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1
Exhibit Index at Page 22
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 (date of earliest event reported): August 3, 1998
Genesee Corporation
(Exact Name of Registrant as Specified in Charter)
New York 0-1653 16-0445920
(State or other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
445 St. Paul Street, Rochester, New York 14605
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 546-1030
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Item 2. Acquisition or Disposition of Assets.
(a) On August 3, 1998, the Genesee Corporation (the "Corporation") completed the
acquisition of (i) all of the capital stock of TKI Foods, Inc. ("TKI Foods")
from the shareholders of TKI Foods, Richard V. Maiocco, Linda M. McEntee and H.
L. Maiocco (the "Shareholders"); and (ii) certain equipment, inventory, accounts
receivable, product lines and other assets from Spectrum Foods, Inc. ("Spectrum
Foods"), an affiliate of TKI Foods. The Corporation paid at the closing a total
of $18,760,000, subject to customary post-closing adjustments, for the TKI Foods
capital stock and Spectrum Foods assets. In addition, the Corporation will pay
up to $1 million to certain of the Shareholders over a period of two years based
on an earn-out formula. The purchase price for TKI Foods and Spectrum Foods was
determined by using a multiple of the projected future earnings of TKI Foods and
Spectrum Foods. The Corporation funded $8,760,000 of the purchase price from its
cash reserves, with the balance of the purchase price being funded with the
proceeds of a loan from Marine Midland Bank, N.A.
(b) The acquisition of TKI Foods included all of the equipment, inventory and
other physical property used in the business of TKI Foods, except for real
estate, buildings and building fixtures. TKI Foods is engaged in the business of
producing artificial sweeteners and other dry food products that are sold under
private label to retail food store chains located primarily in the United
States. The equipment, inventory, accounts receivable and product lines of
Spectrum Foods that were acquired by the Corporation are used in the business of
producing a limited line of food products for private label distribution in the
United States. The Corporation intends to integrate and continue the business of
TKI Foods and Spectrum Foods as part of its Foods Division.
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Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial Statements of Business Acquired.
INDEPENDENT AUDITOR'S REPORT
Board of Directors
TKI Foods, Inc. and Spectrum Foods, Inc.
Springfield, Illinois
We have audited the accompanying combined balance sheets of TKI Foods, Inc. and
Spectrum Foods, Inc. as of December 31, 1997, and the related combined
statements of income, changes in stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Companies management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the TKI Foods, Inc. and Spectrum Foods, Inc.
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of TKI Foods,
Inc. and Spectrum Foods, Inc. as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/ s / Sikich Gardner and Co. LLP
Springfield, Illinois
March 4, 1998
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FINANCIAL STATEMENTS
TKI FOODS, INC. AND SPECTRUM FOODS, INC.
COMBINED BALANCE SHEETS
December 31, 1997
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ASSETS
CURRENT ASSETS
Cash $ 122,917
Trade accounts receivable - net of allowance
for doubtful accounts of $60,354 1,627,001
Inventories 1,860,478
Other 62,195
Deferred income taxes 117,855
Total current assets 3,790,446
PROPERTY, PLANT AND EQUIPMENT
Land 93,000
Building and improvements 1,788,530
Equipment 4,954,732
Automobiles 105,663
Furniture and fixtures 161,594
Leasehold improvements 133,191
Less allowance for depreciation and
amortization (4,049,566)
Property, plant and equipment - net 3,187,144
OTHER ASSETS
Package design costs, net of amortization of $168,849 174,446
Goodwill, net of amortization of $24,420 108,793
Organization costs, net of amortization of $140 260
Product line, net of amortization of $1,074,340 2,506,793
Total other assets 2,790,292
TOTAL ASSETS $9,767,882
</TABLE>
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 460,000
Current portion of long-term debt 986,320
Current portion of long-term debt-related party 25,395
Trade accounts payable 1,501,622
Income taxes payable 142,539
Accrued payroll and payroll taxes 253,186
Other accrued expenses 263,767
Total current liabilities 3,632,829
LONG-TERM LIABILITIES
Deferred income taxes 108,403
Long-term debt, net of current portion 3,321,668
Long-term debt - related party, net of current portion 164,056
Total long-term liabilities 3,594,127
STOCKHOLDERS' EQUITY
Preferred stock, TKI Foods, Inc. - 50,000 shares authorized,
10,000 shares issued and outstanding 500,000
Common stock, TKI Foods, Inc. - 40,000 shares authorized,
13,140 shares issued and outstanding 10,603
Common stock, Spectrum Foods, Inc. - 1,000,000 shares
authorized, 707,433 shares issued and outstanding 2,750
Additional paid-in capital 127,748
Retained earnings 1,899,825
Total stockholders' equity 2,540,926
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $9,767,882
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TKI FOODS, INC. AND SPECTRUM FOODS, INC.
COMBINED STATEMENTS OF INCOME
For the Year Ended December 31, 1997
INCOME FROM SALES
Revenue earned $20,996,535
COST OF PRODUCTS SOLD 13,995,315
GROSS PROFIT 7,001,220
SELLING, ADMINISTRATIVE AND GENERAL
EXPENSES 5,267,594
INCOME FROM OPERATIONS 1,733,626
OTHER INCOME (EXPENSE)
Interest income 16,604
Interest expense (537,831)
Other expense (623)
Other income 98,320
Other, net (423,530)
NET INCOME BEFORE PROVISION FOR INCOME TAXES 1,310,096
PROVISION FOR INCOME TAXES (490,050)
NET INCOME $ 820,046
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TKI FOODS, INC. AND SPECTRUM FOODS, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1997
Balance Net Balance
12/31/96 Income 12/31/97
Preferred Stock
TKI Foods, Inc. $ 500,000 $ - $ 500,000
Common Stock
TKI Foods, Inc. 10,603 - 10,603
Common Stock
Spectrum Foods, Inc. 2,750 - 2,750
Additional Paid-In
Captital 127,748 - 127,748
Retained Earnings $ 1,079,779 $ 820,046 $ 1,899,825
Total $ 1,720,880 $ 820,046 $ 2,540,926
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TKI FOODS, INC. AND SPECTRUM FOODS, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 820,046
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 564,618
Disposal of package design 1,675
Deferred taxes 127,732
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (322,335)
(Increase) decrease in refundable
income taxes 40,577
(Increase) decrease in inventories and
other assets 108,046
Increase (decrease) in accounts payable
and other accrued liabilities 316,147
Net cash provided by operating activities 1,656,506
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (344,418)
Purchase of other asset (67,056)
Net cash (used) by investing activities (411,474)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term and long-term debt 4,827,932
Payments of short-term and long-term debt (5,966,351)
Net cash (used) by financing activities (1,138,419)
INCREASE IN CASH AND CASH EQUIVALENTS 106,613
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 16,304
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 122,917
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TKI FOODS, INC. AND SPECTRUM FOODS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
TKI Foods, Inc. and Spectrum Foods, Inc. are food
manufacturers that conduct business throughout the United
States and internationally. Both Companies' headquarters
are located in Springfield, Illinois. The Companies are
related through common ownership.
Principles of Combined Statements
The accompanying financial statements include the accounts
of TKI Foods, Inc. and Spectrum Foods, Inc. All significant
intercompany transactions have been eliminated in the
combined financial statements.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three
months or less when purchased are considered to be "cash
equivalents".
Allowance for Doubtful Accounts
The allowance for doubtful accounts is calculated using
prior bad debt experience and takes into account customer
receivables that are over ninety days old.
Inventories
Inventories are valued at the lower of cost, determined by
the first-in, first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The
Company depreciates its property, plant and equipment using
accelerated and straight-line methods, based on the
estimated useful lives of the assets.
Other Assets
Goodwill is being amortized over a period of forty years on
a straight-line basis.
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TKI FOODS, INC. AND SPECTRUM FOODS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - Continued
1. SIGNIFICANT ACCOUNTING POLICIES - Continued
Other Assets - Continued
Package design costs are being amortized over a period of
five years on a straight-line basis.
The product line is being amortized over a period of fifteen
years on a straight-line basis.
Income Taxes
Deferred taxes are provided in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Deferred taxes are provided for accumulated
temporary differences due to basis differences in assets and
liabilities for financial reporting and income tax purposes,
including alternative minimum taxes. The Company's
temporary differences are due to accelerated depreciation,
differences in the recognition of net operating losses for
financial reporting and income tax purposes, and expenses
not currently deductible.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
2. INVENTORIES
Inventories consisted of the following:
Ingredients $ 287,102
Package materials 687,808
Work in process 209,610
Finished goods 675,958
$ 1,860,478
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TKI FOODS, INC. AND SPECTRUM FOODS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - Continued
3. NOTE PAYABLE
At December 31, 1997, TKI Foods, Inc. has a $1,500,000
revolving line of credit of which $460,000 was in use. The
credit line interest rate was 9.5% and is secured by
inventory and receivables.
4. CAPITAL LEASES
The Companies have acquired a portion of their production
equipment and computer equipment through capital lease
agreements. Amortization of leased property is included in
depreciation. The Companies have the option to purchase
leased plant equipment at the end of the lease for 10% of
the lease value.
The following is a schedule of equipment under capital lease:
December 31, 1997
Production and computer equipment $ 79,940
Less accumulated depreciation 16,805
$ 63,135
Liabilities related to the capital leases have been included
in long-term debt.
5. OPERATING LEASES
During 1997, TKI Foods, Inc. entered into operating leases
on trucks and trailers. The lease terms for this equipment
are from 1 to 4 years. TKI Foods, Inc. does have the option
to turn in some of the trucks after the initial 18 months of
the lease term has lapsed, with 6 months written notice of
their intent to do so. The terms of the lease also allows
for backhaul revenue, of which 100% of the net revenue will
be paid to TKI Foods, Inc.
During 1997 rental expense approximated $52,000. Future
minimum lease payments at December 31, 1997 are as follows:
1998 $90,951
1999 $82,020
2000 $82,020
2001 $34,175
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TKI FOODS, INC. AND SPECTRUM FOODS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - Continued
6. LONG-TERM DEBT
Long-term debt consisted of the following:
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Mortgage note payable to individual in monthly installments of
$5,000 including interest at prime plus 1% (9.50% at
Dec. 31, 1997) until paid in full (secured by real estate
of TKI Foods, Inc.) $ 177,956
Note payable requiring monthly installments totaling $339
including interest at 8.5% maturing in 1998 (secured by automobile
of TKI Foods, Inc.) 1,660
Mortgage note payable to bank in monthly installments of $2,367
including interest at 10% to March 2009 (secured by real estate
of TKI Foods, Inc.) 191,416
Various capital leases requiring monthly installments of approximately
$2,000 including interest from 8% to 12% maturing from 1998
to 2001 (secured by equipment of TKI Foods and Spectrum Foods, Inc.) 22,175
Note payable to bank with interest at 9%. Beginning October 15,
1995, monthly installments of $51,367, refinanced November 15,
1997 at which time the terms required monthly installments of
$51,387, balance due December 13, 1999 (secured by all property
and equipment, inventory, accounts receivable and personal
guarantee of a stockholder of TKI Foods, Inc.) 2,754,727
Note payable to bank requiring monthly installments totaling
$5,602 including interest at 9% to July 1999 (secured by
all property and equipment, inventory, accounts receivable
of TKI Foods, Inc.) 200,363
Note payable requiring monthly installments totaling $2,381
including interest at 8.75%, due in July 2000 (secured by
property and equipment, inventory, accounts receivable of
TKI Foods, Inc.) 188,095
Note payable requiring monthly installments totaling $2,892
including interest at 8.5%, due August 2000 (secured by
property and equipment, inventory, accounts receivable of
TKI Foods, Inc.) 25,316
</TABLE>
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TKI FOODS, INC. AND SPECTRUM FOODS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - Continued
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6. LONG-TERM DEBT - Continued
Unsecured note payable to YSEI, Inc., a company affiliated
through common ownership. Requires principal payments
of $2,504 per month including interest at approximately
9.5% to April 1999 $ 35,412
Note payable to stockholder of TKI Foods, Inc. secured by equipment,
principal and interest payments of $2,100 monthly, including
interest at 9.5%, due December, 2000 65,563
Note payable to seller of business product line requiring monthly
payments of 32% of the proceeds from sales of the products
covered by the purchase agreement. Such monthly payments
are applied to quarterly payments required by the purchase
agreement, which are $200,000 per quarter through June 30, 1998,
including interest imputed at 12% 382,694
Note payable to individual. Note is secured by the personal
guarantee of a stockholder. The note requires monthly payments
of $1,612 including interest at 5% due August, 2000 48,201
Note payable to bank in monthly installments of $3,465 including
interest at 9% due October, 2004. Note is secured by assets of
the Company as well as a personal guarantee of a stockholder of
Spectrum Foods, Inc. 214,410
Total 4,307,988
Less current portion 986,320
Long-term debt, net $ 3,321,668
</TABLE>
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TKI FOODS, INC. AND SPECTRUM FOODS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - Continued
6. LONG-TERM DEBT - Continued
Aggregate maturities of long-term debt are as follows:
Years Ending December 31,
1998 $ 986,320
1999 2,678,721
2000 314,289
2001 76,146
2002 48,055
Thereafter 204,457
Total $ 4,307,988
7. RELATED PARTY TRANSACTIONS
Intercompany Loan
On June 15, 1995, TKI Foods, Inc. extended a loan to Spectrum Foods, Inc.
in the amount of $275,738. The note provides for monthly payments of
$3,451.23, including interest at 9% and matures in 2005. At December 31,
1997, the loan balance was $189,451 including the current portion of
$25,395. Due to the previously poor financial condition of Spectrum, TKI
Foods, Inc. has reserved the entire balance of the note on their financial
statements at December 31, 1997. Due to the inconsistent treatment of this
loan by each company, this transaction was not eliminated in the combined
financial statements presented.
Line of Credit
TKI Foods, Inc. has extended a line of credit of $100,000 to Spectrum
Foods, Inc. At December 31, 1997, there were no advances against this line
of credit.
8. INCOME TAXES
Provision (benefit) for income taxes consisted of the following:
Spectrum
TKI Foods, Inc. Foods, Inc.
Current $ 362,318 $ -
Deferred 99,704 28,028
$ 462,022 $ 28,028
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TKI FOODS, INC. AND SPECTRUM FOODS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - Continued
8. INCOME TAXES - Continued
The provision for income taxes for TKI Foods, Inc. was calculated at a rate
of 40%. The provision for income taxes of Spectrum Foods, Inc. was
calculated at a rate of 21%. These rates approximate the combined Federal
and State income tax rate of each Company.
The net deferred tax (liability) consists of the following:
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Spectrum
TKI Foods, Inc. Foods, Inc.
Current portion:
Deferred tax assets arising from:
Temporary differences:
Accrued vacation $ 53,236 $ -
Allowance for doubtful accounts 23,056 -
Inventory adjustments 41,563 -
Total current deferred tax asset 117,855 -
Noncurrent portion:
Deferred tax asset arising from:
Allowance for related party accounts
receivable 77,968 -
Net operating loss carryforward (starts to
expire in 2005, fully expiring in 2008) - 193,846
Deferred tax liabilities arising from:
Temporary differences - depreciation
expense (372,501) (7,716)
Total noncurrent deferred tax
asset (liability) (294,533) 186,130
Net deferred tax asset (liability) $ (176,678) $ 186,130
</TABLE>
9. EXPANSION PROJECT EXPENSES
Beginning in 1996, TKI Foods, Inc. and the City of Springfield, Illinois
initiated discussions regarding the City providing financing incentives for
the Company to expand their operations in Springfield, Illinois. However,
the City and the Company were unable to reach an agreement. The Company
incurred significant legal and professional fees related to this project.
The expenses for the year ended 1997 were $58,982. These expenses are
included in selling, general, and administrative expenses in the combined
statement of operations.
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TKI FOODS, INC. AND SPECTRUM FOODS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - Continued
10. RETIREMENT PLANS
In 1985 both Companies established a discretionary, noncontributory profit
sharing plan covering substantially all full-time employees. The Companies
made a $65,000 contribution for the year ended December 31, 1997.
In 1989 both Companies established a 401(K) pension plan in which
substantially all full-time employees are eligible to participate. The
plans are contributory and funding consists of a 25% match of each
employee's contribution. Matching contributions for the year ended December
31, 1997 were $33,659.
11. STOCKHOLDERS' EQUITY
TKI Foods, Inc. has authorized and issued nonvoting preferred stock. The
preferred stock has a par value of $50 per share and these shares must be
redeemed prior to any distributions or redemption of any other stock. At
December 31, 1997, 50,000 shares were authorized with 10,000 shares issued
and outstanding.
The common stock of TKI Foods, Inc., no par value, has voting rights and
rights to periodic dividends subject to limitations noted above. At
December 31, 1997, 40,000 shares were authorized with 13,140 shares issued
and outstanding.
The common stock of Spectrum Foods, Inc. has no par value. At December 31,
1997, 1,000,000 shares were authorized with 707,433 shares outstanding.
12. CONCENTRATION OF CREDIT RISK
TKI Foods, Inc. and Spectrum Foods, Inc. maintain cash balances in one
financial institution located in Springfield, Illinois. These balances are
insured by the Federal Deposit Insurance Corporation up to $100,000. At
December 31, 1997, uninsured balances held at this institution totaled
$435,001.
13. CASH FLOW INFORMATION
Net cash from operating activities reflects cash payments for interest and
income taxes. Cash payments for interest and income taxes for the year
ended December 31, 1997 were as follows:
December 31, 1997
Interest paid $ 564,906
Income taxes paid $ 178,056
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KI FOODS, INC. AND SPECTRUM FOODS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - Continued
14. OTHER MATTERS
TKI Foods, Inc. and Spectrum Foods, Inc., like most owners of computer
software, will be required to modify significant portions of their software
so that it will function properly in the year 2000. Management believes the
software vendors will provide these modifications at no cost. The Companies
are also addressing the ability of certain equipment to function properly
in the year 2000. Management estimates the ultimate cost of ensuring
software and equipment will function properly in the year 2000 will not be
significant.
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(b) Pro Forma Financial Information
The following unaudited pro forma consolidated balance sheet and statement of
earnings have been prepared to illustrate the effect of the acquisitions by the
Corporation of TKI Foods and Spectrum Foods under the purchase method of
accounting.
The pro forma consolidated balance sheet assumes that the acquisitions were
consummated on May 2, 1998. The pro forma consolidated statement of earnings
assumes that the acquisitions were consummated on May 4, 1997. The TKI Foods and
Spectrum Foods combined financial statements utilized in preparing the pro forma
consolidated balance sheet and the pro forma consolidated statements of earnings
are for the twelve months ended March 31, 1998. The pro forma adjustments, and
the assumptions on which they are based, are described in the accompanying Notes
to the Pro Forma Financial Statements.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of operating results or financial position that would
have occurred if the acquisitions had been consummated as of the date indicated,
nor is it necessarily indicative of future operating results or financial
position. No effect has been given in the pro forma statement of earnings for
synergies that may be realized through the acquisitions. For purposes of
developing the pro forma balance sheet, the Corporation's assets and liabilities
have been recorded at their estimated fair values based upon a preliminary
allocation of purchase price. Adjustments will be made during the allocation
period based on a detailed review of the fair value of assets and liabilities
acquired.
These pro forma combined financial statements should be read in conjunction with
the historical consolidated financial statements and the related notes of the
Corporation, which were previously reported on the Corporation's 1998 Annual
Report to Shareholders on Form 10-K and the audited consolidated financial
statements and related notes of TKI Foods and Spectrum Foods for the year ended
December 31, 1997 included in Item 7(a) of this Form 8-K.
