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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FEBRUARY 29, 2000
COMMISSION FILE NUMBER: 333-57209
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OUTSOURCING SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0597491
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
650 FIFTH AVENUE, 14TH FLOOR 10022
NEW YORK, NY (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 957-6368
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT - NONE.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS:
On February 29, 2000, pursuant to a stock purchase agreement dated
February 29th, 2000, Outsourcing Services Group, Inc. (the "Company")
acquired all of the issued and outstanding stock of Precision Packaging and
Services, Inc., an Ohio Corporation ("Precision"), and the related real
estate from the Susan L. Purkrabek Small Business Trust, an electing small
business trust, the David G. Knust Small Business Trust, an electing small
business trust and K.P. Properties, an Ohio general partnership controlled by
Ms. Purkrabek and Mr. Knust (the "Sellers") for approximately $42.1 million.
Precision is a contract Manufacturer of consumer products (i.e. high speed
liquid filling, cartoning, shrink wrapping, packaging) for some of the
largest U.S. consumer products companies. The Company plans for Precision to
continue in this line of business. The Company drew against its existing
revolving credit facility to pay Sellers.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP - NONE.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT - NONE.
ITEM 5. OTHER EVENTS - NONE.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS - NONE.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS:
(a) The financial statements and pro forma financial information
required by this item are not included in this initial report
on Form 8-K. They will be filed by amendment on or prior to
May 12, 2000.
(b) Exhibits
(1) Stock purchase agreement, dated February 29, 2000, among
the Sellers and the Company.
ITEM 8. CHANGE IN FISCAL YEAR - NONE.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to signed on its behalf by the
undersigned hereunto duly authorized.
OUTSOURCING SERVICES GROUP, INC.
Dated: March __, 2000 -------------------------------------------------
Perry Morgan
Chief Financial Officer, Vice President
And Secretary (Principal Financial and Accounting
Officer)
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EXECUTED ORIGINAL
PURCHASE AGREEMENT
Dated as of February 26, 2000
between
OUTSOURCING SERVICES GROUP, INC.,
a Delaware Corporation,
and
THE SUSAN L. PURKRABEK SMALL BUSINESS TRUST
an Electing Small Business Trust,
THE DAVID G. KNUST SMALL BUSINESS TRUST
an Electing Small Business Trust,
K.P. PROPERTIES
an Ohio General Partnership
SUSAN L. PURKRABEK
and
DAVID G. KNUST
Regarding the Sale
of all of the
Issued and Outstanding
Shares of Common Stock
of
PRECISION PACKAGING AND SERVICES, INC.,
an Ohio Corporation,
and Certain
Related Assets
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TABLE OF CONTENTS
<TABLE>
<S><C>
TABLE OF SCHEDULES AND EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE I
PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
1.1 Purchase and Sale of the Shares.. . . . . . . . . . . . . . . . . . .8
1.2 Purchase Price for the Shares and Related Assets. . . . . . . . . . .8
1.3 Purchase and Sale of the Related Assets.. . . . . . . . . . . . . . .9
1.4 Payment of the Base Consideration; Escrow.. . . . . . . . . . . . . .9
1.5 Adjustments to the Base Consideration. . . . . . . . . . . . . . . 10
1.6 Closing and Effective Date. . . . . . . . . . . . . . . . . . . . . 16
1.7 Deliveries at the Closing.. . . . . . . . . . . . . . . . . . . . . 16
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS. . . . . . . . . . . . . . . . 20
2.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.3 No Conflict.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.4 Capitalization; No Subsidiaries.. . . . . . . . . . . . . . . . . . 23
2.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 24
2.6 Absence of Certain Facts or Events. . . . . . . . . . . . . . . . . 25
2.7 Property, Leases and Liens. . . . . . . . . . . . . . . . . . . . . 27
2.8 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 28
2.9 Permits and Authorizations. . . . . . . . . . . . . . . . . . . . . 30
2.10 No Violations.. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.11 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.13 Proprietary Information and Rights. . . . . . . . . . . . . . . . . 33
2.14 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . . . . 34
2.15 Employment Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.16 Environmental Laws. . . . . . . . . . . . . . . . . . . . . . . . . 37
2.17 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.18 No Unlawful Contributions . . . . . . . . . . . . . . . . . . . . . 40
2.19 No Insider Transactions . . . . . . . . . . . . . . . . . . . . . . 40
2.20 Accounts Receivable; Customers. . . . . . . . . . . . . . . . . . . 41
2.21 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.22 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.23 Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2.24 No Finders or Brokers . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . . . . . 43
3.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.3 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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3.4 [Intentionally deleted] . . . . . . . . . . . . . . . . . . . . . . 45
3.5 [Intentionally deleted] . . . . . . . . . . . . . . . . . . . . . . 45
3.6 [Intentionally deleted] . . . . . . . . . . . . . . . . . . . . . . 45
3.7 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.8 No Finders or Brokers . . . . . . . . . . . . . . . . . . . . . . . 45
3.9 Environmental Report. . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE IV
COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.2 Delivery of Financial Statements. . . . . . . . . . . . . . . . . . 47
4.3 Fulfillment of Conditions . . . . . . . . . . . . . . . . . . . . . 47
4.4 Hart Scott Rodino . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.5 Buyer's Access to Records and Inspection Rights . . . . . . . . . . 48
4.6 Operation in Ordinary Course. . . . . . . . . . . . . . . . . . . . 48
4.7 Post-Closing Access by Sellers. . . . . . . . . . . . . . . . . . . 51
4.8 Section 338(h)(10) Election . . . . . . . . . . . . . . . . . . . . 52
4.9 Termination of Affiliate Relationships. . . . . . . . . . . . . . . 53
4.10 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.11 Environmental Insurance . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE V
CONDITIONS OF CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.1 Conditions to the obligations of Buyer. . . . . . . . . . . . . . . 54
5.2 Conditions of Obligations of Sellers. . . . . . . . . . . . . . . . 56
ARTICLE VI
CLOSING DATE AND TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . 58
6.1 Termination of Agreement. . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE VII
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.1 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.2 Indemnification by Buyer. . . . . . . . . . . . . . . . . . . . . . 66
7.3 Survival of Representations and Warranties; Reliance. . . . . . . . 67
7.4 Payments from Escrow. . . . . . . . . . . . . . . . . . . . . . . . 68
7.5 Effect of Insurance Proceeds on Indemnification Claims. . . . . . . 68
7.6 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE VIII
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.1 Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.4 Descriptive Headings. . . . . . . . . . . . . . . . . . . . . . . . 70
8.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
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8.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.7 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.8 Waivers and Amendments. . . . . . . . . . . . . . . . . . . . . . . 73
8.9 Third Party Rights. . . . . . . . . . . . . . . . . . . . . . . . . 73
8.10 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . 73
8.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
</TABLE>
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TABLE OF SCHEDULES AND EXHIBITS
SCHEDULES
Schedule 2.1 Organization
Schedule 2.2 Authorization
Schedule 2.3 No Conflict
Schedule 2.4 Capitalization; No Subsidiaries
Schedule 2.5 Financial Statements
Schedule 2.6 Absence of Certain Facts or Events
Schedule 2.7 Property, Leases and Liens
Schedule 2.8 Contracts and Commitments
Schedule 2.9 Permits and Authorizations
Schedule 2.10 No Violations
Schedule 2.11 Proceedings
Schedule 2.12 Insurance
Schedule 2.13 Proprietary Information and Rights
Schedule 2.14 Employee Benefits Plans; ERISA
Schedule 2.15 Employment Laws
Schedule 2.16 Environmental Laws
Schedule 2.17 Taxes
Schedule 2.18 No Unlawful Contributions
Schedule 2.19 No Insider Transactions
Schedule 2.20 Accounts Receivable
Schedule 2.21 Inventories
Schedule 2.22 Bank Accounts
Schedule 2.23 Warranties
Schedule 2.24 No Finders or Brokers
Schedule 3.3 No Conflict
Schedule 4.3 Fulfillment of Conditions
Schedule 4.6 Operations in Ordinary Course
Schedule 5.1 Buyer Consents
EXHIBITS
Exhibit 1.2(b) Allocations
Exhibit 1.5(a) Reference Working Capital
Exhibit 1.5(j) Contingent Consideration Upon Triggering Event
Exhibit 1.7(a)(vi) Opinion of Dinsmore & Shohl LLP
Exhibit 1.7(a)(xviii) Warehouse Lease
Exhibit 1.7(d)(i) Escrow Agreement
Exhibit 1.7(d)(ii) Transition Agreement of Susan L. Purkrabek
Exhibit 1.7(d)(iii) Transition Agreement of David G. Knust
Exhibit 1.7(b)(iv) Opinion of Paul, Hastings, Janofsky & Walker LLP
Exhibit 1.7(e)(ii) Title to Vehicles
Exhibit 4.1(a) Confidentiality Agreement
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Exhibit 4.8 Schedule of Values
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THIS PURCHASE AGREEMENT (the "Agreement") is made as of the 26th day of
February, 2000 among OUTSOURCING SERVICES GROUP, INC., a Delaware corporation
("Buyer"), PRECISION PACKAGING AND SERVICES, INC., an Ohio corporation ("the
Company"), THE SUSAN L. PURKRABEK SMALL BUSINESS TRUST, an electing small
business trust created under that certain Trust Agreement dated May 1, 1998 (the
"Purkrabek SBT"), THE DAVID G. KNUST SMALL BUSINESS TRUST, an electing small
business trust created under that certain Trust Agreement dated May 1, 1998 (the
"Knust SBT") (the Purkrabek SBT and the Knust SBT are sometimes referred to
hereinafter collectively as the "Trusts"), K.P. PROPERTIES, an Ohio general
partnership ("K.P. Properties"), and SUSAN L. PURKRABEK ("Purkrabek") and DAVID
G. KNUST ("Knust"), both of whom are Ohio residents (the Trusts, K.P.
Properties, Purkrabek and Knust are sometimes referred to hereinafter
collectively as "Sellers" or individually as "Seller").
WHEREAS certain terms are defined in the Appendix attached hereto;
WHEREAS, the Trusts own all of the issued and outstanding shares of common
stock of the Company (the "Shares");
WHEREAS, K.P. Properties owns certain real property located at 801 Garver
Road, Monroe, Ohio, which is leased to the Company;
WHEREAS, Sellers desire to sell all of the issued and outstanding shares of
all common stock of the Company, K.P. Properties desires to sell the related
real property which is leased to the Company, and Buyer desires to purchase the
foregoing shares of common stock and related real property.
NOW THEREFORE, in consideration of the mutual representations, warranties,
terms, conditions and covenants contained herein, the parties agree as follows:
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ARTICLE I
PURCHASE AND SALE
1.1 PURCHASE AND SALE OF THE SHARES.
Sellers agree to sell and transfer to Buyer and Buyer agrees to
purchase from Sellers, respectively, the Shares, constituting all of the issued
and outstanding shares of capital stock of the Company.
1.2 PURCHASE PRICE FOR THE SHARES AND RELATED ASSETS.
(a) Subject to the adjustments provided in SECTION 1.5 hereof, the
aggregate purchase price for the Shares and the Related Assets is the sum of (i)
the Base Consideration; and (ii) the Contingent Consideration, if any, as
provided in SECTION 1.4 hereof.
(b) Both the Base Consideration and the Contingent Consideration
shall be paid to Sellers and K.P. Properties in accordance with the allocations
set forth on EXHIBIT 1.2(b) attached hereto.
(c) Buyer agrees to pay to Sellers, as additional consideration for
the Shares hereunder, up to $1,000,000, in the aggregate, of any Assumed Tax
Liability (as defined in Appendix A) in connection with the Election. The fact
that the actual tax liability due to the Election is offset by a capital loss,
net operating loss or other tax asset of the Sellers shall not be considered in
determining the Assumed Tax Liability. Sellers shall provide Buyer, prior to
the filing thereof, with a copy of Seller's returns including the Election,
together with a statement of the Assumed Tax Liability related to the Election
and due with such returns which has been prepared in good faith and is
consistent with such return. Buyer shall pay Sellers the amount of the Assumed
Tax Liability due with such returns in immediately available funds within three
business days of receipt of such returns in filed form and such statement. If
for any reason (except fraud in the preparation of Sellers' tax
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returns) Sellers are subsequently required to pay additional amounts of Assumed
Tax Liability, Buyer shall pay such amounts to Sellers, provided such additional
payment(s) would not cause the total amounts paid pursuant to this SECTION 1.2
to exceed $1,000,000, in immediately available funds within three business days
of receipt of Sellers' statement of such additional Assumed Tax Liability,
accompanied by evidence of filing all required documents and payment or
satisfaction of the amount claimed.
1.3 PURCHASE AND SALE OF THE RELATED ASSETS.
(a) K.P. Properties agrees to sell and transfer to Buyer (or to the
Company as Buyer's designee) and Buyer agrees to purchase or cause the Company
to purchase the Real Property, free and clear of Encumbrances except Permitted
Encumbrances; and
(b) K.P. Properties will pay the transfer taxes arising in connection
with the sale of the Real Property. Buyer will arrange and pay for any title
insurance commitment or insurance and survey with respect to the Real Property
that it elects to obtain.
1.4 PAYMENT OF THE BASE CONSIDERATION; ESCROW.
(a) At the Closing, Buyer will pay to Sellers and K.P. Properties, in
accordance with the allocations set forth on EXHIBIT 1.2(b) attached hereto, the
Base Consideration for the Shares and Related Assets, less the sum of (i)
$500,000 (the "Working Capital Escrow"), which amount will be placed in escrow
with The Fifth Third Bank (the "Escrow Agent") to be held and invested in
accordance with the escrow agreement attached hereto as EXHIBIT 1.7(d)(i) (the "
Escrow Agreement"), (ii) $500,000 (the "EBITDA Escrow"), which amount will be
placed in escrow with the Escrow Agent to be held and invested in accordance
with the Escrow Agreement and (iii) $2,000,000 (the "Indemnification Escrow"),
which amount will be placed in escrow with the Escrow Agent to be held and
invested in accordance with the Escrow Agreement.
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(b) Buyer will deliver to the Escrow Agent, (i) $500,000 in
immediately available funds at Closing to fully fund the Working Capital Escrow,
(ii) $500,000 in immediately available funds at Closing to fully fund the EBITDA
Escrow and (ii) $2,000,000 in immediately available funds at Closing to fully
fund the Indemnification Escrow.
1.5 ADJUSTMENTS TO THE BASE CONSIDERATION.
(a) The Base Consideration shall be adjusted, upward or downward, on
a dollar-for-dollar basis, to the extent the Company's Effective Date Working
Capital is higher or lower than the reference working capital as calculated and
described on EXHIBIT 1.5 (a) ("Reference Working Capital"). Within 10 business
days after the Effective Date, Sellers shall provide to Buyer a written
statement of the Company's Effective Date Working Capital (the "Effective Date
Working Capital Statement"). If Buyer disputes or disagrees with the Effective
Date Working Capital Statement, Buyer shall send Sellers a written statement
within 10 business days of receipt of the Effective Date Working Capital
Statement, setting forth in reasonable detail, the items and basis for such
disagreement. If Buyer does not send such a statement within such period, the
Effective Date Working Capital Statement shall be deemed accepted and agreed
upon and the Base Consideration shall be adjusted upward or downward,
accordingly. If Buyer does timely dispute such Effective Date Working Capital
Statement and Sellers and Buyer cannot resolve such dispute within 10 business
days after receipt of Buyer's statement of dispute, then such dispute shall be
submitted to a mutually agreeable, independent, nationally recognized certified
public accounting firm. Such accounting firm shall review the Effective Date
Working Capital Statement, and the items in dispute and shall render its
determination as to Effective Date Working Capital, determined in accordance
with the terms herein and as provided herein based solely on the written
submissions of Buyer and Sellers and their respective accounting firms, provided
that either party and their respective
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representatives may meet with, or discuss such written submissions and/or supply
copies of documents to, such accounting firm, provided the other party is given
notice of and an opportunity to participate in such meeting or discussion. The
determination of the Effective Date Working Capital by such accounting firm
shall be final and binding on the parties hereto. The costs of such accounting
firm shall be borne equally by Sellers and Buyer. Sellers and Buyer agree to
cooperate with each other and any third accounting firm retained in connection
with any such dispute, including giving each other and their respective
accounting firms access to books and records, including the work papers of
Buyer's auditors. After the Effective Date Working Capital Statement is final,
including the resolution of any dispute, to the extent Reference Working Capital
exceeds Effective Date Working Capital by less than $500,000, an amount equal to
such excess, together with earnings on such portion of the funds held in the
Working Capital Escrow shall be paid to Buyer from the Working Capital Escrow
and the balance of any amounts held in the Working Capital Escrow and any
earnings thereon shall be distributed to Sellers. To the extent Reference
Working Capital exceeds Effective Date Working Capital by more than $500,000,
the first $500,000 of such excess shall be distributed from the Working Capital
Escrow to Buyer together with all earnings on the funds in the Working Capital
Escrow in accordance with the Escrow Agreement and Sellers shall promptly pay to
Buyer in immediately available funds, the balance (over $500,000) of such
excess. After the Working Capital Statement is final, including the resolution
of any dispute, to the extent Effective Date Working Capital exceeds Reference
Working Capital, such excess, shall be paid by Buyer, in immediately available
funds, to Sellers in accordance with their percentage ownership set forth in
SECTION 1.2(b) hereof and all amounts held in the Working Capital Escrow,
including all earnings, shall be distributed to Sellers.
