<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report November 24, 1999
(Date of earliest event reported: November 12, 1999)
INTERNATIONAL MENU SOLUTIONS CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 001-15011 91-1849433
(State or other jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification No.)
350 Creditstone Road, Unit 202, Concord, Ontario, Canada L4K 3Z2
(Address of Principal Executive Offices) (Zip Code)
(416) 366-6368
(Registrant's telephone number, including area code)
Not applicable.
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
A wholly-owned subsidiary of the Registrant, International Menu
Solutions USA, Inc., a Delaware corporation ("International USA"), completed the
purchase of substantially all of the assets of Huxtable's Foods, L.L.C., a
Delaware limited liability company ("Seller"). The purchase was completed
pursuant to an Asset Purchase Agreement, entered into as of November 12, 1999
(the "Agreement"), whereby International USA acquired substantially all of the
assets of Seller's business, which primarily consists of assets necessary to
develop, manufacture, market, distribute and sell processed food products. Under
the Agreement, the purchase price required to be paid by International USA and
the Registrant consists of an initial cash payment, in the amount of $3,080,000
plus up to four future contingent payments (each an "Earnout Payment" and
together, the "Earnout Payments") payable in shares of common stock of
Registrant, or cash if so elected in accordance with the Agreement, based upon
an adjusted EBITDA calculation. Of the initial $3,080,000 payment, $200,000 was
deposited into escrow so that deductions of up to $200,000 could be made to the
purchase price for amounts paid by Seller to satisfy certain liabilities of
Seller. Each of the four Earnout Payments will be determined on an adjusted
EBITDA calculation for the respective period ending December 31, 1999, 2000,
2001 or 2002; provided, however, that each Earnout Payment, if achieved, will be
subject to certain limitations set forth in the Agreement. The maximum Earnout
Payments will be no more than five times the adjusted EBITDA for either 2001 or
2002, subject to a possible adjustment based upon gross margin and adjusted
EBITDA in the final year, subject to the terms of the Agreement. Registrant will
not be obligated to issue shares of common stock to Seller that, in the
aggregate, would cause Seller together with its affiliates to own more than 20%
of the total outstanding shares of Registrant's common stock.
Registrant used funds available as part of its existing cash resources
in order to fund the initial payment. The Registrant should have sufficient
shares of authorized common stock to fund the remaining contingent purchase
price payments, if such payments arise, but cannot ensure that when such
payments are due, sufficient authorized common stock will be available for
issuance under the Agreement. In addition, if the Registrant issues such
authorized common stock for other purposes prior to any contingent purchase
price payments becoming due, the Registrant might be required to authorize
additional common stock in order to fund such payments. Such additional
financing might be raised through the issuance of debt or equity securities,
borrowings under bank or other credit facilities or through the proceeds from
other sources of financing.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The financial statements required by this item are not included in this
initial report on Form 8-K but will be filed by amendment not later than 60 days
after the date that this initial report on Form 8-K is required to be filed.
(b) Pro Forma Financial Information.
The financial statements required by this item are not included in this
initial report on Form-K but will be filed by amendment not later than 60 days
after the date that this initial report on Form 8-K is required to be filed.
(c) Exhibits.
2.1 Asset Purchase Agreement, entered into as of November 12, 1999,
by and between Registrant, International Menu Solutions USA, Inc. and Huxtable's
Foods, L.L.C.
99.1 Press release issued by Registrant on November 19, 1999.
1
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERNATIONAL MENU SOLUTIONS CORPORATION
By: /S/ MICHAEL STEELE
---------------------------
Michael Steele
President and Chief Executive Officer
Dated: November 24, 1999
2
<PAGE> 1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into as of
the 12th day of November, 1999, by and among INTERNATIONAL MENU SOLUTIONS USA,
INC., a Delaware corporation (herein called the "Purchaser"), INTERNATIONAL MENU
SOLUTIONS CORPORATION, a Nevada corporation (herein called "IMSC"), and
HUXTABLE'S FOODS, L.L.C., a Delaware limited liability company (herein called
the "Vendor").
RECITALS
A. The Vendor carries on the business of the development and manufacture of
food products, which it markets, distributes and sells to food stores
for sale to end-user customers, and the Vendor wishes to sell the
business and certain of the business assets to the Purchaser; and
B. The Purchaser wishes to purchase the business and certain of the
business assets subject to the terms and conditions of this Agreement.
NOW THEREFORE this Agreement witnesses that in consideration of the
mutual covenants and agreements herein contained, and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.01 DEFINITIONS. In this Agreement the following terms and
expressions will have the following meanings:
"ACQUISITION CAPITAL" has the meaning given to that term in Section
6.02(g).
"ADJUSTED EBITDA" means for the Purchaser the consolidated earnings
before interest, income taxes, depreciation, amortization, and scientific
research tax credits, as calculated, in accordance with GAAP consistently
applied and past practice and based upon financial information taken from
audited financial statements of the Purchaser. For the purpose of the Adjusted
EBITDA calculations, the following adjustments shall also apply:
(i) any expenses charged to the Purchaser that are not reasonably
required in the ordinary course of the Purchaser's business and
consistent with its and its Affiliates' past practices,
including, without limitation, any nonrecurring costs incurred in
respect of any corporate restructuring, shall be excluded from
the determination of Adjusted EBITDA;
(ii) any expenses charged to the Purchaser for salaries and bonuses
paid to Cliff Marquart and Karen Mitchell (or persons succeeding
them in such positions) shall be excluded from the determination
of Adjusted EBITDA;
1
<PAGE> 2
(iii) acquisition-related costs other than reasonable accounting and
audit expenses shall be excluded from the determination of
Adjusted EBITDA;
(iv) the amount of any cash payments by the Purchaser of the Assumed
Liabilities reflected in the demo accrual on the Vendor's
September 30, 1999 balance sheet shall be included as an expense
in the determination of Adjusted EBITDA in the year in which such
Assumed Liability is paid; and
(v) the imputed cost of any Acquisition Capital provided to the
Purchaser by IMSC or any Affiliate of IMSC at a rate of 15% per
annum shall be included as an expense in the determination of the
Adjusted EBITDA for the Final Payment Year. In the event that the
imputed cost of the Acquisition Capital causes the Adjusted
EBITDA for the Final Payment Year to be less than $2,500,000,
then the notional 15% charge shall only be included to the extent
that it reduces such Adjusted EBITDA to $2,500,000.
"AFFILIATE" means a Person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the Person specified;
"AGREEMENT" means this agreement and all schedules attached to this
agreement, in each case as they may be amended or supplemented from time to
time, and the expressions "hereof", "herein", "hereto", "hereunder", "hereby"
and similar expressions refer to this agreement; and unless otherwise indicated,
references to Articles and Sections are to Articles and Sections in this
agreement, references to Schedules are to Schedules attached to this agreement;
"ASSUMED CONTRACTS" has the meaning given to that term in Section 2.01
(g);
"ASSUMED LIABILITIES" has the meaning given to that term in
Section 3.01;
"AUDITED FINANCIAL STATEMENTS" means the balance sheet of the Vendor as
at December 31, 1998 and the accompanying statements of earnings, retained
earnings and changes in financial position for the year then ended, including
the notes thereto, and the report of the auditors of the Vendor thereon attached
as Schedule 4.01(l);
"BREACH." There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been any
inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision.
"BUSINESS" means the development, manufacture, marketing, distribution
and sales of food products by the Vendor primarily in the State of California;
"BUSINESS DAY" means any day, other than Saturday, Sunday or any
statutory holiday in the State of California;
"CLOSING" means the completion of the sale and purchase of the Purchased
Assets pursuant to this Agreement on the Closing Date;
2
<PAGE> 3
"CLOSING DATE" means November 12, 1999 or such earlier or later date as
may be agreed upon in writing by the parties;
"CODE" means the Internal Revenue Code of 1986, as amended;
"COMMON STOCK" means the common stock of IMSC, $0.001 par value;
"CONSENT" means any approval, consent, ratification, permission, waiver
or authorization required to consummate the Transactions contemplated by this
Agreement and the Transaction Agreements (including, without limitation, any
Governmental Authorization or consent of a third party to effect the transfer of
the Assumed Contracts or Permits);
"CONTRACT" means, with respect to any Person, any agreement, contract,
obligation, promise or undertaking (whether written or oral and whether express
or implied) that is legally binding and to which such Person is a party;
"DAMAGES" shall include any loss, damage, injury, decline in value, lost
opportunity, Liability, claim, demand, settlement, judgment, award, fine,
penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature;
"DISCLOSURE SCHEDULE" means the schedule (dated as of the date of the
Agreement) delivered to the Purchaser by the Vendor, a copy of which is attached
to the Agreement and incorporated in the Agreement by reference;
"EARNOUT PAYMENTS" has the meaning given to that term in Section 2.05;
"EBITDA AMOUNT" has the meaning given to that term in Section 2.05(f);
"EMPLOYEE" has the meaning given to that term in Section 4.01(u);
"EMPLOYEE BENEFIT PLAN" means any Employee Benefit Plan as defined in
Section 3(3) of ERISA:
(i) that was established or adopted by the Vendor or any ERISA
Affiliate or is maintained or sponsored by the Vendor;
(ii) in which the Vendor participates;
(iii) with respect to which the Vendor or any ERISA Affiliate is or may
be required or permitted to make any contribution; or
(iv) with respect to which the Vendor or any ERISA Affiliate is or may
become subject to any Liability;
"ENCUMBRANCE" means any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, equity, trust, equitable interest, claim,
preference, right of possession, license, encroachment, covenant, infringement,
interference, Order, proxy, option, right of first refusal, pre-emptive right,
community property interest, legend, defect, impediment, exception, reservation,
limitation, impairment, imperfection of title, condition or restriction of any
nature
3
<PAGE> 4
(including any restriction on the voting of any security, any restriction
on the transfer of any security or other asset, any restriction on the receipt
of any income derived from any asset, any restriction on the use of any asset
and any restriction on the possession, exercise or transfer of any other
attribute of ownership of any asset);
"ENVIRONMENTAL LAW" means any federal, state, local or foreign Legal
Requirement relating to pollution, Hazardous Materials or protection of human
health, safety or the environment;
"ENVIRONMENTAL PERMITS" means all permits, certificates, approvals,
registrations and licenses under Environmental Laws;
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended;
"ERISA AFFILIATE" means any Person that is, was or would be treated as a
single employer with the Vendor under Section 414 of the Code;
"ESCROW AGENT" has the meaning given to that term in Section 2.04(c);
"ESCROW AGREEMENT" has the meaning given to that term in Section 2.04
(c);
"ESCROW FUNDS" has the meaning given to that term in Section 2.04(c);
"ESCROW TERMINATION DATE" has the meaning given to that term in Section
2.04(c);
"EXCLUDED ASSETS" has the meaning given to that term in Section 2.02;
"EXCLUDED LIABILITIES" has the meaning given to that term in
Section 3.02;
"FINAL PAYMENT YEAR" has the meaning given to that term in Section 2.05;
"FIRST YEAR PAYMENT" has the meaning given to that term in Section
2.05(b);
"GAAP" means the United States generally accepted accounting principles,
applied on a consistent basis;
"GOVERNMENTAL AUTHORIZATION" means any:
(i) permit, license, certificate, franchise, concession, approval,
consent, ratification, permission, clearance, confirmation, endorsement, waiver,
certification, designation, rating, registration, qualification or authorization
that is or has been be issued, granted, given or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement; or
(ii) right under any Contract with any Governmental Body;
4
<PAGE> 5
GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(i) nation, principality, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign or other government;
(iii) governmental or quasi governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal);
(iv) multinational organization or body; or
(v) individual, entity or body exercising, or entitled to exercise,
any executive, legislative, judicial, administrative, regulatory, police,
military or taxing authority or power of any nature;
"GROSS MARGIN" means revenue recorded by the Purchaser from the shipment
of food products less
(i) freight, discounts, off-invoice allowances, spoilage allowances
and product returns; and
(ii) the cost of raw ingredients and packaging for the food products,
the cost of labor to produce the food products and a plant overhead allocation
(excluding depreciation) not to exceed 10.5% of sales.
"HAZARDOUS MATERIALS" means any substance, chemical, waste or other
material that is or may be listed, defined or otherwise identified as hazardous,
toxic or dangerous under any Legal Requirement, as well as any asbestos,
polychlorinated biphenyls ("PCBs"), petroleum, petroleum product or by-product,
crude oil, natural gas, natural gas liquids, liquefied natural gas, or synthetic
gas useable for fuel, and "source," "special nuclear" and "by-product" material
as defined in the Atomic Energy Act of 1954, 42 U.S.C. Sections 2011 et seq.;
"INDEMNITEES" means, with respect to any specified party, the following
Persons:
(i) such party and its successors and assigns;
(ii) such party's current and future Affiliates; and
(iii) the respective Representatives of the Persons referred to in
clauses (i) and (ii) above.
"INDEMNIFIED PARTY" has the meaning given to that term in Section 9.05;
"INDEMNIFYING PARTY" has the meaning given to that term in Section 9.05;
"INITIAL CASH PAYMENT" has the meaning given to that term in Section
2.04(a).
