveyance documents, with a general warranty of title, in
form and substance satisfactory to the Purchaser in its reasonable judgment.
4.9 Plata Claims. The Sellers shall use all reasonable efforts to
settle all claims described in item 7 of Appendix IV (the "Plata Claims") in an
expeditious manner, and shall promptly provide to the Purchaser and its counsel
copies of all such agreements entered into in connection with any such
settlement.
4.10 Limitation on Use of Funds and Incurrence of Assumed
Liabilities. Except for regular mortgage payments that have become due on the
Real Property, neither the Company's funds nor any Assumed Liability will be
directly or indirectly used or incurred, as the case may be, in connection with
any Excluded Asset or to reduce any Excluded Liability. Without limiting the
generality of the foregoing, except for regular mortgage payments that have
become due on the Real
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Property, the Company's funds and Assumed Liabilities will be used or incurred,
as the case may be, solely for the purpose of the Business.
ARTICLE V
COVENANTS OF THE PURCHASER
The Purchaser further agrees, except as set forth in or contemplated
by this Agreement or as otherwise approved by the Sellers in writing, as
follows:
5.1 Obtaining Consents. The Purchaser will use all reasonable
efforts to obtain all consents, authorizations and approvals and making all
filings necessary for the consummation of the transactions contemplated by this
Agreement.
5.2 Satisfaction of Closing Conditions. The Purchaser shall use
all reasonable efforts to satisfy the conditions to Closing set forth in
Article VI relating to the Purchaser in an expeditious manner.
5.3 Delivery of Documents at Closing. At the Closing, subject to
satisfaction of the conditions set forth in Article VI, the Purchaser shall
execute and deliver to the Sellers the documents contemplated to be delivered
pursuant to Section 6.2.
ARTICLE VI
CONDITIONS TO THE CLOSING;
TERMINATION
6.1 Conditions to Obligation of the Purchaser. The obligation of
the Purchaser to effect the transactions contemplated by this Agreement is
subject to the following conditions:
(a) Representations and Warranties of the Sellers to be
True. (i) The representations and warranties of the Sellers hereunder
shall be made again at the Closing and shall be true and correct in
all material respects as of the Closing, (ii) the Sellers shall have
performed (or caused to have been performed) all covenants required of
them (and their affiliates) by this Agreement as of the Closing and
(iii) the Sellers shall have furnished the Purchaser at the Closing
with a certificate of the Sellers to such effect.
(b) Third Party Consents. The Sellers shall have
obtained all required consents to the transactions contemplated by
this Agreement including, but not limited to, all necessary consents
relating to Purchaser's discharge or assumption of Sellers'
obligations under the Assumed Liabilities.
(c) Statutory Requirements; Litigation. All statutory
requirements for the valid consummation of the transactions
contemplated herein shall have been fulfilled and all necessary
governmental consents, approvals or authorizations shall have been
obtained, and there shall not be any actual or threatened litigation
(including any investigation by any
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Governmental Authority) to restrain or invalidate the transactions
contemplated herein, the defense of which would, in the judgment of
the Purchaser, made in good faith and based upon the advice of
counsel, involve expense or lapse of time that would be materially
adverse to the interests of the Purchaser.
(d) Opinion of Counsel to Sellers. Fjeldal & Dugas,
counsel to the Sellers, shall have delivered to the Purchaser an
opinion in the form of Exhibit A attached hereto.
(e) Lease Agreements. The Company and Acquisition Sub
shall have entered into a lease agreement in the form attached hereto
as Exhibit B.
(f) Employment Agreements. The Purchaser and each of
Moreno and Carl J. Spaeth shall have entered into employment
agreements in the form attached hereto as Exhibit C. Such employment
agreements shall provide for annual base compensation of $100,000 for
Moreno and $75,000 for Carl J. Spaeth.
(g) Deliveries of Bill of Sale and Assignments. The
Sellers shall have delivered such bills of sale and other assignments
in such form as shall be requested by the Purchaser in order to effect
the transfer of the Business contemplated hereby from the Sellers to
the Purchaser.
(h) Termination of Affiliate Transactions. Except as
expressly set forth in Schedule 2.15(a), any relationships between any
person listed on Schedule 2.15(a) or any affiliate or family member
thereof and the Company shall be terminated at or prior to Closing at
no cost to the Company or the Business.
(i) Escrow Agreement. At or prior to Closing, the
Sellers shall have entered into an escrow agreement with the Purchaser
in form acceptable to the Purchaser, pursuant to which any amounts
that the Sellers shall have agreed to pay to any third party in
connection with the Plata Claims shall be placed in escrow for payment
to such third parties.
6.2 Conditions to Obligations of the Sellers. In addition to the
satisfaction of the conditions referred to in subparagraph (b) of Section 6.1
hereof, the obligations of the Sellers to effect the transactions contemplated
by this Agreement shall be subject to the following conditions:
(a) Representations and Warranties of the Purchaser to Be
True. (i) The representations and warranties of the Purchaser
hereunder shall be made again at the Closing and shall be true in all
material respects as of the Closing Date, (ii) the Purchaser shall
have performed in all material respects all covenants required of it
by this Agreement as of the Closing Date and (iii) the Purchaser shall
have furnished the Sellers at the Closing with a certificate of one of
its authorized representatives to such effect.
(b) Statutory Requirements; Litigation. All statutory
requirements for the valid consummation of the transactions
contemplated herein shall have been fulfilled and all necessary
governmental consents, approvals or authorizations shall have been
obtained and there shall not be any actual or threatened litigation
(including any investigation by any
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Governmental Authority) to restrain or invalidate the transactions
contemplated herein, the defense of which would, in the judgment of
the Sellers, made in good faith and based upon the advice of counsel,
involve expense or lapse of time that would be materially adverse to
the interests of the Sellers.
(c) Payment of Purchase Price. The Purchaser shall have
paid the purchase price for the Business at the Closing as specified
in Section 1.2 hereof.
(d) Assumed Liabilities. The Purchaser shall have
discharged or assumed all of the Assumed Liabilities.
(e) Lease Agreement. The Company and Acquisition Sub
shall have entered into a lease agreement in the form attached hereto
as Exhibit B.
(f) Employment Agreements. The Purchaser and each of
Moreno and Carl J. Spaeth shall have entered into employment
agreements in the form attached hereto as Exhibit C. Such employment
agreements shall provide for annual base compensation of $100,000 for
Moreno and $75,000 for Carl J. Spaeth.
6.3 Termination of Agreement. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated herein may be
terminated at any time before the Closing as follows:
(a) Mutual Consent. By the mutual consent of the Sellers
and the Purchaser.
(b) Expiration Date. By any of the Sellers or the
Purchaser if the Closing shall not have occurred on or before October
31, 1997; provided, however, that no party hereto can terminate this
Agreement pursuant to this clause 6.3(b) if at such time such party is
in breach of any provision of this Agreement.
6.4 Effect of Termination and Failure of Conditions. In the event
of termination of this Agreement as provided in Section 6.3, or of the failure
of a condition resulting in the Purchaser or the Sellers not performing its or
their obligations hereunder pursuant to the terms of Section 6.1 or 6.2, as the
case may be, this Agreement shall forthwith become void and there shall be no
liability on the part of any party hereto with respect thereto, except that
nothing herein shall relieve any party from liability for any breach hereof.
ARTICLE VII
ADDITIONAL AGREEMENTS OF THE PARTIES
7.1 Survival of Representations and Warranties.
(a) All statements contained in any certificate,
schedule, exhibit, or other document or instrument delivered by or on
behalf of any party hereto pursuant to or in connection with this
Agreement for the purposes of this Agreement shall be deemed to be
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representations and warranties hereunder. Except to the extent
otherwise provided in paragraph (b) below, the representations,
warranties and covenants hereunder shall survive the Closing and any
investigation of any of the parties with respect thereto for a period
of two years commencing with the Closing Date.
(b) The representations, warranties and covenants
hereunder shall survive the Closing for the following periods after
the Closing Date:
(i) The representations and warranties set forth
in Sections 2.1, 2.3, 2.10, and 2.14 and all of the covenants
set forth in this Agreement, shall survive without limitation
as to time; provided, however, that to the extent that any
claim relating to any such representation, warranty or
covenant is a Third Party Claim (as defined below), and to the
extent that such Third Party Claim is made after an applicable
statute of limitation, then the Purchaser may not seek
indemnification with respect to such Third Party Claim after
the expiration of such statute of limitations.
(ii) The representations and warranties set forth
in Section 2.18 shall survive until one day after the
expiration of the applicable statute of limitations (including
all extensions).
(c) Notwithstanding the provisions of (a) and (b) above,
any representation, warranty, covenant or agreement that is the
subject of a Claim Notice (as defined herein) delivered in good faith
in compliance with the requirements of Section 7.2(e) shall survive
with respect only to the specific matter described in such Claim
Notice until the earlier to occur of (A) the date on which a final
nonappealable resolution of the matter described in such Claim Notice
has been reached or (B) the date on which the matter described in such
Claim Notice has otherwise reached final resolution.
7.2 Indemnification.
(a) Indemnification by Sellers for Certain Third Party
Claims Relating to Occurrences or Conditions Prior to Closing.
Sellers jointly and severally agree to defend, indemnify, protect,
save and hold harmless the Purchaser and its affiliates, successors,
assigns, officers, directors and controlling persons (collectively,
the "Purchaser Indemnitees") from and against any and all demands,
claims, actions, causes of action, assessments, losses, damages,
liabilities, costs and expenses, including, without limitation,
litigation costs and all attorneys' and experts' fees and expenses
("Losses") to the extent (A) made by governmental or non-governmental
third parties not affiliated with the Purchaser ("Third Party Claims")
and to the extent arising in connection with the ownership, condition,
operation or conduct of the Business on or prior to the Closing Date
(including without limitation any product liability, tort, strict
liability or warranty claims) and/or (B) relating to any Excluded
Assets or Excluded Liabilities. Subject to the foregoing, the
Purchaser Indemnitees shall have the right to indemnification under
this Section 7.2(a) in accordance with its terms, regardless of
whether any of them could alternatively receive indemnification with
respect thereto under Section 7.2(c).
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(b) Indemnification by the Purchaser for Certain Third
Party Claims After Closing. The Purchaser jointly and severally agree
to defend, indemnify, protect, save and hold harmless Sellers and
their affiliates, successors, assigns, officers, directors, partners
and controlling persons (collectively, the "Seller Indemnitees") from
and against any and all Losses (including, without limitation, Losses
resulting from the sole, concurrent or comparative negligence or
strict liability of any Seller Indemnitee) to the extent made by
governmental or non-governmental third parties not affiliated with
Sellers and to the extent related to the ownership, condition,
operation or conduct of the Business after the Closing Date; provided,
however, that the Purchaser shall not be required to indemnify the
Seller Indemnitees with respect to any specific matter that,
regardless of whether a Claim Notice related to such matter is given
in accordance herewith, would give rise to an indemnification
obligation of Sellers pursuant to this Agreement or that resulted from
a breach of representation, warranty or covenant by Sellers or the
Company. The Seller Indemnitees shall have the right to
indemnification under this Section 7.2(b) in accordance with its
terms, regardless of whether any of them could alternatively receive
indemnification with respect thereto under Section 7.2(c).
(c) Breaches of Representations, Warranties, Covenants or
Agreements. Sellers jointly and severally agree to defend, indemnify
and hold harmless the Purchaser Indemnitees from and against any and
all Losses asserted against, resulting from, imposed upon or incurred
by any of the Purchaser Indemnitees by, or arising out of, or as a
result of, any of the representations, warranties, covenants or
agreements of Sellers contained in this Agreement or any certificate
or instrument delivered by any Seller pursuant to the terms hereof
being incorrect, untrue or breached. For purposes of this Section
7.2(c), in determining whether a representation or warranty of Sellers
is incorrect, untrue, or breached, as well as the amount of any loss
resulting therefrom, the provisions of Article II that are qualified
by materiality shall be read and interpreted as if such qualification
was not included therein. The Purchaser agrees to defend, indemnify
and hold harmless the Seller Indemnitees from and against any and all
Losses asserted against, resulting from, imposed upon or incurred by
any of the Seller Indemnitees by, or arising out of, or as a result
of, any of the representations, warranties, covenants or agreements of
the Purchaser contained in this Agreement or any certificate or
instrument delivered by the Purchaser pursuant to the terms hereof
being incorrect, untrue or breached. Notwithstanding the foregoing
provisions of this clause (c), Sellers and/or the Purchaser shall have
liability pursuant to this Section 7.2(c) arising out of
representations and warranties being incorrect or untrue or covenants
or agreements breached only with respect to Losses arising out of or
as a result of a breach or untruth described in a Claim Notice given
to Sellers or the Purchaser, respectively, in accordance with the
provisions hereof.
(d) Express Negligence Acknowledgment. Without limiting
or enlarging the scope of the indemnification obligations set forth in
this Agreement, AN INDEMNIFIED PARTY WILL BE ENTITLED TO
INDEMNIFICATION IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT
REGARDLESS OF WHETHER THE LOSS GIVING RISE TO SUCH INDEMNIFICATION
OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT, OR COMPARATIVE
NEGLIGENCE, FAULT, OR STRICT LIABILITY OF SUCH INDEMNIFIED PARTY.
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(e) Assertion of Claims. All claims for indemnification
by any of the Seller Indemnitees or any of the Purchaser Indemnitees
under Section 7.2 or any other provision of this Agreement or any
Document shall be asserted and resolved as follows:
(i) Any person claiming indemnification hereunder is
hereinafter referred to as the "Indemnified Party" and any person
against whom such claims are asserted hereunder is hereinafter
referred to as the "Indemnifying Party." In the event that any Losses
are asserted against or sought to be collected from an Indemnified
Party by a third party, said Indemnified Party shall with reasonable
promptness and in writing notify the Indemnifying Party of the Losses,
specifying the nature of and specific basis for such Losses and the
indemnity claim and the amount or the estimated amount thereof to the
extent then feasible and enclosing a copy of all papers (if any)
served with respect to the claim (the "Claim Notice"). The
Indemnifying Party shall not be obligated to indemnify the Indemnified
Party with respect to any such Losses if the Indemnified Party fails
to notify the Indemnifying Party thereof in accordance with the
provisions of this Agreement in reasonably sufficient time so that the
Indemnifying Party's ability to defend against the Losses is not
prejudiced, but only to the extent such notification within such time
period is practicable. The Indemnifying Party shall have 30 days from
the date the Claim Notice is given in accordance with the notice
provisions hereof (the "Notice Period") to notify the Indemnified
Party (x) whether it disputes the liability of the Indemnifying Party
to the Indemnified Party hereunder with respect to such Losses and (y)
whether it desires, at the sole cost and expense of the Indemnifying
Party, to defend the Indemnified Party against such Losses; which
election to defend may be made without prejudicing the Indemnifying
Party as to its liability hereunder, other than with respect to the
costs of defense. Notwithstanding the foregoing, any Indemnified
Party is hereby authorized prior to and during the Notice Period to
file any motion, answer or other pleading that it shall deem necessary
or appropriate to protect its interests or those of the Indemnifying
Party (and of which it shall have given notice and opportunity to
comment to the Indemnifying Party) and that is not prejudicial to the
Indemnifying Party. (A) In the event that the Indemnifying Party
notifies the Indemnified Party within the Notice Period that it
desires to defend the Indemnified Party against such Losses and except
as hereinafter provided, the Indemnifying Party shall have the right
to defend by all appropriate proceedings, and with counsel of its own
choosing, which proceedings shall be promptly settled or prosecuted by
them to a final conclusion. If the Indemnified Party desires to
participate in, but not control, any such defense or settlement it may
do so at its sole cost and expense. If requested by the Indemnifying
Party, the Indemnified Party agrees to cooperate with the Indemnifying
Party and its counsel in contesting any Losses that the Indemnifying
Party elects to contest, or, if appropriate and related to the claim
in question, in making any counterclaim against the person asserting
the third party Losses, or any cross-complaint against any person. No
claim with respect to which the Indemnifying Party has admitted its
liability may be settled or otherwise compromised without the prior
written consent of the Indemnifying Party. Any party settling or
compromising a claim in violation of the preceding sentence shall be
solely liable for the amount of the settlement or compromise. (B) If
the Indemnifying Party does not notify the Indemnified Party within 30
days after the receipt of a Claim Notice that it elects to undertake
the defense thereof, the Indemnified Party shall have the right to
defend at the expense of the Indemnifying Party the claim with counsel
of its choosing reasonably
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satisfactory to the Indemnifying Party, subject to the right of the
Indemnifying Party to assume the defense of any claim at any time
prior to settlement or final determination thereof. Any such defense
shall be prosecuted promptly and vigorously by the Indemnified Party.
In the case of either (A) or (B), if the Indemnifying Party has not
yet admitted its liability for a claim, the Indemnified Party shall
send a written notice to the Indemnifying Party of any proposed
settlement of any claim received by the Indemnified Party. The
Indemnifying Party shall have an option for 30 days following receipt
of such notice to (i) admit liability for the claim if it has not
already done so and (ii) if liability has been admitted, reject, in
its reasonable judgment, the proposed settlement. Failure to reject
such settlement within such 30-day period shall be deemed an
acceptance of such settlement. If the Indemnified Party settles any
such claim over the objection of the Indemnifying Party, the
Indemnified Party shall thereby waive any right to indemnity therefor,
unless the Indemnifying Party has not prior to the time of settlement
admitted liability for such claim.
(ii) In the event any Indemnified Party should have a
claim for Losses against any Indemnifying Party hereunder that does
not involve a Loss being asserted against or sought to be collected
from it by a third party (for example, but without limitation, a Loss
resulting from a breach of a representation, warranty or covenant),
the Indemnified Party shall send a Claim Notice with respect to such
claim to the Indemnifying Party. If the Indemnifying Party does not
notify the Indemnified Party within 30 days from the date the claim
notice is given that it disputes such claim for Losses, the amount of
such Losses shall be conclusively deemed a liability of the
Indemnifying Party hereunder.
7.3 Agreement Not to Compete.
(a) As a further inducement to the Purchaser to enter
into this Agreement, the Sellers agree that during the period from the Closing
Date until the fifth anniversary thereof, except for activities conducted by
Moreno within the scope of his employment by, and solely for the benefit of,
the Purchaser:
(i) No Seller shall, directly or indirectly, for such
Seller's own account or for the account of others, as an officer,
director, passive stockholder, owner, partner, promoter, consultant,
advisor, employee, manager or otherwise, participate in the promotion,
financing, ownership, operation or management of, or assist in,
furnish advice with respect to, or carry on through a proprietorship,
partnership, joint venture, corporation, other form of business entity
or otherwise, any business activity in a geographic market within the
State of Texas or any other state where the Purchaser or any of its
subsidiaries is doing such business involving or relating to
manufacturing, packaging, supply, distribution or sale of corn or
flour tortillas, tortilla chips and related products; provided,
however, that nothing in this clause (i) shall prohibit any Seller's
beneficial ownership of not in excess of 1% of any class of common
stock that is listed for trading on a national securities exchange;
provided further that nothing in this clause (i) shall prohibit the
ownership or operation by any Seller of a restaurant, catering
business or retail outlet but only so long as all tortillas, tortilla
chips and related products sold at such restaurant, business or outlet
are manufactured by the Purchaser;
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(ii) No Seller shall furnish advice to, solicit, or do
business with any customer (or any previous customer within the last
year) of the Company, the Purchaser or any of their subsidiaries in
any geographic market within the State of Texas or any other state
where such customer is doing business with the Company, the Purchaser
or any of their subsidiaries; and
(iii) Except as mutually agreed in writing between the
Sellers and the Purchaser, no Seller shall encourage or induce any
current or former employee of any Seller or any of their subsidiaries
or affiliates to leave the employment of Purchaser or any of its
subsidiaries or affiliates offer employment, retain, hire or assist in
the hiring of any such employee by any person, association, or entity
not affiliated with the Purchaser or any of its subsidiaries or
affiliates.