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Genesee Corporation, TKI Foods, Spectrum Foods
Pro Forma Balance Sheet
May 2, 1998
Historical Information
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TKI Foods &
Genesee Spectrum Combined Pro-Forma
Corporation Combined Pro-Forma See Combined
March 31, 1998 Adjustments Notes
Assets
Current Assets:
Cash and cash equivalents 2,692 17 (4) (3) 2,705
Marketable Securities available for sale 17,808 0 (8,760) (1) 9,048
Trade accounts receivable, net of allowances 10,163 1,424 (37) (3) 11,550
Inventories, at lower of cost (FIFO) or market 14,258 2,038 (47) (3) 16,249
Deferred income tax assets 1,315 312 (194) (3) 1,433
Other current assets 683 50 (8) (3) 725
Total current assets 46,919 3,841 (9,050) 41,710
Net property,plant and equipment 33,311 3,187 (709) (2 & 3) 5,789
Investment in and notes receivable from
unconsolidated real estate partnerships 5,534 0 0 5,534
Investment in direct financing and
leveraged leases 34,638 0 0 34,638
Goodwill and other intangibles, net 10,737 2,572 13,332 (2 & 3) 6,641
Other assets 4,450 185 (5) (3) 4,630
Tota1 assests 35,589 9,785 3,568 148,942
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt 0 504 (504) (2) 0
Note Payable 0 540 10,000 (1) 10,540
Accounts payable 8,358 1,685 (5) (3) 10,038
Income taxes payable 692 107 0 799
Federal and state beer taxes pay 1,756 0 0 1,756
Accrued expenses and other 7,255 435 298 (2 & 7) 7,988
Total current assets 18,061 l3,271 9,789 31,121
Deferred income tax liabilities 9,295 302 (8) (3) 9,589
Long-term debt, net of current portion 0 3,456 (3,456) (2 & 3) 0
Accrued post-retirement benefits 15,415 0 0 15,415
Other liabilities 471 0 0 471
Tota lliabilites 43,242l 7,029 6,325 56,596
Minority interests in consolidated subsidiaries 2,227 0 0 2,227
Common Stock 858 13 (13) (2) 858
Preferred Stock 500 (500) (2) 0
Additional paid-in-capital 5,842 128 (128) (2) 5,842
Retained earnings 86,143 2,115 (2,116) (2 & 3) 86,142
Unrealized gain on marketable securities,
net of tax 752 0 0 752
Treasury Stock (3,475) 0 0 (3,475)
Total Shareholders' equity 90,120 2,756 (2,757) 90,119
Total liabilities and shareholders' equity 135,589 9,785 3,568 148,942
</TABLE>
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Genesee Corporation, TKI Foods, Spectrum Foods
Pro Forma Consolidated Statement of Earnings
For Twelve Months Ending May 2, 1998
(Unaudited)
Historical Information
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Genesee TKI Foods &
Corporation Spectrum Pro-Forma See Pro Forma
Combined Adjustments Notes Combined
Net Revenues 154,093 21,371 175,464
Cost of goods sold 118,435 14,190 50 (4) 132,675
Gross Profit 35,658 7,181 (50) 42,789
Selling, general and administrative
expense 36,346 5,223 775 (5) 42,344
Operating Income/(loss) (688) 1,958 (825) 445
Investment income 3,728 34 (876) (6) 2,886
Interest expense 0 (524) (636) (7) (1,160)
Other income/(expense) 73 93 0 166
Minority interests in earnings of
subsidiaries (804) 0 0 (804)
Earnings before income taxes 2,309 1,561 (2,337) 1,533
Income taxes 974 617 45 1,636
Net Earnings 1,335 944 (2,382) (103)
Basic Earnings per Share $ 0.83 $ (0.06)
Diluted Earnings per Share $ 0.82 $ (0.06)
Average Shares Outstanding
Basic 1,617,962
Diluted 1,622,069
</TABLE>
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Notes to Pro Forma Financial Statements
1. Represents $18,760,000 consideration for the purchase of TKI Foods and
Spectrum Foods. The acquisition was initially financed with $8,760,000 of cash
generated from the liquidation of marketable securities held by the Corporation
and the balance of $10,000,000 was borrowed on a short term note from Marine
Midland Bank, N.A.
2. Represents the elimination of historical equity amounts for net assets
acquired, the preliminary allocation of the total purchase price to identified
tangible and intangible assets and liabilities based on their relative fair
values, and the resulting goodwill of approximately $13,000,000. Additionally,
liabilities assumed will include an accrual for approximately $375,000 for
restructuring costs primarily to eliminate duplicate activities of the acquired
entities.
3. Represents an adjustment to eliminate assets and liabilities included in
historical financial statements which were not acquired as part of this
acquisition.
4. Represents an adjustment to record incremental depreciation expense on
acquired fixed assets based on the preliminary asset valuation.
5. Represents incremental amortization expense of goodwill and intangibles
assets based on the preliminary asset valuation. The $13,000,000 in goodwill is
being amortized straight line over 25 years.
6. Represents foregone earnings on the $8,760,000 in marketable securities that
would have otherwise been earned had the investments not been liquidated to fund
this acquisition.
7. Represents additional interest expense associated with the acquisition debt.
The short term borrowing rate is LIBOR based yielding a current interest rate of
6.36%.
In addition to the expenses reported on the pro forma statement of earnings, the
Corporation anticipates that it will incur integration expenses related to the
combining of TKI Foods and Spectrum Foods into the Corporation. These expenses
were not included in the purchase price allocation or determination of goodwill
as they do not meet the criteria for accrual as established under EITF Issue
#95-3. Such expenses will be incurred in remainder of fiscal 1999.
(c) Exhibits.
Exhibits filed with this report are identified in the Exhibit Index at Page 22.
Schedules and exhibits to the exhibits filed with this report are omitted. The
Corporation agrees to furnish a copy of any omitted schedule or exhibit upon
request by the Securities and Exchange Commission.
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.
Genesee Corporation
Date: August 18, 1998 By /s/Mark W. Leunig
Mark W. Leunig, Vice President
and Secretary
<PAGE>
22
Exhibit Index
Page
Exhibit 2-1 Stock Purchase Agreement Dated July 20, 1998 23
Exhibit 2-2 Asset Purchase Agreement Dated July 20, 1998 48
<PAGE>
23
Exhibit 2.1
STOCK PURCHASE AGREEMENT
This Agreement is made and entered into as of the 20th day
of July 1998, by and between GENESEE CORPORATION, a New York
corporation, having its principal place of business at 445 St.
Paul Street, Rochester, New York 14605 ("Buyer"), RICHARD V.
MAIOCCO ("R. Maiocco"), LINDA M. MCENTEE ("McEntee") and H. L.
MAIOCCO ("A. Maiocco") (hereinafter sometimes referred to
individually as "Shareholder" or collectively as the
"Shareholders").
Whereas, TKI FOODS, INC. ("the Company") is engaged in the
manufacture, sale and distribution of artificial sweeteners and
other dry and wet food products; and
Whereas, the Shareholders own all of the issued and
outstanding common and preferred shares of stock of the Company
("Shares"); and
Whereas, the Shareholders desire to sell and Buyer desires
to purchase all of the Shares.
Now, therefore, in consideration of the promises and of the
mutual covenants and agreements contained herein, the parties
hereto represent, warrant, covenant and agree as follows:
Article I
Purchase and Sale of Shares; Real Estate
1.01 Purchase and Sale of Shares. On the terms and
subject to the conditions contained herein, at the Closing
(defined below), the Shareholders shall sell, transfer, convey,
assign and deliver to Buyer the Shares and Buyer shall purchase
the Shares.
1.02 Purchase of Real Estate. Immediately prior to the
Closing, the Shareholders shall purchase from the Company, by
quit claim deed and bill of sale signed and dated the day before
the Closing Date, the Company's real property and buildings
located in Springfield, Illinois and Decatur, Illinois (the
"Facilities") for a purchase price equal to the Fair Market Value
of the Facilities as set forth on Schedule 1.02 attached hereto
and made a part hereof as of the Closing Date (the "Facilities
Value"). If the Facilities Value exceeds the book value of the
Facilities on the March Balance Sheet as defined in Section 2.01,
the gain from the sale of the Facilities will not be included in
the Projected Balance Sheet, Initial Closing Date Balance Sheet
or Closing Date Balance Sheet. Concurrent with the purchase by
the Shareholder of the Facilities, the Shareholders shall
purchase from the Company certain of the equipment identified as
Springfield Building Equipment on Schedule 1.02 to be designated
by the Shareholders (the "Springfield Equipment") at the net book
value of such equipment on the March Balance Sheet as defined in
Section 2.01 hereof. Concurrent with the purchase by the
Shareholders of the Facilities, the Company shall assign to the
Shareholders, and the Shareholders shall accept and assume, all
of the Company's rights, interests and obligations under: (a) the
Lease between NUDO Products, Inc. and the Company's successor in
interest, Thompson Kitchens, Inc., dated March 7, 1990 (or, in
the alternative, the Company shall terminate said lease prior to
the Closing Date without liability to the Company); (b) all
agreements between George Alarm Company, Inc. and the Company for
the installation, maintenance and rental of alarms, security and
other security and protective systems and services for the
Facilities; and (c) all agreements between the Company and any
third party relating to the maintenance or service of any of the
Springfield Equipment (all of the foregoing collectively referred
to as the "Springfield Contracts"). Such transfer of the
Facilities shall be on terms and conditions, and pursuant to such
documents and agreements, as are mutually acceptable to
Shareholders, Buyer and the Company, it being agreed that the
transfer will be made without any representations or warranties,
and without recourse to the Company. All costs, fees and taxes
incurred or to be incurred by the Company in connection with such
transfer shall be listed as a liability on the Closing Date
Balance Sheet or otherwise applied to reduce the net book value
of the Company on the Closing Date.
1.03 Lease of Real Estate. The Company shall lease the
Springfield facility from the Shareholders after the Closing Date
pursuant to the lease described in Section 5.01(c), and the
Company shall have the right to occupy the Decatur facility at no
cost for a period of two (2) weeks after the Closing Date for
transition purposes.
<PAGE>
24
Article II
Purchase Price
2.01 Purchase Price. The purchase price for the Shares
shall be $18,376,263 plus the Facilities Value plus the amount of
any "Net Worth Surplus", as defined below, or minus any "Net
Worth Deficiency", as defined below, plus the Additional Payments
(as defined in Section 2.02) ("Purchase Price"). "Net Worth
Surplus" and "Net Worth Deficiency' respectively shall mean the
amount by which the net book value of the Company reflected on
the Closing Date Balance Sheet (as defined in Section 2.03(a)),
less the Facilities Value exceeds or is less than, as the case
may be, the net book value of the Company, less the Facilities
Value, on the Company's March 31, 1998 financial statements, a
copy of which are attached hereto and made a part hereof as
Exhibit A (collectively the 'March Balance Sheet").
2.02 Projected Balance Sheet; Manner of Payment.
(a) At least three (3) business days before the
Closing Date, the Company shall prepare a projected balance
sheet, at its sole cost, showing a good-faith estimate of the
financial condition of the Company as of the Closing Date, taking
into account the balance on the Closing Date of all Non-Retained
Liabilities as defined below, and which shall include: (i) a
reserve for income taxes payable by the Company; (ii) accrual for
enhanced severance benefits offered by the Company, other than
those identified in the Severance Letter; (iii) all reasonable
expenses of the Company in connection with the sale of the
Facilities or the closing of the transactions contemplated by
this Agreement; and (iv) any income tax benefit attributable to
any of the foregoing, all of the foregoing being subject to
approval by Buyer at the Closing ("Projected Balance Sheet").
The Company shall permit the Buyer access to and copies of all
work papers used in preparing the Projected Balance Sheet. The
Company shall retain only those liabilities of the Company
reflected on the March Balance Sheet and liabilities since the
date of the March Balance Sheet incurred in the ordinary course
of business except that the Company shall not retain any bank
indebtedness, capital lease obligations, and notes payable shown
on the March Balance Sheet including without limitation the
liabilities of the Company set forth on Schedule 2.02(a),or
incurred after the date of the March Balance Sheet (collectively,
the "Non-Retained Liabilities"). Shareholders shall cause the
Company to be fully and unconditionally released from such
indebtedness, obligations and notes on the Closing Date. The
items set forth on Schedule 2.02(a) shall in no way limit or
qualify the representations and warranties set forth in Sections
6.06, 6.07 and 6.08 of this Agreement. At such time as the
Company determines the Projected Balance Sheet, the Company shall
also determine the amount of the projected Net Worth Surplus
("Projected Net Worth Surplus") or the amount of the projected
Net Worth Deficiency based upon the Projected Balance Sheet
("Projected Net Worth Deficiency"), as the case may be, and
provide Buyer written notice of such Projected Net Worth Surplus
or Projected Net Worth Deficiency, as the case may be, which
shall be subject to Buyer's reasonable approval.
(b) On the Closing Date, Buyer shall pay to the
Shareholders $18,376,263 plus an amount equal to the Projected
Net Worth Surplus or minus an amount equal to the Projected Net
Worth Deficiency, as the case may be plus the Facilities Value,
less the sum of $1,000,000 to be held in escrow pursuant to
Article Ill below, by wire transfer of immediately available
funds to an account designated by each Shareholder in writing to
Buyer prior to the Closing Date. Each of the Shareholders shall
receive the amounts reflected on Schedule 2.02(b) hereto. For
purposes of this Agreement, the "Proportionate Share" of each
Shareholder shall be as follows: Richard V. Maiocco - 50.54%,
Linda McEntee - 49.46% and H. L. Maiocco - 0%.
(c) In addition, the Buyer shall pay to R. Maiocco and
McEntee additional payments, if any, ("Additional Payments") in
accordance with the terms of Schedule 2.02(c) attached hereto and
made a part hereof ("Additional Payments Schedule").
2.03.Post Closing Adjustment. The Purchase Price shall be
adjusted in accordance with this Section 2.03:
(a) After the Closing, Buyer shall cause the Company
to prepare a balance sheet as of the Closing Date, a copy of
which shall be provided to the Shareholders ("Initial Closing
Date Balance Sheet"). Buyer has retained the services of
PricewaterhouseCoopers, LLP ("PW") to conduct a review of the
Projected Balance Sheet and Initial Closing Date Balance Sheet
(such review not to include the Company's amortization or
depreciation schedules) as of the Closing Date, to be commenced
within 15 days after Closing and completed, and a report thereon
delivered to the Shareholders, within 75 days after Closing. All
<PAGE>
25
fees and expenses of PW incurred in this capacity shall be billed
to and paid by Buyer. The Shareholders and Company shall make
all of the workpapers and other relevant documents in connection
with the preparation of the Projected Balance Sheet available to
Buyer, its representatives and PW, and shall make the persons in
charge of the preparation of the Projected Balance Sheet
available for reasonable inquiry by Buyer, its representatives
and PW. Based upon such review by PW, proposed changes to the
Initial Closing Date Balance Sheet may be made by Buyer or the
Initial Closing Date Balance Sheet may be accepted by Buyer (the
Initial Closing Date Balance Sheet, as modified or accepted, the
"Closing Date Balance Sheet"). Shareholders and Buyer shall have,
from the date of receipt of the Closing Date Balance Sheet,
twenty (20) days to object thereto, which objection shall be in
the form of a detailed statement to the other parties. Buyer and
Shareholders shall cooperate with each other, including providing
each other with reasonable access to all books and records of the
Company and PW's workpapers as may reasonably be requested in
connection with the foregoing to resolve any differences in the
determination of the Closing Date Balance Sheet. In the event
that Buyer and Shareholders have not resolved their differences
within ten days of notice from Shareholders or Buyer that it
disagrees with the determination of the Closing Date Balance
Sheet, the dispute shall be submitted to Grant Thornton LLP (the
"Arbitrator") for resolution in favor of either the Buyer or the
Shareholders, and such resolution shall be made within sixty (60)
days and shall be conclusive, binding and final. The fees and
expenses of the Arbitrator shall be paid by the party against
whom the Arbitrator decides.
(b) The Company will permit Buyer, its representatives
and PW to observe the physical count of the inventory which shall
be conducted by the Company prior to the Closing Date using
prudent auditing techniques to ensure the accuracy of the
physical count and the reconciliation.
(c) If the Closing Date Balance Sheet, as accepted by
Buyer and the Shareholders or as determined by the Arbitrator,
discloses a Net Worth Surplus or a Net Worth Deficiency, as the
case may be, in an amount different than the Projected Net Worth
Surplus or Projected Net Worth Deficiency, as the case may be,
then the Shareholders shall jointly and severally promptly pay
Buyer, or Buyer shall promptly pay the Shareholders in their
Proportionate Shares, as the case may be, an amount equal to such
difference, together with interest accrued thereon from the
Closing Date to the date of payment at the rate of 7% per annum
in immediately available United States funds by wire transfer to
an account designated by the party receiving such payment. Upon
the determination of the Closing Date Balance Sheet, with respect
to the determination of the inventory amounts, the following
shall occur: the amount of inventory (determined without regard
to any reserve) stated in the Closing Date Balance Sheet shall be
compared with the inventory (determined without regard to any
reserve) stated in the Projected Balance Sheet. The amount of
such Projected Balance Sheet inventory less such Closing Date
inventory (if any) (the "Inventory Difference") shall be
allocated from the reserve established on the Projected Balance
Sheet with respect to inventory (the "Inventory Reserve"). An
amount equal to the remaining Inventory Reserve (if any) shall be
deposited into the Escrow for the benefit of Shareholders, and
the foregoing shall not be taken into account in determining the
Net Worth Deficiency or the Net Worth Surplus. In the event the
Inventory Difference exceeds the amount of the Inventory Reserve,
such excess shall be taken into account in determining the Net
Worth Deficiency or the Net Worth Surplus.
(d) The Projected Balance Sheet, Initial Closing Date
Balance Sheet and Closing Date Balance Sheet shall be prepared in
accordance with generally accepted accounting principles,
consistently applied ("GAAP") throughout the specified period and
immediately comparable period, and shall be prepared in a manner
consistent with the Company's past accounting practices in
connection with the preparation of financial statements of the
Company. Notwithstanding the foregoing, all payments required
under the Schempp Agreement or the severance arrangements listed
on the Disclosure Schedule, but not the Severance Letter, as such
terms are defined below, shall be accrued for on the Closing Date
Balance Sheet, which the parties acknowledge may not be in
accordance with GAAP. Any severance payments accrued as of or
prior to the Closing Date that are not paid by the Company within
ten (10) days after expiration of the Lease identified in Section
5.01(c) of this Agreement shall be paid to the Shareholders in
their Proportionate Share.
<PAGE>
26
Article III
Escrow
At the Closing, Buyer shall deposit the sum of $1,000,000 ("Escrow Funds")
out of the amount payable to Shareholders pursuant to Article II into an escrow
account established with a party to be mutually agreed upon by Buyer and
Shareholders prior to Closing ("Escrow Agent"). The Escrow Funds shall be held,
invested and distributed in accordance with an escrow agreement between
Shareholders, Buyer and the Escrow Agent, in the form attached hereto and made a
part hereof as Exhibit B ("Escrow Agreement").
Article IV
Closing
The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of PricewaterhouseCoopers, LLP in New
York City on August 3, 1998 at 10:00 a.m. or on such other date and at such
other time as the parties shall agree. The date on which the Closing occurs is
referred to herein as the Closing Date, and the Closing shall be deemed
effective as of the close of business on July 31, 1998.
Article V
Conditions to Closing
5.01 Conditions to Buyer's Obligations. The obligations of Buyer to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions on or before the Closing Date, unless
waived in writing by Buyer: (a) The representations and warranties set forth in
Article VI will be true and correct in all material respects on the Closing Date
as though then made except where a representation and warranty is already
qualified as to materiality or knowledge, such representation and warranty shall
be true and correct in all respects on the Closing Date as though then made; (b)
The Shareholders shall have performed all covenants and agreements required to
be performed by the Shareholders under this Agreement prior to Closing; (c) The
Shareholders shall have purchased the Facilities and taken assignment of the
Facilities Contracts as provided in Article I, and the Buyer and Shareholders
shall have entered into a lease of the Company's Springfield, Illinois facility
pursuant to the terms of a lease in the form of Exhibit C attached hereto and
made a part hereof. (d) Buyer's On-Site Due Diligence Investigation (as defined
in Section 8.04 herein) and its environmental due diligence relating to the
Facilities shall reveal no material misrepresentation under this Agreement. (e)
The Company shall have prepared the Projected Balance Sheet and determined the
Projected Net Worth Surplus or Projected Net Worth Deficiency, as applicable,
which Projected Net Worth Surplus or Projected Net Worth Deficiency shall have
been approved by the Buyer in accordance with Section 2.02(a) herein. (f) At or
prior to the Closing, the Shareholders shall have delivered to Buyer all of the
following, in form and content acceptable to the Buyer in its reasonable
discretion which deliveries shall not affect the representations and warranties
of the Shareholders under Article VI below: (i) Stock certificates representing
all of the Shares with duly executed stock powers or duly endorsed by each of
the Shareholders to Buyer together with all required stock transfer stamps
affixed; (ii) The Escrow Agreement duly executed by each of the Shareholders.
(iii)All stock certificates representing all of the shares of stock owned by the
Company in TKI Foods International, Inc. (the "Subsidiary"); (iv) Good Standing
Certificates for the Company from Illinois and for the Subsidiary from the U.S.