5
<PAGE> 6
"INTERIM PERIOD" has the meaning given to that term in Section 2.04(b);
"INTERIM PERIOD OPERATING CASH ADJUSTMENT" has the meaning given to that
term in Section 2.04(b);
"LEASED PROPERTY" has the meaning given to that term in Section 2.01(b);
"LEASE" has the meaning given to that term in Section 2.01(b);
"LEGAL REQUIREMENT" means any federal, state, local, municipal, foreign
or other law, statute, legislation, constitution, principle of common law,
resolution, ordinance, code, edict, decree, proclamation, treaty, convention,
rule, regulation, ruling, directive, Order, pronouncement, requirement,
specification, determination, or decision that is, has been or may as of the
date of this Agreement be issued, enacted, adopted, passed, approved,
promulgated, made, implemented or otherwise put into effect by or under the
authority of any Governmental Body;
"LIABILITY" means any debt, obligation, duty or liability of any nature
(including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, indirect, conditional, implied, vicarious, derivative, joint,
several or secondary liability), regardless of whether such debt, obligation,
duty or liability would be required to be disclosed on a balance sheet prepared
in accordance with GAAP and regardless of whether such debt, obligation, duty or
liability is immediately due and payable;
"LOSSES" in respect of a matter means all claims, demands, proceedings,
losses, damages, liabilities, deficiencies, costs and expenses (including all
legal and other professional fees and disbursements, interest, penalties and
amounts paid in settlements) arising directly or indirectly as a consequence of
that matter;
"MARGIN/EBITDA AMOUNT" has the meaning given to that term in Section
2.05(f);
"ORDER" means any order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence, subpoena,
writ or award that is or has been issued, made, entered, rendered or otherwise
put into effect by or under the authority of any court, administrative agency or
other Governmental Body or any arbitrator or arbitration panel;
"ORDINARY COURSE OF BUSINESS." An action taken by or on behalf of the
Vendor shall not be deemed to have been taken in the "Ordinary Course of
Business" unless such action is:
(i) consistent with the Vendor's past practices and taken in the
ordinary course of the Vendor's normal day to day operations; and
(ii) not required to be authorized by the Vendor's members or the
Vendor's managers, and does not require any other separate or special
authorization of any nature;
"OVERLAPPING TAX PERIOD" has the meaning given to that term in Section
2.10(b);
"PERMITS" has the meaning given to that term in Section 2.01(h) and, for
further clarification, includes Environmental Permits;
6
<PAGE> 7
"PERMITTED ENCUMBRANCES" means:
(i) assignments of insurance provided to landlords (or their
mortgagees) pursuant to the terms of any lease and liens or rights reserved in
any lease for rent or for compliance with the terms of such lease;
(ii) security given in the Ordinary Course of Business to any
public utility, municipality or government or to any statutory or public
authority in connection with the operations of the Business, other than security
for borrowed money; and
(iii) the Permitted Encumbrances described in Schedule 4.01(c);
"PERSON" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or vendor with or without share
capital, unincorporated association, trust, trustee, executor, administrator or
other legal personal representative, regulatory body or agency, government or
governmental agency, authority or entity however designated or constituted;
"POST-CLOSING PERIOD" means any taxable period (or portion thereof)
beginning after the close of business on the Closing Date;
"POST-CLOSING TAX PERIOD" has the meaning given to that term in Section
2.10;
"PRE-CLOSING PERIOD" means any Tax period ending on or before the close
of business on the Closing Date or, in the case of any Tax period which
includes, but does not end on, the Closing Date, the portion of such period up
to and including the Closing Date;
"PRE-CLOSING TAX PERIOD" has the meaning given to that term in Section
2.10;
"PROCEEDING" means any action, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding and any informal proceeding), prosecution, contest, hearing, inquiry,
inquest, audit, examination or investigation that is or has been commenced,
brought, conducted or heard by or before, or that otherwise has involved, any
Governmental Body or any arbitrator or arbitration panel;
"PROFESSIONAL SERVICES AGREEMENT" has the meaning given to that term in
Section 5.01;
"PROPRIETARY ASSET" means any recipe, product formulation, trademark
(whether registered or unregistered and whether or not relating to a published
work), trademark application, trade name, fictitious business name, service mark
(whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright application, trade secret,
know-how, franchise, system, computer software, invention, design, proprietary
product, technology, proprietary right or other intellectual property right or
intangible asset, in any case owned or used by the Vendor in connection with the
Business;
"PURCHASE PRICE" has the meaning given to that term in Section 2.03;
"PURCHASED ASSETS" has the meaning given to that term in Section 2.01;
7
<PAGE> 8
"REGISTRATION RIGHTS AGREEMENT" has the meaning given to that term in
Section 4.02(b);
"RELEASE" means any release, spill, leak, emission, discharge, leach,
dumping, emission, escape or other disposal;
"RELATED PARTY" refers to each of the following:
(i) each of the members of the Vendor;
(ii) each individual who is, or who has at any time been, an
officer of the Vendor;
(iii) each member of the family of each of the individuals
referred to in clause (ii) above; and
(iv) any entity (other than the Vendor) in which any one of the
Persons referred to in clauses "(i)", "(ii)" and "(iii)" above holds (or in
which more than one of such individuals collectively hold), directly or
indirectly, beneficially or otherwise, a material voting, proprietary or equity
interest, including, without limitation, any subsidiary of the Vendor;
"REPRESENTATIVES" of a specified party means officers, directors,
employees, attorneys, accountants, advisors and other representatives of such
party;
"SEC" means the Securities and Exchange Commission, or any successor
entity;
"SECOND YEAR PAYMENT" has the meaning given to that term in Section
2.05(d);
"STUB PAYMENT" has the meaning given to that term in Section 2.05(a);
"TAX" or "TAXES" means (a) any net income, alternative or add-on minimum
tax, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest, penalty,
addition-to-tax or additional amount imposed by any governmental authority
(domestic or foreign) responsible for the imposition of any such tax (a "TAXING
AUTHORITY"), (b) any liability of the Vendor for the payment of any amount of
the type described in clause (a) above as a result of being a member of an
affiliated, consolidated, combined or unitary group, and (c) any liability of
the Vendor for the payment of any amount as a result of being party to any Tax
Sharing Agreement or with respect to the payment of any amounts of the type
described in clauses (a) or (b) above as a result of any express or implied
obligation to indemnify any other Person;
"TAX SHARING AGREEMENT" means any existing Tax sharing agreements or
arrangements (whether or not written) binding the Vendor and any other agreement
or arrangement (including any arrangement required or permitted by law) that (a)
requires the Vendor to make any Tax payment to or for the account of any other
person, (b) affords any other person to utilize any tax attributes of the Vendor
to reduce such other person's Taxes; (c) affords the Vendor to utilize any
8
<PAGE> 9
tax attributes of any other person to reduce any Taxes of the Vendor; (d)
requires or permits the transfer or assignment of income, revenues, receipts or
gains; or (e) requires or permits the Vendor to determine its Tax liability by
taking into account or by reference to the Tax liability, income, revenues,
receipts or gains of any other Person;
"TAX RETURN" means any return (including any information return),
report, statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information that is or has been filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax;
"TRADE ACCOUNTS RECEIVABLE" means all valid amounts due to the Vendor,
including, but not limited to, amounts due to the Vendor from the sale of food
products, amounts related to "Farm Fresh" rebates, less allowances for bad debts
and spoilage;
"TRADING DAY" means a day on which national stock exchanges and the
National Association of Securities Dealers Automated Quotation (Nasdaq) System
are open for trading;
"TRANSACTION AGREEMENTS" means the Bill of Sale, Escrow Agreement,
Assignment and Assumption Agreement, Trademark and Intellectual Property
Assignment Agreement, Confidentiality Agreement, Professional Services
Agreement, Employment Agreements, Registration Rights Agreement and such other
documents as are contemplated hereby;
"TRANSACTIONS" means (a) the execution and delivery of this Agreement
and the respective Transaction Agreements, and (b) all of the transactions
contemplated by this Agreement and the respective Transaction Agreements,
including, without limitation, the sale of the Purchased Assets by the Vendor to
the Purchaser, the assumption by the Purchaser of the Assumed Liabilities, and
the performance by the Vendor, IMSC and the Purchaser of their respective
obligations under this Agreement, the Transaction Agreements and the exercise by
the Vendor, IMSC and the Purchaser of their respective rights under this
Agreement and the Transaction Agreements.
"TREASURY REGULATIONS" means the U.S. income tax regulations, including
temporary regulations, promulgated under the Code, as of the date hereof;
"UNAUDITED FINANCIAL STATEMENTS" means the balance sheet of the Vendor
as at September 30, 1999 and the accompanying income statement for the nine (9)
months then ended, each as internally generated by the Vendor's management and
subject to adjustment for normal year-end accruals, attached as Schedule
4.01(l);
"1933 ACT" has the meaning given to that term in Section 4.02(b);
"2001 FINAL PAYMENT" has the meaning given to that term in Section
2.05(c)(ii); and
"2002 FINAL PAYMENT" has the meaning given to that term in Section
2.05(e)(ii).
1.02 DISCLOSURE SCHEDULE. The Disclosure Schedule attached to this
Agreement shall form part of this Agreement.
9
<PAGE> 10
1.03 BEST OF KNOWLEDGE. Any reference in this Agreement to "the best
of the knowledge of the Vendor" or "the best of the knowledge and belief of the
Vendor" will mean the actual knowledge of the officers and managers of the
Vendor, and the knowledge that the officers would have had if they had conducted
a reasonably prudent inquiry into the relevant subject-matter.
1.04 MATERIALITY. In this Agreement, the term "material," when used as
an adjective, means that any breach, default or deficiency in the satisfaction
of any representation, warranty or covenant so described might reasonably have
(i) a material adverse effect on the value of the Business or the Purchased
Assets, viewed as a whole, or the Transactions, or on the business, condition,
assets, liabilities, operations, financial performance or results of operation
of the Vendor or the Purchaser, respectively, viewed as a whole; or (ii) a
material adverse effect on the ability of the Vendor or the Purchaser to comply
with or perform any covenant or obligation under this Agreement or any other
agreements, certificates and instruments contemplated to be executed and
delivered by the Vendor or the Purchaser in connection with this Agreement.
1.05 HEADINGS, TABLE OF CONTENTS, GENDER AND NUMBER. The inclusion of
headings and a table of contents in this Agreement is for convenience of
reference only and shall not affect the construction or interpretation hereof.
In this Agreement, unless the context requires otherwise, words importing the
singular include the plural and vice versa and words importing gender include
all genders.
1.06 CURRENCY. Except where otherwise expressly provided, all amounts
in this Agreement are stated and shall be paid in currency of the United States
of America.
1.07 ACKNOWLEDGEMENT. Each party hereto acknowledges that it and its
legal counsel have reviewed and participated in the negotiation and settlement
of the terms of this Agreement.
ARTICLE 2
PURCHASE AND SALE
2.01 PURCHASE AND SALE OF ASSETS. Subject to the terms of this
Agreement, at the Closing the Vendor agrees to sell and the Purchaser agrees to
purchase all of the Vendor's right, title and interest in and to the property,
assets and rights used by the Vendor in carrying on the Business, other than the
Excluded Assets and the Excluded Liabilities as set forth in Section 3.02, as a
going concern with all related goodwill (the "Purchased Assets"). The Purchased
Assets include, but are not limited to, the following assets used in connection
with the Business:
(a) all improvements and fixtures (including fixed machinery and
fixed equipment) located in and on the Leased Property, subject
to the terms of the Lease and Legal Requirements;
(b) all rights as lessee under the lease of real property described
in Schedule 4.01(h) (the "Leased Property"), together with all
rights, benefits, options and leasehold improvements relating
thereto or forming part thereof (the "Lease"), subject to the
terms of the Lease and Legal Requirements;
10
<PAGE> 11
(c) all machinery, equipment (including trucks, cars and other
vehicles), parts, tools, molds, dies, jigs, pattern, furniture,
furnishings, office equipment and accessories whether located on
the premises of the Vendor or elsewhere, including all of the
assets described in Schedule 4.01(i);
(d) all inventories of finished goods, work in progress, raw
materials and other materials and supplies, including a
reasonable allowance for price variances in obsolesce;
(e) all Trade Accounts Receivable;
(f) the full benefit of all prepaid expenses, other than any prepaid
expenses related to Excluded Assets;
(g) to the extent assignable, all right, title and interest of the
Vendor in the Contracts listed on Schedule 4.01(o), and the
obligations of which have been assumed by the Purchaser pursuant
to Section 3.01 (collectively, the "Assumed Contracts");
(h) to the extent assignable, the full benefit of all permits,
approvals, consents, registrations and other authorizations,
including Environmental Permits and other Governmental
Authorizations, which the Vendor holds and which are required by
the Vendor to own the Purchased Assets or to carry on the
Business (the "Permits");
(i) excepting computer software licensed to the Vendor and not
assignable in accordance with the terms thereof, all right, title
and interest of the Vendor to all Proprietary Assets, in
connection with the Business, including the Proprietary Assets
listed in Schedule 4.01(k);
(j) all computer hardware and, to the extent assignable, software,
including all rights under licenses and other agreements or
instruments relating thereto;
(k) originals of all business and financial records (whether or not
recorded on computer), including all customer lists and lists of
suppliers, all surveys, plans and specifications relating to the
Leased Property and all operating manuals, engineering standards
and specifications and other information used or required to
effectively conduct the Business or operate the Purchased Assets
or any of them;
(l) the goodwill of the Business together with the exclusive right to
represent the Purchaser as carrying on the Business as a
successor to the Vendor and the exclusive right to use the name
"Huxtable" or any variation thereof;
(m) all rights to refunds of Taxes attributable to the Post-Closing
Period with respect to the Business; and
(n) any cash in the bank accounts other than any bank account
established to receive the Purchase Price, of the Vendor in
excess of outstanding checks.
11
<PAGE> 12
Notwithstanding anything in this Section 2.01 to the contrary, this
Agreement shall not constitute an agreement to sell, assign, sublease, transfer,
convey or deliver any Purchased Asset or any claim or right or any benefit
arising under or resulting from such Purchased Asset if such sale, assignment,
sublease, transfer, conveyance or delivery is prohibited by any applicable Legal
Requirement or would require the Consent of any Governmental Body or other
Person and such Consent is not obtained prior to Closing. Unless the provisions
of this Section are waived by the Purchaser, in the event that the Closing
proceeds without the sale, assignment, sublease, transfer, conveyance or
delivery of any such Purchased Asset, then following the Closing, the Vendor
shall use its commercially reasonable efforts to obtain promptly such Consents;
provided, however, that the Vendor shall not be required to pay any
consideration therefor other than filing, recordation or similar fees. Pending
receipt of such Consent, the parties shall cooperate with each other in any
mutually agreeable, reasonable and lawful arrangements designed to provide to
the Purchaser the benefits of use of such Purchased Asset. Once the appropriate
Consent for the sale, assignment, sublease, transfer, conveyance or delivery of
any such Purchased Asset not sold, assigned, subleased, transferred, conveyed or
delivered at the Closing is obtained, the Vendor shall sell, assign, transfer,
convey and deliver such Purchased Asset to the Purchaser at no additional cost
to the Purchaser. To the extent that any such Purchased Asset cannot be
transferred or the full benefits of use of any such Purchased Asset cannot be
provided to the Purchaser following the Closing pursuant to this paragraph, the
Purchaser and the Vendor shall enter into such arrangements (including
subleasing, sublicensing or subcontracting) to provide to the Purchaser the
economic (taking into account Tax costs and benefits) and operational
equivalent, to the extent permitted, of obtaining such Consent and the
performance by the Purchaser of the obligations thereunder. The Vendor shall
hold in trust for and pay to the Purchaser promptly upon receipt thereof, all
income, proceeds and other monies received by the Vendor in connection with its
use of any Purchased Asset (net of any Taxes and any other costs imposed upon
the Vendor).
2.02 EXCLUDED ASSETS. The Purchased Assets do not include the
following assets:
(a) the Purchase Price or any rights of the Vendor under this
Agreement or the Transaction Agreements;
(b) any refundable Taxes previously paid by the Vendor and any claim
or right of the Vendor to any refund of Taxes for periods prior
to the Closing Date;
(c) the interest of the Vendor in any litigation and in the proceeds
of any judgment, order or decree issued or made in respect of any
litigation as listed on Schedule 2.02(c);
(d) the interest of the Vendor in any Contract listed on Schedule
2.02(d) as "not to be assumed" or similar words to that effect;
(e) any amount due to the Vendor from a founder, member or manager of
the Vendor and listed on Schedule 2.02(e), and any other claim
against a member or manager of the Vendor not reflected on the
Unaudited Financial Statements;
which assets are referred to in this Agreement as the "Excluded Assets".
12
<PAGE> 13
2.03 PURCHASE PRICE. Subject to the terms and conditions of this
Agreement, the aggregate price (the "Purchase Price") to be paid by the
Purchaser to the Vendor for the Purchased Assets shall be an amount equal to the
sum of:
(a) Three Million Eighty Thousand Dollars ($3,080,000), less
(b) the Interim Period Operating Cash Adjustment, plus
(c) the Earnout Payments as calculated pursuant to Section 2.05.
2.04 INITIAL PAYMENTS.
(a) INITIAL CASH PAYMENT. The Purchaser shall make a cash payment to
the Vendor at closing in an amount equal to Two Million Eight
Hundred Eighty Thousand Dollars ($2,880,000) (the "Initial Cash
Payment"), which the Vendor shall use, as necessary, to retire
any borrowed money indebtedness of the Vendor and to pay the
Vendor's transaction costs.