(b) Although the parties to this Agreement have, in good
faith, used their reasonable best efforts to make this covenant reasonable in
both geographic area and in duration, and it is not anticipated, nor is it
intended, by either of the parties to this Agreement that any court of
competent jurisdiction would find it necessary to reform this covenant not to
compete to make it reasonable in both geographic area and in duration, or
otherwise, the parties to this Agreement agree that any court of competent
jurisdiction making a determination that it is necessary to reform this
covenant not to compete to make it reasonable in either geographic area or
duration, or otherwise, shall be, and hereby is, empowered and directed to
reform this Agreement to a reasonable restriction rather than invalidating this
covenant or otherwise rendering it unenforceable.
(c) In the event of breach by any Seller of this covenant
not to compete, it is understood and agreed that (i) the Purchaser or any of
its subsidiaries shall be entitled to injunctive relief as well as any and all
other applicable remedies at law and in equity; and (ii) damages, if any, for
the breach of this covenant not to compete will accrue and be recoverable by
the Purchaser or any of its subsidiaries as of and from the date of the breach
insofar as the damages for such breach relate to an action that occurred within
the scope of the geographic area and duration of the covenant not to compete
determined to be reasonable (whether or not the covenant is reformed in
connection with such determination).
7.4 Trademark and Name Matters. Following the Closing, neither
any Seller nor any other person shall have any right whatsoever to use any of
the Marks or the name "La Monita" or "El Rey" or any similar name or any
derivation thereof. To the extent that either Seller or any other person known
to either Seller is using any such Mark or name, the Sellers shall take all
actions necessary to cause such use to be discontinued immediately.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses. Except as expressly provided in this Agreement,
each party hereto shall bear its own legal, accounting and other costs and
expenses incident to the negotiation of this Agreement and the performance of
the transactions contemplated herein.
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8.2 Notices. Any notice, communication, request, instruction or
other document required or permitted hereunder or under any document delivered
pursuant hereto shall be given in writing and delivered in person or sent by
U.S. Mail postage prepaid, return receipt requested, or by telex, facsimile or
telecopy to the addresses or facsimile numbers, as appropriate, as set forth
below.
To Sellers:
Gilbert Moreno Enterprises, Inc. and
Gilbert G. Moreno
611 Crosstimbers
Houston, Texas 77002
Telecopy: (713) 692-8217
with a copy to:
Fjeldal & Dugas
1225 N. Loop West, Suite 1111
Houston, Texas 77008
Attention: Tim Fjeldal, Esq.
Telecopy: (713) 869-6777
and in the case of the Purchaser, to:
Authentic Specialty Foods, Inc.
c/o The Shansby Group
250 Montgomery Street
Suite 1100
San Francisco, California 94190
Attention: Chief Executive Officer
Telecopy: (415) 421-5120
with a copy to:
Vinson & Elkins L.L.P.
3300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: J. Mark Metts, Esq.
Telecopy: (713) 758-2346
or at such other address or facsimile number as may have been specified by like
notice.
8.4 Headings. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only and do not
constitute a part of the Agreement.
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8.5 Entire Agreement. This Agreement, and the documents to be
executed hereunder, and the schedules attached hereto constitute the entire,
completely integrated agreement between the parties hereto pertaining to the
subject matter hereof and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties
pertaining to the subject matter hereof, including without limitation that
certain letter of intent dated August 27, 1997 by and among Authentic Specialty
Foods, Inc. and Gilbert G. Moreno.
8.6 Waiver. At any time prior to the Closing, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto or (b) waive compliance with any of the
agreements of any other party or with any conditions to its own obligations.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid if set forth in an instrument in writing signed on behalf of
such party. The consummation of the transactions contemplated hereby shall not
be deemed a waiver of the right any party may have hereunder with respect to
any other party's representations, warranties, covenants or agreements
contained in or related to this Agreement being incorrect, untrue or breached.
8.7 Amendment. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto. No supplement,
alteration or modification of this Agreement shall be binding unless executed
in writing by the parties hereto.
8.8 Public Statements. Prior to the Closing Date, the parties
shall consult with each other with regard to all publicity and public
announcements concerning this Agreement and the transactions contemplated
hereby and, except as required by applicable law or the applicable rules or
regulations of any governmental body or stock exchange, no party shall issue a
press release or announcement concerning this Agreement and the transactions
contemplated hereby without the prior written consent of the other party
hereto. After the Closing Date, Sellers shall not issue a press release or
announcement concerning the Purchaser, the Company, this Agreement or the
transactions contemplated hereby without the prior written consent of the
Purchaser.
8.9 Further Actions. Each party shall execute and deliver such
other certificates, agreements and other documents and take such other actions
as may reasonably be requested by the other parties in order to consummate or
implement the transactions contemplated by this Agreement.
8.10 Assignment. The Purchaser may not assign or delegate any of
its rights or obligations under this Agreement or any part hereof without the
prior written consent of Sellers except that the Purchaser may assign or
delegate its rights or obligations under this Agreement or any part hereof to
any affiliate, but no such assignment shall in any way operate to enlarge,
alter or change any obligation of or duty to Sellers or relieve the Purchaser
of its obligations hereunder. No Seller may assign or delegate any of its
rights or duties hereunder, without the prior written consent of the Purchaser.
Any assignment or delegation made without such consent shall be void. Except
as otherwise provided herein, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective permitted successors,
assigns and legal representatives.
8.11 Independent Covenants. The covenants contained herein are
independent and separate, and in the event that any provision contained herein
is declared invalid or illegal, the other provisions hereof shall not be
affected or impaired thereby and shall remain valid and enforceable.
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8.12 Specific Performance. In the event of a breach or threatened
breach by any party hereto of the provisions of this Agreement, any other party
hereto shall be entitled to specific performance. Nothing herein shall be
construed as prohibiting any party hereto from pursuing any other remedies
available for such breach or threatened breach, including the recovery of
damages.
8.13 Governing Law. This Agreement and the other documents
delivered pursuant hereto and the legal relations between the parties shall be
governed and construed in accordance with the laws of the State of Texas,
without giving effect to principles of conflict of laws.
8.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but
all of which together shall constitute one and the same instrument.
8.15 Withholding or Granting of Consent. Except as otherwise
provided in this Agreement, each party hereto may, with respect to any consent
or approval that it is entitled to grant pursuant to this Agreement or any
other document or instrument or agreement delivered or entered into pursuant
hereto, grant or withhold such consent or approval in its sole and uncontrolled
discretion, with or without cause, and subject to such conditions as it shall
deem appropriate.
8.16 No Third Party Beneficiaries. Nothing in this Agreement shall
provide any benefit to any third party or entitle any third party to any claim,
cause of action, remedy or right of any kind, it being the intent of the
parties that this Agreement shall not be construed as a third party beneficiary
contract; provided, however, that the indemnification provisions in Sections
7.2 shall inure to the benefit of the Purchaser Indemnitees and the Seller
Indemnitees as provided therein.
8.17 Further Assurances. If at any time after the date hereof the
Purchaser shall consider or be advised that any deeds, bills of sale, stock
powers, assignments, other documents or assurances or any other acts or things
are necessary, desirable or proper to vest, perfect or confirm, of record or
otherwise, any of the rights, privileges, powers, franchises, properties or
assets purported or required to be transferred pursuant hereto, the appropriate
Seller shall execute and deliver all such deeds, bills of sale, stock powers,
assignments, other documents and assurances and do all such other acts and
things necessary, desirable or proper to vest, perfect or confirm the right,
title or interest of the Purchaser in, to or under any of the rights,
privileges, powers, franchises, properties or assets purported to be
transferred pursuant hereto.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
Purchaser: LA MONITA MEXICAN FOOD PRODUCTS, INC.
By:
---------------------------------------
Name: Samuel E. Hillin, Jr.
Title: Vice President
AUTHENTIC SPECIALTY FOODS, INC.
By:
---------------------------------------
Name:
Title:
Sellers: GILBERT MORENO ENTERPRISES, INC.
By:
---------------------------------------
Gilbert G. Moreno
President
------------------------------------------
GILBERT G. MORENO
<PAGE> 27
APPENDICES AND SCHEDULES
Appendix I -- The Business
Appendix II -- Assumed Liabilities
Appendix III -- Excluded Assets
Appendix IV -- Excluded Liabilities
Exhibit A -- Form of Opinion of Fjeldal & Dugas
Exhibit B -- Form of Lease Agreement
Exhibit C -- Form of Employment Agreement
Schedule 2.1 -- Title to the Business
Schedule 2.2 -- Adverse Changes
Schedule 2.3(a) -- Exceptions to Title
Schedule 2.3(b) -- Third Party Rights and Interests in Real Property
Schedule 2.3(f) -- Certain Unpaid Charges, etc.
Schedule 2.3(k) -- Equipment
Schedule 2.4 -- Litigation, Judgments, etc.
Schedule 2.5(a) -- Environmental Matters
Schedule 2.5(b) -- Environmental Reports
Schedule 2.6 -- Conflicts
Schedule 2.9 -- Current Defaults on Assumed Liabilities
Schedule 2.10(a) -- Marks
Schedule 2.10(d) -- Trade Secrets
Schedule 2.11 -- Suppliers and Customers
Schedule 2.13 -- Governmental Authorizations
Schedule 2.14 -- Financial Statements
Schedule 2.15(a) -- Directors, Officers and Key Employees; Affiliate
Transactions
Schedule 2.15(b) -- Compensation
Schedule 2.16 -- Insurance
Schedule 2.18(a) -- Taxes; Tax Returns
Schedule 2.18(b) -- Taxes; Statutes of Limitations
Schedule 2.18(c) -- Taxes; Claims
Schedule 2.18(d) -- Taxes; Filing Extensions
Schedule 2.19(c) -- Employee Benefit Plans; Employees
Schedule 2.20 -- Certain Changes
<PAGE> 28
APPENDIX I
[THE BUSINESS]
<PAGE> 29
APPENDIX II
[ASSUMED LIABILITIES]
<PAGE> 30
APPENDIX III
[EXCLUDED ASSETS]
<PAGE> 31
APPENDIX IV
[EXCLUDED LIABILITIES]
<PAGE> 32
EXHIBIT A
__________, 1997
Authentic Specialty Foods, Inc.
c/o The Shansby Group
250 Montgomery Street
Suite 1100
San Francisco, California 94190
Attention: Chief Executive Officer
Re: Gilbert Moreno Enterprises, Inc.
Dear Sirs:
We have acted as special counsel for Gilbert Moreno Enterprises, Inc.,
a Texas corporation (the "Company), and Gilbert G. Moreno, an individual
("Moreno," and together with the Company, the "Sellers"), in connection with
the sale by the Sellers of certain of their assets pursuant to the Asset
Purchase Agreement (the "Agreement") dated as of September 23, 1997, by and
among the Sellers, Authentic Specialty Foods, Inc. and La Monita Mexican Food
Products, Inc. (collectively, the "Purchaser"). This opinion is being
delivered to you at the direction of the Sellers and pursuant to Section 6.1(d)
of the Agreement. Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Agreement.
In that connection, we have examined executed counterparts of the
Agreement and originals, or copies certified or otherwise identified to our
satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and certificates as we have deemed necessary or
advisable for purposes of this opinion.
Based upon the foregoing, we are of opinion as follows:
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas, and has all
requisite corporate power and authority to own the Business, to carry on all
aspects of its business, to execute and deliver the Agreement, to perform its
obligations thereunder and to consummate the transactions contemplated thereby.
2. The execution and delivery of the Agreement by the Company and
the consummation by the Company of the transactions contemplated thereby and
the performance of its obligations thereunder have been duly authorized by all
necessary corporate and stockholder action on the part of the Company. The
Agreement has been duly executed and delivered by the Sellers and constitutes a
legal, valid and binding obligation of the Sellers enforceable in accordance
with its terms.
<PAGE> 33
______________, Inc.
______________, 1997
Page 2
3. The execution and delivery of the Agreement by the Sellers and
the consummation by the Sellers of the transactions contemplated thereby and
the performance of their obligations thereunder do not and will not (i) violate
any law or conflict with any provision of the Certificate of Incorporation or
By-laws of the Company or result in the creation of any mortgage, security
interest, pledge, lien or other such encumbrance upon the Business or the Real
Property pursuant to any mortgage, indenture, lease, agreement or other
instrument to which either of the Sellers are a party or by which either of the
Sellers or any of the Sellers' property is bound or (ii) result in a default
(with or without notice or lapse of time or both) or give rise to any right of
termination, cancellation or acceleration or to loss of a benefit under any
contract acquired by the Purchaser pursuant to the Agreement.
4. No consent, approval, order or authorization of, nor
registration, declaration or filing with, any Governmental Authority under
Federal law or the laws of the State of Texas is required, nor is any waiting
period imposed by any such Governmental Authority or law, in connection with
(i) the execution and delivery of the Agreement by the Sellers or (ii) the
consummation by the Sellers of the transactions contemplated thereby or (iii)
the performance by the Sellers of their obligations thereunder.
We are admitted to practice in the State of Texas and do not express
any opinion concerning any laws other than the laws of the State of Texas and
the Federal laws of the United States of America.
Very truly yours,
[Fjeldal & Dugas]
<PAGE> 34
EXHIBIT B
Form of
Lease Agreement
<PAGE> 35
EXHIBIT C
Form of
Employment Agreement
<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") made and entered into
as of October 29, 1997, by and among AUTHENTIC SPECIALTY FOODS, INC., a Texas
corporation (the "Purchaser"), SAUCES UNLIMITED, INC., a Texas corporation (the
"Company"), and LAWRENCE L. AMSTUTZ, RUTH C. AMSTUTZ and BARRY L. BROCK
(collectively, the "Sellers").
W I T N E S S E T H:
WHEREAS, all of the outstanding shares of common stock, no par value
(the "Common Stock"), of the Company are owned of record and beneficially by
the Sellers in the amounts set forth on Appendix I attached hereto;
WHEREAS, the Sellers desire to sell, and the Purchaser desires to
purchase, all of the outstanding Common Stock on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of and subject to the mutual
agreements, terms and conditions herein contained, the parties hereto agree as
follows:
ARTICLE I
SALE OF SHARES
1.1 Purchase Price. At the Closing (as defined below), the
Sellers will sell, transfer, convey and deliver to the Purchaser all of the
outstanding shares of Common Stock (the "Shares") as evidenced by the delivery
of a certificate or certificates evidencing the Shares duly endorsed for
transfer or accompanied by duly executed stock powers in exchange for the
following consideration: (a) $2,400,000, payable at the Closing by wire
transfer or other delivery of immediately available funds and (b) warrants (the
"Warrants") to purchase an aggregate of 40,000 shares of common stock, par
value $1.00 per share (the "Purchaser Common Stock") for an initial exercise
price of $11.125 per share, which Warrants shall be issued pursuant to the
Warrant Agreement in the form attached hereto as Exhibit A (the "Warrant
Agreement"). The cash portion of the purchase price and the warrants will be
paid to the Sellers pro rata in accordance with their respective ownership of
the Common Stock.
1.2 Section 338(h)(10) Elections. The Sellers agree that, if
requested by the Purchaser within the time period prescribed by law for the
filing thereof, the Sellers, in their capacity as all of the shareholders of
the Company immediately before the Closing, shall join the Purchaser in making
a timely, irrevocable and effective election under section 338(h)(10) of the
Code (and Treasury Regulation section 1.338(h)(10)-1) and a similar election
under any applicable state income tax law (collectively, the "Section
338(h)(10) Elections") with respect to the Purchaser's purchase of the Shares.
To facilitate such election, at the Closing the Sellers shall deliver to the
Purchaser an Internal Revenue Service Form 8023 and any similar forms under
applicable state income tax law (the "Forms") with respect to the Purchaser's
purchase of the Shares, which Forms shall have been duly executed by each of
the Sellers. If the Purchaser determines to make the Section 338(h)(10)
Elections with respect to its purchase of the Shares, the Purchaser shall cause
the Forms to be duly executed by an authorized person for the Purchaser, shall
complete the schedules required to be
<PAGE> 2
attached thereto, shall provide a copy of the executed Forms and schedules to
the Seller Representative, and shall duly and timely file the Forms as
prescribed by Treasury Regulation section 1.338(h)(10)-1 or the corresponding
provisions of applicable state income tax law.
1.3 Closing. The closing ("Closing") of the sale and purchase of
the Shares shall take place at the offices of Duncan, Ulman, Weakley &
Bressler, 603 Navarro, 1000 South Texas Building, San Antonio, Texas, at 10:00
a.m. on October 30, 1997, or at such other place, time and date upon which the
parties hereto may agree (the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS AND THE COMPANY
The Sellers and the Company jointly and severally warrant and
represent to the Purchaser as follows:
2.1 Organization, Qualification and Capacity. The Company (i) is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas with corporate power and authority to own, operate
and lease its properties and to carry on its business as now conducted and as
contemplated to be conducted, and (ii) is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction where the
character of its properties or the nature of its business makes such
qualification necessary, which jurisdictions are listed on Schedule 2.1. Each
Seller has full power and authority to enter into this Agreement and the
capacity and authority to make the representations, warranties, covenants and
agreements herein.
2.2 Capital Stock. The authorized capital stock of the Company
consists solely of 1,000,000 shares of Common Stock, 510,000 of which shares
are validly issued and outstanding, fully paid and nonassessable and the
remainder of which are unissued. All of the issued and outstanding capital
stock of the Company is owned beneficially and of record by the Sellers, free
and clear of any pledge, lien, charge, encumbrance or other adverse claim.
There are no outstanding or authorized subscriptions, options, warrants,
rights, conversion rights, preemptive rights, rights of first refusal or other
agreements or commitments obligating the Company to issue or purchase shares of
its capital stock or any security convertible into capital stock or obligating
any Seller or the Company to purchase, sell or transfer any capital stock of
the Company. Preemptive rights have been denied in accordance with the Texas
Business Corporation Act since June 27, 1995, and all issuances of capital
stock of the Company prior to such denial were made in full compliance with any
preemptive rights. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the Common Stock. Set forth on
Schedule 2.2 is a true, complete and correct copy of the Company's stock
ledger, which fully and fairly describes all transactions involving any shares
of capital stock of the Company, including without limitation issuances,
repurchases and transfers of capital stock.
2.3 Subsidiaries. The Company has no subsidiaries (as hereinafter
defined).
2.4 Governmental Authorizations. To the best of Sellers'
knowledge, the Company holds, and after the consummation of the transactions
contemplated hereby will hold, such licenses,
2
<PAGE> 3
permits, consents, authorizations and orders of such Governmental Authorities
(as hereinafter defined) as are necessary to carry on its business as presently
being conducted, and to the best of Sellers' knowledge such licenses, permits,
consents, authorizations and orders are in full force and effect and have been
and are being fully complied with by the Company. To the best of Sellers'
knowledge, Schedule 2.4 lists and briefly describes all such licenses, permits,
consents, authorizations, and orders.
2.5 Financial Statements.
(a) Attached as Schedule 2.5 are copies of (i) the
statement of assets, liabilities and capital of the Company as of
September 30, 1997 (such date being referred to herein as the
"Statement Date") and the related statements of revenues and expenses
and statements of cash flows of the Company for the 12 months then
ended and (ii) the statement of assets, liabilities and capital of the
Company for the fiscal year ended September 30, 1996 and the related
statements of revenues and expenses and statements of cash flows of
the Company for such fiscal year (the financial statements described
in clauses (i) and (ii) are collectively referred to herein as the
"Financial Statements"). The Financial Statements (including the
notes thereto) have been prepared in accordance with generally
accepted accounting principles consistently applied, present fairly
the financial condition of the Company as of the Statement Date, are
correct and complete, and are consistent with the books and records of
the Company (which books and records are correct and complete).
(b) Except for pending litigation fully described in
Schedule 2.8, there are no debts, liabilities or other obligations of
any nature, whether accrued, absolute, contingent or otherwise, of the
Company as of the Statement Date that are not reflected in the
Financial Statements.
2.6 No Adverse Changes. Except as expressly permitted by this
Agreement or disclosed in Schedule 2.6, since the Statement Date, (a) to the
best of Sellers' knowledge, there have been no material adverse changes
(whether or not within the control of the Company or the Sellers) in the
results of operations, business, prospects or financial condition of the
Company from that set forth in the Financial Statements, and (b) to the best
of Sellers' knowledge, there have been no events or conditions (whether or not
within the control of the Company or the Sellers) affecting the assets,
properties, contracts with suppliers or customers, business, prospects or
operations of the Company from that in effect on the Statement Date.