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(b) At Closing, Sellers shall furnish Buyer a written statement of
(i) the amount of Cash and Funded Debt of the Company as of the Effective Date;
and (ii) the amount of all capital expenditures of the Company and K.P.
Properties from February 1, 2000, through the Effective Date (as defined in
SECTION 1.6).
[(c) This section intentionally left blank]
(d) Within 45 days after Closing with respect to the FYE 1999 Report
and 45 days after December 31, 2000 with respect to the FYE 2000 Report,
respectively, Buyer agrees to deliver to Sellers the "FYE 1999 Report" and "FYE
2000 Report" which shall include: (i) audited balance sheets, income statements
and statements of changes in cash flow, with respect to the Company, certified
by Deloitte & Touche LLP, for the 12-month period ending December 31, 1999 ("FYE
1999") and December 31, 2000 (FYE 2000"), (ii) statements of EBITDA for the FYE
1999 and FYE 2000 with respect to the Company, (iii) statements of Adjusted
EBITDA for the FYE 1999 and FYE 2000 with respect to the Company, in each case
setting forth the adjustments in calculating EBITDA and Adjusted EBITDA in
accordance with the terms of this Agreement, and (iv) a claim for the amount
due, if any, to Buyer or the amount, if any, due Sellers, pursuant to SECTION
1.5(e) for FYE 1999 and the amounts, if any, due to Sellers pursuant to SECTION
1.5(f) with respect to FYE 2000.
(e) If Adjusted EBITDA for the FYE 1999 is less than $9,000,000, the
Base Consideration shall be adjusted downward by an amount equal to such
shortfall multiplied by a factor of 4 (the "1999 EBITDA Shortfall"). Any 1999
EBITDA Shortfall up to $500,000 together with earnings on such portion of the
funds held in the EBITDA Escrow shall be promptly paid to Buyer from the EBITDA
Escrow and the balance of any amounts held in the EBITDA Escrow and any earnings
thereon shall be distributed to Sellers allocated as shown on EXHIBIT 1.2(b).
Any such 1999 EBITDA Shortfall in excess of $500,000 shall be promptly paid to
Buyer by Sellers in
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immediately available funds. If Adjusted EBITDA for FYE 1999 is in excess of
$9,000,000, but equal to or less than $9,500,000, the Base Consideration shall
be adjusted upward by an amount equal to such excess multiplied by a factor of 4
(the "EBITDA Excess"), which amount Buyer shall promptly pay Sellers, and all
amounts in the EBITDA Escrow, together with all earnings thereon, shall be
distributed to Sellers allocated as shown on EXHIBIT 1.2(b). To the extent that
Adjusted EBITDA for 1999 exceeds $9,500,000, no adjustment for such excess over
$9,500,000 shall be made to the Base Consideration and no amount shall be
payable to Sellers as a result thereof, and the EBITDA Escrow, together with all
earnings thereon, shall be immediately distributed to Sellers allocated as shown
on EXHIBIT 1.2(b).
(f) If Adjusted EBITDA for FYE 2000 exceeds the lesser of Adjusted
EBITDA for FYE 1999 or $9,500,000, then consideration in addition to the Base
Consideration shall be payable to Sellers (the "Contingent Consideration"). The
Contingent Consideration shall equal the excess of FYE 2000 Adjusted EBITDA over
the lesser of FYE 1999 Adjusted EBITDA and $9,500,000 multiplied by a factor of
4. If Adjusted EBITDA for FYE 2000 is less than the lesser of Adjusted EBITDA
for FYE 1999 or $9,500,000, then no additional consideration shall be payable to
Sellers and no adjustment shall be made in the Base Consideration as a result of
such shortfall and no amount shall be payable to Buyer as a result thereof. Any
Contingent Consideration due Sellers shall be promptly paid by Buyer in
immediately available funds, allocated as shown on EXHIBIT 1.2(b).
(g) To the extent any amount is due Buyer or Sellers pursuant to
SECTION 1.5(e) or due Sellers pursuant to SECTION 1.5(f), and the party owing
such amount has not paid the other party at least 80% of the amount finally
determined to be due on or before 45 days after Closing or March 1, 2001,
respectively, in accordance with the terms of this Agreement, then the party
owing
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such balance shall also pay interest, at the prime rate charged by The Fifth
Third Bank, Cincinnati, Ohio on the difference between the amount paid and the
amount ultimately found to be due from the Closing Date or December 31, 2000, as
applicable, to the date of payment.
(h) If Sellers dispute or disagree with either the FYE 1999 Report or
the FYE 2000 Report, Sellers shall send Buyer a written statement within 30 days
of receipt of such report, setting forth in reasonable detail the items and
basis for such disagreement. If Sellers do not, in either case, send such a
statement within such period, the FYE 1999 Report and FYE 2000 Report,
respectively, shall be deemed accepted and agreed upon and the amounts due Buyer
or Sellers, as the case may be, shall be promptly paid, together with accrued
interest as provided in SECTION 1.5(g), in immediately available funds. If
Sellers timely dispute either the FYE 1999 Report or the FYE 2000 Report and
Sellers and Buyer cannot resolve such dispute within 30 days after receipt of
Sellers' statement of dispute, then such dispute shall be submitted to a
mutually agreeable, independent, nationally recognized certified public
accounting firm. Such accounting firm shall review the disputed report(s) and
the items in dispute and shall render its decision as to the amount(s) payable
to Buyer or Sellers, in accordance with the terms of the Agreement, with respect
to the FYE 1999 Report and/or the FYE 2000 Report. The determination of such
amount(s) by such accounting firm shall be made based solely on the written
submissions of the parties and their respective accounting firms, provided that
either party and their representatives may meet with, or discuss such written
submissions and/or supply copies of documents to such accounting firm, provided
the other party is given notice of and an opportunity to participate in such
meeting or discussion. The determination by such accounting firm shall be final
and binding on the parties hereto. The costs of such third accounting firm
shall be borne equally by Sellers and Buyer. Buyer agrees to give Sellers and
their accountants reasonable access to the books and records of the
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Company and/or the business operations related thereto, together with the work
papers of Buyer's accountants related thereto. Buyer and Sellers agree to
cooperate with each other and any third accounting firm, including giving each
other and their respective accounting firms access to books and records,
including the work papers of Buyer's auditors.
(i) Buyer covenants and agrees with Sellers that through December 31,
2000, Buyer (i) will operate the Company (for the purposes of this SECTION 1.5,
the Company shall mean the existing Company and/or any business, division or
unit that succeeds to the business and operations of the Company) in the
ordinary course and consistent with past practices of Sellers, in all material
respects, (ii) will take all necessary actions to enable Buyer to accurately
determine and report to Sellers 1999 Adjusted EBITDA and 2000 Adjusted EBITDA in
accordance with the terms of this Agreement, (iii) will not divert any business,
sales or opportunities from the Company, (iv) will not file a voluntary petition
in bankruptcy, suffer an involuntary filing of bankruptcy, or seek or suffer a
reorganization, receivership, liquidation or other similar event or proceeding ,
and (v) will not permit the Company or any entity within which the business or
operations of the Company are included to file a voluntary petition in
bankruptcy, suffer an involuntary filing of bankruptcy, or seek or suffer a
reorganization, receivership, liquidation or other similar event or proceeding.
(j) In the event that, on or before the date on which the Contingent
Consideration is paid to Sellers, Buyer transfers, sells, disposes, or otherwise
engages in (which for the purposes of this Agreement shall mean substantially
consummates or closes such a transaction), a sale of substantially all of the
assets of the Company or the Buyer or a sale of stock, exchange, merger,
consolidation or other reorganization in which more than 50% of the voting
securities or control of the Company or the Buyer is transferred to persons not
presently entitled to name a majority of Buyer's directors (each a "Triggering
Event"), then in lieu of the Contingent Consideration to be paid
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to Sellers as determined pursuant to SECTION 1.5(f), Buyer shall pay the Trusts,
on the date of such transfer, sale or other disposition, in immediately
available funds, the amount determined using the procedures set forth on
Schedule 1.5(j). The parties agree that such payment is not a penalty and that
using such procedures represents a reasonable estimate of the effects of such a
transfer, sale or other disposition upon the calculation of the Contingent
Consideration, the management of the Company or other related matters that could
reasonably impact such calculation.
1.6 CLOSING AND EFFECTIVE DATE.
(a) The closing of the sale and purchase of the Shares and the
Related Assets (the "Closing") shall take place at 10:00 A.M. on February 29,
2000 (the "Closing Date"), at the Cincinnati offices of Dinsmore & Shohl LLP, or
at such other time or place as shall be mutually agreed to in writing by the
parties.
(b) The effective date (the "Effective Date") of the transactions
contemplated hereby shall be February 26, 2000 and for the purposes of
calculating Cash and Effective Date Working Capital, all such accounting shall
be determined as of February 26, 2000.
1.7 DELIVERIES AT THE CLOSING.
At the Closing:
(a) Sellers, K.P. Properties, Purkrabek and Knust, and the Company,
as appropriate, shall deliver or cause to be delivered to Buyer:
(i) certificates representing the Shares, duly endorsed or
accompanied by stock powers duly executed in blank, and otherwise in form
acceptable for transfer on the books of the Company and any documents that are
necessary for the transfer to Buyer of good title to the Shares free of
Encumbrances, with any requisite transfer tax or stamps attached or provided
for;
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(ii) a copy of the Articles of Incorporation of the Company
with all amendments thereto and a long form certificate of good standing for the
State of Ohio and each state where the Company is qualified to do business as a
foreign corporation, each of which shall be certified as of a date within 20
days prior to the Closing Date by the Secretary of State of the states of
incorporation and qualification;
(iii) a copy of the Regulations of the Company as amended
through the time of the Closing, certified by the Secretary of the Company;
(iv) a certified copy of corporate, trust-related and
partnership resolutions and other proceedings taken by Sellers, the board of
directors of the Company, K.P. Properties and the respective trusts,
authorizing the execution, delivery and performance of this Agreement, the
transactions contemplated hereby and all actions necessary or desirable
hereunder;
(v) a certificate signed by Sellers to the effect that all
of the representations and warranties of Sellers are true and correct in all
material respects as of the Closing Date, and that Sellers have performed all of
the covenants to be performed by Sellers as of the Closing, except where any
such breach or non-performance has been waived by Buyer;
(vi) the opinion of Dinsmore & Shohl LLP, counsel for
Sellers and the Company, dated as of the Closing Date, in the form attached
hereto as EXHIBIT 1.7(a)(vi);
(vii) a certificate of incumbency of the officers of the
Company as of the Closing;
(viii) evidence of authority of the person executing the
Agreement on behalf of K. P. Properties;
(ix) the minute book and stock record book of the Company;
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(x) all books and records of the Company which have been
requested by Buyer;
(xi) the resignations of such members of the Board of
Directors and officers of the Company as Buyer may request;
(xii) a general warranty deed to the Real Property;
(xiii) evidence of transfer of title, free and clear of
Encumbrances to the personal property listed on SCHEDULE 2.7 (c);
(xiv) [intentionally deleted]
(xv) evidence of termination of any of the leases between
Purkrabek and Knust and the Company regarding the personal property listed on
SCHEDULE 2.7 (c);
(xvi) a termination of the buy-sell/shareholder agreement
between Sellers and the Company dated November 2, 1987;
(xvii) immediately available funds in repayment in full of any
debts, liabilities or expenses of K.P. Properties and Purkrabek and Knust due
the Company including but not limited to prorated rent, real property taxes and
assessments, personal property taxes and any other prorated costs or liabilities
with respect to the Real Property and the Personal Property;
(xviii) the executed lease for warehouse space located at 1025
Reed Road, Monroe, Ohio, in the form of Exhibit 1.7(a)(xviii); and
(xix) all other previously undelivered documents,
instruments, and writings required to be delivered to Buyer by Sellers at or
prior to the Closing pursuant to this Agreement or otherwise required in
connection herewith.
(b) Buyer shall deliver to Sellers and K.P. Properties, respectively:
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(i) immediately available funds in an amount equal to the Base
Consideration, less the sum of (x) $500,000, for funding of the Working Capital
Escrow, (y) $500,000, for funding of the EBITDA Escrow and (z) $2,000,000, for
funding of the Indemnification Escrow, payable to Sellers in accordance with
their respective percentage ownership set forth in SECTION 1.2 hereof;
(ii) certified copies of the resolutions of the Board of
Directors of Buyer, authorizing the execution, delivery and performance of this
Agreement and all actions necessary or desirable hereunder;
(iii) a certificate signed by the President or a duly authorized
Vice President of Buyer to the effect that all of the representations and
warranties of Buyer are true and correct in all material respects as of the
Closing and that Buyer has performed all of the covenants to be performed by
Buyer as of the Closing, except where any such breach or non-performance has
been waived by Sellers;
(iv) the opinion of Paul, Hastings, Janofsky & Walker LLP,
counsel for Buyer, dated as of the Closing Date, in the form attached hereto as
EXHIBIT 1.7(b)(iv); and
(v) all other previously undelivered documents, instruments
and writings required to be delivered to Sellers by Buyer at or prior to the
Closing pursuant to this Agreement or otherwise required in connection herewith.
(c) Buyer shall deliver to the Escrow Agent:
(i) $500,000 in immediately available funds to be placed in
the Working Capital Escrow;
(ii) $500,000 in immediately available funds to be placed in
the EBITDA Escrow; and
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(iii) $2,000,000 in immediately available funds to be placed in
the Indemnification Escrow.
(d) Buyer and Sellers shall execute and deliver to each other:
(i) the escrow agreement in the form of EXHIBIT 1.7(d)(i);
(ii) the transition agreement of Susan L. Purkrabek in the form
of EXHIBIT 1.7(d)(ii) attached hereto; and
(iii) the transition agreement of David G. Knust in the form of
EXHIBIT 1.7(d)(iii) attached hereto.
(e) The Company shall deliver to K.P. Properties and Purkrabek and
Knust, respectively:
(i) title to the vehicles listed on EXHIBIT 1.7(e)(i) attached
hereto; and
(ii) immediately available funds in payment of any amounts for
prorated rent, real property taxes and assessments, personal property taxes
and any other prorated costs or liabilities with respect to the Real
Property and the Personal Property; and
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as previously disclosed by Sellers to Buyer in writing in the
disclosure schedule attached hereto (the "Disclosure Schedule") which identifies
the specific sections (except where the nature of such disclosure clearly
identifies that such disclosure is also applicable to another section, whether
or not cross-referenced) to which each such disclosure relates, the Company and
Sellers hereby represent and warrant to Buyer, as follows:
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2.1 ORGANIZATION.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Ohio and has the corporate power
and authority to conduct its business as it is presently being conducted and to
own and lease its properties and assets. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
listed on SCHEDULE 2.1, which constitute all jurisdictions in which such
qualification is necessary under the applicable law as a result of the conduct
of the Company's business, except where the failure to be so qualified would not
have a material adverse effect on the condition (financial or otherwise),
business or operations of the Company.