Virgin Islands;
<PAGE>
27
(v) Written Resignations duly executed by all
officers and directors of the Company and Subsidiary;
(vi) Legal Opinion from counsel to the Company and
Shareholders in the form of Exhibit D attached hereto and made a
part hereof;
(vii)Estoppel Certificates duly executed by all
lending and leasing institutions holding mortgages or liens on
real estate or other assets owned or leased by the Company or the
Subsidiary;
(viii) Written release duly executed by each of
the Shareholders in favor of the Company in the form of Exhibit E
attached hereto and made a part hereof;
(ix) Closing Certificate duly executed by each of
the Shareholders in the form of Exhibit F attached hereto and
made a part hereof;
(x) Non-Competition Agreement duly executed by
each of the Shareholders in the form of Exhibit G attached hereto
and made a part hereof;
(xi) Disclosure Schedule (as defined in Section
6.01);
(xii)UCC, litigation, judgment, tax and bankruptcy
searches against the Company and Subsidiary in all jurisdictions
requested by Buyer on or before the date hereof;
(xiii) Evidence of the Company's and TKI Foods,
International due authorization of executing this Agreement and
the transactions contemplated hereby;
(xiv)All documentation and formulas relating to
Product X (as defined in Section 6.24);
(xv) Duly executed releases of the Company with
respect to all indebtedness or liabilities required to be
satisfied by the Shareholders at the Closing;
(xvi)Resignations duly executed by all trustees of
any Plans (as defined below);
(xvii) Assignment and Assumption of License
Agreement duly executed by Sheffield Enterprises, Inc. in the
form of Exhibit L attached hereto and made a part hereof; and
(xviii) Agreement duly executed by Dale Schempp
in the form of Exhibit M attached hereto and made a part hereof
(the "Schempp Agreement").
(xix)Deed, bill of sale, assignment and assumption
agreements, and other documents, all duly executed by the Company
and the Shareholders, as the case may be, required to consummate
the transactions contemplated by Section 1.02 hereof.
(xx) Agreement duly executed by the Lessor for the
Ramey Warehouse to extend for six months the term of the Lease
Extension Agreement dated May 28, 1996 between said Lessor and
the Company.
(xxi)Waiver duly executed by Chelton House
Products ("CHP") of CHP's rights under Section 7.2 of the
Manufacturing Agreement between CHP and the Company dated June 2,
1994.
(g) The Shareholders shall have delivered to Buyer
such other certificates, documents and instruments (or complete
and accurate copies thereof where appropriate) as Buyer
reasonably requests to consummate the transactions contemplated
hereby.
(h) There shall have been no material adverse change
in the business, prospects or condition, financial or otherwise,
of the Company or Subsidiary.
(i) All filings, consents and authorizations required
for the consummation of the transactions contemplated herein
shall have been made and received.
5.02 Conditions to the Shareholders' Obligations. The
obligations of the Shareholders to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of
the following conditions on or before the Closing Date, unless
waived in writing by the Shareholders:
(a) The representations and warranties set forth in
Article VII hereof will be true and correct in all material
respects at and as of the Closing Date as though then made;
(b) Buyer will have performed in all material respects
all the covenants and agreements required to be performed by it
under this Agreement prior to the Closing;
(c) On the Closing Date, Buyer shall have delivered to
the Shareholders all of the following:
<PAGE>
28
(i) Wire transfer to the Shareholders of
immediately available funds in the amount of $17,376,263 plus the
amount of the Projected Net Worth Surplus or minus the amount of
the Projected Net Worth Deficiency plus the Facilities Value;
(ii) The Legal Opinion from General Counsel to the
Buyer in the form of Exhibit H attached hereto and made a part
thereof;
(iii)The Escrow Agreement duly executed by Buyer;
and
(iv) Evidence of Buyer's due authorization of this
Agreement and the transactions contemplated hereby.
5.03 Condition to the Obligations of Buyer and the
Shareholders. The obligations of Buyer and the Shareholders to
consummate the Closing are subject to the satisfaction of the
following conditions, unless waived by each party thereto:
(a) No Prohibitions. No court, arbitrator or
governmental body, agency or official shall have issued any
order, and there shall not be any statute, rule or regulation,
restraining or prohibiting the consummation of the Closing or
materially affecting the Company or Subsidiary.
(b) Spectrum Foods, Inc. The Buyer and Spectrum
Foods, Inc. shall have closed the purchase of certain assets of
Spectrum Foods, Inc. pursuant to an Asset Purchase Agreement
dated the date hereof (the "Asset Purchase Agreement").
Article VI
Representations and Warranties of the Shareholders
The Shareholders hereby jointly and severally represent and
warrant to Buyer that:
6.01 Disclosure Schedule. The disclosure schedule marked as
the Company Disclosure Schedule and attached hereto and made a
part hereof as Exhibit I (the "Disclosure Schedule') is divided
into sections which correspond to the subsections of this Article
VI. The Disclosure Schedule, including copies of all documents,
agreements and instruments specifically referenced in and/or
attached to the Disclosure Schedule, is accurate and complete,
and does not contain any untrue statement of any fact or omit to
state any fact necessary to make the representations and
warranties contained in this Article VI not misleading. The
representations and warranties of the Shareholders in this
Article VI shall not in any way be limited by Buyer's due
diligence investigation.
6.02 Capitalization
(a) The authorized capital stock of the Company
consists of 40,000 shares of Company common stock, no par value,
and 50,000 shares of Company preferred stock, $50.00 par value,
of which 13,140 common shares and 10,000 preferred shares are
issued and outstanding. R. Maiocco owns 6,641 shares of the
common stock, McEntee owns 6,499 shares of the common stock and
A. Maiocco owns 10,000 shares of the preferred stock, all of
which shares are owned legally and beneficially by the
Shareholders as set forth above and upon consummation of the
Closing, will be owned legally and beneficially by Buyer, in each
case free and clear of any adverse claims, liens, charges, or
encumbrances of any nature whatsoever. No other shares of
capital stock of the Company are authorized or issued.
(b) The authorized capital stock of the Subsidiary
consists of 1,000 shares of common stock, $1.00 par value of
which 1,000 shares are issued and outstanding, and all of which
shares are owned legally and beneficially by the Company free and
clear of any adverse claims, liens, charges or encumbrances of
any nature whatsoever. No other shares of capital stock of the
Subsidiary are authorized or issued.
(c) All issued and outstanding shares of capital stock
of the Company and Subsidiary are duly authorized, validly
issued, fully paid and non-assessable, and were not issued in
violation of any preemptive rights. There are no outstanding
options, warrants, conversion privileges or other rights to
purchase or acquire any shares of capital stock or other equity
securities of the Company or Subsidiary or any outstanding
securities that are convertible into or exchangeable for such
shares, securities or rights. There are no contracts,
commitments, understandings, arrangements or restrictions by
which the Company or Subsidiary is bound to issue or acquire any
additional shares of its capital stock or other equity securities
or options, warrants, conversion privileges or other rights to
<PAGE>
29
purchase or acquire any capital stock or other equity securities
of the Company or Subsidiary or any securities convertible or
exchangeable for such shares, securities or rights.
6.03 Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Illinois, and the Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of U.S. Virgin Islands, and the Company and
Subsidiary each is in good standing and qualified in the jurisdictions of their
incorporation and has not failed to qualify in any state or jurisdiction where
the failure to so qualify would have a material adverse affect on the Company or
Subsidiary. True, correct and complete copies of the Company's and the
Subsidiary's Certificates of Incorporation, By-Laws and all amendments thereto
(collectively the "Charter Documents") are attached to the Disclosure Schedule.
The Shareholders have provided to the Buyer true, correct and complete copies of
all minutes of meetings and resolutions of the Company's and Subsidiary's
shareholders, Board of Directors and committees of the Board of Directors for
the years prior to 1982 which they have in their possession. The Company and
Subsidiary each have all requisite corporate power and authority and all
authorizations, licenses, permits and certifications necessary to carry on its
business as it is now being conducted and to own, lease and operate all of its
assets. Except as set forth in the Disclosure Schedule, the Company and
Subsidiary have no subsidiaries, nor does either own equity interests in any
other person or entity, other than the Subsidiary.
6.04 Execution, Delivery: Valid and Binding Agreement. Each of the Shareholders
has the full right and power to execute, deliver and perform this Agreement and
consummate the transactions contemplated hereby and to sell, transfer and convey
his or her Shares to Buyer and such sale, transfer and conveyance shall not
violate the rights of any third party. The Company has the full right, power and
authority to execute, deliver and perform this Agreement and consummate the
transactions contemplated herein, and has duly authorized the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each Shareholder
and the Company and, assuming that this Agreement is the valid and binding
agreement of Buyer, this Agreement constitutes the valid and binding obligation
of each Shareholder and the Company, enforceable in accordance with its terms.
The execution, delivery and performance of this Agreement and the transactions
contemplated herein will not violate or cause a breach or default under the
Company's Charter Documents, or any law, rule, regulation, order, decree,
license, permit, consent, agreement, mortgage or other undertaking to which the
Shareholders or the Company, or any of the Shares, are bound or subject. No
consent or approval of any person or entity of any kind is required for the
execution, delivery or performance of this Agreement and the transactions
contemplated herein by the Shareholders or the Company except for filings and
approvals required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
6.05 Title to Assets: No Liens or Encumbrances. Except as set forth in the
Disclosure Schedule, each of the Company and Subsidiary have, and upon
consummation of the transactions contemplated herein shall retain, good and
merchantable right, title and interest in and to all of its machinery,
equipment, vehicles, and other tangible and intangible personal property
reflected in the March Balance Sheet, Projected Balance Sheet and the Closing
Date Balance Sheet, and good and marketable fee simple title to and in all its
real property and fixtures reflected in the March Balance Sheet, Projected
Balance Sheet and the Closing Date Balance Sheet (except for the sale of the
Facilities contemplated in Section 1.02 herein), all free and clear of all
adverse claims, liens and encumbrances, except for liens for current taxes not
yet due and payable. There are no agreements or options in effect for the
purchase or lease of any assets of the Company. The Disclosure Schedule sets
forth the liabilities and indebtedness which the Buyer does not approve and
which the Company shall not retain after the Closing Date.
6.06 Financial Statements. The Shareholders have delivered to Buyer copies of
the March Balance Sheet and audited balance sheets and income statements of the
Company and the Subsidiary as of and for the twelve month periods ending 6/30/95
and 6/30/96, six month period ending 12/31/96, twelve month period ending
12/31/97 and combining financial statements for the Company and Spectrum Foods,
Inc. for the twelve months ending 12/31/97, and will deliver to Buyer (i) all
internally prepared audited and unaudited interim financial statements normally
prepared by the Company from 12/31/97 through the Closing Date and (ii) the
Projected Balance Sheet (all such financial statements
<PAGE>
30
referred to in this subsection 6.06 are hereinafter referred to as "Financial
Statements"). Except as disclosed therein or in the Disclosure Schedule, the
Financial Statements are true and correct and are in accordance with the books
and records of the Company and Subsidiary and shall be prepared in accordance
with GAAP, consistently applied throughout the specified period and immediately
comparable period, and shall be prepared in a manner consistent with the
Company's and Subsidiary's past accounting practices in connection with the
preparation of financial statements of the Company and Subsidiary. The Financial
Statements fairly present the financial position and results of operations of
the Company and Subsidiary at the dates stated therein and for the periods
covered thereby.
6.07 Absence of Undisclosed Liabilities. The Company and Subsidiary have no
liability or obligation of any nature, asserted or unasserted, accrued,
absolute, contingent or otherwise that is not reflected or fully reserved
against in the March Balance Sheet, Projected Balance Sheet or Closing Date
Balance Sheet except for the liabilities disclosed in the Disclosure Schedule.
6.08 Absence of Certain Developments. Except as otherwise described in the
Disclosure Schedule, since December 31, 1997, the business of the Company and
Subsidiary have been conducted only in the ordinary course and neither the
Company nor the Subsidiary has:
(a) borrowed any amount or incurred or become subject
to any liability except:
(i)current liabilities incurred in the ordinary course
of business; and
(ii) liabilities under contracts entered into in the
ordinary course of business;
(b) mortgaged, pledged or subjected to any adverse
claim, lien, charge or any other encumbrance, any of its assets,
except liens for current property taxes not yet due and payable;
(c) discharged or satisfied any lien or encumbrance or
paid any liability, other than current liabilities paid in the
ordinary course of business;
(d) sold, assigned or transferred (including, without
limitation, transfers to any employees or affiliates) any of its
assets, except the sale of inventory in the ordinary course of
business, or canceled any debts or claims, except in the ordinary
course of business or where such would not have a material
adverse effect on the Company;
(e) sold, assigned or transferred (including, without
limitation, transfers to any employees or affiliates) any trade
secrets, intellectual property rights or other intangible assets,
or disclosed any proprietary confidential information to any
person other than Buyer;
(f) waived any rights or suffered any losses, outside
the ordinary course of business and inconsistent with past
practice,
(g) suffered any theft, damage, destruction or loss of
or to any assets owned or used by it, whether or not covered by
insurance or suffered any loss of officers, key employees,
dealers, distributors, customers, suppliers or other favorable
business relationships;
(h) made or granted any bonus or any wage, salary or
compensation increase to any officer or employee or paid any
severance or termination pay;
(i) made any capital expenditures outside the ordinary
course of business or inconsistent with past practice or
commitments therefor;
(j) made any loans or advances to, or guarantees for
the benefit of, or obtained any loans or advances from, any
persons;
(k) suffered any material adverse change in its
condition (financial or otherwise), working capital, assets,
properties, liabilities, business prospects or goodwill;
(l) declared, set aside, made or paid any dividend or
other distribution in respect of its capital stock, or purchased
or redeemed any shares of its capital stock;
(m) changed its method of accounting or any of its
accounting practices; or
(n) agreed, whether in writing or otherwise, to take
any action described in this subsection.
6.09 Real Property: Equipment. etc.
(a) The real property owned and leased by the Company
and Subsidiary, all of which is described under the caption
referencing this Section 6.09 in the Disclosure Schedule,
constitutes all of the real property owned, used or occupied by
the Company and Subsidiary ("Real Property"). The Real Property
and the use thereof by the Company and Subsidiary are in
compliance with all laws, regulations, rules and orders,
including without limitation those regarding zoning and land
use. The Real Property is serviced by utilities sufficient to
adequately operate the business of the Company and Subsidiary.
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31
(b) The leases described under the caption referencing
this Section 6.09 in the Disclosure Schedule are in full force
and effect, and the Company and Subsidiary, as applicable, holds
a valid and existing leasehold interest under each of the leases
for the term set forth therein. The Shareholders have delivered
to Buyer complete and accurate copies of each of the leases
described under such caption, and none of such leases has been
modified in any respect, except to the extent that such
modifications are disclosed by the copies delivered to Buyer.
Neither the Company nor the Subsidiary, as applicable, is in
default, and no circumstances exist which may, either with or
without notice or the passage of time or both, result in such
default, under any of such leases; nor to the knowledge of the
Shareholders, is any other party to any of such leases in default.
(c) Except as otherwise described in the Disclosure
Schedule under the caption referencing this Section 6.09, all of
the buildings, improvements, equipment, machinery and other
tangible assets necessary for the conduct of the Company's and
Subsidiary's business are in good condition and working order,
ordinary wear and tear excepted, and are usable in the ordinary
course of business and are sufficient to carry on the business of
the Company and Subsidiary, as presently conducted. A true and
correct list of all material equipment and other tangible assets
owned or leased by the Company and Subsidiary is attached hereto
and made a part hereof as Exhibit J. As of the date of this
Agreement, there are no defects in such assets or other
conditions relating thereto which would materially adversely
affect the operation of such assets. The Company and Subsidiary
own or lease under valid leases, all buildings, equipment, and
other tangible assets used in the conduct of the business of the
Company and Subsidiary.
6.10 Tax Matters. Except as otherwise disclosed in the
Disclosure Schedule under the caption referencing this Section
6.10
(a) Since January 1, 1987, the Company and Subsidiary
have:
(i) timely filed (or have had timely filed on
their behalf) all returns, declarations, reports, estimates,
information returns, and statements ("Returns") required to be
filed or sent by it in respect of any Taxes (as defined in
subsection (d) below) or required to be filed or sent by it to
any taxing authority having jurisdiction of the Company and
Subsidiary, and such Returns are true and correct and accurately
state all Taxes owed by the Company and Subsidiary;
(ii) timely and properly paid (or has had paid on
its behalf) all Taxes shown to be due and payable on such Returns
or otherwise due and payable before the Closing Date;
(iii)established (or has had established on its
behalf) on the March Balance Sheet, Projected Balance Sheet and
Closing Date Balance Sheet reserves that are adequate for the
payment of any Taxes attributable to the period ending as of
March 31, 1998 and as of the Closing Date, as applicable not yet
due and payable;
(iv) complied with all applicable laws, rules, and
regulations relating to the withholding of taxes and the payment
thereof (including, without limitation, withholding Taxes under
Sections 1441 and 1442 of the Internal Revenue Code of 1986, as
amended (the "Code") or similar provisions under any foreign
laws), and timely and properly withheld from individual employee
wages and paid over the proper governmental authorities all
amounts required to be so withheld and paid over under all
applicable laws; and
(v) provided Buyer with true and correct copies
of all Returns filed by the Company and Subsidiary for the years
1995 through the date of this Agreement.
(b) There are no liens for Taxes upon any of the
assets of the Company or Subsidiary, except liens for Taxes not
yet due.
(c) Since January 1, 1987, there have been no audits
of the Company or Subsidiary or their Returns by any Federal,
State or local governmental or taxing authority. There are no
assessments, deficiencies, investigations, proceedings or actions
pending or, to the knowledge of Shareholders, threatened against
the Company or Subsidiary in any jurisdiction relating to any of
their Returns or to any Taxes.
(d) For purposes of this Agreement, the term "Taxes"
means all taxes, charges, fees, levies, or other assessments,
including, without limitation, all net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll employment, social
security, unemployment, excise, estimated, severance, stamp,
occupation, property, or other taxes, customs duties, fees,
assessments, or charges of any kind whatsoever, including, without
<PAGE>
32
limitation, all interest and penalties thereon, and additions to
tax or additional amounts imposed by any taxing authority,
domestic or foreign, upon the Company or Subsidiary or any of
their assets.
6.11 Inventory. All supplies, raw material, work in
process, the inventory of finished goods, product labels and
packaging materials of the Company and Subsidiary, which has a
book value greater than $0, consist of items of a quality and
quantity usable and salable to existing customers of the Company
and Subsidiary in the ordinary course of business. As of the
dates of the March Balance Sheet, Projected Balance Sheet and the
Closing Date Balance Sheet, and except as set forth in the
Disclosure Schedule under the caption referencing this Section
6.11, the value of all items of obsolete materials and of
materials of below standard quality had been written down in
accordance with GAAP. Neither the Company nor the Subsidiary has
any inventory which is held on consignment. Section 6.11 of the
Disclosure Schedule sets forth the location(s) of all of the
inventory of the Company and Subsidiary.
6.12 Contracts and Commitments.
(a) Except as set forth in the Disclosure Schedule
under the caption referencing this Section 6.12, there are no
contracts, agreements, warranties, guaranties or commitments of
any kind, whether oral or written, to which the Company or
Subsidiary is a party or by which its assets are bound, or which
are binding on or affecting the Shares, in each case which are
currently in effect ("Contracts"). The Shareholders have
provided Buyer true and correct copies of all Contracts.
(b) Except as set forth under the caption referencing
this Section 6.12 in the Disclosure Schedule:
(i) no customer or supplier has indicated that it
will stop or decrease the rate of business done with the Company
or Subsidiary;
(ii) the Company and Subsidiary have performed all
obligations required to be performed by it in connection with the
Contracts to which it is a party and is not in receipt of any
claim of default under any Contract;
(iii)the Company and Subsidiary have no present
expectation or intention of not fully performing any obligation
pursuant to any such Contract; and
(iv) neither the Shareholders nor the Company or
Subsidiary, as the case may be, has any knowledge of any breach
or anticipated breach by any other party to any such Contract.
6.13 Intellectual Property Rights. The Company and
Subsidiary own and have the sole right to use the trademarks,
tradenames, servicemarks, logos and other proprietary names and
designs, trade dress, trade secrets, processes, formulas,
recipes, production techniques, specifications, inventions, know
how, ideas and patents actually used in the conduct of their
business provided, however, that certain customers of the Company
have rights in certain processes, formulas and recipes
("Intellectual Property Rights"), all of which (including the
rights of the certain customers) are described under the caption
referencing this Section 6.13 in the Disclosure Schedule. The
registered trademarks, tradenames, service marks, logos, other
proprietary names and patents were issued on the dates specified
in Section 6.13 in the Disclosure Schedule by the Patent and
Trademark Office of the United States Department of Commerce and
all documents required for maintenance of the registrations have
been filed with such Patent and Trademark Office. The use of the
Intellectual Property Rights necessary or required for the
conduct of the Company's and Subsidiary's business and as
presently conducted, and each product sold by the Company and
Subsidiary does not and will not infringe or violate, nor has any
party alleged that it will infringe or violate, the rights of any
person or entity. Except as set forth in the Disclosure
Schedule, the Company and Subsidiary do not use any Intellectual
Property Rights pursuant to any license agreement and has not
granted any person or entity any rights pursuant to a license
agreement or otherwise, to use the Intellectual Property Rights.