2.7 Properties.
(a) Schedule 2.7(a) sets forth a brief description of all
real property, building and facilities leased by the Company
(collectively, the "Leases"). Except as fully described on Schedule
2.7(a), the Company enjoys peaceful and undisturbed possession under
all Leases. Except as set forth in Schedule 2.7(a), there is no other
real property, buildings or facilities owned, used or occupied by
Company.
(b) To the best of Sellers' knowledge, except as fully
described on Schedule 2.7(b), there are no parties in possession of
any portion of any real property purported to be
3
<PAGE> 4
leased by the Company (each a "Leasehold") as lessees, licensees,
tenants at sufferance, trespassers or otherwise, other than the
Company.
(c) Except as fully described in Schedule 2.7(c), there
is no pending or, to the best of Sellers' knowledge, threatened
condemnation or similar proceeding or special assessment affecting any
Leasehold, or any part thereof, nor has any Seller or the Company
received notification that any such proceeding or assessment is
contemplated by any Governmental Authority.
(d) To the best of Sellers' knowledge, neither (i) the
location, occupancy, operation or use of any Leasehold (including the
buildings, improvements, fixtures and equipment forming a part
thereof) nor (ii) the construction of any Leasehold violates any
applicable law, statute, ordinance, rule, regulation, order or
determination of any Governmental Authority or any board of fire
underwriters (or other body exercising similar functions), or any
restrictive covenant or deed restriction (recorded or otherwise)
affecting any of the Leasehold, including, without limitation, all
applicable zoning ordinances and building codes, flood disaster laws
and health laws and regulations (hereinafter sometimes collectively
called "Applicable Laws").
(e) To the best of Sellers' knowledge, no Leasehold is
within any area determined by the Department of Housing and Urban
Development to be flood prone under the Federal Flood Disaster
Protection Act of 1973.
(f) (i) There are no unpaid and presently due charges,
debts, liabilities, claims or obligations arising from the
construction, occupancy, ownership, use or operation of any Leasehold,
or the business operated thereon, that could give rise to any
mechanic's or materialmen's or other statutory lien (A) against such
Leasehold or any part thereof (including any leasehold estate
therein), or (B) for which the Company will be responsible, and (ii)
the Company has not entered into any agreement the performance of
which could give rise to a lien or other encumbrance against the
Leasehold.
(g) To the best of Sellers' knowledge, there exists no
action or proceeding to modify or terminate the present zoning, if
any, of any Leasehold.
(h) To the best of Sellers' knowledge, there exists no
judicial, quasi-judicial, administrative or other proceeding or court
order, building code provision, deed restriction or restrictive
covenant (recorded or otherwise) or other private or public limitation
that to the best of Sellers' knowledge could in any way impede or
adversely affect the use of such Leasehold by the Company as currently
used.
(i) Except as fully described on Schedule 2.7(i), each
Leasehold is connected to and serviced by water, septic tank or sewage
disposal (as applicable), gas, telephone and electric facilities that
are adequate for current use of such Leasehold and is in compliance
with all Applicable Laws. All public utilities required for the
operation of such Leasehold enter such Leasehold through adjoining
public streets or, if they pass through adjoining private land, do so
in accordance with valid public easements. Each Leasehold abuts on
and
4
<PAGE> 5
has direct vehicular access to a public road, or has access to a
public road via a permanent, irrevocable appurtenant easement.
(j) Except as fully described in Schedule 2.7(j), to the
best of Sellers' knowledge there is no change contemplated in any
Applicable Laws, or, to the best of Sellers' knowledge, any judicial
or administrative action, or, to the best of Sellers' knowledge, any
action by adjacent landowners, or, to the best of Sellers' knowledge,
any administrative action, or, to the best of Sellers' knowledge, any
natural or artificial conditions upon such Leasehold, or, to the best
of Sellers' knowledge, any significant adverse fact or condition
relating to such Leasehold or its current use by the Company, that
would prevent, limit, impede or render more costly the Company's use
of such Leasehold.
(k) Permanent certificates of occupancy, all licenses,
permits, authorizations and approvals required by all governmental
authorities having jurisdiction, and the requisite certificates of the
local board of fire underwriters (or other body exercising similar
functions) have been issued for such buildings and improvements
constituting a part of each Leasehold and have been paid for and all
of the foregoing are in full force and effect.
(l) Each Leasehold, including building and improvements,
is in good condition and repair. Except as set forth on Schedule
2.7(l), the equipment and other personal property used in connection
with the Company's business and operations is in good condition and
repair, subject only to normal wear and tear, is free of any latent or
patent structural defects, is suitable for the purpose for which it is
presently used, and has been maintained in accordance with industry
practice and manufacturer's recommended guidelines.
(m) No commitments have been made by the Company, any
Seller or other person to any Governmental Authority, utility company,
school board, church or other religious body, or any homeowners or
homeowners' association, or any other organization, group or
individual, relating to any Leasehold that would impose an obligation
upon the Purchaser or its successors or assigns to make any
contribution or dedication of money or land or to construct, install
or maintain any improvements of a public or private nature on or off
such Leasehold. Each Leasehold's compliance with all Applicable Laws
does not depend on, and no zoning, subdivision or other governmental
approval for such Leasehold depends on, any Leasehold, or rights
appurtenant thereto, other than such Leasehold. No Governmental
Authority has imposed any requirement that any developer of any
Leasehold pay directly or indirectly any special fees or contributions
or incur any expenses or obligations in connection with any
development of such Leasehold or any part thereof. The provisions of
this subparagraph shall not apply to any regular or nondiscriminatory
local real estate or school taxes assessed against any such Leasehold.
(n) Except as fully described on Schedule 2.7(n), each of
the Leases is valid and subsisting and in full force and effect in
accordance with its terms, provisions and conditions and constitutes
the legal, valid, binding and enforceable obligation of the Company
and the landlord thereunder; no party thereto is in default thereunder
and no event has occurred that, with notice or lapse of time or both,
would constitute a default; all initial installation work, if any, has
been fully performed, paid for and accepted. No landlord has given
any notice to the Company or Sellers of intention of instituting
litigation with respect to any Lease. True,
5
<PAGE> 6
complete and correct copies of each of the Leases as currently in
effect have been delivered to the Purchaser, and the Company is not
subject to any obligation to or for the benefit of the landlord with
respect the Leaseholds except as fully set forth in such Leases.
2.8 Litigation, Judgments, Etc. Except as fully described in
Schedule 2.8, to the best of Sellers' knowledge there are no actions, suits,
proceedings or investigations pending or threatened against or affecting the
Company or its assets in any court or before or by any federal, state or other
Governmental Authority, or before any arbitrator, and the Sellers have no
reason to believe that any such action, suit, proceeding or investigation will
be brought or threatened against the Company or its assets. The Company is not
in default with respect to any judgment, order, writ, injunction, decree or
award applicable to it of any court or other Governmental Authority or
arbitrator having jurisdiction over it and all such judgments, orders, writs,
injunctions, decrees and awards are described in Schedule 2.8. Except as fully
described in Section 2.10, Section 2.12, Section 2.13 or in any disclosure
schedule related thereto, the Company is not in default with respect to any
rule or regulation applicable to it of any Governmental Authority having
jurisdiction over it, or in violation of any law or statute.
2.9 Intellectual Property.
(a) Marks. Schedule 2.9(a) lists all foreign and
domestic trademarks, service marks, trade dress, and trade names
(collectively, the "Marks"), and registrations therefor, used by
Company in connection with the conduct of business now being
conducted. Except as disclosed in Schedule 2.9(a) Company is the sole
owner of all right, title and interest in the Marks and, to the best
of Sellers' knowledge, there exist no facts that would invalidate the
Marks in the areas in which business is presently being conducted.
Except as disclosed on Schedule 2.9(a), to the best of Sellers'
knowledge, the Marks, as currently being used, do not infringe upon
any rights of a third party. Neither the Company nor any Seller has
received notice from a third party asserting that one or more of the
Marks are infringing, or would infringe if used in a geographic area
outside the area in which the Company's business is presently
conducted. Except as disclosed on Schedule 2.9(a), to the best of
Sellers' knowledge, there are no third party uses of the Marks or
colorable imitations thereof. Neither the Company, any Seller or any
of their affiliates, nor, to the best of Sellers' knowledge, any other
person has granted any rights or license whatsoever with respect to
the use of the Marks "Sauces Unlimited, Inc.," "Trial By Fire,"
"Alamo Street," or any derivation thereof, or any other. Neither any
Seller nor any affiliate of the Company has any rights or license with
respect to any of the Marks. To the best of Sellers' knowledge no
rights in any of the Marks listed in Schedule 2.9(a) will be affected
in any way by virtue of the execution of this Agreement or the
consummation of the transactions contemplated hereby. To the best of
Sellers' knowledge, no Mark is the subject of any pending litigation,
arbitration, interference or protest proceeding.
(b) Patents. Except as set forth on Schedule 2.9(b),
there are no foreign or domestic patents or applications therefor used
in the conduct of the business as now conducted or in which the
Company has rights (collectively, the "Patents"). To the best of
Sellers' knowledge, no patent rights other than those granted to the
Company by its purchase of equipment are necessary to conduct the
business of the Company as now conducted.
6
<PAGE> 7
(c) Copyrights. Except as set forth on Schedule 2.9(c),
there are no foreign or domestic copyright registrations or
applications for registration thereof used in the conduct of the
business of the Company as now conducted or in which the Company has
rights. All copyrights used in the conduct of the business as now
conducted, including all copyrights with respect to advertising,
software and photographs (collectively, the "Copyrights"), are solely
owned by the Company. Except as disclosed in Section 2.9(c), to the
best of Sellers' knowledge, neither Company nor any Seller has
received any notice from a third party asserting any allegations of
infringement of any Copyrights. Neither the Company nor any Seller
has sold, licenced or transferred to any Seller, employee or other
person or entity any rights to any of the Copyrights.
(d) Trade Secrets. All trade secrets confidential
information and know how used in the conduct of the business as now
conducted, including but not limited to customer information and
supplier information, are owned by the Company and, to the best of
Seller's knowledge, can be used or sold by the Company without
infringing trade secret or other rights of others. Schedule 2.9(d)
contains a list of all current employees who have (or could reasonably
be expected to have) knowledge of the trade secrets, confidential
information and know how. Each such employee has executed agreements
for maintaining the confidentiality of the trade secrets, confidential
information and know how, which are in full force and effect. Neither
the Company nor any Sellers have sold, licensed or otherwise
transferred to any Seller, employee or any other person any right to
use or disclose any trade secret confidential information and know
how. To the best of Sellers' knowledge, all such trade secrets,
confidential information and know how are presently valid and
protectable and, to the best of Sellers' knowledge, none of the trade
secrets, confidential information and know how are a part of the
public domain.
(e) Except as set forth in Schedule 2.9(e), all working
requirements and all fees, annuities and other payments that are due
on or before the Closing for any foreign or domestic Marks, Patents,
and Copyright and all application and/or registrations therefore have
been met or paid.
(f) To the best of Sellers' knowledge, the Company has
the right to use, free and clear of the rightful claims by others all
foreign and domestic Marks, Patents and Copyrights and all
applications and/or registrations therefore, as well as all trade
secrets confidential information and know how used or having been used
in the conduct of the business of the Company as now conducted.
2.10 Environmental and Health Laws.
(a) Except as set forth on Schedule 2.10(a), the Company
is not in violation of any Environmental Laws (as hereinafter defined)
or any order or requirement of any court or Governmental Authority to
the extent pertaining to health or the environment, nor are the
operations or assets of the Company subject to any remedial
obligations (except for customary closure obligations) under any
Environmental Law;
(b) Without limitation of clause (a) above, the Company
is not subject to any existing, pending or, to the best of Sellers'
knowledge, threatened action, suit, investigation,
7
<PAGE> 8
inquiry or proceeding by or before any court or Governmental Authority
under any Environmental Law and neither the Company nor the Sellers
have reason to believe that any such action, suit, investigation,
inquiry or proceeding will be brought against the Company;
(c) Except as set forth on Schedule 2.10(c), all notices,
permits, licenses or similar authorizations, if any, required to be
obtained or filed by the Company under any Environmental Law,
including without limitation those relating to the treatment, storage,
disposal or release of a hazardous substance or solid waste into the
environment, have been duly obtained or filed, and the Company is in
compliance with the terms and conditions of all such notices, permits,
licenses and similar authorizations;
(d) Except as set forth in Schedule 2.10(d), since the
effective date of the relevant requirements of RCRA (as hereinafter
defined) all hazardous substances or solid wastes generated by the
Company or at any property currently or heretofore owned or leased by
the Company, including, but not limited to, the Leaseholds and
requiring disposal have been, to the extent required by any
Environmental Law, transported only by carriers maintaining valid
authorizations under RCRA and any other Environmental Laws and, to the
best of Sellers' knowledge, treated and disposed of only at treatment,
storage and disposal facilities maintaining valid authorizations under
RCRA and any other Environmental Law, and, to the best of Sellers'
knowledge, such carriers and facilities have been and are operating in
compliance with such authorizations and to the best of Sellers'
knowledge are not the subject of any existing, pending or threatened
action, investigation or inquiry by any Governmental Authority in
connection with any Environmental Laws;
(e) Except as set forth in Schedule 2.10(e), to the best
of Sellers' knowledge, there are no underground storage tanks or other
underground containers on or under any of the Company's assets or
operations;
(f) Except as set forth in Schedule 2.10(f), without
limiting the foregoing, to the best of Sellers' knowledge, there is no
liability to any third party in connection with any release or
threatened release of any hazardous substances, solid wastes,
petroleum and petroleum products into the environment as a result of
or with respect to the Company's assets or operations; and
(g) Copies of all environmental reports and records
possessed by Sellers or the Company that address the environmental
condition of any property currently or heretofore owned or leased by
the Company, (including, but not limited to, the Leaseholds) or other
assets of the Company or environmental compliance or liability
concerns affecting the business of the Company are attached hereto as
Schedule 2.10(g).
For purposes of this Agreement, the term "Environmental Laws" shall
mean any and all laws, statutes, ordinances, rules, regulations, orders or
determinations of any Governmental Authority pertaining to health or the
environment currently or hereafter in effect in any and all jurisdictions in
which the Company's assets are located or in which its operations are
conducted, including without limitation, the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and Liability Act of 1980
("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended,
the Occupational Safety and Health Act of 1970, as amended, the Resource
8
<PAGE> 9
Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended,the
Hazardous & Solid Waste Amendments Act of 1984, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, any state laws pertaining to the handling of
wastes or the use, maintenance, and closure of pits and impoundments, and other
environmental conservation or protection laws. For purposes of this Agreement,
the terms "hazardous substance" and "release" (or "threatened release") have
the meanings specified in CERCLA, and the terms "solid waste" and "disposal"
(or "disposed") have the meanings specified in RCRA; provided, however, that to
the extent the laws of the state in which the property is located or the
operations are conducted establish a meaning for "hazardous substance,"
"release," "solid waste" or "disposal" that is broader than that specified in
either CERCLA or RCRA, such broader meaning shall apply. For purposes of this
Agreement, the term "Governmental Authority" includes the United States, the
state, county, city and political subdivisions in which the Company's
operations or assets are located or which exercises jurisdiction over any of
the Company or its operations or assets, and any agency, department,
commission, board, bureau or instrumentality or any of them that exercises
jurisdiction over the Company or its operations or assets.
2.11 Additional Schedules. Schedule 2.11 contains the following
separate schedules and has attached the following documents:
(a) Copies of all currently effective contracts or
options relating to the acquisition by the Company of any operating
business.
(b) Copies of all currently effective contracts for the
performance of services involving aggregate annual receipts or
payments by the Company in excess of $10,000.
(c) Copies of all currently effective contracts for the
purchase, sale, lease or exchange of real or personal property
involving aggregate receipts or payments by the Company in excess of
$10,000.
(d) Copies of all currently effective contracts for
construction on or improvement of any Leasehold (and all documentation
relating thereto) involving aggregate receipts or payments by the
Company in excess of $10,000.
(e) A schedule, as of the Statement Date, of the trade
and accounts receivable of the Company in excess of $10,000 showing
separately for each such receivable its age denominated by an
appropriate classification.
(f) Except as otherwise delivered pursuant to clause (g)
or (j), copies of all currently effective agreements or arrangements
with regard to the payment of compensation (including without
limitation bonuses), profit-sharing, pension, vacation, retirement or
other compensation benefits to, or providing for the indemnification
of, current or former directors, officers or employees of the Company
whose compensation exceeds $40,000 per year, regardless of whether
said agreements or arrangements are legally binding (a schedule
setting forth the name or identification of each current or former
director, officer or employee of the Company who is currently being
paid or who is entitled to compensation (other than at hourly rates)
benefits that in the aggregate exceed $10,000 per year and the rate or
amounts
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thereof is set forth in Schedule 2.18); and all currently effective
written contracts or commitments with unions or other groups or
otherwise with respect to wages, working conditions, work rules or
employee benefits.
(g) A summary of all material statements of practice
followed by the Company with regard to the payment of compensation
(including without limitation bonuses), profit-sharing, pension,
vacation, retirement or other compensation benefits to current or
former directors, officers or employees of the Company whose
compensation exceeds$40,000 per year, whether or not said practices
are legally binding; and all currently effective material contracts or
commitments with unions or other groups or otherwise with respect to
wages, bonuses, working conditions, work rules or employee benefits
that were not required to be delivered pursuant to subparagraph (f) or
(j).
(h) Copies of all complaints and other pleadings (and
settlement documents and releases) relating to threatened, pending or
settled litigation or governmental proceedings or claims set forth on
Schedule 2.8.
(i) A schedule listing and itemizing all current and
forecasted depreciation expenses of the Company or assets owned on the
Statement Date or acquired by the Company since such date.
(j) Copies of all pension, profit sharing, retirement,
bonus or stock option or stock purchase plans or hospitalization,
sickness and accident or other fringe benefit plans or programs of the
Company currently in effect with respect to employees or others.
(k) Copies of all currently effective contracts, notes,
financing statements, mortgages, deeds of trust and other instruments
relating to the borrowing of money or the guaranty of any obligation
for the borrowing of money and of all currently effective letters of
credit to which the Company is a party or otherwise liable or that
relate to the Company or its assets (whether contingently or
absolutely) including but not limited to (i) the WCMA Loan Agreement
and the notes relating thereto, and (ii) the CIT Loan Agreement and
the note relating hereto.
(l) Copies of all other currently effective contracts
material to the business and operations of the Company, regardless of
whether made in the ordinary course of business.
(m) Copies of all currently effective contracts
containing covenants limiting the freedom of the Company to compete in
any line of business or with any person in any geographical area.
(n) Copies of all currently effective contracts requiring
the payment to any person of any royalty or similar commission or fee
in excess of $10,000 per annum, of the Company not delivered pursuant
to subparagraph (g) above.
(o) Copies of all currently effective contracts to which
both (X) the Company, on one hand, and (Y) any Seller or any of its
officers, directors, partners or affiliates other than the Company, on
the other hand, are parties not otherwise delivered pursuant to this
Section
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2.11 and except for the Amended Lease Agreement dated August 1, 1996
between the Company and Lawrence L. Amstutz attached to Schedule
2.7(a).
The Company is not, and but for a requirement that notice be given or that a
period of time elapse or both would not be, in default under any contract,
agreement, lease or other instrument to which it is a party or by which it or
its properties is bound. All of the purportedly currently effective contracts,
agreements, understandings, licenses, franchises, permissions and commitments,
whether or not attached to a schedule to this Agreement, of the Company are in
good standing, valid and effective and the Company has, in the ordinary course
of business, paid all amounts due thereunder and has satisfied in full all the
liabilities and obligations with respect thereto and, no party other than the
Company is in default under any such contract, agreement, understanding,
franchise, permission or commitment.