2.2 AUTHORIZATION.
The execution and delivery of this Agreement by the Company, K.P.
Properties, the Purkrabek SBT and the Knust SBT, respectively, and the
performance of their respective obligations hereunder have been duly authorized
by the directors and the shareholders of the Company and no other action or
approval by the Company, the Trusts or K.P. Properties is necessary for the
execution, delivery or performance of this Agreement by the Company, the Trusts
and K.P. Properties. This Agreement has been duly executed and delivered by the
Company, Sellers, the Trusts and K.P. Properties and is a valid and binding
obligation of the Company, Sellers, the Trusts and K.P. Properties, enforceable
against each of them in accordance with its terms, except as such enforceability
may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or
other similar laws, now or hereafter in effect, relating to or limiting
creditors' rights generally and (b) general principles of equity (whether
considered in an action in equity or at law).
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2.3 NO CONFLICT.
Neither the execution and delivery of this Agreement by the Company or
Sellers nor the consummation of the transactions contemplated hereunder nor the
fulfillment by the Company or Sellers of any of its terms will:
(a) conflict with or result in a breach by the Company or Sellers of,
or constitute a default under, or create an event that, with the giving of
notice or the lapse of time, or both, would be a default under or breach of, or
give a right to terminate or cancel under, any of the terms, conditions or
provisions of (i) any indenture, mortgage, lease, deed of trust, pledge, loan or
credit agreement involving $50,000 or more, or any other material contract,
arrangement or agreement to which Company or any Seller is a party or to which
any material portion of the assets of Company is subject, provided that sales or
purchase orders will only be deemed material if they relate to a customer or
supplier whose 1998 volume of business with the Company was $100,000 or more,
(ii) the Articles of Incorporation or Regulations of the Company, the
partnership agreement of K.P. Properties or the trust agreements of the Trusts,
or (iii) any judgment, order, writ, injunction, decree or demand of any
Governmental Entity which materially affects any Seller, the Company, the Real
Property, or is likely to materially adversely affect the Company's ability to
conduct its business, own or convey its assets or own and operate the Real
Property after the Closing;
(b) result in the creation or imposition of any lien, charge or other
Encumbrance of any nature whatsoever upon the Real Property, the Personal
Property or any material assets of the Company or which materially affects the
Company's ability to conduct its business as conducted prior to the date of this
Agreement or own and operate the Real Property and the Personal Property after
the Closing; or
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(c) cause a loss or materially adverse modification of any permit,
license, or other authorization granted by any nation or any state,
commonwealth, territory and all courts, departments, commissions, boards,
bureaus or instrumentalities of any of the foregoing (a "Governmental Entity")
to or otherwise held by the Company or affecting the Real Property and the
Personal Property.
Except for this Agreement and any agreement to be terminated at
Closing and identified on Schedule 2.3, neither the Sellers nor the Company has
any legal obligation, absolute or contingent, to any other individual,
corporation, partnership, joint venture, trust or other entity ("Person") to
sell any capital stock or other ownership interest in the Company, or the
business or any material assets of the Company or to effect any merger,
consolidation or other reorganization of the Company or to enter into any
agreement with respect thereto.
2.4 CAPITALIZATION; NO SUBSIDIARIES.
(a) The Company's authorized capital stock consists only of 750
shares of common stock, no par value, of which only the Shares as set forth and
defined in SECTION 1.1 are issued and outstanding. All of the Shares are duly
authorized, validly issued, fully paid and non-assessable. There are no
outstanding options, warrants or other rights to acquire, or any securities or
obligations convertible into or exchangeable for, any shares of the capital
stock of Company which have been issued or granted by or are binding upon
Sellers, the Company or other Persons. The Trusts are the record and beneficial
owners, respectively, of the Shares, free and clear of all liens, mortgages,
pledges, security interests, charges or encumbrances of any kind, including any
conditional sale or other title retention agreement or agreement with respect to
any of the foregoing ("Encumbrances"). The delivery to Buyer at Closing of
certificates evidencing the Shares will convey and transfer to Buyer good and
marketable title to all capital stock of the Company, free
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and clear of restrictions or conditions to transfer or assignment (other than
restrictions on transfer imposed by federal or state securities laws) and free
and clear of all defects of title or Encumbrances.
(b) The Company does not own or control, directly or indirectly, 50%
or more of the voting securities or other ownership interests of any Person or
have the right by contract to control any other Person.
2.5 FINANCIAL STATEMENTS.
(a) The Company has delivered to Buyer the audited balance sheets of
the Company at December 31, 1997, December 31, 1998, and September 30, 1999 and
the related statements of income and retained earnings and cash flows for the
fiscal periods then ended, accompanied by the unqualified opinion of Deloitte &
Touche, all of which balance sheets and related statements (i) were prepared in
accordance with GAAP consistently applied as at the dates and for the periods
covered thereby, and (ii) present fairly in all material respects the financial
position and results of operations and cash flows of the Company as of the dates
and for the periods then ended. The foregoing audited balance sheets and related
statements are collectively referred to hereinafter as the "Financial
Statements". The Financial Statements are attached hereto as SCHEDULE 2.5.
(b) The Financial Statements at December 31, 1998 and September 30,
1999 do not contain any items of extraordinary income as defined in the FASB
current text accounting standards.
(c) The Company had no direct or indirect liabilities or obligations,
either accrued, contingent or otherwise as of December 31, 1999 or September 30,
1999 which, individually or in the aggregate, are material to the Company or
involve a transaction value exceeding $50,000, and which have not been reflected
in the balance sheet as of such date.
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(d) The Company has maintained, in all material respects, complete
and accurate books and records, including financial records, of all its material
corporate transactions or proceedings or has otherwise made written disclosures
to Buyer of such matters.
2.6 ABSENCE OF CERTAIN FACTS OR EVENTS.
Except as listed on SCHEDULE 2.6, since September 30, 1999 there has
not been:
(a) any material adverse change in (i) the financial condition of the
Company from that shown on the September 30, 1999 balance sheet, or (ii) the
results of operations of the Company from that shown in the statements of
operations and cash flows of the Company for the 9 month period ended September
30, 1999;
(b) any damage, destruction or loss to the tangible or, to the best
of Sellers' knowledge, intangible assets of the Company, or the Real Property,
whether covered by insurance or not, involving losses or assets in excess of
$50,000;
(c) any hiring of new key employees or officers whose annual
compensation exceeds $40,000, any amendment to or entering into of any
employment agreements or any increase in the compensation payable or to become
payable by the Company to any employee, officer or director whose 1998 annual
remuneration exceeded $40,000, or in the coverage or benefits under any bonus,
insurance, pension or other benefit plan or arrangement (excluding annual
length-of-service and similar adjustments to the benefits of individual
participants);
(d) any issuance of capital stock of the Company or options or rights
to acquire capital stock of the Company, any redemption or repurchase of
outstanding shares of capital stock of the Company, any declaration, setting
aside or except as set forth in SCHEDULE 2.6(d), payment of any dividend or
distribution thereon, any stock split or reverse stock split, any merger of the
Company with any Person, any purchase or other acquisition by the Company of
capital stock or
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other interest in any other Person, any purchase or other acquisition by the
Company of all or substantially all of the business or assets of any other
Person, any transfer or sale of a substantial portion of the Company's business
or assets or of the Real Property or the Personal Property to any Person, any
transaction between the Company and Sellers or her or his Affiliates (as defined
hereinafter), or any agreement to take any such actions;
(e) any sale, assignment, modification or transfer (or negotiation of
any of the foregoing) of any contractual rights, claims or other assets of the
Company valued at more than $25,000 individually, or more than $100,000 in the
aggregate, other than changes to sales or purchase orders in the ordinary course
of business consistent with past practice;
(f) any mortgage, pledge, or other lien placed on the Company assets
to secure debt, or any other encumbrance placed on assets of the Company or the
Real Property which would prevent or materially limit the use, modification or
sale of an asset valued at $50,000 or more;
(g) the incurrence of any obligation or liability of the Company as a
result of borrowed money (except pursuant to existing credit agreements) or any
capital expenditure in either case, in excess of $25,000;
(h) any failure to pay or perform any obligation of the Company
involving more than $50,000 as, when and to the extent due other than pursuant
to a good faith defense or right of setoff;
(i) any intentional or, to the knowledge of Sellers or the Company,
other waiver of any rights in excess of $50,000 in value to the Company or K.P.
Properties or any amendment or termination of the Articles of Incorporation or
Regulations of the Company or the partnership agreement of K.P. Properties or
any amendment, waiver or termination of any agreement to which the Company or
K.P. Properties is a party which materially adversely affects, or is reasonably
likely
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to materially adversely affect, the Company's results of operations or its
financial condition or the properties of K.P. Properties;
(j) any material transaction entered into or consummated by the
Company or by any Seller with respect to the Real Property or the Personal
Property, except in the ordinary course of business consistent with past
practice;
(k) any material addition to or modification of the benefit plans of
the Company or other arrangements or practices affecting personnel of the
Company (other than extensions of coverage thereunder to employees of the
Company who became eligible after December 31, 1998 in accordance with the terms
of such benefit plans, or otherwise in the ordinary course or business);
(l) any Tax (defined hereinafter) election or the settlement or
compromise of any Tax claims;
(m) material change in accounting methods or practices (including any
change in depreciation or amortization policies or rates, capitalization
policies, revenue recognition and collection policies) of the Company;
(n) material revaluation by the Company of any of its assets; or
(o) any commitment to do any of the foregoing.
2.7 PROPERTY, LEASES AND LIENS.
(a) SCHEDULE 2.7(a) hereto accurately sets forth as of December 31,
1999 (i) all owned or leased real properties and all items of equipment and
other personal property of the Company having an individual value in excess
of $ 5,000 which are owned by the Company or used in or necessary for the
conduct of the Company's business in accordance with past practice and as
currently conducted and (ii) the Real Property and all items of personal
property having an individual value in excess of $5,000 (the Company assets
including any personal property owned by Purkrabek
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and Knust transferred to the Company prior to Closing, and the Real Property
being collectively referred to as the "Properties") and contains with respect to
each of the Properties a list of (i) all leases, franchises and similar
agreements providing for payments in excess of $25,000 on an annual basis
creating, or materially modifying or altering rights to any of the Properties,
including zoning or use restrictions, and (ii) all indebtedness secured by any
encumbrance on any of the Properties, specifying the nature thereof and the
holder of such indebtedness.) The agreements, contracts and commitments listed
in SCHEDULE 2.7(a) are in full force and effect without any material default,
waiver or indulgence thereunder by the Company or by any other party thereto.
Except as noted on SCHEDULE 2.7(a), the Company has good and marketable title to
all Properties and other assets of the Company, in each case, free and clear of
all Encumbrances of any nature whatsoever other than Permitted Encumbrances.
Also listed on SCHEDULE 2.7(a)(iii) is a list of the personal property with a
value in excess of $25,000 owned by customers and located at Company facilities.
All such property is returnable to the customer upon such customer's request.
(b) Except as noted on SCHEDULE 2.7(b), the Company's machinery and
equipment (including any personal property owned by Purkrabek and Knust and
transferred to the Company prior to Closing) currently in use on operating lines
is in operating condition, has been maintained in accordance with reasonable
industry practice and is sufficient to allow the Company to continue to operate
its business as operated on the date hereof, consistent with past practices.
(c) Prior to Closing, Purkrabek and Knust will transfer to the
Company the personal property listed on Schedule 2.7(c).
2.8 CONTRACTS AND COMMITMENTS.
(a) Except as set forth in SCHEDULE 2.8, the Company has no (i)
collective bargaining agreements, or any agreements or policies that contain or
include any severance pay
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liabilities or obligations; (ii) employment, consulting or similar agreement,
contract or commitment that involves more than $25,000 on an annual basis and
which is not terminable without penalty or cost by the Company on notice of
thirty (30) days; (iii) lease of real or personal property having a term in
excess of one year or remaining payments of $25,000 or more (as lessor or
lessee); (iv) note or other evidence of indebtedness for borrowed money, or the
deferred purchase price of property or services which deferral involves a
liability of more than $25,000 on an annual basis; (v) agreement of guaranty or
indemnification (provided that this clause (v) shall not require a separate
identification of purchase orders and form contracts that would not otherwise be
listed and which include a provision for indemnity against breaches or
violations); (vi) agreement, contract or commitment limiting the freedom of the
Company to engage in any line of business or compete with any Person;
(vii) agreement, contract or commitment relating to capital expenditures in
excess of $25,000; (viii) agreement, contract or commitment relating to the
acquisition of assets of, or any interest in, any business enterprise involving
individual or aggregate payments in excess of $25,000; (ix) other agreement,
contract or commitment (with customers or other Persons) (or negotiation of any
of the foregoing) which involves $25,000 or more and is not cancelable without
penalty or cost within sixty (60) days, except for sales orders or purchase
orders entered into in the ordinary course of business consistent with past
practices or (x) any agreement, contract or commitment that involves more than
$25,000 and which represents or requires the Company to be a minority-owned
business enterprise or a woman-owned business enterprise. The Company has
delivered copies of all documents required to be listed on SCHEDULE 2.8 to
Buyer.
(b) Except as set forth in SCHEDULE 2.8: (i) the Company is not in
violation of, nor has the Company received any written notice of a claim that it
has breached, any of the terms or conditions of any agreement, contract or
commitment set forth or required to be set forth in any of
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the Schedules to this Agreement (collectively the "Contracts") in such manner as
would permit any other party thereto to cancel or terminate the Contract as a
result of such breach, if any such breach or breaches singly or in the aggregate
is reasonably likely to have a material adverse effect on Buyer or the Real
Property or the Personal Property; (ii) each Contract is in full force and
effect in all material respects in the form delivered to Buyer and to the
knowledge of the Company and Sellers there is no material breach or default by
any party thereto; and (iii) there are no facts or conditions which have
occurred or are, based on facts presently known by Sellers to exist, anticipated
which, through the passage of time or the giving of notice, or both, would
constitute a default under any Contract giving rise to a right to cancel or a
claim for damages in excess of $25,000 or would cause the acceleration of any
obligation of any party thereto or the creation of an Encumbrance which is
reasonably likely to materially limit the use, modification or sale of any asset
of Company valued at more than $50,000.
2.9 PERMITS AND AUTHORIZATIONS.
(a) SCHEDULE 2.9 lists each material consent, license, permit, grant
or other authorization of a Governmental Entity held by the Company or pursuant
to which the Company conducts its business or holds any of its assets (herein
collectively called "Authorizations"). All such Authorizations are in full
force and effect and constitute all Authorizations required to permit the
Company and K.P. Properties, respectively, to operate their assets and the Real
Property and conduct their respective businesses, in all material respects,
following the Closing Date as such assets (including the property described on
Schedule 2.7(c)) and business are presently operated and conducted. SCHEDULE
2.9 also discloses all proposed or pending applications for Authorizations, and
all applications for variances from compliance, or postponement of the dates for
compliance with any laws or regulations affecting the Company, its business or
assets or the Real Property.
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(b) SCHEDULE 2.9 identifies all Authorizations which restrict the
present output of the Company, which by their terms directly or indirectly limit
the term of possession or operation of any material assets of the Company or the
Real Property, or which pertain to environmental matters.
(c) Except as shown on SCHEDULE 2.9, neither the Company nor Sellers
have been given written notice or has knowledge that any of the Authorizations
will not in the ordinary course be renewed upon its expiration.
(d) Except as shown on SCHEDULE 2.9, no Seller has received any
written, or to the Knowledge of the Company and Sellers, any oral claim or
assertion that it have breached any of the terms or conditions of any
Authorizations in such manner (i) as would permit any other Person to cancel,
terminate or materially amend any Authorization necessary to permit the
continued operation of the Company as presently conducted or (ii) that is
reasonable to believe will result in a cost, penalty or fee of more than
$25,000.