(b) INTERIM PERIOD OPERATING CASH ADJUSTMENT. Within twenty (20) days
of the Closing, the Purchaser shall have calculated the Interim
Period Operating Cash Adjustment, as defined herein, and provided
written notice of such calculation to the Vendor. If the Vendor
does not object to such calculation within fifteen (15) days of
receipt of notice, the calculation shall be final and the
Purchaser and Vendor shall instruct the Escrow Agent as provided
in Section 2.04(c). "Interim Period Operating Cash Adjustment"
shall mean the amounts paid by the Vendor during the period from
and including November 1, 1999 through the Closing Date (the
"Interim Period") to satisfy liabilities of the Vendor (other
than Assumed Liabilities), as distributions to the members of the
Vendor or any other payments other than to satisfy Assumed
Liabilities. For purposes of this Section 2.04(b) only, the term
"Assumed Liabilities" shall include liabilities of the Vendor
paid by the Vendor on or prior to the Closing Date that would
have been "Assumed Liabilities" on the Closing Date if such
liabilities had not been paid by the Vendor prior to the Closing
Date.
(c) ESCROW AGREEMENT. Pursuant to the terms and conditions of the
Escrow Agreement (the "Escrow Agreement") dated as of the date
hereof by and between the Vendor, the Purchaser and McCarter
Grespan Robson Beynon, as escrow agent (the "Escrow Agent"), the
Purchaser will deposit $200,000 (the "Escrow Funds") in an
interest-bearing account with the Escrow Agent. The Escrow
Agreement will terminate on the date the Escrow Agent disburses
the last of the Escrow Funds in accordance with the Escrow
Agreement (the "Escrow Termination Date"). The Escrow Agent will,
pursuant to the joint written instructions of Vendor and
Purchaser, (i) remit to the Purchaser from the Escrow Funds an
amount equal to the Interim Period Operating Cash Adjustment, if
any, and (ii) remit to the Purchaser an amount equal to the
Vendor's share of any Transfer Taxes. The remainder of the Escrow
Funds, after the above-described payments to the Purchaser have
been made, shall be remitted to the Vendor.
2.05 EARNOUT PAYMENTS. The Purchaser shall make up to four earnout
payments
13
<PAGE> 14
(collectively, the "Earnout Payments") as follows:
(a) STUB PAYMENT. Within twenty (20) days of the completion of the
Purchaser's audited financial statements for the year ending
December 31, 1999, and in no event later than April 15, 2000, the
Purchaser shall notify the Vendor in writing of the calculation
of the 1999 Adjusted EBITDA. If the Vendor does not object to
such calculation within fifteen (15) days of receipt of notice,
the Purchaser shall promptly pay an amount equal to a multiple of
1999 Adjusted EBITDA (the "Stub Payment"). Such multiple shall be
determined by the Vendor in its sole discretion not later than
April 30, 2000 and shall not exceed four (4) times 1999 Adjusted
EBITDA. For purposes of this Agreement, ----- 1999 Adjusted
EBITDA shall be determined for the period commencing on November
1, 1999 to and including December 31, 1999. Subject to the
conditions of Section 2.05(i) below, the Stub Payment shall be
payable by the Purchaser to the Vendor through the issuance of
shares of Common Stock in an amount determined by dividing the
amount of the Stub Payment by the average closing price of the
Common Stock for the last twenty (20) Trading Days in 1999,
provided that the maximum price per share of Common Stock shall
be $5.00 and the minimum price per share of Common Stock shall be
$3.00.
(b) FIRST YEAR PAYMENT. Within twenty (20) days of the completion of
the Purchaser's audited financial statements for the year ending
December 31, 2000, and in no event later than March 31, 2001, the
Purchaser shall notify the Vendor in writing of the calculation
of the 2000 Adjusted EBITDA. If the Vendor does not object to
such calculation within fifteen (15) days of receipt of notice,
the Vendor shall provide notice of whether it elects to receive
cash or shares of Common Stock subject to the terms of Section
2.05(i) below and the Purchaser shall promptly thereafter pay an
amount equal to one (1) times 2000 Adjusted EBITDA (the "First
Year Payment") to the Vendor.
(c) 2001 FINAL PAYMENT. No later than October 31, 2001, the Vendor
shall notify the Purchaser if the Vendor elects to deem the year
ending December 31, 2001 as the Final Payment Year. If the Vendor
so elects, then within twenty (20) days of the completion of the
Purchaser's audited financial statements for the year ending
December 31, 2001, and in no event later than March 31, 2002, the
Purchaser shall notify the Vendor in writing of the calculation
of the 2001 Adjusted EBITDA. If the Vendor does not object to
such calculation within fifteen (15) days of receipt of notice,
the Vendor shall provide notice of whether it elects to receive
cash or shares of Common Stock subject to the terms of Section
2.05(i) below and the Purchaser shall promptly thereafter pay to
the Vendor an amount (the "2001 Final Payment") equal to:
(i) Five (5) times 2001 Adjusted EBITDA; less
(ii) the Stub Payment to the extent that such deduction would
not reduce the 2001 Final Payment determined in Section
2.05(c)(i) below $7,500,000; less
(iii) the First Year Payment;
14
<PAGE> 15
The parties acknowledge that the 2001 Final Payment may be
reduced below $7,500,000 by deduction of the First Year Payment.
(d) SECOND YEAR PAYMENT. If the Vendor fails to elect the year ending
December 31, 2001 as the Final Payment Year, then within twenty
(20) days of the completion of the Purchaser's audited financial
statements for the year ending December 31, 2001, and in no event
later than March 31, 2002, the Purchaser shall notify the Vendor
in writing of the calculation of the 2001 Adjusted EBITDA. If the
Vendor does not object to such calculation within fifteen (15)
days of receipt of notice, the Vendor shall provide notice of
whether it elects to receive cash or shares of Common Stock
subject to the terms of Section 2.05(i) below and the Purchaser
shall promptly thereafter pay to the Vendor an amount equal to
one (1) times 2001 Adjusted EBITDA (the "Second Year
Payment").
(e) 2002 FINAL PAYMENT. In the event that the Vendor fails to elect
the year ending December 31, 2001 as the Final Payment Year, then
the Final Payment Year shall be the year ending December 31,
2002. In that event, then within twenty (20) days of the
completion of the Purchaser's audited financial statements for
the year ending December 31, 2002, and in no event later than
March 31, 2003, the Purchaser shall notify the Vendor in writing
of the calculation of the 2002 Adjusted EBITDA. If the Vendor
does not object to such calculation within fifteen (15) days of
receipt of notice, the Vendor shall provide notice of whether it
elects to receive cash or shares of Common Stock subject to the
terms of Section 2.05(i) below and the Purchaser shall promptly
thereafter pay to the Vendor an amount (the "2002 Final Payment")
equal to:
(i) Five (5) times 2002 Adjusted EBITDA; less
(ii) the Stub Payment to the extent that the such deduction
would not reduce the amount determined in Section 2.05 (e)
below $7,500,000; less
(iii) (A) the First Year Payment plus (B) the Second Year
Payment;
The parties acknowledge that the 2002 Final Payment may be
reduced below $7,500,000 by the deduction of the First Year
Payment and the Second Year Payment.
(f) GROSS MARGIN ADJUSTMENT. Notwithstanding the foregoing, if the
aggregate amount paid to the Vendor under clauses (a) through (e)
(the "EBITDA Amount") is not greater than:
(i) Eighty percent (80%) of the Gross Margin in the Final
Payment Year, plus
(ii) Two (2) times Adjusted EBITDA of the Purchaser for the
Final Payment Year,
(the amount determined by adding clause (i) to clause (ii) is the
"Margin/EBITDA Amount"), then the Purchaser shall be required to
make an additional payment in
15
<PAGE> 16
the amount by which the Margin/EBITDA Amount exceeds the EBITDA
Amount.
(g) [INTENTIONALLY DELETED.]
(h) PAYMENT BY CASH OR SHARES. Notwithstanding the foregoing, with
respect to the Earnout Payments referenced in clauses (b) through
(e) above, the Vendor shall have the option, with respect to each
such payment, of receiving such payment (i) in cash or (ii) in
restricted shares of the Common Stock; provided, however, that
if, at the time of each such payment:
(i) the Common Stock is listed for trading on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq
National Market System;
(ii) the value of the trading volume of Common Stock for the
preceding twenty (20) Trading Day period averages $500,000
per day; and
(iii) the outstanding Common Stock has an aggregate market value
of not less than $150,000,000;
then any Earnout Payment made pursuant to this Section 2.05 shall
be made in Common Stock or cash, at the option of the Purchaser.
The share price for determining the number of shares of Common
Stock to be issued to the Vendor shall be the average of the
closing price for the Common Stock for the twenty (20) Trading
Days preceding the date of the determination of the Adjusted
EBITDA for the applicable year.
In the event that the conditions in (i), (ii) and (iii) above are
not satisfied, and the Vendor exercises an option with respect to
an Earnout Payment (other than the Stub Payment) to receive
restricted shares of Common Stock and the average closing price
for the Common Stock for the twenty (20) Trading Day period
preceding such Earnout Payment is less than $5.00 per share, the
Purchaser and IMSC shall have the option to make such payment in
cash.
(i) MAXIMUM SHARE HOLDINGS. Notwithstanding the provisions of this
Section 2.05 and other provisions in this Agreement, the parties
agree that in no event shall the Purchaser be required to issue
shares of Common Stock if it would result in the Vendor and its
Affiliates and Related Parties, holding, in the aggregate, more
than 20% of the total outstanding shares of Common Stock. To the
extent that the Purchaser is otherwise obligated to issue such
shares of Common Stock to pay the total Purchase Price as set
forth in Sections 2.03 and 2.05, but elects not to do so pursuant
to this Section 2.05(i), the Purchaser shall be obligated to pay
to the Vendor such portion of the Earnout Payment in cash.
2.06. DETERMINATION OF EARNOUT PAYMENTS AND INTERIM PERIOD OPERATING
CASH ADJUSTMENT. Any dispute between the parties with respect to the calculation
of any Earnout Payment, including the Adjusted EBITDA and Gross Margin, or the
Interim Period Operating Account Adjustment, shall be submitted to arbitration
in accordance with the following provisions:
16
<PAGE> 17
(a) the arbitrator shall be a single arbitrator who shall act in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association and who shall be a certified public
accountant who is a partner with Ernst & Young (or its successor
unless such successor is the result of a business combination
with any accounting firm with whom, and with whose Affiliates,
neither the Purchaser nor the Vendor has a material business or
professional relationship, in which case the parties shall select
another partner of a public accounting firm of recognized
national standing with whom, and with whose Affiliates, neither
the Purchaser nor the Vendor has a material business or
professional relationship) and who is appointed by mutual
agreement of the parties, or in the event the parties are unable
to agree upon an arbitrator within ten (10) days of notice given
by one party to the other of a dispute, any party may apply to
the Senior Federal Court Judge in Los Angeles County to appoint a
partner of Ernst & Young as the arbitrator. The arbitrator shall
be at arm's-length from the parties;
(b) the arbitrator shall be instructed that time is of the essence in
proceeding with the determination of the dispute and, in any
event, the arbitration award shall be rendered as promptly as
possible following the submission of such dispute to arbitration;
(c) the arbitration shall take place in Los Angeles, California,
Kansas City, Missouri or New York, New York, as the parties may
agree (or, in the event that the parties fail to reach an
agreement promptly, New York, New York), and all proceedings
shall be held in private to the extent that only the parties
hereto, their respective advisors and the arbitrator shall be
present;
(d) the arbitration award shall be given in writing and shall include
a finding of facts and application of law and shall be final and
binding on all parties, shall not be subject to any appeal and
shall fully address the question of costs of the arbitration and
all matters related thereto;
(e) judgment upon the arbitration award rendered may be entered in
any court having jurisdiction, or, application may be made to
such court for a judicial recognition of the arbitration award or
any order of enforcement thereof, as the case may be; and
(f) the law to be applied in connection with the arbitration will be
the law applicable to this Agreement.
2.07 [INTENTIONALLY DELETED]
2.08. ALLOCATION OF PURCHASE PRICE; INTEREST. The Purchaser will, in
its sole discretion, allocate the Purchase Price among the Purchased Assets and
will provide notice thereof to the Vendor, and, together with the Vendor, will
report the sale and purchase of the Purchased Assets for all Federal, state and
local tax purposes in a manner consistent with this allocation.
17
<PAGE> 18
2.09 TRANSFER TAXES. All transfer, documentary, sales, use, stamp,
registration, value added and other such taxes and fees (including any penalties
and interest) incurred in connection with this Agreement (including any real
property transfer tax and any similar tax) ("Transfer Taxes") shall be
calculated by the Purchaser within twenty (20) days of the Closing Date and
shall be borne and paid 50% by the Purchaser and 50% by the Vendor when due, and
the Purchaser will, at its own expense, file all necessary tax returns and other
documentation with respect to all such Transfer Taxes; provided, however, that,
if required by applicable law, the Vendor will join in the execution of any such
tax returns and other documentation. Any refunds or credits of Transfer Taxes
shall be paid by the Person receiving such refunds or credits 50% to the
Purchaser and 50% to the Vendor. The Purchaser and the Vendor shall instruct the
Escrow Agent as provided in Section 2.04(c).
2.10 ALLOCATION OF TAXES.
(a) Subject to the other provisions of this Agreement, the Vendor
shall be responsible for and shall pay any Taxes arising or
resulting from or in connection with the conduct of the Business
or the ownership of the Purchased Assets attributable to the
Pre-Closing Period, including, without limitation, Taxes arising
or resulting from the sale of the Business and the Purchased
Assets on the Closing Date pursuant to this Agreement, but
excluding Transfer Taxes. The Purchaser shall be responsible for
and shall pay any and all Taxes arising or resulting from or in
connection with the conduct of the Business or the ownership of
the Purchased Assets attributable to the Post-Closing Period.
(b) All real property, personal property, ad valorem or other similar
Taxes (not including income Taxes) levied with respect to the
Purchased Assets and the Business for a taxable period (the
"Overlapping Tax Period"), which includes (but does not end on)
the Closing Date, shall be apportioned between the Vendor and the
Purchaser as of the Closing Date based on the number of days
included in the Overlapping Tax Period through and including the
Closing Date (the "Pre-Closing Tax Period") and the number of
days of such taxable period included in the Overlapping Tax
Period ending after the Closing Date (the "Post-Closing Tax
Period"). The Vendor shall be liable for the proportionate amount
of such Taxes that is attributable to the Pre-Closing Tax Period.
(c) Within ninety (90) days after the Closing, the Purchaser shall
present a statement to the Vendor setting forth the amount of
such Taxes actually attributable to each of the Pre-Closing and
Post-Closing Tax Periods, together with such supporting evidence
as is reasonably necessary and available to calculate such
amount. The Vendor shall pay to the Purchaser the appropriate
amount with respect to reimbursement of such Taxes as provided
hereunder promptly upon receipt of such schedule and payment of
such Taxes. Thereafter, the Vendor shall notify the Purchaser
upon receipt of any bill for real or personal property Taxes
relating to the Purchased Assets, part or all of which are
attributable to the Post-Closing Tax Period, and shall promptly
deliver such bill to the Purchaser who shall pay the same to the
appropriate taxing authority. In the event that the Purchaser
shall thereafter make a payment for which it is entitled to
reimbursement under this Section 2.10, the Vendor shall make such
reimbursement promptly but in no event later than thirty (30)
days after the presentation of a statement setting forth the
18
<PAGE> 19
amount of reimbursement to which the Purchaser is entitled along
with such supporting evidence as is reasonably necessary to
calculate the amount of reimbursement.