2.12 Taxes.
(a) Except as set forth in Schedule 2.12(a), (i) all
returns and reports ("Tax Returns") of or with respect to any Tax (as
hereinafter defined) that are required to be filed on or before the
Closing Date by or with respect to the Company or the assets or
business of the Company have been or will be duly and timely filed,
(ii) all items of income, gain, loss, deduction and credit or other
items required to be included in each such Tax Return have been or
will be so included and all information provided in each such Tax
Return is true, correct and complete, (iii) all Taxes that have become
or will become due with respect to the period covered by each such Tax
Return (whether or not shown on such Tax Return) have been or will be
timely paid in full, (iv) all withholding Tax requirements imposed on
or with respect to the Company or its business have been or will be
satisfied in full in all respects, and (v) no penalty, interest or
other charge is or will become due with respect to the late filing of
any such Tax Return or late payment of any such Tax. For purposes of
this Agreement, "Taxes" shall mean any federal, state, local, foreign
and other taxes, assessments, fees and other governmental charges,
including without limitation income, gross receipts, net proceeds,
alternative or add-on minimum, ad valorem, value added, turnover,
sales, use, property (tangible and intangible), stamp, lease, user,
excise, duty, franchise, transfer, license, withholding, payroll,
employment, fuel, excess profits, occupational, interest equalization,
windfall profit, severance, and other similar governmental charges
(including interest and penalties).
(b) No Tax Returns of or with respect to the Company or
its business have been audited by the applicable Governmental
Authority.
(c) There is no claim against the Company or its assets
or business for any Taxes, and no assessment, deficiency or adjustment
has been asserted or proposed with respect to any Tax Return of or
with respect to the Company or its business, other than those
disclosed (and to which are attached true and complete copies of all
audit or similar reports) in Schedule 2.12(c).
(d) Except as set forth in Schedule 2.12(d), there is not
in force any extension of time with respect to the due date for the
filing of any Tax Return of or with respect to the Company or its
assets or business or any waiver or agreement for any extension of
time for
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the assessment or payment of any Tax of or with respect to the Company
or its assets or business.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Financial Statements are sufficient to cover
the payment of all Taxes, whether or not assessed or disputed, which
are, or are hereafter found to be, or to have been, due by or with
respect to the Company and its assets or business up to and through
the periods covered thereby.
(f) Neither the execution or deliver of this Agreement,
nor the performance by any party of its obligations hereunder has
resulted or will result in the imposition of any Tax (or the
requirement to file any Tax Return) on the Company or any shareholder
of the Company (other than the Sellers).
2.13 Employee Benefit Plans. Schedules 2.11(f), Schedule 2.11(g)
or Schedule 2.11(j) set forth all employee benefit plans within the meaning of
section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") sponsored, maintained or contributed to by the Company for the
benefit of the employees of the Company ("Plans"), or has been so sponsored,
maintained or contributed to within six years prior to the Closing Date.
Except as otherwise set forth Schedule 2.11(f), Schedule 2.11(g) or Schedule
2.11(j), (a) all reports and disclosures relating to the Plans required to be
filed with or furnished to governmental agencies, Plan participants or Plan
beneficiaries have been filed or furnished in accordance with applicable law in
a timely manner, and each Plan has been administered in substantial compliance
with its governing documents and applicable law, (b) each of the Plans intended
to be qualified under Section 401 of the Code, satisfies the requirements of
such Section and has received a favorable determination letter from the
Internal Revenue Service regarding such qualified status and has not, since
receipt of the most recent favorable determination letter, been amended or, to
the knowledge of Seller, operated in a way which would adversely affect such
qualified status, and (c) no act, omission or transaction has occurred which
would result in imposition on the Company of (i) breach of fiduciary duty
liability damages under Section 409 of ERISA, (ii) a civil penalty assessed
pursuant to subsections (c), (i) or (l) of Section 502 of ERISA or (iii) a tax
imposed pursuant to Chapter 43 of Subtitle D of the Code. Further, there is no
Plan sponsored, maintained or contributed to by the Company, or that has been
sponsored, maintained or contributed to by the Company that is subject to Title
IV of ERISA, and there is no employee benefit plan, within the meaning of
Section 3(3) of ERISA, which is not listed in Schedule 2.11(f), Schedule
2.11(g) or Schedule 2.11(j), and which is sponsored, maintained or contributed
to, or has been sponsored, maintained or contributed to by any corporation,
trade, business or entity under common control with the Company, within the
meaning of Section 414(b), (c) or (m) of the Code or Section 4001 of ERISA.
The termination of any Plans will not violate any law, rule or regulation and
will not result in (and has not resulted in) any liability to the Company
(other than resulting solely from reasonable expenses incurred to terminate any
such plan). Schedule 2.13 sets forth by number and employment classification
the approximate numbers of employees employed by the Company as of the date of
this Agreement, and none of said employees are subject to union or collective
bargaining agreements with the Company. The Company has not at any time on or
after January 1, 1997 had or, to the knowledge of Seller, been threatened with
any work stoppages or other labor disputes or controversies with respect to its
employees which had a material adverse effect on the Company.
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2.14 Authorization of Agreement - No Violation - No Consents.
Each of the Sellers and the Company has full power and authority to enter into
this Agreement and the other documents delivered pursuant to this Agreement
(collectively, the "Documents") to the extent each is a party thereto and the
capacity and authority to make the representations, warranties, covenants and
agreements herein or therein. Except as set forth on Schedule 2.14, neither
the execution or delivery of the Documents nor the consummation of the
transactions contemplated herein or therein (a) will conflict with or result in
a breach, default or violation of (i) any of the terms, provisions or
conditions of the Articles of Incorporation or Bylaws of the Company (copies of
all of which organization documents are attached as Schedule 2.14) or (ii) any
agreement, document, instrument, judgment, decree, order, governmental permit,
certificate, license, law, statute, rule or regulation to which any Seller or
the Company is a party or to which it is subject, (b) will result in the
creation of any lien, charge or other encumbrance on any property or assets of
the Company, or (c) will require any Seller or the Company to obtain the
consent of any private nongovernmental third party not already obtained.
Except as expressly contemplated by the Documents, no consent, action, approval
or authorization of, or registration, declaration or filing with, any
governmental department, commission, agency or other instrumentality or any
other person or entity is required to authorize, or is otherwise required in
connection with, the execution and delivery of the Documents by any Seller or
the Company or their performance of the terms of the Documents or the validity
or enforceability of the Documents. This Agreement and each Document delivered
pursuant hereto constitutes the legal, valid and binding obligation of the
Company and each Seller (to the extent a party thereto) enforceable against
each such person in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting creditors' rights generally and to the principles of equity (whether
enforcement is sought in a proceeding in equity or at law).
2.15 Brokerage Agreements. None of any Seller or the Company has
entered (directly or indirectly) into any agreement, with any person, firm or
corporation for the payment of any commission, brokerage or "finder's fee" in
connection with the transactions contemplated herein.
2.16 Accounts Receivable. All accounts and notes receivable of
the Company in excess of $10,000 arose, to the best of Sellers' knowledge, in
the ordinary and usual course of business, represent, to the best of Sellers'
knowledge, valid obligations subject to no set-offs or counterclaims, and, to
the best of Sellers' knowledge, either have been collected or are collectible
(subject only to bankruptcy stays sought by account debtors) in the ordinary
and usual course of business in the aggregate recorded amounts as reflected in
the books of account of the Company in accordance with their terms.
2.17 Banks. Schedule 2.17 sets forth (a) the name of each bank,
trust company, stock and other broker with which the Company has an account,
credit line, or safe deposit box or vault or maintains any relations, (b) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (c) the purpose of each such account, safe deposit box or
vault, and (d) the names of all persons authorized by proxies, powers of
attorney or like instruments, to act on behalf of the Company in matters
concerning any of its business or affairs.
2.18 Directors, Officers and Key Employees. Schedule 2.18
contains a true and complete list of the name, address and salary, as well as
the title or functional position, of each current director and officer of the
Company, and each other current employee, consultant, representative, salesman
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or agent employed or under contract with the Company who received or accrued or
on an annualized basis would have received or accrued aggregate direct cash
remuneration as reflected on such person's Form W-2 at the rate of $40,000 or
more per annum from the Company in respect of the 24 months ended on the
Statement Date. Except as set forth on Schedule 2.18, none of the persons
listed on Schedule 2.18 has received any wage or salary increase or bonus since
the Statement Date, nor have any such increases or bonuses been adopted since
the Statement Date. Neither any Seller, the Company nor, to the best of
Sellers' knowledge, any of the officers or directors of the Company has ever
been convicted of a felony. None of any Seller or any of the persons set forth
on Schedule 2.18, and no relative or affiliate known to any Seller or the
Company of any such person has had in the last five years any transaction with
the Company involving the receipt by or payment by the Company of more than
$10,000 in cash, property or services or the increase in the debt or other
liabilities of the Company, except in the ordinary course of their employment
as set forth in Schedule 2.18 or as otherwise set forth on Schedule 2.18.
2.19 Suppliers and Customers. Schedule 2.19 sets forth the ten
most significant third party suppliers and the twenty most significant third
party customers of the Company (in terms of payments to or by such persons)
during the twelve-month period ended the Statement Date. The relationships of
the Company with its suppliers and customers are satisfactory.
2.20 No Material Omissions. To the best of Sellers' knowledge,
neither this Agreement nor any of the documents delivered in connection
therewith contains any untrue statement of a material fact, nor, to the best of
Sellers' knowledge, does this Agreement or any such document omit to state any
fact necessary to make the statements contained therein not misleading in light
of the circumstances under which they were made. To the best of Sellers'
knowledge, there is no fact that would materially adversely affect the
operations, business, assets or prospects of the Company that has not been
disclosed in this Agreement or any Schedule hereto.
2.21 Outstanding Debt. Except as disclosed on Schedule 2.21 or the
Financial Statements or incurred in the ordinary course of business since the
Statement Date, the Company has no outstanding debt, payables, liabilities or
liens of any kind, whether fixed, contingent, matured or unmatured. All such
debt, payables, liabilities or liens incurred as described above in the
ordinary course of business and existing on July 31, 1997 are listed on
Schedule 2.21.
2.22 Company Loans. Attached as Schedule 2.22 are copies of
(i)that certain Term WCMA Loan and Security Agreement between the Company and
Merrill Lynch Business Financial Services Inc. dated January 26, 1996 (the
"WCMA Loan Agreement") and the notes relating thereto (such notes being known
as the "Term Note" and the "WCMA Note"), and (ii) those certain Texas Security
Agreement between the Company and The CIT Group/Equipment Financing, Inc.
("CIT") dated November 22, 1996 and May 20, 1997 (collectively, the "CIT Loan
Agreement"). The Company is not, and but for a requirement that notice be
given or a period of time elapse or both would not be, in default under such
agreements or documents delivered in connection therewith including the notes
relating thereto and any mortgages or security interests securing the debt
created thereunder. The combined current outstanding balance under the note(s)
relating to the WCMA Loan Agreement is set forth on Schedule 2.22. The current
outstanding balance under the note(s) relating to the CIT Loan Agreement is set
forth on Schedule 2.22.
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2.23 Insurance. Schedule 2.23 Part I sets forth the following
information with respect to each insurance policy (including policies providing
property, casualty, liability, and workers' compensation and bond and surety
arrangements) related to the Company or its assets:
(a) the name, address, and telephone number of the agent,
(b) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(c) the policy number and period of coverage;
(d) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(e) a description of any retrospective premium
adjustments or other loss-sharing arrangements.
True and complete copies of each such insurance policy are attached as
Schedule 2.23 Part II.
2.24 Inventory. The Company's inventory (including raw materials
and work-in-progress): (i) were acquired in the ordinary course of business
consistent with past practice; (ii) are of a quality, quantity, and condition
useable or saleable in the ordinary course of business within the Company's
normal inventory turnover experience; and (iii) are valued in accordance with
generally accepted accounting principles. The Company does not have any
material liability with respect to the return or repurchase of any goods in the
possession of any customer outside the ordinary course of business.
2.25 Compliance with Laws. (a) To the best of Seller's knowledge,
the Company is in compliance with all laws, regulations and orders applicable
to it, its respective business and operations (as conducted by it now and in
the past), and its properties and assets (in each case owned or used by it now
or in the past). The Company has not been cited, fined or otherwise notified
of any asserted past or current material failure to comply with any laws,
regulations or orders and no proceeding with respect to any such material
violation is pending or, to the Sellers' knowledge, threatened. The Company
has not made any payment of funds in connection with its business that is
prohibited by law, and no funds have been set aside to be used in connection
with its business for any payment prohibited by law.
(b) The Company has complied with the terms and provisions of the
Immigration Reform and Control Act of 1986, as amended (the "Immigration Act").
With respect to each Employee (as defined in 8 C.F.R. 274a.1(f)) of the Company
for whom compliance with the Immigration Act as employer is required, the
Company has on file a true, accurate and complete copy of (i) each Employee's
Form I-9 (Employment Eligibility Verification Form) and (ii) all other records,
documents or other papers prepared, procured and/or retained by the Company
pursuant to the Immigration Act. The Company has not been cited, fined, served
with a Notice of Intent to Fine or with a Cease and Desist Order, nor has any
action or administrative proceeding been initiated or, to the knowledge of the
Sellers, threatened against the Company, by the Immigration and Naturalization
Service by reason of any actual or alleged failure to comply with the
Immigration Act.
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(c) The Company is not subject to any contract, decree or
injunction that restricts the continued operation of any business or the
expansion thereof to other geographical areas, customers and suppliers or lines
of business.
2.26 Status of Securities. Each Seller represents and warrants
that they have received a copy of the Prospectus dated August 27, 1997 of the
Purchaser (the "Prospectus"), and have reviewed the Prospectus carefully. Each
Seller further represents that neither the issuance to such persons of the
Warrants pursuant to the terms of this Agreement nor the underlying shares of
Purchaser Common Stock upon exercise thereof have been registered or qualified
under the Securities Act of 1933, as amended (the "Securities Act") or any
state securities or "blue sky" laws. Each Seller further acknowledges that
such securities may not be sold, transferred or otherwise disposed of without
an effective registration statement under the Securities Act and compliance
with applicable state securities and "blue sky" laws, or an applicable
exemption therefrom, and that the certificates for such shares shall bear a
restrictive legend to such effect. Each Seller represents to the Company that
such person is taking such shares for investment and not with a view to
distribution, within the meaning of the Securities Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Sellers as follows:
3.1 Organization and Qualification. The Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas, with corporate power and authority to own, operate
and lease its properties and to carry on its business as now conducted and as
contemplated to be conducted, and is not required to qualify to do business as
a foreign corporation in any jurisdiction.
3.2 Authorization of Agreement - No Violation - No Consents. The
Purchaser has full power and authority to enter into the Documents (to the
extent a party thereto) and to make the representations, warranties, covenants
and agreements made herein and therein. Except as expressly provided in this
Agreement, neither the execution or delivery of the Documents by the Purchaser
nor the consummation of the transactions contemplated herein by the Purchaser
(a) will conflict with or result in a breach, default or violation of (i) any
of the terms, provisions or conditions of the articles of incorporation or
bylaws of the Purchaser or (ii) any agreement, document, instrument, judgment,
decree, order, governmental permit, certificate, license, law, statute, rule or
regulation to which the Purchaser is a party or to which it is subject, (b)
will result in the creation of any lien, charge or other encumbrance on any
property or assets of the Purchaser or (c) will require the Purchaser to obtain
the consent of any private nongovernmental third party. No consent, action,
approval or authorization of, or registration, declaration or filing with, any
governmental department, commission, agency or other instrumentality or any
other person or entity is required to authorize, or is otherwise required in
connection with, the execution and delivery of the Documents by the Purchaser
or its performance of the terms hereof by the Purchaser or the validity or
enforceability hereof or thereof against the Purchaser. This Agreement and the
Documents delivered by the Purchaser pursuant hereto constitute the legal,
valid and binding obligations of the Purchaser enforceable against the
Purchaser in accordance with their respective terms, subject to applicable
bankruptcy, insolvency,
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reorganization, moratorium and other similar laws affecting creditors' rights
generally and to the principles of equity (whether enforcement is sought in a
proceeding in equity or at law).
3.3 Brokerage Agreements. The Purchaser has not entered
(directly or indirectly) into any agreement under which Seller or any affiliate
of Seller could be liable with any person, firm or corporation providing for
the payment of any commission, brokerage or "finder's fee" in connection with
the transactions contemplated herein.
ARTICLE IV
COVENANTS OF THE COMPANY AND THE SELLERS
Each of the Company and the Sellers further agrees, jointly and
severally, except as set forth in or contemplated by this Agreement or as
otherwise approved by the Purchaser in writing, that from the date hereof
through the Closing Date:
4.1 Conduct of Business of the Company Prior to the Closing Date.
(a) The business of the Company shall be operated only in
the ordinary course of business and consistent with past practice, and
consistent with such operation, the Company and the Sellers will use
all reasonable efforts to preserve intact the present organization of
the Company and the relationships of the Company with persons having
relationships with them;
(b) No change shall be made in the Articles of
Incorporation or Bylaws of the Company;
(c) No change shall be made in the number of shares of
authorized or issued capital stock of the Company; nor shall any
option, warrant, call, right, commitment, conversion right, right of
first refusal, or agreement of any character be granted or made by the
Company relating to the authorized or issued capital stock thereof;
nor shall the Company issue, grant or sell any securities or
obligations convertible into shares of the capital stock of the
Company; nor shall the Company make any declaration, setting aside or
payment of any dividend or distribution of assets of any kind in
respect of its capital stock, nor repurchase or agree to repurchase
any share of such capital stock;
(d) The Company shall not settle any tax claims
(including interest and penalties);
(e) The Company shall duly comply with all laws
applicable to the Company and all laws applicable to the transactions
contemplated by this Agreement;
(f) Except as fully reflected in the Financial Statements
and except in the ordinary course of business, the Company shall not
(i) incur any indebtedness in addition to any indebtedness outstanding
on the date hereof or renew or extend any indebtedness outstanding on
the date hereof; (ii) enter into any agreement requiring the
maintenance of a specified net worth; (iii) assume, guarantee, endorse
or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other
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individual, firm or corporation, except for the endorsement of checks
for collection in the ordinary course of business; or (iv) make any
loans, advances or capital contributions to, or investments in, any
other individual, firm or corporation, except in connection with
normal relocations, travel advances or other advances which in the
aggregate are not in excess of $10,000;
(g) The Company shall not (i) increase the compensation
payable or to become payable by the Company to any officer, employee,
or director thereof, or increase any bonus, insurance, pension or
other employee benefit plan, or increase any payment plan, payment or
arrangement made to, for or with any officer, employee, or director or
(ii) commit itself (A) to any additional pension, profit-sharing,
bonus, incentive, deferred compensation, stock purchase, stock option,
stock appreciation right, group insurance, severance pay, retirement
or other employee benefit plan, agreement or arrangement, or to any
employment or material consulting agreement with or for the benefit of
any person or (B) to amend any of such plans or any of such agreements
in existence on the date hereof (other than amendments required by law
to preserve the qualified status of a Plan), (iii) engage in any
transaction (either acting alone or in conjunction with Sellers, any
Plan or trust created thereunder) in connection with which the Company
could be subjected (directly or indirectly) to either a civil penalty
assessed pursuant to subsections (c), (i) or (1) of Section 502 of
ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the
Code, (iv) terminate any Plan in a manner, or take any other action
with respect to any Plan, that could result in the liability of the
Company to any person, (v) take any action that could adversely affect
the qualification of any Plan or its compliance with the applicable
requirements of ERISA, (vi) fail to make full payment when due of all
amounts that, under the provisions of any Plan, any agreement relating
thereto or applicable law, the Company is required to pay as
contributions thereto or (vii) fail to file, on a timely basis, all
reports and forms required by federal regulations with respect to any
Plan;
(h) The Company shall not, except in the ordinary course
of business, sell, transfer, mortgage, or otherwise dispose of, or
encumber, or agree to sell, transfer, mortgage or otherwise dispose of
or encumber, any properties, real, personal or mixed, tangible or
intangible, which have a value on the books of the Company, either
individually or in the aggregate, in excess of $10,000;
(i) The Company shall not enter into any other agreement,
commitment or contract, except agreements, commitments or contracts
for the purchase, sale or lease of products or services in the
ordinary course of business, consistent with past practice and not in
excess of current requirements;
(j) Except as fully reflected in the Financial Statements
or on Schedule 4.1(j), the Company shall not make any single capital
expenditure, capital addition or capital improvement in an amount
exceeding $10,000 for any single facility;
(k) Without limiting the provisions of Section 4.5
hereof, none of the Company, the Sellers or the officers or directors
of the Company may approve, recommend or undertake, with the Company
as the surviving, disappearing or acquiring corporation, any merger,
consolidation, acquisition of all or substantially all of the assets,
tender offer or other
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takeover transaction or enter into any negotiations with, or furnish
or cause to be furnished, any information concerning its business,
properties or assets to, any person (other than the Purchaser) that
the Company or any of such officers or directors knows to be
interested in any such transaction;
(l) The Company shall not take, or permit to be taken,
any action or do, or permit to be done, anything in the conduct of the
business of the Company that would be contrary to or in breach of any
of the terms or provisions of this Agreement or that would cause any
of the representations contained herein to be or to become untrue;
(m) Except as fully described on Schedule 4.1(m), the
Company shall not settle any claim, action or proceeding existing on
or commenced after the date hereof or waive any right against a third
party;
(n) The Company shall not make any loan or advance to any
officer, director, employee, consultant, representative, salesman or
agent of the Company involving more than $10,000 in the aggregate or
make any other loan or advance;
(o) The Company shall not pay or commit to pay any
commission or other amount to any director or officer of the Company
or any employee, consultant, representative, salesman or agent of the
Company or any relative or affiliate of any of them except in
accordance with employment contracts or arrangements entered into in
the ordinary or usual course of business;
(p) The Company shall not make any unlawful payment to
governmental or quasi-governmental officials or, except as fully
described on Schedule 2.11(m), payments to customers or suppliers for
the sharing of fees or rebating of charges or reciprocal practices;
(q) None of any Seller or any of the persons set forth on
Schedule 2.18, and no relative or affiliate known to any Seller or the
Company of any such person shall enter into any transaction with the
Company involving the receipt by or payment by the Company of more
than $10,000 in cash, property or services or the increase in the debt
or other liabilities of the Company, except in the ordinary course of
their employment or as set forth on Schedule 2.18; and
(r) Except as fully described on Schedule 4.1(r), or as
provided in Section 6.1(h) the Company or the Sellers shall not amend
any Lease or any instrument affecting the Leasehold.