2.10 NO VIOLATIONS.
(a) Except as described on SCHEDULE 2.10 hereto, the Company is not
in violation of any applicable law, statute, order, rule or regulation
promulgated or judgment entered (or, with respect to rules and regulations of
administrative agencies, known by the Company, or Sellers to be proposed) by any
Governmental Entity, which will result, or it is reasonable to expect will
result, in a material adverse effect on the Company.
(b) Except for those filings listed on SCHEDULE 2.10 hereto, no
consent, approval or authorization of, or declaration, filing or registration
with, any Governmental Entity is required to be made or obtained by Sellers or
the Company in connection with the execution, delivery and
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performance by Sellers and the Company of this Agreement and the consummation of
the transactions contemplated hereby, or the continued operation of the
Company's business.
2.11 PROCEEDINGS.
(a) SCHEDULE 2.11 lists all suits, actions and other legal
proceedings (including arbitrations) and, to Sellers' or Company's knowledge,
governmental investigations, pending against any Seller (and having to do with
the Company or such Seller's holdings in the Company) or the Company or the Real
Property or the Personal Property or as to which any Seller or the Company has
received any written notice or to the knowledge of Sellers, any oral notice.
Except as set forth on SCHEDULE 2.11 hereto, to the knowledge of Sellers and the
Company, there is no suit, action or other legal proceeding threatened against
the Company or affecting the Real Property or the Personal Property.
(b) Except as set forth on SCHEDULE 2.11, there is no pending or, to
the knowledge of any Seller or the Company, threatened claim, action, suit,
inquiry, proceeding or investigation by any Person or Governmental Entity in
which a product of the Company is alleged to have a defect and which is
reasonable to expect will result in a material adverse effect upon the Company.
As used in this SECTION 2.11, the term "product" shall mean any product
designed, manufactured, shipped, sold, marketed, distributed and/or otherwise
introduced into the stream of commerce by or on behalf of Company, including,
without limitation, any product sold in the United States by Company as the
distributor, agent, or pursuant to any other contractual relationship with a
manufacturer, and the term "defect" shall mean a defect or impurity of any kind,
whether in design, manufacture, processing, packaging or labeling.
(c) Except as set forth on SCHEDULE 2.11, there is no suit, action or
proceeding or investigation pending or, to the knowledge of Sellers and the
Company, threatened against or
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affecting the Company or any Seller that is likely to prevent or materially
delay or impair the ability of the Company or any Seller to consummate the
transactions contemplated by this Agreement or to carry on its business as now
conducted, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitration award outstanding against the Company or
affecting the Real Property or the property of the Company, having, or which in
the future could have, any such effect.
2.12 INSURANCE.
SCHEDULE 2.12 lists all insurance policies under which the Company is
an insured or a beneficiary or for which it is liable to pay premiums and
further sets forth the name of the insurer, type of coverage, policy limits and
deductibles and additional insureds, if any, and the annual premium for each
such policy. The Company has furnished Buyer copies of all such policies and a
history of all claimed losses under all of the Company's insurance policies
since January 1, 1996. Except as noted on SCHEDULE 2.12, the policies listed
thereon will be outstanding and in full force and effect on the Closing Date.
2.13 PROPRIETARY INFORMATION AND RIGHTS.
SCHEDULE 2.13 hereto accurately lists all patents, patent applications,
patent and know-how licenses, proprietary formulae, trademarks (registered or
unregistered), service marks, trademark registrations and applications, trade
names, fictitious business names, computer software and other intellectual
property rights (collectively, "Business Rights") owned or used by the Company.
SCHEDULE 2.13 discloses the identity of each other person which owns any right,
title or interest in and to the Business Rights. No Business Rights owned, and
to the knowledge of Sellers and the Company any used, by the Company conflict
with, infringe on or otherwise violate any rights of others, or require payments
to be made to any Person, or to the best of Sellers' and the Company's
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knowledge, are subject to any pending or threatened litigation or are being
infringed upon by other Persons, except as set forth on SCHEDULE 2.11 or
SCHEDULE 2.13. There has been no written, or to the knowledge of the Company or
Sellers, other claim of infringement by the Company of any domestic or foreign
patents, trademarks, service marks or copyrights of any other Person.
2.14 EMPLOYEE BENEFIT PLANS; ERISA.
SCHEDULE 2.14 discloses all written and unwritten "employee benefit plans"
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and any other written and unwritten profit
sharing, pension, savings, deferred compensation, fringe benefit, insurance,
medical, medical reimbursement, life, disability, accident, post-retirement
health or welfare benefit, stock option, stock purchase, sick pay, vacation,
employment, severance, termination or other plan, agreement, contract, policy,
trust fund or arrangement (each, a "Company Plan"), whether or not funded,
maintained by the Company or to which the Company contributed in the six (6)
years preceding the date of this Agreement.
Copies of all written Company Plans and description of all unwritten
Company Plans have been made available to Buyer. Each Company Plan has been
maintained in substantial compliance with all applicable laws, ordinances,
rules, regulations, permits, orders, writs, judgments, injunctions, decrees,
determinations and awards of any agency, government, or arbitrator. Company has
no material liability with respect to any Company Plan other than for benefits,
obligations and liabilities in the ordinary course and in accordance with the
terms thereof.
(a) With respect to each Company Plan that purports to be a qualified
plan under Section 401(a) of the Code and exempt from United States federal
income tax under Section 501(a) of the Code (a "Qualified Plan"), a current
determination letter (or opinion or notification letter, if applicable) has been
received from the IRS. No Qualified Plan has been amended since the date of
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the most recent such letter except as required or permitted by law or in a
manner which does not adversely effect the tax-qualified status of the plan.
Neither Company, nor any fiduciary of any Qualified Plan, nor any agent of any
of the foregoing, has done or failed to do anything that would adversely affect
the qualified status of a Qualified Plan or the qualified status of any related
trust.
(b) There are no Company Plans that are multiemployer plans within
the meaning of Section 3(37) or Section 4001(a)(3) of ERISA (a "Multiemployer
Plan"). No employees of Company have at any time been covered by a
Multiemployer Plan, nor has the Company withdrawn from any Multiemployer Plan or
incurred any withdrawal liability to or under any Multiemployer Plan.
(c) Except as set forth on SCHEDULE 2.14, all contributions and other
payments to be made to each Company Plan under the terms of such Company Plan,
ERISA, the Internal Revenue Code ("Code") or any other applicable law have been
timely made and all contributions made have been fully deductible under the
Code. The books of the Company properly reflect in accordance with GAAP all
material amounts required to be accrued as liabilities. There are no
contributions to be made with respect to any Company Plan which have not yet
been accrued other than contributions in the ordinary course in accordance with
the terms of such Company Plan which are identified on SCHEDULE 2.14.
(d) In the case of each Company Plan, there is no accumulated funding
deficiency (within the meaning of Section 4971 of the Code), whether or not such
deficiency has been waived, or any other unfunded liability.
(e) Except as set forth on SCHEDULE 2.14, no non-exempt "prohibited
transactions" (as defined in Section 4975(c)(1) of the Code) or breaches of
fiduciary duty involving the Company,
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Sellers, or a director or officer of the Company, have occurred with respect to
any of the Company Plans.
(f) There is no contract, agreement, or benefit arrangement covering
any agent or employee of the Company which, individually or collectively, could
give rise to the payment of any amount which would constitute an "excess
parachute payment" (within the meaning of Section 280G of the Code).
(g) Neither the Company nor any of its Affiliates maintains any
Company Plan that provides severance pay or medical benefits to one or more
former employees (including retirees), or provides for post-retirement benefits
to present or former employees, other than benefits that are required to be
provided pursuant to COBRA or state law conversion rights.
(h) There are no proceedings or lawsuits pending or to the knowledge
of the Company or Sellers, threatened with respect to (i) any Company Plan, or
(ii) any Fiduciary of such plan (within the meaning of Section 3(21)(A) of
ERISA) brought on behalf of any participant, beneficiary or Fiduciary
thereunder, or by any Governmental Entity.
2.15 EMPLOYMENT LAWS.
Except as shown on SCHEDULE 2.15:
(a) The Company is in compliance in all material respects with all
federal, state or other applicable laws, respecting employment and employment
practices, terms and conditions of employment, wages and hours, affirmative
action and occupational safety and has not received written or, to the knowledge
of Sellers and the Company any oral, notice of, and is not engaged in, any
unfair labor practice.
(b) No unfair labor practice complaint against Company is pending
before any Governmental Entity, including, but not limited to, the National
Labor Relations Board.
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(c) There is no labor strike, dispute, slowdown or stoppage actually
pending against or affecting the Company.
(d) There are not, and in the past three years have not been, any
material claims, grievances or arbitration proceedings, workers' compensation
proceedings, labor disputes (including charges of violations of any federal,
state or local laws or regulations relating to current or former employees
(including retirees) or current or former applicants for employment),
governmental investigations, or administrative proceedings of any kind pending
or, to the best knowledge of the Company and Sellers, threatened against the
Company, its employees or employment practices, or operations as they pertain to
conditions of employment; nor is the Company or any Seller subject to any order,
judgment, decree, award, or administrative ruling arising from any such matter.
(e) No collective bargaining agreement is currently in existence or
is being negotiated by the Company and as of the date of this Agreement no labor
organization has been certified or recognized as the representative of any
employees of the Company or, to the knowledge of Sellers and the Company, is
actively seeking such certification or recognition.
(f) The Company's contracts, if any, with temporary personnel
agencies represent bona-fide, arms-length agreements and are disclosed on
SCHEDULE 2.15.
2.16 ENVIRONMENTAL LAWS.
(a) Except as disclosed on SCHEDULE 2.16 and in the environmental
report(s) of Clayton Environmental Consultants, including all test results and
all interim and final reports, copies of which are attached to SCHEDULE 2.16
(the "Environmental Report"), (i) the assets and the business of the Company
have been operated in compliance in all material respects with all applicable
Environmental Laws including the holding of all Authorizations held by the
Company or required to be held pursuant to Environmental Laws, (ii) there has
been no production, generation, storage,
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treatment, Release (as defined hereinafter), or disposal of any Hazardous
Materials (as defined in SECTION 2.16(c) below) at, in, on, under, about or from
any of the Properties by or on behalf of Company or to Company's knowledge by
any previous owner or tenant of the Properties, (iii) there has been no
production, generation, storage, treatment, Release or disposal of any Hazardous
Materials by or on behalf of Company at any other site, (iv) there are no
underground storage tanks or electrical equipment containing PCB's on the
Properties, or any asbestos-containing materials on the Properties, and (v) the
Company has not received any written notice from any Governmental Entity or any
other Person of violation, notice to comply, compliance schedule, administrative
or judicial complaint, enforcement action or lien with respect to alleged
violations of Environmental Laws with respect to the Company or relating to the
Properties, or any proceeding or inquiry with respect to any actual or alleged
violation of any Environmental Law or any release or alleged release of a
Hazardous Material by or on behalf of Company or relating to the Properties.
(b) [This section intentionally left blank]
(c) [This section intentionally left blank]
(d) [This section intentionally left blank]
(e) Except as disclosed on SCHEDULE 2.16, the Company does not ship
to any country outside the United States nor to the Sellers' or the Company's
knowledge do its customers distribute the Company's products in any country
outside the United States except where the customer, and not the Company,
arranges for, and controls, such shipments and distributions.
(f) Except as set forth on SCHEDULE 2.16, the Company has not
contractually assumed any material liability or obligation under any
Environmental Law.
2.17 TAXES.
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Except as set forth in SCHEDULE 2.17 hereto and as provided in
SECTIONS 1.3 and 8.2, (i) all federal, state, foreign and local Tax returns and
Tax reports (including information returns) required to be filed by Company have
been filed with the appropriate Governmental Entities in all jurisdictions in
which such returns and reports are required to be filed, and all such returns
and reports are, in all material respects, complete, accurate and in accordance,
in all material respects, with all legal requirements applicable thereto;
(ii) all federal, state, foreign and material local income, profits, franchise,
sales, use, occupation, property, excise, withholding and other Taxes, duties,
charges and assessments (including interest and penalties) due from the Company,
(A) have been fully paid or adequately provided for on the books and financial
statements of the Company or (B) are disclosed on SCHEDULE 2.17 and are being
contested in good faith by appropriate proceedings; (iii) the Company has not
received any written notice or other written communication from the Internal
Revenue Service or any other taxing authority in connection with any of the
returns and reports referred to in the foregoing clause (i) of any pending or
threatened examination or audit which, individually or in the aggregate, if
adversely decided against the Company will result in adjustments or penalties
from which the Company will be liable in excess of $50,000; (iv) no extensions
or waivers of statutes of limitation have been given or requested with respect
to the Company; (v) the federal and state Tax returns of the Company have been
examined by the appropriate agency and for the periods set forth on SCHEDULE
2.17; and (vi) deficiencies asserted or assessments made as a result of
examination by any taxing authorities have been fully paid, fully reflected on
the books of the Company or are being contested as set forth on SCHEDULE 2.17.
SCHEDULE 2.17 also discloses, for each type or category of Tax Return, the years
for which such returns remain subject to examination. The Company has not made
an election under Section 341(f) of the Code.
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2.18 NO UNLAWFUL CONTRIBUTIONS.
Neither the Company nor any director or officer, or, to the knowledge
of any of the shareholders or directors of the Company, any agent or employee or
other Person associated with or acting on behalf of the Company, has made or
used any Company funds to make any unlawful contributions, gifts, entertainment
or other unlawful expenses relating to political activity, made any direct or
indirect unlawful payments to officials or employees of any Governmental Entity
from Company funds; failed to file any reports required with respect to lawful
contributions; established or maintained any unlawful fund of the Company monies
or other assets; made any intentionally false or fictitious entries on the books
or records of the Company; or made or received any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
2.19 NO INSIDER TRANSACTIONS.
Except as disclosed in SCHEDULE 2.19, neither a Seller nor any
Affiliate (as defined below) of a Seller has (a) any interest (other than as a
holder of not more than 3% of the issued and outstanding securities of a
corporation whose securities are traded on a national securities exchange or The
Nasdaq Stock Market) in any Person which furnishes or sells, services or
products which the Company furnishes or sells, (b) any interest (other than as
a holder of not more than 3% of the issued and outstanding securities of a
corporation whose securities are traded on a national securities exchange or The
Nasdaq Stock Market) in any Person which purchases from or sells or furnishes to
the Company any goods or services, (c) a beneficial interest in any contract,
commitment, agreement or understanding to which the Company is a party or by
which it may be bound or affected (except for written employment contracts
listed on a schedule to this Agreement); or (d) any interest or claim against
the Company or any of its assets which could result in a claim against the
Company or could materially and adversely affect the Company's assets, the
Company's title to or its right to use its
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assets, or the Company's right to conduct its business following the
Closing. Except as disclosed on SCHEDULE 2.19, none of the assets of the
Company include any receivables from any officer, director, shareholder or
employee of the Company.
For purposes of this Agreement, "Affiliate" shall mean any other Person
controlling or controlled by or under direct or indirect common control with
such specified Person. For the purposes of this definition, "control" means the
power to direct the management and policies of another Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing, including any member of a Seller's "immediate
family", as such term is defined under Rule 16a-1(e) of the Securities Exchange
Act of 1934 of any such Persons, or any trust, partnership or corporation in
which any of such Persons has an interest.
2.20 ACCOUNTS RECEIVABLE; CUSTOMERS.
The accounts receivable reflected on the Financial Statements, or
thereafter acquired by the Company through the Closing Date, were earned by
performance in the ordinary course of business and, except as set forth on
SCHEDULE 2.20, are not subject to any material dispute. SCHEDULE 2.20(i)
discloses all accounts receivable which have, as of November 30, 1999, remained
unpaid more than 60 days from the due date of the applicable invoice. SCHEDULE
2.20(ii) sets forth the identity of the Company's largest seven (7) customers
for the twelve months ended December 31, 1998, and also discloses, as of
November 29, 1999, the year-to-date sales for each such customer and the amount
owing from such customer on December 31, 1998 and September 30, 1999. Except as
disclosed on SCHEDULE 2.20(ii), the Company has not received any written notice
that any customer identified on SCHEDULE 2.20(ii) expects or intends that its
future purchases from the Company, as compared to its purchases for the twelve
month period ended December 31, 1998, will decrease in
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any material respect (i.e., for purposes of this SECTION 2.20 greater than 10%
for the twelve month period ending December 31, 1999) or that any such customer
wishes to renegotiate prices for products purchased in the twelve month period
ended December 31, 1999 representing a price adjustment greater than 10% of
current prices with respect to such customer for such period.