2.11 ADDITIONAL TAX COVENANTS.
(a) The Vendor shall, at its sole cost and expense, deliver to the
Purchaser by December 31, 1999 clearance certificates, such as
those issued by the State of California pursuant to California
Revenue and Taxation Code Section 6812 (sales tax) and California
Unemployment Insurance Code Section 1731 (employment taxes) (or
similar provisions of law of another jurisdiction) certifying
that the Vendor is not liable for any amounts referred to in
California Revenue and Taxation Code Section 6811 or California
Unemployment Insurance Code Section 1731 (or similar provisions
of law of another jurisdiction). In the event that any amount
with respect to the Pre-Closing Period is required to be paid to
obtain such certificates, the Vendor shall promptly pay such
amounts to the relevant authorities.
(b) Any indemnification payments made hereunder shall be treated as
adjustments to the purchase price for all purposes.
(c) Except as otherwise required under the Code and Treasury
Regulations, the Escrow Funds shall be treated as property of the
Vendor for income tax purposes until such time, if any, that all
or a portion of the Escrow Funds is returned to the Purchaser.
(d) Any payments of income from the Escrow Funds shall be subject to
any withholding required with respect to Taxes. For all income
tax purposes, all interest earned on the Escrow Funds shall be
reportable to the Vendor, except as otherwise required by law.
The Escrow Agent shall file annually all information returns with
the Internal Revenue Service and other governmental authorities
documenting such interest income. As required by law, the parties
hereto will provide the Escrow Agent with appropriate Internal
Revenue Service Forms W-9 for tax identification number
certification, or non-resident alien, certifications.
ARTICLE 3
ASSUMPTION OF LIABILITIES
3.01 ASSUMPTION OF LIABILITIES BY THE PURCHASER. The Purchaser hereby
agrees to assume, pay, discharge and perform, from and after the Closing Date,
all obligations and liabilities of the Vendor existing as at the Closing Date
(collectively, the "Assumed Liabilities") under:
(a) the Assumed Contracts and the Lease;
(b) the Permits listed in Schedule 4.01(x);
(c) the trade payables, other accruals and accrued salaries of the
Vendor with respect to the Business as at the Closing Date,
including any accrued liability for vacation
19
<PAGE> 20
pay;
(d) the agreements entered into by the Vendor in the Ordinary Course
of Business for the purchase or sale of goods by the Vendor or
the receipt or provision of services by the Vendor; and
(e) any liabilities for outstanding checks drawn on the bank accounts
of the Vendor in excess of the cash balance in the bank accounts
of the Vendor; provided, however, that the Purchaser shall
deposit the full amount of such deficiency in the applicable
account of the Vendor within two (2) business days after the
Closing.
3.02 EXCLUDED LIABILITIES. Other than the Assumed Liabilities set
forth in Section 3.01 above, the Purchaser will not assume or have any
responsibility with respect to any liability of the Vendor or relating to its
Business or properties, whether liquidated or unliquidated, fixed or contingent,
arising by operation of law or otherwise (the "Excluded Liabilities").
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.01 BY THE VENDOR. As a material inducement to the Purchaser to enter
into this Agreement and to close the Transactions, the Vendor makes the
following representations, warranties and agreements to and with the Purchaser
as follows:
(a) ORGANIZATION. The Vendor is a limited liability company duly
organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary power and
authority: (i) to conduct the Business in the manner in which it
is currently being conducted; (ii) to own and use the Purchased
Assets in the manner in which such assets are currently owned and
used; and (iii) to perform its obligations under the Contracts.
The Vendor is not, and has never been, required to be qualified,
authorized, registered or licensed to do business as a foreign
corporation with respect to the Purchased Assets or the Business
in any jurisdiction other than the jurisdictions identified in
Schedule 4.01(a). The Vendor is in good standing as a foreign
corporation in each of the jurisdictions identified in Schedule
4.01(a).
(b) AUTHORIZATION AND EXECUTION. The Vendor has the absolute and
unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement and all other
agreements, certificates and instruments contemplated to be
executed and delivered by the Vendor in connection with this
Agreement, including, without limitation, the Transaction
Agreements to which the Vendor is or may become a party. The
execution, delivery and performance by the Vendor of this
Agreement and such other agreements, certificates and instruments
have been duly authorized by all necessary action on the part of
the Vendor and its members and managers. Each of this Agreement
and such other agreements, certificates and instruments
constitutes, or upon execution and delivery will constitute, the
legal, valid and binding obligations of the Vendor, enforceable
against the Vendor in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency and other
laws affecting the rights of creditors
20
<PAGE> 21
generally and except that equitable remedies may be granted only
in the discretion of a court of competent jurisdiction.
(c) OWNERSHIP OF PURCHASED ASSETS. The Vendor is the legal and
beneficial owner of, has exclusive right to possess, use and
occupy and has good and marketable title to, the Purchased
Assets. At or prior to the Closing Date, the Vendor will have
full legal right, power and authority to sell, transfer or assign
the Purchased Assets to the Purchaser free of all Encumbrances.
The Vendor has all necessary corporate power and authority to
sell, assign and transfer the Purchased Assets to the Purchaser,
and upon consummation of such transfer pursuant to this Agreement
the Purchaser will acquire good and marketable title to all of
such Purchased Assets free and clear of all title defects,
Encumbrances and restrictions of any kind, except for the
Permitted Encumbrances shown in Schedule 4.01(c) securing the
Assumed Liabilities specified therein.
(d) NO OTHER AGREEMENTS. No Person has any written or oral agreement,
option, understanding or commitment, or any right or privilege
(whether by law, pre-emptive or contractual) capable of becoming
an agreement, option or commitment, whether directly or
indirectly for, the purchase or other acquisition from the Vendor
of any of the Purchased Assets, other than in the Ordinary Course
of Business and as disclosed on Schedule 4.01(d).
(e) NO CONTRAVENTION; CONSENTS. Neither the execution and delivery of
this Agreement or any of the Transaction Agreements, nor the
consummation or performance of any of the Transactions, will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with or result in a violation of (A)
any of the provisions of the Vendor's certificate of
formation, Amended and Restated LLC Operating Agreement,
as amended from time to time, or any other incorporation
documents, or (B) any resolution adopted by the Vendor's
members, directors or managers;
(ii) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to
challenge any of the Transactions or to exercise any
remedy or obtain any relief under, any Legal Requirement
or any Order to which the Vendor, or any of the assets
owned or used by the Vendor, is subject;
(iii) except as disclosed on Schedule 4.01(e), contravene,
conflict with or result in a violation of any of the terms
or requirements of, or give any Governmental Body the
right to revoke, withdraw, suspend, cancel, terminate or
modify, any Governmental Authorization or other Permit
that is held by the Vendor or any of its employees or that
otherwise relates to the Business or to any of the assets
owned or used by the Vendor;
(iv) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of
any of the Assumed Contracts;
21
<PAGE> 22
(v) give any Person the right to (A) declare a default or
exercise any remedy under any Assumed Contract, (B)
accelerate the maturity or performance of any Assumed
Contract, or (C) cancel, terminate or modify any Assumed
Contract;
(vi) except for payments to management of the Vendor, give any
Person the right to any payment by the Vendor or give rise
to any acceleration or change in the award, grant, vesting
or determination of options, warrants, rights, severance
payments or other contingent obligations of any nature
whatsoever of the Vendor in favor of any Person; or
(vii) result in the imposition or creation of any Encumbrance
upon or with respect to any asset owned or used by the
Vendor.
Except as set forth in Schedule 4.01(e), the Vendor was not, is
not and will not be required to make any filing with or give any
notice to, or to obtain any consent from, any Person in
connection with the execution and delivery of any of the
Transaction Agreements or the consummation or performance of any
of the Transactions.
(f) BUSINESS AND ASSETS. The Purchased Assets owned or leased by the
Vendor are adequate for the lawful conduct, ownership and
operation of the Business. During the two (2) years preceding the
date of this Agreement, there has not been any significant
interruption of operations (being an interruption of more than
one day) of the Business due to inadequate maintenance of any of
the Purchased Assets. With the exception of inventory in transit,
all the Purchased Assets are situated at the locations set out in
Schedule 4.01(f).
(g) LEASED PROPERTY. All leases described in Schedule 4.01(g) and (h)
or otherwise constituting a Purchased Asset are valid, binding
and enforceable in accordance with their terms, and are in full
force and effect; there are no existing defaults by the Vendor
or, to the Vendor's knowledge, the other party thereunder, and no
event of default has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder. The Vendor has
delivered to the Purchaser complete copies of all such leases.
The Vendor has all necessary corporate power and authority to
assign the real and personal property leasehold interests to be
assigned to the Purchaser pursuant to this Agreement, and upon
consummation of such assignment (and the receipt of any necessary
consents with respect to the transfer of any personal property
leases) pursuant to this Agreement the Purchaser will obtain a
valid leasehold interest in such leases, in each case free and
clear of all title defects, Encumbrances and restrictions of any
kind.
(h) REAL PROPERTY. The Vendor does not own any real property or any
interest in real property, except for the leasehold created under
the real property lease identified in Schedule 4.01(h). Schedule
4.01(h) provides a complete description of the
22
<PAGE> 23
premises covered by said lease and the facilities, improvements
and fixtures located on such premises.
(i) The Vendor enjoys peaceful and undisturbed possession of
such premises.
(ii) To the Vendor's knowledge, all improvements on all such
real estate conform to applicable Legal Requirements,
including, without limitation, applicable environmental
and occupational safety and health laws and regulations
and zoning and building ordinances, and the properties are
zoned for the various purposes for which such real estate
is presently being used. To the Vendor's knowledge, none
of the buildings and structures located on such real
property, nor any appurtenances thereto or equipment
therein, nor the operation or maintenance thereof,
violates in any manner any restrictive covenants or
encroaches on any property owned by others, nor does any
building or structure of third parties encroach upon such
property. No condemnation proceeding is pending or, to the
best of the Vendor's knowledge, threatened which would
preclude or impair the use of any such property by the
Vendor or the Purchaser for the uses for which intended by
it.
(i) EQUIPMENT. Schedule 4.01(i) identifies all equipment, furniture,
fixtures, improvements and other tangible assets owned by the
Vendor and used in connection with the Business, and accurately
sets forth the date of acquisition, original cost and book value
of each of said assets. Schedule 4.01(i) further identifies all
personal property and other tangible assets leased to the Vendor
and used in connection with the Business. Each asset identified
or required to be identified in Schedule 4.01(i):
(i) is structurally sound, free of defects and deficiencies
and in good condition and repair (ordinary wear and tear
excepted);
(ii) complies in all material respects with, and is being
operated and otherwise used in material compliance with,
all applicable Legal Requirements; and
(iii) is adequate for the uses to which it is being put.
(j) ENVIRONMENTAL MATTERS.
(i) Except as disclosed in Schedule 4.01(j), the Vendor, the
operation of the Business, the Purchased Assets owned or
used by the Vendor and the use, maintenance and operation
thereof by Vendor, or to the Vendor's knowledge, by any
other person have been and are in compliance with all
Environmental Laws. The Vendor has complied with all
reporting and monitoring requirements under all
Environmental Laws. The Vendor has received no notice of
any non-compliance with any Environmental Laws.
(ii) The Vendor has obtained all Environmental Permits
necessary in order to operate the Business in compliance
with Environmental Laws, each of which is listed in
Schedule 4.01(x), and complete and correct copies
23
<PAGE> 24
thereof have been provided to the Purchaser. Each
Environmental Permit is valid, subsisting and in good
standing, and the Vendor is not in default or breach of
any Environmental Permit and no proceeding is pending or
threatened to revoke or limit any Environmental Permit.
(iii) Except as disclosed in Schedule 4.01(x), or except in
compliance with applicable Environmental Laws, no
Hazardous Materials have come to be located on or in any
of the Purchased Assets owned, leased or used by the
Vendor, during the term of the Lease, or to the Vendor's
knowledge, any time prior to Closing, and except in
compliance with applicable Environmental Laws, no Release
of any Hazardous Materials has occurred on or from the
properties and assets of the Vendor during the term of the
Lease, or to Vendor' s knowledge, any time prior to
Closing, or has resulted from the operation of the
Business and the conduct of all other activities of the
Vendor. Except as disclosed in Schedule 4.01(x), or except
in compliance with applicable Environmental Laws, the
Vendor has not used any of the Purchased Assets, or
properties or assets leased or used by it in connection
with the Business, to produce, generate, store, handle,
transport or dispose of any Hazardous Materials and none
of the Leased Property or property used by the Vendor in
connection with the Business has been or is being used by
Vendor, or to Vendor's knowledge by any other person, as a
landfill or waste disposal site.
(iv) Without limiting the generality of the foregoing, except
as disclosed in Schedule 4.01(j), there are no underground
or surface storage tanks or urea formaldehyde foam
insulation, asbestos, polychlorinated biphenyls (PCBs) or
radioactive substances located on or in any of the
properties or assets owned, leased or used by the Vendor
in connection with the Business that have been placed at
such properties or assets during the Vendor's ownership or
operation thereof, or to the Vendor's knowledge, at any
time prior thereto.
(v) The Vendor has made available to the Purchaser true and
complete copies of all environmental audits, evaluations,
assessments, studies or tests relating to the Purchased
Assets of which it is aware.
(k) PROPRIETARY ASSETS. Schedule 4.01(k) sets out each Proprietary
Asset that is owned by or licensed to the Vendor and used in
connection with the Business or that is otherwise used or useful
in connection with the Business as presently conducted,
specifying for each such asset the owner(s) of such asset and, if
the owner is not the Vendor, the royalties, honoraria, fees or
other payments payable by the Vendor to any person by reason of
the ownership, use, license, sale or disposition of such
Proprietary Assets. The Vendor has delivered to the Purchaser a
complete copy of each agreement pursuant to which the Vendor uses
a Proprietary Asset that is now owned by the Vendor, including
all amendments, waivers and modifications thereto.
24
<PAGE> 25
(i) the Vendor has taken all measures and precautions in the
Ordinary Course of Business to protect the confidentiality
and value of each Proprietary Asset identified or required
to be identified in Schedule 4.01(k);
(ii) The Vendor is not infringing, and has not at any time
infringed or received any written notice or other written
communication of any actual, alleged, possible or
potential infringement of, any Proprietary Asset owned or
used by any other Person. To the knowledge of the Vendor,
no other Person is infringing, and no proprietary asset
owned or used by any other Person infringes or conflicts
with, any Proprietary Asset owned or used by the Vendor.
(iii) The Proprietary Assets identified in Schedule 4.01(k)
constitute all of the Proprietary Assets necessary to
enable the Vendor to conduct the Business in the manner in
which its business is currently being conducted,
including, without limitation, any database management,
network monitoring and internal software development.