4.2 Obtaining Consents. The Sellers and the Company will use all
reasonable efforts to obtain, and to assist the Purchaser in obtaining, all
consents, resignations, authorizations and approvals and making all filings
necessary for the consummation of the transactions contemplated by this
Agreement.
4.3 Access by the Purchaser to the Company. During the period
from the date of this Agreement to the Closing Date or the prior termination of
this Agreement pursuant to Section 6.3, the Purchaser and its employees,
representatives and agents shall be given access to the facilities,
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properties, personnel, books and records of the Company for the purpose of
conducting an investigation of its financial condition, corporate status,
business, properties and assets; provided, however, that such investigation
shall be conducted in a manner that does not interfere with normal operations
of the Company. The Company will cause the employees, counsel, accountants and
other representatives of the Company to be available to the Purchaser and its
employees and agents at all reasonable times for such purposes.
4.4 Confidentiality. None of the Company, any Seller or any
employee or other representative or agent of the Company or any Seller will
disclose or use any information obtained in the course of the negotiation of
this Agreement or otherwise or set forth in any schedule hereto, except (a) in
connection with the consummation hereof, (b) as required by law, (c) as may be
necessary to the prosecution or defense of any claim or suit brought to enforce
rights under this Agreement, or (d) to the extent that the same may become
public other than through the action of the Company or any Seller or the
representatives, agents or employees of the Company or any Seller. If the
transactions contemplated hereby are not consummated and this Agreement
terminates, the Company, any Seller, their employees and other representatives
and agents promptly will return all copies of documents, contracts or records
and other properties furnished by the Purchaser or its affiliates pursuant to
this Agreement.
4.5 Exclusive Agreement. Except to the extent otherwise expressly
contemplated by this Agreement, unless this Agreement is terminated prior to
Closing, none of Sellers, the Company nor any affiliate thereof will directly
or indirectly (a) encourage, solicit or engage in discussions or any
negotiations with, or provide any information to, any person or entity (other
than the Purchaser or affiliates of the Purchaser) concerning any possible
disposition of any of the Company or any asset (unless and to the extent that
such property or asset would be expressly permitted by this Agreement to be
disposed of), or (b) do anything or enter into any agreement or take any action
that by its terms or effect could reasonably be expected to adversely affect
the ability of the parties to consummate the transactions contemplated by this
Agreement on the terms and conditions set forth herein or that would be
contrary to or breach any of the terms or provisions of this Agreement or that
would cause any of the representations or warranties contained herein to be or
become untrue in any material respect.
4.6 Satisfaction of Closing Conditions. The Company and Sellers
shall use all reasonable efforts to satisfy the conditions to Closing set forth
in Article VI relating to any Seller or the Company in an expeditious manner.
4.7 Delivery of Documents at Closing. At the Closing, subject to
satisfaction of the conditions set forth in Article VI, Sellers and the Company
shall execute and deliver to the Purchaser all documents required to be
delivered pursuant to Section 6.1.
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ARTICLE V
COVENANTS OF THE PURCHASER
The Purchaser further agrees, except as set forth in or contemplated
by this Agreement or as otherwise approved by the Sellers in writing, as
follows:
5.1 Obtaining Consents. The Purchaser will use all reasonable
efforts to obtain all consents, authorizations and approvals and making all
filings necessary for the consummation of the transactions contemplated by this
Agreement.
5.2 Confidentiality. Until the transactions contemplated hereby
have been consummated (and if for any reason such transactions are not
consummated for a period of two years after the effective date hereof), neither
the Purchaser nor any employee or other representative or agent of the
Purchaser will disclose or use any information obtained in the course of its
investigation under Section 4.3, the negotiation of this Agreement or otherwise
or set forth in any schedule hereto, except (a) in connection with the
consummation hereof, (b) as required by law, (c) as may be necessary to the
prosecution or defense of any claim or suit brought to enforce rights under
this Agreement, (d) to the extent that the same may become public other than
through the action of the Purchaser, or the representatives, agents or
employees of the Purchaser or (e) in connection with the negotiation and
consummation of the sale of securities of the Purchaser or any of its
affiliates to investors, provided that such investors agree to keep such
information confidential on the terms set forth herein. If the transactions
contemplated hereby are not consummated and this Agreement terminates, the
Purchaser, its employees and other representatives and agents promptly will
return all copies of documents, contracts or records and other properties
furnished by Sellers or Company pursuant to this Agreement.
5.3 Satisfaction of Closing Conditions. The Purchaser shall use
all reasonable efforts to satisfy the conditions to Closing set forth in
Article VI relating to the Purchaser in an expeditious manner.
5.4 Delivery of Documents at Closing. At the Closing, subject to
satisfaction of the conditions set forth in Article VI, the Purchaser shall
execute and deliver to the Sellers the documents contemplated to be delivered
pursuant to Section 6.2.
ARTICLE VI
CONDITIONS TO THE CLOSING; TERMINATION
6.1 Conditions to Obligation of the Purchaser. The obligation of
the Purchaser to effect the transactions contemplated by this Agreement is
subject to the following conditions:
(a) Representations and Warranties of the Company and the
Sellers to be True. (i) The representations and warranties of the
Company and the Sellers hereunder shall be made again at the Closing
and to the extent qualified with respect to materiality shall be true
and correct in all respects as of the Closing, and to the extent not
so qualified shall be true
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and correct in all material respects as of the Closing, (ii) the
Company and the Sellers shall have performed (or caused to have been
performed) in all material respects all covenants required of them
(and their affiliates) by this Agreement as of the Closing and (iii)
the Company and the Sellers shall have furnished the Purchaser at the
Closing with a certificate of the Sellers and the President of the
Company to such effect.
(b) Third Party Consents. The Company and the Sellers
shall have obtained all required consents to the transactions
contemplated by this Agreement from the parties to material contracts,
agreements, understandings, franchises, permissions and commitments of
the Company, the Sellers and the Purchaser including, but not limited
to, all necessary consents relating to Purchaser's assumptions or
discharge of (i) Sellers' obligations under the WCMA Loan Agreement,
and (ii) Sellers' obligations under the CIT Loan Agreement.
.
(c) Statutory Requirements; Litigation. All statutory
requirements for the valid consummation of the transactions
contemplated herein shall have been fulfilled and all necessary
governmental consents, approvals or authorizations shall have been
obtained, and there shall not be any actual or threatened litigation
(including any investigation by any Governmental Authority) to
restrain or invalidate the transactions contemplated herein, the
defense of which would, in the judgment of the Purchaser, made in good
faith and based upon the advice of counsel, involve expense or lapse
of time that would be materially adverse to the interests of the
Purchaser.
(d) Stock Certificates. The Sellers shall have delivered
to the Purchaser at the Closing one or more stock certificates
representing the Shares in good delivery form and duly endorsed for
transfer or accompanied by duly executed stock powers evidencing all
of the Common Stock.
(e) Lease Agreement. The Company, Lawrence L. Amstutz
and Ruth C. Amstutz shall have executed and delivered to each other a
Lease Agreement in the form of Exhibit B attached hereto (the "Lease
Agreement").
(f) Officers and Directors. The Company and the Sellers
shall have delivered to the Purchaser resignations for each officer
and director of the Company, which resignations shall be effective
contemporaneously with the closing of the purchase by the Purchaser of
the Common Stock; provided, however, that the resignations for
Lawrence L. Amstutz and Barry L. Brock shall not constitute
resignations as employees, and the parties acknowledge and agree that
such persons shall continue as employees of the Company following the
Closing Date on an "at will" basis.
(g) Leaseholds. The Sellers shall have delivered to the
Purchaser the following documents:
(i) Landlord Estoppel Certificates. An estoppel
certificate from the landlord under each Lease certifying as
to such Lease (A) neither the landlord nor, to the landlord's
knowledge, the Company is in default, (B) the amount of any
prepaid rent and any security deposit, (C) if the Company is
obligated to pay rent in respect of increased operating
expenses, (1) the expense stop or base for calculating
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such rent, (2) the tenant's proportionate share of operating
expenses (expressed as a percentage), and (3) the 1996
operating expenses for the building in which the premises
subject to the Lease are located and an estimate of the 1997
operating expenses therefor, (D) any improvements required to
be installed or completed in the premises by the tenant under
the Lease after the Closing Date, and (E) the name of any
ground lessor or lienholder whose lease or liens encumber the
premises; additionally, such certificate shall contain the
landlord's consent to the transactions contemplated by this
Agreement, if such consent is required.
(ii) Removal of Existing Tenants. Evidence
satisfactory to the Purchaser in its reasonable judgment that,
except with regard to Bates Container, Inc. ("Bates") pursuant
to that certain Sublease Agreement between Bates and the
Company dated July 22, 1997 (the "Sublease Agreement"),
neither any Existing Tenant nor any other person occupies any
portion of any of the Leaseholds or has any rights to occupy
any portion of any of the Leaseholds.
(iii) Subtenant Estoppel Certificate. An estoppel
certificate from Bates certifying that neither Bates nor, to
the best of Bates' knowledge, the Company is in default under
the Sublease Agreement.
(h) Lender Estoppel Certificates. The Sellers shall have
delivered to the Purchaser an estoppel certificate from the lender
under the WCMA Loan Agreement and the CIT Loan Agreement, in each
case certifying that the Company is not in default under such loan
agreement.
(i) Repayment of Amounts Owed to the Company by the
Sellers. Any amounts owed by any Seller to the Company shall be
repaid in full at or prior to the Closing.
6.2 Conditions to Obligations of the Sellers and the Company. In
addition to the satisfaction of the conditions referred to in subparagraph (b)
of Section 6.1 hereof, the obligations of the Company and the Sellers to effect
the transactions contemplated by this Agreement shall be subject to the
following conditions:
(a) Representations and Warranties of the Purchaser to Be
True. (i) The representations and warranties of the Purchaser
hereunder shall be made again at the Closing and shall be true in all
material respects as of the Closing Date, (ii) the Purchaser shall
have performed in all material respects all covenants required of it
by this Agreement as of the Closing Date and (iii) the Purchaser shall
have furnished the Sellers at the Closing with a certificate of one of
its authorized representatives to such effect.
(b) Statutory Requirements; Litigation. All statutory
requirements for the valid consummation of the transactions
contemplated herein shall have been fulfilled and all necessary
governmental consents, approvals or authorizations shall have been
obtained and there shall not be any actual or threatened litigation
(including any investigation by any Governmental Authority) to
restrain or invalidate the transactions contemplated herein, the
defense of which would, in the judgment of the Sellers, made in good
faith and based upon
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the advice of counsel, involve expense or lapse of time that would be
materially adverse to the interests of the Sellers.
(c) Payment of Purchase Price. The Purchaser shall have
paid the cash purchase price for the shares of Common Stock to be paid
at the Closing as specified in Section 1.1 hereof.
(d) Release of Personal Guaranties. At or prior to the
Closing, Mr. and Mrs. Amstutz shall have been released from the
personal guaranties of the indebtedness or lease obligations of the
Company listed on Schedule 2.22.
(e) Lease Agreement. The Company, Lawrence L. Amstutz
and Ruth C. Amstutz shall have executed and delivered to each other
the Lease Agreement.
(f) Delivery of the Warrant. The Purchaser shall have
delivered the Warrants to the Sellers.
6.3 Termination of Agreement. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated herein may be
terminated at any time before the Closing as follows:
(a) Mutual Consent. By the mutual consent of the Sellers
and the Purchaser.
(b) Expiration Date. By any of the Sellers or the
Purchaser if the Closing shall not have occurred on or before November
30, 1997, provided, however, that no party hereto can terminate this
Agreement pursuant to this clause 6.3(b) if at such time such party is
in breach of any provision of this Agreement.
6.4 Effect of Termination and Failure of Conditions. In the event
of termination of this Agreement as provided in Section 6.3, or of the failure
of a condition resulting in the Purchaser, the Company or the Sellers not
performing its or their obligations hereunder pursuant to the terms of Section
6.1 or 6.2, as the case may be, this Agreement shall forthwith become void and
there shall be no liability on the part of any party hereto with respect
thereto except (i) the provisions of Sections 4.4 and 5.2 shall survive any
such termination and (ii) nothing herein shall relieve any party from liability
for any breach hereof.
ARTICLE VII
ADDITIONAL AGREEMENTS OF THE PARTIES
7.1 Survival of Representations and Warranties.
(a) All statements contained in any certificate,
schedule, exhibit, financial statement or other document or instrument
delivered by or on behalf of any party hereto pursuant to or in
connection with this Agreement for the purposes of this Agreement
shall be deemed to be representations and warranties hereunder.
Except to the extent otherwise provided in paragraph (b) below, the
representations, warranties and covenants hereunder
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shall survive the Closing and any investigation of any of the parties
with respect thereto indefinitely.
(b) The representations hereunder shall survive the
Closing for the following periods after the Closing Date:
(i) The representations and warranties set forth
in Sections 2.2 and 2.10, and all of the covenants set forth
in this Agreement, shall survive without limitation as to
time.
(ii) The representations and warranties set forth
in Sections 2.12 and 2.13 shall survive until one day after
the expiration of the applicable statute of limitations
(including all extensions).
(iii) All other representations shall survive for
two years and one day.
The date of expiration of any representation or warranty shall
be referred to herein as the "Termination Date". Representations and
warranties under this Agreement shall be of no further force or effect
after the applicable Termination Date; provided, however, that there
shall be no such termination of any representation or warranty with
respect to a bona fide claim asserted with respect thereto prior to
such date in accordance with the terms of Section 7.2.
7.2 Indemnification.
(a) Breaches of Representations, Warranties, Covenants or
Agreements. Sellers jointly and severally agree to defend, indemnify
and hold harmless the Purchaser Indemnitees (as hereinafter defined)
from and against any and all Losses (as hereinafter defined) asserted
against, resulting from, imposed upon or incurred by any of the
Purchaser Indemnitees by, or arising out of, or as a result of, any of
the representations, warranties, covenants or agreements of Sellers or
the Company contained in this Agreement or any certificate or
instrument delivered by any Seller or the Company pursuant to the
terms hereof being incorrect, untrue or breached. For purposes of
this Section 7.2, in determining whether a representation or warranty
of Sellers or the Company is incorrect, untrue, or breached, as well
as the amount of any loss resulting therefrom, the provisions of
Article II that are qualified by materiality shall be read and
interpreted as if such qualification was not included therein. The
Purchaser agrees to defend, indemnify and hold harmless the Seller
Indemnitees from and against any and all Losses asserted against,
resulting from, imposed upon or incurred by any of the Seller
Indemnitees by, or arising out of, or as a result of, any of the
representations, warranties, covenants or agreements of the Purchaser
contained in this Agreement or any certificate or instrument delivered
by the Purchaser pursuant to the terms hereof being incorrect, untrue
or breached. Notwithstanding the foregoing provisions of this
Section 7.2(a), Sellers and/or the Purchaser shall have liability
pursuant to this Section 7.2(a) arising out of representations and
warranties being incorrect or untrue or covenants or agreements
breached only with respect to Losses arising out of or as a result of
a breach or untruth described in a Claim Notice (as hereinafter
defined) given to Sellers or the Purchaser,
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respectively, in accordance with the provisions hereof on or prior to
the applicable Termination Date, if any.
(b) Express Negligence Acknowledgment. Without limiting
or enlarging the scope of the indemnification obligations set forth in
this Agreement, AN INDEMNIFIED PARTY WILL BE ENTITLED TO
INDEMNIFICATION IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT
REGARDLESS OF WHETHER THE LOSS GIVING RISE TO SUCH INDEMNIFICATION
OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT, OR COMPARATIVE
NEGLIGENCE, FAULT, OR STRICT LIABILITY OF SUCH INDEMNIFIED PARTY.
(c) Seller Basket Losses. Indemnification by Sellers for
Losses under Section 7.2(a), except for indemnification for breaches
of (i) any covenant, (ii) any representations contained in Sections
2.2, 2.5, 2.15 and 2.21, and (iii) any obligation of any Seller set
forth in this Agreement or in any document delivered pursuant hereto
to pay sums to any Purchaser Indemnitee which obligation was not
otherwise subject to the limitations of this Section 7.2(c)
(collectively "Seller Basket Losses"), shall be subject to the
following limitations:
(i) Any Loss (or series of related Losses) that
would otherwise be a Seller Basket Loss must equal or exceed
$2,000 in order to be subject to indemnification or constitute
a Seller Basket Loss.
(ii) Sellers shall not be required to indemnify
the Purchaser Indemnitees for any Seller Basket Losses until
the aggregate amount of all Seller Basket Losses equals or
exceeds $25,000; provided, however, that if the aggregate
amount of Seller Basket Losses exceeds $25,000, then the
Sellers shall indemnify the Purchaser Indemnitees for all
Seller Basket Losses, including, without limitation, the
Seller Basket Losses below the $25,000 threshold.
(d) Purchaser Basket Losses. Indemnification by
Purchaser for Losses under Sections 7.2(a), except for indemnification
for breaches of any covenant and breaches of any representation
contained in Section 3.3 and except for breaches of any obligation of
the Purchaser set forth in this Agreement or in any document delivered
pursuant hereto to pay sums to any Seller Indemnitee which obligation
was not otherwise subject to the limitations of this Section 7.2(d)
(collectively "Purchaser Basket Losses"), shall be subject to the
following limitations:
(i) Any Loss (or series of related Losses) that
would otherwise be a Purchaser Basket Loss must equal or
exceed $2,000 in order to be subject to indemnification or
constitute a Purchaser Basket Loss.
(ii) The Purchaser shall not be required to
indemnify the Seller Indemnitees for any Purchaser Basket
Losses until the aggregate amount of all Purchaser Basket
Losses equals or exceeds $25,000; provided, however, that if
the aggregate amount of Purchaser Basket Losses exceeds
$25,000, then the Purchasers shall indemnify the Seller
Indemnitees for all Purchaser Basket Losses, including,
without limitation, the Purchaser Basket Losses below the
$25,000 threshold.