The Intellectual Property Rights are sufficient for the Company
and Subsidiary to conduct their business as presently conducted.
To the Shareholders' knowledge, no person or entity violates, or
infringes any of the Intellectual Property Rights. The
Shareholders agree at any time before or after the Closing Date
to execute and deliver, or use reasonable efforts to cause to be
executed and delivered, any documentation reasonably requested by
Buyer to establish that all Intellectual Property Rights are
owned by or licensed to the Company or Subsidiary.
<PAGE>
33
6.14 Litigation. Except as set forth under the caption
referencing this Section 6.14 of the Disclosure Schedule, there
is no legal, administrative, arbitration or other proceeding,
suit, claim or action of any nature or, to the knowledge of
Shareholders, any investigation, review or audit of any kind, or
any judgment, decree, decision, injunction, writ or order,
pending, noticed, scheduled or, to the knowledge of Shareholders,
threatened by or against the Company, Subsidiary or any
Shareholder, including without limitation any such matter which
questions or challenges the validity of this Agreement or any
action taken or to be taken by any party hereto pursuant to the
Agreement or in connection with the transactions contemplated
herein.
6.15 Labor Matters. Except as set forth under the caption
referencing this Section 6.15 of the Disclosure Schedule:
(a) The Company and Subsidiary are now and have since
January 1, 1987 been in compliance with all applicable laws
regarding employment and employment practices, terms and
conditions of employment and wages and hours, including, without
limitation, any such laws respecting plant closing or termination
notices, immigration, employee privacy, workers compensation,
employment discrimination and OSHA requirements, and has not and
is not engaged in any unfair labor practice;
(b) Since January 1, 1987, neither the Company nor
the Subsidiary has received notice of any unfair labor practice
complaint against it before the National Labor Relations Board or
any other comparable government authority;
(c) Neither the Company nor the Subsidiary has
received notice of, and there is no, and there has not been
during the past five (5) years any, labor strike, dispute,
slowdown or stoppage pending or threatened;
(d) No collective bargaining agreement or similar
agreement has been since January 1, 1987, or is, binding and in
force against the Company or Subsidiary, nor is there any
organizing activities currently being conducted nor any
collective bargaining agreement currently being negotiated;
(e) Neither the Company nor the Subsidiary is
delinquent in payments of wages, salaries, commissions, bonuses,
or other forms of compensation, including, without limitation,
any amounts due under any pension plan or other employee benefit
program;
(f) The Company and Subsidiary will not, by reason of
anything done at, prior to or after the Closing Date, be liable
for payment of severance pay or any similar payment; and
(g) There has not been any expression of intention to
the Company or Subsidiary by any officer or key employee to
terminate such employment.
(h) The Shareholders have provided Buyer with true and
correct copies of all employment related agreements to which the
Company or Subsidiary is a party, including without limitation
employment agreements, consulting agreements, non-disclosure and
non-competition agreements, and severance agreements.
(i) Neither the Shareholders nor the Company or
Subsidiary have made any promise of employment to any person on
behalf of the Buyer.
(j) During the previous three (3) years, there have
been no terminations of employment of any of the Company's or
Subsidiary's key employees or officers.
(k) The Shareholders have delivered to the Buyer true,
correct and complete copies of all employee handbooks used by the
Company and Subsidiary since January 1, 1987.
6.16 Employee Benefit Plans,
(a) To the extent required (either as a matter of law
or to obtain the intended tax treatment and tax benefits), all
employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA") which the Company or Subsidiary maintains or to which
it contributes (collectively, the "Plans"), comply with the
requirements of ERISA and the Code, all of which are described
under the caption referencing this Section 6.16 in the Disclosure
Schedule. With respect to the Plans:
(i) all required contributions which are due have
been made and a proper accrual has been made for all
contributions due or earned in the current fiscal year through
the Closing Date;
(ii) all contributions required by the Plans have
been funded as if all participants were 100% vested at the time
the contributions were made;
<PAGE>
34
(iii)there are no actions, suits or claims
pending, other than routine uncontested claims for benefits; and
(iv) there have been no prohibited transactions
(as defined in Section 406 of ERISA or Section 4975 of the Code).
(b) The Company and Subsidiary do not contribute (and
have not since January 1, 1987 contributed) to any multi-employer
plan, as defined in Section 3(37) of ERISA which covers employees
of the Company or Subsidiary. The Company and Subsidiary have no
actual or potential liabilities under Section 4201 of ERISA for
any complete or partial withdrawal from a multi-employer plan
which covers employees. The Company and Subsidiary have no
actual or potential liability for benefits after separation from
employment (including, but not limited to, post-retirement health
and medical benefits) other than:
(i) benefits under the employee benefit plans or
programs (whether or not subject to ERISA) set forth under the
caption referencing this Section 6.16 in the Disclosure Schedule;
and
(ii) health care continuation benefits described
in Section 4980B of the Code.
(c) Neither the Company, the Subsidiary nor any of
their directors, officers, employees or other "fiduciaries," as
such term is defined in Section 3(21) of ERISA, has committed any
breach of fiduciary responsibility imposed by ERISA or any other
applicable law with respect to the Plans which would subject any
entity or any of their respective directors, officers or
employees to any liability under ERISA or any applicable law.
(d) The Company and Subsidiary have maintained each
Plan that is a "group health plan" within the meaning of Section
5000 of the Code in compliance with Section 4980B of the Code and
Title I, Subtitle B, Part 6 of ERISA and no tax payable on
account of Section 4980B of the Code has been incurred.
(e) Since January 1, 1987, the Company and Subsidiary
have not incurred, and have not taken any action or omitted to
take any action, which will result in the Company or Subsidiary
incurring any liability for any Tax or civil penalty imposed by
4975 of the Code and/or Section 502(i) of ERISA.
(f) The Shareholders have provided Buyer with true and
correct copies of all documents relating to the Plans.
(g) The Company and Subsidiary have no employee
benefit plans which are not governed by ERISA.
6.17 Insurance. The Disclosure Schedule, under the caption
referencing this Section 6.17, lists and briefly describes each
insurance policy maintained by the Company and Subsidiary and
sets forth the date of expiration of each such insurance policy.
All insurance policies relating to the Company and Subsidiary
have been, and will until the Closing Date continue to be,
maintained and will remain in full force and effect until at
least 30 days following the Closing Date. The Company and
Subsidiary are not in default with respect to their obligations
under any insurance policies. All insurance policies maintained
by the Company and Subsidiary are to the knowledge of the
Shareholders sufficient to adequately protect the Company and
Subsidiary and there have been no material denials of coverage
under any of such policies. True and correct copies of all
insurance policies maintained by the Company and Subsidiary,
together with loss histories and premium histories for the past
five (5) years for all such policies, have been delivered to
Buyer. There are no investigations or claims currently pending
under any of the Company's or Subsidiary's insurance policies.
6.18 Compliance with Laws: Permits. Except as otherwise set
forth in the Disclosure Schedule under the caption referencing
this Section 6.18:
(a) Since January 1, 1987, the Company and Subsidiary
and their officers, directors, agents and employees have complied
in all respects with all applicable laws, regulations and other
requirements pertaining to the Company's and Subsidiary's
business, including, but not limited to, federal, state, local
and foreign laws, ordinances, rules, regulations and other
requirements pertaining to product labeling, consumer products
safety, equal employment opportunity, employee retirement,
continuation of health insurance and other benefits, affirmative
action and other hiring practices, occupational safety and
health, workers' compensation, unemployment and building and
zoning codes, and no claims have been filed against the Company,
the Subsidiary or their officers, directors, agents or employees
alleging a violation of any such laws, regulations or other
requirements. There is no action pending or, to the knowledge of
<PAGE>
35
Shareholders, threatened, to change the zoning or building
ordinances or any other laws, rules, regulations or ordinances
relating to zoning and building ordinances affecting any of the
assets of the Company or Subsidiary.
(b) The Company and Subsidiary have, in full force and
effect, all licenses, permits and certificates, from federal,
state, local and foreign authorities (including, without
limitation, the federal and state agencies regulating
occupational health and safety) necessary to conduct their
business and own and operate their assets (including without
limitation the Environmental Permits, as such term is defined in
Section 6.19(b) hereof) (collectively, the "Permits"). A true,
correct and complete list of all the Permits, copies of which
have previously been delivered by the Shareholders or by the
Company to Buyer, is set forth under the caption referencing this
Section 6.18 in the Disclosure Schedule. The Company and
Subsidiary have conducted their business in compliance with all
terms and conditions of the Permits and there are no proceedings
or, to the knowledge of Shareholders, investigations pending or
threatened relating to any such Permits.
6.19 Environmental Matters
(a) (i) "Environmental Law(s)" shall mean any and all
federal, state, local and foreign laws, statutes, codes,
ordinances, regulations, rules, policies, consent decrees,
judicial orders, administrative orders or other requirements
relating to the environment or to human health or safety
associated with the environment, all as amended or modified from
time to time. The Environmental Law includes, but is not limited
to, the following statutes and all rules and regulations relating
thereto, all as amended or modified from time to time:
The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), as amended by the Superfund Amendments
and Reauthorization Act of 1986 ("SARA") 42 U.S.C. 9601 et. seq.;
the Resource Conservation and Recovery Act of 1976 ("RCRA") as
amended by the Hazardous and Solid Waste Amendments of 1984, 42
U.S.C. 6901 et. seq.; the Federal Water Pollution Control Act, 33
U.S.C. 1251 et. seq.; the Clean Water Act 33 U.S.C. 1321 et seq;
the Clean Air Act 42 U.S.C. 7401 et seq; the Federal Insecticide,
Fungicide and Rodenticide Act ("FIFRA") 7 U.S.C. 136 et seq; the
Toxic Substances Control Act ("TSCA") 15 U.S.C. 2601 et seq. and
the Illinois Environmental Protection Act, 415 ILCS 5/1 et seq.
(ii) "Environmental Matters" means matters
relating to pollution, contamination, protection of the
environment (including, without limitation, matters relating to
releases or threatened releases of Hazard Substances into the
air, surface water, groundwater or soil or otherwise resulting
from the generation, manufacturing, treatment, storage, handling,
disposal or transportation of Hazard Substances).
(iii)Hazardous Substance(s)" shall mean (A) any
substance, the presence of which requires investigation or
remediation under any Environmental Law or under common law; (B)
any dangerous, toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous substance which is regulated by any Environmental Law;
(C) any substance, the presence of which causes or threatens to
cause a nuisance upon any Real Property or adjacent properties or
poses or threatens to pose a hazard to the health or safety of
persons on or about any such real property; (D) any substance,
the presence of which on properties adjacent to the Real Property
could constitute a trespass by the Company or Subsidiary; and (E)
urea-formaldehyde, polychlorinated biphenyls ("PCBs"), asbestos
or asbestos-containing materials, petroleum and petroleum
products.
(b) (i) No third party claims or regulatory or
judicial actions, investigations or proceedings have been
asserted, brought or assessed against the Company or Subsidiary
since January 1, 1980 and none are pending or, to the knowledge
of Shareholders, threatened, arising out of or due to, any
Environmental Matters or other violations of Environmental Laws.
(ii) Except as set forth in the Disclosure
Schedule under the caption referencing this Section 6.19, the
Company and Subsidiary are in compliance with all Environmental
Laws. The Company's and Subsidiary's storage, transportation,
handling, use or disposal, if any, of Hazardous Substances on or
under the Real Property and/or disposal elsewhere, if any, of
Hazardous Substances is currently, and at all times since January
1, 1980 has been, in compliance with all applicable Environmental
Laws. A list and description of all Hazardous Substances
generated, stored, transported, handled, used and/or disposed of
by the Company and Subsidiary at any time since January
<PAGE>
36
1, 1980 or located on the Real Property or elsewhere is set
forth under the caption referencing this Section 6.19 in the
Disclosure Schedule.
(iii)Since January 1, 1980, he Company and
Subsidiary have not transported or arranged for the
transportation of any Hazardous Substances generated in
connection with or otherwise related to the business or the
assets of the Company or Subsidiary, or otherwise, to any
location which is: (A) listed on the EPA's National Priorities
List of Hazardous Waste Sites (the "National Priorities List");
(B) listed for possible inclusion on the National Priorities
List, in the EPA Comprehensive Environmental Response,
Compensation and Liability Act Information System ("CERCLIS")
(including without limitation any no further action list) or on
any similar state list; or (C) to the knowledge of the
Shareholders the subject of any regulatory or judicial action
which may lead to claims for damages to natural resources,
personal injury, clean-up costs or clean-up work, including, but
not limited to, claims under CERCLA.
(iv) Except as set forth in the Disclosure
Schedule under the caption referencing this Section 6.19, since
the Company and Subsidiary have owned or leased the Real Property
(with respect to the leased property, to the Shareholders'
knowledge): (A) None of the Real Property has been or is now
listed on the National Priorities List, CERCLIS or any other
similar list; (B) No part of the Real Property, was ever used,
nor is it now being used, (1) as a landfill, dump or other
disposal, storage, transfer or handling area for Hazardous
Substances, excepting, however, for the routine storage and use
of Hazard Substances from time to time in the ordinary course of
the Company's and Subsidiary's (or other occupants, in the case
of leased property) business which, with respect to the Company
and the Subsidiary, is described in detail in the Disclosure
Schedule, and which is, in the case of the Company and the
Subsidiary, in compliance with Environmental Laws and in
compliance with good commercial practice; (2) for military
purposes; or (3) as a gasoline service station or a facility for
selling, dispensing, storing, transferring or handling petroleum
and/or petroleum products; (C) There never have been, and
currently are no, underground or aboveground storage tanks
(whether or not currently in use), urea-formaldehyde materials,
asbestos, asbestos containing materials, PCBs or nuclear fuels or
wastes, located on or under the Real Property, and no underground
or aboveground tank previously located on the Real Property has
been removed therefrom, except as disclosed on the Disclosure
Schedule; (D) There has not been, or is not now occurring, any
release of any Hazard Substance on, under or from the Real
Property; (E) There has not been, and is not now present, any
contamination of the Real Property; (F) There has not been any
release of any Hazardous Substances by any person or entity
owning or occupying any property adjoining or in the vicinity of
the Real Property.
(v) The Real Property (in the case of leased Real
Property, to the Shareholder's knowledge) and the use and
operation thereof and the operation of the Company's and
Subsidiary's business, are currently and, with respect to the
Real Property at all times during the Company's and Subsidiary's
ownership or operation thereof, have been, and, to the best
knowledge of the Shareholders, at all times during the ownership
and/or operation thereof by prior owners and/or users have been,
in compliance with all applicable Environmental Laws, except as
set forth in the Disclosure Schedule under the caption
referencing this Section 6.19. The Company and Subsidiary have,
in full force and effect, all environmental licenses, permits and
certificates necessary to conduct its business and own and
operate its properties (collectively, the "Environmental
Permits"). A true, correct and complete list of all the
Environmental Permits, copies of which have previously been
delivered by the Shareholders or by the Company to Buyer, is
stated under the caption referencing this Section 6.19 in the
Disclosure Schedule. The Company and Subsidiary have conducted
its business in compliance with all terms and conditions of the
Environmental Permits.
(vi) There are no liens against the Real Property
arising under any Environmental Law, or based upon a regulatory
action or third party claim.
(vii)Neither the Company nor the Subsidiary is
responsible or to the knowledge of Shareholders, potentially
responsible, for any cleanup or remediation of any Hazardous
Substances at any location (including, without limitation, any
location owned and operated by a third party).
(c) The Shareholders have previously delivered to
Buyer true and correct copies of all environmental studies which
have been prepared for the Company and Subsidiary relating to
<PAGE>
37
their business and/or the Real Property. The Shareholders are
not aware of any facts or circumstances which are not reflected
in, and would cause a modification of the results of, such
environmental study.
6.20 Receivables. Except as otherwise disclosed in the
Disclosure Schedule under the caption referencing this Section
6.20:
(a) The Company and Subsidiary have good right, title
and interest in and to all their accounts receivable, notes
receivable and other Receivables reflected in the March Balance
Sheet, Projected Balance Sheet and in the Closing Date Balance
Sheet;
(b) None of such receivables is subject to any
mortgage, pledge, lien or security interest of any kind or
nature, other than those being terminated and released at Closing;
(c) All of the receivables constitute valid and
enforceable claims arising from bona fide transactions in the
ordinary course of business, and there are no claims, refusals to
pay or other rights of set-off against any thereof; and
(d) All amounts reflected on the March Balance Sheet,
Projected Balance Sheet and the Closing Date Balance Sheet as
accounts receivable of the Company and Subsidiary will be fully
collectable in the ordinary course of business without offset or
reduction, except to the extent of any reserves established for
such accounts receivable on such March Balance Sheet, Projected
Balance Sheet or Closing Date Balance Sheet.
6.21 Brokerage. There are no claims for brokerage
commissions, finders fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Shareholders.
6.22 Disclosure. No representation or warranty by the
Shareholders in this Agreement contains or will contain any
untrue statement of material fact or omits or will omit to state
any material fact necessary in order to make the statements
herein or therein not misleading as of the date of such
representation or warranty.
6.23 Illinois Alcohol Beverage Control Law. The Company and
the Subsidiary are not governed by the Illinois Alcohol Beverage
Control Law. The Company and Subsidiary do not have any direct
or indirect interest in any person or entity which is governed by
the Illinois Alcohol Beverage Control Law.
6.24 Product X. Shareholders have advised Buyer that the
Company has developed a new product it refers to as Product X.
Shareholders have not disclosed, and will not disclose prior to
the Closing, to Buyer any information whatsoever relating to
Product X. Shareholders will, at the Closing, provide Buyer with
all documentation and formulas relating to Product X.
Shareholders represent and warrant that Product X is not a
product which does or will compete with any product manufactured
by Buyer's subsidiary, Ontario Foods, Incorporated which has been
disclosed to the Shareholders in writing, and is and will be in
compliance with all federal, state and local laws, regulations
and rules. Shareholders and the Company represents, warrant,
covenant and agree that they have not entered, and until the
earlier of the Closing or the termination of this Agreement, they
will not enter, into any contracts, agreements or commitments of
any kind whatsoever relating to the production, sale or
distribution of Product X that will be binding on the Company or
the Subsidiary on or after the Closing Date.
6.25 Banking. Set forth in the Disclosure Schedule is a
true and correct list of all bank and investment accounts
maintained by the Company and Subsidiary, stating the account
number, institution where the account is held, and the persons
who have signature authority for each account.
6.26 Year 2000. Set forth in Section 6.26 of the Disclosure
Schedule is a true, correct and complete list of all computer
hardware and software used by the Company and Subsidiary, and a
statement whether such hardware and software is owned, leased or
licensed and the details relating thereto. The Company's
approach to the year 2000 is set forth on the Disclosure
Schedule.
Article VII
Representations and Warranties of Buyer
Buyer hereby represents and warrants to each of the Shareholders
that:
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38
7.01 Organization and Corporate Power. Buyer is a
corporation, duly organized and validly existing under the laws
of the state of New York, and has all requisite corporate power
and authority to enter into this Agreement and perform its
obligations hereunder.
7.02 Authorization. The execution, delivery and performance
of this Agreement by Buyer and the consummation of the
transactions contemplated hereby have been duly authorized by all
necessary action. Assuming that this Agreement is the valid and
binding agreement of the Shareholders and Company, this Agreement
constitutes the valid and binding obligation of Buyer,
enforceable in accordance with its terms.
7.03 No Violation. Buyer is not subject to any provision of
its Certificate of Incorporation or its Bylaws, any applicable
law, rule or regulation of any governmental authority, any
agreement or instrument, any license, franchise or permit, or any
order, writ, injunction or decree, which would be breached or
violated by Buyer's execution, delivery or performance of this
Agreement.
7.04 Government Authorities; Consents. Buyer is not
required to submit any notice, report or other filing with any
governmental authority in connection with the execution or
delivery by it of this Agreement or the consummation of the
transactions contemplated hereby except for any filings or
approvals required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
7.05 Brokerage. There are no claims for brokerage
commissions, finders' fees, or similar compensation in connection
with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of Buyer, except
Buyer's agreement with Price Waterhouse, LLP.