Except as identified in Schedule 4.01(k), all Proprietary
Assets identified on Schedule 4.01(k) that are not owned
by the Vendor are used by the Vendor pursuant to a
royalty-free, fully paid up, perpetual license that is
transferable to the Purchaser.
(l) FINANCIAL STATEMENTS. The Audited Financial Statements and the
Unaudited Financial Statements set forth in Schedule 4.01(l) have
been, or will be, prepared in accordance with GAAP (subject to
usual year-end adjustments in the case of the Unaudited Financial
Statements) applied on a basis consistent with prior periods and
consistently applied throughout the periods indicated and fairly,
completely and accurately present, or will present when
completed, the financial position of the Vendor and the Business
and the results of its operations as of the dates and throughout
the periods indicated and there has been no material adverse
change in the financial position of the Vendor from that
reflected in the Audited Financial Statements. All material
financial transactions of the Vendor relating to the Business
have been accurately recorded in its books and records.
(m) ACCOUNTS RECEIVABLE. The Trade Accounts Receivables reflected on
the balance sheet forming part of the Audited Financial
Statements and all accounts receivable arising after the date of
such Audited Financial Statements are bona fide and collectible,
net of the accrual for bad debts reflected on the Vendor's
unaudited balance sheet or the underlying accounting books and
record as of October 31, 1999. The Trade Accounts Receivable
represent valid obligations arising from actual sales of goods or
performances of services in the Ordinary Course of Business. No
account debtor has any valid set-off, deduction or defense with
respect thereto and no account debtor has asserted any such
set-off, deduction or defense.
(n) INVENTORY. The inventory of the Vendor reflected on the balance
sheet forming part of the Audited Financial Statements was, and
the current inventory of the Vendor is, in useable and saleable
condition in the Ordinary Course of Business
25
<PAGE> 26
and, in the case of the inventory reflected on such balance
sheet, at an amount not less than the amounts carried therein.
The finished goods, work in process, raw materials and other
materials and supplies included in such inventory are recorded in
accordance with GAAP.
(o) CONTRACTS. Schedule 4.01(o) identifies each Assumed Contract, and
the Vendor has delivered to the Purchaser accurate and complete
copies of the same, including all amendments thereto. Except as
identified in Schedule 4.01(o), all Assumed Contracts are in
writing. Each Assumed Contract is valid and in full force and
effect, and is enforceable by the Vendor in accordance with its
terms.
(p) ABSENCE OF CHANGES. Except as set forth in Schedule 4.01(p), with
respect to the Business, the Vendor has not, since September 30,
1999:
(i) paid or satisfied any obligation or liability, absolute or
contingent, other than current liabilities or obligations
disclosed in the Audited Financial Statements and current
liabilities or obligations incurred since the date of such
Audited Financial Statements in the Ordinary Course of
Business;
(ii) incurred any obligation or liability (whether absolute,
accrued, contingent or otherwise and whether due or to
become due) other than in the Ordinary Course of Business;
(iii) assigned, transferred, pledged, mortgaged or granted any
security interest other than the Permitted Encumbrances
listed in Schedule 4.01(c) on the Purchased Assets;
(iv) waived or cancelled, written off or written down any
rights or claims or made any gift, other than in the
Ordinary Course of Business, consistent with past
practice;
(v) changed any accounting or tax practices;
(vi) sold or otherwise disposed of any fixed or capital assets
having a fair market value, in the case of any single sale
or disposition, in excess of $5,000 and, in the case of
all sales and dispositions, in excess of $20,000 in the
aggregate;
(vii) made any capital expenditures, in the case of any single
capital expenditure, in excess of $5,000 and, in the case
of all capital expenditures, in excess of $20,000 in the
aggregate;
(viii) failed to engage in standard distribution of its products
in the Ordinary Course of Business, other than normal
promotional activities and retail features, during the
twelve (12) month period prior to the date of the
Unaudited Financial Statements;
(ix) made any material change in the manner of its billings, or
the credit terms made available by it, to any of its
customers;
26
<PAGE> 27
(x) made or suffered any change or changes in the financial
condition, assets, liabilities or the Business which,
individually or in the aggregate, have materially
adversely affected or could materially adversely affect
the financial condition, assets, liabilities or the
Business;
(xi) suffered or incurred any damage, destruction or loss,
whether or not covered by insurance, which has materially
adversely affected or could materially adversely affect
the financial condition, assets or the Business;
(xii) made any increase in the compensation or other benefits
payable or to become payable to its employees, other than
general salary increases in the Ordinary Course of
Business, consistent with past practice, or any increase
in the compensation or other benefits payable or to become
payable to any officer or director or any increase in the
benefits provided under any of its pension plans or other
employee benefit plans;
(xiii) failed to replenish its inventories and supplies in a
usual and customary manner consistent with good business
practices prevailing in the industry in which the Business
operates; or
(xiv) authorized or agreed or otherwise become committed to do
any of the foregoing.
(q) AGREEMENTS AND COMMITMENTS. Except as set out in the Disclosure
Schedules, the Vendor is not a party to or bound by any:
(i) Assumed Contract that expires or may expire, if the same
is renewed or extended at the unilateral option of any
other Person, more than one year after the date hereof;
(ii) distributor, sales, advertising, agency or manufacturer's
representative contract;
(iii) Assumed Contract for the purchase of materials, supplies
or services that requires payment of more than $5,000, in
the case of any Assumed Contract, or, in the case of all
such Assumed Contracts, in excess of $25,000 in the
aggregate, except for purchases of inventories in the
Ordinary Course of Business;
(iv) Assumed Contract for the purchase or sale of any equipment
or fixed or capital assets having a fair market value in
excess of $10,000;
(v) contract for the sale of any material assets, other than
sales of inventory to customers in the Ordinary Course of
Business;
(vi) any leasing transaction of the type required to be
capitalized in accordance with GAAP and that constitutes
an Assumed Contract;
27
<PAGE> 28
(vii) management, consulting or similar Contract;
(viii) confidentiality, secrecy or non-disclosure contract
(whether the Vendor is a beneficiary or obligor
thereunder) relating to any Proprietary Asset or
confidential information or any non-competition or similar
contract;
(ix) license or royalty agreement relating to Proprietary
Assets;
(x) contract, agreement or commitment to make any gift of any
of its Purchased Assets;
(xi) lease, agreement in the nature of a lease or agreement to
lease whether as lessor or lessee, and whether in respect
of real property or personal property, with respect to the
Purchased Assets, except for any lease or agreement in the
nature of a lease relating to personal property where the
aggregate annual payments under such lease or agreement
and under any related service or maintenance or similar
contract do not exceed $5,000; or
(xii) Assumed Contract that was not made in the Ordinary Course
of Business, consistent with past practice.
(r) NO DEFAULT UNDER AGREEMENTS. The Vendor is not in default or
breach of any Assumed Contract or other contract, agreement,
lease or other instrument relating to the Business to which it is
a party or by which it may be bound (including the contracts,
agreements, leases and other instruments referred to the
Disclosure Schedules) and there exists no state of facts that
after notice or the passage of time, or both, would constitute
such a default or breach, and all such contracts, agreements,
leases and other instruments are now in good standing and the
Vendor is entitled to all benefits, rights and privileges
thereunder.
(s) NON-ARM'S LENGTH TRANSACTIONS. With respect to the Business,
except as disclosed in Schedule 4.01(s) and except for contracts
of employment, consulting agreements and loans to the Vendor, the
Vendor is not a party to any contract or agreement with any
officer, director, employee, member or any Person not dealing at
arm's length (within the meaning of the Code) or any Affiliate of
any of the foregoing.
(t) LITIGATION. Except as set forth in Schedule 4.01(t), there is no
pending Proceeding, and, to the best of the Vendor's knowledge,
no Person has threatened to commence any Proceeding:
(i) that involves the Vendor or that otherwise relates or
likely would affect the Business or the Purchased Assets
(whether or not the Vendor is named as a party thereto);
or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise
interfering with, any of the Transactions.
28
<PAGE> 29
To the Vendor's knowledge, no event has occurred, and no
claim, dispute or other condition or circumstance exists, that
might directly or indirectly give rise to or serve as a basis for
the commencement of any such Proceeding.
To the best of the Vendor's knowledge, no officer or
Employee of the Vendor is subject to any Order that prohibits
such officer or Employee from engaging in or continuing any
conduct, activity or practice relating to the Business. There is
no proposed Order that, if issued or otherwise put into effect,
(i) may be reasonably likely to have an adverse effect on the
Purchased Assets or the Business, or the condition, assets,
liabilities, operations, financial performance, net income or
prospects of either thereof (or on any aspect or portion thereof)
or on the ability of the Vendor to comply with or perform any
covenant or obligation under any of the Transaction Agreements;
or (ii) may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the Transactions.
(u) EMPLOYEE AND LABOR MATTERS. Schedule 4.01(u) sets forth, with
respect to each employee of the Vendor (an "Employee") (including
any Employee who is on a leave of absence or on layoff status):
(i) the name of such Employee and the date as of which such
Employee was originally hired by the Vendor;
(ii) such Employee's title, and a description of such
Employee's duties and responsibilities;
(iii) the aggregate dollar amount of the compensation (including
wages, salary, commissions, director's fees, fringe
benefits, bonuses, profit sharing payments and other
payments or benefits of any type) received by such
Employee with respect to services performed for the Vendor
in 1998;
(iv) such Employee's annualized compensation as of the date of
this Agreement;
(v) each Employee Benefit Plan in which such Employee
participates or is eligible to participate;
(vi) any Governmental Authorization that is held by such
Employee and that relates to or is useful in connection
with the Vendor's business; and
(vii) any accrued pension, retirement, vacation, insurance,
option or other form of benefit plan or obligation to the
Employees prior to the Closing Date.
Except as provided in Schedule 4.01(u), the Vendor is
current in all of its payments to officers, directors, Employees
and agents of the Vendor for any wages, salaries, commissions,
bonuses and other compensation for any services performed by them
or amounts required to be reimbursed to such officers, directors,
employees or agents in connection with their services.
29
<PAGE> 30
To the best of the Vendor's knowledge, each Employee has received
all appropriate Governmental Authorizations under U.S.
immigration laws to accept employment with the Vendor.
The Vendor is not a party to or bound by, and has never been a
party to or bound by, any union contract, collective bargaining
agreement or similar Contract in connection with the Purchased
Assets or otherwise with respect to the Business.
The employment of each of the Employees, other than those with
disclosed employment or consulting agreements, is terminable by
the Vendor "at will". The Vendor has delivered to the Purchaser
accurate and complete copies of all current employee manuals and
handbooks, disclosure materials, policy statements and other
materials relating to the employment of such Employees.
Except as disclosed on Disclosure Schedule 4.01(u), to the
knowledge of the Vendor, in connection with the Business: (i) no
Employee intends to terminate his employment with the Vendor
(except as contemplated hereby) or to not accept employment with
the Purchaser; (ii) no Employee has received an offer to join a
business that may be competitive with the Vendor's business; and
(iii) no Employee of the Vendor is a party to or is bound by any
confidentiality agreement, noncompetition agreement or other
Contract (with any Person) that may have an adverse effect on (A)
the performance by such Employee of any of his duties or
responsibilities as an employee of the Vendor or the Purchaser,
or (B) the Vendor's or the Purchaser's business or operations.
The Vendor is not engaged, and has never been engaged, in any
unfair labor practice of any nature. There has never been any
slowdown, work stoppage, labor dispute or union organizing
activity, or any similar activity or dispute, affecting the
Vendor or any of its employees. There is not now pending, and, to
the knowledge of the Vendor, no Person has threatened to
commence, any such slowdown, work stoppage, labor dispute or
union organizing activity or any similar activity or dispute. To
the Vendor's knowledge, no event has occurred, and no condition
or circumstance exists, that might directly or indirectly give
rise to or provide a basis for the commencement of any such
slowdown, work stoppage, labor dispute or union organizing
activity or any similar activity or dispute.
(v) EMPLOYEE PLANS; ERISA. The Employee Manual of the Vendor attached
hereto as Schedule 4.01(v) sets forth all of the Vendor's
Employee Benefit Plans.
(i) No Employee Benefit Plan:
(A) provides or provided any benefit guaranteed by the
Pension Benefit Guaranty Corporation;
(B) is or was a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA; or
30
<PAGE> 31
(C) is or was subject to the minimum funding standards
of Section 412 of the Code or Section 302 of ERISA
other than a defined contribution plan disclosed in
Schedule 4.01(v).
(ii) There is no Person that (by reason of common control or
otherwise) is or has at any time been treated together
with the Vendor as a single employer within the meaning of
Section 414 of the Code.
(iii) The Vendor has made available to the Purchaser copies of
its material Employee Benefit Plans and all documents
relating to such Plans.
To the Vendor's knowledge, each Employee Benefit Plan is
being operated and administered in full compliance with the
provisions thereof, and each such Plan has at all times been
operated and administered in full compliance with the provisions
thereof. Each contribution or other payment that is required to
have been accrued or made under or with respect to any such
Employee Benefit Plan has been duly accrued and made on a timely
basis.
To the Vendor's knowledge, each Employee Benefit Plan
complies and is being operated and administered in full
compliance with, and each such Plan has at all times complied and
been operated and administered in full compliance with, all
applicable reporting, disclosure and other requirements of ERISA
and the Code and all other applicable Legal Requirements. The
Vendor has never incurred any Liability to the Internal Revenue
Service nor any other Governmental Body with respect to any
Employee Benefit Plan; and no event has occurred, and no
condition or circumstance exists, that might (with or without
notice or lapse of time) give rise directly or indirectly to any
such Liability. Neither the Vendor nor any Person that is or was
an administrator or fiduciary of any Employee Benefit Plan, has
engaged in any transaction or has otherwise acted or failed to
act in a manner that has subjected or may subject the Vendor to
any Liability for breach of any fiduciary duty or any other duty.
(w) COMPLIANCE WITH LAWS. Except as set forth in Schedule 4.01(w),
with respect to the Purchased Assets and the Business:
(i) the Vendor is in full compliance with each Legal
Requirement that is applicable to it or to the conduct of
its business or the ownership or use of any of its assets
except to the extent the failure to so comply is not
reasonably likely to have a material adverse effect;
(ii) to the Vendor's Knowledge, no event has occurred, and no
condition or circumstance exists, that might (with or
without notice or lapse of time) constitute or result
directly or indirectly in a violation by the Vendor of, or
a failure on the part of the Vendor to comply with, any
Legal Requirement; and
(iii) the Vendor has not received, at any time, any written
notice or other communication from any Governmental Body
or any other Person regarding (i) any actual, alleged,
possible or potential violation of, or
31
<PAGE> 32
failure to comply with, any Legal Requirement; or (ii) any
actual, alleged, possible or potential obligation on the
part of the Vendor to undertake, or to bear all or any
portion of the cost of, any cleanup or any remedial,
corrective or response action of any nature.
To the knowledge of the Vendor, with respect to the
Purchased Assets and the Business, no Governmental Body has
proposed or is considering any Legal Requirement that, if adopted
or otherwise put into effect, (i) would be reasonably likely to
have an adverse effect on the Business, the Purchased Assets or
the Vendor's business, condition, assets, liabilities,
operations, financial performance, net income or prospects, or on
the ability of the Vendor to comply with or perform any covenant
or obligation under any of the Transaction Agreements; or (ii)
may have the effect of preventing, delaying, making illegal or
otherwise interfering with any of the Transactions.