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(e) Assertion of Claims. All claims for indemnification
by any of the Seller Indemnitees or any of the Purchaser Indemnitees
under Section 7.2(a) or any other provision of this Agreement or any
Document shall be asserted and resolved as follows:
(i) Any person claiming indemnification hereunder
is hereinafter referred to as the "Indemnified Party" and any
person against whom such claims are asserted hereunder is
hereinafter referred to as the "Indemnifying Party." In the
event that any Losses are asserted against or sought to be
collected from an Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness and in
writing notify the Indemnifying Party of the Losses,
specifying the nature of and specific basis for such Losses
and the indemnity claim and the amount or the estimated amount
thereof to the extent then feasible and enclosing a copy of
all papers (if any) served with respect to the claim (the
"Claim Notice"). The Indemnifying Party shall not be
obligated to indemnify the Indemnified Party with respect to
any such Losses if the Indemnified Party fails to notify the
Indemnifying Party thereof in accordance with the provisions
of this Agreement in reasonably sufficient time so that the
Indemnifying Party's ability to defend against the Losses is
not prejudiced, but only to the extent such notification
within such time period is practicable. The Indemnifying
Party shall have 30 days from the date the Claim Notice is
given in accordance with the notice provisions hereof (the
"Notice Period") to notify the Indemnified Party (x) whether
it disputes the liability of the Indemnifying Party to the
Indemnified Party hereunder with respect to such Losses and
(y) whether it desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Party against
such Losses; which election to defend may be made without
prejudicing the Indemnifying Party as to its liability
hereunder, other than with respect to the costs of defense.
Notwithstanding the foregoing, any Indemnified Party is hereby
authorized prior to and during the Notice Period to file any
motion, answer or other pleading that it shall deem necessary
or appropriate to protect its interests or those of the
Indemnifying Party (and of which it shall have given notice
and opportunity to comment to the Indemnifying Party) and that
is not prejudicial to the Indemnifying Party. (A) In the
event that the Indemnifying Party notifies the Indemnified
Party within the Notice Period that it desires to defend the
Indemnified Party against such Losses and except as
hereinafter provided, the Indemnifying Party shall have the
right to defend by all appropriate proceedings, and with
counsel of its own choosing, which proceedings shall be
promptly settled or prosecuted by them to a final conclusion.
If the Indemnified Party desires to participate in, but not
control, any such defense or settlement it may do so at its
sole cost and expense. If requested by the Indemnifying
Party, the Indemnified Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any Losses
that the Indemnifying Party elects to contest, or, if
appropriate and related to the claim in question, in making
any counterclaim against the person asserting the third party
Losses, or any cross-complaint against any person. No claim
with respect to which the Indemnifying Party has admitted its
liability may be settled or otherwise compromised without the
prior written consent of the Indemnifying Party. Any party
settling or compromising a claim in violation of the preceding
sentence shall be solely liable for the amount of the
settlement or compromise. (B) If the Indemnifying Party does
not notify the Indemnified Party within 30 days after the
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receipt of a Claim Notice that it elects to undertake the
defense thereof, the Indemnified Party shall have the right to
defend at the expense of the Indemnifying Party the claim with
counsel of its choosing reasonably satisfactory to the
Indemnifying Party, subject to the right of the Indemnifying
Party to assume the defense of any claim at any time prior to
settlement or final determination thereof. Any such defense
shall be prosecuted promptly and vigorously by the Indemnified
Party. In the case of either (A) or (B), if the Indemnifying
Party has not yet admitted its liability for a claim, the
Indemnified Party shall send a written notice to the
Indemnifying Party of any proposed settlement of any claim
received by the Indemnified Party. The Indemnifying Party
shall have an option for 30 days following receipt of such
notice to (i) admit liability for the claim if it has not
already done so and (ii) if liability has been admitted,
reject, in its reasonable judgment, the proposed settlement.
Failure to reject such settlement within such 30-day period
shall be deemed an acceptance of such settlement. If the
Indemnified Party settles any such claim over the objection of
the Indemnifying Party, the Indemnified Party shall thereby
waive any right to indemnity therefor, unless the Indemnifying
Party has not prior to the time of settlement admitted
liability for such claim.
(ii) In the event any Indemnified Party should
have a claim for Losses against any Indemnifying Party
hereunder that does not involve a Loss being asserted against
or sought to be collected from it by a third party (for
example, but without limitation, a Loss resulting from a
breach of a representation, warranty or covenant), the
Indemnified Party shall send a Claim Notice with respect to
such claim to the Indemnifying Party. If the Indemnifying
Party does not notify the Indemnified Party within 30 days
from the date the claim notice is given that it disputes such
claim for Losses, the amount of such Losses shall be
conclusively deemed a liability of the Indemnifying Party
hereunder.
7.3 Sellers' Access to the Company. If the Closing occurs, then,
following such Closing and upon at least 48 hours' prior written notice, the
Sellers and their employees, representatives and agents shall be given access
during reasonable business hours to the facilities, properties, personnel,
books and non-privileged records of the Company for the purpose of satisfying
any obligations imposed upon the Sellers pursuant to this Agreement, including
without limitation the indemnification obligations imposed pursuant to Section
7.2; provided, however, that such investigation shall be conducted in a manner
that does not interfere with normal operations of the Company. The Company
will cause the employees, counsel, accountants and other representatives of the
Company to be available to the Sellers and its employees and agents at all
reasonable times during business hours for such purposes.
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7.4 Agreement Not to Compete.
(a) As a further inducement to the Purchaser to enter
into this Agreement, Lawrence L. Amstutz and Ruth C. Amstutz agree
that (except for any activities undertaken by Lawrence L. Amstutz
solely in his capacity as an employee of the Company) during the
period from the Closing Date until the fifth anniversary thereof:
(i) Neither Lawrence L. Amstutz nor Ruth C.
Amstutz shall, directly or indirectly, for their own account
or for the account of others, as an officer, director, passive
stockholder, owner, partner, member, promoter, consultant,
advisor, employee, manager or otherwise, participate in the
promotion, financing, ownership, operation or management of,
or assist in, furnish advice with respect to, or carry on
through a proprietorship, partnership, joint venture, limited
liability company, corporation, other form of business entity
or otherwise, any business activity in a geographic market
within the State of Texas or any other state where the Company
is doing such business or, as of the date of this Agreement
has plans to do such business, involving or relating to the
business of distributing, packaging, and processing picante
sauce, pasta sauce, salsa, dips, cheese sauce, and related
products; provided, however, that nothing in this clause (i)
shall prohibit Lawrence L. Amstutz's or Ruth C. Amstutz's
aggregate beneficial ownership of not in excess of 1% of any
class of common stock that is listed for trading on a national
securities exchange; and
(ii) Neither Lawrence L. Amstutz or Ruth C.
Amstutz shall furnish advice to, solicit, or do business with
any customer (or any previous customer within the last year)
of the Company or any of its subsidiaries relating to the
business of the Company in any geographic market within the
State of Texas or any other state where such customer is doing
business with the Company or any of its subsidiaries.
(iii) Neither Lawrence L. Amstutz nor Ruth C.
Amstutz shall permit any corporation, partnership, limited
partnership, limited liability company, or other entity in
which either of them owns an interest and that is not listed
for trading on a national securities exchange to, make any
offer of employment to any person employed by the Company as
of the Closing.
(b) Although the parties to this Agreement have, in good
faith, used all reasonable efforts to make this covenant reasonable in
both geographic area and in duration, and it is not anticipated, nor
is it intended, by either of the parties to this Agreement that any
court of competent jurisdiction would find it necessary to reform this
covenant not to compete to make it reasonable in both geographic area
and in duration, or otherwise, the parties to this Agreement agree
that any court of competent jurisdiction making a determination that
it is necessary to reform this covenant not to compete to make it
reasonable in either geographic area or duration, or otherwise, shall
be, and hereby is, empowered and directed to reform this Agreement to
a reasonable restriction rather than invalidating this covenant or
otherwise rendering it unenforceable.
29
<PAGE> 30
(c) In the event of breach by either Lawrence L. Amstutz
or Ruth C. Amstutz of this covenant not to compete, it is understood
and agreed (i) that the Purchaser or the Company shall be entitled to
injunctive relief as well as any and all other applicable remedies at
law and in equity; and (ii) that damages, if any, for the breach of
this covenant not to compete will accrue and be recoverable by the
Purchaser or any subsidiary as of and from the date of the breach
insofar as the damages for such breach relate to an action that
occurred within the scope of the geographic area and duration of the
covenant not to compete determined to be reasonable (whether or not
the covenant is reformed in connection with such determination).
ARTICLE VIII
MISCELLANEOUS
8.1 Certain Definitions. The following terms as used in this
Agreement shall have the following meanings:
(a) The term "subsidiary" shall mean with respect to a
specified entity (i) in the case of a corporation, 40% or more of the
capital stock, the holders of which are regularly entitled to vote for
the election of directors, is owned directly or indirectly by such
entity, (ii) in the case of a trust, partnership or other entity, a
trust, partnership or entity of which such specified entity owns
directly or indirectly 40% or more of the beneficial interest or
equity; and
(b) The term "affiliate" shall mean with respect to a
specified entity, an entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under
common control with the entity specified.
8.2 Expenses. Each party hereto shall bear its own legal,
accounting and other costs and expenses incident to the negotiation of this
Agreement and the performance of the transactions contemplated herein. All
expenses of the Company with respect to the transactions contemplated herein
shall be solely for the account of Sellers.
8.3 Notices. Any notice, communication, request, instruction or
other document required or permitted hereunder or under any document delivered
pursuant hereto shall be given in writing and delivered in person or sent by
U.S. Mail postage prepaid, return receipt requested, or by telex, facsimile or
telecopy to the addresses or facsimile numbers, as appropriate, as set forth
below.
If to the Sellers, and, prior to the Closing, the Company, to:
Mr. Lawrence L. Amstutz
Ms. Ruth C. Amstutz
13630 Bluff Circle
San Antonio, Texas 78216
and
30
<PAGE> 31
Mr. Barry L. Brock
4527 Cypress Woods
San Antonio, Texas 78249
with a copy to:
Mr. Edgar Duncan
Duncan, Ulman, Weakley & Bressler
603 Navarro
1000 South Texas Building
San Antonio, Texas 78205-1838
Telecopy: (210) 224-6958
and in the case of the Purchaser, and after the Closing, the Company, to:
Authentic Specialty Foods, Inc.
c/o The Shansby Group
250 Montgomery Street
Suite 1100
San Francisco, California 94194
Attention: Keith R. Lively
Telecopy: (415) 421-5120
with a copy to:
Vinson & Elkins L.L.P.
3300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: J. Mark Metts, Esq.
Telecopy: (713) 758-2346
or at such other address or facsimile number as may have been specified by like
notice.
8.4 Headings. The descriptive headings of the several Articles
and Sections of this Agreement are inserted for convenience only and do not
constitute a part of the Agreement.
8.5 Entire Agreement. This Agreement, the documents to be
executed hereunder, and the exhibits attached hereto constitute the entire,
completely integrated agreement between the parties hereto pertaining to the
subject matter hereof and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties
pertaining to the subject matter hereof, including without limitation (a) that
certain letter of intent dated October 8, 1996 by and among the Purchaser
(which was known at the time as "Calidad Foods, Inc."), the Company, Lawrence
L. Amstutz and Ruth C. Amstutz, (b) that certain letter of intent dated January
13, 1997 by and among the Purchaser, the Company, Lawrence L. Amstutz and Ruth
C. Amstutz and (c) that certain letter of intent dated September 19, 1997 by
and among the Purchaser, the Company, Lawrence L. Amstutz and Ruth C. Amstutz.
31
<PAGE> 32
8.6 Waiver. At any time prior to the Closing, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto or (b) waive compliance with any of the
agreements of any other party or with any conditions to its own obligations.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid if set forth in an instrument in writing signed on behalf of
such party. The consummation of the transactions contemplated hereby shall not
be deemed a waiver of the right any party may have hereunder with respect to
any other party's representations, warranties, covenants or agreements
contained in or related to this Agreement being incorrect, untrue or breached.
8.7 Amendment. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto. No supplement,
alteration or modification of this Agreement shall be binding unless executed
in writing by the parties hereto.
8.8 Public Statements. Prior to the Closing Date, Sellers, the
Company and the Purchaser shall consult with each other with regard to all
publicity, general employee announcements and public announcements concerning
this Agreement and the transactions contemplated hereby and, except as required
by applicable law or the applicable rules or regulations of any governmental
body or stock exchange (including, without limitation, the Nasdaq Stock
Market), no party shall issue a press release or announcement concerning this
Agreement and the transactions contemplated hereby without the prior written
consent of the other parties hereto. After the Closing Date, Sellers shall not
issue a press release or announcement concerning this Agreement and the
transactions contemplated hereby without the prior written consent of the
Purchaser.
8.9 Further Actions. Each party shall execute and deliver such
other certificates, agreements and other documents and take such other actions
as may reasonably be requested by the other parties in order to consummate or
implement the transactions contemplated by this Agreement. Without limiting
the foregoing, Sellers agree to perform any reasonable acts necessary to obtain
state, federal or foreign registration of any Mark currently used in the
Company's business as now conducted.
8.10 Assignment. No Seller may assign or delegate any of its
rights or duties hereunder, without the prior written consent of the Purchaser.
Any assignment or delegation made without such consent shall be void. Except
as otherwise provided herein, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective permitted successors,
assigns and legal representatives.
8.11 Independent Covenants. The covenants contained herein are
independent and separate, and in the event that any provision contained herein
is declared invalid or illegal, the other provisions hereof shall not be
affected or impaired thereby and shall remain valid and enforceable.
8.12 Specific Performance. In the event of a breach or threatened
breach by any party hereto of the provisions of this Agreement, any other party
hereto shall be entitled to specific performance. Nothing herein shall be
construed as prohibiting any party hereto from pursuing any other remedies
available for such breach or threatened breach, including the recovery of
damages.
32
<PAGE> 33
8.13 Governing Law. This Agreement and the other documents
delivered pursuant hereto and the legal relations between the parties shall be
governed and construed in accordance with the laws of the State of Texas,
without giving effect to principles of conflict of laws.
8.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but
all of which together shall constitute one and the same instrument.
8.15 Withholding or Granting of Consent. Except as otherwise
provided in this Agreement, each party hereto may, with respect to any consent
or approval that it is entitled to grant pursuant to this Agreement or any
other document or instrument or agreement delivered or entered into pursuant
hereto, grant or withhold such consent or approval in its sole and uncontrolled
discretion, with or without cause, and subject to such conditions as it shall
deem appropriate.
8.16 No Third Party Beneficiaries. Nothing in this Agreement shall
provide any benefit to any third party or entitle any third party to any claim,
cause of action, remedy or right of any kind, it being the intent of the
parties that this Agreement shall not be construed as a third party beneficiary
contract; provided, however, that the indemnification provisions in Sections
7.2 shall inure to the benefit of the Purchaser Indemnitees and the Seller
Indemnitees as provided therein.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
AUTHENTIC SPECIALTY FOODS, INC.
By:
-----------------------------------
Samuel E. Hillin, Jr.
Chief Financial Officer
SAUCES UNLIMITED, INC.
By:
-----------------------------------
Lawrence L. Amstutz
President
--------------------------------------
LAWRENCE L. AMSTUTZ
--------------------------------------
RUTH C. AMSTUTZ
--------------------------------------
BARRY L. BROCK
33
<PAGE> 34
APPENDICES, EXHIBITS, AND SCHEDULES
<TABLE>
<CAPTION>
Appendix I Ownership of Common Stock
<S> <C>
Exhibit A Form of Warrant Agreement
Exhibit B Form of Lease Agreement
Schedule 2.1 Foreign Jurisdictions
Schedule 2.2 Stock Ledger
Schedule 2.4 Governmental Authorizations
Schedule 2.5 Financial Statements
Schedule 2.6 Adverse Changes
Schedule 2.7(a) Leases
Schedule 2.7(b) Other Parties in Possession
Schedule 2.7(c) Condemnation Proceedings
Schedule 2.7(i) Utility Connections
Schedule 2.7(j) Land Use Restrictions
Schedule 2.7(l) Equipment
Schedule 2.7(n) Leases
Schedule 2.8 Litigation
Schedule 2.9(a) Marks
Schedule 2.9(c) Copyrights
Schedule 2.9(d) Certain Employees
Schedule 2.9(e) Working Requirements, Fees, Etc.
Schedule 2.10(a) Environmental and Health Laws
Schedule 2.10(c) Environmental Permits
Schedule 2.10(d) Waste Disposal
Schedule 2.10(e) Underground Storage Tanks
Schedule 2.10(f) Releases
Schedule 2.10(g) Environmental Reports
Schedule 2.11(a) Options
Schedule 2.11(b) Service Agreements
Schedule 2.11(c) Agreements Relating to Real Property
Schedule 2.11(d) Construction Contracts
Schedule 2.11(e) Accounts Receivable
Schedule 2.11(f) Compensation
Schedule 2.11(g) Compensation Policies
Schedule 2.11(h) Pleadings and Complaints
Schedule 2.11(i) Depreciation Schedules
Schedule 2.11(j) Employee Benefits
Schedule 2.11(k) Credit Documents
Schedule 2.11(l) Material Contracts
Schedule 2.11(m) Agreements Not to Compete
Schedule 2.11(n) Royalty Agreements
Schedule 2.11(o) Contracts with Interested Parties
Schedule 2.12(a) Tax Returns
Schedule 2.12(c) Tax Claims
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C>
Schedule 2.12(d) Tax Extensions
Schedule 2.13 Employee Benefit Plan, Employee Classification
Schedule 2.14 Conflicts
Schedule 2.17 Banks
Schedule 2.18 Officers and Directors
Schedule 2.19 Suppliers and Customers
Schedule 2.21 Outstanding Indebtedness
Schedule 2.22 Company Loans
Schedule 2.23 Part I Insurance Information
Schedule 2.23 Part II Insurance Policies
Schedule 4.1(j) Capital Expenditures, Additions, and Improvements
Schedule 4.1(r) Certain Amendments
</TABLE>
35
<PAGE> 36
APPENDIX I
OWNERSHIP OF COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF PORTION OF CASH WARRANTS
COMMON STOCK PURCHASE PRICE TO TO BE
SHAREHOLDER OWNED BE RECEIVED RECEIVED
----------- ----- ----------- --------
<S> <C> <C> <C>
Lawrence C. Amstutz 500,000 $2,352,941 39,216
Barry L. Brock 10,000 47,059 784
-------- ---------- -------
Total 510,000 $2,400,000 40,000
======== ========== =======
</TABLE>
36
<PAGE> 1
EXHIBIT 3.1
BYLAWS
OF
AUTHENTIC SPECIALTY FOODS, INC.
A Texas Corporation
Date of Adoption:
June 19, 1997
<PAGE> 2
TABLE OF CONTENTS
TO
BYLAWS
OF
AUTHENTIC SPECIALTY FOODS, INC.
A Texas Corporation
<TABLE>
<S> <C>
ARTICLE I
REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Quorum; Required Vote for Shareholder Action;
Adjournment of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 4. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 5. Closing Share Transfer Records; Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 6. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 7. Voting List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 8. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 9. Voting; Inspectors; Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 10. Conduct of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 11. Treasury Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 12. Action by Written Consent or Telephone Conference . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III
BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1. Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2. Number; Classification; Term of Office; Vacancies;
Increases in the Number of Directors; Removal . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2. Quorum; Required Vote for Director Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3. Meetings; Order of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4. First Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8. Presumption of Assent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 9. Approval or Ratification of Acts or Contracts by Shareholders . . . . . . . . . . . . . . . . . 10
Section 10. Action by Written Consent or Telephone Conference . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV
COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1. Designation; Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2. Procedure; Meetings; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3. Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1. Number, Titles and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2. Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5. Powers and Duties of the Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6. Powers and Duties of the Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7. Powers and Duties of the President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 10. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 11. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 12. Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 13. Action With Respect to Securities of Other Corporations . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1. Right to Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2. Advance Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3. Indemnification of Employees and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4. Appearance as a Witness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5. Nonexclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7. Shareholder Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8. Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII
CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 1. Certificates of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3. Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4. Regulations Regarding Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Section 5. Lost, Stolen, Destroyed or Mutilated Certificates . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3. Notice and Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5. Facsimile Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IX
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
-iii-
<PAGE> 5
BYLAWS
OF
AUTHENTIC SPECIALTY FOODS, INC.