2.21 INVENTORIES.
The inventories reflected on the Financial Statements, and thereafter
acquired by the Company through the Closing Date, (i) are in all material
respects and subject to any identified reserve for obsolete inventory, of a
quality and quantity usable and salable in the normal course of the business of
the Company and, (ii) where applicable, conform to the standards or
specifications set by the anticipated customer, except for such unusable,
unsaleable or non-conforming inventories, which do not, in the aggregate, exceed
$20,000. The values at which such inventories are carried on the Financial
Statements reflect the historical inventory valuation policy of the Company
stating inventories at weighted average cost. SCHEDULE 2.21 lists all
inventories of raw materials, finished goods, packaging supplies or ingredients
owned or in the custody of the Company ("Inventory") as of November 29, 1999,
based on the Company's books, not a physical inventory, and with respect to
Inventory owned by or held for the account of a customer, identifies such
customer and Inventory in reasonable detail, and specifies the location of such
inventory. SCHEDULE 2.21 also identifies all owned inventories as of November
29, 1999 that have not been used for more than sixty (60) days.
2.22 BANK ACCOUNTS.
SCHEDULE 2.22 lists all bank accounts, safe deposit boxes, money
market funds, certificates of deposit, stocks, bonds, notes and other securities
owned directly or indirectly, beneficially or of record, by the Company and
identifies all persons authorized to sign on such accounts.
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2.23 WARRANTIES.
SCHEDULE 2.23 contains a copy of the Company's written warranty terms
to its customers. Except as set forth on SCHEDULE 2.23, the Company has not
given or made any other written or, to the knowledge of the Company and Sellers,
oral warranties to any Person with respect to any products sold or services
performed. Except for warranty obligations and returns in the ordinary course
of business consistent with past practice, there are no outstanding warranty
claims against the Company.
2.24 NO FINDERS OR BROKERS.
Neither any of the Sellers nor the Company nor any of their Affiliates
has entered into any agreement, arrangement or understanding with any Person
which could result in the obligation to pay any finder's fee, brokerage
commission, advisory fee or similar payment in connection with the transactions
contemplated hereby except for the agreement with Arthur Andersen LLP, whose
fees and expenses will be paid by the Sellers.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
3.1 ORGANIZATION.
Buyer is a duly organized corporation, validly existing and in good
standing under the laws of the State of Delaware and has the corporate power and
authority to perform this Agreement.
3.2 AUTHORITY.
The execution and delivery of this Agreement by Buyer and the
performance of its obligations hereunder have been duly authorized by the Board
of Directors of Buyer and no other
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corporate or stockholder action or approval by Buyer is necessary for the
execution, delivery or performance of this Agreement by Buyer. This Agreement
has been duly executed and delivered by Buyer and is a valid and binding
obligation of Buyer, enforceable against it in accordance with its terms, except
as such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
relating to or limiting creditors' rights generally, and (b) general principles
of equity (whether considered in an action in equity or at law).
3.3 NO CONFLICT.
Neither the execution and delivery of this Agreement by Buyer nor the
consummation of the transactions contemplated hereunder nor the fulfillment by
Buyer of any of its terms will, except as described in SCHEDULE 3.3:
(a) conflict with or result in a breach by Buyer of, or constitute a
default by it under, or create an event that, with the giving of notice or the
lapse of time, or both, would be a default under or breach of, any of the terms,
conditions or provisions of (i) any indenture, mortgage, lease, deed of trust,
pledge, loan or credit agreement or any other material contract, arrangement or
agreement to which Buyer is a party or to which a material portion of its assets
is subject, (ii) Certificate of Incorporation or Bylaws of Buyer, or (iii) any
judgment, order, writ, injunction, decree or demand of any Governmental Entity
which materially affects Buyer or which materially adversely affects the Buyer's
ability to conduct its business;
(b) result in the creation or imposition of any lien, charge or other
encumbrance of any nature whatsoever upon any material assets of Buyer or which
materially affects the Buyer's ability to conduct its business as conducted
prior to the date of this Agreement; or
(c) cause a loss or materially adverse modification of any permit,
license, or other authorization granted by any Governmental Entity to or
otherwise held by the Company.
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3.4 [INTENTIONALLY DELETED]
3.5 [INTENTIONALLY DELETED]
3.6 [INTENTIONALLY DELETED]
3.7 INVESTMENT INTENT.
Buyer is acquiring the Company Common Stock for investment purposes,
and not with a view to the resale or distribution thereof; Buyer has the
knowledge and sophistication to purchase the Company Common Stock; Buyer has had
access to all information regarding the Company that it has requested and has
had and will continue to have prior to the Closing the opportunity to ask
questions regarding the Company, its operations and such other matters that
Buyer deems material to its investment decision. Buyer will not dispose of the
Company Common Stock without compliance with all applicable federal and state
securities laws.
3.8 NO FINDERS OR BROKERS.
Buyer has not entered into any agreement, arrangement or understanding
with any Person which could result in the obligation to pay any finder's fee,
brokerage commission, advisory fee or similar payment in connection with this
Agreement or the transactions contemplated hereby, except for agreements with
StoneCreek Capital, Inc. and HarbourVest Partners, LLC, whose fees and expenses
will be paid by Buyer or its Affiliates.
3.9 ENVIRONMENTAL REPORT.
The Environmental Report includes all environmental reports, interim
and final, and all test results obtained by Buyer, its attorneys and agents.
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ARTICLE IV
COVENANTS
4.1 CONFIDENTIALITY.
(a) Buyer hereby acknowledges that it is bound by the provisions of
the Confidentiality Agreement dated March 24, 1999, a copy of which is attached
hereto as EXHIBIT 4.1(a) and incorporated herein (the "Confidentiality
Agreement"), and that the Company and/or Sellers shall have all rights provided
to the "Company" thereunder. If for any reason the transactions contemplated by
this Agreement are not consummated, Buyer (i) shall return to Sellers or destroy
all Confidential Information (as defined in the Confidentiality Agreement),
including copies thereof, and (ii) shall not use any Confidential Information
for any purpose. However, nothing contained herein shall prohibit Buyer from
supplying or filing such documents, materials or other information to or with
any Governmental Entity or other Person which Buyer and Sellers deem reasonably
necessary in connection with the obtaining of any consent, waiver, amendment,
modification, approval, authorization, permit or license which may be necessary
to effectuate this Agreement and to consummate the transactions contemplated
hereby or, subject, when feasible, to confidentiality orders reasonably
acceptable to the Company and Sellers, to enforce this Agreement. In addition,
Buyer will comply with the provisions of any confidentiality agreements to which
the Company and/or Sellers are bound, which relate to any information provided
to the Company by, or prepared or obtained by the Company for or relating to,
any customer of the Company.
(b) From and after the date hereof, whether or not the Closing
occurs, Sellers and the Company shall treat, and shall cause each of their
Affiliates to treat, in confidence all documents, materials and other
information regarding Buyer or the Company or their respective Affiliates which
are in their possession or control. Neither Sellers nor Buyer shall be
obligated to treat as confidential
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any information that was, at the time of disclosure, or later becomes, through
no fault of the recipient of such information, publicly available or in the
public domain.
(c) These confidentiality provisions shall survive the termination of
this Agreement.
4.2 DELIVERY OF FINANCIAL STATEMENTS.
As soon as practical after the end of each of the Company's fiscal
months ending after the date hereof, but in any event not later than thirty (30)
days following each month end, the Company shall deliver to Buyer (i) the
Company's unaudited balance sheet as of such month end and (ii) the related
statements of income and (iii) statements of retained earnings for the fiscal
month then ended (the "Monthly Financials") which shall be prepared on a
consistent and comparable basis with the Company's historical internally
prepared monthly financial statements.
4.3 FULFILLMENT OF CONDITIONS.
(a) Sellers will use their reasonable efforts, and Sellers will cause
the Company to use its reasonable efforts, to perform, comply with and fulfill
all obligations, covenants and conditions required by this Agreement to be
performed, complied with or fulfilled by Sellers or the Company prior to or as
of the Closing Date. Buyer will use its reasonable efforts to perform, comply
with and fulfill all obligations, covenants and conditions required by this
Agreement to be performed, complied with or fulfilled by Buyer prior to or as of
the Closing Date.
(b) Sellers will use all reasonable efforts, and will cause the
Company to use all reasonable efforts, to secure all necessary consents,
waivers, permits, approvals, licenses and Authorizations listed on SCHEDULE 4.3
and will make, and will cause the Company to make, all necessary filings in
order to enable Sellers or the Company to consummate the transactions
contemplated hereby. Buyer will use all reasonable efforts to secure all
necessary consents, waivers,
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permits, approvals, licenses and Authorizations listed on SCHEDULE 4.3 and will
make all necessary filings in order to enable Buyer to consummate the
transactions contemplated hereby.
4.4 HART SCOTT RODINO.
Sellers and the Company and Buyer, and to the extent required, Buyer's
Affiliates and ultimate parent entity, will promptly (i) file the Premerger
Notification Report required under the Hart Scott Rodino Antitrust Improvements
and Premerger Notification Act of 1976, as amended, (the "Act") including a
request for early termination, (ii) respond to any second request pursuant
thereto, and (iii) will cooperate with each other in order to comply with the
requirements of the Act, including but not limited to obtaining the termination
of the waiting period thereunder.
4.5 BUYER'S ACCESS TO RECORDS AND INSPECTION RIGHTS.
Sellers and the Company will cause the Company to allow Buyer and its
lenders and other representatives, through their officers, employees, counsel,
accountants and other authorized representatives, to inspect the properties and
records of the Company and to discuss the affairs and accounts of the Company
with such officers, employees, counsel, accountants and other agents of the
Company as shall have been approved (including the procedures in respect of such
inspection and discussions) in advance by the Company, which approval will not
be unreasonably withheld. Buyer shall conduct any inspection or discussion in a
manner that does not unreasonably interfere with normal business of the Company.
Any discussion or contact by Buyer, its agents or representatives with the
Company's customers, vendors, suppliers or other third parties must be approved
only by one of the Sellers prior to any such discussion or contact.
4.6 OPERATION IN ORDINARY COURSE.
From the execution of this Agreement until the Closing, Sellers shall
cause the Company to, and the Company shall, operate its business only in a
manner consistent with its past
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practices. Without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Closing Date, except as set forth in
SCHEDULE 4.6, the Company shall not, without the prior written consent of Buyer,
which consent shall not be unreasonably withheld:
(a) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
(b) purchase, redeem or otherwise acquire any shares of capital stock
of the Company or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(c) authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities or any other securities
or equity equivalents (including without limitation stock appreciation rights);
(d) amend its certificate or articles of incorporation, regulations
or other comparable charter or organizational documents;
(e) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization;
(f) mortgage or otherwise encumber or subject to any Encumbrance
other than Permitted Encumbrances (in each case except as provided by the
existing terms of the Company's credit agreements) or, except as otherwise
expressly permitted hereby, otherwise dispose of, sell, lease or license any of
its properties or assets, other than sales of inventory in the ordinary course
of business consistent with past practice;
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(g) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company, guarantee any debt
securities of another Person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another Person or enter into any
arrangement having the economic effect of any of the foregoing, except for
borrowings under current credit facilities and for lease obligations, in each
case in the ordinary course of business consistent with past practice;
(h) make any loans, advances or capital contributions to, or
investments in, any other Person, other than to the Company;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), except for
the payment, discharge or satisfaction (i) of liabilities or obligations in the
ordinary course of business consistent with past practice or in accordance with
their terms as in effect on the date hereof or (ii) claims settled or
compromised to the extent permitted by Section 4.6(m), or waive, release, grant,
or transfer any rights of material value or modify or change in any material
respect any existing license, lease, permit, contract or other document, other
than in the ordinary course of business consistent with past practice;
(j) adopt resolutions providing for or authorizing a liquidation or a
dissolution;
(k) enter into any collective bargaining agreement or materially
alter any employment or work policy;
(l) change any material accounting principle used by it, except to
the extent required by generally accepted accounting principles;
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(m) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or compromises of
litigation where the amount paid (after giving effect to insurance proceeds
actually received) in settlement or compromise is not greater than $25,000;
(n) make any new capital commitment in excess of $25,000;
(o) except in the ordinary course of business or otherwise permitted
by this Agreement, modify, or amend or terminate any contract or agreement set
forth on any Schedule to this Agreement or waive, release or assign any material
rights or claims;
(p) enter into any employment, severance or other agreement with any
officer, director or key employee of the Company or hire or agree to hire any
new or additional key employees with annual compensation of $40,000 or more or
any officer;
(q) make any Tax election, revoke or amend the Company's Subchapter S
election or settle or compromise any material Tax liability;
(r) sell or encumber any of the Real Property; or
(s) authorize any of, or commit or agree to take any of, the
foregoing actions.
4.7 POST-CLOSING ACCESS BY SELLERS.
After the Closing, Buyer shall cause the Company to cooperate with
Sellers to the extent reasonably requested by Sellers, and to make available to
Sellers, their agents and representatives all financial, insurance, Tax and
other information (including reasonable access to books and records) of the
Company with respect to any fiscal period of the Company ending on or prior to
the Closing Date to the extent required by any of the Sellers in connection with
(a) any audit, investigation or inquiry by any taxing authority, (b) the filing
of any tax return, amended return or other filing, or (c) the prosecution or
defense of any Tax claims or related litigation that might give
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rise to indemnification payments hereunder, or the preparation by any Seller of
Tax returns or any other reports or submissions to any Governmental Entity
required to be made by any Seller with respect to the Company; PROVIDED that
such cooperation and availability of information may be done in a manner so as
to not unreasonably interfere with normal business of the Company and PROVIDED,
FURTHER, that such Seller reimburses the Company for any third-party expenses
incurred to provide such information. Buyer shall cause the Company to preserve
all such information, including without limitation, the books and records of the
Company, for at least six (6) years after the Closing Date at no cost to
Sellers.
4.8 SECTION 338(h)(10) ELECTION.
Sellers and Buyer shall make the Election no later than 120 days after
Closing. Sellers shall be responsible for filing the Company's final S
corporation tax returns reporting the "deemed sale" of the Company's assets.
All income of the Company through the day of the Closing, including all income
attributed to or arising from the Election, shall be reflected on the Company's
final IRS Form 1120S. The parties further agree to prepare and timely file IRS
Form 8023 [Elections Under Section 338 for Corporations Making Qualified Stock
Purchases (Rev. September 1997)], and all attachments required to be filed
therewith pursuant to applicable Treasury Regulations including IRS Form 8594,
on the basis of allocations made pursuant to the following provisions of this
SECTION 4.8, and to cooperate with each other in the preparation of each other's
forms. The parties, at Buyer's sole cost and expense, shall determine (i) the
amount of the "adjusted grossed-up basis" (as defined in Treasury Regulation
Section 1.338-5T, see Section 1.338(h)(10)-1T(d)(2) ("AGUB")) for the Company;
and (ii) the amount of the aggregate deemed sales price" (as defined in Treasury
Regulation Section 1.338-4T, see Section 1.338 (h)(10)-1T(d)(3) ("ADSP") for the
Company. The amount of any redetermination of AGUB or ADSP shall be determined
in accordance with Treasury Regulation Section 1.338-7T. The
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parties, at Buyer's sole cost and expense, shall mutually agree upon and prepare
a schedule of values, in substantially the same form as EXHIBIT 4.8 and
reflecting the amounts shown thereon, that shall allocate the AGUB for the
Company among the Company's assets in accordance with Section 338(b)(5) of the
Code and the Treasury Regulations promulgated thereunder (the "Allocations").