Article VIII
Additional Agreements
8.01 Confidentiality and Nondisclosure. Buyer, the Company
and the Shareholders agree to maintain confidentiality with
regard to the financial and other information concerning the
business affairs of the other parties to which they may become
privy as a result of this Agreement and the related transactions.
Such parties agree not to disclose the terms of this Agreement or
such financial or other information to persons other than their
attorneys, accountants and other advisors, either before or after
the Closing, except as may be requested by or consented to by the
other party or except as may be required in obtaining any
necessary governmental consents. This Section 8.01 shall not
apply to information that: (a) is or becomes generally available
to the public other than as a result of disclosure in violation
thereof; (b) must be disclosed pursuant to law or court order
following due notice to the other party; (c) was in the
possession of the party prior to its disclosure to the party; (d)
is or becomes available to the party from a source other than a
party and such source was not prohibited from making such
disclosure by any obligation of confidentiality to the other
party; or (e) is independently developed by the party without
reference to the disclosed information.
8.02 Further Assurances. Each of the parties hereto agrees
to use all commercially reasonable efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations, to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as practicable
and to insure the conditions set forth in Article V hereof are
satisfied, insofar as such matters are within the control of such
party. In case of any time after the Closing Date any further
action is necessary or desirable to carry out the purposes of
this Agreement or to ensure the proper assignment and delivery of
the Shares to Buyer, the Shareholders shall take or cause to be
taken all such necessary action including the execution and
delivery of such further instruments and documents, as may be
reasonably requested by Buyer to complete or perfect the
transactions contemplated hereby.
<PAGE>
39
8.03 Certain Filings. Each of the Shareholders, the Company
and Buyer shall take all reasonable action, including without
limitation, filing documents and notifications, necessary or
appropriate to have the transactions contemplated hereby approved
or permitted by any government or regulatory bodies, required to
consummate the transaction contemplated by this Agreement.
8.04 Access and Information. From the date of the execution
of this Agreement, the Shareholders shall permit, and shall cause
the Company and Subsidiary to permit, Price Waterhouse, LLP to
make such investigation of the business, operations and
properties of the Company and Subsidiary as Buyer deems necessary
or desirable in connection with verifying the representations and
warranties made by the Shareholders herein (the "On-Site Due
Diligence Investigation"). In addition, until the Closing Date,
Buyer shall continue to be given reasonable but more limited
access to the operations and properties of the Company and
Subsidiary. Buyer and its representatives shall coordinate such
due diligence requests through the Company's attorney, James J.
McEntee, III, and will be given complete access to all facilities
and personnel of Company and the Subsidiary, and to all
information regarding the Company and Subsidiary for the purpose
of conducting Buyer's investigation. Such due diligence shall be
at Buyer's expense. Without limiting the foregoing, during such
period, the Shareholders shall keep, and shall cause the Company
and Subsidiary to keep, Buyer informed as to the business and
operations of the Company and Subsidiary.
8.05 Public Announcement. The parties hereto agree to
consult with each other before issuing any press release or
making any public statement with respect to this Agreement or the
transactions contemplated hereby and will not issue any such
press release or make any such public statement prior to such
consultation. This Section 8.06 shall not prevent either party
from issuing any press release or making any public statement
which such party determines to be required by law or by any self
regulating securities organizations provided such party gives the
other party a copy of such press release or public statement
prior to its issuance.
8.06 No Negotiations with Others. Shareholders, Company and
the Subsidiary covenant and agree that from this date until
Closing or earlier termination of this Agreement, the Company,
the Subsidiary, their respective officers, directors employees,
and representatives, and the Shareholders will not communicate
with, negotiate with, or provide any information to, anyone other
than Buyer relating to selling all or any part of Company's or
Subsidiary's business, assets or stock. In the event the
Shareholders, Company or Subsidiary violate this Section 8.06,
and the transaction contemplated hereby is not consummated, and a
transaction is consummated within two years from the date of this
Agreement with the person to whom the Shareholders or the Company
improperly communicated, negotiated or provided information, the
Shareholders shall pay Buyer $500,000 as liquidated damages and
not as a penalty, it being acknowledged and agreed by the
Shareholders that: (a) the actual damages that would be
sustained by Buyer by reason of a breach of this Section 8.06
would be difficult, if not impossible, to ascertain, and (b) the
amount of the liquidated damages set forth herein is reasonable
and just compensation for such breach
8.07 Conducting Business Pending Closing. The Shareholders
undertake and guaranty that from the date hereof through the
Closing, the Company and Subsidiary will maintain their assets
and properties and carry on their business and operations only in
the ordinary course in substantially the manner previously
operated and shall use reasonable efforts to preserve intact
their business organization and existing business relationships
and will not:
(a) borrow any amount or incur or become subject to
any liability
except:
(i) current liabilities incurred in the ordinary
course of business; and
(ii) liabilities under contracts entered into in
the ordinary course of business;
(b) mortgage, pledge or subject to any lien, charge or
any other encumbrance, any of its assets, except liens for
current property taxes not yet due and payable or encumbrances
permitted under Section 6.05 hereof;
(c) discharge or satisfy any lien or encumbrance or
pay any liability, other than current liabilities paid in the
ordinary course of business;
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40
(d) sell, assign or transfer (including, without
limitation, transfers to any employees or affiliates) any of its
assets, except the sale of inventory in the ordinary course, or
as consented to by Buyer in writing, or cancel any debts or
claims other than in the ordinary course of business;
(e) sell, assign or transfer (including, without,
limitation, transfers to any employees or affiliates) any trade
secrets or other intangible assets, or disclose, other than in
the ordinary course of business, any proprietary confidential
information to any person other than Buyer;
(f) waive any material rights or voluntarily suffer
any material losses, whether or not in the ordinary course of
business or consistent with past practice;
(g) voluntarily suffer any theft, damage, destruction
or loss of or to any assets owned or used by it, whether or not
covered by insurance or voluntarily suffer any material loss of
officers, key employees, dealers, distributors, customers,
suppliers or other favorable business relationships;
(h) make or grant any bonus or any wage, salary or
compensation increase to any officer or employee or pay any
severance or termination pay, except for such bonuses as are
agreed to by Buyer in writing and are properly reflected on the
Closing Date Balance Sheet;
(i) make any capital expenditures or commitments
therefor;
(j) make any loans; or advances to, or guarantees for
the benefit of, any persons;
(k) suffer any material adverse change in its
condition (financial or otherwise), working capital, assets,
properties, liabilities, business prospects or goodwill;
(l) declare, set aside, make or pay any dividend or
other distribution in respect of its capital stock, or purchase
or redeem any shares of its capital stock; or
(m) change its method of accounting or any of its
accounting practices or principles; or
(n) agree, whether in writing or otherwise, to take
any action described in this subsection.
8.08 Severance by Buyer. The Buyer agrees to pay severance
to the employees of the Company in accordance with the letter
from the Buyer addressed to R. Maiocco, a true and correct copy
of which is attached hereto as Exhibit K ("the Severance Letter").
8.09 Employee Benefit Accruals. Buyer agrees that any sums
reflected on the Closing Date Balance Sheet as accruals for the
Company's Profit Sharing Plan shall be contributed to the Profit
Sharing Plan of the Company.
8.10 Accounts Receivable. In the event that all amounts
reflected on the Closing Date Balance Sheet as accounts
receivable of the Company and Subsidiary (the "Accounts
Receivable") are not collected by Buyer in the ordinary course of
business within one hundred eighty (180) days after the Closing
Date, Buyer shall first apply the reserve for accounts receivable
shown on the Closing Date Balance Sheet (the "AR Reserve") to
offset the amount of any uncollected Accounts Receivable. In the
event that the AR Reserve is not adequate to offset the entire
amount of all uncollected Accounts Receivable, the amount by
which the Accounts Receivable exceeds the amount of the Accounts
Receivable collected by Buyer plus the AR Reserve shall be deemed
a "Loss" subject to the indemnification provisions of Article X
of this Agreement. In the event that the AR Reserve is adequate
to offset the entire amount of all uncollected Accounts
Receivable, then Buyer shall deposit any excess AR Reserve with
the Escrow Agent for the account of the Shareholders to be held
under the terms of the Escrow Agreement identified in Article III
hereof. Buyer shall use commercially reasonable efforts,
consistent with past practices, to collect the Accounts
Receivables.
Article IX
Termination
9.01 Termination. This Agreement may be terminated at any
time prior to Closing:
(a) by consent of each of the Shareholders and Buyer;
(b) by the Shareholders unanimously, or Buyer, if the
transactions contemplated hereby have not been consummated by
August 15, 1998; provided that neither the Shareholders nor
<PAGE>
41
Buyer will be entitled to terminate this Agreement pursuant to
this Section 9.01(b) if such party's willful breach of this
Agreement has prevented the consummation of the transaction
contemplated hereby;
(c) by the Shareholders unanimously, if there has been
a material misrepresentation, breach of warranty or breach of
covenant on the part of Buyer in the representations, warranties
or covenants set forth in this Agreement; or
(d) by Buyer, if there has been a material
misrepresentation, breach of warranties or breach of covenants on
the part of the Shareholders in the representations, warranties
or covenants set forth in this Agreement.
9.02 Effect of Termination. In the event of permitted
termination of this Agreement by either the Shareholders or Buyer
as provided in this Article IX, this Agreement shall terminate
and each party shall thereafter be free to pursue all legal
remedies against the other with respect to breaches hereof.
Notwithstanding the foregoing, the terms and provisions of
Sections 8.01, 8.05, 10.02, 10.03, 11.07, 11.09, 11.10, 11.11 and
11.12 of this Agreement shall survive any termination of this
Agreement.
Article X
Survival; Indemnification
10. 01 Survival of Representations and Warranties. All
representations, covenants and agreements in this Agreement shall
survive the execution and delivery of this Agreement and the
Closing for a period or 24 months; provided, however, that (a)
the representations in Sections 6.02, 6.04, 6.10, 6.15, 6.16 and
6.19, and (b) all of the covenants and agreements in (i) Articles
I, II and X and Sections 6.13, 8.01 and 8.02 of this Agreement
shall survive for the term of the applicable statute of
limitations.
10. 02 Indemnification of the Buyer and Company. Subject to
the provisions of Section 10.01, the Shareholders jointly and
severally, hereby agree to indemnify and hold Buyer, the Company
and their respective directors, officers and permitted assigns
harmless from and against any and all damages, losses, claims,
settlement payments, obligations, liabilities of any nature,
judgments, penalties, interest, encumbrances and reasonable costs
and expenses (including, without limitation, reasonable
attorneys' fees and disbursements) (individually, a "Loss";
collectively, "Losses") suffered, sustained, incurred or required
to be paid by Buyer due to or arising from: (a) the untruth,
inaccuracy or breach of any representation, warranty, covenant,
agreement, certificate, schedule or other instrument of
Shareholders or the Company contained in or made in connection
with this Agreement or any material omission from any
certificate, schedule or other instrument furnished or to be
furnished to Buyer by the Shareholders hereunder; (b) the failure
of the Company or Subsidiary to obtain authorization or
qualification as a foreign corporation in any jurisdiction prior
to the Closing Date; (c) the enforcement by Buyer of this Article
X, or (d) any Taxes due and payable by the Company or Subsidiary
with respect to, or which have accrued during, the period
(including all prior taxable years) ending on and including the
Closing Date, including without limitation Taxes arising from the
sale of the Facilities to the Shareholders not adequately
reserved for by the Company. For purposes of this Section 10.02
only, the representations and warranties contained in this
Agreement shall be deemed to exclude any statement therein that
such representation and warranty applies only for the time period
since January 1, 1980, January 1, 1987 or any other time period,
and any qualification as to materiality or knowledge, so that all
such representations and warranties shall be deemed to apply to
all time periods during the Company's and Subsidiary's existence
and shall not be qualified by reference to any time period, by
the Shareholders' knowledge or by materiality. Buyer may make a
claim at any time for any Loss which exceeds $20,000, provided
that there shall be no dollar limitation on Buyer making a claim
for any Loss arising out or related to Sections 2.03, 6.02, 6.03,
6.10, 6.19, 6.21 and 8.10 of this Agreement or arising out of or
related to the Escrow Agreement or Shareholders Non-Competition
Agreement executed in connection herewith ("Unlimited Losses").
Buyer may not make a claim for any Loss which is less than
$20,000, other than Unlimited Losses, unless and until the
aggregate of all Losses (including Unlimited Losses and any
Losses under the Asset Purchase Agreement) exceeds $75,000.00, at
which point the Buyer may make a claim for any and all prior and
subsequent Losses up to and in excess of $75,000, regardless of
the dollar amount of such Losses. The maximum amount that the
Shareholders jointly and severally will be required to pay under
this Agreement in respect of all claims for Losses other than
<PAGE>
42
Unlimited Losses under this Article X is the aggregate amount such
Shareholders collectively received under the terms and conditions of this
Agreement.
10. 03 Indemnification of Shareholders. Subject to the
provisions of Section 10.01, Buyer hereby agrees to indemnify and
hold Shareholders harmless against any and all Losses suffered,
sustained, incurred or required to be paid by Shareholders due
to, or arising from: (a) the untruth, inaccuracy or breach of
any representation, warranty, covenant, agreement, certificate,
schedule or other instrument of Buyer contained in or made in
connection with this Agreement; or (b) the enforcement by the
Shareholders of this Article X; or (c) the liabilities of the
Company or the Subsidiary accurately reflected on the Closing
Date Balance Sheet or incurred or attributable to the period
commencing with the Closing Date.
10. 04 Notice to Indemnifying Party. If the Shareholders or Buyer, as the case
may be, intends to make a claim for indemnification, or receives written notice
of any claim or the commencement of any action or proceeding against any of them
or against the Company, with or without formal service of process, such party
(or parties) ("Notifying Party") shall, if a claim for reimbursement with
respect thereto is to be made against a party (or parties) hereto obligated to
provide indemnification (the "Indemnifying Party") under Paragraphs 10.02 or
10.03 above, give the Indemnifying Party (or Parties) written notice of such
claim, action or proceeding ("Claim") within 20 days after the Notifying Party
becomes aware of the matter giving rise to such claim. The failure to timely
give such notice shall not affect the Indemnifying Party's liability hereunder
unless such failure has materially and adversely affected the Indemnifying
Party's ability to defend a Claim and in such case only to the extent so
affected.
10. 05 Set-Off. Notwithstanding anything to the contrary contained in this
Agreement or in any other document executed in connection herewith, Buyer shall
have the right of set-off for any Loss as follows. If, during the first twelve
(12) month period immediately following the Closing Date, the Buyer incurs
Losses under this Agreement and under the Asset Purchase Agreement in an
aggregate amount less than $300,000, then the Buyer shall be required to set off
such Losses and all future Losses under this Agreement and under the Asset
Purchase Agreement first against the Escrow Funds and then by action against the
Shareholders. However, if during such twelve (12) month period immediately
following the Closing Date, the Buyer incurs Losses under this Agreement and
under the Asset Purchase Agreement in an aggregate amount greater than $300,000,
then the Buyer shall have in its sole discretion the right, but not the
obligation to first set off such Losses and all future Losses under this
Agreement and under the Asset Purchase Agreement against the Escrow Funds or,
alternatively proceed directly against the Shareholders without first affecting
such offset. Buyer may, subject to the terms herein, upon written notice to the
Shareholders, set off any Loss against the Escrow Funds being held under the
Escrow Agreement pursuant to the provisions of the Escrow Agreement. In
addition, if any Additional Payments are due the Shareholders under the
Additional Payments Schedule, the Additional Payments in the amount equal to the
aggregate dollar amount of all Claims outstanding shall not be paid to the
Shareholders, but instead shall be deposited with the Escrow Agent and added to
the Escrow Funds to be held under the Escrow Agreement until such Claims are
resolved in accordance with this Agreement and the Escrow Agreement. There shall
be no limitation on the time in which Buyer elects to exercise its right of
set-off hereunder. Buye's delay in exercising or failure to exercise its right
of set-off for any Loss shall not serve as an election of remedies or otherwise
affect its right to exercise its right of set-off or any other remedies
available to it for such Loss or for any previous or future Loss.
10. 06 Compromise of Claims. (a) The Indemnifying Party shall have the right to
defend, at its own expense, any such Claim, provided that (i) the Indemnifying
Party agrees in writing to indemnify the Notifying Party for all Losses arising
from such Claim; (ii) the Indemnifying Party has a reasonable basis that such
defense may be successful; (iii) notice of the intention to defend is given by
the Indemnifying Party to the Notifying Party within 20 business days after
receipt by the Indemnifying Party of notice of the Claim (but, in all events, at
least five business days prior to the date that an answer to such Claim is due
to be filed) and (iv) the Indemnifying Party thereafter diligently contests and
defends such Claim. Such contest and defense shall be conducted by reputable
attorneys employed by the Indemnifying Party and approved by the Notifying
Party; provided, that the Notifying Party shall be entitled at any time, at its
own
<PAGE>
43
cost and expense (which expense shall not constitute a Loss unless the Notifying
Party reasonably determines that the Indemnifying Party is not adequately
representing it because of a conflict of interests or because it may not
adequately represent the interests of the Notifying Party, and only to the
extent that such expenses are reasonable), to participate in such contest and
defense and to be represented by attorneys of its or their own choosing. The
Notifying Party shall cooperate, at the cost and expense of the Indemnifying
Party, with the Indemnifying Party or its counsel in the defense against any
such Claim. Such cooperation shall include, but not be limited to, furnishing
the Indemnifying Party, with any books, records or information reasonably
requested by the Indemnifying Party. The Indemnifying Party shall promptly
provide or shall cause its counsel to provide the Notifying Party, upon request,
any information relating to the defense of any such Claim, and may not
compromise or settle any Claim without the prior written consent of the
Notifying Party. (b) If the Indemnifying Party elects not to defend any Claim,
then the Notifying Party shall defend such Claim with counsel of its choice and
at the sole cost and expense of the Indemnifying Party and the Indemnifying
Party shall be bound by any determination, judgement, order or settlement which
arises from such Claim. (c) Notwithstanding (a) above, the Notifying Party shall
be entitled to assume the defense of any Claim with counsel of its choice, at
the cost and expense of the Indemnifying Party, if the Notifying Party
reasonably concludes that the conduct of the defense by the Indemnifying Party
would be likely to prejudice the Notifying Party due to the nature of the claims
or counterclaims presented, or by virtue of any conflict of interest of the
Notifying Party and the Indemnifying Party. (d) The Indemnifying Party hereby
(i) consents to the non-exclusive jurisdiction of any court in which a Claim is
brought against the Notifying Party; and (ii) agrees that process may be served
in connection with such Claim anywhere in the world.
10.07 Subrogation. Upon payment in full of any Loss under this Article X,
whether such payment is effected by setoff or otherwise, or the payment of any
judgment or settlement with respect to a third party claim, the Indemnifying
Party shall be subrogated to the extent of such payment to the rights of the
Notifying Party against any person or entity with respect to the subject matter
of such Loss.
10.08 Insurance Proceeds; Tax Benefits. To the extent that with respect to any
Loss for which a Notifying Party receives payments hereunder from the
Indemnifying Party, the Notifying Party receives (a) proceeds from insurance
policies normally maintained by the Notifying Party covering the damage, loss,
liability or expense that is the subject of the claim for the Loss; and (b) an
actual realized tax benefit resulting from the damage, loss, liability or
expense that is the subject of the indemnity and of the indemnity payment
itself, then the Notifying Party shall reimburse the Indemnifying Party to the
extent of the dollar amounts received under Sections 10.08(a) or 10.08(b). For
purposes of this Section 10.08, an actual realized tax benefit is limited to an
actual quantifiable reduction in taxes payable or a refund of taxes previously
paid.
Article XI
Miscellaneous
11. 01 Entire Agreement. This Agreement and its Schedules and
Exhibits contain the entire agreement among the parties with
respect to the transactions contemplated by this Agreement and
supersede any prior agreement or understandings among the
parties.
11.02 Descriptive Headings: Certain Interpretations
(a) Descriptive headings are for convenience only and
shall not control or affect the meaning or construction of any
provision of this Agreement.
(b) Except as otherwise expressly provided in this
Agreement, the following rules of interpretation apply to this
Agreement:
(i)the singular includes the plural and the plural
includes the singular;
(ii) "or" is not exclusive and "include" and
"including" are not limiting;
(iii) a reference to any agreement or other
contract includes permitted supplements and amendments;
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44
(iv) a reference to a law includes any amendment
or modification to such law and any rules or regulations issued
thereunder;
(v)a reference to a person includes its permitted
successors and assigns;
(vi) a reference to generally accepted accounting
principles refers to United States generally accepted accounting
principles; and
(vii) a reference in this Agreement to an Article,
Section, Exhibit or Schedule is to the Article, Section, Exhibit
or Schedule of this Agreement.