(x) PERMITS AND REGISTRATIONS.
(i) Schedule 4.01(x) identifies
(A) each Governmental Authorization and Permit that is
held by the Vendor that relates to or is useful in
connection with the Purchased Assets or the Business; and
(B) each other Governmental Authorization and Permit that,
to the knowledge of the Vendor, is held by any of the
Vendor's Employees and relates to or is useful in
connection with the Purchased Assets or the Business.
(ii) The Vendor has delivered to the Purchaser complete copies
of all of the Governmental Authorizations and Permits
identified in Schedule 4.01(x), including all renewals
thereof and all amendments thereto. Each Governmental
Authorization and Permit identified or required to be
identified in Schedule 4.01(x) is valid and in full force
and effect.
(iii) The Governmental Authorizations and Permits identified in
Schedule 4.01(x) constitute all of the Governmental
Authorizations necessary (i) to enable the Vendor to
conduct the Business in the manner in which such business
is currently being conducted and (ii) to permit the Vendor
to own and use its assets in the manner in which they are
currently owned and used.
(y) TAX MATTERS.
(i) The Vendor has (A) timely filed all Tax Returns and
reports for Taxes, including information returns, that are
required to have been filed in connection with, relating
to, or arising out of the Business or the Purchased
Assets, (B) paid all Taxes that are shown to have come due
pursuant to such returns or reports; and (C) paid all
other Taxes not required to be reported on returns in
connection with, relating to, or arising out of, or
imposed on the property of the Business or the Purchased
Assets
32
<PAGE> 33
for which a notice of assessment or demand for payment has
been received or which have otherwise become due.
(ii) All such returns or reports were complete and accurate in
all material respects at the time of filing and do not
contain a disclosure statement under Section 6662 of the
Code.
(iii) There are no unpaid Taxes with respect to a Pre-Closing
Period that are or could give rise to a lien on the
Business or the Purchased Assets, except for current Taxes
not yet due and payable.
(iv) There are no pending audits or, to the Vendor's knowledge,
threatened audits or assessments relating to Taxes with
respect to the Business or the Purchased Assets. There is
no unassessed Tax deficiency proposed or threatened
against the Vendor relating to or affecting the Business
or the Purchased Assets, nor is any action or proceeding
pending, or to the Vendor's knowledge threatened for
assessment, reassessment or collection of Taxes.
(v) None of the Purchased Assets (i) is property that is
required to be treated as owned by another Person pursuant
to the "safe harbor lease" provisions of former Section
168(f)(8) of the Code, (ii) is "tax-exempt use property"
within the meaning of Section 168(h) of the Code or (iii)
directly or indirectly secures any debt the interest on
which is tax-exempt under Section 103(a) of the Code.
(vi) The Purchaser is not required to withhold tax from the
Purchase Price by reason of Section 1445 of the Code or
similar provision of law of any state or municipality.
(z) CUSTOMERS AND SUPPLIERS. Schedule 4.01(z) sets out the major
customers (being those customers accounting for more than 80% of
sales for the period January 1, 1999 to September 30, 1999) and
suppliers of the Business and there has been no termination or
cancellation of, and, except as set forth on Schedule 4.01(z) no
modification or change in, the business relationship of the
Vendor with any major customer or group of major customers. The
Vendor has no reason to believe that the benefits of any
relationship with any of the major customers or suppliers of the
Business will not continue after the Closing Date in
substantially the same manner as prior to the date of the
Agreement.
(aa) INSURANCE. Schedule 4.01(aa) sets out all insurance policies held
by the Vendor in respect of the Purchased Assets or the Business,
including the name of the insurer, the risks insured against and
the amount of coverage. All such policies are in full force and
effect as of the date hereof.
(bb) NO LIABILITIES. Other than the Assumed Liabilities, there are no
liabilities of the Vendor, whether or not accrued and whether or
not determined or determinable, in respect of which the Purchaser
may become liable on or after the completion of the Transactions.
33
<PAGE> 34
(cc) SOLVENCY. The Vendor represents and warrants to the Purchaser
that the Purchase Price represents reasonably equivalent value
for the Purchased Assets and the Assumed Liabilities, and that,
upon consummation of the Closing, after giving effect to the
consummation of all of the Transactions, including, without
limitation, receipt of the payments to be made to the Vendor as
contemplated in this Agreement, the Vendor will not (i) be
insolvent (either because its financial condition is such that
that sum of its debts is greater than the fair value of its
assets or because the present fair saleable value of its assets
will be less than the amount required to pay its probable
liability on its debts as they become absolute and matured), (ii)
have unreasonably small capital with which to engage in its
business or (iii) have incurred or planned to incur debts beyond
its ability to pay as they become absolute and matured.
(dd) FULL DISCLOSURE. None of the Transaction Agreements or any
document or certificate delivered pursuant to any thereof
contains or will contain any untrue statement of fact, and none
of the Transaction Agreements or any document or certificate
delivered pursuant to any thereof omits or will omit to state any
fact necessary to make any of the representations, warranties or
other statements or information contained therein not misleading.
4.02 BY THE VENDOR.
(a) The Vendor represents and acknowledges that it is a sophisticated
investor with knowledge and experience in business and financial
matters, knows, or has had the opportunity to acquire, all
information concerning the business, affairs, financial condition
and prospects of IMSC and the Purchaser, which it deems relevant
to make a fully informed decision regarding the consummation of
the transactions contemplated hereby and is able to bear the
economic risk and lack of liquidity inherent in holding the
Common Stock. Without limiting the foregoing, the Vendor
understands and acknowledges that none of the Purchaser, IMSC or
anyone acting on its behalf has made any representations or
warranties other than those contained herein respecting IMSC and
the Purchaser, the future conduct of the business of IMSC and the
Purchaser, and the Vendor has not relied upon any representations
or warranties other than those contained herein in the belief
that they were made on behalf of IMSC and the Purchaser.
(b) The Vendor agrees, acknowledges and confirms that it has been
advised and understands as follows:
(i) The Vendor is acquiring the shares of Common Stock to be
issued for its own account and without a view to any
distribution or resale thereof, other than a distribution
or resale that, in the opinion of counsel for the Vendor
(which opinion shall be satisfactory in form and substance
to IMSC), may be made without violating the registration
provisions of the Securities Act of 1933, as amended (the
"1933 Act") or any applicable blue sky laws. The Vendor
acknowledges that the shares of Common Stock are
"restricted securities" within the meaning of Rule 144
under the 1933 Act and have not been registered under the
1933 Act or any state securities
34
<PAGE> 35
laws and thereafter must be held indefinitely unless they
are subsequently registered under the 1933 Act and
applicable blue sky laws or an exemption from such
registration is available. Subject to the terms and
conditions of the Registration Rights Agreement dated the
date hereof by and between the Vendor and IMSC (the
"Registration Rights Agreement"), IMSC is under no
obligation to register the shares of Common Stock under
the 1933 Act or any state securities law or to take any
action that would make available an exemption from such
registration.
(ii) There shall be endorsed on the certificates evidencing the
shares of Common Stock delivered pursuant to Section 2.03
and 2.05 subsequent to Closing a legend substantially
similar to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT") OR THE SECURITIES LAWS OF ANY OTHER
JURISDICTION AND ARE "RESTRICTED SECURITIES" AS DEFINED
BY RULE 144 UNDER THE 1933 ACT. THE SHARES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR DISTRIBUTED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
REGISTERING THE SHARES UNDER THE 1933 ACT AND THE
SECURITIES LAWS OF ANY STATE REQUIRING SUCH
REGISTRATION, OR IN LIEU THEREOF, AN OPINION OF
COUNSEL, WHICH OPINION IS SATISFACTORY TO THE ISSUER OF
THE SHARES, TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACTS. WITHOUT LIMITING THE
FOREGOING, THE SHARES MAY NOT BE SOLD WITHIN TWELVE
MONTHS AFTER THE DATE OF THIS CERTIFICATE WITHOUT AN
OPINION OF COUNSEL, WHICH OPINION IS SATISFACTORY TO
THE ISSUER, THAT SUCH SALE DOES NOT VIOLATE THE
CALIFORNIA CORPORATE SECURITIES LAW OF 1968, AS
AMENDED, OR THE RULES AND REGULATIONS THEREUNDER."
(iii) Except under certain limited circumstances, the above
restrictions on the transfer of the shares of Common Stock
will also apply to any and all shares of capital stock or
other securities issued or otherwise acquired with respect
to such shares, including, without limitation, shares and
securities issued or acquired as a result of any stock
dividend, stock split or exchange or any distribution of
shares or securities pursuant to any corporate
reorganization, reclassification or similar event.
(iv) IMSC and its transfer agent may refuse to effect a
transfer of any of the shares of Common Stock by the
Vendor or any of its successors, personal representatives
or assigns except in compliance with applicable securities
laws.
35
<PAGE> 36
4.03 BY THE PURCHASER AND IMSC. As a material inducement to the Vendor
to enter into this Agreement, each of the Purchaser and IMSC makes the following
representations and warranties:
(a) ORGANIZATION. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and has all necessary power and authority and has the
corporate power and capacity to enter into this Agreement and the
Transaction Agreements and to perform its obligations hereunder
and thereunder. IMSC is a corporation duly organized, validly
existing and in good standing under the laws of State of Nevada
and has all necessary power and authority to enter into this
Agreement and the Transaction Agreements and to perform its
obligations hereunder and thereunder.
(b) AUTHORIZATION AND EXECUTION. Each of the Purchaser and IMSC,
respectively, has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under this
Agreement and all other agreements, certificates and instruments
contemplated to be executed and delivered by the Purchaser and
IMSC, respectively, in connection with this Agreement, including,
without limitation, the Transaction Agreements to which either
the Purchaser or IMSC is or may become a party. The execution,
delivery and performance by each of the Purchaser and IMSC of
this Agreement and such other agreements, certificates and
instruments have been duly authorized by all necessary action on
the part of their respective boards of directors and officers.
Each of this Agreement and such other agreements, certificates
and instruments constitutes, or upon execution and delivery will
constitute, the legal, valid and binding obligations of the
Purchaser and IMSC, enforceable against the Purchase and IMSC,
respectively, in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency and other laws affecting
the rights of creditors generally and except that equitable
remedies may be granted only in the discretion of a court of
competent jurisdiction.
(c) NO CONTRAVENTION. Neither the entering into of this Agreement,
the purchase of the Purchased Assets nor the performance by the
Purchaser or IMSC of any of its other obligations under this
Agreement or the Transaction Agreements to which it is a party
will contravene, breach or result in any default under the
articles, by-laws, or other organizational documents of the
Purchaser or IMSC, as the case may be, or under any mortgage,
lease, agreement, other legally binding instrument, license,
permit, statute, regulation, order, judgment, decree or law to
which it is a party or by which it may be bound.
(d) CONSENTS AND APPROVALS. No authorization, consent or approval of,
or filing with or notice to, any governmental agency, regulatory
body, court or other Person is required in connection with the
execution, delivery or performance of this Agreement or the
Transaction Agreements to which the Purchaser or IMSC is a party
by the Purchase or IMSC or the purchase of any of the Purchased
Assets hereunder.
36
<PAGE> 37
(e) STATUS OF COMMON STOCK. The shares of Common Stock, when issued
pursuant to the terms of this Agreement, will be duly authorized,
validly existing and outstanding, fully paid and non-assessable.
(f) IMSC'S SEC FILINGS. IMSC's report on Form 10-SB, as amended and
filed on July 16, 1999, does not contain a misstatement of
material fact or fail to state a material fact required to be
stated therein or necessary to make the statements made therein
not misleading as of the date such filing was made other than (i)
an overstatement of goodwill and (ii) the failure to disclose
certain stock options. IMSC is presently responding to a comment
letter from the SEC with respect to such Form 10-SB, as amended,
and will file a further amended Form 10-SB in response to such
comments. Since July 16, 1999, the following constitute
undisclosed material facts:
(i) the working capital ratio of IMSC has improved from 1:1 at
March 31, 1999 to 1.1:1 at September 30, 1999.
(ii) shareholder's equity in IMSC has improved from Canadian
$3.9 million at March 31, 1999 to Canadian $12.2 million
at September 30, 1999.
(iii) The financial position of IMSC as at the date hereof is no
worse than September 30, 1999.
(iv) IMSC has, through its subsidiary International Menu
Solutions, Inc. ("IMSI"), issued special warrants for an
aggregate consideration of Canadian $7 million.
(v) IMSI purchased all of the issued and outstanding shares of
The Ultimate Cookie Co., Inc.
4.04 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and obligations of the Vendor and the Purchaser hereunder
and under the Transaction Agreements shall remain in full force and effect,
shall survive (without limitation) the Closing and shall continue until the
later of (a) December 31, 2001 to the extent that the Vendor elects to receive
the 2001 Final Payment pursuant to Section 2.05(c) or (b) December 31, 2002 to
the extent that the Vendor elects to receive the 2002 Final Payment pursuant to
Section 2.05(e).
ARTICLE 5
EMPLOYEES OF THE BUSINESS
5.01 PROFESSIONAL SERVICES AGREEMENT. As of the date hereof, the
Vendor and the Purchaser shall have executed that certain Professional Services
Agreement (the "Professional Services Agreement") providing for all of the
Vendor's Employees to remain the Employees of the Vendor after the Closing Date
up to and including December 31, 1999.
37
<PAGE> 38
ARTICLE 6
COVENANTS OF PARTIES
6.01 PURCHASER TO MAINTAIN BOOKS AND RECORDS OF VENDOR. The Purchaser
agrees that it will preserve the books and records of the Business and the
Purchased Assets received from the Vendor on the Closing Date for a period of
six (6) years from the Closing Date, or for such longer period as is required by
applicable law. The Purchaser agrees to permit the Vendor or its authorized
representatives reasonable access thereto in connection with the affairs of the
Vendor relating to matters contained in the books and records. The Vendor agrees
that the Purchaser is not responsible or liable to the Vendor for or as a result
of any accidental loss or destruction of or damage to any such books or records.