The parties hereby agree that the Base Consideration shall be allocated to the
Class I, Class II, Class III, Class IV and Class V assets (as defined in
Treasury Regulation Section 1.338-6T(b) to the extent of the fair market value
of the assets comprising those classes and all the amounts paid in excess of
such Classes and as Contingent Consideration shall be allocated to the Class VI
and Class VII assets (as defined in Treasury Regulation Section 1.338-6T(b).
The Company and each Seller shall calculate gain or loss, if any, resulting from
the Election in a manner consistent with the Allocations and shall not take any
position inconsistent with the Allocations or the Company's IRS Form 1120S for
the period ending with the Closing Date in any tax return or otherwise, unless
all of the other parties mutually agree in writing, in advance, to the different
position. The parties shall allocate the AGUB for the Company among the
Company's assets in a manner consistent with the Allocations and shall not take
any position inconsistent with the Allocations in any tax return or otherwise.
The Sellers shall file the Company's final IRS Form 1120S within 90 days after
the Closing and provide copies thereof to the Buyer and the appropriate Schedule
K-1 forms to each Seller within such period. The Company shall cooperate with
Sellers in all respects with respect to such filing.
4.9 TERMINATION OF AFFILIATE RELATIONSHIPS.
Except for the Reed Road lease and the Transition Agreements, prior to
the Closing, Sellers will cause any and all obligations of Company to or for the
benefit of Sellers or any Affiliate of any Seller to be discharged or terminated
prior to the Closing, provided that to the extent cash of
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the Company is used to pay such debt such amount shall be subtracted in
computing the Closing Working Capital.
4.10 BANK ACCOUNTS.
Sellers shall, on or prior to the Closing Date cause Company to cancel
the authority of each Person listed in SCHEDULE 2.22 who is specified by Buyer
in a written notice delivered to Sellers on or prior to the Closing Date, to
draw checks on any of the bank accounts maintained by Company and Sellers shall
submit evidence satisfactory to Buyer of such cancellation.
4.11 ENVIRONMENTAL INSURANCE.
Buyer covenants and agrees to obtain and maintain in force, at its
cost, the environmental insurance described in SECTION 5.2(e) and on EXHIBIT
5.2(e) (the "Environmental Insurance Policy") for at least three (3) years
following Closing. Buyer covenants and agrees that the Environmental Insurance
Policy (i) will not contain a date or retroactive date as to the coverage period
with respect to the Company, its facilities or operations; (ii) will include
coverage for all of the off-site disposal facilities, storage and transportation
services utilized by the Company, and (iii) will continue to include at least
the present $40,000,000 policy limit, $2,000,000 coverage per loss. Buyer
covenants and agrees to notify Sellers of any notice of any intended
cancellation of the policy by the insurer.
ARTICLE V
CONDITIONS OF CLOSING
5.1 CONDITIONS TO THE OBLIGATIONS OF BUYER.
The obligation of Buyer to consummate the purchase of the Shares and
the Real Property pursuant to this Agreement is subject to the delivery of all
documents to be delivered to
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Buyer pursuant to SECTION 1.7 and to the satisfaction of the following
conditions, any of which may be waived in writing signed by Buyer:
(a) The representations and warranties of Sellers and Company set
forth in Article II hereof and in all agreements, documents and instruments
attached hereto shall be true and correct in all material respects as of the
date hereof and, except where the context otherwise requires, as of the Closing
Date as though made on and as of the Closing Date. Sellers and Company shall
have performed in all material respects the agreements and obligations necessary
to be performed by them under this Agreement prior to the Closing Date.
(b) Buyer shall have received a certificate, dated the Closing Date,
signed by Sellers and Company, certifying that the conditions specified in
SECTION 5.1(a) have been fulfilled.
(c) No preliminary or permanent injunction or order that would
prohibit or restrain the consummation of the transactions contemplated hereunder
shall be in effect and no Governmental Entity or other Person shall have
commenced or threatened to commence an action or proceeding seeking to enjoin
the consummation of such transactions or to impose liability on the parties
hereto in connection therewith.
(d) Buyer and the Company shall have received the consents and
approvals listed on Schedule 4.3, including the expiration or termination of any
waiting period required under the Act.
(e) Sellers shall have delivered to Buyer certificates representing
the Shares, accompanied by duly executed stock powers, with all required stock
transfer tax stamps affixed. All certificates, instruments and documents
delivered by Sellers in connection with the transactions contemplated hereby and
necessary to evidence such transactions shall be in form and substance
reasonably satisfactory to Buyer and its counsel.
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(f) There shall have been no material adverse change after the date
hereof in the business, operations, or condition (financial or otherwise) of
Company.
(g) In coordination with and on a mutually agreeable basis with
Purkrabek and Knust, Buyer shall have the opportunity to discuss customer
relations, including confirmation of pricing and other terms, with the largest
seven customers of the Company.
(h) Buyer shall not have received from any of its lenders listed on
SCHEDULE 5.1(h) any refusal to consent to the transactions contemplated hereby
or any written notice that to consummate the transactions contemplated hereby
will constitute or result in a material default under Buyer's existing loan
agreements with any of such lenders, provided that Buyer agrees to take all
actions required by such lenders to effect the financing required to consummate
the transactions contemplated hereby.
(i) Buyer shall be satisfied that all items on SCHEDULE 2.7(c) have
been contributed to the Company, free and clear of Encumbrances, and any sales
or transfer taxes relating thereto have been paid or the Company has received
valid exemption certificates therefor.
5.2 CONDITIONS OF OBLIGATIONS OF SELLERS.
The obligations of Sellers to consummate the sale and purchase under
this Agreement are subject to the satisfaction of the following conditions, each
of which may be waived in a writing signed by both Sellers:
(a) The representations and warranties of Buyer set forth in
Article III hereof and in all agreements, documents and instruments attached
hereto shall be true and correct in all material respects as of the date hereof
and as of the Closing Date as though made on and as of the Closing Date. Buyer
shall have performed in all material respects the agreements and obligations
necessary to be performed by it under this Agreement prior to the Closing Date.
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(b) Sellers shall have received a certificate, dated the Closing
Date, signed by an officer of Buyer, certifying that the conditions specified in
SECTION 5.2(a) have been fulfilled.
(c) No preliminary or permanent injunction or order that would
prohibit or restrain the consummation of the transactions contemplated hereunder
shall be in effect and no Governmental Entity or other Person shall have
commenced or threatened to commence an action or proceeding seeking to enjoin
the consummation of such transactions or to impose liability on the parties
hereto in connection therewith.
(d) All certificates, instruments and documents delivered by Buyers
in connection with the transactions contemplated hereby and necessary to
evidence such transactions shall be in form and substance reasonably
satisfactory to Sellers and their counsel.
(e) Sellers shall have received (1) certificate(s) of insurance
regarding environmental matters, issued by the same insurance company and for
the amounts and with the retention and all other terms, including the form of
policy as required in SECTION 4.11 and as set forth on Exhibit 5.2(e) attached,
showing such insurance, including, but not limited to, endorsements or other
evidence of insurance in force regarding any and all off-site liability of the
Company and K.P. Properties, in force and naming K.P. Properties and the Company
as additional insureds and (2) written waiver(s) of subrogation, contribution
and other claim(s) against Sellers, all of which shall be reasonably
satisfactory to Sellers and their legal counsel.
(f) Sellers shall have received all other consents required to be
obtained in connection with consummation of the transactions contemplated
hereunder including those listed on SCHEDULE 4.3, and any waiting period
required under the Act shall have expired or been terminated.
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ARTICLE VI
CLOSING DATE AND TERMINATION OF AGREEMENT
6.1 TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated and abandoned at any time prior
to the Closing Date by mutual written consent of Buyer and Sellers. In the
event of termination of this Agreement as provided in this SECTION 6.1, this
Agreement shall forthwith become void, and there shall be no liability or
obligation on the part of Buyer or Sellers or any of their respective Affiliates
except as provided in SECTION 8.2 (Expenses) and except that SECTION 4.1
(Confidentiality) shall remain in full force and effect.
(b) In the event that (i) Buyer has fully performed all of its
obligations hereunder, (ii) all of the conditions to Sellers obligations have
been satisfied (except that the certificate of insurance and other documents
required by SECTION 5.2(e) may be made conditioned upon the occurrence of the
closing) and (iii) Buyer is otherwise ready, willing and able to perform in
accordance with the terms hereof, and Sellers refuse to sell and transfer the
Shares and Real Property to Buyer in accordance herewith, then in addition to
any other claim for damages by Buyer hereunder, the parties agree that Buyer's
damages shall include, but not be limited to, Buyer's reasonable out-of-pocket
expenses (including the fees and expenses of its professional advisors) related
to the transaction.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION.
(a) Subject to the provisions of SECTION 7.1(b) and 7.1 (d), the time
limits in SECTION 7.3 and the other terms set forth in this Article VII, Sellers
shall jointly and severally
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indemnify Buyer and its Affiliates including, without limitation, the Company,
and each of their respective stockholders, officers, directors and employees
(each a "Buyer Indemnitee") against, and hold each Buyer Indemnitee harmless
from, any and all loss, damage, liability, payment, and obligation, and all
expenses, including without limitation reasonable legal fees (collectively
"Losses"), incurred, suffered, sustained or required to be paid, directly or
indirectly, by, or sought to be imposed upon, such Buyer Indemnitee after the
Closing Date resulting from, related to or arising out of any (i) inaccuracy in
or breach of any of the representations and warranties or (ii) breach or default
in the performance of any covenant made by Sellers or the Company in this
Agreement or in any agreement, document or instrument attached hereto.
(b) Buyer Indemnitees shall not be entitled to indemnification
pursuant to this SECTION 7.1 in respect of an inaccuracy in or breach of any
representation or warranty which (i) was disclosed to Buyer in writing prior to
the Closing or of which Sellers can demonstrate that Buyer was actually aware
prior to the Closing (except that Buyer's knowledge of any Losses relating to
Taxes shall not limit Sellers duty to indemnify) and no Losses from such
inaccuracy or breach shall be counted toward the Threshold (defined below), and
(ii) Buyer's right to indemnification shall not apply until such time as the
Losses of all Buyer Indemnitees exceed Five Hundred Thousand Dollars ($500,000)
(the "Threshold") in the aggregate; PROVIDED that all claims by Buyer
Indemnitees for indemnification arising from inaccuracies in or breaches of
representations and warranties or breaches or default in the performance of
covenants shall accrue in the aggregate until the Losses of all Buyer
Indemnitees exceed the Threshold and thereupon Sellers shall become obligated to
indemnify Buyer Indemnitees only for the amount by which all such claims exceed
the Threshold. However, the Threshold shall not apply to inaccuracies in or
breaches of the representations and warranties in SECTIONS 2.2 (Authorization),
2.4 (Capitalization; No Subsidiaries), and 2.17 (Taxes)
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or to any indemnification pursuant to SECTION 7.1(e) or SECTION 7.1(f). In no
event shall the Sellers' indemnification obligations under this SECTION 7.1
exceed an aggregate of Two Million Dollars ($2,000,000) (the "Maximum");
provided that there shall be no limit on indemnification for defects in either
Seller's title to the shares sold or either Seller's ability to convey
marketable title thereto, intentional fraud, breaches under SECTION 2.17
relating to Taxes or to any indemnification pursuant to SECTION 7.1(e) or
SECTION 7.1(f).
(c) Buyer shall promptly give written notice to Sellers of the
assertion by any Person of any claim, action, suit or proceeding with respect to
which Sellers are obligated to provide indemnification hereunder, together with
reasonably available supporting and related information regarding such claim;
PROVIDED, HOWEVER, that the rights of a Buyer Indemnitee to be indemnified
hereunder shall only be affected by the failure to give such notice or provide
information if and to the extent such failure prejudices Sellers in the defense
of such third party claim. Within 20 days after the receipt of written notice
of a claim by Buyer, Sellers shall send Buyer a written notice stating whether
they agree or disagree with Buyer's claims and shall, if they agree, promptly
make payment to Buyer, or consent to distribution from the Indemnification
Escrow, as the case may be, in return for a written release of liability
executed by the Company and Buyer or confirm the arrangements made to defend
such claims. Sellers shall have the right, but not the obligation, to contest,
defend or litigate, and to retain counsel of their choice in connection with,
any claim, action, suit or proceeding by any third party alleged or asserted
against a Buyer Indemnitee that is subject to indemnification by Sellers
hereunder, and the cost and expense thereof shall be subject to the
indemnification obligations of Sellers hereunder; PROVIDED, that each Buyer
Indemnitee shall have the right and option to participate in, but not control,
the defense of such action at its own expense; and PROVIDED, FURTHER, that,
(i) if Sellers elect not to defend any such action or (ii) if a Buyer
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Indemnitee shall have defenses not available to Sellers and if counsel to a
Buyer Indemnitee approved by Sellers, such approval not to be unreasonably
withheld, shall advise in a written opinion that common representation would
result in a conflict of interest or that Buyer Indemnitee has interests that are
materially different from Sellers that are materially adverse to the Company's
and/or Buyer's interests, then such Buyer Indemnitee shall be entitled, at its
option through counsel of its choice, reasonably approved by Sellers, such
approval not to be unreasonably withheld, but at Sellers' expense, to assume and
control the defense of such action. Neither Sellers, on the one hand, nor any
Buyer Indemnitee, on the other hand, shall be entitled to settle or compromise
any such claim, action, suit or proceeding without the prior written consent of
such Buyer Indemnitee or the Sellers as the case may be, which consent shall not
be unreasonably withheld and provided further if Buyer unreasonably refuses to
approve any settlement which involves only the payment of money, Buyer shall be
solely responsible for Losses in excess of those which would have been incurred
had such claim been settled on the terms acceptable to Sellers.
(d) Notwithstanding any other provision of this Agreement, Buyer
Indemnitees shall not be entitled to indemnification from Sellers for any matter
which is covered by the Environmental Insurance Policy (or if such policy is
terminated and no substantially similar replacement coverage obtained, then to
the extent such matter would have been so covered), provided that in the event
that Sellers would otherwise be liable to Buyer hereunder for any matter covered
by such policy, Sellers shall bear one-half of any retention or deductible under
such policy up to a maximum liability of $125,000 ("Seller's Share of
Retention"). Buyer shall pay the balance of such retention ("Buyer's Share of
Retention"). Seller's Share of Retention shall not be subject to the Threshold.
Buyer's Share of Retention, to the extent Sellers would otherwise be liable to
Buyer hereunder, shall count toward satisfying such Threshold. To the extent
that Sellers would
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otherwise have an indemnification liability to Buyer
Indemnitees hereunder, and such liability is not covered by the Environmental
Insurance Policy, the Threshold and Maximum shall apply to such liability. The
time limit of April 30, 2001 set forth in SECTION 7.3 shall apply to any and all
matters under this Article VII, including without limitation a claim for a
breach of SECTION 2.16, whether or not covered by the Environmental Insurance
Policy. Buyer agrees to use its best efforts to recover any amounts against the
insurer under the Environmental Insurance Policy and to exhaust such policy
prior to making any claim hereunder against Sellers.
SECTION 7.1(e)
(e) Sellers shall indemnify Buyer against, and hold Buyer and its
Affiliates, including the Company, harmless from, any federal income tax
liability of the Company attributable to the Net Recognized Built-in Gains
incurred as a result of the Election.
Any amount of indemnification due Buyer pursuant to this Section 7.1(e)
shall be reduced by Buyer's obligation to pay up to $1,000,000 of any Assumed
Tax Liability pursuant to Section 1.2(c). For Tax purposes, Sellers and Buyer
shall treat this indemnification as a reduction in Base Consideration and
reflect such reduction in Base Consideration in the Allocations and on all
federal, state, foreign and local Tax returns and forms.
Sellers shall have sole and absolute control, discretion and authority over
the defense, settlement or compromise of any federal, state, foreign or local
Tax audit, Tax litigation, or Tax proceeding of any nature of any tax year of
the Company ending on or before the date of Closing. Without limiting the
foregoing, Buyer shall and shall cause the Company to (i) execute such powers of
attorney or other documents necessary to authorize Sellers to exercise the
authority granted in the foregoing sentence and (ii) give Sellers notice of, and
allow Sellers to control all conferences and
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discussions with the IRS, related to, or requested by Buyer or Sellers in
connection with, any claim for indemnification under this Section. Buyer
shall promptly provide Sellers with copies of all notices, correspondence and
other written, documents, books, records, including but not limited to, Tax
returns, records, documentation, magnetic media and any other information
related to, or requested by Sellers, in connection with, any claim for
indemnification under this Section.