(viii)No specific representation, warranty or
covenant contained herein shall limit the applicability of
a more general representation,
warranty or covenant.
(c) This Agreement has been negotiated by all of the
parties hereto and all parties have been represented by legal
counsel. There shall be no application of any rule of
construction against the drafting party regarding any ambiguities
in this Agreement.
11.03 Notices. All notices, requests and other
communications to any party hereunder shall be in writing and
sufficient if delivered personally, sent by federal express or
other reputable overnight mail courier, or by registered or
certified mail, postage prepaid, return receipt requested; or by
confirmed telecopy, addressed as follows:
if to Richard Maiocco, H. L. Maiocco or Linda McEntee, to:
Richard V. Maiocco
3200 Cougar Ridge
Springfield, Illinois 62707
H. L. Maiocco
1002 Eisenhower Avenue
Woodlyn, Pennsylvania 19094
Linda M. McEntee
601 University Place
Swarthmore, Pennsylvania 19081
with a copy to:
James J. McEntee, III,
Lamb, Windle & McErlane, P.C.
24 East Market Street
PO Box 565
West Chester, Pennsylvania 19381-0565
Fax # 610-430-7838
If to Buyer, to:
Karl D. Simonson, Vice President
Genesee Corporation
445 St. Paul Street
Rochester, New York 14605
Fax # 716-325-1964
with a copy to:
Mark W. Leunig, Vice President and General Counsel
Genesee Corporation
445 St. Paul Street
Rochester, New York 14605
Fax # 716-325-1964
or to such other address or telecopy number as the party to whom
notice is to be given may have furnished to the other party in
writing in accordance herewith. Each such notice, request or
communication shall be effective when received or, if given by
mail, when delivered at the address specified in this Section
11.03 or on the fifth business day following the date on which
such communication is posted, whichever occurs first. Failure to
give a copy of any notice shall not affect or diminish the
effectiveness of such notice.
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45
11.04 Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart hereof shall be
deemed to be an original instrument but all such counterparts
together shall constitute but one agreement.
11.05 Benefits of Agreement. All of the terms and
provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns. This
Agreement is for the sole benefit of the parties hereto and not
for the benefit of any third party.
11.06 Amendments and Waivers. No modification, amendment or
waiver of any provision of, or consent required by this
Agreement, nor any consent to any departure here from, shall be
effective unless it is in writing and signed by the parties
hereto. Such modification, amendment, waiver or consent shall be
effective only in the specific instance and for the purpose for
which given.
11.07 Assignment. This Agreement and the rights and
obligations hereunder shall not be assignable or transferable by
any party hereto without the prior written consent of the other
parties hereto; except that Buyer may assign all or part of its
rights and obligations hereunder to any subsidiary of Buyer. Any
purported assignment not permitted by this Section shall be void.
11.08 Severability. Whenever possible, each provision of
this Agreement will be interpreted in such a manner as to be
active and valid under applicable law. Such provision will be
ineffective only to the extent of any prohibition or invalidity,
without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
11.09 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York,
without regard to conflict of law principles. The parties further
agree that any legal proceedings arising from this Agreement
shall be brought exclusively in any state Court in Cook County in
the State of Illinois, or in the United States District Court
located in Chicago, Illinois. The parties hereby consent to the
jurisdiction of such courts in any proceeding arising out of or
related to this Agreement and waive any objection to the
jurisdiction of, or venue in such courts. Process in any action
or proceeding may be served on any party anywhere in the world.
11.10 Expenses. Buyer and the Shareholders shall each pay
its or his or her own attorneys', accountants' and other
consultants' fees and expenses in connection with the negotiation
and closing of this Agreement, the performance of its or his or
her obligations hereunder and the consummation of the
transactions contemplated by this Agreement.
11.11 Attorney Fees and Costs. In the case of the breach of
any provision of this Agreement, or any other agreement entered
into in connection herewith, by either party hereto, and the
enforcement of the breach of the Agreement (or such other
agreement) is accomplished by suit, arbitration proceedings or
through an attorney at law, whether suit or other proceedings be
brought or not, the party so breaching the Agreement (or such
other agreement) hereby agrees to pay to the other party
reasonable attorney fees, together with costs, charges and
expenses of collection and enforcement.
11.12 Remedies. The remedies of Buyer hereunder, at law or
in equity, shall be cumulative and shall not preclude the
assertion or exercise of any other rights or remedies available
at law, in equity or otherwise. The Shareholders shall be
jointly and severally liable for all obligations hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first set forth above.
/s/Richard V. Maiocco
RICHARD V. MAIOCCO
/s/Linda McCentee
LINDA MCENTEE
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46
/s/H. L. Maiocco
H. L. MAIOCCO
Genesee Corporation
By: /s/Karl D. Simonson
TKI Foods, Inc.,
signing only for purposes of Section
8.07
By: /s/Richard V. Maiocco
RICHARD V. MAIOCCO, President
TKI Foods International, Inc.,
signing only for purposes of Section
8.07
By: /s/Richard V. Maiocco
RICHARD V. MAIOCCO
<PAGE>
47
Exhibits and Schedules
Exhibit A TKI Foods, Inc. March 31, 1998 Balance Sheet
Exhibit B Escrow Agreement
Exhibit C Lease of Springfield Facility
Exhibit D Legal Opinion of Counsel to Shareholders and Company
Exhibit E Release From Shareholders
Exhibit F Shareholders Closing Certificate
Exhibit G Non-Competition Agreement
Exhibit H Legal Opinion of General Counsel to Buyer
Exhibit I Disclosure Schedule
Exhibit J Equipment List
Exhibit K Severance Letter
Exhibit L Assignment and Assumption of License Agreement
(Sheffield Enterprises)
Exhibit M Agreement with Dale Schempp
Schedule 1.02 Facilities Value
Schedule 2.02(a) Liabilities and Obligations
Schedule 2.02(b) Shareholder Proceeds
Schedule 2.02(c) Additional Payments Schedule
<PAGE>
48
Exhibit 2.2
Asset Purchase Agreement
This Asset Purchase Agreement (the "Agreement") is dated as of July 20,
1998 and is by and among Genesee Corporation, a New York corporation with its
principal place of business located at 445 St. Paul Street, Rochester, New York
14605 ("Buyer"), Spectrum Foods, Inc., a Louisiana corporation with its
principal place of business at 2881 Parkway Drive, Decatur, Illinois ("Seller")
and Richard V. Maiocco ("R. Maiocco"), Linda M. McEntee ("McEntee") and H. L.
Maiocco ("A. Maiocco") (hereinafter sometimes referred to individually as
"Shareholder" or collectively as the "Shareholders").
Recitals
WHEREAS, Seller desires to sell and Buyer desires to acquire certain of the
assets of Seller and assume certain of Seller's liabilities, and the
Shareholders wish to cause Seller to sell such assets to Buyer, all subject to
the terms and conditions set forth in this Agreement.
Now, therefore, in consideration of the promises and of the mutual
covenants and agreements contained herein, the parties hereto represent,
warrant, covenant and agree as follows:
Article 1
Purchase of Assets
1.01 Transfer of Assets to Buyer. On the terms and subject
to the conditions stated in this Agreement, at the Closing (as
hereinafter defined) Seller shall sell, transfer, convey and
deliver to Buyer all right, title, interest and ownership of the
following assets of Seller:
(a) Equipment and Machinery. The equipment, machinery
and other personal property identified in Schedule 1 attached
hereto and made a part hereof.
(b) Inventory. All raw materials, ingredients,
supplies, packaging materials, work in process and finished
goods relating to the Products (as defined in Subsection 1.01(d)
hereof) that are in Seller's inventory (the "Inventory").
(c) Books and Records. All of the books and records
of every kind maintained by or on behalf of Seller in connection
with Products (as defined herein), except the tax records, minute
book, corporate seal and stock records of Seller.
(d) Accounts Receivable. All accounts receivable of
Seller relating to the Products (the "Accounts Receivable").
(e) Product Formulations. All product formulations,
processes, ingredient formulations, product specifications and
packaging specifications used or useful in connection with the
products identified in Schedule 2 attached hereto and made a part
hereof (the "Products"), together with all associated ideas,
inventions and know-how.
(f) Customer List. Seller's customer list,
identifying all past, current and potential future purchasers of
the Products.
(g) Intellectual Property. All tradenames, trade
dress, logos, goodwill, trade secrets, patents, trademarks,
service marks and copyrights and applications therefor and
interests thereunder used or useful in connection with the
Products.
The assets identified in Subsections 1.01(a), (b), (c) and
(d) hereof are hereinafter referred to as the "Tangible Assets";
the assets identified in Subsections 1.01(e), (f) and (g) hereof
are hereinafter referred to as the "Intangible Assets"; and the
Tangible Assets and Intangible Assets are hereinafter
collectively referred to as the "Assets". The Assets shall be
sold and conveyed to Buyer free and clear of all liabilities,
obligations and encumbrances, except for those which are to be
assumed by Buyer as provided in Section 1.02 hereof.
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49
1.02 Liabilities of Seller Assumed by Buyer. At the Closing,
Buyer will assume only the following liabilities and obligations
(collectively, the "Assumed Liabilities"): (a) Trade payables
incurred by Seller in the ordinary course of business in
connection with the Products that are set forth on the March
Balance Sheet and are identified in Schedule 3 attached hereto
and made a part hereof; and (b) Trade payables incurred by Seller
from March 31, 1998 to the Closing Date in the ordinary course of
business of Seller in connection with the Products to the extent
set forth on the Closing Date Balance Sheet. Buyer will not
assume or have any responsibility or obligation with respect to
any other obligation or liability of the Seller of whatever kind
and nature, whether known of unknown, fixed or contingent, except
to the extent expressly set forth above.
1.03. Liabilities of Seller Specifically Not Assumed by
Buyer. Buyer shall not assume or be liable for, and Seller shall
retain all liabilities and obligations of Seller not specifically
assumed by Buyer pursuant to the provisions of Section 1.02
hereof.
Article 2
Purchase Price
2.01 Purchase Price.
(a) In consideration of Seller's performance of this
Agreement and the sale, transfer and delivery of the Assets to
Buyer, Buyer will pay to Seller the "March Net Asset Value" as
defined below, minus the amount of any "Net Asset Value
Deficiency"as defined below, or plus any "Net Asset Value
Surplus"as defined below (the "Purchase Price"). "March Net
Asset Value"shall mean $500,000, plus the value of the Inventory
and Accounts Receivable shown on Schedule 3 attached hereto and
made a part hereof, less the amount of the Accounts Payable shown
on Schedule 3. Schedule 3 attached hereto and made a part hereof
demonstrates how March Net Asset Value was calculated based on
the Seller's March 31, 1998 financial statements, a copy of which
are attached hereto and made a part hereof as Exhibit A
(collectively, the "March Balance Sheet") . Buyer and Seller
agree that, as defined herein and calculated in accordance with
Schedule 3, Net Asset Value shall be $623,737. "Net Asset Value
Surplus" and "Net Asset Value Deficiency", respectively, shall
mean the amount by which $500,000 plus the value of the Accounts
Receivable and Inventory shown on the Closing Date Balance Sheet
(as defined in Section 2.02(a)) , less the amount of the Accounts
Payable shown on the Closing Date Balance Sheet, exceeds or is
less than, as the case may be, the March Net Asset Value.
(b) At least three (3) business days before the
Closing Date, Seller shall prepare a projected balance sheet, at
its sole cost, showing a good-faith estimate of the Net Asset
Value as of the Closing Date ("Projected Balance Sheet"). At
such time as Seller determines the Projected Balance Sheet,
Seller shall also determine, as the case may be, the amount of
the projected Net Asset Value Surplus ("Projected Net Asset Value
Surplus") or the amount of the projected Net Asset Value
Deficiency ("Projected Net Asset Value Deficiency") based upon
the Projected Balance Sheet. Seller shall provide Buyer written
notice of such Projected Net Asset Value Surplus of Projected Net
Asset Value Defiency, as the case may be, which shall be subject
to Buyer's reasonable approval. Seller shall provide Buyer with
access to and copies of all workpapers used in preparing the
Projected Balance Sheet.
(c) On the Closing Date, Buyer shall pay to Seller the
March Net Asset Value of $623,737 plus an amount equal to the
Projected Net Asset Value Surplus or minus an amount equal to the
Projected Net Asset Value Deficiency, as the case may be, by wire
transfer of immediately available funds to an account designated
by Seller in writing to Buyer prior to the Closing Date. Buyer
shall withhold from the Purchase Price the amount of Seller's
taxes, if any, shown as due on the tax certificate to be
delivered by Seller pursuant to Section 4.01(i) below. Buyer
shall pay such withheld amount in accordance with the written
instructions of the appropriate tax authority.
2.02 Post Closing Adjustment. The amount paid by Buyer to
Seller on the Closing Date shall be adjusted in accordance with
this Section 2.02:
(a) Buyer has retained the services of
PricewaterhouseCoopers LLP ("PW") to conduct a review of the
Projected Balance Sheet as of the Closing Date, to be commenced
within 15
<PAGE>
50
days after Closing and completed, and a report thereon
delivered to Seller, within 75 days after Closing. All fees and
expenses of PW incurred in this capacity shall be billed to and
paid by Buyer. Based upon such review by PW, proposed changes to
the Projected Balance Sheet may be made by Buyer or the Projected
Balance Sheet may be accepted by Buyer (the Projected Balance
Sheet as modified or accepted, the "Closing Date Balance Sheet").
Seller and Buyer shall have, from the date of receipt of the
Closing Date Balance Sheet, twenty (20) days to object thereto,
which objection shall be in the form of a detailed statement to
the other party. Buyer and Seller shall cooperate with each
other, including providing each other with reasonable access to
all books and records of Seller as may reasonably be requested in
connection with the foregoing to resolve any differences in the
determination of the Closing Date Balance Sheet. In the event
that Buyer and Seller have not resolved their differences within
ten (10) days of notice from Seller or Buyer that it disagrees
with the determination of the Closing Date Balance Sheet, the
dispute shall be submitted to Grant Thornton LLP for resolution
in favor of either the Seller or the Buyer, and such resolution
shall be made within sixty (60) days and shall be conclusive,
binding and final. The fees and expenses of Grant Thornton LLP
shall be paid by the party against whom the accounting firm
decides.
(b) Seller will permit Buyer, its representatives and
PW to observe the physical count of the inventory which shall be
conducted by Seller prior to the Closing Date using prudent
auditing techniques to ensure the accuracy of the physical count
and the reconciliation. Seller shall make all of the workpapers
and other relevant documents in connection with the preparation
of the Projected Balance Sheet available to Buyer, its
representatives and PW, and shall make the persons in charge of
the preparation of the Projected Balance Sheet available for
reasonable inquiry by Buyer, its representatives and PW.
(c) If the Closing Date Balance Sheet discloses a Net
Asset Value Surplus or a Net Asset Value Deficiency, as the case
may be, in an amount different than the Projected Net Asset Value
Surplus or Projected Net Asset Value Deficiency, as the case may
be, then Seller and the Shareholders shall jointly and severally
promptly pay Buyer, or Buyer shall promptly pay Seller an amount
equal to such difference, together with interest accrued thereon
from the Closing Date to the date of payment at the rate of 7%
per annum in immediately available United States funds by wire
transfer to an account designated by the party receiving such
payment.
(d) The Projected Balance Sheet and Closing Date
Balance Sheet shall be prepared in accordance with generally
accepted accounting principles, consistently applied ("GAAP")
throughout the specified period and immediately comparable
period, and shall be prepared in a manner consistent with
Seller's past accounting practices in connection with the
preparation of financial statements of Seller.
2.03 Allocation of Purchase Price. The Purchase Price shall
be allocated to the Tangible Assets based on the fair market
value of the Tangible Assets on the Closing Date, and the parties
agree that $100,000 of the Purchase Price shall be allocated to
the Intangible Assets. The parties will file their respective
tax returns and otherwise report the transactions contemplated
herein consistent with such allocation.
Article 3
Closing
The closing of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of PricewaterhouseCoopers LLC in New York City
on August 3, 1998, or on such other date or at such other place as the parties
shall agree. The date on which the Closing occurs is referred to herein as the
"Closing Date", and the Closing shall be deemed effective as of July 31, 1998.
Article 4
Conditions to Closing
4.01 Conditions to Buyer's Obligations. The obligations of
Buyer to consummate the transactions contemplated by this
Agreement are subject to the satisfaction of the following
conditions on or before the Closing Date, unless waived in
writing by Buyer:
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51
(a) The representations and warranties set forth in
Article 5 will be true and correct in all material respects on
the Closing Date as though then made, except that where a
representation and warranty is already qualified as to
materiality, such representation and warranty shall be true and
correct in all respects on the Closing Date as though then made;
(b) The Seller shall have performed in all material
respects all covenants and agreements required to be performed by
the Seller under this Agreement prior to Closing;
(c) Buyer shall be satisfied with its On-Site Due
Diligence Investigation (as defined in Section 7.04 hereof).
(d) Seller shall have prepared the Projected Balance
Sheet and determined the Projected Net Asset Value Surplus or
Projected Net Asset Value Deficiency, as applicable, which
Projected Net Asset Value Surplus or Projected Net Asset Value
Deficiency shall have been approved by the Buyer in accordance
with Section 2.01(b) hereof.
(e) At or prior to the Closing, the Seller shall have
delivered to Buyer all of the following, in form and content
acceptable to the Buyer in its reasonable discretion which
deliveries shall not affect the representations and warranties
set forth in Article 5 below:
(i) Good Standing Certificates for Seller from
Louisiana and Illinois;
(ii) Legal Opinion from counsel to the Seller in
the form attached as Exhibit D to the Stock Purchase Agreement
identified in Section 4.03(b) hereof;
(iii)Closing Certificate from the Seller in the
form of Exhibit B attached hereto and made a part hereof;
(iv) Non-Competition Agreement in the form
attached as Exhibit G to the Stock Purchase Agreement identified
in Section 4.03(b) hereof;
(v) UCC, litigation, judgment, tax and bankruptcy
searches against the Seller in all jurisdictions requested by
Buyer on or before the date hereof;
(vi) Evidence of the Seller's due authorization of
this Agreement and the transactions contemplated hereby;
(vii)Bills of Sale, assignments and such other
documents as are necessary to convey to Buyer all of Seller's
right, title and interest in the Assets, free and clear of all
adverse claims, liens and encumbrances;
(viii) The Escrow Agreement as defined in
Section 9.05 hereof, duly executed by Seller and the
Shareholders; and
(ix) Original copies of the Assumed Contracts.
(f) The Seller shall have delivered to Buyer such
other certificates, documents and instruments (or complete and
accurate copies thereof where appropriate) as Buyer reasonably
requests to consummate the transactions contemplated hereby.
(g) There shall have been no material adverse change
in the business, prospects or condition, financial or otherwise,
of the Seller.
(h) All filings, consents and authorizations required
for the consummation of the transactions contemplated herein
shall have been made and received.
(i) A certificate issued by the Illinois Department of
Revenue pursuant to Section 902(d) of the Illinois Income Tax Act
and Section 5(j) of the Illinois Retailer's Occupation Tax Act,
certifying that no Taxes are due through and including the
Closing Date from Seller, or setting forth the amount of Taxes
that are due from Seller through and including the Closing Date
4.02 Conditions to the Seller's Obligations. The
obligations of the Seller to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of
the following conditions on or before the Closing Date, unless
waived in writing by the Seller:
(a) The representations and warranties of Buyer set
forth in Article 6 hereof will be true and correct in all
material respects at and as of the Closing Date as though then
made;
(b) Buyer will have performed in all material respects
all the covenants and agreements required to be performed by it
under this Agreement prior to the Closing;
(c) On the Closing Date, Buyer shall have delivered to
the Seller all of the following:
(i) Wire transfer to Seller of immediately
available funds in the amount of $623,737;
(ii) The Escrow Agreement duly executed by Buyer;
and
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52
(iii)Evidence of Buyer's due authorization of this
Agreement and the transactions contemplated hereby; and
(iv) Legal Opinion of general counsel to the Buyer
in the form attached as Exhibit H to the Stock Purchase Agreement
identified in Section 4.03(b) hereof.
4.03 Conditions to the Obligations of Buyer and the Seller.
The obligations of Buyer and the Seller to consummate the
transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions, unless waived by each
party thereto:
(a) No Prohibitions. No court, arbitrator or
governmental body, agency or official shall have issued any
order, and there shall not be any statute, rule or regulation,
restraining or prohibiting the consummation of the transactions
contemplated by this Agreement or materially affecting the Assets.