A Texas Corporation
ARTICLE I
REGISTERED OFFICE
The registered office of the Corporation required by the Texas
Business Corporation Act (the "TBCA") to be maintained in the State of Texas
shall be the registered office named in the Restated Articles of Incorporation
of the Corporation (referred to herein as the "Articles of Incorporation") or
such other office (which need not be a place of business of the Corporation) as
may be designated from time to time by the Board of Directors in the manner
provided by law.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings. All meetings of the shareholders
shall be held at the principal place of business of the Corporation or at such
other place within or without the State of Texas as shall be specified or fixed
in the notices or waivers of notice thereof; provided that any or all
shareholders may participate in any such meeting by means of conference
telephone or similar communications equipment pursuant to Article II, Section
12 of these bylaws.
Section 2. Quorum; Required Vote for Shareholder Action; Adjournment
of Meetings. (a) Quorum. A quorum shall be present at a meeting of
shareholders if the holders of a majority of the shares entitled to vote are
represented at the meeting in person or by proxy, unless otherwise provided in
the Articles of Incorporation in accordance with the TBCA.
(b) Voting on Matters Other Than the Election of Directors. With
respect to any matter, other than the election of directors or a matter for
which the affirmative vote of the holders of a specified portion of the shares
entitled to vote is required by the TBCA, the affirmative vote of the holders
of a majority of the shares entitled to vote on that matter and represented in
person or by proxy at a meeting of shareholders at which a quorum is present
shall be the act of the shareholders, unless otherwise provided in the Articles
of Incorporation or these bylaws in accordance with the TBCA.
(c) Voting in the Election of Directors. Unless otherwise
provided in the Articles of Incorporation or these bylaws in accordance with
the TBCA, directors shall be elected by a plurality
-1-
<PAGE> 6
of the votes cast by the holders of shares entitled to vote in the election of
directors at a meeting of shareholders at which a quorum is present.
(d) Adjournment. Notwithstanding the other provisions of the
Articles of Incorporation or these bylaws, the chairman of the meeting or the
holders of a majority of the shares entitled to vote that are represented in
person or by proxy at any meeting of shareholders, whether or not a quorum is
present, shall have the power to adjourn such meeting from time to time,
without any notice other than announcement at the meeting of the time and place
of the holding of the adjourned meeting. If such meeting is adjourned by the
shareholders, such time and place shall be determined by a vote of the holders
of a majority of the shares entitled to vote that are represented in person or
by proxy at such meeting. Upon the resumption of such adjourned meeting, any
business may be transacted that might have been transacted at the meeting as
originally called.
Section 3. Annual Meetings. An annual meeting of the shareholders,
for the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, within or without the State of Texas, on such date
and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within 13 months subsequent to the
last annual meeting of shareholders. Except as otherwise required by law or
regulation, no business proposed by a shareholder to be considered at an annual
meeting of the shareholders (including the nomination of any person to be
elected as a director of the Corporation) shall be considered by the
shareholders at that meeting unless, no later than 60 days before the annual
meeting of shareholders or (if later) ten days after the first public notice of
that meeting is sent to shareholders, the Corporation receives from the
shareholder proposing that business a written notice that sets forth (1) the
nature of the proposed business with reasonable particularity, including the
exact text of any proposal to be presented for adoption, and the reasons for
conducting that business at the annual meeting; (2) with respect to each such
shareholder, that shareholder's name and address (as they appear on the records
of the Corporation), business address and telephone number, residence address
and telephone number, and the number of shares of each class of stock of the
Corporation beneficially owned by that shareholder; (3) any interest of the
shareholder in the proposed business; (4) the name or names of each person
nominated by the shareholder to be elected or re-elected as a director, if any;
and (5) with respect to each nominee, that nominee's name, business address and
telephone number, and residence address and telephone number, the number of
shares, if any, of each class of stock of the Corporation owned directly and
beneficially by that nominee, and all information relating to that nominee that
is required to be disclosed in solicitations of proxies for elections of
directors, or is otherwise required, pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (or any
provision of law subsequently replacing Regulation 14A), together with a duly
acknowledged letter signed by the nominee stating his or her acceptance of the
nomination by that shareholder, stating his or her intention to serve as a
director if elected, and consenting to being named as a nominee for director in
any proxy statement relating to such election. The person presiding at the
annual meeting shall determine whether business (including the nomination of
any person as a director) has been properly brought before the meeting and, if
the facts so warrant, shall not permit any business (or voting with respect to
any particular nominee) to be transacted that has not been properly brought
before the meeting. Notwithstanding any other provisions of the Articles of
Incorporation or any provision of law that might otherwise permit a
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lesser or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the capital stock of the Corporation required
by law or by the Articles of Incorporation, the affirmative vote of the holders
of not less than 80% of the Voting Stock, voting together as a single class,
shall be required to amend or repeal, or to adopt any provision inconsistent
with, this Section.
Section 4. Special Meetings. Special meetings of the shareholders
of the Corporation, and any proposals to be considered at such meetings, may
only be called and proposed by (i) the Chairman of the Board, (ii) the
President, (iii) the Board of Directors pursuant to a resolution adopted by a
majority of the then-authorized number of directors or (iv) the holders of at
least 50% of the then outstanding shares of capital stock entitled to vote
thereon ("Voting Stock"), voting together as a single class.
If not otherwise stated in or fixed in accordance with the remaining
provisions hereof, the record date for determining shareholders entitled to
call a special meeting is the date any shareholder first signs the notice of
that meeting.
Only business within the purpose or purposes described in the notice
(or waiver thereof) required by these bylaws may be conducted at a special
meeting of the shareholders.
Section 5. Closing Share Transfer Records; Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive a
distribution by the Corporation (other than a distribution involving a purchase
or redemption by the Corporation of any of its own shares) or a share dividend,
or in order to make a determination of shareholders for any other purpose
(other than determining shareholders entitled to consent to action by
shareholders proposed to be taken without a meeting of shareholders), the Board
of Directors of the Corporation may provide that the share transfer records
shall be closed for a stated period but not to exceed, in any case, 60 days.
If the share transfer records shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders,
such records shall be closed for at least ten days immediately preceding such
meeting.
In lieu of closing the share transfer records, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than 60 days and, in the
case of a meeting of shareholders, not less than ten days, prior to the date on
which the particular action requiring such determination of shareholders is to
be taken.
If the share transfer records are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or shareholders entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the
Corporation of any of its own shares) or a share dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the
Board of Directors declaring such distribution or share dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided herein, such determination shall also
apply to any adjournment thereof except
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where the determination has been made through the closing of share transfer
records and the stated period of closing has expired.
Section 6. Notice of Meetings. Written or printed notice stating
the place, day and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be delivered not
less than ten nor more than 60 days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary
or the officer or person calling the meeting, to each shareholder entitled to
vote at such meeting. If mailed, any such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the share transfer records of the
Corporation, with postage thereon prepaid.
Any notice required to be given to any shareholder, under any
provision of the TBCA or the Articles of Incorporation or these bylaws need not
be given to the shareholder if (a) notice of two consecutive annual meetings
and all notices of meetings held during the period between those annual
meetings, if any, or (b) all (but in no event less than two) payments of
distributions or interest on securities during a 12-month period have been
mailed to that person by first-class mail, addressed to him at his address as
shown on the share transfer records of the Corporation, and have been returned
undeliverable. Any action or meeting taken or held without notice to such
person shall have the same force and effect as if the notice had been duly
given and, if the action taken by the Corporation is reflected in any articles
or document filed with the Secretary of State, those articles or that document
may state that notice was duly given to all persons to whom notice was required
to be given. If such a person delivers to the Corporation written notice
setting forth his then current address, the requirement that notice be given to
that person shall be reinstated.
Section 7. Voting List. The officer or agent having charge of the
share transfer records of the Corporation shall make, at least ten days before
each meeting of shareholders, a complete list of the shareholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each, which list,
for a period of ten days prior to such meeting, shall be kept on file at the
registered office or principal place of business of the Corporation and shall
be subject to inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during
the whole time of the meeting. The original share transfer records shall be
prima-facie evidence as to who are the shareholders entitled to examine such
list or transfer records or to vote at any meeting of shareholders. Failure to
comply with the requirements of this Section shall not affect the validity of
any action taken at such meeting.
Section 8. Proxies. A shareholder may vote either in person or by
proxy executed in writing by the shareholder. A telegram, telex, cablegram or
similar transmission by the shareholder, or a photographic, photostatic,
facsimile or similar reproduction of a writing executed by the shareholder
shall be treated as an execution in writing for purposes of this Section.
Proxies for use at any meeting of shareholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to
time determine by resolution, before or at the time of the meeting. All
proxies shall be received and taken charge of and all ballots shall be received
and canvassed by the secretary of the meeting who shall decide all questions
touching upon the qualification of voters, the
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validity of the proxies, and the acceptance or rejection of votes, unless an
inspector or inspectors shall have been appointed by the chairman of the
meeting, in which event such inspector or inspectors shall decide all such
questions.
No proxy shall be valid after 11 months from the date of its execution
unless otherwise provided in the proxy. A proxy shall be revocable unless the
proxy form conspicuously states that the proxy is irrevocable and the proxy is
coupled with an interest. Proxies coupled with an interest shall include the
appointment as proxy of any of the persons set forth in the TBCA, including
without limitation:
(a) a pledgee;
(b) a person who purchased or agreed to purchase, or owns or holds
an option to purchase, the shares;
(c) a creditor of the Corporation who extended it credit under
terms requiring the appointment;
(d) an employee of the Corporation whose employment contract
requires the appointment; or
(e) a party to a voting agreement executed under Section B,
Article 2.30 of the TBCA.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide to the contrary, a majority of such persons
present at any meeting at which their powers thereunder are to be exercised
shall have and may exercise all the powers of voting thereby conferred, or if
only one be present, then such powers may be exercised by that one; or, if an
even number attend and a majority do not agree on any particular issue, the
Corporation shall not be required to recognize such proxy with respect to such
issue if such proxy does not specify how the shares that are the subject of
such proxy are to be voted with respect to such issue.
Section 9. Voting; Inspectors; Elections. Unless otherwise required
by law or provided in the Articles of Incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to
a vote at a meeting of shareholders. If the Articles of Incorporation provide
for more or less than one vote per share for all the outstanding shares or for
the shares of any class or series on any matter, every reference in these
bylaws or in the Articles of Incorporation (unless expressly stated otherwise
therein), in connection with such matter, to a specified portion of such
shares, shall mean such portion of the votes entitled to be cast in respect of
such shares by virtue of the provisions of such Articles of Incorporation.
All voting, except as required by the Articles of Incorporation or
where otherwise required by law, may be by a voice vote; provided, however,
that a vote by ballot shall be taken upon demand therefor by shareholders
holding issued and outstanding shares representing a majority of the voting
power present in person or by proxy at any meeting. Every vote by ballot shall
be taken by written ballots, each of which shall state the name of the
shareholder or proxy voting and such other information as may be required under
the procedure established for the meeting.
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At any meeting at which a vote is taken by ballots, the chairman of
the meeting may appoint one or more inspectors, each of whom shall subscribe an
oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of his ability.
Such inspector shall receive the ballots, count the votes and make and sign a
certificate of the result thereof. The chairman of the meeting may appoint any
person to serve as inspector, except no candidate for the office of director
shall be appointed as an inspector.
At each election of directors each shareholder entitled to vote
thereat shall, unless otherwise provided by law or by the Articles of
Incorporation, have the right to vote the number of shares owned by him for as
many persons as there are to be elected and for whose election he has a right
to vote. Unless expressly prohibited by the Articles of Incorporation, a
shareholder shall have the right to cumulate his votes by giving one candidate
as many votes as the number of such directors multiplied by his shares shall
equal, or by distributing such votes on the same principle among any number of
such candidates. Any shareholder who intends to cumulate his votes shall give
written notice of such intention to the Secretary of the Corporation on or
before the day preceding the election at which such shareholder intends to
cumulate his votes.
Section 10. Conduct of Meetings. All meetings of the shareholders
shall be presided over by the chairman of the meeting, who shall be the
Chairman of the Board (if any), or if he is not present, the President, or if
neither the Chairman of the Board (if any) nor President is present, a chairman
elected at the meeting. The Secretary of the Corporation, if present, shall
act as secretary of such meetings, or if he is not present, an Assistant
Secretary (if any) shall so act; if neither the Secretary nor an Assistant
Secretary (if any) is present, then a secretary shall be appointed by the
chairman of the meeting. The chairman of any meeting of shareholders shall
determine the order of business and the procedure at the meeting, including
such regulation of the manner of voting and the conduct of discussion as seem
to him in order. Unless the chairman of the meeting shall otherwise determine
or otherwise conduct the meeting, the order of business shall be as follows:
(a) Calling of meeting to order.
(b) Election of a chairman, and the appointment of a secretary, if
necessary.
(c) Presentation of proof of the due calling of the meeting.
(d) Presentation and examination of proxies and determination of a
quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors, if an annual meeting or a meeting
called for that purpose.
(h) Other business.
(i) Adjournment.
Section 11. Treasury Shares. Neither the Corporation nor any other
person shall vote, directly or indirectly, at any meeting, shares of the
Corporation's own stock owned by the Corporation, shares of the Corporation's
own stock owned by another corporation the majority of the voting stock of
which is owned or controlled by the Corporation, and shares of the
Corporation's own stock held by the Corporation in a fiduciary capacity; and
such shares shall not be counted in determining the total number of outstanding
shares at any given time.
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Section 12. Action by Written Consent or Telephone Conference.
Unless otherwise provided in the Articles of Incorporation, any action required
or permitted to be taken by the shareholders of the Corporation must be taken
at a duly called annual or special meeting of shareholders and may not be taken
by written consent.
Subject to the provisions of the TBCA, the Articles of Incorporation
or these bylaws for notice of meetings, and unless otherwise restricted by the
Articles of Incorporation, shareholders may participate in and hold a meeting
by means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and
participation in such meeting shall constitute attendance and presence in
person at such meeting, except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Power. The powers of the Corporation shall be exercised
by or under the authority of, and the business and affairs of the Corporation
shall be managed under the direction of, the Board of Directors.
Section 2. Number; Classification; Term of Office; Vacancies;
Increases in the Number of Directors; Removal. The number, classification and
terms of the Board of Directors of the Corporation and the procedures to elect
directors, to remove directors and to fill vacancies in the Board of Directors
shall be as follows:
(a) The number of directors that shall constitute the
whole Board of Directors shall from time to time be fixed exclusively
by the Board of Directors by a resolution adopted by a majority of the
whole Board of Directors serving at the time of that vote. In no
event shall the number of directors that constitute the whole Board of
Directors be fewer than three. No decrease in the number of directors
shall have the effect of shortening the term of any incumbent
director. Directors of the Corporation need not be elected by written
ballot.
(b) The Board of Directors of the Corporation shall be
divided into three classes designated Class I, Class II, and Class
III, respectively, all as nearly equal in number as possible, with
each director then in office receiving the classification that at
least a majority of the Board of Directors designates. The initial
term of office of directors of Class I shall expire at the annual
meeting of shareholders of the Corporation in 1998, of Class II shall
expire at the annual meeting of shareholders of the Corporation in
1999, and of Class III shall expire at the annual meeting of
shareholders of the Corporation in 2000, and in all cases as to each
director until his successor is elected and qualified or until his
earlier death, resignation or removal. At each annual meeting of
shareholders beginning with the annual meeting of
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shareholders in 1998, each director elected to succeed a director
whose term is then expiring shall hold his office until the third
annual meeting of shareholders after his election and until his
successor is elected and qualified or until his earlier death,
resignation or removal. If the number of directors that constitutes
the whole Board of Directors is changed as permitted by this Section,
the majority of the whole Board of Directors that adopts the change
shall also fix and determine the number of directors comprising each
class; provided, however, that any increase or decrease in the number
of directors shall be apportioned among the classes as equally as
possible.
(c) Vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office,
or other cause and newly-created directorships resulting from any
increase in the authorized number of directors may be filled by no
less than a majority vote of the remaining directors then in office,
though less than a quorum, who are designated to represent the same
class or classes of shareholders that the vacant position, when
filled, is to represent or by the sole remaining director (but not by
the shareholders except as required by law); provided that, with
respect to any directorship to be filled by the Board of Directors by
reason of an increase in the number of directors, (A) such
directorship shall be for a term of office continuing only until the
next election of one or more directors by the shareholders and (B) the
Board of Directors may not fill more than two such directorships
during the period between any two successive annual meetings of
shareholders. Each director chosen in accordance with this provision
shall receive the classification of the vacant directorship to which
he has been appointed or, if it is a newly-created directorship, shall
receive the classification that at least a majority of the Board of
Directors designates and shall hold office until the first meeting of
shareholders held after his election for the purpose of electing
directors of that classification and until his successor is elected
and qualified or until his earlier death, resignation, or removal from
office.
(d) A director of any class of directors of the
Corporation may be removed before the expiration date of that
director's term of office, only for cause and only by an affirmative
vote of the holders of 80% of the Voting Stock, voting together as a
single class, cast at the annual meeting of shareholders or at any
special meeting of shareholders called in accordance with Article II,
Section 4 hereof. For purposes of these bylaws, the term "cause"
shall mean that a director: (i) has engaged in gross negligence or
willful misconduct in the performance of his duties as a director;
(ii) has been convicted of a felony involving moral turpitude; or
(iii) has willfully engaged in conduct that he knows or should know is
materially injurious to the Corporation or any of its affiliates.
(e) Notwithstanding any other provisions of these bylaws,
any provisions of the Articles of Incorporation or any provision of
law that might otherwise permit a lesser or no vote, but in addition
to any affirmative vote of the holders of any particular class or
series of the capital stock of the Corporation required by these
bylaws, by law or by the Articles of Incorporation, the affirmative
vote of the holders
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of 80% of the Voting Stock, voting together as a single class, shall
be required to amend or repeal, or to adopt any provision inconsistent
with, this Section.
Unless otherwise provided in the Articles of Incorporation, directors
need not be shareholders of the Corporation or residents of the State of Texas.
Section 2. Quorum; Required Vote for Director Action. Unless
otherwise required by law or provided in the Articles of Incorporation or these
bylaws, a majority of the total number of directors fixed by, or in the manner
provided in, the Articles of Incorporation or these bylaws shall constitute a
quorum for the transaction of business of the Board of Directors, and the act
of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 3. Meetings; Order of Business. Meetings of the Board of
Directors may be held at such place or places as shall be determined from time
to time by resolution of the Board of Directors. At all meetings of the Board
of Directors business shall be transacted in such order as shall from time to
time be determined by the Chairman of the Board (if any), or in his absence by
the President (if the President is a director), or by resolution of the Board
of Directors.
Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Section 4. First Meeting. In connection with any annual meeting of
shareholders at which directors were elected, the Board of Directors may, if a
quorum is present, hold its first meeting for the transaction of business
immediately after and at the same place as such annual meeting of the
shareholders. Notice of such meeting at such time and place shall not be
required.
Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by resolution of the Board of Directors. Notice of such regular
meetings shall not be required.
Section 6. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board (if any), the President
or, on the written request of any one director, by the Secretary, in each case
on at least 24 hours personal, written, telegraphic, cable or wireless notice
to each director. Such notice, or any waiver thereof pursuant to Article VIII,
Section 3 hereof, need not state the purpose or purposes of such meeting,
except as may otherwise be required by law or provided for by the Articles of
Incorporation or these bylaws.
Section 7. Compensation. Unless restricted by the Articles of
Incorporation, the Board of Directors shall have the authority to fix the
compensation, if any, of directors.