6.02 COVENANTS OF THE PURCHASER AND IMSC. During the period from the
Closing Date until the later of December 31, 2001 or December 31, 2002 dependent
on when the Purchase Price has been finally determined pursuant to Section 2.05,
each of the Purchaser and IMSC agree and covenant as follows:
(a) as of January 1, 2000, all Employees in the sales and finance
departments of the Vendor who have performed their work to the
satisfaction of the Purchaser from November 1, 1999 through
December 31, 1999, will be re-hired by the Purchaser, with the
exception of Vicki Huxtable;
(b) the integration of financial departments of IMSC and the
Purchaser shall be completed as the Purchaser and IMSC shall
determine in their sole and absolute discretion;
(c) the Purchaser shall maintain the research and development program
of the Vendor substantially as structured and operated by the
Vendor as of the Closing Date with certain variations as required
by the Purchaser for reasonable business purposes;
(d) if and to the extent that IMSC adopts procedures to streamline
its program development, the home meal replacement program
development procedures of the Purchaser will be streamlined with
those of IMSC;
(e) that Cliff Marquart will become the President of the Purchaser as
of the Closing Date with responsibility for (i) business
development in the United States, (ii) assisting Michael Steele
on selected new financing initiatives and United States
acquisitions as set forth in Section 6.02(g) below and (iii) for
the Purchaser's overall operations;
(f) the right of the Vendor to one designated person to have the
right to attend, as an observer, meetings of the board of
directors of IMSC, subject to execution of a customary
confidentiality agreement, and one seat on the management
advisory board during the period to and including the earlier of
December 31, 2001 or December 31, 2002 dependent on when the
Purchase Price has been finally determined pursuant to Section
2.05;
(g) that IMSC will use its best efforts to make available to the
Purchaser an aggregate amount of $15,000,000 ("Acquisition
Capital") representing the total cost for all
38
<PAGE> 39
operating business purchases including consideration in cash,
stock or in kind. The cost of the Acquisition Capital will be 15%
per annum. Such amount will permit the Purchaser, in the sole and
absolute discretion of IMSC, to pursue operating business
acquisition opportunities in the United States that are
synergistic with the Purchaser's product lines, management and
internal management support and will assist the Purchaser in
fully utilizing the Leased Property. Such amounts shall be
advanced from time to time as acquisitions are identified and
approved; provided, however, that the Purchaser shall not be
permitted to make any acquisition without the prior written
consent of the board of directors of the IMSC; and
(h) that, subject to all securities regulations and Legal
Requirements, IMSC and the Purchaser will each provide quarterly
and annual audited financial statements to the Vendor within
sixty (60) days of the end of each quarter and within ninety (90)
days of the end of each year, respectively. The obligation of
IMSC and Purchaser under this Section 6.02(h) shall expire upon
the receipt by the Vendor of the Final Payment.
6.03 COVENANTS OF VENDOR. The Vendor covenants and agrees not to make
any disposition of all or any portion of the Common Stock received under this
Agreement or any other Transaction Agreements unless and until:
(a) there is then in effect a Registration Statement under the 1933
Act covering such proposed disposition and such disposition is
made in accordance with such Registration Statement; or
(b) the Vendor shall have notified the Purchaser and IMSC of the
proposed disposition and shall have furnished the Purchaser and
IMSC with a detailed statement of the circumstances surrounding
the proposed disposition, and if reasonably requested by IMSC,
the Vendor shall have furnished the Purchaser and IMSC with an
opinion of counsel, reasonably satisfactory to the Purchaser and
IMSC that such disposition will not require registration of such
shares under the 1933 Act. It is agreed that neither the
Purchaser nor IMSC will require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual
circumstances.
6.04 INSURANCE. On the request and at the expense of the Purchaser,
the Vendor will use its reasonable efforts promptly after the Closing Date to
cause the insurance policies of the Vendor to be endorsed to provide that the
Purchaser is an additional named insured on each of such policies.
The Purchaser shall have the right to have the Policies assigned to the
Purchaser at January 1, 2000 so long as arrangements reasonably acceptable to
the Vendor are established to insure that its coverage for claims arising from
incidents, acts or omissions prior to January 1, 2000 is not adversely affected.
6.05 CHANGE OF VENDOR'S NAME. The Vendor agrees to deliver to the
Purchaser no later than November 30, 1999, a copy of a certificate of amendment
changing the Vendor's name to a name that does not include "Huxtable's" or any
similar name, certified by the Secretary of
39
<PAGE> 40
State of the State of Delaware.
ARTICLE 7
CLOSING
7.01 PLACE AND TIME OF CLOSING. The Closing shall take place at the
offices of Locke, Liddell & Sapp at 2600 Chase Tower, Houston, Texas, as soon as
practicable after all of the obligations set forth in Section 8 have been
satisfied (or waived in accordance therewith), or on such other date or at such
other place or time as the Purchaser and the Vendor may mutually agree.
7.02 EFFECTIVENESS. The transactions contemplated by this Agreement to
be taken at the Closing shall be effective for accounting purposes as of the
opening of business on November 1, 1999 and all references herein to the Closing
Date shall be as of the close of business on the Closing Date.
7.03 CLOSING OBLIGATIONS OF THE VENDOR. Unless not required by the
Purchaser, at or prior to the Closing the Vendor shall deliver to the Purchaser
and IMSC:
(a) possession of all of the books and records related to the
Business, which will remain at the Leased Property;
(b) possession of all of the Purchased Assets, which insofar as they
are tangible will remain at the Leased Property;
(c) Disclosure Schedule;
(d) evidence of payment in full of the secured indebtedness of the
Vendor on the Closing Date from the proceeds of the Initial Cash
Payment or otherwise;
(e) all documents of title relating to the Purchased Assets;
(f) each of the Consents, filings and notices identified in Schedule
4.01(e) or otherwise required to effect the Transactions;
(g) originals or copies of all Assumed Contracts;
(h) each of the agreements and documents contemplated to be delivered
by or entered into by the Vendor at the Closing in connection
with or pursuant to this Agreement, including each of the
Transaction Agreements, duly executed by the Vendor, in form and
substance satisfactory to the Purchaser and Purchaser's counsel;
(i) resolutions (in form satisfactory to the Purchaser) of the
Vendor's managers and its members, as applicable, approving the
Transactions and the consummation of the Transactions, and the
execution and delivery of this Agreement and the Transaction
Agreements;
40
<PAGE> 41
(j) officer's certificate in form and substance satisfactory to the
Purchaser and Purchaser's counsel;
(k) such other documents as the Purchaser may request in good faith
for the purpose of (i) evidencing the accuracy of any
representation or warranty made by the Vendor, (ii) evidencing
the compliance by the Vendor with, or the performance by the
Vendor of, any covenant or obligation set forth in this
Agreement, (iii) evidencing the satisfaction of any condition set
forth in this Section 7, or (iv) otherwise facilitating the
consummation or performance of any of the Transactions.
7.04 CLOSING OBLIGATIONS OF THE PURCHASER. Unless not required by the
Vendor, at or prior to the Closing the Purchaser shall deliver to the Vendor or,
in the case of the Escrow Funds, the Escrow Agent:
(a) the Initial Cash Payment;
(b) the Escrow Funds;
(c) each of the agreements and documents contemplated to be delivered
or entered into by the Purchaser and/or IMSC, as the case may be,
at the Closing pursuant to or in connection with this Agreement,
including each of the Transaction Agreements, duly executed by
the Purchaser and/or IMSC party thereto in form and substance
satisfactory to Vendor and Vendor's counsel;
(d) officer's certificate in form and substance satisfactory to the
Vendor and Vendor's counsel;
(e) resolutions (in form satisfactory to the Vendor) of the
Purchaser's board of directors approving the Transactions and the
consummation of the Transactions, and the execution and delivery
of this Agreement and the Transaction Agreements;
(f) such other documents as the Vendor may request in good faith for
the purpose of (i) evidencing the accuracy of any representation
or warranty made by the Purchaser and IMSC, (ii) evidencing the
compliance by the Purchaser and IMSC with, or the performance by
the Purchaser and IMSC of, any covenant or obligation set forth
in this Agreement, (iii) evidencing the satisfaction of any
condition set forth in this Section 7, or (iv) otherwise
facilitating the consummation or performance of any of the
Transactions.
7.05 PASSAGE OF TITLE; RISK OF LOSS. Legal and equitable title and
risk of loss with respect to all of the Purchased Assets shall pass to the
Purchaser on transfer of such assets at the Closing.
7.06 INSTRUMENTS OF CONVEYANCE. At the Closing, the Vendor shall (at
its own expense) execute and deliver to the Purchaser such bills of sale,
endorsements, assignments and other good and sufficient instruments of transfer,
conveyance and assignment (in each case in a form reasonably satisfactory the
Purchaser) and shall take such other actions as may be necessary
41
<PAGE> 42
or as the Purchaser may reasonably require in order to transfer title to the
Purchased Assets to the Purchaser on Closing. Simultaneously therewith, the
Vendor shall take all steps necessary to put the Purchaser in possession and
operating control of the Purchased Assets.
7.07 ACCOUNTS RECEIVABLE. The Vendor agrees the Purchaser shall have
the right after the Closing to endorse all payments received by the Purchaser in
respect of any of the Trade Accounts Receivable in the name of the Purchaser and
to deposit the same into the Purchaser's bank accounts. The Vendor shall deliver
at the Closing such resolutions or other documents as the Purchaser may
reasonably request in order to permit the implementation of the provisions of
this Section.
7.08 FURTHER ASSURANCES, ETC. In addition to the Trade Accounts
Receivable as set forth in Section 7.07, the Vendor shall, at any time and from
time to time after the Closing, and upon the request of the Purchaser, (i) do,
execute, acknowledge and deliver, and cause to be done, executed, acknowledged
or delivered, all such further acts, deeds, transfers, conveyances, assignments,
powers of attorney or assurances as may be reasonably required to transfer,
assign, convey and grant to the Purchaser all of the Purchased Assets in
accordance with the terms hereof, and (ii) take such other actions as the
Purchaser may reasonably request in order to carry out the intent of this
Agreement. The Vendor shall take any and all reasonable actions that may be
necessary to prevent any Person from having recourse against any of the
Purchased Assets or against the Purchaser as transferee thereof with respect to
any Liabilities that are not assumed.
7.09 BULK SALES. The parties acknowledge that neither of them plans to
comply with the requirements of any applicable bulk sales laws. Notwithstanding
the foregoing, the Vendor agrees that the Purchaser has not waived any right to
indemnification that it may have against the Vendor with respect to any Damages
as a result of claims against the Purchased Assets resulting from failure to
comply with any applicable bulk sales laws.
7.10 POWER OF ATTORNEY. The Vendor hereby irrevocably constitutes and
appoints the Purchaser, effective as of the Closing, as such party's true and
lawful attorney, with full power of substitution, in such party's name and
stead, but on behalf and for the benefit of the Purchaser, to demand and receive
any and all of the Purchased Assets and Assumed Liabilities, and to give
receipts and releases for and in respect of the same, and any part thereof, and
from time to time to prosecute in its name, or otherwise, for the benefit of the
Purchaser, any and all proceedings at law, in equity or otherwise, which the
Purchaser may deem proper for the collection or reduction to possession of any
of the business, properties or assets comprising the Purchased Assets and
Assumed Liabilities or for the collection and enforcement of any claim or right
of any kind hereby assigned, granted, transferred, or set over. Notwithstanding
the foregoing, the Vendor shall have no obligation to reimburse the Purchaser
for costs incurred in connection with exercising this power of attorney unless
the Vendor has been given a reasonable opportunity to take actions to accomplish
the same purpose; provided, this sentence shall not be construed as limiting the
Vendor's indemnification obligations to the Purchaser, as set forth in
Section 9.
ARTICLE 8
[INTENTIONALLY OMITTED]
42
<PAGE> 43
ARTICLE 9
INDEMNIFICATION
9.01 INDEMNIFICATION BY VENDOR. The Vendor shall hold harmless and
indemnify each of the Purchaser's Indemnitees from and against, and shall
compensate and reimburse each of the Purchaser's Indemnitees for, any Damages
that are directly or indirectly suffered or incurred by any of the Purchaser's
Indemnitees or to which any of the Purchaser's Indemnitees may otherwise become
subject at any time (regardless of whether or not such Damages relate to any
third party claim) and which arise directly or indirectly from or as a direct or
indirect result of, or are directly or indirectly connected with:
(a) any Breach of any representation or warranty made by the Vendor
in this Agreement or any of the Transaction Agreements; provided
that no Indemnitee shall have any right to indemnification with
respect to any such Breach if the Purchaser or IMSC knew of such
Breach on or prior to the Closing and failed to advise the Vendor
of such Breach;
(b) any Breach of any covenant or obligation of the Vendor under this
Agreement or any of the Transaction Agreements;
(c) any Liability to which any of the Indemnitees may become subject
and that arises directly or indirectly from or relates directly
or indirectly to (i) any product provided, or any service
performed, by or on behalf of the Vendor on or at any time prior
to the Closing Date, (ii) any severance, termination or similar
benefits afforded to the Vendor's Employees, including, without
limitation, any such Liability to the Vendor's Employees who are
not hired by the Purchaser; (iii) any pension, retirement,
insurance, option or other form of benefit plan of the Vendor or
relating to the Vendor's Employees relating to periods prior to
the Closing Date not included in the Assumed Liabilities; (iv)
any employment agreement between the Vendor and its Employees;
(v) the presence on or at any time prior to the Closing Date of
any Hazardous Material introduced by Vendor or allowed to be
introduced by Vendor, at, on, in, under or from, any site owned,
leased, occupied or controlled by the Vendor; or (vi) the
generation, manufacture, production, transportation, importation,
use, treatment, refinement, processing, handling, storage,
discharge, release or disposal of any Hazardous Material (whether
lawfully or unlawfully) by or on behalf of the Vendor on or at
any time prior to the Closing Date;
(d) any Liability to which any of the Indemnitees may become subject
and that arises directly or indirectly from or relates directly
or indirectly to claims against the Purchased Assets resulting
from failure to comply with any applicable bulk sales laws with
respect to the sale of the Business;
(e) any payment received by the Vendor to the extent that any portion
of said payment is in satisfaction of an obligation that is, in
accordance with the terms of this Agreement or any of the
Transaction Agreements, properly payable to Purchaser; and
43
<PAGE> 44
(f) all Liabilities and all other obligations of any nature
whatsoever retained, undertaken or assumed by the Vendor under or
in connection with this Agreement or in any of the Transaction
Agreements.
9.02 INDEMNIFICATION BY PURCHASER. Each of the Purchaser and IMSC
shall hold harmless and indemnify the Vendor's Indemnitees from and against, and
shall compensate and reimburse the Vendor's Indemnitees for, any Damages which
are directly or indirectly suffered or incurred by the Vendor's Indemnitees or
to which the Vendor's Indemnitees may otherwise become subject at any time
(regardless of whether or not such Damages relate to any third party claim) and
which arise directly or indirectly from or as a direct or indirect result of, or
are directly or indirectly connected with:
(a) any Breach of any representation or warranty made by the
Purchaser and/or IMSC in this Agreement or any of the Transaction
Agreements; provided, that no Vendor's Indemnitee shall have any
right to indemnification with respect to any such Breach if the
Vendor knew of such Breach on or prior to the Closing and failed
to advise the Purchaser of such Breach;
(b) any Breach of any covenant or obligation of the Purchaser and/or
IMSC under this Agreement or any of the Transaction Agreements;
(c) any Breach by the Purchaser of its obligations under any Assumed
Contract or the Assumed Liabilities, provided such Breach occurs
after the Closing Date; or
(d) any Liability to which the Vendor may become subject and that
arises directly or indirectly from or relates directly or
indirectly to the Purchased Assets or Assumed Liabilities.
9.03 LIMITATIONS ON AMOUNT.
(a) No party shall have any liability (for indemnification
obligations or otherwise) until the total of all Damages with
respect to such matters exceeds $25,000 and then only for the
amount by which such Damages exceeds $25,000. It is understood
and agreed that the foregoing basket claim amount will be
calculated on an aggregate basis, will not apply to a
claim-by-claim basis and does not apply to the payment of amounts
from the Escrow Funds pursuant to Section 2.04(c).
(b) Subject to Section 9.01(f), the obligations of the Vendor to
provide indemnity to the Purchaser's Indemnitees hereunder shall
be solely paid from and shall not exceed the total Earnout
Payments unpaid to the Vendor at the time that the Purchaser's
Indemnitee brings an indemnification claim or gives to the Vendor
notice of a potential claim.