(b) TKI Foods, Inc. Buyer and Shareholders shall have
closed the purchase of all of the outstanding capital stock of
TKI Foods, Inc. pursuant to a Stock Purchase Agreement dated the
date hereof between Buyer and the Shareholders (the "Stock
Purchase Agreement").
Article 5
Representations and Warranties of Seller and the Shareholders
The Seller and the Shareholders hereby jointly and severally
represent and warrant to Buyer that:
5.01 Disclosure Schedule. The disclosure schedule marked as
the Seller Disclosure Schedule and attached hereto and made a
part hereof as Exhibit F (the "Disclosure Schedule") is divided
into sections which correspond to the subsections of this Article
5. The Disclosure Schedule, including copies of all documents,
agreements and instruments specifically referenced in and/or
attached to the Disclosure Schedule, is accurate and complete,
and does not contain any untrue statement of any fact or omit to
state any fact necessary to make the representations and
warranties contained in this Article 5 not misleading. The
representations and warranties of the Seller and the Shareholders
in this Article 5 shall not in any way be limited by Buyer's due
diligence investigation.
5.02 Organization and Corporate Power. The Seller is a
corporation duly organized, validly existing and in good standing
under the laws of the state of Louisiana, and is in good standing
and qualified in Illinois and has not failed to qualify in any
state or jurisdiction where the failure to so qualify would have
a material adverse effect on the business of Seller as it relates
to the Products. The Seller has all requisite corporate power and
authority and all authorizations, licenses, permits and
certifications necessary to carry on its business as it is now
being conducted and to own, lease and operate all of its assets,
including without limitation the Assets. Except as set forth in
the Disclosure Schedule, Seller has no subsidiaries, nor does it
own any equity interest in any other person or entity.
5.03 Execution, Delivery: Valid and Binding Agreement. The
Seller has the full right, power and authority to execute,
deliver and perform this Agreement and consummate the
transactions contemplated herein, and has duly authorized the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Seller and, assuming that this
Agreement is the valid and binding agreement of Buyer, this
Agreement constitutes the valid and binding obligation of the
Seller, enforceable in accordance with its terms. The execution,
delivery and performance of this Agreement and the transactions
contemplated herein will not violate or cause a breach or default
under the Seller's Certificate of Incorporation, By-Laws or other
charter documents, or any law, rule, regulation, order, decree,
license, permit, consent, agreement, mortgage or other
undertaking to which the Seller is bound or subject. No consent
or approval of any person or entity of any kind is required for
the execution, delivery or performance of this Agreement and the
transactions contemplated herein by the Seller, except for
filings and approvals required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Filing").
5.04 Title to Assets: No Liens or Encumbrances. The Seller
has, and upon consummation of the transactions contemplated
herein, will convey to Buyer, good and merchantable right, title
and
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53
interest in and to all of the Assets, free and clear of all
adverse claims, liens and encumbrances. There are no agreements
or options in effect for the purchase or lease of any of the
Assets by any person or entity other than Buyer. The Assets
constitute all of the assets and rights necessary to produce and
sell the Products.
5.05 Financial Statements. The Seller has delivered to
Buyer copies of the March Balance Sheet and will deliver to
Buyer: (a) internally prepared unaudited financial statements
for the Seller for the twelve month periods ending 6/30/95,
6/30/96 and 12/31/97, the six month period ending 12/31/96; (b)
combining audited financial statements for the Seller and TKI
Foods, Inc. for the twelve months ending 12/31/97; and (c) all
internally prepared audited and unaudited interim financial
statements normally prepared by the Seller from 12/31/97 through
the Closing Date, and (d) the Projected Balance Sheet (all such
financial statements referred to in this Section 5.05 are
hereinafter referred to as "Financial Statements"). Except as
disclosed therein or in the Disclosure Schedule, the Financial
Statements are true and correct and are in accordance with the
books and records of the Seller and are and shall be prepared in
accordance with GAAP, consistently applied throughout the
specified period and immediately comparable period, and shall be
prepared in a manner consistent with the Seller's past accounting
practices in connection with the preparation of financial
statements of the Seller. The Financial Statements fairly
present the financial position and results of operations of the
Seller at the dates stated therein and for the periods covered
thereby.
5.06 Absence of Undisclosed Liabilities. Seller has no
liability or obligation of any nature, asserted or unasserted,
accrued, absolute, contingent or otherwise that is not reflected
or fully reserved against in the March Balance Sheet, Projected
Balance Sheet or Closing Date Balance Sheet except for the
liabilities disclosed in the Disclosure Schedule.
5.07 Absence of Certain Developments. Since December 31,
1997, the business of the Seller has been conducted only in the
ordinary course and the Seller has not:
(a) mortgaged, pledged or subjected to any adverse
claim, lien, charge or any other encumbrance, any of the Assets;
(b) sold, assigned or transferred (including, without
limitation, transfers to any employees or affiliates) any of the
Assets, except the sale of inventory in the ordinary course of
business;
(c) disclosed any proprietary confidential
information relating to the Assets to any person other than Buyer;
(d) suffered any material adverse change in the
condition (financial or otherwise) of Seller's business, business
prospects or goodwill relating to the Assets;
(e) agreed, whether in writing or otherwise, to take
any action described in this subsection.
5.08 Condition of Assets. All of the Assets are in good
condition and working order, ordinary wear and tear excepted, and
are usable in the ordinary course of business. There are no
defects in the Assets which would adversely affect the value or
operation of such Assets.
5.09 Inventory. All of the Assets comprising inventory of
raw materials, ingredients, packaging materials, supplies, work
in process and finished products consist of items of a quality
and quantity usable and salable to existing customers of the
Seller in the ordinary course of business. As of the dates of
the March Balance Sheet, the Projected Balance Sheet and the
Closing Date Balance Sheet, and except as set forth in the
Disclosure Schedule under the caption referencing this Section
5.9, the value of all items of obsolete materials and of
materials of below standard quality had been written down in
accordance with GAAP. None of Seller's inventory is held on
consignment. Section 5.9 of the Disclosure Schedule sets forth
the location(s) of all of Seller's inventory.
5.10 Contracts and Commitments.
(a) There are no contracts, agreements, warrantees,
guaranties or commitments of any kind, whether oral or written,
by which the Assets are bound, or which are binding on or
affecting the Assets, which are currently in effect.
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54
(b) No customer or supplier of Seller has indicated to
Seller that it will stop or decrease the rate of business done
with the Seller.
5.11 Intellectual Property Rights. The Seller owns and has the sole right to use
the trademarks, tradenames, servicemarks, logos and other proprietary names and
designs, trade dress, trade secrets, customer lists, processes, formulas,
recipes, production techniques, specifications, inventions, know how, ideas and
patents actually used in connection with its business provided, however, that
certain customers of Seller have rights in certain processes, formulas and
recipes, all of which (including the rights of certain customers of Seller) are
included in the Intangible Assets (the "Intellectual Property Rights"), all of
which are described in the caption referencing this Section 5.11 in the
Disclosure Schedule. The registered trademarks, tradenames, service marks,
logos, other proprietary names and patents and copyrights included in the
Intellectual Property Rights were issued on the dates disclosed in writing to
Buyer by the Patent and Trademark Office of the United States Department of
Commerce and all documents required for maintenance of the registrations have
been filed with such Patent and Trademark Office. The use of the Intellectual
Property Rights for the conduct of the Seller's business relating to the Assets
as presently conducted do not and will not infringe or violate, nor has any
party alleged that they will infringe or violate, the rights of any person or
entity. Except as disclosed to Buyer in writing, the Seller does not use any
Intellectual Property Rights pursuant to any license agreement and has not
granted any person or entity any rights pursuant to a license agreement or
otherwise, to use the Intellectual Property Rights The Intellectual Property
Rights are sufficient for the Seller to conduct its business relating to the
Products as presently conducted. To the knowledge of Seller and the
Shareholders, no person or entity violates, or infringes any of the Intellectual
Property Rights. The Seller agrees at any time before or after the Closing Date
to execute and deliver, or use reasonable efforts to cause to be executed and
delivered, any documentation reasonably requested by Buyer to establish that all
Intellectual Property Rights are owned by or licensed to the Seller.
5.12 Litigation. There is no legal, administrative, arbitration or other
proceeding, suit, claim or action of any nature or, to the knowledge of Seller
or the Shareholders, any investigation, review or audit of any kind, or any
judgment, decree, decision, injunction, writ or order, pending, noticed,
scheduled or, to the knowledge of Seller or the Shareholders, threatened by or
against the Seller, which has an adverse effect on the Assets or which questions
or challenges the validity of this Agreement or any action taken or to be taken
by any party hereto pursuant to this Agreement or in connection with the
transactions contemplated herein. Seller has disclosed in writing to Buyer all
claims and complaints received by it in the past two (2) years relating to
product liability or alleged defects in the Products and any regulatory or
public agency investigations relating thereto.
5.13 Insurance. The Disclosure Schedule, under the caption referencing this
Section 5.13, lists and briefly describes each insurance policy maintained by
Seller relating to the Assets and sets forth the date of expiration of each such
insurance policy. All insurance policies relating to the Assets have been and
will until the Closing Date continue to be, maintained and will remain in full
force and effect until at least 30 days following the Closing Date. The Seller
is not in default with respect to its obligations under any such insurance
policies. All insurance policies maintained by the Seller relating to the
Assets, copies of which policies have been provided to Buyer, are to the
knowledge of Seller sufficient to adequately protect the Assets.
5.14 Compliance with Laws: Permits. Except as otherwise set forth in the
Disclosure Schedule under the caption referencing this Section 5.14:
(a) Since January 1, 1987, the Seller and its
officers, directors, agents and employees and the Assets have
complied in all respects with all applicable laws, regulations
and other requirements pertaining to the Seller's business,
including, but not limited to, federal, state, local and foreign
laws, ordinances, rules, regulations and other requirements
pertaining to product labeling, consumer products safety, equal
employment opportunity, employee retirement, continuation of
health insurance and other benefits, affirmative action and other
hiring practices, occupational safety and health, workers'
compensation, unemployment and building and zoning codes, and no
claims have been filed against the Seller or its officers,
directors, agents or employees alleging a violation of any such
laws, regulations or other requirements.
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(b) The Seller has, in full force and effect, all
licenses, permits and certificates, from federal, state, local
and foreign authorities (including, without limitation, the
federal and state agencies regulating occupational health and
safety) necessary to conduct its business relating to the Assets
and to own and operate the Assets (including without limitation
the Environmental Permits, as such term is defined in Section
5.15(b) hereof) (collectively, the "Permits"). A true, correct
and complete list of all the Permits, copies of which have
previously been delivered by Seller to Buyer, is set forth under
the caption referencing this Section 5.14 in the Disclosure
Schedule. The Seller has conducted its business in compliance
with all terms and conditions of the Permits and there are no
proceedings or investigations pending or, to the knowledge of
Seller or the Shareholders, threatened relating to any such
Permits.
5.15 Environmental Matters
(a) (i) "Environmental Law(s)" shall mean any and all
federal, state, local and foreign laws, statutes, codes,
ordinances, regulations, rules, policies, consent decrees,
judicial orders, administrative orders or other requirements
relating to the environment or to human health or safety
associated with the environment, all as amended or modified from
time to time. The Environmental Law includes, but is not limited
to, the following statutes and all rules and regulations relating
thereto, all as amended or modified from time to time:
The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), as amended by the
Superfund Amendments and Reauthorization Act of 1986 ("SARA") 42
U.S.C. 9601 et. seq.; the Resource Conservation and Recovery Act
of 1976 ("RCRA") as amended by the Hazardous and Solid Waste
Amendments of 1984, 42 U.S.C. 6901 et. seq.; the Federal Water
Pollution Control Act, 33 U.S.C. 1251 et. seq.; the Clean Water
Act 33 U.S.C. 1321 et seq; the Clean Air Act 42 U.S.C. 7401 et
seq; the Federal Insecticide, Fungicide and Rodenticide Act
("FIFRA") 7 U.S.C. 136 et seq; the Toxic Substances Control Act
("TSCA") 15 U.S.C. 2601 et seq. and the Illinois Environmental
Protection Act, 415 ILCS 5/1 et seq.
(ii) "Environmental Matters" means matters
relating to pollution, contamination, protection of the
environment (including, without limitation, matters relating to
releases or threatened releases of Hazard Substances into the
air, surface water, groundwater or soil or otherwise resulting
from the generation, manufacturing, treatment, storage, handling,
disposal or transportation of Hazard Substances).
(iii)"Hazardous Substance(s)" shall mean (A) any
substance, the presence of which requires investigation or
remediation under any Environmental Law or under common law; (B)
any dangerous, toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous substance which is regulated by any Environmental Law;
(C) any substance, the presence of which causes or threatens to
cause a nuisance upon any real property owned or occupied by
Seller ('Real Property') or adjacent properties or poses or
threatens to pose a hazard to the health or safety of persons on
or about any such real property; (D) any substance, the presence
of which on properties adjacent to the Real Property could
constitute a trespass by the Seller; and (E) urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), asbestos or
asbestos-containing materials, petroleum and petroleum products.
(b) (i) No third party claims or regulatory or
judicial actions, investigations or proceedings have been
asserted, brought or assessed against the Seller since January 1,
1980 and none are pending or, to the knowledge of Seller or the
Shareholders, threatened, arising out of or due to, any
Environmental Matters or other violations of Environmental Laws.
(ii) The Seller is in compliance with all
Environmental Laws. The Seller's storage, transportation,
handling, use or disposal, if any, of Hazardous Substances, if
any, of Hazardous Substances is currently, and at all times since
January 1, 1980 has been, in compliance with all applicable
Environmental Laws.
(iii)The operation of the Seller's business is
currently and at all times since January 1, 1980 has been, and,
to the best knowledge of the Seller, at all times during the
ownership and/or operation thereof by prior owners and/or users
have been, in compliance with all applicable Environmental Laws.
The Seller has, in full force and effect, all environmental
licenses, permits and certificates necessary to conduct its
business and own and operate its properties (collectively, the
"Environmental Permits"). The Seller has conducted its business
in compliance with all terms and conditions of the Environmental
Permits.
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(vi) There are no liens against the Assets arising
under any Environmental Law, or based upon a regulatory action or
third party claim.
5.16 Receivables. Except as otherwise disclosed in the
Disclosure Schedule under the caption referencing this Section
5.16:
(a) Seller has good right, title and interest in and
to all of its Accounts Receivable reflected in the March Balance
Sheet, Projected Balance Sheet and in the Closing Date Balance
Sheet;
(b) None of such Accounts Receivable is subject to any
mortgage, pledge, lien or security interest of any kind or
nature, other than those being terminated and released at Closing;
(c) All of the Accounts Receivable constitute valid
and enforceable claims arising from bona fide transactions in the
ordinary course of business, and there are no claims, refusals to
pay or other rights of set-off against any thereof; and
(d) All Accounts Receivable on the March Balance
Sheet, Projected Balance Sheet and the Closing Date Balance Sheet
will be fully collectible in the ordinary course of business
without offset or reduction, except to the extent of any
reserves established for such Accounts Receivable on such March
Balance Sheet, Projected Balance Sheet or Closing Date Balance
Sheet.
5.17 Brokerage. There are no claims for brokerage
commissions, finders fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Seller or
the Shareholders.
5.18 Disclosure. No representation or warranty by the
Seller or the Shareholders in this Agreement contains or will
contain any untrue statement of material fact or omits or will
omit to state any material fact necessary in order to make the
statements herein or therein not misleading as of the date of
such representation or warranty.
5.19 Illinois Alcohol Beverage Control Law. The Seller is
not governed by the Illinois Alcohol Beverage Control Law. The
Seller does not have any direct or indirect interest in any
person or entity which is governed by the Illinois Alcohol
Beverage Control Law.
5.20 Year 2000. The Seller has disclosed in writing to
Buyer a correct and complete list of all computer hardware and
software used by the Seller and a statement whether such hardware
and software is owned, leased or licensed and the details
relating thereto. Seller has undertaken Year 2000 compliance
with respect to computer hardware and software used by Seller as
set forth in the Disclosure Schedule under the caption
referencing this Section 5.20.
Article 6
Representations and Warranties of Buyer
Buyer hereby represents and warrants to Seller that:
6.01 Organization and Corporate Power. Buyer is a
corporation, duly organized and validly existing under the laws
of the state of New York, and has all requisite corporate power
and authority to enter into this Agreement and perform its
obligations hereunder.
6.02 Authorization. The execution, delivery and performance
of this Agreement by Buyer and the consummation of the
transactions contemplated hereby have been duly authorized by all
necessary action. Assuming that this Agreement is the valid and
binding agreement of Seller, this Agreement constitutes the valid
and binding obligation of Buyer, enforceable in accordance with
its terms.
6.03 No Violation. Buyer is not subject to any provision of
its Certificate of Incorporation or its Bylaws, any applicable
law, rule or regulation of any governmental authority, any
agreement or instrument, any license, franchise or permit, or any
order, writ, injunction or decree, which would be breached or
violated by Buyer's execution, delivery or performance of this
Agreement.
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57
6.04 Government Authorities; Consents. Buyer is not
required to submit any notice, report or other filing with any
governmental authority in connection with the execution or
delivery by it of this Agreement or the consummation of the
transactions contemplated hereby except for the HSR Filing.
6.05 Brokerage. There are no claims for brokerage
commissions, finders' fees, or similar compensation in connection
with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of Buyer, except
Buyer's agreement with Price Waterhouse, LLP.
Article 7
Additional Agreements
7.01 Confidentiality and Nondisclosure. Buyer and the
Seller and Shareholders agree to maintain confidentiality with
regard to the financial and other information concerning the
business affairs of the other parties to which they may become
privy as a result of this Agreement and the related transactions.
Such parties agree not to disclose the terms of this Agreement or
such financial or other information to persons other than their
attorneys, accountants and other advisors, either before or after
the Closing, except as may be requested by or consented to by the
other party or except as may be required in obtaining any
necessary governmental consents. This Section 7.01 shall not
apply to information that: (a) is or becomes generally available
to the public other than as a result of disclosure in violation
thereof; (b) must be disclosed pursuant to law or court order
following due notice to the other party; (c) was in the
possession of the party prior to its disclosure to the party; (d)
is or becomes available to the party from a source other than a
party and such source was not prohibited from making such
disclosure by any obligation of confidentiality to the other
party; or (e) is independently developed by the party without
reference to the disclosed information.
7.02 Further Assurances. Each of the parties hereto agrees
to use all commercially reasonable efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations, to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as practicable
and to insure the conditions set forth in Article 4 hereof are
satisfied, insofar as such matters are within the control of such
party. In case of any time after the Closing Date any further
action is necessary or desirable to carry out the purposes of
this Agreement or to ensure the proper assignment and delivery of
the Assets to Buyer, the Seller shall take or cause to be taken
all such necessary action including the execution and delivery of
such further instruments and documents, as may be reasonably
requested by Buyer to complete or perfect the transactions
contemplated hereby.
7.03 Certain Filings. The Seller and Buyer shall take all
reasonable action, including without limitation, filing documents
and notifications, necessary or appropriate to have the
transactions contemplated hereby approved or permitted by any
government or regulatory bodies, required to consummate the
transaction contemplated by this Agreement.
7.04 Access and Information. From the date of the
execution of this Agreement, the Seller shall permit
PricewaterhouseCoopers LLP, Buyer and its representatives to make
such investigation of the business, operations and properties of
the Seller as Buyer deems necessary or desirable in connection
with verifying the accuracy of the representations and warranties
made by Seller herein (the "On-Site Due Diligence
Investigation"). In addition, until the Closing Date, Seller
shall continue to permit Buyer to have reasonable but more
limited access to the operations and properties of Seller. Buyer
and its representatives shall coordinate such due diligence
requests through Seller's attorney, James J. McEntee, III, and
will be given complete access to all facilities and personnel of
Seller, and to all information regarding the Seller for the
purpose of conducting Buyer's investigation. Such due diligence
shall be at Buyer's expense. Without limiting the foregoing,
during such period, the Seller shall keep Buyer informed as to
the business and operations of the Seller.
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7.05 Public Announcement. The parties hereto agree to
consult with each other before issuing any press release or
making any public statement with respect to this Agreement or the
transactions contemplated hereby and will not issue any such
press release or make any such public statement prior to such
consultation. This Section 7.05 shall not prevent either party
from issuing any press release or making any public statement
which such party determines to be required by law or by any self
regulating securities organizations provided such party gives the
other party a copy of such press release or public statement
prior to its issuance.