Sellers shall (i) allow Buyer, at its expense, to be present at any such
conferences or discussions with the IRS and (ii) provide Buyer with copies of
all notices, correspondence and other written documents, books and records,
including but not limited to Tax returns, records, documentation, magnetic media
and any other information related to, or requested by Buyer, in connection with
any claim for indemnification under this Section.
The right to indemnification provided under this Section 7.1(e), (i) shall
expire when the Company's federal income tax return for the year ending on the
Closing Date is no longer subject to audit or review and (ii) shall not be
subject to the Threshold or the Maximum limitations in Section 7.1(b).
"NET RECOGNIZED BUILT-IN GAINS" - SHALL HAVE THE MEANING SET FORTH IN SECTION
1374(d)(2) OF THE CODE.
SECTION 7.1(f)
(f) Sellers shall indemnify Buyer and its Affiliates, including Company,
against, and hold each of them harmless from, any Tax liability of the Company
attributable to any period ending on or prior to the [CLOSING DATE].
Seller's indemnification obligations under this Section 7.1(f) shall not be
reduced by Buyer's obligation to pay any Assumed Tax Liability pursuant to
Section 1.2(c) or obligations to Sellers under Section 7.1(e). For Tax
purposes, Sellers and Buyer shall treat any indemnification pursuant
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to this Section 7.1(f) as a reduction in Base Consideration and reflect such
reduction in Base Consideration in the Allocations and on all federal, state,
foreign and local Tax returns and forms.
Sellers shall have sole and absolute control, discretion and authority over
the defense, settlement or compromise of any federal, state, foreign or local
Tax audit, Tax litigation, or Tax proceeding of any nature of any tax year of
the Company ending on or before the date of [CLOSING]. Without limiting the
foregoing, Buyer shall and shall cause the Company to (i) execute such powers of
attorney or other documents necessary to authorize Sellers to exercise the
authority granted in the foregoing sentence and (ii) give Sellers notice of, and
allow Sellers to control all conferences and discussions with the IRS, related
to, or requested by Buyer or Sellers in connection with, any claim for
indemnification under this Section. Buyer shall promptly provide Sellers with
copies of all notices, correspondence and other written, documents, books,
records, including but not limited to, Tax returns, records, documentation,
magnetic media and any other information related to, or requested by Sellers, in
connection with, any claim for indemnification under this Section.
Sellers shall (i) allow Buyer, at its expense, to be present at any such
conferences or discussions with the IRS and (ii) provide Buyer with copies of
all notices, correspondence and other written documents, books and records,
including but not limited to Tax returns, records, documentation, magnetic media
and any other information related to, or requested by Buyer, in connection with
any claim for indemnification under this Section.
The right to indemnification provided under this SECTION 7.1(f), (i) shall
expire when all of the Company's Tax returns for the years or other periods
ending on the [CLOSING DATE] are no longer subject to audit or review and (ii)
shall not be subject to the Threshold or Maximum limitations set forth elsewhere
in this Agreement.
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Sellers shall be entitled to any refund, credit, deduction, claim or other
tax benefit ("Tax Benefit") relating to any period(s) ending on or before the
[CLOSING DATE]. Buyer shall take all reasonable action, including notifying
Sellers of any such Tax Benefit, reasonably necessary to provide Sellers the
economic value of any such Tax Benefit.
SECTION 7.1(g)
(g) Buyer shall indemnify Sellers against, and hold Sellers harmless from,
any Tax liability of the Company attributable to any period after the Closing
Date, provided that to the extent of the Election and the matters referred to in
Section 7.1(e), Buyer shall not indemnify or pay any amount pursuant to this
Section 7.1(g) and such matters shall be governed exclusively by Sections 1.2(c)
and 7.1(e), respectively.
Buyer shall have sole and absolute control, discretion and authority over
the defense, settlement or compromise of any federal, state, foreign or local
Tax audit, Tax litigation, or Tax proceeding of any nature which is subject to
indemnification by Buyer under this Section 7.1(g). Without limiting the
foregoing, Sellers shall (i) execute such powers of attorney or other documents
necessary to authorize Buyer to exercise the authority granted in the foregoing
sentence and (ii) give Buyer notice of, and allow Buyer to control all
conferences and discussions with the IRS, related to, or requested by Buyer or
Sellers in connection with, Sellers shall promptly provide Buyer with copies of
all notices, correspondence and other written, documents, books, records,
including but not limited to, Tax returns, records, documentation, magnetic
media and any other information related to, or requested by Buyer, in connection
with, any claim for indemnification under this SECTION 7.1(g).
Buyer shall (i) allow Sellers, at their expense, to be present at any such
conferences or discussions with the IRS and (ii) provide Sellers with copies of
all notices, correspondence and other
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written documents, books and records, including but not limited to Tax returns,
records, documentation, magnetic media and any other information related to, or
requested by Seller, in connection with any claim for indemnification under this
SECTION 7.1(g).
7.2 INDEMNIFICATION BY BUYER.
(a) Buyer shall indemnify Sellers against, and hold Sellers harmless
from, any and all Losses incurred, suffered, sustained or required to be paid,
directly or indirectly, by or sought to be imposed upon, Sellers resulting from,
related to or arising out of any (i) inaccuracy in or breach of any of the
representations or warranties or (ii) breach or default in the performance of
any covenants made by Buyer in or pursuant to this Agreement or in any
agreement, document or instrument attached hereto.
(b) Buyer shall indemnify Sellers from all Losses arising from or in
connection with activities of the Company after the Closing, except to the
extent Sellers have expressly assumed liability for such Losses under this
Agreement, including the provisions of SECTION 7.1 (but without reference to the
Threshold).
(c) Sellers shall promptly give written notice to Buyer of the
assertion by any Person of any claim, action, suit or proceeding with respect to
which Buyer is obligated to provide indemnification hereunder, together with
reasonably available supporting and related information regarding such claim;
PROVIDED, HOWEVER, that the rights of Sellers to be indemnified hereunder shall
only be affected by the failure to give such notice or provide information if
and to the extent such failure prejudices Buyer in the defense of such third
party claim. Within 20 days after the receipt of written notice of a claim by
Sellers hereunder, Buyer shall send Sellers a written notice stating whether it
agrees or disagrees with Sellers' claim. Buyer shall have the right, but not
the obligation, to contest, defend or litigate, and to retain counsel of its
choice in connection with, any claim, action,
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suit or proceeding by any third party alleged or asserted against Sellers that
is subject to indemnification by Buyer hereunder, and the cost and expense
thereof shall be subject to the indemnification obligations of Buyer hereunder;
PROVIDED, that Sellers shall have the right and option to participate in, but
not control, the defense of such action at their own expense; and PROVIDED,
FURTHER, that (i) if Buyer elects not to defend any such action or (ii) if
Sellers shall have defenses not available to Buyer and if counsel to Sellers
approved by Buyer, such approval not to be unreasonably withheld, shall in a
written opinion advise that common representation would result in a conflict of
interest or that the Seller Indemnitee has interests that are materially
different from Buyer and materially adverse to Sellers' interests, then Sellers
shall be entitled, at their option through one counsel of their choice, approved
by Buyer, such approval not to be unreasonably withheld, but at Buyer's expense,
to assume and control the defense of such action. Neither Sellers, on one hand,
nor Buyer, on the other hand, shall be entitled to settle or compromise any such
claim, action, suit or proceeding without the prior written consent of Sellers
or Buyer, as the case may be, which consent shall not be unreasonably withheld
and provided further if Sellers unreasonably refuse to approve any settlement
which involves only the payment of money, Sellers shall be solely responsible
for Losses in excess of those which would have been incurred had such claim been
settled on the terms acceptable to Buyer.
7.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; RELIANCE.
(a) All representations and warranties contained herein or made
pursuant hereto by Sellers shall survive the Closing hereunder until April 30,
2001, except that the representations and warranties (i) in SECTION 2.4
(Capitalization; No Subsidiaries) shall survive without limit, and (ii) in
SECTION 2.17 (Taxes) shall survive the Closing until the expiration of the
applicable statute of limitations. The expiration of any representation and
warranty shall not affect any claim for
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indemnification made prior to the date of such expiration and shall not enable
Sellers to avoid completing actions required by reason of notices given prior to
such expiration. The representations and warranties of Buyer shall survive the
Closing until expiration of the applicable statute of limitations.
(b) The representations and warranties made by any party in any
agreement, certificate, schedule or exhibit attached hereto and/or expressly
required hereby shall constitute representations and warranties under this
Agreement.
(c) The covenants and agreements of the parties hereto shall survive
the closing, provided that the covenants in SECTION 7.1(E), SECTION 7.1(F) and
SECTION 7.1(G) shall survive the closing only for the time periods stated
therein.
7.4 PAYMENTS FROM ESCROW.
(a) If the Closing occurs, any amount due from Sellers pursuant to
SECTION 7.1 or SECTION 7.3 shall be claimed by Buyer pursuant to the
Indemnification Escrow Agreement, and the amounts held in escrow pursuant
thereto shall be the exclusive source of indemnification except for (i) any
claims for breaches of SECTIONS 2.4 (Capitalization) or 2.17 (Taxes), (ii) any
liability for indemnification arising out of defects in Sellers' title to the
shares sold or Sellers' ability to convey marketable title thereto and (iii) any
claims pursuant to SECTION 7.1(e) or 7.1(f).
(b) On April 30, 2001, subject to the provisions of the
Indemnification Escrow Agreement, any amounts held in the Indemnification
Escrow, together with any earnings or interest thereon, shall be immediately
released to Sellers.
7.5 EFFECT OF INSURANCE PROCEEDS ON INDEMNIFICATION CLAIMS.
Any amount which shall become due Buyer from Sellers under SECTION 7.1
hereof, shall be after taken into account and reducing any claim hereunder by
the proceeds of any recovery
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under any policy of insurance or proceeds received from any third party by
virtue of subrogation or otherwise.
7.6 SET-OFF.
With respect to any amounts due Sellers (OR ANY OF THEIR AFFILIATES)
by Buyer under this Agreement, including without limitation SECTIONS 1.5 and 7.2
hereof, (but excluding amounts due under the employment agreements between Buyer
and Purkrabek and Knust, respectively), or otherwise, such amounts shall be
subject to a right of set-off or deduction only to the extent of an amount that
has been finally determined, whether by a final non-appealable judgment,
arbitration award or agreement of the parties, to be due Buyer from Sellers (or
any of their Affiliates) and Buyer hereby waives any right of set off or
deduction except as expressly provided herein.
ARTICLE VIII
MISCELLANEOUS
8.1 FURTHER ACTIONS.
From time to time, as and when requested by Buyer, Sellers, K.P.
Properties, and Purkrabek and Knust, as appropriate, shall execute and deliver,
or cause to be executed and delivered, such documents and instruments and shall
take, or cause to be taken, such further or other actions as Buyer may
reasonably deem necessary or desirable to carry out the intent and purposes of
this Agreement, provided that such actions shall be at the expense of Buyer, to
transfer, assign and deliver to Buyer effective as of the Closing, and its
successors and assigns, the Shares and/or the Related Assets (or to evidence the
foregoing) and to consummate and give effect to the other transactions,
covenants and agreements contemplated hereby.
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8.2 EXPENSES.
Except as otherwise specifically provided herein, including Article VI
hereof, Sellers and Buyer shall each bear their own legal fees and other fees,
costs and expenses with respect to the negotiation, execution and delivery of
this Agreement and the consummation of the transactions hereunder.
8.3 ENTIRE AGREEMENT.
This Agreement, which includes the Appendices, the Schedules and the
Exhibits hereto and the other documents, agreements and instruments executed and
delivered pursuant to this Agreement, contain the entire agreement between the
parties hereto with respect to the transactions contemplated by this Agreement
and supersede all prior arrangements or understandings with respect thereto.
8.4 DESCRIPTIVE HEADINGS.
The descriptive headings of this Agreement are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
8.5 NOTICES.
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if (a) delivered personally or (b)
sent by registered or certified mail, postage prepaid, or (c) sent by overnight
courier with a nationally recognized courier, or (d) via facsimile confirmed in
writing in any of the foregoing manners, as follows:
If to Sellers: David G. Knust
8340 Caroline's Trail
Cincinnati, Ohio 45242
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Susan L. Purkrabek
8340 Caroline's Trail
Cincinnati, Ohio 45242
with a copy to: Dinsmore & Shohl
Attention: Paul A. Ose
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Facsimile: 513-977-8141
If to Company: Precision Packaging and Services, Inc.
Attention: Susan L. Purkrabek
8340 Caroline's Trail
Cincinnati, Ohio 45242
with a copy to: Dinsmore & Shohl
Attention: Paul A. Ose
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Facsimile: 513-977-8141
If to Buyer: Outsourcing Services Group, Inc.
Attention: Chief Financial Officer
11 King Street
Port Jervis, NY 12271
Facsimile: 212-656-1586
with a copy to: Paul, Hastings, Janofsky & Walker LLP
Attention: Peter J. Tennyson
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626-1924
Facsimile: 714 979-1921
If sent by mail, notice shall be considered delivered five (5) business days
after the date of mailing, and if sent by any other means set forth above,
notice shall be considered delivered upon receipt thereof. Any party may by
notice to the other parties change the address to which notice or other
communications to it are to be delivered or mailed.
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8.6 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio (other than the choice of law principles thereof).
Any action, suit or other proceeding initiated by Sellers or Buyer against any
other party under or in connection with this Agreement shall be brought only in
any federal or state court in the State of Ohio, as the party bringing such
action, suit or proceeding shall elect, having jurisdiction over the subject
matter thereof. Sellers and Buyer hereby submit themselves to the jurisdiction
of any such court and agree that service of process on them in any such action,
suit or proceeding may be effected by the means by which notices are to be given
to it under this Agreement.
8.7 ASSIGNABILITY.
(a) Except as provided in SECTION 8.7, this Agreement shall not be
assignable by any party without the written consent of the other parties and any
such purported assignment by any party without such consent shall be void.
(b) Sellers may transfer or assign their Shares (and the rights
related thereto) to any family members, any trust set up for any family members
or for estate planning; PROVIDED that the transferee agrees to become a party to
and become subject to the terms of this Agreement pursuant to an agreement
approved by the Buyer; and PROVIDED FURTHER that the transferring Seller agrees
to remain liable for its indemnity obligations pursuant to the terms of this
Agreement.
(c) Buyer may assign any or all rights of Buyer hereunder to receive
the performance of the obligations of Seller hereunder and the rights to assert
claims against Sellers in respect of any breach of any representations,
warranties, or covenants of Seller hereunder to (i) a direct or indirect
wholly-owned subsidiary or affiliate of Buyer or (ii) a bank, insurance company
or other financial institution providing financing or extending credit to Buyer
in connection with the
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transactions contemplated hereby, provided that (i) no such assignment shall
relieve Buyer of its obligations hereunder and (ii) any such assignee shall take
such rights subject to any defenses, counterclaims, rights of set-off and all
other rights to which Sellers are entitled hereunder.
(d) This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns.
8.8 WAIVERS AND AMENDMENTS.
Any waiver of any term or condition of this Agreement, or any
amendment or supplementation of this Agreement, shall be effective only if in
writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Agreement shall not in any way affect, limit or waive a
party's rights hereunder at any time to enforce strict compliance thereafter
with every term or condition of this Agreement.
8.9 THIRD PARTY RIGHTS.
Notwithstanding any other provision of this Agreement, and except as
expressly provided in Article 7 hereof with respect to Buyer Indemnitees, this
Agreement shall not create benefits on behalf of any shareholder or employee of
Buyer or employee of the Company, or any other Person (including without
limitation any broker or finder), except for the Sellers or Buyer themselves and
this Agreement shall be effective only as between the parties hereto, their
successors and permitted assigns.