(c) In the event that the Purchaser or IMSC has notified the Vendor
in writing of any claim or notice of a potential claim for which
it is entitled to seek indemnity hereunder, the Purchaser shall
be entitled to withhold from future Earnout Payments and pay into
trust with an unrelated mutually agreed third-party escrow agent,
or if the Vendor and the Purchaser cannot agree, Montreal Trust,
(pursuant to a mutually agreed escrow agreement) an amount in
cash equal to the Purchaser's reasonable estimate of the
potential Damages or Losses for which it
44
<PAGE> 45
may be entitled to obtain indemnification hereunder. In the event
that any amount is withheld from any future Earnout Payment which
is to be made in shares of Common Stock as determined in
accordance with Section 2.05, such amount shall nonetheless be
withheld in cash, and any payments therefrom to the Purchaser or
IMSC, as the case may be, or remittances to the Vendor therefrom,
shall be made in cash. The cash held in escrow shall be invested
and reinvested as directed by the Vendor and shall be released
from escrow only upon the joint instruction of the Vendor and the
Purchaser or pursuant to the order of a court or arbitrator.
(d) All indemnification payments to be made by the Vendor shall be
deducted from Earnout Payments received as part of the Purchase
Price. The Initial Cash Payment and, except to the extent
contemplated by Section 2.04(c), the Escrow Funds shall not be
subject to any indemnity or other claims of Purchaser's
Indemnitees.
(e) The Purchaser's obligation to provide indemnification to the
Vendor hereunder shall not exceed the amount of the Initial Cash
Payment.
(f) Except in cases of fraud, each of the Vendor, the Purchaser and
IMSC acknowledges that its sole and exclusive remedy after the
Closing with respect to any and all Damages or Losses relating to
this Agreement and any Transactions contemplated herein shall be
pursuant to the indemnification provisions set forth in this
Article 9, and in furtherance of the foregoing, each of the
Vendor, the Purchaser and IMSC hereby waives, from and after the
Closing, any and all rights, claims and causes of action it may
have against any other party or its Indemnitees (except in cases
of fraud or the indemnification provisions set forth in this
Article 9).
9.04 INTEREST. Any party that is required to indemnify any other
Person pursuant to this Article 9 with respect to any Damages shall also be
required to pay such other Person interest on the amount of such Damages (for
the period commencing as of the date on which such Damages were paid by such
other Person and ending on the date on which the applicable indemnification
payment is made by such party) at the rate of interest provided by applicable
law.
9.05 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Proceeding (whether against the
Purchaser, the Vendor, any other Indemnitee or any other Person) with respect to
which a party hereto may become obligated to indemnify, hold harmless,
compensate or reimburse another party or any Indemnitee pursuant hereto, the
party to be indemnified (or, in the case of an Indemnitee or other Person being
indemnified by the Vendor, the Purchaser) (in either case, the "Indemnified
Party") shall, within thirty (30) days following the date on which the
Indemnified Party first becomes aware of the assertion or commencement of such
claim or Proceeding, notify the party or the parties providing the
indemnification hereunder (the "Indemnifying Party") of such claim or
Proceeding. The Indemnifying Party shall assume the defense of such claim or
Proceeding, at the sole expense of the Indemnifying Party and shall proceed as
follows:
(a) the Indemnifying Party shall proceed to defend such claim or
Proceeding in a diligent manner with counsel reasonably
satisfactory to the Indemnified Party;
45
<PAGE> 46
(b) the Indemnified Party shall make available to the Indemnifying
Party any non-privileged documents and materials in the
possession of the Indemnified Party that may be necessary to the
defense of such claim or Proceeding;
(c) the Indemnifying Party shall keep the Indemnified Party informed
of all material developments and events relating to such claim or
Proceeding;
(d) the Indemnified Party shall have the right to participate in the
defense of such claim or Proceeding at its sole expense; and
(e) the Indemnifying Party shall not settle, adjust or compromise
such claim or Proceeding without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably
withheld.
If the Indemnifying Party does not assume the defense of such claim or
Proceeding in a timely manner, the Indemnified Party may proceed with
the defense of any such claim or Proceeding on its own, in which case
the following shall apply:
(i) all reasonable expenses relating to the defense of such
claim or Proceeding incurred by the Indemnified Party
shall be borne and paid exclusively by the Indemnifying
Party;
(ii) the Indemnifying Party shall make available to the
Indemnified Party any non-privileged documents and
materials in the possession or control of the Indemnifying
Party that may be necessary to the defense of such claim
or Proceeding; and
(iii) the Indemnified Party shall keep the Indemnifying Party
informed of all material developments and events relating
to such claim or Proceeding.
ARTICLE 10
GENERAL
10.01 CONFIDENTIALITY. On and at all times after the date of this
Agreement:
(a) except to the extent required by law, or following consultation
with the other party, neither party nor any of its
Representatives shall issue or disseminate any press release or
other publicity or otherwise make any disclosure of any nature
(to any of their suppliers, customers, landlords, creditors,
employees, or any other person other than Vendor's members)
concerning any of the Transactions, and the parties shall keep
the existence and terms of this Agreement and the other
Transaction Agreements strictly confidential;
(b) the Vendor shall keep strictly confidential, and shall not use,
or disclose to any other Person, any non-public document or other
information that relates directly or indirectly to the Business,
the Purchaser or any Affiliate thereof, including, without
limitation, personnel information, secret processes, know-how,
customer lists and their technical or business information
included in the Purchased Assets; and
46
<PAGE> 47
(c) neither party nor any of its Representatives shall make any
negative, disparaging, disruptive or damaging statements,
comments or remarks to any third party with respect to the other
party, the Purchased Assets or the Business, either as conducted
by the Vendor or as conducted by the Purchaser.
10.02 PUBLIC NOTICES. The Purchaser may make such disclosure with
respect to the closing of the Transactions as it may reasonably determine is
appropriate and shall use reasonable efforts to give prior oral or written
notice to the Vendor, and if prior notice is not possible, to give notice
immediately following the making of such disclosure.
10.03 EXPENSES. Each of the Vendor and the Purchaser shall be
responsible for the expenses (including fees and expenses of legal advisers,
accountants and other professional advisers) incurred by them, respectively, in
connection with the negotiation and settlement of this Agreement and the
completion of the Transactions.
10.04 ENUREMENT AND ASSIGNMENT. This Agreement shall be binding upon
the Vendor and its successors and assigns (if any), IMSC and its successors and
assigns (if any), and the Purchaser and its successors and assigns (if any).
This Agreement shall inure to the benefit of the Vendor, IMSC, the Purchaser,
the parties' Indemnitees, and the respective successors and assigns (if any) of
the foregoing. The Purchaser may freely assign any or all of its rights under
this Agreement (including its indemnification rights under Section 9), in whole
or in part, to any other Person, including, without limitation, any Affiliate or
Subsidiary thereof, without obtaining the consent or approval of any other party
hereto or of any other Person.
10.05 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law. .
10.06 ENTIRE AGREEMENT. This Agreement and the Transaction Agreements
(including Schedules and Exhibits thereto) set forth the entire understanding of
the parties relating to the subject matter thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter thereof.
10.07 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on
the part of any Person in exercising any power, right, privilege
or remedy under this Agreement, shall operate as a waiver of such
power, right, privilege or remedy; and no single or partial
exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other
power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of such Person;
and
47
<PAGE> 48
any such waiver shall not be applicable or have any effect except
in the specific instance in which it is given.
10.08 AMENDMENT. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of the Purchaser and the Vendor.
10.09 TIME OF ESSENCE. Time shall be of the essence of this Agreement.
10.10 NOTICES.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be delivered in
person, transmitted by telecopy or similar means of recorded
electronic communication or sent by registered mail, charges
prepaid, addressed as follows:
if to the Purchaser:
International Menu Solutions USA, Inc.
c/o International Menu Solutions Inc.
350 Creditstone Drive
Concord, Ontario, Canada L4K 3Z2
Fax No. (416) 614-6870
Attention: Michael A. Steele, President
with a copy to:
McCarter Grespan Robson Beynon
675 Riverbend Drive
Kitchener, Ontario, Canada N2K 3S3
Fax No. (519) 742-1841
Attention: Thomas D. Beynon
if to the Vendor:
Huxtable's Foods, L.L.C.
c/o Yellowstone Capital, Inc.
1100 Louisiana, Suite 5005
Houston, Texas 77002
Attention: Omar A. Sawaf.
Telecopier No.: (713) 650-0055
and
48
<PAGE> 49
c/o Austin Ventures
Norwood Tower, 13th Floor
114 West 7th St.
Austin, Texas 78701
Attention: Blaine Wesner
Telecopier No.: (512) 485-1995
with a copy to:
Locke Liddell & Sapp LLP
2600 Chase Tower
600 Travis
Houston, Texas 77002
Attention: Gene G. Lewis
Telecopier No.: (713) 223-3717
Any such notice or other communication shall be deemed to have been given and
received on the day on which it was delivered or transmitted (or, if such day is
not a Business Day, on the next following Business Day) or, if mailed, on the
third Business Day following the date of mailing; provided, however, that if at
the time of mailing or within three Business Days thereafter there is or occurs
a labor dispute or other event that might reasonably be expected to disrupt the
delivery of documents by mail, any notice or other communication hereunder shall
be delivered or transmitted by means of recorded electronic communication.
Any party may at any time change its address for service from time to time by
giving notice to the other parties in accordance with this Section 10.10.
10.11 FURTHER ASSURANCES. Each of the parties shall promptly do, make,
execute, deliver, or cause to be done, made, executed or delivered, all such
further acts, documents and things as the other party hereto may reasonably
require from time to time for the purpose of giving effect to this Agreement and
shall use reasonable efforts and take all such steps as may be reasonably within
its power to implement to their full extent the provisions of this Agreement.
10.12 GOVERNING LAW, VENUE.
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of
laws).
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement
may be brought or otherwise commenced in any state or federal
court located in the County of Los Angeles, California. Each
party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in
the County of Los Angeles (and each appellate court
located in the State of California) in connection with any
such legal proceeding;
49
<PAGE> 50
(ii) agrees that each state and federal court located in the
County of Los Angeles, California shall be deemed to be a
convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any
state or federal court located in the County of Los
Angeles, California, any claim that such party is not
subject personally to the jurisdiction of such court, that
such legal proceeding has been brought in an inconvenient
forum, that the venue of such proceeding is improper or
that this Agreement or the subject matter of this
Agreement may not be enforced in or by such court.
10.13 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties agree that:
(a) in the event of any Breach or threatened Breach by the such party
of any covenant, obligation or other provision set forth in this
Agreement, the non-breaching party shall be entitled (in addition
to any other remedy that may be available to it) to (i) a decree
or order of specific performance or mandamus to enforce the
observance and performance of such covenant, obligation or other
provision, and (ii) an injunction restraining such Breach or
threatened Breach; and
(b) no party shall be required to provide any bond or other security
in connection with any such decree, order or injunction or in
connection with any related action or Proceeding.
10.14 COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and all of which taken together shall constitute one and the same agreement.
10.15 FACSIMILE. This Agreement may be transmitted by facsimile or
other electronic transmission and the reproduction of signatures will be deemed
to be original and legally binding.
10.16 ADJUSTMENTS. In the event of any stock splits, stock dividends,
combinations or similar actions with respect to the Common Stock, any values in
this Agreement expressed as dollars per share of Common Stock, including those
in Section 2.05(a) and 2.05(h), shall be appropriately adjusted.
50
<PAGE> 51
IN WITNESS WHEREOF the parties hereto have executed this agreement.
INTERNATIONAL MENU SOLUTIONS
USA, INC.
By:
------------------------
Name:
----------------------
Title:
---------------------
INTERNATIONAL MENU SOLUTIONS
CORPORATION
By:
------------------------
Name:
----------------------
Title:
---------------------
HUXTABLE'S FOODS, L.L.C.
By:
------------------------
Name:
----------------------
Title:
---------------------
51
<PAGE> 1
MENU LAUNCHES U.S. ACQUISITION PROGRAM
INTERNATIONAL MENU SOLUTIONS COMPLETES FIRST U.S.
ACQUISITION ACQUIRING HUXTABLE'S KITCHENS
Kitchener, Ontario, Nov 19, 1999 -- International Menu Solutions Corporation
(OTCBB: MENU) announced today that it has now completed the acquisition of
substantially all of the assets and the ongoing business of Huxtable's Kitchens,
L.L.C., a private food processor based in Los Angeles, California, for a
combination of USD $3.0 million in cash and common shares of IMSC. Specific
details pertaining to the stock portion of the transaction were not disclosed,
but with Huxtable's current revenues annualized at approximately USD $14.5
million (CDN $22 million) the transaction has an estimated contractual purchase
earnout value in excess of USD $10 million (CDN $15 million).
"This acquisition will provide "MENU" with its first U.S.-based production
facility, as well as a strong regional brand presence in the western United
States retail food market," said Michael Steele, President and Chief Executive
Officer of IMSC. Steele noted that the acquisition will open up access to a vast
new customer base in the U.S., such as Vons and Ralphs Supermarkets, Costco and
specialty retailer Trader Joe's allowing IMSC the opportunity to penetrate these
chains with more than 100 of its other unique fresh and frozen entrees and full
meal solutions. Huxtable's manufactures and markets fully cooked fresh and
frozen meals under the "Huxtable's Kitchens" brand to major west coast
supermarkets and club store formats.
In conjunction with this acquisition, IMSC will be filling several key
management positions to execute its U.S. strategy. Huxtable's CEO, Cliff
Marquart, will assume the role of President in IMSC's new U.S. operating
subsidiary. In addition, Huxtables 60,000 S.F. USDA facility will provide IMSC
with additional production capacity to meet the demands of its growing U.S.
customer base in the arena of prepared entrees and associated home meal
replacement products.
With the completion of the Huxtable transaction, IMSC expects to see annualized
revenues increasing 25-30% to approximately USD $55 million (CDN $75-$80
million).
IMSC operates in the rapidly growing sector of the food industry known as Home
Meal Replacement (HMR) food preparation and marketing. Since July 1998, "MENU"
has grown through several fully-completed acquisitions and the market share
expansion of its product lines with several leading food retail chains. The
company's clients include many of Canada's leading retail food supermarket
chains such as Sobeys, Safeway, Costco (in Canada and the U.S.) and A&P, along
with several major U.S. supermarket and club store chains. IMSC has intentions
to expand sales of HMR products in the U.S. retail marketplace. As a result,
calendar 1999 revenues are up by about 700% from revenues as of year-end 1998.
For further information on Huxtable's product line and management team, access
the company's website at www.huxtables.com.
The statements contained in this release, if not historical, are forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, and involve risks and uncertainties that could cause actual results to
differ materially from the financial results described in such forward looking
statements. Actual results could differ materially from those contemplated by
the forward-looking statements as a result of certain factors, including, but
not limited to: competitive factors and pricing pressures; relationships with
its manufacturers and distributors; legal and regulatory requirements; and
general economic conditions. Further, any forward looking statement or
statements speak only as of the date on which such statement was made, and IMSC
undertakes no obligation to update any forward looking statement or statements
to reflect events or circumstances after the date on which such statement is
made or to reflect the occurrence of unanticipated events. Therefore,
forward-looking statements should not be relied upon as a prediction of actual
future results.
For further information contact Michael Steele, President, at 416-366-MENU, ext.
236, e-mail: [email protected].