7.06 No Negotiations with Others. Seller and the
Shareholders covenant and agree that from this date until Closing
or earlier termination of this Agreement, the Seller, its
officers, directors, employees and representatives, and the
Shareholders will not communicate with, negotiate with, or
provide any information to, anyone other than Buyer relating to
selling any part of Seller's business, assets or stock.
7.07 Conducting Business Pending Closing. The Seller
undertakes and guarantees that from the date hereof through the
Closing, the Seller will maintain its assets and properties and
carry on its business and operations as they relate to the Assets
only in the ordinary course in substantially the manner
previously operated and shall use reasonable efforts to preserve
intact its business organization and existing business
relationships as they relate to the Assets and will not:
(a) Mortgage, pledge or subject to any lien, charge or
any other encumbrance, any of the Assets;
(b) Sell, assign or transfer (including, without
limitation, transfers to any employees or affiliates) any of the
Assets, except the sale of inventory in the ordinary course, or
as consented to by Buyer in writing;
(c) Sell, assign or transfer (including, without,
limitation, transfers to any employees or affiliates) any of the
Intangible Assets, or disclose, other than in the ordinary course
of business, any Intangible Assets that constitute proprietary or
confidential information to any person other than Buyer;
(d) Voluntarily suffer any theft, damage, destruction
or loss of or to any of the Assets owned or used by it, whether
or not covered by insurance or voluntarily suffer any material
loss of customers, suppliers or other favorable business
relationships relating to the Assets;
(e) Voluntarily suffer any material adverse change in
the Assets or Seller's business, business prospects or goodwill
relating to the Assets;
(f) Change its method of accounting or any of its
accounting practices or principles;
(g) Amend or terminate any of the Assumed Contracts; or
(h) Agree, whether in writing or otherwise, to take
any action described in this subsection.
7.08 Bulk Sales Indemnity; Taxes.
(a) As an inducement to Buyer to waive compliance with
the provisions of any applicable bulk transfer laws, Seller and
Shareholders jointly and severally covenant and agree (i) that
all debts, obligations and liabilities of Seller not expressly
assumed hereunder by Buyer will be promptly paid and discharged
by Seller as and when they become due and payable; (ii) that
Seller shall duly and punctually pay in full any sales, real
property transfer or other taxes payable by Seller as a result of
the transactions contemplated by this Agreement; and (iii) to
indemnify and hold Buyer harmless from all claims made by
creditors with respect to Seller's non-compliance with any
applicable bulk transfer law and all claims related to any
alleged failure by Seller to pay such taxes.
(b) Buyer covenants and agrees that it shall duly and
punctually pay in full all sales, real property transfer or other
taxes, if any, payable by Buyer as a result of the transactions
contemplated by the Agreement.
7.09 Collection of Accounts Receivable. Buyer shall use
commercially reasonable efforts, consistent with past practice,
to collect the Accounts Receivable.
Article 8
Termination
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8.01 Termination. This Agreement may be terminated at any
time prior to Closing:
(a) By consent of each of the Seller and Buyer;
(b) By the Seller or Buyer, if the transactions
contemplated hereby have not been consummated by August 15, 1998;
provided that neither the Seller nor Buyer will be entitled to
terminate this Agreement pursuant to this Section 8.01(b) if such
party's breach of this Agreement has prevented the consummation
of the transaction contemplated hereby;
(c) By the Seller, if there has been a material
misrepresentation, breach of warranty or breach of covenant on
the part of Buyer in the representations, warranties or covenants
set forth in this Agreement; or
(d) By Buyer, if there has been a material
misrepresentation, breach of warranties or breach of covenants on
the part of the Seller in the representations, warranties or
covenants set forth in this Agreement.
8.02 Effect of Termination. In the event of permitted
termination of this Agreement by either the Seller or Buyer as
provided in this Article 8, this Agreement shall terminate and
each party shall thereafter be free to pursue all legal remedies
against the other with respect to breaches hereof.
Notwithstanding the foregoing, the terms and provisions of
Sections 7.01, 7.05, 9.02, 9.03, 10.07, 10.09, 10.10 and 10.11 of
this Agreement shall survive any termination of this Agreement.
Article 9
Survival; Indemnification
9. 01 Survival of Representations and Warranties. All
representations, covenants and agreements in this Agreement, the
Disclosure Schedule and the other Exhibits, Schedules and
documents executed in connection herewith shall survive the
execution and delivery of this Agreement and the Closing for a
period or 24 months; provided, however, that the representations
and warranties in Section 5.04 shall not expire and, further
provided that, (a) the representations and warranties in Sections
5.03. and 5.15, and (b) all of the covenants and agreements in
Articles 1, 2 and 9 and Sections 5.11, 7.01 and 7.02 of this
Agreement shall survive for the term of the applicable statute
of limitations.
9. 02 Indemnification of the Buyer. Subject to the
provisions of Section 9.01, the Seller and Shareholders jointly
and severally agree to indemnify and hold Buyer and its
directors, officers, shareholders and permitted assigns harmless
from and against any and all damages, losses, claims, settlement
payments, obligations, liabilities of any nature, judgments,
penalties, interest, encumbrances and reasonable costs and
expenses (including, without limitation, reasonable attorneys'
fees and disbursements) (individually, a "Loss"; collectively,
"Losses") suffered, sustained, incurred or required to be paid by
Buyer due to or arising from: (a) the untruth, inaccuracy or
breach of any representation, warranty, covenant, agreement,
certificate, schedule or other instrument of Seller contained in
or made in connection with this Agreement or any omission from
any certificate, schedule or other instrument furnished or to be
furnished to Buyer by the Seller hereunder; (b) the operation of
the Seller's business prior to, on or after the Closing Date; (c)
any liabilities of Seller not assumed by Buyer hereunder; (d) the
enforcement by Buyer of this Article 9; (e) any claim by any
federal, state or local government or agency regarding any taxes
due and payable by Seller with respect to, or which have accrued
during, the period (including all prior taxable years) ending on
and including the Closing Date; (f) any claims by or liabilities
with respect to any employee of Seller regarding his or her
employment or termination of employment with Seller (including
without limitation, liability for severance payments); or (g) all
federal, state and local taxes of any kind (whether sales, use,
transfer or other) required to be paid in connection with the
sale, transfer and assignment of the Assets (it being agreed that
such Taxes shall be the responsibility of Seller). For purposes
of this Section 9.02 only, the representations and warranties
contained in this Agreement shall be deemed to exclude any
statement therein that such representation and warranty applies
only for the time period since January 1, 1987, January 1, 1980
or any other time period and any qualification as to materiality
or knowledge, so that such representation and warranty shall be
deemed to apply to all time periods during the Company's and
Subsidiary's existence and shall not be qualified by
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60
reference to any time period, by the Shareholders' knowledge or by materiality.
Buyer may make a claim at any time for any Loss which exceeds $20,000, provided
that there shall be no dollar limitation on Buyer making a claim for any Loss
arising out of or related to Sections 2.02, 5.02, 5.04, 5.15, 5.17 or 7.08 of
this Agreement or arising out of or related to the Escrow Agreement or the
Non-Competition Agreement (collectively, "Unlimited Losses"). Buyer may not make
a claim for any Loss which is less than $20,000, other than Unlimited Losses,
unless and until the aggregate of all Losses under this Agreement (including
Unlimited Losses) and all Losses under the Stock Purchase Agreement exceed
$75,000.00; thereafter the Buyer may make a claim for any and all prior and
subsequent Losses up to and in excess of $75,000 regardless of the amount of
such Losses.
9.03 Indemnification of Seller. Subject to the provisions of Section 9.01, Buyer
hereby agrees to indemnify and hold Seller and the Shareholders harmless against
any and all Losses suffered, sustained, incurred or required to be paid by
Seller due to, or arising from: (a) the untruth, inaccuracy or breach of any
representation, warranty, covenant, agreement, certificate, schedule or other
instrument of Buyer contained in or made in connection with this Agreement; (b)
the enforcement by Seller or the Shareholders of this Article 9; or (c) the
Assumed Contracts or any liabilities specifically assumed by Buyer under Section
1.03 hereof.
9.04 Notice to Indemnifying Party. If Seller, the Shareholders or Buyer, as the
case may be, intends to make a claim for indemnification, or receives written
notice of any claim or the commencement of any action or proceeding against any
of them, with or without formal service of process, such party (or parties)
("Notifying Party") shall, if a claim for reimbursement with respect thereto is
to be made against a party (or parties) hereto obligated to provide
indemnification (the "Indemnifying Party") under Sections 9.02 or 9.03 above,
give the Indemnifying Party (or Parties) written notice of such claim, action or
proceeding ("Claim") within twenty (20) days after the Notifying Party becomes
aware of the matter giving rise to a Claim. The failure to timely give such
notice shall not affect the Indemnifying Party's liability hereunder unless such
failure has materially and adversely affected the Indemnifying Party's ability
to defend a Claim and in such case only to the extent so affected.
9.05 Escrow Agreement; Set-Off. Pursuant to the Stock Purchase Agreement, the
Buyer and Shareholders are required to execute an escrow agreement as security
for the Shareholder's indemnification obligations under such Stock Purchase
Agreement (the "Escrow Agreement"). The Buyer requires that Seller and the
Shareholders be a party to, and execute and deliver to Buyer, the Escrow
Agreement as security for the Seller's and Shareholders' indemnification
obligations under this Agreement. Notwithstanding anything to the contrary
contained in this Agreement or in any other document executed in connection
herewith, Buyer shall have the right of set-off for any Loss as follows. If,
during the first twelve (12) month period immediately following the Closing
Date, the Buyer incurs Losses under this Agreement and under the Stock Purchase
Agreement in an aggregate amount less than $300,000, then the Buyer shall be
required to set off such Losses and all future Losses under this Agreement and
under the Stock Purchase Agreement first against the Escrow Funds and then by
action against Seller and the Shareholders. However, if during such twelve (12)
month period immediately following the Closing Date, the Buyer incurs Losses
under this Agreement and under the Stock Purchase Agreement in an aggregate
amount greater than $300,000, then the Buyer shall have in its sole discretion
the right, but not the obligation to first set off such Losses and all future
Losses under this Agreement and under the Stock Purchase Agreement against the
Escrow Funds or, alternatively, proceed directly against Seller and the
Shareholders without first affecting such offset. Buyer may, subject to the
terms herein, upon written notice to the Seller and the Shareholders, set off
any Loss against the Escrow Funds, as defined in and being held under the Escrow
Agreement, pursuant to the provisions of the Escrow Agreement. There shall be no
limitation on the time in which Buyer elects to exercise its right of set-off
hereunder. Buyer's delay in exercising or failure to exercise its right of
set-off for any Loss shall not serve as an election of remedies or otherwise
affect its right to exercise its right of set-off or any other remedies
available to it for such Loss or for any previous or future Loss.
9.06 Compromise of Claims.
(a) The Indemnifying Party shall have the right to
defend, at its own expense, any such Claim, provided that (i) the
Indemnifying Party agrees in writing to indemnify the Notifying
Party for
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all Losses arising from such Claim; (ii) the Indemnifying Party
has a reasonable basis that such defense may be successful; (iii)
notice of the intention to defend is given by the Indemnifying
Party to the Notifying Party within 20 business days after
receipt by the Indemnifying Party of notice of the Claim (but, in
all events, at least five business days prior to the date that an
answer to such Claim is due to be filed) and (iv) the
Indemnifying Party thereafter diligently contests and defends
such Claim. Such contest and defense shall be conducted by
reputable attorneys employed by the Indemnifying Party and
approved by the Notifying Party; provided, that the Notifying
Party shall be entitled at any time, at its own cost and expense
(which expense shall not constitute a Loss unless the Notifying
Party reasonably determines that the Indemnifying Party is not
adequately representing it because of a conflict of interests or
because it may not adequately represent the interests of the
Notifying Party, and only to the extent that such expenses are
reasonable), to participate in such contest and defense and to be
represented by attorneys of its or their own choosing. The
Notifying Party shall cooperate, at the cost and expense of the
Indemnifying Party, with the Indemnifying Party or its counsel in
the defense against any such Claim. Such cooperation shall
include, but not be limited to, furnishing the Indemnifying
Party, with any books, records or information reasonably
requested by the Indemnifying Party. The Indemnifying Party shall
promptly provide or shall cause its counsel to provide the
Notifying Party, upon request, any information relating to the
defense of any such Claim, and may not compromise or settle any
Claim without the prior written consent of the Notifying Party.
(b) If the Indemnifying Party elects not to defend any
Claim, then the Notifying Party shall defend such Claim with
counsel of its choice and at the sole cost and expense of the
Indemnifying Party and the Indemnifying Party shall be bound by
any determination, judgement, order or settlement which arises
from such Claim.
(c) Notwithstanding (a) above, the Notifying Party
shall be entitled to assume the defense of any Claim with counsel
of its choice, at the cost and expense of the Indemnifying Party,
if the Notifying Party reasonably concludes that the conduct of
the defense by the Indemnifying Party would be likely to
prejudice the Notifying Party due to the nature of the claims or
counterclaims presented, or by virtue of any conflict of interest
of the Notifying Party and the Indemnifying Party.
(d) The Indemnifying Party hereby (i) consents to the
non-exclusive jurisdiction of any court in which a Claim is
brought against the Notifying Party; and (ii) agrees that process
may be served in connection with such Claim anywhere in the world.
9.07 Subrogation. Upon payment in full of any Loss under
this Article 9, whether such payment is effected by setoff or
otherwise, or the payment of any judgment or settlement with
respect to a third party claim, the Indemnifying Party shall be
subrogated to the extent of such payment to the rights of the
Notifying Party against any person or entity with respect to the
subject matter of such Loss.
9.08 Insurance Proceeds; Tax Benefits. To the extent that
with respect to any Loss for which a Notifying Party receives
payments hereunder from the Indemnifying Party, the Notifying
Party receives (a) proceeds from insurance policies normally
maintained by the Notifying Party covering the damage, loss,
liability or expense that is the subject of the claim for the
Loss, or (b) an actual realized tax benefit resulting from the
damage, loss, liability or expense that is the subject of the
indemnity and of the indemnity payment itself, then the Notifying
Party shall reimburse the Indemnifying Party to the extent of the
dollar amounts received under Sections 9.08(a) or 9.08(b). For
purposes of Section 9.08(b), an actual realized tax benefit is
limited to an actual quantifiable reduction in taxes payable or a
refund of taxes previously paid.
Article 10
Miscellaneous
10. 01Entire Agreement. This Agreement and its Schedules and
Exhibits contain the entire agreement among the parties with
respect to the transactions contemplated by this Agreement and
supersede any prior agreement or understandings among the
parties.
10.02 Descriptive Headings: Certain Interpretations
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(a) Descriptive headings are for convenience only and
shall not control or affect the meaning or construction of any
provision of this Agreement.
(b) Except as otherwise expressly provided in this
Agreement, the following rules of interpretation apply to this
Agreement:
(i) the singular includes the plural and the
plural includes the singular;
(ii) "or" is not exclusive and "include" and
"including" are not limiting;
(iii)a reference to any agreement or other
contract includes permitted supplements and amendments;
(iv) a reference to a law includes any amendment
or modification to such law and any rules or regulations issued
thereunder;
(v) a reference to a person includes its
permitted successors and assigns;
(vi) a reference to generally accepted accounting
principles refers to United States generally accepted accounting
principles; and
(vii)a reference in this Agreement to an Article,
Section, Exhibit or Schedule is to the Article, Section, Exhibit
or Schedule of this Agreement.
(viii) the presence of a specific
representation, warranty or covenant shall not be deemed to limit
the effect of a more general representation, warranty or covenant.
(c) This Agreement has been negotiated by all of the
parties hereto and all parties have been represented by legal
counsel. There shall be no application of any rule of
construction against the drafting party regarding any ambiguities
in this Agreement.
10.03 Notices. All notices, requests and other
communications to any party hereunder shall be in writing and
sufficient if delivered personally, sent by federal express or
other reputable overnight mail courier, or by registered or
certified mail, postage prepaid, return receipt requested; or by
confirmed
telecopy, addressed as follows:
If to Seller, to:
Richard V. Maiocco, President
Spectrum Foods, Inc.
2881 Parkway Drive
Decatur, Illinois 62526
Fax #_________________
with a copy to:
James J. McEntee, III,
Lamb, Windle & McErlane, P.C.
24 East Market Street
PO Box 565
West Chester, Pennsylvania 19381-0565
Fax # 610-430-7838
If to Shareholders, to:
Richard V. Maiocco
3200 Cougar Ridge
Springfield, Illinois 62707
Fax #_________________
H. L. Maiocco
1002 Eisenhower Avenue
Woodlyn, Pennsylvania 19094
Fax #_________________
Linda M. McEntee
601 University Place
Swarthmore, Pennsylvania 19081
Fax #_________________
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63
with a copy to:
James J. McEntee, III,
Lamb, Windle & McErlane, P.C.
24 East Market Street
PO Box 565
West Chester, Pennsylvania 19381-0565
Fax # 610-430-7838
If to Buyer, to:
Karl D. Simonson, Vice President
Genesee Corporation
445 St. Paul Street
Rochester, New York 14605
Fax # 716-325-1964
with a copy to:
Mark W. Leunig, Vice President and General Counsel
Genesee Corporation
445 St. Paul Street
Rochester, New York 14605
Fax # 716-325-1964
or to such other address or telecopy number as the party to whom
notice is to be given may have furnished to the other party in
writing in accordance herewith. Each such notice, request or
communication shall be effective when received or, if given by
mail, when delivered at the address specified in this Section
10.03 or on the fifth business day following the date on which
such communication is posted, whichever occurs first. Failure to
give a copy of any notice shall not affect or diminish the
effectiveness of such notice.
10.04 Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart hereof shall be
deemed to be an original instrument but all such counterparts
together shall constitute but one agreement.
10.05 Benefits of Agreement. All of the terms and provisions
of this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and
permitted assigns. This Agreement is for the sole benefit of the
parties hereto and not for the benefit of any third party.
10.06 Amendments and Waivers. No modification, amendment or
waiver of any provision of, or consent required by this
Agreement, nor any consent to any departure here from, shall be
effective unless it is in writing and signed by the parties
hereto. Such modification, amendment, waiver or consent shall be
effective only in the specific instance and for the purpose for
which given.
10.07 Assignment. This Agreement and the rights and
obligations hereunder shall not be assignable or transferable by
any party hereto without the prior written consent of the other
parties hereto; except that Buyer may assign all or part of its
rights and obligations hereunder to any subsidiary of Buyer. Any
purported assignment not permitted by this Section 10.07 shall be
void.
10.08 Severability. Whenever possible, each provision of
this Agreement will be interpreted in such a manner as to be
active and valid under applicable law. Such provision will be
ineffective only to the extent of any prohibition or invalidity,
without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
10.09 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York,
without regard to conflict of law principles. The parties further
agree that any legal proceedings arising from this Agreement
shall be brought exclusively in any state Court in
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64
Cook County in the State of Illinois, or in the United States
District Court located in Chicago, Illinois. The Shareholders
hereby consent to the jurisdiction of such courts in any
proceeding arising out of or related to this Agreement and waives
any objection to venue laid therein. Process in any action or
proceeding may be served on any party anywhere in the world.
10.10 Expenses. Buyer and the Seller shall each pay its or
his or her own attorneys', accountants' and other consultants'
fees and expenses in connection with the negotiation and closing
of this Agreement, the performance of its or his or her
obligations hereunder and the consummation of the transactions
contemplated by this Agreement.
10.11 Attorney Fees and Costs. In the case of the breach of
any provision of this Agreement, or any other agreement entered
into in connection herewith, by either party hereto, and the
enforcement of the breach of the Agreement (or such other
agreement) is accomplished by suit, arbitration proceedings or
through an attorney at law, whether suit or other proceedings be
brought or not, the party so breaching the Agreement (or such
other agreement) hereby agrees to pay to the other party
reasonable attorney fees, together with costs, charges and
expenses of collection and enforcement.
10.12 Remedies. The remedies of Buyer hereunder, at law or
in equity, shall be cumulative and shall not preclude the
assertion or exercise of any other rights or remedies available
at law, in equity or otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first set forth above.
Spectrum Foods, Inc.
By: /s/Richard V. Maiocco
Richard V. Maiocco, President
/s/Richard V. Maiocco
Richard V. Maiocco
/s/Linda McEntee
Linda McEntee
/s/H. L. Maiocco
H. L. Maiocco
Genesee Corporation
By: /s/Karl D. Simonson
Karl D. Simonson, Vice President -
Planning and Development
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65
Exhibits
Exhibit A March Balance Sheet
Exhibit B Seller's Closing Certificate
Exhibit C Disclosure Schedule
Schedules
Schedule 1 Equipment
Schedule 2 Products
Schedule 3 Net Asset Value