8.10 PUBLIC ANNOUNCEMENTS.
Buyer and Sellers will consult with each other and mutually approve in
writing any press release or other public statements or public filings with
respect to the transactions contemplated by this Agreement, and neither Buyer
nor Sellers shall issue any such press release or make any such public statement
or public filings without the prior written approval of the other
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parties both as to the making of such release or statement and as to the form
and content thereof, except to the extent that such party is advised by counsel,
in good faith, that such release or statement or filing is required as a matter
of law (a "Required Release"); and as to such Required Releases, Buyer and
Sellers shall each give the other, to the extent practicable, at least three (3)
business days advance notice of such Required Releases and the opportunity to
provide comments to the other party prior to issuing any such Required Release.
8.11 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement. Facsimile
signatures shall be treated as if they were originals.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
"Buyer"
OUTSOURCING SERVICES GROUP, INC.
a Delaware corporation
By: /s/ Chris Denney
------------------------------------
Name: Chris Denney
----------------------------------
Title: CEO
---------------------------------
"Company"
PRECISION PACKAGING AND SERVICES, INC.,
an Ohio corporation
By: /s/ Susan L. Purkrabek, Pres
------------------------------------
Name: Susan L. Purkrabek
----------------------------------
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<PAGE>
Title: President
---------------------------------
"Sellers"
THE DAVID G. KNUST SMALL BUSINESS
TRUST
/s/ David G. Knust, Trustee
---------------------------------------
DAVID G. KNUST, TRUSTEE
THE SUSAN L. PURKRABEK SMALL BUSINESS
TRUST
/s/ Susan L. Purkrabek, trustee
---------------------------------------
SUSAN L. PURKRABEK, TRUSTEE
/s/ David G. Knust
---------------------------------------
DAVID G. KNUST, individually
/s/ Susan L. Purkrabek
---------------------------------------
SUSAN L. PURKRABEK, individually
K.P. PROPERTIES
an Ohio general partnership
By: /s/ Susan L. Purkrabek, general partner
------------------------------------
Title: General Partner
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APPENDIX A
"ADJUSTED EBITDA" - EBITDA adjusted to determine earnings before interest,
taxes, depreciation and amortization determined, except as expressly provided
otherwise herein, on the same basis used by the Company in preparing the audited
income statement as audited by Deloitte & Touche for the Company for the 12
months ended December 31, 1998, a copy of which is attached hereto as EXHIBIT
1.5(c)(B), and without limiting the foregoing, "Adjusted EBITDA" shall be (i)
increased for the fiscal year ended December 31, 1999 by any amount actually
paid to Sellers for rent expense allocable to the Related Assets and (ii)
decreased for the fiscal year ended December 31, 1999 and 2000 by an amount
equal to the difference between $345,000 and actual annual officers' and
management compensation, including Knust's and Purkrabek's compensation.
"ASSUMED TAX LIABILITY" - any federal, state and local income tax liabilities
and obligations of the Company and Sellers, whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued and whether due or to become due, that may arise because the Company
is deemed to be transferring its assets pursuant to an election under Section
338(h)(10) of the Code, including but not limited to the matters referred to in
SECTION 7.1(e). The Assumed Tax Liability shall not include any amount
representing the time value of money because of the inability of the Company or
Sellers to use the installment method of reporting under Section 453 of the
Code.
"BASE CONSIDERATION" - [$42,133,000], plus (i) the Cash on hand in the Company
at Closing and less the amount of any Funded Debt of the Company at Closing and
plus (ii) the amount of capital expenditures of K.P. Properties and the Company
from January 29, 2000 through February 26, 2000.
"CASH" - cash on hand and in bank accounts; to compute cash, all checks written
but not cleared as of the Effective Date shall be subtracted from the balances
of the Company's bank accounts and all checks received as of the close of
business on the business day prior to the Effective Date shall be added to such
balances. Amounts on deposit in money market funds or investment accounts shall
be valued at their closing value on the business day prior to the Effective
Date.
"EBITDA" - earnings before interest, taxes depreciation, and amortization
determined in accordance with generally accepted accounting principles ("GAAP"),
applied consistently on the same basis as the audited statements as audited by
Deloitte & Touche for the year ended December 31, 1998, (A) without subtracting
or adding items on a duplicative basis, excluding (i) any extraordinary items as
defined or explained in the FASB "current text" Accounting Standards, (ii) any
capital lease obligations or payments thereunder, (iii) any capital gains or
losses, (iv) any gains or losses arising from prior period adjustments, (v) any
gains or losses from sales and leaseback transactions, (vi) the costs and
expenses of any party in consummating the transactions contemplated hereby,
including without limitation prior periods audit expense, (vii) any acquisition
costs for any business(es), assets or line of business added by Buyer, the
Company or any affiliate during the period from the Closing Date through
December 31, 2000, and (viii) the effect of any change in accounting principles
or policies from those used to prepare the Company's audited financial
statements for the year ended December 31, 1998 and, further, (B), in computing
EBITDA for the year 2000, the parties shall, without subtracting or adding items
on a duplicative basis, exclude or disregard (i) the compensation
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(wages, salary, commission, fees or other remuneration , including but not
limited to health, welfare, pension, bonus, insurance, retiree benefits,
self-insurance and other benefits), of any person (xx) who serves in a position
not existing at the Company at the time of Closing (yy) or who is not located
substantially full-time at the Company's existing facility in Cincinnati, Ohio,
provided that the exclusion of clause (xx) shall not apply to (u) the
compensation of any person hired to replace a person in an established position
which is, at Closing or hereafter becomes vacant, (v) the compensation of
persons hired into or promoted into new positions with the written agreement of
Sellers, which consent refers to this Agreement, (w) hourly temporary or
contract labor on operating lines, (x) increased compensation due Nucite Sales
as a result of increased sales volume in accordance with the existing terms of
the Company's arrangement with Nucite Sales or (y) up to $345,000 in management
compensation to persons other than Sellers, which number shall be prorated by
taking the actual number of days of Buyer's ownership of the Company during
calendar 2000 after the date of Closing divided by 365 and multiplying such
fraction by $345,000; (ii) any increase in sales or marketing expense except for
any increase in commissions due Nucite Sales under arrangements existing on
December 1, 1999 due solely to increased sales volume in accordance with the
existing terms of such arrangements, (iii) any charge for any goods or services
provided by Buyer or any Affiliates which exceeds the costs which are available
for comparable goods or services from third parties in an arms-length
transaction, (iv) any fees or costs in connection with an audit of the Company's
financial statements for the fiscal year ended December 31, 2000, the FYE 2000
Report, the calculation of any Contingent Consideration hereunder or the costs
and expenses of the resolution of any dispute with regard to the foregoing, and
(v) any other charge or expense resulting from a material change in operations
from the prior operations of the Company by Sellers, (vi) any allocation of
corporate overhead or other costs, direct or indirect from Buyer or any other
corporation or entity, whether or not affiliated with Buyer or any other
subsidiary or Affiliate of Buyer (but this exclusion shall not apply to
eliminate any overhead component of an invoice from a third-party vendor), (vii)
any equipment lease obligations initiated in calendar 2000 in excess of $25,000
unless Sellers agree to such lease obligations in a written agreement referring
to this Agreement, (viii) any claims or the effect thereof to the extent Buyer
has received indemnification pursuant to Article VII hereof, (xi) any
intercompany or Affiliate fee or charge for allocation of corporate services
provided by an entity other than the Company, including but not limited to
management or service fees, (but including third party fees for services to the
Company, provided the Company received services of such type in the past and
such service costs and expenses do not exceed the historical costs and expenses
of the prior services by more than 5%), (x) the effects, if any, of the Code
Section 338(h)(10) election, direct or indirect, if any, upon EBITDA, including
but not limited to any goodwill arising from the transactions contemplated
hereby, (xi) any casualty losses, and (xii) any increase in salaries or total
compensation, including benefits, of employees in excess of 5% on an annualized
basis, individually, or in the aggregate, unless mutually agreed upon by Sellers
and Buyer in a written agreement referring to this Agreement.
"EFFECTIVE DATE WORKING CAPITAL" - Working Capital as of the Effective Date
Date, determined consistently with Reference Working Capital.
"EFFECTIVE DATE" - February 26, 2000
"CODE" - the Internal Revenue Code, as amended.
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"ELECTION" - any election under Section 338(h)(10) of the Code and any
corresponding elections under state, local or foreign tax laws with respect to
the purchase and sale of the Shares.
"ENCUMBRANCES" - any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest) and, with respect to
capital stock, any option or other right to purchase or any restriction on
voting or other rights.
"ENVIRONMENTAL LAW" - all laws, federal, state or local, including statutes,
regulations, rules, ordinances and orders which purport to regulate the Release
of Hazardous Materials to the environment, or impose requirements relating to
environmental management, reporting or protection or public or employee health
and safety, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C. Section 9601
et seq., the Resource Conservation and Recovery Act of 1976, as amended, 42
U.S.C. Section 6901 et seq., the Emergency Planning and Community Right-to-Know
Act, as amended, 42 U.S.C. Section 11001 et seq., the Clean Air Act, as amended,
42 U.S.C. Section 7401 et seq., the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251 et seq., the Toxic Substances Control Act, as
amended, 15 U.S.C. Section 2601 et seq., the Safe Drinking Water Act, as
amended, 42 U.S.C. Section 300f et seq., the Federal Insecticide, Fungicide &
Rodenticide Act, as amended, 7 U.S.C. Section 136 et seq., the Occupational
Safety and Health Act, as amended, 29 U.S.C. Section 651 et seq., and all
corresponding environmental laws, regulations and ordinances adopted by and
promulgated by the State of Ohio and any municipality in the State of Ohio.
"FUNDED DEBT" - funded debt, if any of the Company, including any capital
leases, but specifically excluding the real property and equipment leases from
Sellers to the Company which are listed on the Disclosure Schedule or released
and terminated as of the Closing.
"HAZARDOUS MATERIAL(S)" - any substance, material or waste that is (i) defined
as a hazardous substance, hazardous material, hazardous waste, pollutant,
contaminant or words of similar import under any Environmental Law, (ii) a
petroleum hydrocarbon, including crude oil or any fraction thereof,
(iii) hazardous, toxic, corrosive, flammable, explosive, infectious,
radioactive, carcinogenic or a reproductive toxicant, or (iv) regulated pursuant
to any Environmental Law.
"KNOWLEDGE" - the actual knowledge (without a duty of independent inquiry of any
of the following: Purkrabek and Knust and all of the people having the title of
the production manager, materials manager, accounting manager, wholesale
manager, maintenance manager and quality assurance manager.
"PERMITTED ENCUMBRANCES" - 1) all matters disclosed or referred to in any title
commitment or title policy and any survey obtained by Buyer, 2) liens for taxes
and assessments not yet due and payable, 3) rights to statutory or common law
liens with respect to matters not in dispute and to which no amount is in
default, 4) easements and restrictions which do not materially affect or impair
the continued operation of the business of the Company or ingress and egress to
the properties of the Company, and 5) zoning and use restrictions of record.
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"PERSON" - an individual, partnership, corporation, limited liability company,
unincorporated organization, trust or joint venture, or a governmental agency or
political subdivision thereof.
"PERSONAL PROPERTY" - the personal property leased by Purkrabek and Knust to the
Company and listed on Exhibit 1.3(b) to the Agreement.
"REAL PROPERTY" - the real property owned by K.P. Properties and more
particularly described in Exhibit 1.3(a) to the Agreement.
"RELATED ASSETS" - the Real Property and Personal Property.
"RELEASE" - any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or disposing into the
environment, including those occurring through disposal of containers.
"SHARES" - all of the issued and outstanding shares of capital stock of the
Company, which are comprised of 383 shares of common stock owned by Purkrabek
SBT and 367 shares of common stock owned by Knust SBT.
"TAX" - any and all license and registration fees, taxes (including, without
limitation, income, minimum or alternative minimum tax, gross receipts, ad
valorem, value added, environmental tax, turnover, sales, use, personal property
(tangible and intangible), stamp, leasing, lease, user, leasing use, excise,
payroll, franchise, transfer, fuel, excess profits, occupational, interest
equalization and other taxes), levies, imposts, duties, or withholdings of any
nature whatsoever, imposed by any Governmental Entity, together with any and all
penalties, fines, additions to tax and interest thereon.
"WORKING CAPITAL" - current assets (excluding cash) minus current liabilities
(excluding funded debt) of the Company, calculated on a consistent and
comparable basis with working capital as determined in calculating Reference
Working Capital as of May 31, 1999, which calculation of Reference Working
Capital is attached to the Agreement as Exhibit 1.5(a), but excluding any
adjustment for any debts, liabilities or expenses paid to K.P. Properties and/or
Purkrabek and Knust pursuant to Section 1.7(e)(iii).
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Terms Defined in the Agreement
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
TERM WHERE DEFINED
- ---------------------------------------------------------------------------
<S> <C>
1999 EBITDA Shortfall 1.5(e)
- ---------------------------------------------------------------------------
Act 4.6
- ---------------------------------------------------------------------------
Agreement Introductory Paragraphs
- ---------------------------------------------------------------------------
Allocations 4.8
- ---------------------------------------------------------------------------
Authorizations 2.9
- ---------------------------------------------------------------------------
Business Right 2.13
- ---------------------------------------------------------------------------
Buyer Indemnitee 7.1
- ---------------------------------------------------------------------------
Buyer Introductory Paragraphs
- ---------------------------------------------------------------------------
Closing Working Capital 1.5
- ---------------------------------------------------------------------------
Closing 1.6
- ---------------------------------------------------------------------------
Code 2.14
- ---------------------------------------------------------------------------
Company Introductory Paragraphs
- ---------------------------------------------------------------------------
Company Plan 2.14
- ---------------------------------------------------------------------------
Contingent Consideration 1.5(f)
- ---------------------------------------------------------------------------
Defect 2.11
- ---------------------------------------------------------------------------
Disclosure Schedule Introduction to Article 2
- ---------------------------------------------------------------------------
EBITDA Escrow 1.4
- ---------------------------------------------------------------------------
Encumbrances (also defined in Appendix) 2.4
- ---------------------------------------------------------------------------
Environmental Report 2.16
- ---------------------------------------------------------------------------
ERISA 2.14
- ---------------------------------------------------------------------------
Escrow Agent 1.4
- ---------------------------------------------------------------------------
Financial Statements 2.5
- ---------------------------------------------------------------------------
FYE 2000 Report 1.5(d)
- ---------------------------------------------------------------------------
FYE 1999 1.5(d)
- ---------------------------------------------------------------------------
FYE 1999 Report 1.5(d)
- ---------------------------------------------------------------------------
80
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FYE 2000 1.5(d)
- ---------------------------------------------------------------------------
Indemnification Escrow 1.4
- ---------------------------------------------------------------------------
Inventory 2.21
- ---------------------------------------------------------------------------
K.P. Properties Introductory Paragraphs
- ---------------------------------------------------------------------------
Knust Introductory Paragraphs
- ---------------------------------------------------------------------------
Losses 7.1
- ---------------------------------------------------------------------------
Maximum 7.1
- ---------------------------------------------------------------------------
Monthly Financials 4.2
- ---------------------------------------------------------------------------
Multi-employer Plan 2.14
- ---------------------------------------------------------------------------
Person 2.3
- ---------------------------------------------------------------------------
Product 2.11
- ---------------------------------------------------------------------------
Projections 1.5(j)
- ---------------------------------------------------------------------------
Properties 2.7
- ---------------------------------------------------------------------------
Purkrabek Introductory Paragraphs
- ---------------------------------------------------------------------------
Qualified Plan 2.14
- ---------------------------------------------------------------------------
Reference Working Capital 1.5
- ---------------------------------------------------------------------------
Sellers Introductory Paragraphs
- ---------------------------------------------------------------------------
Shares Introductory Paragraphs
- ---------------------------------------------------------------------------
Threshold 7.1
- ---------------------------------------------------------------------------
Triggering Event 1.5(j)
- ---------------------------------------------------------------------------
Trusts Introductory Paragraphs
- ---------------------------------------------------------------------------
Working Capital Escrow 1.4
- ---------------------------------------------------------------------------
</TABLE>
81