Section 8. Presumption of Assent. A director who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his
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written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 9. Approval or Ratification of Acts or Contracts by
Shareholders. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the
shareholders, or at any special meeting of the shareholders called for the
purpose of considering any such act or contract, and any act or contract that
shall be approved or be ratified by the vote of the shareholders holding a
majority of the Voting Stock and represented in person or by proxy at such
meeting (provided that a quorum is present), shall be as valid and as binding
upon the Corporation and upon all the shareholders as if it shall have been
approved or ratified by every shareholder of the Corporation.
Section 10. Action by Written Consent or Telephone Conference. Any
action permitted or required by the TBCA, the Articles of Incorporation or
these bylaws to be taken at a meeting of the Board of Directors or any
committee designated by the Board of Directors may be taken without a meeting
if a consent in writing, setting forth the action to be taken, is signed by all
the members of the Board of Directors or committee, as the case may be. Such
consent shall have the same force and effect as a unanimous vote at a meeting
and may be stated as such in any document or instrument filed with the
Secretary of State, and the execution of such consent shall constitute
attendance or presence in person at a meeting of the Board of Directors or any
such committee, as the case may be. Subject to the requirements of the TBCA,
the Articles of Incorporation or these bylaws for notice of meetings, unless
otherwise restricted by the Articles of Incorporation, members of the Board of
Directors, or members of any committee designated by the Board of Directors,
may participate in and hold a meeting of the Board of Directors or any
committee of directors, as the case may be, by means of a conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in such meeting shall
constitute attendance and presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV
COMMITTEES
Section 1. Designation; Powers. The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members one or more committees, each of which shall be comprised
of one or more of its members, and may designate one or more of its members as
alternate members of any committee, who may, subject to any limitations imposed
by the Board of Directors, replace absent or disqualified members at any
meeting of that committee. Any such committee, to the extent provided in such
resolution or in the Articles of Incorporation or bylaws shall have and may
exercise all of the authority of the Board of Directors, subject to the
limitations set forth in the TBCA or below.
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No committee of the Board of Directors shall have the authority of the
Board of Directors in reference to:
(1) amending the Articles of Incorporation, except that a
committee may, to the extent provided in the resolution designating
that committee or in the Articles of Incorporation or these bylaws,
exercise the authority of the Board of Directors vested in it in
accordance with Article 2.13 of the TBCA;
(2) proposing a reduction in the stated capital of the
Corporation in the manner permitted by Article 4.12 of the TBCA;
(3) approving a plan of merger or share exchange of the
Corporation;
(4) recommending to the shareholders the sale, lease or
exchange of all or substantially all of the property and assets of the
Corporation otherwise than in the usual and regular course of its
business;
(5) recommending to the shareholders a voluntary
dissolution of the Corporation or a revocation thereof;
(6) amending, altering or repealing the bylaws of the
Corporation or adopting new bylaws of the Corporation;
(7) filling vacancies in the Board of Directors;
(8) filling vacancies in or designating alternate members
of any such committee;
(9) filling any directorship to be filled by reason of an
increase in the number of directors;
(10) electing or removing officers of the Corporation or
members or alternate members of any such committee;
(11) fixing the compensation of any member or alternate
members of such committee; or
(12) altering or repealing any resolution of the Board of
Directors that by its terms provides that it shall not be so amendable
or repealable.
Unless the resolution designating a particular committee, the Articles
of Incorporation or these bylaws expressly so provide, no committee of the
Board of Directors shall have the authority to authorize a distribution (as
such term is defined in the TBCA) or to authorize the issuance of shares of the
Corporation.
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Section 2. Procedure; Meetings; Quorum. Any committee designated
pursuant to Section 1 of this Article shall choose its own chairman and
secretary, shall keep regular minutes of its proceedings and report the same to
the Board of Directors when requested, shall fix its own rules or procedures
and shall meet at such times and at such place or places as may be provided by
such rules, or by resolution of such committee or of the Board of Directors.
At every meeting of any such committee, the presence of a majority of all the
members thereof shall constitute a quorum, and the affirmative vote of a
majority of the members present shall be necessary for the adoption by it of
any resolution.
Section 3. Dissolution. The Board of Directors may dissolve any
committee at any time, unless otherwise provided in the Articles of
Incorporation or these bylaws.
ARTICLE V
OFFICERS
Section 1. Number, Titles and Term of Office. The officers of the
Corporation shall be a President and a Secretary and such other officers as the
Board of Directors may from time to time elect or appoint, including, without
limitation, a Chairman of the Board, one or more Vice Presidents (any one or
more of whom may be designated Executive Vice President or Senior Vice
President), a Treasurer, one or more Assistant Treasurers and one or more
Assistant Secretaries. Each officer shall hold office until his successor
shall be duly elected and shall qualify or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Any
number of offices may be held by the same person. Except for the Chairman of
the Board, if any, no officer need be a director.
Section 2. Salaries. The salaries or other compensation, if any, of
the officers and agents of the Corporation shall be fixed from time to time by
the Board of Directors.
Section 3. Removal. Any officer or agent or member of a committee
elected or appointed by the Board of Directors may be removed, either with or
without cause, by the Board of Directors whenever in its judgment the best
interests of the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent or member of a committee shall
not of itself create contract rights.
Section 4. Vacancies. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors.
Section 5. Powers and Duties of the Chief Executive Officer. The
President shall be the chief executive officer of the Corporation unless the
Board of Directors designates the Chairman of the Board (if any) or other
officer as chief executive officer. Subject to the control of the Board of
Directors, the chief executive officer shall have general executive charge,
management and control of the properties, business and operations of the
Corporation with all such powers as may be reasonably incident to such
responsibilities; he may agree upon and execute all leases, contracts,
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evidences of indebtedness and other obligations in the name of the Corporation
and may sign all certificates for shares of capital stock of the Corporation;
and he shall have such other powers and duties as designated in accordance with
these bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 6. Powers and Duties of the Chairman of the Board. The
Chairman of the Board (if any) shall preside at all meetings of the
shareholders and of the Board of Directors; and the Chairman shall have such
other powers and duties as designated in these bylaws and as from time to time
may be assigned to him by the Board of Directors.
Section 7. Powers and Duties of the President. Unless the Board of
Directors otherwise determines, the President shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and, unless the Board of Directors
otherwise determines, he shall, in the absence of the Chairman of the Board or
if there be no Chairman of the Board, preside at all meetings of the
shareholders and (should he be a director) of the Board of Directors; and the
President shall have such other powers and duties as designated in accordance
with these bylaws and as from time to time may be assigned to him by the Board
of Directors.
Section 8. Vice Presidents. The Vice President(s), if any, shall
perform such duties and have such powers as the Board of Directors may from
time to time prescribe. In addition, in the absence of the Chairman of the
Board (if any) or President, or in the event of their inability or refusal to
act, (i) a Vice President designated by the Board of Directors or (ii) in the
absence of such designation, the Vice President who is present and who is
senior in terms of time as a Vice President of the Corporation, shall perform
the duties of the Chairman of the Board (if any), or the President, as the case
may be, and when so acting shall have all the powers of and be subject to all
the restrictions upon the Chairman of the Board (if any), or the President;
provided that he shall not preside at meetings of the Board of Directors unless
he is a director.
Section 9. Treasurer. The Treasurer, if any, shall have
responsibility for the custody and control of all the funds and securities of
the Corporation, and he shall have such other powers and duties as designated
in these bylaws and as from time to time may be assigned to him by the Board of
Directors. He shall perform all acts incident to the position of Treasurer
subject to the control of the chief executive officer and the Board of
Directors; and the Treasurer shall, if required by the Board of Directors, give
such bond for the faithful discharge of his duties in such form as the Board of
Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer, if any,
shall have the usual powers and duties pertaining to his office, together with
such other powers and duties as designated in these bylaws and as from time to
time may be assigned to him by the chief executive officer or the Board of
Directors or the Treasurer. The Assistant Treasurers shall exercise the powers
of the Treasurer during that officer's absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors, and the minutes of all meetings of the
shareholders, in books provided for that purpose;
-13-
<PAGE> 18
he shall attend to the giving and serving of all notices; he may in the name of
the Corporation affix the seal (if any) of the Corporation to all contracts of
the Corporation and attest thereto; he may sign with the other appointed
officers all certificates for shares of capital stock of the Corporation; he
shall have charge of the certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors may direct, all of
which shall at all reasonable times be open to inspection by any director upon
application at the office of the Corporation during business hours; he shall
have such other powers and duties as designated in these bylaws and as from
time to time may be assigned to him by the chief executive officer or the Board
of Directors; and he shall in general perform all duties incident to the office
of Secretary, subject to the control of the chief executive officer and the
Board of Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary, if any,
shall have the usual powers and duties pertaining to his office, together with
such other powers and duties as designated in these bylaws and as from time to
time may be assigned to him by the chief executive officer or the Board of
Directors or the Secretary. The Assistant Secretaries shall exercise the
powers of the Secretary during that officer's absence or inability or refusal
to act.
Section 13. Action With Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, each of the chief
executive officer and the Treasurer (if any), or either of them, shall have
power to vote and otherwise act on behalf of the Corporation, in person or by
proxy, at any meeting of shareholders of or with respect to any action of
shareholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
Section 1. Right to Indemnification. Subject to the limitations and
conditions as provided in this Article VI, each person who was or is made a
party or is threatened to be made a party to or is involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (hereinafter a "proceeding"), or
any appeal in such a proceeding or any inquiry or investigation that could lead
to such a proceeding, by reason of the fact that he or she, or a person of whom
he or she is the legal representative, is or was a director or officer of the
Corporation or while a director or officer of the Corporation is or was serving
at the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise, shall be indemnified by the
Corporation to the fullest extent permitted by the TBCA, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment) against judgments, penalties (including excise and similar
taxes and punitive damages), fines, settlements and reasonable expenses
(including, without limitation,
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<PAGE> 19
attorneys' fees) actually incurred by such person in connection with such
proceeding, and indemnification under this Article VI shall continue as to a
person who has ceased to serve in the capacity which initially entitled such
person to indemnity hereunder. The rights granted pursuant to this Article VI
shall be deemed contract rights, and no amendment, modification or repeal of
this Article VI shall have the effect of limiting or denying any such rights
with respect to actions taken or proceedings arising prior to any such
amendment, modification or repeal. It is expressly acknowledged that the
indemnification provided in this Article VI could involve indemnification for
negligence or under theories of strict liability.
Section 2. Advance Payment. The right to indemnification conferred
in this Article VI shall include the right to be paid or reimbursed by the
Corporation the reasonable expenses incurred by a person of the type entitled
to be indemnified under Section 1 who was, is or is threatened to be made a
named defendant or respondent in a proceeding in advance of the final
disposition of the proceeding and without any determination as to the person's
ultimate entitlement to indemnification; provided, however, that the payment of
such expenses incurred by any such person in advance of the final disposition
of a proceeding, shall be made only upon delivery to the Corporation of a
written affirmation by such director or officer of his good faith belief that
he has met the standard of conduct necessary for indemnification under this
Article VI and a written undertaking, by or on behalf of such person, to repay
all amounts so advanced if it shall ultimately be determined that such
indemnified person is not entitled to be indemnified under this Article VI or
otherwise.
Section 3. Indemnification of Employees and Agents. The
Corporation, by adoption of a resolution of the Board of Directors, may
indemnify and advance expenses to an employee or agent of the Corporation to
the same extent and subject to the same conditions under which it may indemnify
and advance expenses to directors and officers under this Article VI; and, the
Corporation may indemnify and advance expenses to persons who are not or were
not directors, officers, employees or agents of the Corporation but who are or
were serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, against any
liability asserted against him and incurred by him in such a capacity or
arising out of his status as such a person to the same extent that it may
indemnify and advance expenses to directors under this Article VI.
Section 4. Appearance as a Witness. Notwithstanding any other
provision of this Article VI, the Corporation may pay or reimburse expenses
incurred by a director or officer in connection with his appearance as a
witness or other participation in a proceeding at a time when he is not a named
defendant or respondent in the proceeding.
Section 5. Nonexclusivity of Rights. The right to indemnification
and the advance and payment of expenses conferred in this Article VI shall not
be exclusive of any other right which a director or officer or other person
indemnified pursuant to Section 3 of this Article VI may have or hereafter
acquire under any law (common or statutory), provision of the Articles of
Incorporation of the Corporation or these bylaws, agreement, vote of
shareholders or disinterested directors or otherwise.
-15-
<PAGE> 20
Section 6. Insurance. The Corporation may purchase and maintain
insurance, at its expense, to protect itself and any person who is or was
serving as a director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another foreign or domestic corporation, partnership, joint venture,
proprietorship, employee benefit plan, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under this
Article VI.
Section 7. Shareholder Notification. To the extent required by law,
any indemnification of or advance of expenses to a director or officer in
accordance with this Article VI shall be reported in writing to the
shareholders with or before the notice or waiver of notice of the next
shareholders' meeting and, in any case, within the 12-month period immediately
following the date of the indemnification or advance.
Section 8. Savings Clause. If this Article VI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify and hold harmless each director,
officer or any other person indemnified pursuant to this Article VI as to
costs, charges and expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative or investigative to the full extent
permitted by any applicable portion of this Article VI that shall not have been
invalidated and to the fullest extent permitted by applicable law.
ARTICLE VII
CAPITAL STOCK
Section 1. Certificates of Stock. The certificates for shares of
the capital stock of the Corporation shall be in such form, not inconsistent
with that required by law and the Articles of Incorporation, as shall be
approved by the Board of Directors. The Chairman of the Board (if any),
President or a Vice President (if any) shall cause to be issued to each
shareholder one or more certificates, which shall be signed by the Chairman of
the Board (if any), President or a Vice President (if any) and the Secretary or
an Assistant Secretary (if any) or the Treasurer or an Assistant Treasurer (if
any) certifying the number of shares (and, if the stock of the Corporation
shall be divided into classes or series, the class and series of such shares)
owned by such shareholder in the Corporation; provided, however, that any of or
all the signatures on the certificate may be facsimile. If the Board of
Directors shall have provided for a seal, such certificates shall bear such
seal or a facsimile thereof. The stock record books and the blank stock
certificate books shall be kept by the Secretary, or at the office of such
transfer agent or transfer agents as the Board of Directors may from time to
time by resolution determine. In case any officer, transfer agent or registrar
who shall have signed or whose facsimile signature or signatures shall have
been placed upon any such certificate or certificates shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued by
the Corporation, such certificate may nevertheless be issued by the Corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue. The stock certificates shall be consecutively
numbered and shall be entered in the books of the Corporation as they are
issued and shall exhibit the holder's name and number of shares.
-16-
<PAGE> 21
Each certificate shall conspicuously bear any legend required pursuant
to Article 2.19 or Article 2.22 of the TBCA, as well as any other legend
required by law.
Section 2. Transfer of Shares. The shares of stock of the
Corporation shall be transferable only on the books of the Corporation by the
holders thereof in person or by their duly authorized attorneys or legal
representatives, upon surrender and cancellation of certificates for a like
number of shares (or upon compliance with the provisions of Section 5 of this
Article VII, if applicable). Upon such surrender to the Corporation or a
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer (or upon compliance with the provisions of Section 5 of this Article
VII, if applicable) and of compliance with any transfer restrictions applicable
thereto contained in an agreement to which the Corporation is a party or of
which the Corporation has knowledge by reason of legend with respect thereto
placed on any such surrendered stock certificate, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 3. Ownership of Shares. Unless otherwise provided in the
TBCA, and subject to the provisions of Chapter 8 - Investment Securities of the
Texas Business & Commerce Code:
(i) the Corporation may regard the person in whose name
any shares issued by the Corporation are registered in the share transfer
records of the Corporation at any particular time (including, without
limitation, as of a record date fixed pursuant to Article 2.26B or 2.26C of the
TBCA) as the owner of those shares at that time for purposes of voting those
shares, receiving distributions thereon or notices in respect thereof,
transferring those shares, exercising rights of dissent with respect to those
shares, exercising or waiving any preemptive right with respect to those
shares, entering into agreements with respect to those shares in accordance
with Article 2.22 or 2.30 of the TBCA, or giving proxies with respect to those
shares; and
(ii) neither the Corporation nor any of its officers,
directors, employees, or agents shall be liable for regarding that person as
the owner of those shares at that time for those purposes, regardless of
whether that person does not possess a certificate for those shares.
Section 4. Regulations Regarding Certificates. The Board of
Directors shall have the power and authority to make all such rules and
regulations as they may deem expedient concerning the issuance, transfer and
registration or the replacement of certificates for shares of capital stock of
the Corporation.
Section 5. Lost, Stolen, Destroyed or Mutilated Certificates. The
Board of Directors may determine the conditions upon which a new certificate of
stock may be issued in place of a certificate that is alleged to have been
lost, stolen, destroyed or mutilated; and may, in its discretion, require the
owner of such certificate or his legal representative to give bond, with
sufficient surety, to indemnify the Corporation and each transfer agent and
registrar against any and all losses or claims which may arise by reason of the
issuance of a new certificate in the place of the one so lost, stolen,
destroyed or mutilated.
-17-
<PAGE> 22
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
such as established from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation. The Secretary shall
have charge of the seal (if any). If and when so directed by the Board of
Directors, duplicates of the seal may be kept and used by the Treasurer, if
any, or by any Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is
required to be given by law, the Articles of Incorporation or these bylaws,
except with respect to notices of meetings of shareholders (with respect to
which the provisions of Article II, Section 6 apply) and except with respect to
notices of special meetings of directors (with respect to which the provisions
of Article VIII, Section 6 apply), said notice shall be deemed to be sufficient
if given (a) by telegraphic, cable or wireless transmission or (b) by deposit
of same in a post office box in a sealed prepaid wrapper addressed to the
person entitled thereto at his address as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Articles of
Incorporation or these bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice.
Section 4. Resignations. Any director, member of a committee or
officer may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time be specified, at
the time of its receipt by the chief executive officer or Secretary. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions for
the use of facsimile signatures elsewhere specifically authorized in these
bylaws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors.
Section 6. Books and Records. The Corporation shall keep books and
records of account and shall keep minutes of the proceedings of its
shareholders, its Board of Directors and each committee of its Board of
Directors. The Corporation shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a
record of the original issuance of shares issued by the Corporation and a
record of each transfer of those shares that have been presented to the
Corporation for registration of transfer. Such records shall contain the names
and addresses of all past and current shareholders of the Corporation and the
number and class of shares issued by the Corporation held by each of them. Any
books, records, minutes and share transfer
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<PAGE> 23
records may be in written form or in any other form capable of being converted
into written form within a reasonable time.
ARTICLE IX
AMENDMENTS
Except as set forth below, the bylaws of the Corporation may be
altered, amended or repealed or new bylaws may be adopted by (i) the
affirmative vote of the holders of the majority of the outstanding shares of
capital stock entitled to vote thereon at any annual meeting, or at any special
meeting, if notice of the proposed amendment is contained in the notice of said
special meeting, or by (ii) the affirmative vote of a majority of the full
Board of Directors.
Notwithstanding the above provisions, the affirmative vote of the
holders of 80% of the Voting Stock, voting together as a single class, at a
meeting called for that purpose shall be required to alter, amend or repeal, or
to adopt any provision inconsistent with, Section 3, Article II; Section 2(b),
Article III; Section 2(c), Article III; Section 2(d), Article III; or this
Article IX of the Corporation's bylaws.
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONDENSED FINANCIAL STATEMENTS FOR THE 9-MONTH PERIOD ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,673
<SECURITIES> 0
<RECEIVABLES> 3,704
<ALLOWANCES> 0
<INVENTORY> 14,270
<CURRENT-ASSETS> 22,256
<PP&E> 12,050
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,637
<CURRENT-LIABILITIES> 7,018
<BONDS> 0
0
0
<COMMON> 7,787
<OTHER-SE> 33,029
<TOTAL-LIABILITY-AND-EQUITY> 56,637
<SALES> 8,381
<TOTAL-REVENUES> 8,381
<CGS> 5,032
<TOTAL-COSTS> 3,032
<OTHER-EXPENSES> (26)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135
<INCOME-PRETAX> 208
<INCOME-TAX> 104
<INCOME-CONTINUING> 104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104
<EPS-PRIMARY> 2.86
<EPS-DILUTED> 2.86
</TABLE>
